A banker's advice on retirement income strategy.

This is from the blog of a reputable bank providing advice to retirees:

... Start by figuring out how much spending money you will need from your portfolio over the next five years. Let's say you are using a 4% portfolio withdrawal rate, which means you plan to spend a sum equal to roughly 20% of your portfolio's current value over the next five years.

You might take that 20% and stash it in conservative holdings like savings accounts, certificates of deposit and short-term bonds, so you know that you have the next five years of anticipated spending covered, no matter what happens to the rest of your portfolio.

You can then invest the other 80% of your nest egg for total return using an appropriate mix of riskier bonds, U.S. stocks and foreign shares. You will want to consider carefully what combination of stocks, bonds and other asset classes to buy, because each has its own unique benefits and risks, and also how to diversify within each of these asset classes.

In years when the markets are kind, you might cash in some of your gains and use it to replenish your pot of spending money, so it once again holds enough to cover five years' worth of portfolio withdrawals. What if the markets aren't so kind? You could sit tight and see if the markets recover. Thanks to your five years of spending money in more conservative holdings, you should be able to go that length of time without touching the 80% of your portfolio that's invested for total return.



AK71 says,
"Sailing into the sunset should not be sailing into the dark."

Basically, it is advising retirees to take out what they need in spending money over the next five years and invest the rest in a mix of riskier bonds (junk bonds?) and equities. In case Mr. Market is not kind over the next five years, these retirees are still OK because they would have already put aside enough spending money for that period of time.

I want to draw attention to the words I have underlined. These are basically the ideas I have problems with.

Is securing five years of spending money without taking into account average inflation enough to provide a peace of mind for retirees? What is an appropriate mix of riskier bonds etc. and are riskier bonds even appropriate? Sit tight and see if the markets recover if things don't go well? That sounds like plenty of hope analysis to me.

I am most uncomfortable that retirees should be mostly invested and 80% in this case. What if the markets should go into a protracted downturn? Being retirees, these people are less likely to have the ability to fill up another war chest with earned income. Shouldn't they have a war chest ready just in case Mr. Market suffers from a bout of manic depression?

I don't have a Degree in banking or wealth management. I am just another retail investor sharing his concerns using what he feels is common sense.

Please forgive my ignorance.

Related posts:
1. Be cautious even as we accept higher risk.
2. A letter from a 66 year old retiree.
3. If we want peace, be prepared for war!

Marco Polo Marine: Indonesian Cabotage Law (Part 2).

Some of the best kind of information we can collect regarding a company's prospects is from revelations by other companies in the same industry. I would like to share something I came across in NextInsight on Jaya Holdings which was published on 12 February 2013.

It was revealed that Jaya Holdings, from chartering its vessels to the O&G industry, "reaped US$7.8 million net profit compared to the paltry US$0.4 m in the same quarter a year ago."

"The jump in chartering net profit came from Jaya's charter fleet enjoying an 80% utilisation rate in 2Q2013 versus 62% a year earlier.

"The higher demand came with higher averge daily charter rates: US$12,685 versus US$9,222.

"The seas, however, have turned choppy. Jaya is expecting its fleet utilisation rate to sink somewhat in the current 3Q2012.

"A key reason is the implementation of (long-deferred) cabotage rules by Indonesia effective 1 Jan this year, which has led to the cancellation of charters for 3 Jaya vessels in Indonesian waters. That's 3 out of 28 vessels in Jaya's fleet."

CEO Venkatraman Sheshashayee revealed that chartering vessels in Indonesia was providing a decent rate of return on investment. However, now, "the rates there are probably climbing upward because now there is a serious shortage of vessels there."

Jaya's revelations bolster my strong believe that Marco Polo Marine's economic moat has strengthened and that it is positioned to benefit from higher charter rates in Indonesia this year.

The writing is on the wall and early investors in Marco Polo Marine will benefit.

To read the full article, visit NextInsight:
JAYA HOLDINGS: Strong Chartering Profit in 2Q

Related post:
Marco Polo Marine: Indonesian Cabotage Law.

China Minzhong: Indofood is a new substantial shareholder.

The reason for China Minzhong's trading halt in the last session has been published.

Indofood is paying 91.5c per share to take up a 14.95% stake in China Minzhong. Indofood is, of course, a leading food producer in Indonesia and some of us are familiar with their instant noodles in Singapore.

This surprise development is strongly positive for China Minzhong as they receive funds for further expansion of industrial farming facilities which will raise productivity and lower costs, making them more competitive. Industrial farming also means greater accountability and ease of audit which in turn should raise investor confidence.

There is also expected synergies between Indofood and China Minzhong, both established food companies in their respective countries of Indonesia and China which have huge populations which, of course, have to be fed.

However, before we send in the lion dancers and drums, Indofood is buying into China Minzhong through the purchase of new shares to be issued. So, unlike what happened in December last year when Olympus Capital Holdings sold its 10.3% stake for 80c a piece to various institutional funds and HNWIs, Indofood's buying into China Minzhong is dilutive for current shareholders.

The new shares which are being issued at a discount of about 10% from market price will water down the valuation of China Minzhong's shares by about 13%. On a per share basis, everything else remaining constant, we would see a lower EPS and a higher PER, for instance.

So, from a valuation perspective, if Mr. Market should go into protest mode on Monday and sell China Minzhong's shares at 90c a piece next week, it is actually not any cheaper than buying the shares at $1.03 this week.

If Mr. Market should go into a buying frenzy because of this development and push the share price to gap close at $1.20 per share, we should note that $1.20 is actually the old $1.38 from a valuation perspective. So, if we had a target price of $1.38 to sell, we should sell at the gap close of $1.20.

Of course, if we believe that this tie up will add fuel to the growth trajectory of China Minzhong, then, a higher PER becomes more acceptable. If Mr. Market believes this, it will be reflected in a much higher share price.

Unfortunately, there is no way to tell in which direction and by how much share price would move. We can only tell what this latest development means for the valuation of the stock.

See press release: here.

Related post:
China Minzhong: 2Q FY2013 stellar results.

Marco Polo Marine: Indonesian Cabotage Law.

Someone told me I have been blogging a lot about Marco Polo Marine lately. Well, I guess it is natural since I think this is a company that is doing well and is likely to continue doing well.

My continuing research revealed that in Indonesia, foreign vessels that perform surveys, drilling, offshore construction, offshore activities, dredging work, salvage jobs and underwater activities for the oil and gas sector are exempted from the cabotage law.

The cabotage law? Indonesia enacted a cabotage law in 2005, but enforcement was delayed for years.
The Indonesian Cabotage Law requires all vessels operating in the country’s waters to register as Indonesian-flagged vessels by 7 May 2011.

Marco Polo Marine via its Indonesian subsidiary company, PT Pelayaran Nasional Bina Buana Raya ("BBR"), reflagged all its vessels earmarked for plying in Indonesian waters to comply with the law.

Apart from tugs and barges, Marco Polo Marine also owns anchor handling tug supply (AHTS) vessels. What are these? They are vessels built to handle anchors for oil rigs. So, with the exemption mentioned earlier, does it mean that Marco Polo Marine's fleet of AHTS is at a disadvantage?

Further research found that there is a requirement by the Indonesian Transportation Ministry for companies to prioritize local companies as service providers in oil and gas shipping.

Local and foreign companies are required to seek Indonesian-flagged shipping companies first in a tender. They can turn to foreign firms if they fail to get local companies within three rounds of bidding. Even then, they can only use foreign vessels through a local company!

I am of the opinion that a substantial part of Marco Polo Marine's economic moat is provided by the Indonesian Cabotage Law. This allows them to charge a premium on its charter rates which OSK Research has called the company's most promising source of high margin growth.

References from The Jakarta Globe:
1. Govt Exempts Oil, Gas Vessels From Cabotage Law.
2. IPO-Bound Shipper Buana Plans to Cash in on Cabotage.

Related post:
Marco Polo Marine: Looking into the future.

China Minzhong: 2Q FY2013 stellar results.

There is a slight slippage in gross profit margins and I do mean slight but the rest looks good:

For the 6 months ended 31 Dec 2012:

Revenue improved 45.7% y-o-y

Gross profit improved 19.9% y-o-y

Gross profit margin is at 33.9%

Net profit margin is at 22.9%


Within a 6 months period, the balance sheet of the company has also strengthened with cash and bank balances increasing by 642.6% from RMB 66.2 million to RMB 491.6 million.

NAV per share improved 9.5% to RMB 7.05.

The improvement in its cash position is directly related to an improvement in cash flow from operations which increased 336.2% for the 6 months ended 31 Dec 2012, year on year.

I am still concerned about the TR which although reduced by 5.5% is still a hefty RMB 913.9 million. Out of this, RMB 158 million are overdue.

Overall, however, the results should please shareholders.

Could another round of re-rating upwards be on the cards?

See presentation slides: here.

Related posts:
1. China Minzhong: Share price to go higher.
2. China Minzhong: Partial divestment at $1.01.
3. China Minzhong: Going higher to $1.22 to $1.46.

Common but admirable people.

Once in a very long while, we might get to meet people whom we are truly impressed with and, even rarer, admire. Today, over lunch, I found such a group of people.

Although I have promised to keep the information shared with me confidential (and it will be so), I just want to share with readers how I am heartened that there are selfless people in Singapore who are doing good and trying to do more each day.

Some people have told me that what I am doing here in ASSI is noble, that I share freely with everyone what I know, that I spend so much time replying to emails and comments from readers. In fact, some might wonder why I do it?

Honestly, this blog was started mostly out of curiosity. I did not start with the primary intention to share the importance of financial freedom. What I thought and what I felt, I just blogged.

Over time, the number of readers grew and I realised many people enjoy reading my blogs. So, somewhere along the line, I decided that if a job is worth doing, it is worth doing well. Therefore, I started to write more seriously in an effort to inspire readers and to share what I know. A metamorphosis took place.

However, even though blogging feels like a second full time job for me by now, I have a day job that pays me a salary. So, I don't need to blog for a living and it doesn't matter too much that I am not being properly compensated for the amount of time I put into blogging.

Now, these people I got to know over lunch today are in a different league. They are paid very little money in their day jobs which are to share the importance of financial freedom with as many people as possible on a regular basis. Money made through their group efforts is put aside to do good in future for the underpriviledged.

I feel that this is truly noble and admirable.

I think all of us know how easy it is to feel cynical about people in this materialistic world that we live in but as we strive to become better people, it is good to know that there are people who are also striving to make the world a better place and they are making huge sacrifices to do so.

In the past, some readers suggested to me how I could conduct inexpensive and simple courses on investing in the stock market. I have, of late, thought how this could possibly be a retirement activity. Now, I am inspired that if I should do this, I could also possibly do something for the charities.

This has been a heart warming day for me.