Could this be the way to financial freedom in 5 years?

Hello AK,

I have been reading and following your blog. I have just started my investment journey and hopes to attain financial freedom within 5 years.

Recently, I have been given an investment offer which I would like to share with you and seek your help  by listening to your opinions. I shall not share with you where and who offered me the opportunity as I want to prevent any accidental bias.

I received an offer to join a club opened by a company (it is a reputable company, which is why I do not want to share with you the name of the company now as I believe you would have heard of the company before.) in Singapore. In order to join this club, you have to commit a 5-figure sum for a few years. 

One of the businesses of the company is to help other company IPO. 

Basically, in point form, I shall name the company I am talking about as IPO Services Ltd. 

1) Herbal Tea Ptd Ltd wants to IPO on SGX, so they approached IPO Services Ltd for help. 

2) IPO Services Ltd will check through Herbal Tea Pte Ltd's finances and other legal requirements that SGX requires in order for a company to be listed on SGX.

3) Herbal Tea Pte Ltd passed all the financial and legal requirements. Next, Herbal Tea Pte Ltd needs enough public interest before they can be listed. (If not they won't be a PUBLIC listed company.)

4) This is where members of the club comes in. IPO Services Ltd will show members this company and interested members will form the bulk of the "interested public" and be issued shares at pre-IPO prices. (For eg. $0.50)

5) With everything in place, SGX approves and Herbal Tea Pte Ltd is listed on SGX. The IPO price is $1. So members of the club can

• Sell off their shares to the "enthusiastic public" and make a 100% profit.
• Hold onto their shares if they believe in Herbal Tea. (Bearing in mind that the shares was initially purchased at pre-IPO price)

Therefore, effectively, the club allows me access to IPO opportunities BEFORE IPO.

 

I have read in many books to avoid IPO as IPOs are often over-priced and there are simply too many uncertainties. The way this offer was portrayed to me sounds "quite" secure. However, being the skeptic that I am, I wonder what is the catch? 

I am showed many videos of members giving testimonial of their 100%, 200% or even 300% profits within months (this should be a red flag,  but hey, this is not some shady gold buyback company I am talking about but a reputable PLC).

That 1 question alone is sufficient enough for me to not make any commitment, however, if it is genuine, I wouldn't want to miss out on an opportunity like that. 

Therefore, I am emailing you to ask you for your opinions on this "investment opportunity"

Hope you can help me.

Cheers

Hi,

If I were able to list a company at $1 a share, why should I sell to you at 50c a share? I might do it to incentivise employees and insiders but members of an IPO club to show that there is interest from the public? I don't think so.

Also, in order to join this club, you have to commit a 5 figure sum for a few years? For me to part with so much money for such a long time, an investment has to be a highly transparent and tangible. This does not sound like one.

There is no free lunch. This has to be a highly rewarding scheme for the owners of the IPO club. How are they rewarded?

This is not an investment opportunity to me. It is, at best, an invitation to speculate.

Best wishes,
AK

Related posts:
1. 9 wealth building blog posts.
2. Journey to financial freedom...

NOTE: The first step in converting from private to public is to undertake a process called due diligence. Due diligence is the analysis and valuing of a company and it is usually performed by a professional accountancy firm. It will involve a comprehensive look into almost every area of the business. This due diligence is the foundation upon which all information disclosed to the public is based. A value is then assigned to the company and an appropriate number of shares are issued. At this stage,the investing public is offered an opportunity to buy the shares. This is called the Initial Public Offering (IPO). (Source: Taking your venture public in SG.)

Unemployed, almost 55 and worried about CPF.

Reader says:

I have been following your useful CPF blog and learn alot. Lately I noticed something quite disturbing and what i deem as unfair.

We live a in HDB flat which had been fully paid off about 8 years ago. 

But I only noticed recently that the accured interest (supposed this is the amount I owed to CPF Board) has been increasing every month even after I fully paid off my flat long ago. 





I feel that this practice is unfair.

The accured interest should stop increasing the year that we pay off our loan. 

This kind of contradict the saying that the CPF money is ours. Seems that we always owe the government something somewhere.

It appears quite ridiculous because we had already paid hundred of thousands in interest during the loan term but still have to pay interest even after paying off the loan completely. 

If we borrow from banks, the interest would had stop once we clear the loan right?

I am unemployed and will reach 55 in a few years' time, how will this affect me? 

Kind of worried as retirement approach and without a job for sometime now.

I believed many Singaporean are unaware of this because we don't really track this item. 

How can we deal with this government policy? 

Do we have to pay CPF Board that substantial amount of interest if we sell off our HDB or downgrade to a smaller unit? 

Or when we reach 55 or 65? I get the feeling that one day I have to pay back that huge interest amount. 





How to retire peacefully without worrying about money in this place?

If I give the flat to my son later when I pass on, does he has to take over that accured interest?

Hope you can advise and share your thoughts.

Many thanks AK.

Best Regards

AK says:
The CPF is to help us with retirement adequacy. If we use the CPF money to pay for our homes, there is an opportunity cost. 

The government stops paying us interest and if we should sell our home, we have to pay ourselves interest in order not to compromise on the original purpose of the CPF.

In your case, you might be interested in this blog post: http://singaporeanstocksinvestor.blogspot.sg/2015/09/how-to-stop-accrued-interest-we-owe-cpf.html


Although it might appear otherwise, we don't pay the CPF Board, we are paying ourselves.



Upon reaching age 55, if you already have the MS (now the FRS) in your CPF account, you don't have to pay yourself anything if you were to sell your flat. 

The objective of the CPF to help with your retirement adequacy has been met.




If you do not have the FRS yet, then, it is a different story. 

Some of the money from the sale of your flat will have to go to your CPF account to fulfil this objective. 

There is also the option of BRS in which you pledge the value of your flat but that is another topic.





As long as we remember what is CPF's primary objective, everything makes sense.

Related posts:
1. Use CPF savings or cash to pay for our home?

2. Changes to CPF: BRS, FRS, ERS.
3. Retirement funding adequacy.

Saving money with good deals is common sense but...

As investors, we know that businesses that take cash from customers and enjoy credit terms from their suppliers are in a very good place.

Get paid now but pay vendors much later? Wow! This is one reason why Walmart is a good business, right?

When we go to a supermarket, we don't get to leave the place with the stuff we want unless we pay for it. Of course, we can pay with a credit card to enjoy some shopping benefits but it is essentially a case of "no pay, no take".

When we see a very good deal on something that we consume often, we could buy a lot more to save money. Instead of buying one, we buy more. That makes many of us happy!


Question:
If the supermarket told you that you could buy more of a special deal item but you could only collect one now and the rest on a monthly basis in future, would you bite?

Pause.


Pause.


Pause.

Would you?

Hanor.

Then, what about this?

I shared this on my FB wall 2 days ago.

It happened earlier this year.

I actually told the California Fitness salesman that I didn't mind paying on a monthly basis but a lump sum payment for a 3 years membership?

Sorry, not interested.

Saving money with good deals is common sense? I must be stupid not to take up the offer.

I was adamant.

I could tell that the salesman was disgusted.

AK was such a disgusting customer.

Disgusting and heng ah!

Remember, saving money with good deals is common sense but paying in advance and in full to get good deals is not as sensible.

California Fitness is not the first example and it won't be the last one either.


Related post:
1. 6 points in response to an expensive lesson.
2. Nobody cares more about our money...

Reader has 2 questions for AK.

Q1:

Reader:
"Hi ak, I didn't manage to ask question during your session last fri, actually I would like to ask your "pointers" on: It's easy to buy but I would like to find out when do u sell or trim your portfolio in particular to take profit or capital protection? Looking forward to next ak with friends session!"

AK:
"Sell when the investment no longer does what it should do or if you can find a better investment. If you would like to trade, then, you must pick up some TA skills."

Q2:

Reader:
"example: DBS trading less than book value, is that your permanent holding or you sell when DBS is 1.1 NAV?"

AK:
"If DBS were to go to a PE ratio of 14x or more, I might sell some."

Reader:
"noted with thanks, shall ponder on your wise words. basically is buy and buy for long term instead of marketing timing to trend trading."

AK:
"Timing market versus Time in the market."

Related posts:
1. When to BUY, HOLD or SELL?
2. (I bought DBS share, DBS shares...)
3. Evening with AK (15 July 2016).

Reader has 4 questions for AK.

Hi AK,

I am 29 this year, need some advice for building up passive income.

I have been in contact with financial reading on and off about investing and stocks and stuffs, but i always find that i dont have enough knowledge and skills to actually invest. I made a few investments from insurance agents and banking relationship managers which in the end made me realise they are all functioning for their own personal interest and i learnt the hard way as of course. I trust them too easily.

1.       As such I am thinking what can I do to gain the knowledge that you have to help me make decent decisions. Is there any specific steps that you take when you first started?

2.       What amount of initial capital that you start investing with? To be able to have $50k in 2011 required at least a start up of $500,000 with a 10% ROI.

3.       What do you think of alternative investments? Such as land banking or peer to peer lending?

4.       What if currently I can only come up with $100,000 in initial capital and monthly basis maybe $3-4k, what could and should i do with them to move towards what you are getting?

Thanks a lot for your time!

Regards,

W

Hi W,

I am glad that you have discovered that no one cares more about our money than we do. :)

In reply to your questions:

1. Read, read, read. Of course, it is important not just to gain knowledge but also to cultivate the right temperament.

2. I started investing 20 years ago when I was still an undergrad. Probably had $20,000 or less then.

3. Highly speculative, I will avoid.

4. I don't think anyone should use me or anyone else as a yardstick. As long as we are taking steps to improve our financial well-being (and investing in good income producing assets is one such step), we are moving in the right direction.

Gambatte! :)

Best wishes,AK


Related posts:
1. How did AK create a 6 digit passive income?

2. A way to double digit yielding portfolio.

3. To make 20% per annum...

Talking about "Evening with AK and friends" (15 July 2016).

The first "Evening with AK and friends" was, hopefully, fun and educational, for everyone. I picked up some pointers from my guest panelists, Victor Chng and Rusmin Ang from The Fifth Person too. For sure, AK doesn't know everything and has lots of room for improvement as an investor.

Of course, being financially secure is not just about being a good investor in equities. So, I briefly talked about insurance, bonds and real estate too. Most of the evening was devoted to answering questions regarding some stocks and REITs.

I understand that some readers are more seasoned investors and some are newer investors and here are links to books which were mentioned for the newer investors at the event:

1. Recommended books for FA and TA. (Book no. 1 for FA is recommended and the one that Rusmin said to read first.)

2. 5 rules for successful stock investing. (This is the book recommended by Rusmin to read later.)

There was a good discussion on Telcos as well and Victor pointed to various articles he wrote on SingTel, Starhub and M1. I found the link to the list of articles: here. Good stuff!

Whatever we want to invest in, question our motivations. Be clear about what we want. Then, we know what to do and whether that investment is for us.

Make sure that it is a bona fide investment that is sound. Get in with a margin of safety or, at least, don't overpay. There are ways to do this and I mentioned using PE ratio and NAV as two possible metrics in the example of DBS and why I thought it was undervalued.

As investors for income, always look out for financial engineering. Find out what is the real income generated by an investment and what they can actually pay in dividends based on their operations. That is being realistic. 

Assuming anything higher introduces an element of speculation and it could go either way. It is OK to speculate a little, I always say, but if we want to reduce downside surprises to the minimum, then, it is best not to.

We could also invest in something as a possible asset play and I used the examples of OUE and WingTai. It would be good if such investments pay us while we wait (don't know for how long).

It is good to be cautious but don't be overly cautious that we end up leaving most of our money in our war chests waiting for a war (and getting increasingly frustrated as the war seems to be overdue). 

There is still lots of liquidity out there and with BREXIT, it does not seem like liquidity is going to reduce. Instead, we won't be wrong to expect looser monetary policy as central bankers around the world are scared stiff of another credit crisis. 

So, another bout of liquidity driven rally in the stock market is definitely possible. Money will go to where it is treated best and good income generating stocks in Singapore will likely benefit.

I try not to be overly pessimistic. I try not to be overly optimistic. I try to be pragmatic.

Finally, for those who missed out on this session and requested that I organise another one, good news! 

There will be a second session and it will definitely be the last one for 2016. (Really, AK is very lazy this year.) Details will be released when available. So, look out for it.

Related post:
1. Track the companies we are "Vezted" in.
2. "Evening with AK and friends" in 2016.

Track the companies we are "Vezted" in.

Ever wondered how to keep track of all the news regarding our companies?

Hey AK, would like to seek your advice on a question I've been pondering: how do you recommend keeping track of press releases regarding the companies in your portfolio? For instance, dividend info, quarterly earnings report, etc. I currently manually google them now and then, but I find that I tend to miss some of them until it appears on blogs like yours or thefinance.sg. it must get especially tougher to stay on top of things when the portfolio gets larger

thanks in advance! bought your tickets again to your upcoming tea session too

Here is the answer.

Kenji Tay: 
"Its a new service call Vezted that helps readers get all the investing news of the company they invest."

At the first "Evening with AK and friends" of 2016, Rusmin Ang introduced the app to an appreciative audience.

Choose the companies we want to follow and all the news related to those companies will appear in chronological order. 

As investors for income, we will know when our companies are going to pay dividends and how much they are going to pay (including CD and XD dates). 

Go on and try it: here.

This service is FREE. AK likes!

Note: This is not a paid advertorial.

Another special dividend from SPH in future.

One of the larger investments in my non-REIT investment portfolio is in SPH. Actually, SPH is also one of my oldest investments for income. 

Most of my investment in SPH is priced between $2.86 to $3.55 a share with a more recent tranche at $4.20 a share purchased in 2013 when SPH REIT was created. 

Wah! $4.20 a share? Then, lost money already lah. Well, some might look at it that way. 

For me, as an investor for income, assuming a DPS of 21c at the time, I was looking at a 5% dividend yield. With a much stronger balance sheet than SPH REIT, SPH made more sense to me as an investment for only a slightly lower dividend yield.

When SPH REIT was created, SPH declared a special dividend of 18c a share while retaining major ownership of both Paragon and Clementi Mall. In fact, when the counter went XD back then, I added to my investment again at $4.03 a share. (See: The mystery of the extra money in my account.)

Will SPH declare another special dividend when it sells a percentage of its stake in Seletar Mall to SPH REIT? Very likely.

Seletar Mall is 70% owned by SPH and the other 30% is owned by UE. It would probably be cleaner for SPH to take 100% ownership of Seletar Mall before injecting the asset into SPH REIT. 

Of course, only time will tell how things progress but we know for a fact that SPH REIT has been granted right of first refusal on Seletar Mall by SPH.

Visiting Seletar Mall has been on my to do list for a while and, recently, I did. 

I didn't see any vacant shop space and I saw a pretty good crowd on a weekday evening.

I am sure it will be a matter of time before SPH REIT is offered Seletar Mall and, as a SPH shareholder, I am looking forward to that day. 

Patience will surely be rewarded.

Related post:
SPH or SPH REIT?

SPH Reit Management CEO Susan Leng said that SPH has granted a right of first refusal to the Reit, but it is only when the sponsor has decided to divest the property that the Reit can evaluate the opportunity... - Source: AsiaOne

Get dividends while preserving or growing capital.

Hi AK,

I'm new to your blog.

In searching for passive income in the past it was all about property and I never really considered REITS, stocks or funds in general. However I'm slowing accumulating these instruments in recent years to both diversify and bolster my passive income stream.

Too many investment and UT performance reports assume you will keep reinvesting dividends to take advantage of compounding and show wonderful returns. Unfortunately for retirees who cannot afford to roll their dividends back to their investments these numbers do not hold true.

REITS often make cash calls and one can see even the holdings that you've mention like AIMS, LMIR, Cache, Sebana over the past 3 years have lost capital for their investors (assuming you don't reinvest).

If you look at income-focused UT reports purely on a NAV basis most head south. I've seen advice by other investors that say we should look for even higher returns, spend a portion of that and reinvest the rest (eg, get a 10% dividend, spend 8% and reinvest the rest) but that also usually entails taking on much higher risk. Another talks about a hybrid between income and value & growth investing.

So if you're an investor starting out today that needs dividends as income but wants to preserve or grow his capital you're really in a hard place.

How would you advice someone in this situation?

Regards

V

Hi V,

Welcome to ASSI. :)

If we entered at a high price, it is unlikely that we are going to do well. It is not just REITs but the same with everything else, including ETFs.

If we want to invest in REITs, for example, it would be more meaningful to compare within the REITs sector to see which ones have performed better. Why did I choose to stay significantly invested in AIMS AMP Capital Industrial REITs instead of Sabana REIT, for example?

In the current day environment, if we want to preserve our capital (i.e. zero risk and volatility) and yet want to receive income, investment grade bonds or fixed deposits are the best bets. Even so, the risk is not zero.

Grow our capital (and I take this to mean appreciating prices) and yet want some income? I am sure there isn't anything that can provide such certainty although if we have a very long term investment horizon, the chances will improve if we invest in a basket of well run companies that pay dividends.

Best wishes,
AK

Related posts:
1. 3 points in stock investing.

2. Be cautious climbing the S-REITs tree.

How high a dividend yield is worthwhile etc.?

Hi AK!

Reading your recent post on your 1H 2016 income is very inspiring and I hope one day to be able to reach your level. I have a few questions that I hope you can help me with in planing my portfolio

1) How much of your portfolio do you allocate to growth stocks and how much for income stocks?

2) If looking at income stocks aka dividend yield, what % and above do you deem it worth your while to invest in?

3) Whats your average yield for your whole portfolio currently?

Thanks!

Cheers,

Lewis

Remember the pyramid?

Hi Lewis,

Such blog posts are meant to inspire readers to embark on their own journeys towards financial independence. They are not meant to instruct. I am glad you are inspired. ;)

Allocation would depend on a person's motivation. Since I am more interested in income, I allocate more resources towards investing for income, for example.

When investing for income, a higher yield is always attractive but we have to bear in mind that other factors must be considered too. Always ask how is that income generated and also if it is sustainable (for how long)? We might not always get it right but if we ask these two questions, we should get it right most of the time.

One objective of investing for income is to beat inflation. If a stock is able to generate a yield that beats inflation rate or at least equals it, I might consider.

I never tell people what is my portfolio's average yield since I have revealed my annual passive income in absolute dollar value. However, this does not stop some readers from doing some CSI in my blog to get an estimate. ;p

Gambatte!

Best wishes,
AK

Related posts:

1. 1H 2016 income from S-REITs.

2. 1H 2016 income from non-REITs. 

Read only if you want to be closer to heaven.

Heavenly!

Why I suddenly like that say?

I have been a bit more lax when it comes to my diet in recent days and readers who follow me on Facebook know this as I post photos of what I cook on my Facebook wall frequently.

I decided to have something that is extremely unhealthy this morning, so unhealthy that it will elicit screams from the most health conscious of readers.

Ingredients:

A prata.
A slice of cheese.
A scoop of ice cream.
Some nuts.

Step by step instructions:

1. Pan fry prata on both sides.
2. Press warm and crispy prata into a bowl.

3. Apply cheese so that it melts slightly into prata.
4. Wait for a while for this to cool.
5. Add a scoop of ice cream.
6. Add some nuts.

There! Heavenly breakfast!

I call it "Nutty Cream PrAKta". 

Sounds cheesy? 

Aiyoh.

Why do you think there is a slice of cheese?

Duh...

Now I must do the socially responsible thing and apply a health warning label (just like what they have on cigarette packaging):

This will bring you to closer to heaven (in more ways than one). You have been warned!

Bad AK! Bad AK!



Related post:
Being fallible in dieting and investing.

Invitation from the National University of Singapore.

I have been making donations to NUS to help needy students for years, always making sure that my donations go to bursaries but this is the first time I am being invited to the award presentation.

Last year, I donated much more money than in previous years as I donated the proceeds from the many sessions of "Evening with AK and friends" I had last year as well.

"It is our honour to host this dinner to recognise our donors..." Professor Tan Eng Chye.

It is nice to be appreciated but I don't think I will attend the function.

Must go in office attire. 

I am so used to my comfortable shorts, t-shirt and flip flops these days.

Yes, I know.

Bad AK! Bad AK!





If we have money to invest with, we are probably more fortunate than most. 

If we can afford to help the needy, why not?

Can't donate much? 

Well, honestly, I am more impressed with a $20 donation from a regular middle income employee than a $100 donation from a multi-millionaire towkay.





If you would like to make a donation to help needy students too, please read the related post below. 

十年树木，百年树人.

"The best thing a human being can do is to help another human being know more." Charlie Munger

Related post:
Helping needy students.

What did AK tell a reader who aims to save $1.8K a month?

Hi AK shifu,

I have been following your blog for quite some time now (2-3 years)! I am 26 this year and have recently graduated and will be starting work next week. Over the past few years, I have made some money from trading physical goods and right now I have a warchest of about 30k. Once I start work, after accounting for all expenses, I will foresee myself saving around 1.8k a month.

Over the last one year, there have been a couple of corrections and on hindsight, its easy to say "damn! i should have bought some". However, a part of me is telling myself to hold on to the bulk of my money till the market crashes so that I start off at a good position. I think that is important. 

I see myself as a 'lazy' investor, so I am looking to invest in telecomms, various gov linked services and perhaps some reits for passive income which I believe to have upside in the next decade or two (healthcare and retail). Could I get your opinion on how to time my entry with this little money I have?

On a side note, I like what you have been doing with your CPF monies....

Why are cacti able to grow in deserts?

Hi,

You sound like a very down to earth kind of guy when it comes to money making. You are also financially prudent.

As for investing for income, timing the market is difficult. Time in the market is easier unless you are not the disciplined or patient type or if you are using money not meant for investing.

Timing the market is not impossible though. It boils down mostly to luck. Did I know that the GFC was going to happen? No, I could not have predicted it. However, I could prepare for it. That is where our war chest comes in.

We cannot predict but we can prepare.

However, if we keep waiting for another GFC to happen (and quite a few people I know have been waiting for years now), all the while leaving our money in our savings accounts, then, it is a little silly.

While waiting for that big crash to come along which inevitably will happen one day, put some of our money to work with each correction in the stock market.

Do you believe in having some assets that do not move in the same direction as the equities market? My CPF money, I treat it as the investment bond component of my portfolio. A risk free, volatility free component which pays relatively good dividends.

I treat my CPF-OA money as the ultimate war chest only to be used in the event of a huge crash in the stock market as the opportunity cost of using it is quite high. I treat my CPF-SA money as the ultimate in investment bonds with an unbeatable coupon plus the magic of compounding.

I believe you will do well, given time. Gambatte!

Best wishes,
AK

Related post:
Graduating soon?