Lost $1m and left with $4.2m. What should I do?

Here is a long email exchange with a reader which might be of interest to other readers:

Dear AK, i followed your blogs constantly. Now I would like to write you so to seek seek your views on my situations. I am writing from my wife's account, so pardon me for the difference in email name.

I am 41, married and have 3 young school going kids with a home maker wife. Over the last 20 years, I worked my ass off to come to where I am today. I am a very frugal person where I do not spend on anything unnecessary in life except on my family members and my loves for cars. I do not invest in properties as I believe it is at the whims of the government policies, hence I stay in a 3 room flat since married bought resale. I do not like taking large debts nor insurance (other than health insurance for all family member) too. To date, I have S$4.2 million cash and S$400k CPF saved. It could have been more if I have not dabbled with STI stocks over the past 7 years. So this is my story and I hope to share with you perhaps to get some views on how do I move forward in life now.

 

My work life is reasonable well and not very stressful since about 10 years ago. I got promoted fast due to my capability and brains. But here comes the problem, due to the fact that it is quite relax as the top man in town, I began dabbling with shares in 2007 out of boredom and also in hope to 'fight' inflation. So there I was opened up the trading account and attempting my 'brains' at the local market. At first, it was some micro broken penny that lead to small cut lost of lesser than S$5k. Then come the 2008 August panic where I had to cut lost almost S$700k of 'specu-vestment' of s-shares and bluechips. Along the way, I am still in full cash and no other investment asset mindset have changed. Since the GFC completed in 2009, from 2010 to 2013, I 'made back' the lost S$700k using my sell-profit-keep-lost day trading last-in-first-out strategy. That is to say, I do not invest long term like you do in dividend generating stocks but scalp the market in big amount to make money. It was going well all along from Oct 2013 when the penny market in singapore to a turn for the worst due to the ABL saga, all liquidity seems drain from pennies in STI and there is when my paper lost in those pennies start amounting. And I cut lost again this year al the sick counters for a lost of S$600k and now still stuck with some holdings in a illiquid counter, DMX (5CH). Not willing to admit defeat, I went short on the SP500 and end up with another paper lost of S$100k now still running due to the Bull ramp this October.

 

So here I am, lost and shame. My wife understands and do not scold me for my mistake, same goes for my kids. I have many questions now that I am in my early forties and not having done any right thing in investment make a fool out of myself though no one in my circles of associates and friends knows. I have seek books for opinions but they don't seems to have my similar experience and how they deal with it. So after much thinking, I turn to you to seek a friendly view of what I should do now?

 

So I thought to myself at this juncture of my life:

 

1. Should I be messing around with stock speculation, or wait for the next recession to invest like you in value stocks? I have since stop taking positions in the market other than holding the illiquid counter.

 

2. Should I cut the paper lost in SP500 short and quit bucket shop for good? Many told me that bucket shop are made in such a way, that you will lost even if you win over the long run just like casino. Is this true? I feeling so now.

 

3. What are my chances with the illiquid counter DMX? Can you help do a review on it?

 

4. I read your blog and notice that as a investor, you do not bother about the share price and DCA down whenever there is lower price? Isn't this catching a dropping parang?

 

5. I am currently putting every saving in high deposit saving account of 1.35% pa to wait for the right opportunity.

 

6. Should I buy property in Singapore? I really dont like the small market here and the fact that the future may not hold well for singapore. Who is buying from us buyer whom herd into surplus supply of properties? Aging population or foreigners?
 

If it is not so much of a trouble for you, do hope to hear from you soon.

Cheers

L

 

 

 

 

AK's reply:

 

Hi L,

I have a friend who says that some of us have luck in some areas and some of us have luck in other areas. Although it is probably debatable, I feel that luck is very important in all areas of life.

In your case, I feel that hard work, brains and probably a dash of luck have helped you accumulate what is quite a bit of wealth. At 41, to have about $5 million in assets is admirable. The fact that you did not make any of the money from your investments and speculations makes the achievement even more admirable. Singapore needs more hard working people like you.

I know someone who told me before that if we had a good career that pays well, we will not need to invest for extra income. I look at what you have achieved and I am reminded of that. However, I would add to that by saying if we had a good career and saved most of our income, then, we might not need to invest for income. You have saved a lot of money, by any standards. I am impressed!

You seem a bit lost now and you have listed many questions for me but you will have the answers once you know what motivates you.

Are you investing for income which is what I do mostly?

Are you investing for growth or a mixture of income and growth?

Are you mostly a speculator?

Depending on what you are after, you will use different sets of tools. I won't tell you what you have to do because that is not my style but do you know what the tools are and do you know how to use them properly? If you don't, you want to get educated and there are tons of free resources online to help you.

For example, if you like what I have done, then, you have to subscribe to my philosophy as an income investor which is to invest in assets which can generate meaningful income sustainably. Try not to overpay for these assets and you should do well enough over time.

Finally, I could modify some personal information which you have revealed in your email to me and publish our email exchange in my blog to see if we might attract comments from others. There are hidden dragons amongst my readers, I believe, and you are one of them. ;)

Best wishes,
AK

Related posts:

1. Motivations and methods in investing.
2. How to make recovery from losses easier?

Keppel and CitySpring Trusts: An unequal marriage?

I got into K-Green Trust (now renamed Keppel Infrastructure Trust) a few years ago at $1.11 per unit. I was attracted by its zero gearing and relatively decent distribution yield.

Over time, I received a DPU of almost 8c a year from K-Green Trust. So, with a closing price of $1.09 per unit in the last trading session, I have achieved a return of about 7% per annum which is not too bad for an income investment.

With zero gearing, together with other unit holders, I was waiting for K-Green Trust to gear up and acquire some DPU accretive investments but after waiting for 4 years, nothing really happened. Well, that is not until now.

Honestly, I don't have good feelings towards the merger of K-Green Trust and CitySpring Infrastructure Trust. To be honest, again, this probably has to do with the experience I had with CitySpring and I shared my thoughts here in my blog many years ago.

It would have been much cleaner for K-Green Trust, which I believe to be stronger financially than CitySpring, to acquire assets on its own and grow its DPU. The merger complicates things. Well, at least, it does for me. The first thought that came to my mind is that CitySpring's weaker balance sheet will strengthen with the merger.

Granted that K-Green Trust's assets have limited lifespans but it is like a good cup of coffee that is slowly being finished. We just have to top it up with more good coffee. CitySpring, to me, is coffee that is not so good. Now, these two cups of coffee are being mixed up.

It is easy to see that K-Green Trust has had a better track record compared to CitySpring's in the last few years. CitySpring has had two rights issues and seen its DPU reduced by more than 50% in the process over the years. What? They took more money from unit holders and it resulted in less income distribution per unit? Pui!

Now, with the proposed merger, existing unit holders of K-Green Trust will receive 2.106 new CitySpring units for every K-Green Trust unit owned. Oh, my. I am going to be a unit holder of CitySpring's again after so many years?

I lack the inclination to dig into the numbers as I am disappointed and flabbergasted by K-Green Trust's decision to give up its strong balance sheet by merging with CitySpring. There is no need to, in my opinion.

So, although it could be a mistake because I might not be able to see the big picture that more savvy investors are able to see, I will probably be saying good-bye to my investment in K-Green Trust, taking advantage of its higher unit price as a result of somewhat positive sentiments.

Out of sight and out of mind. Zen.

Related posts:
1. CitySpring Infrastructure Trust: Divestment.
2. K-Green Trust: Zzzzzzzzzz.

Retirement adequacy for a senior needing long term care.

This was a recent email exchange with a reader:

Hi AK
My sis is 60 years old, single and stays alone. Recently, she fell very sick and was admitted to hospital for a few weeks. Now she is at home on medical leave.  We got a maid to look after her.  Don't think she will be fit enough to go back and work.

She doesn't earn much as an admin staff, but still managed to save quite a bit through many years of working and saving -  about $150,000 in Cash and $100,000 in CPF.  And she has also paid up fully for her HDB flat, so no debts except for some insurance premiums which she is still paying, her medical expenses and expenses to employ the maid @$720 per mth.  

She knows that her saving will not last her very long. She has asked me to invest her money so that she could collect some dividends and help pay for her daily expenses since she will have no income in future.  I am not a savvy investor.  Most of the times I bought stock based on reading your blog and some other financial blogs.  I have no qualms to invest using my own money but how to invest for her?

I still do not dare to invest for her as I can't afford to lose her hard earned money.

What were you do if you are in my shoes?  How can I help my sis? Safest is to put in FD but the interest rate is so low.

My reply:
If I were in your shoes, I would be very cautious too. Losing some of my money is one thing but losing my sister's money would be something else. I actually gave my sister a capital guaranteed privilege at one time. If the investments should lose money, I would bear the losses. Bad idea, I know.

Anyway, back to your case. What would I do?

If your sister needs $720 a month or $8,640 a year. Obviously, relying on her savings of $150,000, it would take only 17.36 years to be depleted. This is not considering any interest income earned during that time, of course. Add other expenses, maybe $800 a month, and her savings will take half the time to deplete. 9 years, perhaps? So, there seems like a need to invest for income.

However, we must not forget that she is eligible for CPF Life payouts in another 5 years from now at age 65. If she has $100,000 in her CPF retirement account (RA), she could be drawing $800 or so (this is a rough estimate and you should call CPF to check the exact amount) every month for the rest of her life and this would be enough to pay for her medical expenses and the maid.

In my opinion, there isn't any need to take on risk by investing your sister's money in the stock market now. 

Of course, I am not asking you not to invest on her behalf in the stock market. You could keep an eye on the stock market and buy some good dividend paying stocks for her when Mr. Market goes into a depression. In the meantime, your sister has enough financial resources to take care of her needs.
---------------------------------
To have peace of mind, always ask if it is money we can afford to lose. If it is not money we can afford to lose, don't invest it.

Related posts:
1. What happens at 55 and CPF Life?
2. The PM on retirement adequacy.
3. Free e-book: Retiring before 60 is not a dream.