Tea with Solace: Getting Ready For Investment. (Part One)

This is Part One of a blog post by a reader, Solace, who recommended a book, "The Little Book That Beats The Market" here in ASSI not too long ago. 

All copies of the book were sold out within a day, I remember. I just checked and a few copies have become available again at US$6.48 each. For anyone who missed out the last time, check it out: The Little Book That Beats The Market.

Cheap Ferrero Rocher!

I can identify with many things that Solace is sharing here including his love for chocolates! I also buy them when they are available at a discount and never at full prices! Apart from this, in investment, I also use a combination of fundamental analysis and technical analysis just like him.

All of us can learn or be reminded of things important about personal finance and investment in this guest blog post. Read on:

Solace says:
I embarked on my journey of investing when I was in my mid-twenties, fresh out from the university.

My objectives in investing are to:

1) Generate a return that can beat inflation

2) Create an income stream through long term stock investing

First, however, I had to get my backyard in order. What do I mean by this?




Emergency Funds

In life, we should expect the unexpected. We could lose our job or become seriously ill, for examples. This is why we need an emergency fund.

Emergency funds should be highly liquid. This allows quick access to funds, which is vital in emergencies. A saving account with any bank would do.

I believe one has to set aside at least 6 months' worth of emergency funds. Some may even set aside 12 to 18 months' worth depending on their situations. If we have children, liabilities or debts, we would have to set aside more, for examples.

I do not recommend that we invest with money that we cannot afford to lose. Such money should stay in the emergency funds. The volatility of the stock market could cause us to lose money leaving us in a fix when we need the money for urgently.




Managing Personal Finance

I believe how rich we are depends on how much we can save at end of each month. In my opinion, managing personal finance comes first before investing.

I always aim to save between 40% - 50% of my take home pay every month. Majority of what I save will go into my investment funds. From there, I can build up my investment fund over time. We should watch our expenses and save as much as possible.

Very often we can make changes to our lifestyles to save more money. For example, I switched from drinking Starbucks coffee to making my own coffee at home. I love chocolates and candies but I only buy them when they are selling at a discount. One can still enjoy life and be happy without excessive spending.

Car ownership is expensive in Singapore. We should avoid owning one unless we really need it.

By staying away from smoking, excessive drinking and gambling, we are also giving our savings a big boost.





Insurance

Having adequate insurance is important. There are basically three main types of life insurance policies. They are Term Insurance, Endowment Insurance and Whole Life Insurance. One has to know the differences and decide which type is suitable.

Do take a look at the effect of deduction and distribution costs when evaluating a policy. Very often the deduction can be very high!

For me, I prefer Term Insurance. I do not like to mix investment and insurance. Term Insurance premiums are not as high and it does the job of providing insurance protection. With the lower premiums compared to Endowment or Whole Life Insurance, I can have more savings which means I have more money to invest for better returns.

I would like to point out that for young people who have just started working, they might not have so much money. Term Insurance is a viable option, but very often insurance agents/financial advisers will not mention this.

Read Part Two: here.

Tea with Matthew Seah: Dollar Cost Averaging and expected returns.

Although many have asked questions on which investment account is better, no one has asked about the expected returns from opening these accounts.

I feel that knowing the expected returns is as important as educating readers on the pros and cons of opening an investment account with POSB/OCBC/POEMS.

Thus, I have created a spreadsheet for readers to use:

https://docs.google.com/spreadsheet/ccc?key=0AtcoupwJgDW_dG1FRDRTSmtEcU9JcEliZzFwRFJqa1E






Below are the assumptions made in creating the spread-sheet:

1. Investing commenced since inception of STI ETF (ES3).

2. Investing is done on the last trading day of each month at closing price.

3. Fees are charged according to non-promotional rates as stated in the FAQs.

4. Fees are charged on investment capital used in buying the shares.

5. Dividends are recorded on 'Record Date.' 

(A fee is charged on the dividend received using POEMS ShareBuilder Plan, thus the dividend received is lower compared to the banks’ accounts.)





Why use STI ETF?

STI ETF has been around for a longer time (11 April 2002 - amended-) than Nikko AM STI ETF (24 Feb 2009). 

At inception on STI ETF, STI at 3344.53 was nearer to the all-time high of 3889.68 than STI’s value at Nikko’s inception date. 

Thus, STI ETF will give a lower and more conservative long-term return as investing starts near the peak as compared to investing in Nikko which started near the bottom of the recession.

Why last trading day of the month?

I don’t think there is much difference over the long-run with regard to the day in which to invest. 

Last trading day is just my preference.

Fees as charged?

Dividends are recorded on the Record Date as that is the date when your shareholding is confirmed by the manager. 

Since my purchases are at the close price, when the Record Date coincides with my purchase date, the dividends received are based on the pre-purchase number of shares.

I used Internal rate of return (XIRR function), which gives a more holistic measure of the true annual return as opposed to Compounded Annual Growth Rate (CAGR), which does not account for capital injection after the initial investment.





What you need to do is input your desired monthly investment amount and you will be able to see the total return and XIRR since 10 Jan 2008. 

On top of that, you can also compare the returns across the 3 different regular investment plans by looking at the "Overview" section of the first worksheet.

As mentoned, 10 Jan 2008 is near the all-time high for STI, so the simulation can show how the investment plan would perform when u buy near the peak of the bull cycle. 

Since we are near the 2007 peak, we can justify that the performance shown is close to what one would get for an entire economic cycle of bull and bear (similar to the peak-to-peak or trough-to-trough of a wave signifying one full cycle of the wave).





I feel that this is as close as we can get to determine the potential of the investment plans through an entire economic cycle (though the current bull market has yet to become a full fletched bear).

Please note that past performance DOES NOT guarantee future results.






Related post:
Tea with Matthew Seah: POSB Invest-Saver Account.

AIMS AMP Capital Industrial REIT: DRP likely a flop.

In May 2013, I said that "with the DRP offered by AIMS AMP Capital Industrial REIT with regards to 4Q FY2013's distribution, I have decided to accept some DRP units and the balance in cash."

I was able to make some extra money in the last Distribution Reinvestment Plan (DRP).

This time round, however, it is impossible and the DRP is likely to be a big flop for the REIT with its unit price last traded at under $1.50 a piece.

Related post:
AIMS AMP Capital Industrial REIT: Distribution Reinvestment Plan.

When to BUY, HOLD or SELL? (Part 2)

Now, a question that people sometimes ask me with regards to selling is if they should cut loss? 

Well, from a valuation perspective, if we got into a stock which we thought is worth $10 a share at, say, $8 a share, and if the price should fall to $6 a share, should we sell?

OK, let us push this a little and let us say we thought the stock is worth $10 a share but for some reason, we bought it at $12. At $6 a share, should we sell? 

I think you know the answer.

Well, if we need the money urgently because there is an emergency at home, then, we don't really have a choice, do we? 

This is also why we must always use money we can afford to lose for investing. 

If we don't need the money, everything remaining equal, should we not be thinking of buying more if prices fall? 

This is why we must always have a war chest ready!

What we have to remember is that we want to buy at a price we would not sell at and sell at a price we would not buy at. This is a general mantra we should chant to ourselves and embrace its spirit.

Although we might think that $10 for a certain stock is cheap, it does not mean that it would not become $8 or $5 or even $2. 

Of course, if we are sure that our facts are correct and our reasoning is right, we should be buying more as prices fall.

Isn't it risky to buy more as prices fall? Of course, there is risk involved. Cheap could get cheaper. This is why I feel that some knowledge of technical analysis (TA) is useful. 





Purists in fundamental analysis (FA) will pooh pooh at this idea, of course, but unless we have very deep pockets, I think a bit of TA is useful. Anyway, I will talk a bit more about TA later.

Now, since we are on the topic of risk, some would argue that the level of risk associated with an investment should be considered when we talk about valuations. 

So, in the case of a business trust, for example, if it is perceived to be more high risk in nature, we would need a higher distribution yield before we invest in it, wouldn't we? 

I blogged about how this was the case for me when I invested in Perennial China Retail Trust: here.

The same goes with bonds although in the case with bonds, the holders are more lenders than investors and I blogged about bonds before: here and here.

Now, with interest rates rising and we are seeing higher coupons from 10 year bonds, the risks associated with REITs have risen. 

This is why their unit prices have fallen because Mr. Market is now demanding higher distribution yields for investing in a riskier instrument compared to 10 year government bonds. I am not saying anything new, of course.

As anyone can see, there is no one size fits all valuation technique.





So, some have thrown up their hands in despair and decided that they would only use charts to help them decide when to buy and sell. TA gives us a peek into Mr. Market's psychology. 

We then buy and sell based on technical signals which tell us the sentiments in the market. 

Of course, TA is about probability and never certainty. 

TA is about managing probabilities!

There is no exactitude, no matter which approach we choose to use. There are only approximates. 

As long as we are approximately right, we are better off than being exactly wrong. This is good enough. 

This is what Warren Buffett would say. If you have yet to watch the video on why he is the world's greatest money maker, watch the video: here.

Make money using the tools available to every person.

Valuation is a subjective exercise and often, whether to BUY, HOLD or SELL, we have to rely on experience too. 

If there was a magic formula that worked all the time, Warren Buffett and any investment guru for that matter would never have made bad investment decisions in their careers. 

So, it is important to remember this and not become narrow minded when we think of valuations.

Related posts:
1. When to BUY, HOLD or SELL? (Part 1)
2. Recommended books for FA and TA.

When to BUY, HOLD or SELL? (Part 1)

Buying and selling are natural opposites. The reasons for buying a stock and selling a stock, often, are mirror images as well. Intuitively, it feels right. How do we give form to an intuition? More accurately, how do we decide when to buy or when to sell?

Well, we often read about valuations. Some analysts might have a SELL call saying the stock is overvalued. At the same time, some analysts might have a BUY call saying the stock is undervalued. Then, there are some analysts who might say the stock is fully valued and have a HOLD call.

What can we take away from this? Valuation is subjective! Anyone who tells us it isn't doesn't know what he is talking about or does he?

There is a lot of literature on valuation techniques. If we do a search online, we will know that this is true.





So, which valuation technique to use? This is already an exercise in subjectivity. Then, each valuation technique could require us to make certain assumptions which is another exercise in subjectivity. Of course, we are only talking about bottom up approaches here.

What about a top down approach? This requires a grasp of economics, market conditions and industry specific trends, just to name a few things that come to mind. Reminder: the assumption that consumers have perfect knowledge when we discuss certain economic concepts only works in a classroom environment.

If you have zero or very little knowledge of economics and business, you might want to teach yourself by reading these books:

Timeless. US$17.61 a copy.

This book is heavy reading and somewhat pricey.
Click the book and search for
"Understanding Michael Porter:   
The Essential Guide to Competition and Strategy".
This is easier reading and much cheaper.

So, it is not surprising that experts could have differing views all the time. They could make different assumptions in their quantitative approaches and they could have different opinions on the qualitative aspects of businesses which require judgement calls. If experts have such a hard time, what can retail investors like us do?

Value investors are often looking to buy stocks at half of their intrinsic values. If a stock that has an intrinsic value of $1.00 is selling for $0.50, simply, it is a buy. Now, if a stock has an intrinsic value of $1.00 and is trading at $2.00, what do we do? You tell me.

The question is, therefore, how do value investors determine intrinsic value. They use an approach called Discounted Cash Flow (DCF). I shan't go into details here because there are many free online resources that will teach us what is DCF and we will realise that we could come up with different intrinsic values for the same stock. Why different values? We could make more conservative or more aggressive assumptions and values will change.

To understand cash flow, we will have to look at a company's cash flow statement. I blogged about it before and you can read it: here. If you want to read up on valuation using DCF, you could go to Wikipedia: Valuation using DCF.

Some people look at PER, NAV/share and NTA/share of a stock to see if it is undervalued or overvalued. Some might argue that if a stock has a very low PE and trades at a discount to NAV, it is undervalued. Well, it could be. However, if by doing a comparison, we find that other companies in the same industry have similar ratios, then, perhaps, it is just the industry norm.





I remember many years ago, I made a very good trade in Singland. At that time, most of the big name property counters rose in value but Singland was still stuck in a rut. I did a comparison of its ratios against its peers and found it was relatively cheap or, if you like, undervalued. I bought and within a couple of weeks, its price shot up. I cannot remember exactly now but it was quite a handsome capital gain. Singland was a laggard. I did not know if it was absolutely undervalued but it was relatively undervalued.

Different industries have different characteristics. Some are cyclical like the property market. So, given changing market realities, property stocks could see their share price fluctuating as well because their earnings are impacted negatively during down cycles and positively during up cycles. The same could be said of shipping stocks.

If you want to read up on how we could possibly make generalisations about stocks and have an inkling as to their characteristics, you might want to read books which I blogged about before by Pat Dorsey (here) and Peter Lynch (here and here).

By now, if you are still with me, good on you because I am not done yet. We are soldiering on in part 2.

Read part 2:
When to BUY, HOLD or SELL? (Part 2)

SPH: Something for traders and something for investors?

SPH is looking interesting as Mr. Market has become extremely pessimistic about it, it would seem. SPH's share price has been retracing to supports on lowering volume since 12 April 2013. This seems like a classic low volume pull back.

The MFI, a momentum oscillator which looks at both price and volume, has dipped further into oversold territory but this does not mean that share price will turn up from here immediately, of course. The CMF which measures money flow shows a possible higher low and this is what is interesting for me. Yup, a positive divergence, perhaps.

If my reading is correct, price might drift a bit lower with the 150% Fibo line at $3.99. It might also overshoot to the downside. Then, there could be a rebound and share price could go on to test channel resistance. $4.30, maybe?

OK, I know I shouldn't have done that. Done what? I just gazed into my crystal ball which is actually a bowling ball and tried to look into the future. Bad AK! Bad AK!



Clementi Mall

For income investors, fundamentally, buying at $4.00 a share for a possible annual DPS of 21c to 24c is not a bad idea, is it? We are looking at a dividend yield of 5.25% to 6.00%.

Some people say that investing in SPH is still risky compared to putting money in a 10 year government bond. The SGS 10 year bond now yields some 2.43%. In 2012, the yield was 1.3%.

Source: MAS

Imagine how bond holders were crushed recently but that is another topic.

Well, with gearing level at almost zero and a strong cash position, SPH is a relatively low risk investment for income now, I would argue. So, it is still a good investment for income especially if it is able to yield at least 6% per annum.

For traders who are thinking of doing some counter trend trading, there could be an opportunity here. For investors who are thinking of increasing their long positions for income, lower prices will make SPH even more attractive, of course.

Related posts:
1. Motivations and methods in investing.
2. SPH or SPH REIT?

What do these stocks have in common?

Which stocks am I referring to?

1. Marco Polo Marine
2. Yongnam Holdings Limited
3. AIMS AMP Cap Industrial REIT
4. Asian Pay Television Trust
5. Saizen Real Estate Inv Trust

They have all been upgraded by Maybank Kim Eng to 100% valuation in their list of marginable stocks.

Own any other stocks shown in the photo?

$25,000 worth of prizes from M1.

M1 has always been about making sure that each customer gets what he or she deserves.

This year, M1 took another step forward, listening to what each and every customer wants, and giving them exactly what they need.

M1 For Every One!

You could win S$25,000 worth of prizes. Details:
http://sg.sharings.cc/AK71SG/share/M14G

Enjoy $30 discount on GUESS denim purchases!

Where? GUESS Paragon and GUESS Taka store!

When? 17th August between 12-4pm!

Need a new pair of Jeans? So, get ready to find the perfect pair of denim this Saturday!

For all the details, go to:
http://sg.sharings.cc/AK71SG/share/GUESSDenim

Xiaxue just got a free car (for a year)!

When I saw the blog post, I exclaimed, "Xiaxue got a free car!" and immediately turned a shade of green. Which car is it? A beautiful white colour Nissan Sylphy, no less.

Reading on, I found out that, actually, she gets to use 3 different rental cars for a whole year for free. Well, that is still a fantastic sponsorship given the high cost of car ownership in Singapore.

I am very happy for Xiaxue but reading this just when I published my last blog post on why the mature and sophisticated lease their cars is just an amazing coincidence.

Xiaxue said:

"Many of us, especially those with young children, hope to drive but it is simply too expensive to own a car in Singapore nowadays. The value of a car will always depreciate too.

 "The smarter option is to simply rent a car!

"My Sylphy is available for rent at Downtown Car Rentals for a day at only $135 - it is very reasonable!

"Drive it around to run errands, do groceries or bring the kiddos out for a picnic. You don't have to worry about insurance or road tax or even servicing the car, it's all inclusive!"

Source: http://xiaxue.blogspot.sg/

I mean, of course, she has to say this but I cannot imagine renting a car for $135 a day as being anywhere near being reasonable. If we were to rent a car for 2 days a week (to run errands and do groceries), that would set us back by at least $1,080.00 a month! Yikes! What is the size of our grocery bill in a month, I wonder?

Anyway, like I said, I am happy for Xiaxue but anyone who believes that anyone should consider renting a car regularly to run errands and to do groceries is probably bonkers.

OK, there, I have done it. There is not a chance in the world that I would get a rental car for free from any sponsor now. Sob.

Related post:
Mature and sophisticated consumers lease cars, not buy.

Mature and sophisticated consumers lease cars, not buy.

From time to time, I would blog about car ownership in Singapore. Without realising it, I have blogged about "cooling measures" for cars at least three times in the last few months.

Now, with the maximum 60% loan allowed for buying cars, some distributors are offering customers the option to lease instead if they find it hard to cough up the initial 40% in cash.

For a Kia Cerato Forte K3 1.6 litre, there is an option to lease for 3 years at about $1,800 a month or for 7 years at about $1,600 a month. Customers don't have to worry about road tax, insurance and maintenance at all. They only have to buy petrol, pay for parking, ERP and the infrequent car wash, I suppose. Sounds attractive, doesn't it?

As usual, the devil is in the details. So, let us look at some numbers:

A new Kia Cerato Forte K3 now sells for $115,990.

If we were to make a 40% down-payment and take a 5 year loan with a 1.88% interest rate for the balance, we would have to make a monthly repayment of $1,268. The car would also be an asset and no longer a liability after the first 5 years.

Click to enlarge.

Cost of car over a 10 year period: $122,479. This might be simplistic and inaccurate but let us assume that the cost of the car in the first 7 years is proportionally at $85,735.

The road tax for this 1.6 litre car is S$738.00 a year while insurance would vary but let us assume that it is $1,500 a year. Maintenance? Based on my car ownership experience, I would put it at $800.00 a year which is realistic if smoothed out over 7 years. So, everything in, we are looking at around $3,100 a year. Over 7 years, it is about $21,700.

Now, if we were to lease the car for 7 years, the bill would total $134,400.

If we were to buy the car instead, in the first 7 years, the "bill" would be: $85,735 + $21,700 = $107,435.

There is a big difference of $26,965 or a $3,852 a year or $321.00 a month!

Now, if we were to drive the car for another 3 years, at the end of the 10th year, we would get back a percentage of its OMV. In this case, we might get back around $9,000 from the LTA. Of course, we would have lost another $36,744 (i.e. $122,479 - $85,735) by then. We would also have incurred another $9,300 in costs (i.e. $3,100 x 3).

However, being able to get back about $9,000 at the end of the 10th year means that we would only lose in each of those 3 years $1,028 a month or some $279.00 lesser than the first 7 years of the car's life.

So, unless there is a good reason not to, it makes sense to buy and to drive the car for the full 10 years or would we rather lease the car for 7 years, give it back and lease another one for another 7 years, losing $1,600 a month all the time?

The "cooling measures" are to protect people who are in financially weaker positions and, in this case, for people who cannot afford the down-payment of $46,396. However, the option to lease offered by car distributors has effectively circumvented the new rules.

Are more curbs from the government needed?

If a job is worth doing, it is worth doing well. So, to further encourage financial prudence, there should be clearer guidelines as to who are poor candidates for such options to lease. Car dealers should then be penalised for flouting these guidelines.

Opel's Mr. David Pang said that, with their option to lease, they are targeting "mature and sophisticated buyers. Those who have travelled and lived overseas can identify with the merits of leasing as opposed to buying."

AK71 has not travelled and lived overseas. He is not a mature and sophisticated buyer. So, you might want to disregard this blog post. I am going back to my well.

UPDATE:
http://singaporeanstocksinvestor.blogspot.sg/2016/05/what-new-mas-rules-for-car-loans-mean.html

Related posts:
1. Cooling measures for cars.
2. Cooling measures for cars spurned.
3. Cooling measures for cars: Buying pre-owned.

Marco Polo Marine: Will FY2013 better FY2012?

Year on year, Marco Polo Marine's ship chartering business enjoyed growth in revenue of 147.2% to S$39.3 million for the first 9 months of FY2013. It grew 234.6% to S$17.4 million in Q3 of FY2013 alone.

Ship building and repairs, unfortunately, weakened 52.3% and this reflects the issue of serious over capacities dogging shipyards everywhere.

The question to ask is whether ship chartering is able to pick up the slack and I think it is reasonable to expect that it would. This could be a good thing too as Marco Polo Marine's ship chartering business is a higher margin business compared to ship building and repair.

For the same 9 months in FY2012, ship chartering accounted for 22.7% of total revenue. Now, it accounts for 60.4%. If the malaise in ship building and repair should continue and it seems like it would, ship chartering would probably account for an even bigger share of total revenue especially with the contribution from the AHTS, MP Prevail, which was acquired in June 2013, kicking in.

This growth in revenue from ship chartering will gain momentum as Marco Polo Marine plans to buy another AHTS before end of the year if the opportunity should present itself. They are also building more AHTS in their own shipyard for delivery to BBR in 2014.

For the full FY2012, revenue was about S$ 90 million. For the first 9 months of FY2013, S$ 65 million in revenue has been recorded. So, the group needs to generate another S$25 million in revenue just to equal last year's performance.

It is likely that we will see ship chartering's revenue in Q4 exceeding Q3's S$17.4 million due to contribution from MP Prevail. Another S$0.5 million, perhaps? So, estimated revenue from ship chartering in Q4 could be in the area of S$17.9 million.

Unless ship repair generates lower revenue in Q4 compared to Q3, it is more likely than not that FY2013's overall revenue will equal FY2012's or maybe even exceed it by a bit.

Furthermore, due to the higher margins in the ship chartering business, I would not be surprised if net profit turns out to be higher in FY2013 compared to FY2012 despite a lack of overall revenue growth, exceptional gain of $5.7 million not withstanding.

Anyone who is investing in Marco Polo Marine must be willing to wait as the numbers are expected to improve significantly in FY2014. This means a waiting time of another 12 to 15 months.

Some numbers now for 9M FY2013:
EPS: 5.32c
NAV: 46.8c per share.
Gearing: 59.2%

Stripping out the exceptional gain of $5.7 million, what I believe to be a fair estimate of the EPS for the full FY2013 is around 5.4c. So, at 38c a share, we are looking at a PER of 7x. I don't think the stock is expensive. Given the probability of higher earnings in FY2014, definitely, it is not expensive.

Although I expect that the company is able to repeat a DPS of 0.8c in the next quarter given its cash position, it is perhaps more prudent to refrain from doing so given its current strategy to grow its fleet of OSVs more aggressively.

If there should be a decline in share price, I see support provided by the 100w MA at 37c. I would probably buy more if that should happen.

See media release: here.

Related post:
Marco Polo Marine: Bracing news from Indonesia.

A fan of ABSOLUT Vodka?

My younger sister is a fan of ABSOLUT Vodka. No, she doesn't get drunk drinking it. She gets drunk collecting the different bottles! On a few trips overseas, I was tasked to buy the latest design for her.

I think she will enjoy ABSOLUT Canvas.

This is an exhibition at the National Museum of Singapore and is one of the highlights of this year’s Singapore Night Festival. It features ABSOLUT bottles that have never been seen in Singapore before!

With close to a hundred bottles on display, visitors will get a chance to view rare and limited editions of ABSOLUT VODKA separated into six different themed showcases – the CITY Edition, TRAVELLER’S Edition, DISPLAY Edition, VODKA INNOVATION Edition, LIMITED Edition and RARE BOTTLES Edition.

If you are a fan, you cannot miss this:
http://sg.sharings.cc/AK71SG/share/AbsolutCanvas

SIM GE Open House 2013

Learn how SIM Global Education (SIM GE) equips you for success, with Diploma, Bachelor’s and Master’s Degrees.

Partnering 12 international universities that include the University of London, University of Manchester and University of Birmingham, SIM GE offers more than 50 full-time and part-time programmes.

Breakfast Network for Parents
An event to help parents who want to learn how to guide their child in making an informed education choice. An experienced career coach will share tips and an alumna will also share her education experience in SIM.

Attend programme briefings, scholarship talks and mock lectures to find out more:
http://sg.sharings.cc/AK71SG/share/SIMGE13

NeraTel: BUY. Target price $2.00.

Some people ask me if it is still a good time to buy into NeraTel. Since I was willing to pay 70+c recently for its stock, it must be a good idea to buy at the current price too, especially when a dividend of 2c has just been declared, right?

I think some people got me wrong. They have to understand my motivation for being invested in NeraTel in the first instance. It is primarily for income. For income? Yes, I added to my long position in the stock in a big way not too long ago because I was looking for a non-REIT to become a bigger part of my investments for income. NeraTel fits the bill.

"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." Source: Motivations and methods in investing.

As I revealed, I first got into NeraTel not at 60c or 63c. I first got into NeraTel at 40.5c. I know people who got in even lower. I didn't do much by way of due diligence back at 40.5c. So, it was a smallish position. I just bought and held.

Due diligence in June confirmed that:

"This is a net cash company and has a record of paying consistent and meaningful dividends. Its last payout was 4c a share with an EPS of 5c. At today's closing price of 61c, we are looking at a dividend yield of 6.56% which is very decent. With its recurring revenue streams, dividends are probably sustainable." Source: Which stocks have I been accumulating in June 2013?

Now, at 80c a share, with a DPS of 4c, we are looking at a dividend yield of 5%. That is still pretty decent for anyone who is investing for income but I don't think of it as extraordinary. I think of it more as ordinary. So, in my opinion, it is a fair price. Not expensive but not cheap either.

Then, why did I buy at 70+c? Regular readers might remember that I did that only to restore my long position after a partial divestment at 84c earlier. I did not end up with a long position bigger than what it was prior to that partial divestment. This is consistent with my primary motivation to have NeraTel contribute meaningfully to my passive income. The gains from trading was a bonus.

So, do I not think this is a good time to buy more of NeraTel's stock? Weren't NeraTel's results good? Don't I think NeraTel will be able to deliver on their KPI of a 100% growth in profits over the next 3 years?

Paraphrasing my recent comments on my Facebook wall (https://www.facebook.com/assi.ak.9), I think the results are good. It is a good business to invest in. However, with the share price being where it is, anyone buying now is buying into a belief that the company will do even better in future. Much better. This is not hard to believe but there is, obviously, a risk that we could be wrong.

3 years although not long is not short either. Many things could happen in 3 years. If 100% growth could be achieved, this stock should be worth $2.00 by then. $2.00? Yes, this is just a back of the envelope estimate.

How do we balance the history and the future of the company? Looking at past performance is easy but to look into the future with accuracy? That is definitely not easy. However, this does not mean that people will not try to do it and there are many BUY calls with their own target prices and fair values for the stock. We have to remember that all these are based on expectations.

Although Mr Market is able to accept much higher PERs for growth stocks, if NeraTel should disappoint, Mr. Market will show his displeasure very quickly in the usual way. So, what are the downside risks?

If someone is still wondering if he should be investing in NeraTel at current prices, very importantly, ask what is his motivation for investing in the stock. The investment is a good fit for my motivation at the prices I got in. If I were not yet invested, I might initiate a small position. Is it a good fit for his motivation?

As I am corrupted by TA, I also said that investing in NeraTel at current prices is possibly not for the faint-hearted and if we look at the weekly chart, it is easy to see why I said that:

Now, no chartist in this world is able to tell us that NeraTel's share price will definitely retrace to test any of the supports shown by the Fibo lines. No chartist can tell us that NeraTel's share price will not go higher. Heck, depending on one's motivations, charts might not even be relevant!

On that note, happy holiday!

Is investing in stocks suitable for you? (UPDATED: "Some people should not own stocks." Warren Buffett)

Some people say that investing in the stock market is risky. 

Some people say that leaving money in savings accounts is risky. 

So, if we put half of our money in the stock market and leave half of our money in savings accounts, we are doubling our risk exposure. 

No? Oh dear. 

This is what I have been doing. 

I am in trouble, I think.


If you feel that this blog post is beginning to feel somewhat surreal and totally not in AK's style, you are not alone. 

I feel the same way too.





From time to time, I receive emails from readers and, from time to time, there would be a reader who says he has $5,000 or less to invest with. 

The question is usually what should he invest in? 

Personally, I feel that the pertinent question is if he should be investing at all? 

Well, if I had only $5,000 or less to invest with, I wouldn't.

I think the money is better left in an emergency fund. 





It is too little to really make any big difference to a person's financial well-being even if he were to achieve, say, a 10% return a year. 

After 7 years, that $5,000 would become $10,000 perhaps but there is also a chance that he could suffer financial loss in that 7 years. 

There is no guarantee that he could get back his money if he should need it.





Of course, now, we have services like those by POSB and OCBC which will allow such investors to gain exposure to the stock market. 

Matthew Seah, a guest blogger here, has also blogged about these recently.

Reading the latest issue of The EDGE, I came across this:

"Ultimately, the most important thing for investors to know is whether exposure to stocks, in whatever form, is really what's best for them. 

"Banks such as POSB do, of course, inform investors of the risks they would face with any investment products they sell.

"Yet, are stocks really a good investment for someone with only a small amount of savings?

"Is the risk that comes with potentially superior returns really acceptable?

"Can long-term financial goals be achieved through spending less instead of investing more?

"Portraying a portfolio of blue-chip stocks as a packet of crisps isn't helpful to investors who might be searching for answers."





Very pertinent questions, I feel.

This reminds me of a comment by a reader and fellow blogger, hyom hyom:

"I am always attracted to posts that talk about money-saving techniques because successful saving provides a guaranteed return as opposed to investing which is risky by nature."

Although I feel that we should learn about investing as early as possible in life, I agree that investing in stocks, for various reasons, might not be suitable for everybody at one point or another in their lives.

Of course, like Warren Buffett said before, some people should not own stocks at all.





Related posts:
1. POSB Invest-Saver account.

2. OCBC Blue Chip Investment Plan.
3. Know what is good for us.
4. A common piece of advice on saving.
5. At what age to start investing in stocks?

Cheap! Cheap!

For a long time now, I have not bought Ferrero Rocher chocolates because I refuse to pay 40c or more per piece. Today, I went on a rampage:

My precious!

Price: S$ 4.80 for 5 packets (3 pieces per packet). 32c a piece! Cheap!

This is a National Day deal at The Cocoa Tree.

If you have a weakness for chocolates like I have, must be fast hands fast legs hor. ;p

(Not an advertorial but it is a fantastic deal!)

Related post:
7 money habits of AK71's

Perennial China Retail Trust: 1H 2013 DPU 1.9c.

Here are some numbers I pulled out:

NAV/unit: 74c
Gearing: 23.74%
Debt Service Ratio: 3.2x

So, what do I think? I did a rather detailed blog post back in February and my view of the Trust has not changed.

Buying into PCRT is really buying into the story that Chinese domestic consumption, at only a third of GDP, will grow and that the Chinese economy will stay strong. We are buying into the Trust's potential to deliver in future.

Right now, I would say that investing in PCRT is still relatively risky although the level of risk is much reduced compared to the time of its IPO.

People who invest for income must realise that much of the distributable income is made up of money from earn-out deeds. It is not cash flow generated from operations of the buildings per se. It is money that is being paid out from guarantees while we wait for the buildings to generate more cash flow.

Based on the earn-out deeds currently available, the Trust is able to continue distributing income to unit holders for another 18 months. Translated, it means that its properties must pick up the slack by end of 2014, everything else remaining equal. Of course, it is unlikely that things will not see any progress and just stand at where they are now.

A more pertinent question is how much improvement can we see? This is really something we cannot say for sure and this comes with the territory when we invest in start ups which is also why I insisted that the distribution yield must be higher for PCRT compared to CRCT for it to be attractive to anyone investing for income. Investing in PCRT arguably is not mainly for income but for growth.

Investors will want see stronger occupancy and evidence of improved cash flow from operations over the next few quarters. The management has to show better results and fast.

See slides presentation: here.

Related post:
Perennial China Retail Trust: DPU 1.96c.

Soilbuild Business Space REIT (Soilbuild REIT).

This REIT's full name is a mouthful. Reminds me of Sabana REIT and AA REITs' full names. Maybe, based on that, I should be interested in it.

Soilbuild gave a range of unit prices from S$0.77 to S$0.80 and had to settle for $0.78. This gives me the impression that Mr. Market might not be too keen on the IPO.

"Soilbuild Business Space REIT (Soilbuild REIT), which owns two business parks and five industrial properties, is offering 586.5 million units. The placement tranche comprises 524 million units and the public offer 62.5 million units.

"At S$0.78, the REIT offers a dividend yield of 7.7 per cent based on projections for fiscal 2014.
Soilbuild and founder Lim Chap Huat will hold an interest of about 27 per cent in the REIT post-IPO, the company said.

"The IPO closes on Aug 14, with listing scheduled for Aug 16." (Source: TODAY online)

At $0.78 a unit, it is at a slight discount to NAV of $0.80 a unit and gearing is approximately 30%. The weighted average lease of its portfolio of properties is 50.5 years.

While seasoned investors in REITs might say that it is possible to get a higher distribution yield from Sabana REIT, with Soilbuild REIT, we wouldn't have to worry about expiring tenancies until much later. Also, Sabana REIT's gearing is closer to 40% than 30%.

Of course, the longer weighted average lease of its properties might make Soilbuild REIT a preferred choice for investors worried about land lease renewals.

Is this a buy? Well, investors for income should be attracted to this IPO. I do not see any red flags in the numbers. However, given the current cautious mood towards REITs, if we are expecting big capital gains, we could be disappointed.

Could it not do a 10% price appreciation on its debut like SPH REIT did? Although that would send its distribution yield for 2014 to under 7%, it could happen. Who knows? Frankly, if that should happen, AIMS AMP Capital Industrial REIT, with its redevelopment plans and AEIs, would look more attractive then.

So, I do not see how Soilbuild REIT is significantly more attractive than other industrial S-REITs for Mr. Market to pay much more for it. I feel that the IPO is pricing Soilbuild REIT at a fair price.