How to size our more speculative positions?

I have shared before that it is OK to gamble a bit once in a while. 

I am Chinese and gambling is in my blood. 

It's not my fault that I am born Chinese.





So, I have nothing against speculation per se. 

1. As long as speculators know that what they are doing is speculation, 

2. As long as they are mindful of the possible consequences 

and 

3. As long as they are able to take the losses comfortably if things go wrong, there is nothing really wrong with speculation, is there?

http://singaporeanstocksinvestor.blogspot.sg/2014/08/accordia-golf-trust-hole-in-one.html

Well, I would say please keep speculative positions small. 

Of course, how small it is would depend on

1. our risk appetite 

and 

2. our ability absorb losses. 

2 to 3% of our portfolio size for some and 10% for others? 

Sounds rather arbitrary, doesn't it?





When a reader asked me for a "formula" to help quantify "small", what did I say?

I told him it would have to be an amount I can recover quickly within a year or less in case of a total loss. 

This measure has always given me peace of mind and he said it is helpful to him. 

So, I thought I should share this.





Of course, if I should have more than one speculative position, the total exposure should not exceed the amount I think I could recover within a year. 

It is a bit like having one or five credit cards from the same bank. 

The credit limit doesn't increase with each additional card issued.





Like with so many things in my life now, it is about avoiding stressful situations where possible and not losing more money than I can recoup in a relatively short time works for me.

Always ask "to what extent can I afford to be completely wrong?"

Once we have the answer to this question, we will know how to size our more speculative positions.



Related posts:
1. Motivations and methods in investing.
2. How to make recovery from losses easier?
3. To be richer, be comfortable with being invested.

Croesus Retail Trust: Acquisition of ONE'S MALL.

I had expected some form of equity fund raising and although I was hoping that it would be a rights issue, I was not surprised that a private placement has been chosen instead. It is more expeditious, after all.

However, it does not mean that I am happy about it since, in all likelihood, I won't be one of those "other investors" who would be offered new units in the Trust to be priced between 89c and 92c per unit. What? Unit price was about $1.00 when you last looked? Wow! 89c would be a steal, wouldn't it? Bummer.

Anyway, the acquisition of the new (freehold) mall, ONE'S MALL, in Greater Tokyo will cost about S$132.5 million.

The private placement is expected to raise S$70.2 million to S$72.6 million. The Trust will also be drawing upon a Japanese local bank loan for most of the shortfall (equivalent to S$74.1 million) at an interest rate of 1.29% per annum. I like the natural hedge that comes with this and also the very low interest rate.

A much smaller amount of S$6 million will be drawn from the Fixed Rate Notes issued in January this year. To utilise funds from the Fixed Rate Notes minimally is a good move as it attracts a higher interest rate of 4.6% and it is also denominated in S$. So, there will be some FOREX risk but it will be miniscule here with only S$6 million drawn.

Overall, income distribution per unit (DPU) is not expected to receive much of a boost with this acquisition because it is half funded by the private placement. Expect an increase of only 0.2% in DPU. Expect NAV/unit to increase by only 0.1%.

What about gearing level? As the purchase is about half funded by the private placement, gearing level stays more or less unchanged, reducing from 51.7% to 50.5%.

Nothing to be too excited about.

See announcement: here and here.

Related post:
Croesus Retail Trust: 4Q FY2014 DPU improved.