Think you cannot reduce your spending?

I am always blogging about how we can reduce our expenses. A dollar saved is a dollar earned, isn't it? 

Well, sometimes people say it is difficult or even impossible to reduce expenses. Is it really difficult or is it too difficult to try?

Michelle Morton, age 43, is married and a mother of three. She took up a challenge to cut her spending and here is her story:

She started logging all her expenses on a daily basis. 






"It’s $4 here, $10 here and it doesn’t seem like that much but then when you go to put the receipts in it’s like Oh my God!"

“Really what needs to happen is to say ‘This is what we’re going to spend on groceries this week’ and when it’s gone, it’s gone,” she says. 

“And ‘This is what we’re going to have to spend on eating out,’ the same kind of thing. I have to stop telling myself that although we really won’t save any money this month we’ll make it up next month because that never happens.”






If you are in your 20s and if you have an active social life, well, you might want to learn from Meieli Sawyer who said:

“I understand being thrifty, but you walk a fine line, and you don't want people to talk about you and say you're cheap,” Meieli says. 

“So I’m just going to try to say, ‘Look, things are tight for me right now.’ I’m going to try and not be embarrassed about it.”

Read the full article: here.






Stop putting it off. Take up the challenge today.

Related posts:
1. How to tell if you are rich?
2. The very first step to becoming richer.
3. Retiring a millionaire is not a dream.
4. A fast track to wealth building.
5. Financial freedom.

Motivations and methods in investing (UPDATED August 2018).

I recently started to blog about NeraTel and revealed that I increased my investment in the company. 

Someone asked me what led me to increase the size of my long position when I did since its share price shot up shortly after I made my move. 

Did I have inside information?

Well, I cannot say for sure if I did have a distant relative or two in Myanmar or not. 

Such is the reach of the Chinese diaspora. 

However, I am quite sure that I do not have the benefit of knowing anyone who might be in the know with regards to the Telco contracts awarded by the Myanmar government recently.

Indeed, increasing my investment in NeraTel had much more innocent motivations.




I have been blogging for some time about how the very low interest rates cannot persist forever and that they will one day rise. 

I have also cautioned that we should not be overly optimistic when it comes to real estate investments in Singapore and also S-REITs. 

So, what is someone who is investing for income to do?

A big portion of my investment portfolio is in income investing. 




I got into S-REITs in a big way during the GFC and bought more of AIMS AMP Capital Industrial REIT and Sabana REIT in late 2011 when prices took a hit. 

Whenever prices took a hit, I would buy more. 

For example, I quadrupled my investment in Saizen REIT in mid 2012 when its warrants were close to expiring and its unit price plunged. 

Conditions were benign for REITs and buying more with an increased margin of safety was, well, safe.

Now, with the spectre of increasing interest rates on the horizon, the sea that is called REITs could become less placid. 

It could become choppy. 




Of course, thinking that REITs will go the way of the Dodo simply because interest rates are going to rise is ridiculous. 

However, not recognising that S-REITs will face headwinds as interest rates rise in future is myopic.

So, the 10x increase in my long position in NeraTel stems from a need to look for alternative investments which are high yielding but with a low or zero probability of being affected negatively by interest rate hikes. 

I like the comfort that comes from having a steady stream of dependable passive income and this remains my biggest motivation for investing in the stock market. 




The following graphic gives a good idea of how I think.

Source: edwardjones.com

..




My investments for income, together with my war chests, form the wide base of the pyramid. 

On top of these but smaller in total value are my investments in certain stocks for growth and income or for growth only. 

At the tip of the pyramid and also representing the smallest total value are more speculative investments which sounds like an oxymoron, doesn't it?

Certainly, like I have always said, there is more than one way to growing our wealth in the stock market and I am not trying to say otherwise by showing the above graphic. 




My methods which are by no means immutable simply reflect my motivations for investing in the stock market.

Ask what are we trying to achieve (i.e. our motivations) and we will know where our money should go. 

Use the right tools (i.e. methods).

If you have read this blog carefully, position sizing is important too.

There is nothing to say that good investors cannot have speculative positions but good investors should keep speculative positions relatively small.




Related posts:
1. Never lose money in real estate?
2. Be cautious climbing S-REIT tree.
3. CPF or SGS?
4. Perpetual bonds: Good or bad?
5. For those who have paid higher prices.

SPH or SPH REIT?

Some people are surprised to learn that I am not all that interested in SPH REIT. Instead, I am more interested in SPH. Why is this so?

I do not think SPH REIT particularly attractive with an estimated distribution yield of about 5.6% although a gearing level of about 30% is comfortable. A yield of about 6% without a higher gearing level would be what is needed to attract me. Otherwise, I think I am better off increasing my investment in SPH.

Simplistically, if I could get a 5% dividend yield by being a shareholder of SPH which will also see its gearing level drop to almost zero with a bigger cash hoard after setting up SPH REIT, why would I still be interested in the REIT?

OK, before I go on, I must say that I am speaking from the point of view of someone who already has a substantial exposure to S-REITs. For someone who has no exposure to S-REITs yet, SPH REIT's IPO does seem like a decent enough proposition.

Some quick calculations show that SPH will see a slight decline in its income by having its ownership of the two malls diluted. So, logically, we would see a decline in its annual dividends paid to shareholders as well, everything else remaining equal. Proportionally, instead of 24c DPS, we could see 21c DPS in future.

In the recent market weakness, I bought more shares of SPH. Assuming an average price of $4.20 a share, a 21c dividend represents a 5% yield. On top of this, the management has promised an 18c special dividend because of the REIT's IPO. This is an additional 4.28% return.

My purchases last month were the highest prices I have ever paid for SPH's stock. Prior purchases were made at between $2.86 and $3.55 a share. However, believing that the management has unlocked value for SPH shareholders in this latest exercise, I am willing to pay reasonably higher prices for the company's stock.

Technically, a pull back could see SPH's share price retreating to test support at $4.22 while any further rise in price could meet with resistance at $4.39. Fellow SPH shareholders want to approach this cautiously since the stock is spotting a downtrend and we don't want to be caught buying at resistance.

Related posts:
1. Which stocks have I been accumulating in June 2013?
2. SPH: A REIT investment.
3. SPH: Better investment than retail S-REITs?

Really Follow AK71 on Facebook.

OK, I just found this in my Facebook account:



I know, I know. Be kind to me. Don't laugh.

Apparently, the button I provided in my last blog post on my Facebook account was to "Add Friend" and that is different from "Follow".


AK's self portrait!

Related post:
AK71's Facebook.

NeraTel: A very good investment.

There has been much said about how the recent surge in NeraTel's share price could be due to expectations that they could be the only Singapore company to benefit from the Telco licences awarded by the Myanmar government. Although it is not ironclad, NeraTel's expertise in the microwave radio transmission segment gives the company a high chance of winning the tenders.

What is more certain, however, is that, by early 2014, NeraTel will be able to move into its own engineering business and develop its own products and this change will improve the company's profit margins. In the meantime, the successful acquisition of Nera Malaysia recently will result in a one time profit of about $7 million.

Samuel Ang, NeraTel's president and CEO has this to say to investors:

"When you look at NeraTel as a company, you need to look at the whole year because we are in a market that involves a lot of capital expenditure. We cannot recognise revenue at one go, we need to look at the work progress, and there may be some delays with some customers"

Therefore, it is more important to note the order intake which represents the health of the business.

OSK-DMG believes that there could be an interim dividend this year and that the current dividend payout of 4c a year is also sustainable.

Reference:
Pages 12 and 13 in The EDGE, July 15, 2013 issue.
AK says: "An excellent write up in The EDGE and if you are interested in NeraTel, go get a copy."

Related post:
NeraTel: Is there no telling how high it could go?

Tea with Mark Mobius: Focus on long term goals.

Mark Mobius, chairman of Templeton Emerging Markets, says as the Fed tapers QE and eventually raises rates, volatility will probably increase, but investors should keep focused on long term goals instead of trying to time the market.

"We are telling our investors to sit back, relax and ride it out."

Templeton is also a substantial shareholder of China Minzhong with a stake in excess of 11%.

Related posts:
1. Be comfortable with being invested.
2. China Minzhong: Looking into the TA crystal ball.

China Minzhong: Looking into the TA crystal ball.

I like China Minzhong's business and I like its prospects. I still have about a third of my original investment in the company which I paid about 58c a share for, having sold the rest for rather attractive capital gains.

In May this year, I increased slightly my exposure to the stock as its share price pulled back to $1.025 and $0.97 per share. The positive divergence between price and MACD has played out and the downtrend has been broken. Currently, the stock trades at $1.12 per share.

Based on Fibo lines, there is resistance at $1.13 and there needs to be a big push up on the back of higher volume to break this barrier. Otherwise, a pulling back to $1.05 or even $0.99 would not surprise me.

I am wondering if we could see the formation of a reverse head and shoulders pattern here which could be part of a bigger bowl formation. Ok, perhaps a saucer formation.

This could pan out to be a very nice trading opportunity. Pardon the pun.

Related post:
China Minzhong: Long black candle on good results.

Vard Holdings: Mr. Market is reacting calmly.

This is a short blog post on my observation that Mr. Market seems to be accepting the bad news regarding Vard Holdings' performance in 2Q 2013 rather calmly. Please refer to the comments section of my blog post on the company yesterday for discussion on its results.

Vard Holding's share price is at 84.5c, down 2.9% or 2.5c as of now. The decline is rather muted, I feel, to what is really a very bad quarterly report card. There seems to be quite a bit of support from buyers, actually. The news might refer to this as "bargain hunting".

It would seem as if Mr. Market feels that the current price level of the stock, for whatever reason, is a fair one at this point in time.

If Vard Holdings' share price should form a lower low, look out for a higher low in the MACD. I am not saying that it will happen but if it should happen, that could be a buy signal.

Related post:
Vard Holdings: Initiating coverage.

Interview with Matthew Seah (Part 2): Value Investing.

I prefer to have a more direct control over my money rather than letting a third party invest for me which usually results in subpar to market returns after fees are paid anyway.

So, although I invest in ETFs, I only invest in passive ETFs like S&P500 ETF and STI ETF where the returns are very similar to returns of the S&P500 and STI, respectively.

My investment approach when it comes to stocks is to pay attention to 3 Rs:

Right model
Right management
Right value

Investing in businesses which have all the 3 Rs has been very rewarding for me.

If you have guessed that I am a value investor, you are right.

Value Investing has been proven to be the best investing method, as can be seen with the phenomenal growth of Berkshire Hathaway, Warren Buffett's company.

Many people buy stocks after hearing good news about the stocks. They are just buying something which is selling at a higher price in the hope of selling it later at an even higher price, which doesn't make sense to me.




Value Investing is like shopping for stocks on sale. It would be more logical to buy stocks when they are at a discount and not when they have become pricier. This is about buying something at a price lower than its intrinsic value.

Another thing which is important to remember is to invest in companies which have some kind of competitive advantage over their peers. These companies tend to have a larger market share, and are more profitable in the long run. Therefore, they are likely to continue growing in years to come.

For someone who is new to investing, I would suggest being more cautious. What do I mean?

I tested some strategies through paper trading prior to real investing. When I started paper trading, I was more emotional and often closed my trades too early. Now, I hold on to my investments for a much longer period which has proven to be more profitable than short term trading.

Being stronger financially now also means that I am able to weather larger drawdowns to my investment portfolio without feeling too emotional. 

I will end by sharing this quotation:

"Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now." Warren Buffett

Related posts:
1. Warren Buffett: The greatest money maker.
2. Getting started in investing and trading.
3. Interview with Matthew Seah (Part 1): Financial Freedom.

Vard Holdings: Initiating coverage.

I have always liked the sound of the phrase "initiating coverage". It reminds me of some movies I watched before where a person in a war room would be standing ready to press a red color button while announcing "initiating launch sequence now". Quite exciting.

Well, talking about Vard Holdings might not create the same kind of excitement for some readers especially for those who have bought the stock at much higher prices. For sure, there is no paucity of BUY calls from analysts on Vard Holdings.

I remember replying to a reader a couple of months ago that we could see a rebound because of a positive divergence but with the downtrend intact, share price could go lower.

In yesterday's session, Vard Holdings' share price hit a new 12 months low of 83c. So, is share price at the start of a recovery today? This is a question I do not have the answer to. However, technically, there is no reversal signal. So, if share price should trend lower, it would not surprise me.

If it should trend lower, a critical support would be at 79c, the low formed in October 2011. Remember, this is what I see in the chart and it does not mean that it will happen.

Of course, there is always a possibility of a sharp rebound in which case, we could see a gap covering at 96c or a test of gap resistance at 99.5c.

Fundamentally, it is quite easy to see why there are so many BUY calls.

Doing a quick valuation exercise, at 83c a share, Vard Holdings does not seem expensive. In fact, it seems quite cheap now. I went through the numbers and its 1Q FY13 EPS works out to be 3.37c. Annualising this and using a PER of 7x will give us a value of 94.5c while a PER of 8x will give us a value of $1.08.  Why 7x or 8x? Well, that is the kind of PERs we are looking at with smaller yards like ASL Marine and Marco Polo Marine. 

So, at 83c, Vard Holdings is actually trading at an even lower valuation compared to smaller yards? Yes, that would seem to be the case from a price earnings perspective.

If we believe that the demand for OSVs is on the rise, then, Vard Holdings should be a logical beneficiary. However, we should bear in mind that although the stock might seem like a compelling buy, share price could weaken further. So, unless we are mentally prepared for such a possibility, it might be better to wait for clearer signs of a reversal.

After all, Vard Holdings did issue a profit warning due to higher than expected cost overruns at its Niteroi yard as well as higher than expected start-up costs at its new yard, Promar, which was what sent its share price diving.

Related post:
Marco Polo Marine: 1H FY2013.

Note:

Vard Holdings Limited ("VARD") will release its financial results for the second quarter and half year ended 30 June 2013 after market closes on Thursday 11 July 2013.

Interview with Matthew Seah (Part 1): Financial Freedom.

I learned from Robert Kiyosaki that in order to gain financial freedom, we have to be free of debt, able to provide for ourselves and to prepare for a future without having to work for money. 

Many people always find themselves short of cash at the end of each month and it is difficult for them to save any money.

To avoid this problem, I pay myself first by saving a portion of my income before spending any money. At the end of the month, if there is any spending money left, it will add to my savings.

Being prudent with money is something I strongly believe in since young as my mother always advocates the virtues of saving money. My Edusave bursaries and scholarships during my school days all went into my savings account.

Now, I have several accounts and not just one. They are:

Account 1: Emergency fund.

This is money which can support my current lifestyle for at least a year in case something untoward should happen.

Account 2: Opportunity fund.

This is money to take advantage of any investment opportunities in a market crisis.

Account 3: Investment fund.

This is money available to invest on a regular basis. To reduce commission and fees as a percentage of a transaction, I tend to invest only after accumulating more than $9,000 in the investment fund.

Account 4: Gifting fund.

This is money set aside for buying gifts, donating to charities and making offerings.

Account 5: Excitement fund.

This is money put aside for holidays.

As passive income from my investments increases, I will be able to set aside more of my total income for investments. One day, when my investments are able to generate the desired level of passive income, I will set aside 90% for charitable causes, keeping only 10% for my own expenses. This is my goal.

So, how should young people go about increasing our wealth to reach the goal of financial freedom?

We need to seek the right financial education or get a mentor who has walked the path with good results since financial education is not available in school.

If young people have a low level of financial literacy, there is a good chance that their families do too. Therefore, they should not seek financial advice from their family members. Actually, it is not uncommon to meet people who think that investing in stocks is synonymous with gambling. This is due to a low level of financial literacy.

Investing in stocks is like being in partnerships with businessmen. Instead of starting our own businesses and hoping to succeed, we can shorten the time to success by being partners with successful entrepreneurs at the helm and stand to share the profits from their success.

Time is the most valuable resource that any person has in investing because wealth from investing grows by compounding. So, young people have a distinct advantage. Start young.

Related posts:
1. Robert Kiyosaki: 2 are better than 1.
2. Teaching young children financial literacy.
3. Interview with Matthew Seah (Part 2): Value Investing.

Multiple Streams of Income.

In the comments section of an earlier blog post regarding buying properties with little or no money down, a reader, SC, highly recommended the following books by Robert G. Allen:


Click image to buy.
Free shipping.


Click image to buy.
Free shipping.
Allen researched hundreds of income-producing opportunities and narrowed them down to ten surefire moneymakers anyone can profit from. This revised edition includes a new chapter on a cutting-edge investing technique.

Show more

Show less

Apparently, Robert G. Allen, whether directly or indirectly, is the guru of all the gurus out there and it is said that he charges US$10k to US$25k for personalised coaching.

I am not willing to pay US$10k to US$25k but what about buying both books for less? I enjoy a bargain and I enjoy reading. So, what to do? ;)

Related post:
Be a real estate owner the easy way (3).

Bought another book from BetterWorldBooks.

I have blogged about BetterWorldBooks a few times before and the good that they are doing. Everytime we buy a book from them, we are helping to do good for the environment and helping the needy.

Recently, I learned from a good friend how to do screen captures. Hey, don't laugh. Regular readers should know that I am not the most IT savvy person on the island.

Anyway, I bought a book from BetterWorldBooks just now and here is the screen capture:

Click to enlarge picture.

 

If you are thinking of buying a book or two, consider making the purchase from BetterWorldBooks. Buy used books, enjoy lower prices and help the environment!

"Your purchases also help fund non-profit organizations changing the world through education and literacy."

Your purchases will also enjoy free shipping worldwide.



Click on image to visit BetterWorldBooks.

Thank you.

Related post:
Donate a book to the needy!

Returns of 15% per year invested!

This is taken from an email sent to me this morning:

 

Invest into one of the hottest investment sectors in London's city centre, without buying a unit outright from just $62,850 (£41,308)*. Our Secure Exit Strategy™ allows you to invest into exclusive pre-construction projects, for up to maximum of just 5 years, with complete protection of funds and no ownership commitment.

Invest early into this exclusive central London Hotel project with maximum 5 year exit strategy and contractual returns of 15% per year invested.

Urban Villa - Aldgate, London is a renovation hotel project in the heart of the capital. Due to its superb location, Urban Villa Aldgate is already proving to be one of our most popular projects in the UK to date.

 

Too good to be true? Any thoughts?

Tea with AK71: Laughter is the best medicine again.

Absolutely wicked!



I fell off my chair AND rolled on the floor laughing, thanks to Matthew Seah!

Related post:
Laughter is the best medicine.

Have money must also have a heart.

This is a snippet taken from a chat I had over at Bully the Bear this evening:

Have money must also have a heart.

Related posts:
1. Count our blessings.
2. Make more money and do good.
"The people who receive love are the ones who are just pouring it out all the time." Warren Buffett.

A university degree in 10 days!

I saw an advertisement on Facebook that promised a university degree in 10 days. It was in the sponsored section.




Like that also can. Facebook must hide face.
The shady site: quickdegreesnow.com

That Facebook does not screen advertisers (aka sponsors) unsettles me.

SingHaiyi: The next big thing?

I received a message from a 25 year old reader, asking for my opinion on SingHaiyi. I thought it would be interesting to share his message here (with his permission) to see if we could gather the opinions of readers on the matter. Here is his message:

I have read your website on fundamental analysis some time ago. I must say I am still quite a newbie in stock markets and have less than a year of experience

I did learn a few things from your website which I am thankful for, like how to determine the health of a company judging from the balance sheet. I managed to pull off a few positive short-term investments (Interra Res) all thanks to your clear and precise explanation of the ratios.

I did make a few bad investments too, such as in Noble Group. But by the time I realised, the only choice was to 'average down' or eventually cut losses.

The purpose of sending you this message is to seek your opinion on SingHaiyi. I have thoroughly looked through this company's financials. The unaudited statistics seem promising, except for the Debt/Equity ratio, which is > 1. I understand that this company is another penny stock, and undergone major restructuring in recent times. Then again, I have used much effort in researching the history of the key directors in this company (Gordon Tang, Chan, Neil Bush) and they do have impressive records of running their businesses. The only thing I am concerned about, is whether they will be able to pull SingHaiyi off as the 'next big thing'.

All comments are appreciated.

Related post:
The Balance Sheet.

Read:
SingHaiyi Group in final negotiations on US real estate projects.
This will be for the purchase of an existing office building and a residential development site.

Invest in Japanese real estate: Saizen REIT and Croesus Retail Trust.

Over the weekend, I spoke with a friend who told me that his uncle is interested in investing in properties in Japan. Actually, he is not the first person to talk to me about the subject. Two other people spoke with me in the last 3 or 4 weeks expressing the same interest.

Ever since Prime Minister Shinzo Abe launched "Abenomics" in order to break the country out of vicious deflation which has lasted some 20 years, there has been renewed optimism that Japan could finally grow its economy once more. Although some might claim that Japan has joined USA and Europe in devaluing currencies, Japan has claimed that it is only bringing its currency down from an over valued position to a value that is more in sync with the current value of the US$.

Against the S$, the JPY has come down more than 20%. So, not only is Japan once again a less expensive destination for holiday seekers from Singapore, together with early signs of economic growth, it has also become a more attractive investment proposition.

Therefore, it should come as no surprise that some in Singapore should be looking at investing in Japanese real estate now. Indeed, anecdotal evidence shows that American and Chinese investors have already started doing so.

However, unless we have a lot of money and we have someone whom we can absolutely trust in Japan, I would caution against investing directly in Japanese real estate. It is complicated for foreigners to actually own a piece of real estate in Japan and we also do not have access to housing loans in the country. So, 100% cash down is required.

If we are really interested in investing in Japanese real estate, be it for rental income or possible capital appreciation, there are options right here in Singapore. Regular readers would have guessed the answer.

Off the top of my head, Saizen REIT is currently trading at about 20% discount to NAV even after the JPY has weakened so much against the S$. Gearing level has increased to 39%. At 18.7c a unit and a more conservative estimate of a 1c annual DPU due to the much weaker JPY, we are looking at a distribution yield of 5.35%. 

I do not think we can do better than this by directly buying an apartment in Japan without any leverage. The theoretical non-leveraged yield of Saizen REIT is about 3.85% and it is truly passive income compared to being a landlord of an apartment.

What about Croesus Retail Trust? It is now 96c a piece. Before the launch of "Abenomics", I was pessimistic about the retail sector and, consequently, shopping malls in Japan. In its 2011 report, Starhill Global REIT's  management said as much although not in the same words.

However, anecdotal evidence shows a revival in the Japanese retail sector since the launch of "Abenomics". As inflation returns to the Japanese economy, the people no longer defer purchases in the hope of lower prices in a deflationary environment. Consequently, this means brighter prospects for Japanese shopping malls.

At its IPO price of 93c a piece, it projected a distribution yield of 8%. However, the Trust's gearing level of 48% based on the appraised value of its properties is much higher than Saizen REIT's current gearing. Of course, gearing will magnify gains. Nonetheless, the theoretical non-leveraged yield of Croesus Retail Trust is 5.41%.

With a brighter outlook for the Japanese economy and retail sector, Croesus Retail Trust is beginning to look attractive as an investment for income.

In conclusion, with Japan's fortunes seemingly turning up, there will be an increasing level of interest in investing in Japan and real estate will be a natural consideration. We don't have to look too far to benefit from the improving fortunes of the country.

Related posts:
1. Croesus Retail Trust
2. Saizen REIT: Refinancing.

"REITs that buy apartments benefited from a shortage of new supply and a stable number of tenants in a nation where less than half of Japanese under the age of 40 own their own home. Japan has accelerated efforts under Prime Minister Shinzo Abe to end deflation and boost the world’s third-largest economy, including measures to revive the property industry, which has been struggling since an asset bubble burst two decades ago. The government has a target to increase assets owned by REITs by 40 percent by 2020. "
(Source: Japan Apartment Real Estate Proving Best: Riskless Return)