Tea with Mike: Analysis of Yangzijiang, an S-chip (Part 2).

Now, let’s address the various concerns I have with regards to investing in YZJ:

1) Falling margins for shipbuilding

Most of the fat contracts secured during the boom years in 2007-2008 are over. One should not expect margins to be fat today but I doubt we will see a free-fall in margins. YZJ's latest quarter's margin is about 20% for its core shipbuilding segment which is low by historical standards but if we compare it with Chinese peers, it’s not bad at all. Management has mentioned they will not drastically lower prices to secure deals. Although I take their word with a pinch of salt, the numbers seem to bear this out too.

2) Operation and execution risk

One of the bigger deals undertaken by YZJ that is due for delivery is the 10,000 TEU container ship. One should closely monitor the delivery as any prolong delay or problems after delivery will be serious, and I would run with my money at double quick time

 

3) Another fraud in the making?

Yangzijiang, being another S-chip, does need close scrutiny. I cannot ascertain their numbers, but there are a few things I take comfort in. They have FCF in all but 2011, and this translate to dividends, so it’s not a complete paper exercise. Due to the fact that they are dealing with ships, it is extremely difficult to fake a deal, you can check if there is indeed a deal from the customer side (Yangzijiang’s customers are renowned, big companies with ready information on their website) There is also third party website that track shipbuilding orders and the sale of 2^nd hand vessels, so chances of a fabricated deal is very low, but there is no way to track margin. E.g. they can be making a loss from building a ship due to cost overrun, but under-report the COGS in the quarterly reports, and there is no way can be sure when it comes to such nitty gritty.

4) HTM investments

This is my biggest concern. Yangzijiang has 12 billion in HTM (held to maturity) investments.  Such investment has provided them with a steady stream of supplementary income, and ensures their financial strength, which is critical in the ship building industry. The HTM investment is literally loans to companies who otherwise are unable to get loans at better rates. So, if you like, Yangzijiang has a banking arm.

More than half of its HTM is charging interest rate of more than 12%, and about 1/6 of it HTM is above 18% when the PBoC benchmark rate is about 6% and effective interest rate of YZJ loans is only 4%. (From 2012 AR)

I am concerned about the strength of the companies that need to loan from YZJ at above 12%  which is also known as the shadow banking rate. However, impairment level till 2012 is less than 5%, and from their latest quarterly report, there is zero bad loans, loans are covered by collateral pledged by borrowers.

Another reason why I find the HTM risk easier to bear is fact that about 55% of the collaterals are properties or land, and YZJ has set up a property development arm to develop land at the old shipyard when they were asked to vacant the land for other development purposes, so it seems that the management does have a contingency plan. From the interview with NextInsight, most of these land and properties are in Jiangsu where it operates. Hence, they do not have any problem that comes from a lack of local knowledge.

Ship building and its related activities still contribute up to 90% of its revenue. So, even if there should be some inflated issues with HTM, which are assets and not liabilities, YZJ should still survive.

In conclusion, if you cannot trust the numbers of YZJ, you should not invest in it. If you trust the numbers, there are several good things going for it. Hope my analysis make sense.

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Read Part 1: here.

Tea with Mike: Analysis of Yangzijiang, an S-chip (Part 1).

The recent episode with China Minzhong was viewed by many, including professional analysts, as the proverbial last straw that broke the camel's back. S-chips have been declared by them as untouchable and even toxic.

Surely, S-chips have reached a low point and are mostly unloved. In such a situation, are we brave enough to venture forth to sort through the debris to find hidden gems? See what Mike has to say about Yangzijiang (YZJ) which he is vested in.

.................................................

Before I start, to avoid losing sleep over this blog, I must say that  all information I am sharing here is to my best knowledge accurate but I cannot be held liable for any errors. Of course, please point them out if you should spot any.

I invested in YZJ because it fits my approach to investing which is to buy into an alpha company in a cyclical industry during a down cycle. In my opinion, the low valuation of this company is unjustified.

 

1. YZJ pays decent dividends, consistently paying out about 30% of their earnings, yielding about 5% based on recent share price. I like companies that compensate me while I wait for the upturn.

2. I like the management's foresight. In a time when China is competing head on with South Korea for a share of the global shipbuilding pie, many shipyards competed on costs, and offered great terms to build smaller bulk carriers and container ships. YZJ moved into “green” technology that saves on fuel costs and built large container ships. They are the first in China to build 10,000 TEU container ships for Seaspan, but lost the crown to Jiangnan Changxing, which has signed deals to build 16,000 TEU boxships.

If we followed the recent developments in the shipping sector, many are talking about LPG carriers, YZJ through an interview with The EDGE Singapore, mentioned they are in talks with companies for building such. While it is akin to counting eggs before they are hatched, it does show that the management is on top of things where industry trend is concerned.

3. I also like the management's prudence. They did not venture aggressively into the O&G sector which proved costly for COSCO, instead they developed a financing arm (Mirco-financing and HTM investment) which works well for them so far. Of course this is not without controversy and risks. I will talk about this later.

4. Although their order book has shrunk considerable from the boom years, it is beginning to grow again. Order book shows about USD3.24b with 47 outstanding options worth about USD2.54b that are not yet exercised by its customers. Their customers base has also grown since their IPO.  

5. Ratios and financial numbers? I have mentioned about low gearing, reasonable P/B of 1.1 and PE ratio of 5.4. Valuation has not taken future recovery into account. This is unlike many hot stocks which have valuations that have already accounted for expected strong growth for years to come.

6. There is favourable sector development. The PRC government is trying to reform the shipping industry. They want the top 10 shipping companies to account for 70% of the ship building contracts. YZJ is in the top 5.  Although no one will want to start a shipyard in China now, as demand recovers, domestic competition might increase and disrupt the consolidation of the industry. So, the PRC government has effectively closed off such competition by not issuing anymore license to potential new players. In addition, they also do not allow any expansion of capacity of existing builders'.

..........................................

In Part 2, we will see what Mike thinks are the possible risks of investing in YZJ.

Continue reading: Part 2.

Related post:
Tea with Mike: Approach to stock selection.

China Minzhong: A fully substantiated point by point rebuttal.

Now, we know why it took China Minzhong so long to respond to Glaucus Research. Call me impressionable but the response is rather breath taking. A shock and awe operation almost.

No effort has been spared as a full force encyclopaedic response has been issued:

See:
1. China Minzhong strongly refutes allegations.
2. Annex A to D.
3. Annex G.
4. Annex H to K.

Is China Minzhong's response good enough to restore confidence in Mr. Market?

Glaucus Research could have done the shareholders of China Minzhong's a favour if Mr. Market buys up with a vengeance upon lifting of the trading halt. Anyway, if Glaucus Research has indeed made a colossal boo-boo, they will be scrambling to cover their short position.

Well, I am only talking to myself and I could be bias since I have a long position here.

Related post:
China Minzhong: What could happen and what to do?

Tea with Mike: Approach to stock selection

There are many ways of selecting stocks. Some people use ratios such as PER and P/B. Some people look at charts, spotting 52 weeks highs and lows. Some look for the highest yields. The list goes on. When I first started, I felt overwhelmed and didn’t really know what to look for.

Over the years, I adopted an approach that is similar to Graham's “large companies that are out-of favour” tactic. I look at alpha cyclical companies during their down cycles and I believed that will offer some margin of safety.

I bought into 2 counters, Golden Agri and YZJ, using this approach. For shipping industry, the Baltic Dry Index (BDI) hit record bottom at 661 last year. The peak was 11,000. Even if one were to take the average, we can quite safely say the BDI was nowhere near where it would be mid-cycle. Shipping down cycle is characterized by a dearth of new shipbuilding orders, collapse of freight rates, and the bankruptcies of weaker players, and all these have happened in the past 1 year. So, I can safely conclude that we are near the trough of a down cycle. Near? Yes, because there is no way to ascertain if we have reached the bottom yet.

Then, we search for alpha companies. These are companies in the sector that have the strongest financial strength and operating efficiency. This is so that our investment does not go to the dogs and get consumed by the down cycle. I shall not go into detail about YZJ, as that itself would be a long blog but, particularly, I looked out for a low gearing level.

Both Golden Agri and YZJ have low gearing levels. More important is the amount of short term loans to be repaid. Down cycles combined with the maturity of large loans is what killed many companies. Even the biggest private shipyard in China, Rongsheng, is facing severe difficulties because of this.

Next, while profits would be affected negatively, there should not be losses, and the companies should be big enough to show resilience in earnings through previous crises. There should be Free Cash Flow (FCF) in most of the operating years too

Golden Agri’s earnings are levered heavily on Crude Palm Oil's (CPO) price, and its production levels. If we look at the last 30 years, 2013 has seen CPO price falling more than 40% from its last peak. Although inventory has been piling up, Golden Agri will not be able to increase its production at the same rate it has been able to in the past. I bought it for its vertically integrated businesses and its economies of scale. For higher production growth, one should, perhaps, look at First Resources.

This approach requires a lot of patience as the sectors are out of favour and there is very little chance that the share prices would shoot up suddenly. Also, as AK always says, cheap could get cheaper and this is especially true in such out of favor stocks. Say ship building and most people would frown. So, there might be selling pressure from time to time but if the companies are fundamentally strong, such selling pressure provides opportunities for accumulation.

I would like to acknowledge that I first got some ideas and information from Calvin Yeo of "Invest In Passive Income". A link to his blog can be found in the left side bar of AK's blog.

-------------------

AK's comment:

I was heavily invested in Golden Agriculture at one time, recognising that it was heavily levered to the price of CPO. When CPO price was rising relentlessly, Golden Agriculture was a good investment. I made a tidy sum from it. Mike's approach is valid, I am sure, but one has to be patient.

We could consider investing in Wilmar International which also has an exposure to CPO but it is less levered to CPO production which forms less than a fifth of its earnings. Wilmar has a pretty diversified earnings base. However, if we are looking for positive Free Cash Flow, then, Wilmar would fail our selection process.

As for ship builders, I would also frown when I hear the phrase. However, we can find nuggets in the sector and when we look at what Cosco and YZJ are doing, we know where to look because these yards are venturing into building for the O&G industry. This is what KepCorp and SembCorp have been doing for years. With more rigs delivered, there is a higher need for OSVs and, yes, I am invested in Marco Polo Marine which has the added advantage of a strong moat. However, if we are looking for positive Free Cash Flow, then, Marco Polo Marine would fail the selection process too.

I believe that Mike's approach is probably suitable for anyone who is more conservative since stronger companies in cyclical industries are unlikely to go bust in a down cycle. When the up cycle returns, these companies should lead the recovery.

Thanks, Mike, for offering us your perspective on stock selection. It has provided me with food for thought.

AIMS AMP Capital Industrial REIT: Nibbling with GW.

It seems that AK and GW had the same idea as to when to buy more of AIMS AMP Capital Industrial REIT:

Buying at $1.36 is buying at a 10% discount to valuation and with a forward distribution yield of some 8%.

Source: here.

GW went on to buy more (107,000 units) the next day on 27 August at almost $1.40 a unit. See: here.

I ask myself when to buy more of a fundamentally sound REIT? At a nice discount to valuation and with an attractive yield seems like a good idea to me. So, if AIMS AMP Capital Industrial REIT were to see its unit price decline another 10%, what to do? What? $1.20 a unit? Easy or tough question? Maybe it is a trick question? I better think harder.

What about a rising risk free rate? Good question. See #3 in the related posts below.

Related posts:
1. REITs: When to buy?
2. Do not love unless it is worth the loving.
3. Saizen REIT: Risk free rate and unit price.

Saizen REIT: Risk free rate and unit price.

This blog post is a response to a comment from Solidcore. See his comment: here.

I am adding to his comment by saying that although understanding our motivations is important in our investment efforts, we have to remember that, alone, it is not enough for us to make sound decisions, of course.

If we believe the news, a 10 year US Treasury will have a risk free rate of 3.5% eventually. This is, however, unlikely to happen rapidly in the near future. Why? The USA is, at best, emerging from its problems and we see Europe and Japan still doing their own QEs with no sign of stopping.

So, if we are after distribution yields from S-REITs, having lower unit prices, everything else remaining equal, is good for us. This is easy enough to understand. However, at the same time, given the realities and the possibilities of the day, we want to avoid capital loss as well. How do we manage this?

For example, Saizen REIT's DPU, using their forward currency hedge rate as a guide, is likely to provide a DPU of 1.1c per annum. 10 year US Treasury now has a yield of 2.7%, if I remember correctly. It was a percentage point lower not so long ago.

So, it follows that Saizen REIT would have to provide another 1% in distribution yield to make itself an attractive investment for income. It will find this harder to achieve since its DPU will decline in S$ terms due to a weaker JPY. Of course, the REIT could have DPU accretive acquisitions in the next few months which is why analysts are saying if we want to invest in REITs, invest in those with room to grow their income distributions. More accurately, invest in those which could grow their DPUs.

All in all, a back of the envelope calculation tells me that Mr. Market would likely be more enthusiastic about Saizen REIT if it should offer a 7.5% distribution yield with risk free rate rising to 3.5%. With DPU estimated at 1.1c, this gives us a target unit price of 14.7c. Isn't that a shocker?

Well, it doesn't mean that we cannot buy at 17.7c, 16.7c or 15.7c. After all, 14.7c might not see the light of day. 14.7c is a number I concocted, after all. Mr. Market doesn't listen to me, does he? For example, I told myself in an earlier blog post that MIIF, post APTT IPO, would only be worth buying at 14c but see what happened recently? ;p

To add, Saizen REIT's loans are all domestically arranged and with BOJ bent on keeping interest rates low, the REIT's cost of debt will remain relatively low. This is demonstrated by the REIT's recent refinancing activity which has lowered its cost of debt. So, there will be some resilience in the REIT's future income distributions.

Such exercises prepare us for what could be the downside potential of our investments. This is also something we have to be comfortable with. So, if we had bought at 17.7c for the projected 1.1c in annual DPU, how would we feel if unit price were to fall to 14.7c? If we are uncomfortable with the downside potential, then, most probably, we are investing with money we cannot afford to lose.

Related posts:
1. Motivations and methods in investing.
2. Saizen REIT: DPU of 0.63c.

Tea with Solace: Common Sense Investing.

This is a book recommendation by Solace, the same person who recommended "The Little Book That Beats The Market" a few weeks ago:



The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns

Bogle's main point is that the best (most efficient) investment strategy is to buy and hold all publicly traded US businesses at a low cost. He recommends this very simple approach as a superior alternative to the incredibly complex array of specific investment options available today. He describes this as Bogle's Corollary: "Don't look for the needle in the haystack. Just buy the haystack!" - Chad Warner

Related posts:
1. The Little Book That Beats The Market.
2. Tea with Solace.
3. Blue Chip Investment Plan.

Marco Polo Marine: It got cheaper.

Mr. Market has been oozing pessimism and I mentioned in a comment recently that Marco Polo Marine's stock is looking very attractive to me now but I also mentioned that cheap could get cheaper. It would be safer to add to my long position if I should see a reversal signal.

Well, I think I might be seeing positive divergences. One could argue that Marco Polo Marine is such a thinly traded stock that TA is practically useless. Valid point.

Then, what about FA? If I were to use the EPS for FY2013 which I estimated in an earlier blog post to be 5.4c, at a share price of 34c, we are looking at a PER of 6.3x. I think that is pretty attractive considering that I expect FY2014 EPS to improve significantly by some 20%.

Marco Polo Marine is my largest investment right now and its current share price isn't that far from the prices I first paid more than a year ago. Those were at 31.5c to 32.5c.In fact, I also bought more at 34c in September last year.

I believe buying at 34c now provides more margin of safety and better value for money than a year ago. Now, who says opportunity doesn't knock twice?

Related post:
Will FY2013 better FY2012?

China Minzhong: What could happen and what to do?

I received an SMS from a friend that CIMB and Lim & Tan ceased coverage of China Minzhong. I responded by saying that maybe I should do it too. Seems like an easy way out of the mess. If analysts who are paid to do what they do are jumping ship, shouldn't an amateur investor and part time blogger do the same?

On a more serious note, with this event following so closely another event which recently affected a few readers, I am thinking more deeply about the future direction of my blog. ASSI today is not the ASSI from almost four years ago, after all. Blogging is meant to be an enjoyable past time for me but with the rising popularity of my blog, naturally, there will be greater expectations and, with this, greater responsibility, whether I want it or not.

It should not come as a surprise that I have been thinking quite a bit about China Minzhong since yesterday. However, it might come as a surprise that I am not too affected by the possibility of a total loss if all allegations by Glaucus Research were proven true in due course.

I am more affected by the possibility that some readers might have followed my moves to buy into China Minzhong when I did. Well, if they should make money, all well and good, but if they should lose money, then, I would be quite unhappy. This is something that is constantly on my mind now.

I was really thinking of not blogging at least until China Minzhong's management has issued a more substantial response which, hopefully, would be a point by point rebuttal against the allegations made by Glaucus Research. Although some might disagree, I maintain that unless we have heard from both parties, it is too early to conclude anything.

So, what changed my mind and why am I blogging now? Well, as some might guess, I received quite a few emails, comments and messages over this matter. To all the people who have sent me encouraging messages and who have shown concern, my heartfelt thanks. I also received a suggestion that I could share my thoughts on what am I going to do now.

I read some unkind remarks that some have made about people who are invested in China Minzhong and some also made conjectures as to how we might hold demonstrations in Hong Lim Park, asking the government to intervene and, perhaps, even to hold GIC accountable. Well, apart from being unhelpful, these remarks might make affected investors feel worse about the whole matter. I will ignore these people. It is not a productive use of time and energy to engage in a debate with them.

Instead, all who are vested should think of what could happen and what to do.

Obviously, there isn't anything we could do until the trading halt has been lifted and this is unlikely to happen until China Minzhong has issued a more substantial response. There is always a likelihood that the stock could be suspended, pending further investigation. Whether a suspension takes place or not, we might want to make provision in our books for the possibility of a total loss.

Assuming that the stock were not suspended and that trading were to resume, shareholders would have to determine for themselves if they were satisfied with China Minzhong's reply. To stay invested or to divest would depend largely on this.

I will say that even if some of the allegations against China Minzhong should be proven false, this episode would still cast a pall over the stock and might affect its share price negatively. Only if all of the allegations were proven false would China Minzhong live to see the light of day once more.

Of course, there is really no way anyone could tell for sure how things would turn out next. Instead of guessing and losing sleep, the best thing to do is to get on with life and wait for further developments.

However, for people who have invested much more than they should have in China Minzhong, this could be a tall order. This is why I have said time and time again that we should always only invest with money we can afford to lose and not more.

Related post:
Share price plunged by more than 50%!

China Minzhong: Share price plunged by more than 50%!

There are so many unexpected things which happen in life. The drastic plunge of more than 50% in China Minzhong's share price at one point this morning was definitely unexpected.

A quick search online found the probable reason behind the selling:

Glaucus Research Group which is based in California accused China Minzhong of irregularities in its sales figures, involving sales to top two customers, according to "corporate registry records".

Glaucus Research Group said they and their associates have a direct or indirect short position in the company. So, they stand to make money if its share price declines. They probably made a bundle today.

Definitely, I do not know whether the accusations are true and if they should be true, how bad are such irregularities? Since the alleged irregularities involve China Minzhong's top two customers, how significant are the contributions of the top two customers' to China Minzhong's revenue?

It is not hard to then imagine whether all other numbers reported by China Minzhong have irregularities. However, if we think logically, if there should be other irregularities, Glaucus Research Group would have tipped them all out. The more negative the news the better it is for their short position.

Since I do not know what is the total revenue contribution by the top two customers, I will make the extreme assumption that all of China Minzhong's trade receivables go to zero. This would wipe out shareholders' equity by 24%. NAV would then be RMB 5.34 per share or S$ 0.89 per share.

Looking at the year on year improvement in cash flow from operations and how the company is now in a net cash position as well as how it was able to pay down some of its bank loans, I came to the conclusion that the selling this morning was overdone and bought some shares at 52c a piece.

China Minzhong has requested for a trading halt and the company is due to release full year results on Thursday (29 August). Let us see what happens next.

See: 3Q FY2013 presentation.

First-time car buyer? Get a Mercedes Benz!

I was reading the weekend edition of The Business Times and the front page story was headlined "First-time car buyers disappearing fast".

When I read that, I thought I could guess what the article was about. It would probably go along the line of how the "cooling measures" are working because 100% LTV is a thing of the past, I thought. Well, I was right but only partially.

Although the report said that most first time car buyers are young working adults and that most of them are unable to come up with the required 40% or 50% down payment, something very interesting was also reported.

While most first-time car buyers of entry level cars (which I understand from the article are those priced at around $120,000 each) have been priced out of the market, Mercedes Benz is still doing a roaring trade with first-time car buyers!

The A-Class

"We are seeing more kids bringing their parents to the showroom to book a CLA-Class or A-Class," said a senior executive at Mercedes Benz. Their A200 is priced at $156,000. "... it also looks like more parents are buying a Mercedes for their children."

The CLA at $179,888. Ouch.

Well, I suppose the cooling measures are not targeted at the rich. Rich people can well afford the luxuries in life and cars are definitely a luxury in Singapore. 

Even so, to have a brand new Mercedes Benz as a first car for a young adult given all of today's restrictions is ... er ...

Could someone help me with an adjective here?

The cooling measures have definitely worked to prevent the less rich to be more prudent because, in the past, it was possible to borrow 100% of the car's asking price with a loan repayment period of 10 years. 

A young person could then drive out of a car showroom in a brand new car paying as little as $500. He would probably have been wearing a big smile on his face and thinking to himself, "Wah! So affordable!"

Who says money cannot buy happiness?
(But buy already still have money or not?)

Related posts:
1. They were just showing off their wealth.
2. Polish your own car and save money.
3. Tea with AK71: Bought a new car.
4. Mature and sophisticated consumers lease cars, not buy.

Saizen REIT: DPU of 0.63c.

Despite a much weaker JPY, Saizen REIT has delivered a respectable income distribution in S$ terms, a DPU of 0.63c to be precise.

Saizen REIT's DPU in JPY terms has been improving steadily in recent years. In the last half a year, DPU in JPY terms has shown an improvement too but a much weaker JPY means that DPU took a hit in S$ terms.

Income in JPY terms climbed mainly due to new acquisitions. Of course, a buy back and cancellation of shares also helped.

As of 30 June 2013:

NAV/unit: 25c
Gearing: 38%
Interest cover ratio: 6.0x

To reduce the impact of a weakening JPY on income distributions in S$ terms, Saizen REIT's management entered into hedging transactions.

The rate for the 6 months period which ended on 30 June 2013 was JPY75.12 = S$1.00. The rate for the 6 months period ending 31 December 2013 is JPY 81.15 = S$1.00. It is going to be some 14% costlier to buy S$, it seems. So, if I read this correctly, we should see downward pressure on the next income distribution in S$ terms, everything else remaining equal.

Saizen REIT has refinanced and in so doing brought down its average interest rate as well as its rate of amortisation. Yes, regular readers will remember that Saizen REIT's loans are amortising in nature. It will also not see any loan maturing until four and a half years later in February 2018.

So, is reducing the rate of amortisation a good thing? Well, it will mean that the REIT will have more income from operation available for distribution. However, it is unlikely to mean a higher income distribution in JPY terms because the REIT is currently using its cash resources to offset amortisation in order to free up more income from operations for distribution to unit holders anyway. It will, however, mean that there is less strain on the REIT's current cash resources.

The management is also proposing to do a 5 to 1 unit consolidation. This is a bit of a déjà vu. I remember the time when AIMS AMP Capital Industrial REIT did a 5 to 1 unit consolidation too. Fundamentally, it really doesn't change anything.

Qualitatively, investing in Saizen REIT now is to invest in freehold Japanese residential properties at a discount to their valuations. If we believe that the Japanese economy will enjoy a revival as Abenomics gain traction, then, Saizen REIT could be a good proxy as the country frees itself from deflationary forces.

The REIT's numbers are good but the persistent weakness of the JPY as the BOJ stays the course with its own brand of QE is going to lower income distribution in S$ terms in the foreseeable future. A conservative forecast of 1.1c in annual DPU would mean a distribution yield of 5.8% assuming a unit price of 19c. Compared to J-REITs with residential properties in Japan, this is relatively high and although it is not particularly cheap at current prices, Saizen REIT is not overpriced.

See FY2013 presentation: here.

Related post:
Saizen REIT: DPU of 0.66c.

Three possible ways to build our savings (Don't see money, won't spend money).

I know someone who finds it very hard to save money. 

He has hardly any savings as he spends money very freely. He sees, he likes, he buys. 

He is also generous to a fault. 

So, you can imagine that he is rather popular amongst his friends.




When I asked him if he was worried about having very little savings, he replied that there is always next month's pay cheque. 

This feeling of invincibility in an environment of extremely low unemployment in Singapore could be increasingly common but that is another topic.

Anyway, as I talked to him, I found that he is really a very pleasant person. No airs and not given to showing off. 

He is simply very easy with money.




He vaguely knows the importance of saving but being very comfortable now, he just spends freely. It has become a habit. 

So, since we arrived at the conclusion that if he sees money, he would be inclined to spend it, the only way for him to save is not to see the money.

Top up CPF-SA.

I suggested that he does the following:

1. 
Start an SRS account and contribute the maximum of S$ 12,750 a year. (From 2016: $15,300).

2. Minimum Sum Top Up of $7,000 a year to his CPF-Special Account.

3. Religiously lock up 10% of his monthly take home pay in 12 months fixed deposits with the auto renewal option intact.




#1 and #2 will also help in reducing the amount of income tax payable while #3 will help to create a higher level of liquidity. He needs to build up an emergency fund pronto.

Having never given much thought to how he should build up his savings, he said that the suggestions are practicable and also practical. 

He decided to adopt all three measures. 

I am glad I was able to help him take an important step towards personal financial security.




If we know people who make a good salary but have trouble with saving money due to spending habits, talk to them. 

We would be doing a good deed.

Related posts:
1. The very first step to becoming richer.
2. A common piece of advice on savings.
3. Build a bigger retirement fund: CPF-SA.
4. SRS: A brief analysis.
5. Ambassadors of financial freedom.

Are you ready to come out on top from a recession? (Part 2)

Think that a recession will be beneficial to you? 

Ask if you have these:

1. Certainty that you will not lose your job or take a pay cut if you still need the income.

2. Certainty that you do not have debts which might turn crippling.

3. Certainty that you have the funds to take advantage of any value for money investments.





Of course, you know what they say about the only two things which are naturally certain in this world and they are none of the above.

The first statement is basically the most important for the majority of us. 

How to have a secure income? 

Work in the civil service? 

That is the closest to an iron rice bowl I can think of. 

If we do not have an iron rice bowl, we better be thinking of having more than one rice bowl just in case.





The second statement is an important consideration for anyone who has debt. 

Anyone from the middle income category devoting more than 60% of his monthly income to debt servicing, in my opinion, is running a big risk. 

This is also why the government came up with the latest property cooling measures to prevent people from over extending themselves.





The third statement is something that regular readers are familiar with. 

We must have a war chest. 

Now, this war chest is not money we set aside in case of an emergency. 

This war chest is money in excess of that emergency fund. 

It is truly money that we can afford to lose. 

I mean we wouldn't want to lose it but if we should lose it, it should not sink us into financial difficulty.

For a recession to be good for us, we must be in a good condition. 

Are you ready?






Related posts:
1. Do you want to be richer?
2. Get on top of your finances.
3. Be prepared for war!
4. Are you ready to come out on top from a recession? (Part 1)

Are you ready to come out on top from a recession? (Part 1)

Really? Not save more money har?

Things have become too expensive in Singapore. 

You name it and the price is probably much higher now than just a few years ago.

This has led to not just a few people thinking that a recession is probably good for the country as it will bring down prices and that these lower prices are beneficial to Singaporeans. 

This is pretty one sided in thinking.





Nonetheless, there is more and more talk of an impending recession and some "gurus" are seeing precursors of the 1997 Asian Financial Crisis now. 

Would it be Thailand to lead the pack again? 

Or would it be Malaysia or Indonesia?

I have been through quite a few recessions and I can say with certainty that they were not pretty. In severe cases, people lost their jobs and their homes. 

In many cases, people took pay cuts and had trouble making ends meet. 

The 1997 Asian Financial Crisis was particularly depressing for many.

I am very sure that recessions make life for the common people more difficult.

The only people who benefit from recessions are the rich.

When a recession hits, we will read in the papers how the very rich lost millions of their wealth and, perhaps, this makes the general population feel better. 

However, what the rich lost is mostly just on paper. 

It is immaterial to them. 

They are still very rich, in many cases, and their lives go on unaffected, especially if their assets are still generating meaningful income.





After a recession, we would read in the papers how the very rich emerged even richer! 

Why? 

They made use of lower prices to buy more income generating assets which would see their prices rise in an economic recovery! 

Recessions are good for some people and they are the rich!





So, recessions are not natural equalisers. 

Recessions usually make the gap between the rich and the poor bigger.

Do you have what it takes to benefit from a recession?

Find out in Part Two: here.

Related post:
STE's story: The Millionaire Next Door.

A bit of history.

How big is a 452 sq ft apartment?

UPDATE (October 2018):
I have lived in a shoebox apartment for 4 years!
------------------------
A while ago, there was quite a lot of discussion about apartments smaller than 500 sq ft in size and, in some quarters, there was also talk about whether they are good enough as habitats for humans.






When I revealed that I bought one such apartment early last year, there were mixed response from people. 

Some said I made a good decision since there are many advantages of buying a small format apartment. 

Some said I made a terrible decision since there are many disadvantages too.

Many of those who said it was a terrible decision questioned if there is actually going to be enough space for me to live in.

The smallest apartment I lived in as a child was a HDB one room flat. 

As a teenager, the smallest apartment I lived in was a HDB three room flat. 

For 13 years of my life (in my late teens and as a young adult), I lived in a HDB five room flat. 

In the last flat, my share of living space was about 300 sq ft.

So, a 452 sq ft apartment is more than enough space for single me, I reckon.

Anyway, to stop all the guessing, I went online to search for videos of what 452 sq ft of apartment space might look like. 

Here is one which doesn't have some background music or commentary:






Fit for human habitation, you think? ;p

What about a 200 square feet apartment?

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

Solace continues:

Building up Investment Knowledge

To me, this is the most tedious and tiring part. I was not educated in the field of finance and accounting. So, I have to learn everything by myself from scratch.

I need to create my own personalized winning plan. In order to do it, I need to know what I want, specifically my investment objectives and risk profile. This should be the first step before I start to invest.

I am only investing in stocks but note that there are other products available such as commodities, FOREX and derivatives (Options, Futures, Contract for Difference). Many of these products, however, are riskier than stocks and often involve trading with leverage. I believe that we should not invest in something which we do not have enough knowledge in. So, I avoid these.

There are two main approaches when it comes to the analysis of stocks. They are fundamental analysis and technical analysis.

Fundamental analysis involves making an assessment of a company operations. Various factors such as profit, forecast profit, outlook for the industry, key personnel in senior appointments and members of board of director are considered in a fundamental analysis.




Three key financial statements are used:
1. Statement of Cash Flow 
(see Cash Flow Statement)
2. Balance Sheet
(see Balance Sheet)
3. Profit and Loss Statement
(see Income Statement)

They are available in the annual reports.

I watch the valuation of a company carefully. Even the most wonderful and fundamentally strong company is a poor investment if purchased at too high a price. Look out for P/E, P/B, PEG, earning yield, cash return and discounted cash flow etc.

Always have a margin of safety when purchasing shares.

Safety first!

Technical analysis is the study of a stock's actual price, to help form an opinion on the likely future direction of a stock. It makes use of charting software and looking at trends. Some of the common indicators I used are moving averages, Relative Strength Index, MACD, Stochastic Oscillator and On Balance Volume (OBV).




Conclusion

In closing, I think that we need to arm ourselves with the necessary tools to be a successful investor. I am continuously learning and discovering new things from time to time. Never think we have learnt enough about the markets, one should always continue to seek further knowledge.

The day we believe we have learnt enough about investment will also be the first day on our way to failure as we have become complacent.

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

Food from my childhood days.

Sometimes, I get asked for examples of food I had in my childhood days. Well, today, I found something that I have not had in years! Really, years!

Recognise this?

OK, without the plastic bag?

Yup, these triangular curry puffs which I think are made by the Indian Muslims are yummy!

Probably about 15cm along its longest side, it is actually smaller than the ones I had when I was a boy. Honest!

Price: S$ 1.30. Yup, it costs as much as an Old Chang Kee curry puff now.

OK, in case I get comments on how unhealthy this is, I balanced it with a Kiwi fruit for dessert. Balanced dinner. No? ;p