The email address in "Contact AK: Ads and more" above will vanish from November 2018.

FAKE ASSI AK71 IN HWZ.

Featured blog.

1M50 CPF millionaire in 2021!

Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...

Past blog posts now load week by week. The old style created a problem for some as the system would load 50 blog posts each time. Hope the new style is better. Search archives in box below.

Archives

"E-book" by AK

Second "e-book".

Another free "e-book".

4th free "e-book".

Pageviews since Dec'09

Financially free and Facebook free!

Recent Comments

ASSI's Guest bloggers

Showing posts with label investment. Show all posts
Showing posts with label investment. Show all posts

SRS portfolio in 2024. What did I do?

Tuesday, February 20, 2024

SRS was a topic I used to blog about pretty often.

I have not been blogging about it as much since I have not been making contributions in recent years.

Reason is because I no longer pay income tax.

See:
Income Tax payable?

If we are still paying income tax, contributing to our SRS account makes sense to enjoy some tax relief.

Of course, we want to put our SRS money to work or we would get a very miserable interest rate.

For many years, I used the SRS money to buy plain vanilla endowment policies.

They were savings plan with some insurance thrown in.

In fact, I still have one or two of those with NTUC Income using SRS money.

In recent months, I also used the money to buy T-bills with yields being so much higher than a couple of years ago.

Dividends paid by my investments in stocks using SRS money are used for this purpose.




Yes, I also use SRS money to buy stocks of businesses which I think make good investments for income.

I have blogged about this before and shared what kind of stocks I would buy with SRS money.

Basically, the businesses must be good income generators with strong balance sheets; nothing which is likely to do rights issues.

The very practical reason is because we must have the excess funds in our SRS account to take part in rights issues.

This can be difficult to ensure.

I shared my SRS portfolio of stocks before but that is outdated by now.

See:
Win and win again with SRS.

I had SATS in the portfolio.

Of course, regular readers would know that I sold it shortly after it announced the decision to buy WFS.

SATS just didn't have sufficient resources to do what they suggested.

They had to raise funds from shareholders.

It was something unexpected.

So, I took the opportunity to sell when there was a bounce in the stock price.

In place of SATS, there are ComfortDelgro and OCBC in my SRS investment portfolio now.

This is what the portfolio looks like now:






Based on the purchase prices, it is not difficult to guess that DBS and ST Engineering have been in the portfolio for some time now.

So, like what I did?

Paid less income tax and put the money to work to generate more tax free passive income?

We can certainly win and win again with SRS.

If AK can do it, so can you!

Reference:
How AK used his SRS money?


Added to position in DBS. T-bill 3.8% p.a. cut-off yield.

Friday, November 24, 2023

Just a quick update on what I have done in recent days to my investment portfolio.

For anyone who is following me on YouTube, it is no secret that I have been looking to add to my investment in DBS.

I identified the immediate support to be at $32.00, and if that should break, then, $31.80 would be next.

I added to my position at closer to $31.80 a share but it is just a nibble.

I see longer term support for DBS at between $30.00 to $30.50 a share.

So, that is where I would like to buy more.

DBS continues to impress me with its much higher ROE of 18% to 20% when compared to UOB and OCBC which have ROE of around 14%.

So, I feel that this justifies DBS trading at a higher price to book.

There is also the fact that DBS pays dividends quarterly and as a retiree who lives off his passive income, this is also attractive to me.




Next topic is T-bills.

The auction happened yesterday and the cut-off yield was 3.8% p.a.

I estimated it to be 3.88% p.a. but 3.8% p.a. is good enough to make me happy.

What also makes me happy is that non-competitive bids were fully allotted.

T-bill ladder is intact!

Next auction is happening on 7 December.

So, nothing earth shattering happened, really.

Just sticking to my plan.

Always have a plan, your own plan.

If AK can do it, so can you!

How to transfer from CPF-IA to CPF-OA? Must buy T-bill?

Monday, September 11, 2023

In my last blog post, I made a passing mention about a 6 month T-bill which I bought using money in my CPF-OA maturing in the same week.

I made a request to transfer the money back to my CPF-OA when I saw the funds sitting in my CPF-IA a day later.

It was all rather easy with DBS online banking.

I simply logged in and went to the "Invest" tab and selected "More investment services."

Then, I chose "Refund to CPF Board."

Clicked on "Refund Full Amount", and it was basically done after clicking "Next" and "Submit."




Today, I checked my CPF account and found that the funds are back in my CPF-OA.

Now, I am wondering whether I should buy another 6 months T-bill with the money.

To be quite honest, I am not as enthusiastic as before because the cut-off yield has reduced so much since the start of the year for 6 months T-bills.

In January, it was as high as 4.2% p.a.

The T-bill that matured last week had a cut-off yield of 3.93% p.a.

I am hazarding a guess that the cut-off yield for this week's auction is probably going to be around 3.7% p.a. or similar to what we got in the last auction.

For a sum of $50,000, we are looking at an additional interest income of less than $200 compared to what the CPF-OA would pay for a 7 months period.

Nothing to write home about.




Anyway, with CPF-OA money, I will not go the path of non-competitive bids just in case the unthinkable happens.

I will put in a competitive bid of 3.5% p.a. because I don't think I am interested in anything lower than that.

If the cut-off yield should come in at 3.5% p.a., the difference in interest income is going to be less than $120.

The cut-off yields for 6 months T-bills are declining but the CPF-OA still pays 2.5% p.a.

So, the difference is shrinking and it is really not a big deal.




There is quite a bit of talk in social media that we should all use our CPF-OA money to buy T-bills.

To be honest, unless the sum of money is relatively large, it isn't anything to worry about.

If we do not have a large amount of money sitting in our CPF-OA, we really are not missing out on any meaningful passive income.

I think some people would say don't sweat the small stuff.

Of course, I am just talking to myself.

If AK can talk to himself, so can you!

High yields to stay? T-bills paid 3.73% to 4.2% p.a. so far.

Tuesday, August 29, 2023

The next 6 months T-bill's auction is happening this Thursday.

So, if we are building or maintaining a T-bill ladder, don't forget to put in a bid.

I will be putting in a non-competitive bid again.

No reason to agonize over how much to bid for in a competitive bid when chances are any cut-off yield is likely to be higher than offers from the banks for a 6 months fixed deposit for now.

I just produced a video on a 3.6% per annum offer for a fixed deposit but that is for a 9 months tenure.

This is the link to the video for readers who do not follow me on YouTube:

Locking in 3.6% per annum for the next 9 months.





Cut-off yields for 6 months T-bill so far have stayed above 3.7% per annum.

However, it seems to be declining.

In January, we saw a 4.2% cut-off yield.

This month, we saw 3.73% which was the lowest cut-off yield this year.

Like I said in a podcast, interest rates are higher now but they are unlikely to stay high forever.

As investors for income, I did not get to where I am by relying on fixed income to grow my wealth.

However, I am not going to reject relatively attractive risk free and volatility free returns while they stick around.

If AK can do it, so can you!

How to get $200K dividends yearly? Simpler than you think.

Friday, August 25, 2023

The sequel to the podcast I did with The Fifth Person last month is here.

I just watched it and I thought it would be good to tie up a few loose ends.

If viewers should spend some time ruminating on what I said in the follow-up podcast, they would not need to read this blog post.

So, this blog post is more for my benefit since I have a need to talk to myself all the time.

AK is mental.




1. My response to a viewer who said most regular folks would have to speculate in order to generate sufficient capital to get a $200K dividend annually from investments.

There is no need to speculate although we could certainly do it and in the podcast I shared my view on that.

There are other ways to make more money and regular readers know I did some trading and I also had side hustles to make more money.

I also blogged about how we should not wait until we have a larger amount of money before we start investing for income.

Dividends made in the early days, no matter how small, would grow our wealth, and could be used to invest for even more income.




2. Possible to make $200K dividends annually with $2M and how to get $2M in capital?

In the podcast, I said that my capital wasn't $10M, $5M, $4M or $3M.

It could have been closer to $2M.

And that is giving me $200K in yearly dividends now?

How is that possible?

Elementary, my dear Watson.

A lot of what I bought was bought during crises, when Mr. Market was suffering from severe depression.

By now, my experience with AIMS APAC REIT should be quite well-known.

It is one of my largest investments and probably my oldest one.

It generates a distribution yield of more than 10% on cost for me, year after year.

As I got into it in a big way during the Global Financial Crisis, it is a major contributor to my yearly passive income. 

Of course, my investment has been free of cost for many years too.

I have recovered my capital and I am still receiving income from my investment.

So, of the $200K in dividends received last year, a big chunk of it was actually free money.

It is money generated from nothing.

How did this happen?

Time happened.




It is possible to get higher dividend yields during crises if we invest in the right businesses that would survive the crises.

Of course, we could choose to sell these investments if their stock prices should recover later on.

I used the examples of Lippo Mall Trust and First REIT in the podcast.

Regular readers of my blog would know there were others like Saizen REIT, Croesus Retail Trust and Accordia Golf Trust as well.

Selling for significant capital gains grew my wealth.

It gave me more capital to invest with.

We could also choose to sell a portion of our investments like what I did with Old Chang Kee and Hock Lian Seng.

I sold half of my investments in them when their share prices doubled.

So, whatever I am still holding now is free of cost.

And they are still paying me dividends, year after year.

More free money.

This brings me back to the earlier point on speculation.

Why is there a need to speculate in order to grow wealth?




Simply wait for the next opportunity to make significant investments for income like what I did during the Global Financial Crisis.

Invest in good businesses which are able and willing to pay us.

That opportunity came in the form of the COVID-19 pandemic not too long ago.

Of course, regular readers would know that I emptied my war chest during the pandemic and got into UOB at $19 a share.

That is one of my largest investments today.

It is rewarding me with a dividend yield of almost 9% per annum now.

I also talked about how I started buying into DBS at $13 and $14 a share back in 2016.

At $13 a share, the dividend yield is almost 15% per annum today.

Now, coupled with free money I get from AIMS APAC REIT and some other stocks, do you see why I say the capital deployed isn't as much as what some people say it is?




What I have done over the years isn't simply putting some of my monthly salary in fixed income instruments unless we count the CPF.

If that was my method, then, yes, to generate $200K yearly in dividends now, I would need around $4 million in capital today.

I agree this would be insurmountable for most regular folks.

So, I remind myself of what I did over the years and how I made what seemed impossible happen.

This might be a lot for some people to take in.

There is also the fact that my skill as a wordsmith has regressed in recent years.

So, maybe, read this blog post a few times.

Ruminate on it.

I know I had to.

AK is talking to AK here, after all.

Please don't let people tell us what AK has achieved is not possible for regular folks because the capital required is enormous.

It is simply not true.

This blog post is the truth.

Go share this with people you care about and tell them this.

AK is a regular folk too.

If AK can do it, so can you!

68% expects downturn! CPF POFMA! Distressed REITs!

Tuesday, August 22, 2023

I have three things to say.


Since I am lazy, might as well put them all in one blog post.

1. Two thirds of Singaporean consumers expect an economic downturn.

There is plenty that is not well in the world and this is probably not unexpected.

However, if we end up just feeling worried about how life could get tougher, then, that is a waste of energy.

I would shore up my cash position even more aggressively.

Make sure I have an adequate emergency fund.

Fill up my war chest and be prepared to buy from Mr. Market when he feels depressed.

I have blogged about such topics many times before and many blog posts are consolidated in this one blog post:





2. Fake news on CPF!

A Tik Toker has been spreading fake news about the Singapore election system and the CPF system.

POFMA has been served to him twice.

Yet, he is stubbornly sticking to his views.

If he is looking for fame, this isn't the way not only because he harms himself and possibly his family.

He is also harming ignorant Singaporeans who watch his clips and believe what he says.

I like to help people but some people are beyond help.

Like what I said before in this blog post:








3. I made a lot of money buying distressed REITs before.

I recently published a new video on how Manulife US REIT could possibly be an opportunity to make a lot of money.

It reminds me of the time when I bought Saizen REIT and AIMS APAC REIT when they were in distress donkey years ago.

If you are not subscribed to my YouTube channel, here is the link to the video.


Be prudent, patient and pragmatic!

If AK can do it, so can you!

AK sold SATS and Centurion? More T-bills for AK?

Thursday, August 17, 2023

For readers who do not follow my YouTube channel, I produced a new video yesterday.

It was a video about investing for income.

I covered a few things in the video like what to focus on when investing for income?

I also gave a brief explanation on why I sold my investment in SATS and Centurion Corp.

You might want to subscribe to my YouTube channel for free and timely notifications.

This is the link to the said YouTube video, produced and voiced by AK himself. 

AK's YouTube video:

Do you want PASSIVE INCOME?







Another 6 months T-bill auction closed today.

Cut-off yield is 3.73% p.a.

Can't complain.

This is much higher than what DBS, OCBC and UOB are offering for their 6 months fixed deposits.

I increased the quantum in my non-competitive bid and I am pleased to get 100% of my application filled.

Getting some income from risk free and volatility free fixed income investments isn't a bad idea.

This is especially when interest rates have become much more interesting in the last year and a little more.

I am sticking to my plan to stay invested in income producing businesses while also strengthening my income producing T-bill ladder.

This way, I continue to get paid even as I wait for Mr. Market to go into another depression.

AK cannot predict when Mr. Market might go into another depression.

However, AK can certainly prepare for it, and fill up his war chest in the meantime.

If AK can do it, so can you!

UOB: Interim dividend 85c per share! Huat ah!

Thursday, July 27, 2023

During "Evening with AK and friends 2023", I said that UOB would continue to grow its earnings very strongly. 

This is thanks in a large part to its acquisition of Citibank's consumer business in 4 South East Asian countries.

UOB has delivered and in terms of dividends, it has exceeded my expectation.

85 cents interim dividend per share has been declared.

Huat ah!

Source: UOB.





Although I only started investing in UOB during the COVID-19 pandemic, it grew into one of my largest investments within a few weeks.

"When it's raining gold, reach for a bucket, not a thimble."

Warren Buffett said this, not me.

Since then, I have been adding to my investment in UOB, most notably when the price of its common stock languished at around $26 a share for a while last year.

This enlarged investment in UOB is going to bring home a larger portion of bacon.

I remind myself that UOB retains 50% of its earnings which means that it is growing more valuable over time.

If the constant buying back of shares by UOB is anything to go by, this is probably going to be the case for some time to come.

Investing in UOB is not just investing for income, it is also investing for growth.

We can have our cake and eat it too.

If AK can do it, so can you!

Related post:
Banks: Even higher dividends?

From MUST to DC REIT to MINT, signs that US commercial real estate is in trouble. ARA Hospitality Trust to be spared?

Thursday, June 8, 2023

This is the transcript of a YouTube video I produced recently.
-----------------------

During "Evening with AK and friends 2023", someone came up to me and asked what I thought of US Hospitality REITs listed in Singapore.

He asked that question since I kept reminding myself to stay away from US commercial real estate REITs, and in particular the US office REITs.

Of course, now we know what just happened to Digital Core real estate investment trust, a data center Trust listed in Singapore.

They lost their second largest customer which contributed 23% to their total rental income.

That customer was also Mapletree Industrial Trust's third largest customer.

So, Mapletree Industrial Trust would be taking a hit too although not as badly as in the case of Digital Core real estate investment trust.

Mapletree Industrial Trust announced that their 3rd largest tenant by gross rental income has initiated bankruptcy proceedings in the US Court.

The data center tenant is a global co-location provider and accounted for 3.2% of Mapletree Industrial Trust's gross rental income.

Quick to follow, we saw Manulife US REIT's fifth-largest tenant by gross rental income exercised an early termination of its lease.

This was for 500 Plaza Drive, also known as Plaza, in New Jersey USA.

Wait, there is more.



This is in the news today.

Park Hotels and Resorts, a real estate investment trust in the USA, has made the "difficult, but necessary" decision to stop payments on its $725 million commercial mortgage-backed security loan secured by two of its San Francisco hotels.

They are Hilton San Francisco Union Square and the Parc 55 San Francisco.

They are giving up on these hotels and would see them removed forcibly from their portfolio of hotels.

The problem has partly to do with overly optimistic valuations during the years of ultra-low interest rates.

The two downtown San Francisco hotels were valued at a combined $1.56 billion in an appraisal at the time of the loan underwriting in 2016!

This means the current Loan to Value, if the valuation is still valid, is around 46%.

Think of it as a gearing level of 46% for a REIT.

That does not sound excessive, but it seems like it is. ;p



It is very likely that the valuations of those two hotels could have seen a decline, which would bump up the Loan to Value number, of course.

We would not be wrong to question if the valuations of assets held by ARA US Hospitality Trust are still realistic today, compared to what they were pre-pandemic.

Of course, this is but one question to ask.

ARA US Hospitality Trust has seen its gearing ratio increased and is relatively high at about 41%.

This is even as its proportion of debt which have fixed interest rates declined significantly from 82% to 73%.

With weighted average debt maturity at only 1.3 years, the Trust is going to face the challenge of refinancing in an environment of not only higher interest rates, but also tighter credit conditions.

Why is this important to note?

Well, the question sometimes is not how much the loan would cost, but whether we could even get a loan?



Shoes are dropping.

More shoes are going to drop.

And it feels like it is raining shoes in the US commercial real estate sector.

Now, apparently, the next shoe to drop could be US Hospitality REITs.

To be sure, I am not talking about excessive financial engineering or possible fraud here, which seemed to be the case for Eagle Hospitality Trust, another US hospitality Trust which was listed in Singapore.

I am talking about something which affects the entire commercial real estate sector in the USA.

Credit is tightening in the USA and more so for commercial real estate.

In a recent interview with CNBC, a commercial real estate developer in the USA said he sent out 48 enquiries recently, and he received quotes from only two banks.

He said that was highly unusual, and he followed by saying it seemed that the commercial real estate sector in the USA was being strangled.

That interview gave an idea of how bad the credit situation for commercial real estate is in the USA now, and it could get worse for the whole sector.



During "Evening with AK and friends 2023", I reminded myself that I was painting the entire US commercial real estate sector with a broad brush.

I don't know enough to be able to invest comfortably in those REITs.

Those who have enough knowledge and savvy to invest well in the sector should follow their own plan.

Always have a plan, our own plan.

If AK can talk to himself, so can you!

References:
1. Digital Core REIT.
2. Manulife US REIT. 

Digital Core REIT lost 2nd largest customer! Things to note!

Tuesday, June 6, 2023

This is the transcript of a YouTube video I produced recently.
-----------------------

About three months ago, I wrote a piece on Digital Core Real Estate Investment Trust.

I said that I was not attracted by its seemingly high distribution yield because one of its largest customers could go bankrupt.

Today, I read that the Trust's second largest customer which accounted for almost 23% of its rental revenue has filed for bankruptcy protection on 4 June 2023.

During "Evening with AK and friends 2023", I warned that in an environment of heightened inflation and rapidly rising interest rates, many businesses which thrived on cheap money would find it hard to cope.

Unfortunately, many startups and tech companies fall into this category.

When money was cheap or even free, there were many investors who were willing to tolerate negative earnings while watching these businesses grew their market share.

With money having a real cost and a comparatively much higher cost at that, investors want to see positive earnings now.

Hence, the pressure for SEA Limited, Shopee's parent, to cut costs aggressively so as to turn profitable.



With interest rates having risen so much and so quickly, the chaos at the regional banks in the USA already led to 3 relatively large banks failing.

Apparently, deposits are still flowing out of regional banks into larger banks like JP Morgan.

Billions of dollars continue to flow into money market funds.

In a research paper with the following title.

"Monetary Tightening and U.S. Bank Fragility in 2023. Mark-to-Market Losses and Uninsured Depositor Runs?"

It was revealed that if a mere 50% of those uninsured depositors decided to withdraw their funds, 186 regional banks in the USA could be at risk of failure.

So, Warren Buffett and Charlie Munger could be right.

This isn't over yet.



While waiting to see if more regional banks could go under in the USA, businesses which are highly leveraged could fail one by one.

This could pick up pace as the USA sails into a highly anticipated recession.

Investors are less willing to pump in more money into "growth" businesses only to watch their money being burnt now.

If you want an example, we have one right here in Singapore.

Its name is "GRAB".

Why not borrow money from the banks instead?

Well, the chatter is that banks are becoming more cautious when they lend money now too.

So, even if businesses could get a loan, the cost is much higher.

Now, as investors for income, we are mostly concerned about any development's impact on our passive income.

So, what does this latest development at Digital Core Real Estate Investment Trust mean for those of us who invested in it?



When a customer goes bankrupt, it is worse than a customer downsizing or right sizing their rental requirements.

The rental income disappears overnight.

In this case, Digital Core Real Estate Investment Trust will lose 23% of its rental income.

In terms of dollars and cents, the manager has estimated a reduction of around 2 cents in distribution per unit.

At a unit price of 40 cents, this means distribution yield would plunge from around 10% to less than 5%.

That is a massive 50% reduction.

OK, don't panic.

The good news is that the many facilities which this customer currently rents are partially occupied by other companies.

So, if the Trust's manager is able to retain these other companies, the resulting loss of income could be lessened.



Still, we don't want a good lesson to go to waste.

We want to remember the following.

With interest rates likely to stay higher for longer, remember not to stay too optimistic about any business that has too much debt.

I do believe that interest rates will come down again one day.

However, we want our businesses to be able to keep their heads well above water until that day comes.

If AK can talk to himself, so can you!


Lost Hundreds of Thousands of Dollars! My experience!

Sunday, May 28, 2023

For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, this is the transcript of another recent video I produced.
------------
I read my older blogs from time to time.

There are lessons to be learnt from history and I often find things I said in the past to be useful reminders.

This is inspired by a blog I published in 2011.

Back then, there was a bit of controversy surrounding a business trust called "CitySpring Infrastructure Trust".

It was the catalyst for the blog in which I shared my losses, and how I recovered from losses to do better over time as an investor.

"When I finally fully divested from "CitySpring" which I no longer liked as an investment for income, I did not lose money.

"I was also spared the subsequent rights issue."

So, the lesson was not to throw good money after the bad.

At the time, I said the business trusts which I counted as heavy losses were MPSF and FSL Trust. Back then, I also said I would consider any 5-figure loss as a heavy loss.



What about now?

Since then, I have added another black feather to my cap and that's the $100,000 loss in Marco Polo Marine. 

To be exact, it isn't that much since the company is still in business and my paper loss is closer to 90% now which means a $90,000 loss.

It still stings.

That was a few years ago.

I have been more cautious since then.

Also, these days, I am able to stomach low to mid 5 figure losses once or maybe twice a year without going into a depression as my balance sheet is much stronger than before.

What have I been doing since then to have a stronger balance sheet?

Staying invested mostly in bona fide income producing assets while remaining financially prudent.

Sounds boring? 

To many people, it probably is.

I also speculated in some stocks along the way but never in a big way and, most certainly without using any financial leverage.



Now, with much pessimism surrounding REITs due to higher interest rates, I also found something I said in that blog from 12 years ago a useful reminder.

I said that all real estate investment trusts I was vested in were back in the black. Many, like AIMS AMP Capital Industrial, were in the red but I used the price weakness in the crisis to add aggressively to my investments.

Now, we call that the Global Financial Crisis.

Those decisions to add to my investments in real estate investment trusts were rewarding back then.

This is a good reminder.

If we invest in real estate investment trusts which are genuinely undervalued and have strong balance sheets, if Mr. Market should sink into a depression, as investors for income, it would be an opportunity to increase exposure.

Doing what I did back then, the value of my stocks investment portfolio practically doubled as the world emerged from the Global Financial Crisis.

I remember one of my favorite investments made during the crisis was Hyflux Water Trust, but it was privatized later. 

So, it was a forced divestment but at a premium of 150% to my purchase price, I couldn't complain.

Many of my better investments were privatized over the years.



I also shared that I made some money trading stocks over the years.

However, from 2010 to 2011, all the gains to my portfolio of stocks were from the hefty dividends received. 

Honestly, I booked some paper losses trying to trade stocks while the market was turbulent. Fortunately, the decision to focus more on investing for income paid off.

Dr. Marc Faber said that the Global Financial Crisis was a once in a lifetime opportunity to make a lot of money in the stock market. Is it likely to be repeated in the near future? 

I do not know and, hence, my current strategy of not being fully invested in stocks.

There are many ways to achieve financial freedom, and my way is only one of the ways.

It is the toughest at the beginning.

However, experience tells me it should get easier with time if we are doing the right things.

So, do not lose heart.

Remember, there is no free lunch and if it sounds too good to be true, it probably is.

There is no short cut but do not cut short our journey towards financial freedom.

If AK can do it, so can you!

Further reading:
Passive income as much as earned income. Get rich slow.

DBS fair value $35 per share? Dividend to increase 24c?

Saturday, May 27, 2023

For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, this is the transcript of another recent video I produced.
------------
People often ask me whether a stock is trading at a good price to buy?

I have been careful to side-step such questions not only because I am not allowed to give such advice, but it is also because what is a fair price is subjective.

Each time I stuck my neck out in the past, I almost lost my head.

Lesson learnt.

Anyway, the answer really depends on what we use to determine fair value.

This is also why different research houses will ascribe different fair values to the same stock.

With banks, we often see price to book value and PE ratio being used in determining fair value.

These are good ratios to use but, of course, they do not tell the full story.

They do not explain why DBS trades at a rich premium to book value while OCBC does not.

This is because of return on equity or ROE.



DBS has always demonstrated its ability to deliver a higher ROE than its smaller peers.

DBS has a ROE of 18.6%. OCBC has a ROE of 14.9%. UOB has a ROE of 14.7%.

Return on equity is a measure of how well a business uses equity or the money contributed by its shareholders plus its retained profits to produce income.

Does this explain the $35 per share fair value in the title?

This is where I need some help.

RHB Research has this to say.

"Our target price of $35.70 for DBS is based on an intrinsic value of $35 with a 2% ESG premium applied...

"The GGM derived price to book value of 1.52x is a plus 2 standard deviation from its historical mean, against a multi-year high ROE of 17%."

OMG.

It is all Greek to me.

"GGM" might stand for "Gigantic Greek Maze" in my dictionary.



Anyway, we see analyses like this often enough and the only thing that many would take away is the target price.

Thankfully, as investors for income, we are less interested in target prices put out by research houses.

We are more interested in whether the business is able to pay a meaningful dividend regularly.

So, whenever I read reports by research houses, I look for information related to earnings and dividends.

RHB Research says that DBS has the capacity to sustain 24 cents increase in dividend per year which suggests a dividend of $1.92 in Financial Year 2024.

RHB Research also thinks that a further $3 billion could be distributed either through a special dividend payout or share buybacks.

However, this assumes a payout ratio of 60%.

At $31.80 a share, a $1.92 dividend would mean a 6% dividend yield.

What do I think?



DBS has certainly demonstrated its ability and willingness to increase dividends in the past.

It could certainly increase dividends again in the future if it is able to maintain a relatively high return on equity.

Indeed, I said recently that all three Singapore banks have excess capital ratios or the Common Equity Tier 1 capital ratio.

As they only pay out half of their earnings to shareholders, their retained earnings would grow.

They could choose to pay out special dividends if they are not able to put the funds to work.

DBS has a Common Equity Tier 1 target range of 12.5% to 13.5%.

This is at 14% currently.

However, I rather work with what I know for sure to avoid disappointment.

Then, any upside would be a bonus.

Having said this, with dividend per share at $1.68, paying $31.80 per share for DBS would still give a dividend yield of 5.28% which is nothing to sneeze at either.



Still, in between dividend payouts, we could see Mr. Market acting irrationally.

This is the reason why I lean on technical analysis to give me an idea of where supports and resistance levels are.

This is even as I bear in mind the fundamentals.

For those who are interested in trading as well as investing for income, they would appreciate this.

During times of market euphoria, the common stocks for Singapore banks traded at two times their book values.

This would suggest a target price in excess of $42 a share for DBS based on its book value today.

Now, that gets me giddy.

Take this analysis with a pinch of salt since AK is no expert.

If AK can feel giddy, so can you!



"This stock is a WINNER! ALL IN!" The 3 Aces up my sleeves!

Thursday, May 25, 2023

For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, this is the transcript of another recent video I produced.
------------

During "Evening with AK and friends 2023", I used the example of Master Leong, an investor who liquidated everything else in his investment portfolio and went 100% into Alibaba's stock.

For good measure, he even used leverage.

So, he didn't just throw in his kitchen sink, he borrowed to throw in another kitchen sink or two which he did not have.

100% of a portfolio in a single stock is not something I would have done, no matter how promising I think that business might be.

It just isn't a good investing strategy to me.

To be sure, it is more like gambling than investing.

It reminds me of the movie "King of Gamblers" with the arch enemies at the poker table.

I know Master Leong had to liquidate some of his Alibaba holdings when the stock price hit an all-time low, taking a huge loss.

He had to because he was using borrowed money.



I said this before.

Most of us do not have money gushing in.

So, for most of us, we have to remember the importance of position sizing.

Bite off more than we can chew, we might choke.

We definitely do not want to use borrowed money to invest with.

All of us are happy during good times.

However, how to stay happy as investors during bad times?

Always have three Aces up our sleeves.

1. Appropriate psychology.

2. Appropriate money management skills.

3. Appropriate investment allocation framework.

I have been blogging since 2009 and I have thousands of blog posts.

Sometimes, some blogs could have had unintended consequences.

Some people might have bought stuff I talked to myself about and some even went all in.



I have always been careful to say that I was just talking to myself and that all of us should have a plan, our own plan.

This started as early as in February 2010.

I said this in a blog on investing strategy.

That "it is, quite simply, a question of proportion."

Later on, "eating bread with ink slowly" became popularized by one of my blogs.

I will leave a link to the blog below.

Why do I invest the way I do?

I invest primarily for income.

Investing for income has provided me with a passive income stream during good times and bad times.

It is very comforting and definitely helps to keep me sane.



I have invested in some stocks which have not done as well in terms of their stock prices, but if their businesses are humming nicely and if they continue to pay me, I am happy enough.

I have invested in some businesses which are facing tough times but because I have sized my investments in these businesses according to my own circumstances, even if it would mean a total loss, if it should happen, it would not be a financially crippling experience.

This is especially when I am not using borrowed money to invest with.

So, I am quite comfortable even if their stock prices go down and, in some cases, I am even looking to buy more.

With lower prices, some stocks will look more attractive.

I should be happy.

Why would I go into a depression?

Again, this is especially when I am not using borrowed money to invest with.



Of course, prices could go lower.

However, prices could also go higher.

Our job as investors is not to anticipate what the Market is going to do, although I try to engage in a conversation with my schizophrenic bowling ball from time to time.

Our job is to have a plan on what to do if Market should do something.

So, if something were to happen, we act.

We can prepare but not predict.

So simple, right?

Simple but not easy, I know.

In closing, I would say that for those of us who get heart attacks from seeing prices plunging, we are probably more into prices than values.

It could also be that we have used up all our war chests too early.

It could also be that we have sized our positions badly and we are stuck with having too much of one bloody stock.

Bloody from bleeding and not profanity, of course.

Whatever it is, look at a bad situation as a learning experience and try to do better henceforth.

If AK can do it, so can you!

Reference: 
How to have peace of mind as an investor?


Cannot 4X money with MUST but what about a 70% growth?

Sunday, May 21, 2023

This is the transcript of my most recent video on Manulife US REIT and how we could possibly grow our money 70% if we should invest in the REIT?

======
In one of my recent YouTube videos, I talked about an analysis which suggested the possibility to grow your money 4 times by investing in Manulife US Real Estate Investment Trust.

However, I said that the real estate investment trust would probably have to do an equity fund raising exercise which would make that claim untenable.

Today, I read another analysis but by DBS Research House this time.

In the report, DBS said that with gearing at 49.5%, just a little below the 50% limit by the Monetary Authority of Singapore, the need and urgency for a capital injection becomes more apparent.

I like to remind myself that the 50% limit was allowed because of the pandemic.

Could we see the limit going back to 45% regardless, since the stresses caused by the pandemic are eventually going away?

This is another reason why we want to invest in real estate investment trusts with stronger balance sheets.

The proposed sale to Mirae which would result in the creation of almost 10% more in new units to help recapitalize the real estate investment trust would dilute the current shareholders' interests.

Still, it is unlikely to be enough.

More unlikely still is the possibility to 4 times our money.



To be sure, Mirae is doing this deal not because it is altruistic.

It isn't a charitable organization.

It is acquiring a stake in the real estate investment trust and the REIT manager because it thinks it will make money from this deal.

It will heavily dilute current investors' interests.

It is also buying the REIT manager at what DBS research house estimates to be 6 times PE ratio which sounds like a pretty good deal.

If it plays its cards right, Mirae should be able to recover its investments in just a few years.

Post acquisition, DBS Research estimates Manulife US REIT should see gearing level reduce to 42.8%, all else being equal.

In economics, we always like to say this.

All else being equal.

That phrase encompasses everything else that could change the picture.

In this case, the gearing level could change because the value of the properties held by Manulife US REIT could see significant declines.

I remind myself that the average physical occupancy in many of its properties is under 40%.

This suggests more tenants downsizing their space requirements when their leases eventually expire.



DBS research is cognizant of this as they said, "gearing may be stretched if capital values continue to fall again by end of 2023."

"This may turn out to be true, depending on how the current turmoil pans out with the US commercial real estate space."

So, we could see things worsen as soon as end of 2023.

Due to this, DBS research also says that while a gearing level of 42.8% which is below 45% which is what Monetary Authority of Singapore allows if interest cover ratio is below 2.5x, this is still not a comfortable level for investors.

"As such, we take a step further to evaluate if a rights issue should be considered to bring the gearing level a notch lower."

"With new equity capital raised to bring gearing to a more palatable level of 40%, we believe this will provide sufficient flexibility to defend against further asset declines in the future, which will need an assumed further 20% decline in asset values to bring gearing back to 50%."



Taking all this into consideration, DBS research revised their target price lower to 24 cents a unit.

If we go with this projection, we might not be able to 4 times our money, but we could see it grow some 70%.

However, if we want to try our luck here, be prepared for a rights issue which I have said many times before is to be expected.

It is almost like Hobson's choice.

Not too hard to understand.

If AK can talk to himself, so can you!

Related post:
4X your money with MUST!




Monthly Popular Blog Posts

All time ASSI most popular!

 
 
Bloggy Award