Lost Hundreds of Thousands of Dollars! My experience!

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

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

This is inspired by a blog I published in 2011.

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

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

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

"I was also spared the subsequent rights issue."

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

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



What about now?

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

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

It still stings.

That was a few years ago.

I have been more cautious since then.

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

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

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

Sounds boring? 

To many people, it probably is.

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



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

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

Now, we call that the Global Financial Crisis.

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

This is a good reminder.

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

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

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

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

Many of my better investments were privatized over the years.



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

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

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

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

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

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

It is the toughest at the beginning.

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

So, do not lose heart.

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

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

If AK can do it, so can you!

Further reading:

Passive income as much as earned income. Get rich slow.

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

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

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

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

Lesson learnt.

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

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

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

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

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

This is because of return on equity or ROE.



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

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

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

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

This is where I need some help.

RHB Research has this to say.

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

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

OMG.

It is all Greek to me.

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



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

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

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

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

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

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

However, this assumes a payout ratio of 60%.

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

What do I think?



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

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

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

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

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

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

This is at 14% currently.

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

Then, any upside would be a bonus.

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



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

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

This is even as I bear in mind the fundamentals.

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

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

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

Now, that gets me giddy.

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

If AK can feel giddy, so can you!

Reference: 
DBS, OCBC and UOB: Higher dividends?

6 months T-bill cut-off yield 3.85% p.a. not good enough?

For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, this is the transcript of the video I produced yesterday.
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Not too long ago, I said that a cut-off yield of 3.78% per annum for 6 months T-bill was decent enough.

I was quite happy that the cut-off yield was still much higher than what DBS, OCBC and UOB offered for 6 months fixed deposit at the time.

I still feel the same way now.

Of course, if we are using CPF funds to buy T-bills, the sensible thing to do would be to benchmark the cut-off yield against interest rate offered by OCBC for fixed deposits placed using CPF OA money.

With a promotional rate of 3.3% per annum offered by OCBC for such fixed deposit placements, it boggled my mind that there were people placing competitive bids lower than that.

With T-bills yielding much more in the USA, it is strange that T-bills in Singapore should have much lower yields.

This suggests to me that Mr. Market feels that the Singapore Dollar is stronger and safer than the US Dollar.

It is just an impression as I don't know enough to tell if this is true, especially when it seems counter intuitive.

Anyway, with the debt ceiling issue in the USA, T-bill yields have been going higher recently.

In Singapore, I also noticed this.

In case you are wondering, I visit Monetary Authority of Singapore's website to look at the Treasury Bill Original Maturity table regularly.

This gives me a feel of where T-bill yields are going in Singapore.

A higher proportion of fixed income will help to reduce portfolio risk and volatility.

Constructing a T-bill ladder to create another source of passive income is also viable with interest rates being much higher.

We will see T-bills maturing every 2 weeks or so and receive some income when we recycle the returned capital into new T-bills.



If you are interested to look at the Treasury Bill Original Maturity table, see link to the website and table I have provided below.

Of course, I remind myself that the yields we see in the table are only suggestive because it assumes that participants will be rational in upcoming auctions.

With more retail participation, and with quite a few bloggers recommending their readers to place competitive bids way below average in order to secure their T-bills, the cut-off yields for future T-bill auctions could still surprise on the downside.

This is especially for T-bill auctions happening in the first half of any calendar month.

This is because we are likely to see lower participation from retail investors using their CPF OA money for auctions taking place towards the end of any month.

They run the risk of losing 2 months' worth of CPF OA interest instead of 1 month for auctions happening towards the end of a month.

I might complain about low balls, but I have to accept this uniquely Singaporean reality if I want T-bills to be a part of my portfolio.

Anyway, I am mostly recycling money from maturing T-bills into new T-bills as my T-bill ladder is complete.

The front end of the yield curve is likely to stay elevated for some time.

So, I continue to expect 6 months T-bills to remain relatively rewarding in the near future, especially when taking into consideration that it is risk free and volatility free just like the CPF.

I am quite pleased with today's T-bill auction's cut-off yield of 3.85% per annum.

I know that some people look down on T-bills or anything that provides a return that is lower than the inflation rate.

If these people are very rich and have a lot of spare cash sloshing around, they can look down on T-bills, if they like.

The very rich can afford many things and snobbery is one of these.

However, for most of us, accumulating a meaningful amount of cash and cash equivalents is more a need than a want.

Warren Buffett said unless we are very rich, don't go around spouting nonsense like "cash is trash".

People who look down on T-bills and the returns should remember that T-bills are volatility free and offer risk free returns.

We should not compare them with potential returns from investing in stocks, for example.

I still say that before we start investing, we should learn to be better savers.

I am glad to save for passive income even as I invest for passive income.

If AK can do it, so can you!

Reference:
Treasury Bill Original Maturity.

Related post:
Fixed income update. 3.78% p.a.

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

For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, this is the transcript of another recent video I produced.
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During "Evening with AK and friends 2023", I used the example of Master Leong, an investor who liquidated everything else in his investment portfolio and went 100% into Alibaba's stock.

For good measure, he even used leverage.

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

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

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

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

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

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

He had to because he was using borrowed money.



I said this before.

Most of us do not have money gushing in.

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

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

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

All of us are happy during good times.

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

Always have three Aces up our sleeves.

1. Appropriate psychology.

2. Appropriate money management skills.

3. Appropriate investment allocation framework.

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

Sometimes, some blogs could have had unintended consequences.

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



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

This started as early as in February 2010.

I said this in a blog on investing strategy.

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

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

I will leave a link to the blog below.

Why do I invest the way I do?

I invest primarily for income.

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

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



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

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

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

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

With lower prices, some stocks will look more attractive.

I should be happy.

Why would I go into a depression?

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



Of course, prices could go lower.

However, prices could also go higher.

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

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

So, if something were to happen, we act.

We can prepare but not predict.

So simple, right?

Simple but not easy, I know.

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

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

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

Bloody from bleeding and not profanity, of course.

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

If AK can do it, so can you!

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

DBS, OCBC & UOB: Even higher dividends probable?

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

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One of the things I keep reminding myself about is to invest in businesses with strong balance sheets.

This is especially important in an environment where cash is no longer trash.

Debt has a real cost and is much costlier today.

As an investor for income, investing in businesses which have excess capital, we could also get a pleasant surprise from time to time.

This is because we could see higher dividends from these businesses in the form of special dividends.

I made this point in my recent videos and blogs on ComfortDelGro, for example.

Now, could we expect the same from DBS, OCBC and UOB?

I hinted at the possibility in recent videos and blogs.

Today, I will share some pertinent numbers from an analysis by Philips Securities to explore this possibility.



We know that rapidly rising interest rates within the last year provided a strong tailwind to Singapore's banks.

Net interest margins rose significantly and with that, net interest income jumped.

On the back of such strong performance, all three Singapore banks increased their dividend payouts to their shareholders.

So, from that, we can establish the fact that the banks are able and willing to reward shareholders.

However, with the Fed likely to pause its rate hikes, all three banks are providing guidance for lower net interest margins for the rest of the year.

In several blogs and videos which I produced, I said that Net Interest Margins for DBS, OCBC and UOB likely peaked in Q1 2023.

DBS thinks its net interest margin could be at 2.05% to 2.1%.

Both OCBC and UOB think their net interest margins could be at 2.1% to 2.2%.



Overall loans to Singapore residents fell by almost 4% year on year while business loans fell almost 6% year on year.

Total deposits grew by almost 6% to almost $1.8 billion.

Of this, the current account and savings account proportion declined almost 19%.

This is as customers continued to shift money into higher interest-bearing fixed deposits.

With loan growth declining while funding costs have caught up, it is hard to see any significant growth in net interest income.

With the numbers provided, it should be very clear that net interest income could come under pressure.

Still, if we should stay in a holding pattern, the current level of dividend payouts by the banks should remain undemanding.

This is because the banks will still benefit from the expanded net interest margin on a full-year basis.



A bright spot could be in fee income for the rest of the year.

DBS saw 29% quarter on quarter growth in fee income.

OCBC saw 14% quarter on quarter growth, its first in 6 quarters.

UOB also saw 14% quarter on quarter growth, its first in 4 quarters.

If fee income continues to grow, it could make up for some of the loss of growth in net interest income.

However, unless this segment should see some stunning growth, it is unlikely to result in much higher earnings to justify an increase in dividends.

Still, even if the banks should maintain their current dividend payouts, they would still make for very attractive investments for income.

With dividend yields of 5% to 6% at a payout ratio of around 50%, Singapore banks provide investors with peace of mind.

Then, what about the possibility of a higher dividend I suggested before?

Where is that coming from?



Well, all three banks have excess capital ratios or the Common Equity Tier 1 capital ratio.

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

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

I made use of some numbers provided by Philips Securities, but the analysis is my own.

So, take this analysis with a pinch of salt since AK is no expert.

If AK can talk to himself, so can you!

Reference: 
More reasons to invest in SG banks.

FCF positive! $1 billion cash pile! Higher dividends?

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

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All investments are good investments at the right price.

I like to ask myself this question whenever one of my investments is suffering a paper loss.

"If I was not already invested in this at a higher price, would I buy at the price now?"

If the answer is "yes", then, I could possibly add to my position in the investment.

If the answer is "no", then, I could either hold or sell.

To hold, there must be some redeeming qualities like a strong balance sheet, the ability and the will to pay dividends consistently.

To sell, it could mean that I think the business has weak numbers, would lose money, stop paying me and maybe even struggle to stay afloat.

To be sure, I could also sell some if I must raise cash for another investment which I think could be more rewarding.



For some time now, ComfortDelGro has been getting "BUY" calls from many experts, citing the cheap valuations.

Although ComfortDelgro isn't what it used to be, no thanks to senselessly destructive competition brought on by money burning GRAB, it is trading at a level which is really inexpensive now.

In a recent video, I said that ComfortDelGro was not a basket case and that it still has a place in a diversified portfolio of investments for income.

I elaborated on this in a blog which shared the transcript through my reply to a viewer's question.

Please find link to the blog below.

For people who are more concerned about the future of the business, there are many analyses available but all of them have this one thing in common.

All of them say that ComfortDelGro will see numbers continue to improve.

Here, I will share some points in an analysis by RHB research.



Expect earnings to improve in second half of 2023 "amidst reductions in taxi rental rebates and benefits from the annual indexation of overseas bus contracts."

"Public transport earnings seem to have bottomed, and improvement should be seen in overseas operations during second half of 2023 amidst indexation of higher operating costs in the UK.

"Singapore should continue to see improvement in ridership in rail.

"Reduction in Singapore taxi rental rebate from 15% to 10% and the scope to increase commission rates for taxi bookings.

ComfortDelGro charges only 5% versus 20% charged by GRAB.

I keep saying that ComfortDelGro is still a profitable business unlike money burning GRAB.

In Q1 2023, ComfortDelGro generated free cash flow of almost $90 million.

This brings its cash balance to more than $1 billion.

It is in a net cash position of $715 million.



"Even with our estimate of its CAPEX reaching pre-pandemic levels by 2025, we expect it to continue building on its current strong net cash position."

This supports what I said in my recent video on ComfortDelGro.

That to invest in ComfortDelGro is to invest in a business that is generating a lot of cash while keeping a very strong balance sheet.

It has also shown its ability and will to pay dividends through good and bad times.

RHB research estimates a normalized dividend yield of 4.5% to 5.5% based on a 65% payout ratio.

During "Evening with AK and friends 2023", I mentioned that I sold half of my investment in 

ComfortDelGro at $1.35 a share and bought back some at $1.15 a share last year.

$1.15 a share was a fairly good price.

There is much market pessimism surrounding ComfortDelGro now and according to RHB research, it is trading at minus 1 deviation compared to its historical average which reflects this.

A mean reversion could eventually happen.



ComfortDelGro has shown its willingness to reward shareholders whenever it felt it had more funds than it needed to hold.

With a growing cash pile, we could expect higher dividends too.

Having said this, I remind myself that investing in ComfortDelGro is not to invest for growth.

If we are looking for growth, we should look elsewhere.

If AK can talk to himself, so can you!

Related post: 
ComfortDelGro Q1 profit plunged!

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

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

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

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

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

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

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

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

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

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

Still, it is unlikely to be enough.

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



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

It isn't a charitable organization.

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

It will heavily dilute current investors' interests.

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

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

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

In economics, we always like to say this.

All else being equal.

That phrase encompasses everything else that could change the picture.

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

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

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



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

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

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

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

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

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



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

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

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

It is almost like Hobson's choice.

Not too hard to understand.

If AK can talk to himself, so can you!

Related post:
4X your money with MUST!

Surprise! Passive income I received from T-bills. Reminders! "Buy and forget" assets! Why am I building my cash pile?

For readers who prefer reading, here is the transcript of a video I made recently on "buy and forget" assets, how important T-bills are in my strategy and why it isn't a bad idea to have more cash and cash equivalents?

There were a couple of mistakes I made in the video which I have corrected for this blog.

Not all that important but my OCD wouldn't let me get away with it.

"Old Change Kee" corrected to "Old Chang Kee".

"Q1 2023" corrected to "Q2 2023".

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I mentioned in a few blogs in the past that I would sometimes check my savings account and get a pleasant "surprise."

The "surprises" are dividends from investments that I have not done anything to for so long that I almost forget I have them.

You know what they say about buying and forgetting?

Some people would look down on people like that.

However, for me, it has not always been a bad thing.

These are stocks which are usually free of cost for me but are still generating income.

During "Evening with AK and friends 2023", I mentioned Old Chang Kee and Hock Lian Seng as two of such investments for me.

They are not the only two either but I cannot recall the others now.

I will remember when I see their dividends come in, I am sure.

My memory is getting quite terrible.

Anyway, why am I talking to myself about this?

Well, quite recently, there is a new addition to these "surprises".

T-bills.

As my 6 months T-bill ladder is complete, I have money coming back to me every 2 weeks.

However, as it is a relatively recent development, I am still not used to it.

This is especially when the amount is relatively big compared to "dividends" received from investments I sometimes forget I have.

Of course, I also have to remind myself that I am not receiving money that I can spend here.

It is a return of my capital.

I have quite a bit of money coming in this month as the month of May is usually a good month for dividends.

Mixed together with this is money coming back from T-bills bought in October and November last year.

Already bought some 6 months T-bills in the last round of auction which saw a cut-off yield of 3.78% p.a.

Will be putting in a non-competitive bid for the upcoming 6 months T-bill auction next week.

I would be quite happy to get a cut-off yield of 3.78% p.a. again or thereabout.

Basically, anything higher than the 6 months fixed deposit rates offered by DBS, OCBC or UOB would be good enough for me.

I remind myself that T-bills pay us at the beginning of the 6 months duration which means the "interest rate" is actually higher than what the cut-off yield indicates.

I also remind myself that this is not my main source of passive income and it should not be my main source of passive income.

To illustrate this, in Q2 2023 so far, I have bought three T-bills which have generated about $500 in passive income for me.

This is really pocket money compared to dividends I have received so far.

However, I never look down on pocket money especially if it flows into my pocket regularly.

Also, this is money which I didn't have before.

This is all thanks to higher interest rates.

(I am also very thankful for a strong Singapore Dollar. Even foreigners want to get Singapore T-bills.)

As an investor for income, I am a creature of comfort and I also said during "Evening with AK and friends 2023" that investing for income is very comforting.

I find T-bills more comforting now that they pay better than they did in a long time.

"The front end of the yield curve is still elevated even as the Fed has signaled a pause in rate hikes.

"I know there is talk of a Fed pivot by end of the year and it could well happen but worrying about whether it will happen or not does nothing to generate income for me.

"I would rather make hay while the sun shines.

"Anyway, my expectation is for 6 months T-bills to remain relatively rewarding in the near future, taking into consideration that it is risk free and volatility free just like the CPF."

Source: 

See related post at the end of this blog.

(My YouTube video on this topic.)

There is nothing wrong with having more cash and cash equivalents in our financial pyramid especially in an environment when cash is no longer trash.

If things should go terribly wrong like they do from time to time, with a stronger footing, we should have less to fear and greater ability to take advantage of investment opportunities.

AK is lazy and a creature of comfort.

Don't do what I do unless you meet those requirements.

Jokes aside, it is never my way or the highway.

We should all have a plan, our own plan.

If AK can do it, so can you!

Related post:

Fixed income update.

Invested in ST Engineering for >20 years! BUY more now?

For readers who prefer reading to watching videos, this is the transcript of a recent YouTube video I produced on ST Engineering.

In the video, I reminded myself of my history with ST Engineering as well as how I would decide on whether Mr. Market was offering a fairly good price?

Don't worry as it isn't rocket science.

Just some quick and dirty number crunching, oppa AK style!
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I found a newspaper article I cut out in the year 2003.

It was about ST Engineering, a company which I have been a shareholder of for more than 20 years by now.

ST Engineering's stock trades at $3.70 a share and it has been paying out dividends annually without fail since I first became a shareholder.

I cannot remember how much exactly from year to year but, off the top of my head, an average of 15c annually in dividend per share cannot be too wrong.

In case you are wondering, yes, I am still holding on to those shares I bought at $1.55 a piece more than 20 years ago.



What would have happened if I had decided to spend that money all those years ago on a luxury watch to show that I had arrived instead of investing in ST Engineering?

If I did that, I think I would still not have arrived.

Isn't there something to be said about delaying gratifications and investing for income?

Once people are determined to make an improvement to their personal finances, once they try out some of the ideas I have blogged about, they will see for themselves that the magic that AK has, they have it in them too.

Suddenly, it isn't so mystical after all.



A reader told me this in 2017.

I remember you mentioned ST Engineering in Evening with AK and friends a couple of years back in 2015.

At that point, you mentioned you would look at adding if it went below $2.90 per share. 

It was hovering around $3.20.

It was my first time attending your talk.

I just managed to scoop some at $2.70!

AK told the reader.

$2.70 a share is a very good price.

I would hold on to it.

ST Engineering is a good income generating asset.

At the time, I also said the following.

I reminded myself how I would determine a fair entry price for ST Engineering.

ST Engineering PE ratio has always been pretty high, but I would not let that deter me.

Instead, I use the ratio to guide me.



Even during the Global Financial Crisis, ST Engineering's PE ratio was 15 times.

That could be considered as crisis valuation for ST Engineering, and I have used that as a yardstick for the stock for a long time.

Today, ST Engineering trades at a PE ratio of some 23 times.

In one of my past blogs, I said if I were to invest in ST Engineering not during a crisis, I would only do so if its PE ratio is 20 times or lower.

What about dividend yield?

Of course, that is something I would look at too as an investor for income.

Today, it is about 4.6% which is higher than the 4.2% ComfortDelGro offers.



However, we have to remember that ST Engineering is no longer the same as it was 20 plus years ago.

When I first invested in ST Engineering, it was sitting on a billion dollars in cash which it didn't know what to do with.

So, it paid out 100% of its earnings yearly to its shareholders.

Getting 15 cents dividend per share for a stock I paid $1.55 a share for was so sweet that it could have given me diabetes.

Today, ST Engineering is in a net debt position to the tune of almost six billion dollars.

That translates to a gearing level of almost 250%!

So, don't just take that 4.6% dividend yield at face value.

That dividend yield is achieved on the back of some amazing leverage.



In comparison, ComfortDelGro is in a net cash position and its 4.2% dividend yield is not achieved with leverage.

I would not be adding to my investment in ST Engineering although I am quite happy to hold on to my existing investment.

My investment in ST Engineering is free of cost and has been so for some time.

Getting free money regularly makes me happy.

However, to add to my investment in ST Engineering, I would have to see its gearing level reduce substantially.

Of course, if we had a crystal ball which was able to tell us that would certainly happen and soon, if ST Engineering should trade at a PE ratio of 20 times or lower, it would be a BUY for me.

If AK can talk to himself, so can you!

Recently published:
ComfortDelgro: BUY more now?

ComfortDelGro's stock price down. Should we BUY now?

This blog is going to be a bit more than just sharing the transcript for the video I made in response to ComfortDelgro's Q1 results.

I will also share my response to a reader's question in my YouTube channel at the end of this blog.

Anyway, to start, for readers who prefer reading to watching videos, here is the transcript of the said YouTube video first.

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

I blogged about how re-allocating resources in an environment of higher inflation and rapidly increasing interest rates would be a prudent move many moons ago.

To that end, I reduced my investments in many investments in my portfolio, some of them drastically, using the freed-up capital to mostly increase my investments in OCBC and UOB.

Basically, if an investment paid very little in dividends or has shown that it could suspend dividends in a crisis, and had a very weak balance sheet, it would be a candidate for a haircut.

In the case of ComfortDelGro, I reduced my investment in the entity, but its strong balance sheet saved it from being reduced drastically to becoming a small investment in my portfolio, which was the case for Centurion Corporation.

I like to remind myself that Peter Lynch said all investments are good at the right price.

Very often, the market misprices stocks.

The common stock of ComfortDelGro has declined rather significantly in price in response to the latest newspaper headline.

Q1 profit falls 56.9%.

Although Q1 is usually seasonally weaker for the business, a 56.9% fall is screaming for attention.
ComfortDelGro mostly blamed higher cost pressure due to heightened inflation.

Labor shortage and a more competitive landscape were also contributory factors.

However, we want to keep things in perspective.

(Before I continue, if you changed your mind and decided you would like to listen to AK talking to himself, here is the video.)
 

ComfortDelGro has emerged from the pandemic with a stronger balance sheet.

In fact, its net cash position continues to grow.

Its net cash position has increased to $714 million from $653 million which we saw at the end of 2022.
ComfortDelGro is still a profitable business, although it saw a decline in profit in Q1.

All its business segments are showing improvement and with life going back to normal, things should continue to improve in all its markets, including China.

Since I brought up what Peter Lynch said, what is a good price to pay for the common stock of ComfortDelGro?

The last time I bought some was at $1.15 a share.

I thought that was a fair price to pay and I still feel that way now.

So, if we want to invest in ComfortDelGro for income, any price lower than $1.15 a share would be a pretty good price to me.

At $1.10, for example, without any special dividend, we would be looking at a dividend yield of about 4.2%.

Wait, didn't I say I reduced my investment in ComfortDelGro to increase my investments in OCBC and UOB last year?

Yes, I did but that does not mean the ComfortDelGro is no longer a decent investment for income, especially if the price is right.

Investing in ComfortDelGro today is to invest in a business that pays a 4% dividend yield even as it grows its cash position over time.

For sure, it doesn't have an exciting story to tell like the Singapore banks do.

Even to me, ComfortDelGro is pretty boring, but it isn't about to give me a heart attack either.

Investing in ComfortDelGro isn't all bad if we can get in at a good enough price, especially if all we want is decent passive income without having to worry about any equity fund raising by our investments.

All investments are good investments at the right price.

However, to be sure, it would also depend on what kind of an investor you are and what you want out of an investment.

Then, you would be able to decide whether ComfortDelGro would be a suitable addition to your investment portfolio.

I am sharing my response to a viewer's comment in my YouTube channel because I think some readers might have similar questions.

Question:

Why should we invest in businesses like ComfortDelGro and also REITs when banks look like better investments now?

My reply:

It would partly depend on a person's situation.

So, for a person who is already substantially invested in the banks and who is looking to diversify, investing in a non-cyclical business which pays a meaningful dividend and which has a strong balance sheet is not a bad idea.

This is especially when we remind ourselves that banking is a cyclical industry.

As for REITs, I also said in my blog that REITs which offer 5% or less in distribution yield are not attractive to me now especially when they are relatively highly leveraged.

Think north of 40% gearing level.

However, if we believe that a Fed pivot will happen by end of the year or in the new year, then, investing in REITs might not be a bad idea.

They will benefit if interest rates decline.

So, having some exposure to REITs isn't a bad thing per se.

Have some banks, some stocks like CDG and some REITs and we should win whichever way the wind blows. 😎

COMING SOON!

A YouTube Video on ST Engineering by AK Production House!

Related posts:
1. ComfortDelGro: Special dividend.

2. Reallocate as interest rate rises.