Revisiting AK's simple strategy with Charlie Munger.

Readers who attended InvestX Congress last month would remember that I quoted Charlie Munger:

"It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities." Charlie Munger




Lesson #1:
We always need a war chest.

Lesson #2:
There will be great opportunities to make money. Be patient.

Progressing from this, readers will also remember that, at the event, I attributed the moderate success I have had in my stock investing journey to my inclination to take a look when there is blood on the streets.




"When there is blood on the streets, go take a look lah," AK.

This is, of course, a Singlish version of what Sir John Templeton said, "buy when there's blood in the streets". 

Like my fellow blogger, SMOL, I borrow with pride.

AK is a frog in a well.

"... know what is the best way to make money from the stock market? It is to buy at the depths of a bear market when even the best blue chips are bombed out. During the GFC, I bought many more units of First REIT at 42c and LMIR at 18.5c. During the deep correction at the end of 2011, I bought more AIMS AMP Capital Industrial REIT at 95c ...

"However, without any money put aside, there is no way we would be able to take advantage of opportunities to buy on the cheap! Indeed, we might not even have to wait for a bear market to buy bombed out stocks as mispricing by Mr. Market could happen anytime and my large purchase of units of Saizen REIT at under 13c per unit middle of (2012) is a good example."
Source: Achieving $1 million in retirement funds.




To cut losses and to sell out of fear then would have been a terribly wrong thing to do. 

Not having a war chest ready to take advantage of the opportunities would have been a terribly regretful situation.

"If you took our top fifteen decisions out, we’d have a pretty average record. It wasn’t hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounced on them with vigor." Charlie Munger




Remember, we do not have to be 100% invested all the time although it is easy to feel a bit left out or a bit regretful that we are not putting more of our money to work as stock prices climb higher. 

Now, it might not be a bad thing to have a war chest full of cash and not do anything with it.

"There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn’t awash in cash and I don’t want to go back." Charlie Munger




By now, my war chest is quite heavy and this blog post is to remind myself that patience is a virtue.

Related posts:
1. Journey to financial freedom needs preparation.
2. To retire by age 45, start with a plan.
3. The mystical art of wealth accumulation.
4. Three points in stock investing.
5. AK71's simple strategy (Sep 2012).

Sabana REIT: Innotek Limited to divest 15 million units.

On 17 April 2014, I said that if we were to demand an 8% distribution yield from Sabana REIT, unit price would have to decline to 94c a unit. 

It seems that Mr. Market has been quite happy to accept a distribution yield of 7.16% or, perhaps, Mr. Market expects DPU to improve in the following months. Whatever the reason, Sabana REIT's unit price has been hovering at the level of $1.05.

For reasons I listed in the same blog post, I reduced my exposure to Sabana REIT substantially. With more master leases expiring by end of 2014, there is a chance that things could worsen and income could come under pressure.

The news that Innotek Limited which has 15,000,000 units of Sabana REIT is making a full divestment could send unit price of Sabana REIT declining in the coming weeks. 

Innotek Limited paid $1.05 a unit for this investment made in November 2010 and has benefitted from regular income distributions in the last 3.5 years.

Given Sabana REIT's rather lacklustre track record, Mr. Market should demand a greater premium in distribution yield from Sabana REIT compared to a blue-chip industrial S-REIT like A-REIT (6.1% yield) or even AIMS AMP Capital Industrial REIT (6.95% yield).

Indeed, the premium has always been about 2% over A-REIT's yield. So, without seeing at least an 8% distribution yield for Sabana REIT, it is unlikely that I would increase exposure to the REIT. 

Offering an 8.5% distribution yield, everything else remaining equal, would probably see me dipping my toes in the water with less trepidation. 

Of course, this could either happen with unit price declining or DPU improving. Which one is going to happen first? I don't know but I do know what I will do. As usual, ask not what will happen but what will we do if something should happen.

Related posts:
1. Sabana REIT: DPU of 1.88c.
2. Portfolio review: Unexpectedly eventful.
"In the S-REITs department, the biggest change this year to my portfolio has to be the major divestment in Sabana REIT. My current long position in the REIT is just a bit more than 10% of my investment at its largest. Whatever I have left is free of cost and will continue to generate passive income although on a much smaller scale."