Should we be staying invested or in cash?

All of us know how pathetic interest rates on savings are for quite some time now and with the U.S. Fed pledging to keep interest rates low for another two years or so, it does seem as if low interest rates are here to stay, even in Singapore.

We also know that the ultra low interest rate environment is pushing up prices of almost everything. Inflation? You bet. Is this going to persist? It certainly could. If it does, then, my decision to sell my properties in recent months might not be that brilliant after all.

However, if we remember basic economics, we will recall that prices are a function of supply and demand. With many more new homes to be completed from 2012 to 2015, we could very well face a supply glut in future. This is probably quite well documented by now but I will run through the numbers once more:

Year 2012: 
15,457 new homes to be completed.
Year 2013: 
17,111 new homes to be completed.
Year 2014: 
21,680 new homes to be completed.
Year 2015: 
22,520 new homes to be completed.
We should also bear in mind that, currently, there are still more than 30,000 completed homes unsold.
(Sources: URA, DTZ and Nomura.)

As long as demand remains strong, the supply could be well-absorbed. This would depend on the state of the economy and the level of confidence amongst buyers, of course.

To add to the supply glut concern, the very well publicised recent decision by the government to build more HDB flats and to build them faster is likely to weigh in on the matter. Read HDB has promised 25,000 more new flats next year, based on what it said the construction industry can handle.

So, when people ask me for my opinion on whether it is a good time to buy that investment residential property in Singapore, I usually would reply in the negative. However, when people ask me if it is a good time to buy their first home, that is a bit trickier. It really depends on how urgently they need that first home. Sometimes, if we have to pay a premium, we just have to do it. Who knows? Price could keep going higher although I do not think it likely through 2015.

What about me? I get the sense that many readers are wondering what I am going to do with the cash that will be coming in from the divestment of my properties. To be quite honest, I am not going to keep too much cash in my savings account for too long as inflation would rapidly erode its value. To that, some might say that because they are in cash, their cash is now able to purchase many more shares than it could a month ago. This is certainly a valid point as well.

So, what to do? I must have said this a few times before but there is no other option for me than to stay invested but have a war chest ready. We want our money to work hard for us. At the same time we want our money to be able to purchase more shares at lower prices. Why? So, that our money could work even harder for us. Therefore, in the final analysis, whether we stay invested or in cash, the objective is the same: to make our money work for us.

While I was holidaying this weekend, I noticed that I have a lot more white hair. Family and close friends know that I think a lot. I think I think too much. ;)

Sabana REIT: Recent developments.

The REIT has proposed the acquisition of 39 Ubi Road 1. The property has a remaining tenure of about 40.4 years and is valued at $32m. The vendor, Ascend Group Pte. Ltd., will take a master lease of the entire premises for a term of 5 years. Extension works is ongoing and will add approximately 41% to the building's existing gross area. The acquisition will be funded by debt and will increase gearing level from 25.1% to 27.7% upon completion. My thoughts? With what information is available at this point in time, I like it as it would probably bump up DPU marginally for unitholders without asking us for more funds while gearing level remains very comfortable.  See announcement here.

Al Salam Bank Bahrain BSC increased its investment in the REIT by 1,909 lots at a price of 94c per unit on 2 August 2011. It now holds a 5.14% stake in the REIT. See announcement here.


The REIT received a 'BBB-' long term corporate credit rating from Standard & Poor's Rating Services. This reflects "Sabana REIT’s moderate leverage with good access to diversified funding channels and stable cash flows. The ratings also take into account the quality of Sabana REIT’s industrial property assets in Singapore and minimal capital expenditure needs. The stable outlook was based on the REIT’s balanced business risk profile as well as its adequate cash flow protection measures" and "is a significant first step that will allow Sabana REIT to access investment grade Shari’ah compliant debt and capital markets." See announcement here.

Rules for investing in difficult times.

There isn't very much that I want to say tonight because I have probably said all that I want to say in my recent blog posts. 

I just did some reading which is something I do every evening and came across an article by Aaron Task who is someone I enjoy watching on Tech Ticker.





Aaron shared 4 time honoured rules:

1. If you can't take the heat, get out!  

This is something I did not talk about but I have said time and again that investors should just do what they feel comfortable with. 

Anything we are not comfortable with, avoid. 

Aaron is quite specific in who are the people who should get out.






2. Don't panic! 

This one sounds very familiar. 

Aaron says that many investors simply cannot take the pain and are cutting and running. 

Historically speaking, many investors sell out of stocks at important market bottoms. 

This is a reason why I refuse to sell when prices are forming new lows and would only sell if they rebound to test resistance. 

Aaron is quite specific in who are the people who should not panic and should stay the course.

The 8 immortals each had his or her own way of crossing the sea.

3. Have a plan! 

Sounds familiar again. 

Aaron says it differently from me but the essence of the message is the same. 

We must understand our motivations for investing in the stocks we are invested in. 

The tools we employ and the attitude we have must be appropriate to our motivations. 

That way, we will stand a good chance of doing better with a consistent strategy and this is so both financially and emotionally!






4. Learn from your mistakes! 

Do we need to say more about this? 

Life is about learning and more learning. 

Regular readers would know that I am still learning and would have read my story. 





New readers might be interested in reading this: 

Excuse me, are you an investor?

Aaron ends his article by asking us to ask ourselves three questions, go read his article and see how you would answer these three questions. 

Could be revealing. 

Enjoy "4 rules for the see-saw market".




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STI drops 0.9% to 2,796.22 at closing Thursday, 11 August 2011

© 2011 - The Edge Singapore

Why do I not panic? Added Sabana REIT.

In my last blog post and probably a couple more before that, I mentioned that we should stay calm and rational, have a plan and act upon it. This is my personal mantra and it has not changed.

Some wonder how I could act so confidently and decisively. Here are some reasons:

1. I am not investing using borrowed funds or funds which I need in the near future for other purposes.

2. Of my total investible cash, only 50% or so has been deployed in the stock market. In the last few sessions, it could have bumped up by a few % points.

3. I am informed by FA on a counter's value and by TA on a counter's price. I buy when I see value and when prices are at supports.

4. 80% or more of my investments in equities are for passive income and I sleep well with the knowledge that I will have regular cashflow from my investments.

5. I know I will divest partially if prices should rebound to test resistance levels. Yes, I am not one to fall in love with my investments.

This list is probably not exhaustive but they are five reasons off the top of my head.

Today, the only counter that hit my target buy prices is Sabana REIT at 88c and 87c. At these unit prices, we are looking at distribution yields of slightly more than 10% per annum. My overnight buy orders at these prices were filled.

Some ask me if I will be buying more units of Sabana REIT if its unit price were to weaken. Looking at the chart and using three sets of Fibo lines, I have identified stronger supports at 83c and 80.5c. If the immediate support at 86.5c should break, those are the prices where I will be adding to my long position.

Related posts:
Seven steps to creating passive income from the stock market.
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STI drops 2.2% to 2,821.09 at closing
Wednesday, 10 August 2011

© 2011 - The Edge Singapore