How much more will AVIVA be paying AK?

I have blogged about how I buy single premium endowment policies with my SRS money before.

The best product ever was the Guaranteed Rewards plan from UOB Life which unfortunately is no longer available.

That guaranteed 3% to 4% returns per annum over an 8 to 10 year period. Of course, there was a life insurance component as well.

A Guaranteed Rewards $20,000 endowment policy that matured 2 years ago became more than $30,000 after the 10 year period was up.

That was 4% compounded yearly over a 10 year period. Some might not agree with me but I feel that for a relatively stress free option, it was not too bad.

I have another Guaranteed Rewards policy that is going to mature soon. I think it is probably going to be next year.

In the meantime, I have a single premium endowment policy from AVIVA called Guaranteed XO which is maturing on 21 November 2013 after 8 years. This one has a guaranteed portion and a non-guaranteed portion which pays every 2 years.

I cannot remember exactly but the last three payouts were unimpressive. I was probably paid less than $800 in total.

In their latest advice to me, they did not say how much more I would be paid on top of the single premium of S$10,000 all of which would be returned to my SRS account.

Will I get a pleasant surprise in November?

Pleasant surprise or not, this is going to beef up my SRS account which is one of my 4 war chests.

Related posts:
1. Great Eastern Life paid me $4,000.
2. Customer service in insurance companies.
3. A war chest called "SRS".

First REIT: DPU increased 16.7% to 1.96c.

On 26 July, I blogged about a 16.4% increase in First REIT's DPU. That was due primarily to contributions from 4 newly acquired properties. So, a continuation of the higher DPU through the quarter that ended 30 September should not come as a surprise.

Sometimes, in REITs, we see increases in net property income and distributable income but a lower or stagnant DPU. Of course, if the gearing level should be significantly reduced, it could be acceptable. Otherwise, all else being equal, it just means that we had an incompetent management.

When I initially invested in First REIT years ago, it had a relatively low gearing ratio. It was a bit more than 10%. Now, it is above 30%. So, the higher DPU has been achieved by leveraging up. Now, I am not saying that this is a bad thing.

However, to continue growing through acquisitions is going to be more difficult especially because the management wants to keep gearing at around 30%. This was also why I cautioned in an earlier blog post that we could expect a private placement if there should be another acquisition in the pipeline.

With the management saying that they are exploring AEIs to enhance income stream and to maximise returns to unitholders instead, the prospect of having a private placement is much weaker now. I view this as a good thing.

To have a private placement in order to strengthen the balance sheet making an acquisition or development less onerous might or might not result in a higher DPU. In the case of AIMS AMP Capital Industrial REIT, DPU improved while in the case of Cache Logistics Trust, DPU declined although marginally. So, in the case of First REIT, since we have a good thing in hand, why change it? The status quo is fine by me.

The CEO of First REIT's manager, Dr. Ronnie Tan, has a reputation for accumulating the REIT's units at all price levels. His interests are more aligned with unitholders', therefore. So, this is, perhaps, a reason why First REIT has been such a good investment for retail investors.

Related posts:
1. First REIT: DPU increased 16.4% (Part 1).
2. First REIT: DPU increased 16.4% (Part 2).

Don't waste the last bit of jam, again.

It was pineapple and mango the last time. So, what is it this time?

Guess?



One.



Two.



Three.



Times' up!

Did you guess correctly?

Slurp!

For people who don't know what I am talking about, please read related post below. ;)

Related post:
Don't waste the last bit of jam.

3 Trusts in AK71's portfolio and their income distributions.

I am expected to be quite bogged down by work in the near term and it will probably be a good idea to get more sleep in the meantime. However, reading pages 6 and 7 of The Business Times just now perked me up and I just got to blog about it.

3 Trusts I am invested in have announced their DPU for the last quarter:

The star is AIMS AMP Capital Industrial REIT which, regular readers would know, is one of my two biggest investments in S-REITs, the other one being Sabana REIT. As per my expectations, the annualised DPU of the REIT is now 11c as it declared a DPU of 2.75c for the quarter ended 30 Sep 13.

There are plans to bump up DPU in the next 2 years through AEIs, acquisitions and by maximising plot ratios. I will temper my optimism because if the REIT should try to lower its gearing, it could do another private placement and this would water down any potential increase in DPU.

Cache Logistics Trust which most analysts seem to favour announced a lower DPU of 2.126c, down 0.8%, year on year. Not a big deal although a bit of growth would have been nice. This is especially when distributable income actually rose 9.6% to $16.5million.

DPU came in lower due to 70 million private placement units in March this year. Regular readers know that I much prefer rights issues to private placements since retail investors like me never get to buy discounted units at private placements.

The third Trust is Frasers Commercial Trust (FCOT). It announced a DPU of 2.08c which is some 18.9% higher, year on year. Lower finance costs and lesser payment to holders of its Convertible Perpetual Preferred Units (CPPUs) are what helped to boost DPU.

A rough back of the envelope calculation tells me that the income distributions for the quarter ended 30 Sep 13 from these 3 Trusts will form approximately 7% of my total passive income from S-REITs this year. This will be very useful for my first year end holiday with my family in 5 years. I am looking forward to spending some quality time with my family and taking a longish break from work.

Always good to have positive news to perk us up in life.

Related posts:
1. Cache Logistics Trust: Initiated long position.
2. FCOT: DPU up 16.8% in 18 months.
3. AIMS AMP Capital Industrial REIT: Making money.

Buffett's secrets from Baltimore County Public Library.

I just received a parcel. It contains a hard cover copy of "Buffettology" from Baltimore County Public Library!

The library received the book in November 1997. Wow! Imagine that. I was only 26 years old in 1997.

This book is 16 years old! It was sitting in a public library in the USA and now it is mine. I get a strange, fuzzy feeling thinking about it.

It also gives me satisfaction to know that this purchase from BetterWorldBooks helped to fund literacy for the less privileged.

Some stuff in the book.

New material for bedtime reading.

Related post:
Good deal on Buffettology.

Emergency Fund: How much is enough?

I want to thank a former guest blogger, Winston Koh, for showing me a video clip by the famous Suze Orman on the topic of "Emergency Fund".



In case we lose our jobs, it could take us a much longer time to get a new job if Singapore goes into a severe recession. Think GFC. Think AFC.

We would need an emergency fund to tide us over and we do not want to be in a situation where we might have to liquidate our investments at depressed prices. The cost of holding an emergency fund is well worth it. There is no question about this.

Related posts:
1. Why a meaningful emergency fund is important?
2. Nobody cares more about our money than we do.
3. Don't see money, won't spend money.

Fukushima and investing in Japanese real estate.

I have real estate investments in Japan through Saizen REIT. So, naturally, I am concerned about whether there is any progress made at the Fukushima nuclear power facility.

Prime Minister Shinzo Abe seems to be doing all the right things to kick start an economy that has been in deflation for 20 years. He has also openly asked for help from the international community to help manage the problematic Fukushima power plant. Is a solution close at hand?


Radioactivity levels at Japan's Fukushima nuclear power plant on Thursday were 6,500 times higher than the previous day's readings. 19 October 2013.

The situation does not seem to have improved.

Although Saizen REIT does not have buildings within a 20km radius of the power plant, the nearest being 60km away in Koriyama and 100km away in Sendai, the inability of Japan to handle the problem in an effective manner raises pertinent questions since earthquakes are likely to occur again. If nuclear plants in other parts of Japan should face the same problem in future, what then?

Having said this, if we believe that the Japanese economy is turning around and if we want to invest in Japanese residential real estate, it would make more sense to invest in a REIT than to invest in specific properties in Japan. This will lower the risk of a total loss due to natural calamities.

Related posts:
1. Saizen REIT: Sendai, Koriyama and Morioka.
2. Invest in Japanese real estate.
3. December 2011 in Japan: Hakone.

How to be truly "rich" when the world collapses?

There is a very interesting article in the weekend edition of The Business Times. It is by Cai Haoxiang and he asks the question "What asset do you flee to when the world collapses?"

We have heard people saying that bonds are now a bad idea and that equities are preferred. So, many are invested and even fully invested in the stock market. No emergency fund? No war chest?

Singaporeans, of course, have a never ending love affair with real estate with many thinking that real estate prices on our tiny island will only see prices going higher. 

Someone told me that there is never a bad time to buy a property. Well, never say never. Those who bought a property here before the Asian Financial Crisis in the late 90s just broke even recently.

Then, there are the bears who believe that a correction is overdue and that the longer the bulls continue charging, the bigger the correction is going to be. 

There are people who do not believe in the rally. What are they doing? Staying 100% or close to 100% in cash and waiting to buy assets on the cheap.

However, in a situation where the world economy really collapses like in 1929, who wins?

"... how long can Singapore survive if there is a sustained global economic crisis? With zero natural resources and an economy heavily dependent on global trade flows, Singapore's economy is especially vulnerable when nobody wants to trade and people worry about clean water and edible plants, not chemicals and electronics.

"In rich, sophisticated Singapore populated with financiers, lawyers and plenty of middle managers, skills actually useful to survive an economic collapse might be startlingly in short supply...

"Build up a set of skills and contacts that people will want in good times and bad and you will never go hungry for as long as you live."

We could have tons of money, even gold and silver coins. Could they be worth more than food and clean water if these should suffer from scarcity? If Singapore's economy should go into a tailspin, would the FTs still want to come here? Who would rent all the spanking new condominiums which have been built? Could we see vacancy rate in the double digits?

"... gold can't be eaten... try convincing the chicken rice seller to take your Bitcoins as you fend off squatters from your multiple properties."

A sobering read with a dash of humour. Get a copy of this weekend's edition of The Business Times. The article is on page 5.

Disclosure:
AK71 is a shareholder of SPH. Every copy of The Business Times sold could contribute to AK71's financial well-being.

Related posts:
1. How to tell if you are rich?
2. Jim Rogers: Why I won't sell gold?
3. Never lose money in real estate?
4. Change to become richer.
5. The Millionaire Next Door.

Why a meaningful emergency fund is important?

This seems like a rhetorical question since the answer seems obvious enough. It is so obvious that I do not recall having a blog post dedicated to the topic.

So, when I came across a blogger who thinks that an emergency fund is not important to him, it got my attention. This is a contrarian and I always like to find out why contrarians think the way they do.

In summary, the reasons why he does not keep an emergency fund are:

1. His family has adequate insurance coverage.
2. His family's expenses are relatively low.
3. His family's investment portfolio is sizable.*

*Current value is about $150,000, generating about $10,000 of passive income annually. This is taken from the regular updates provided in his blog.

Anyway, have a read as I don't want to poison the well:
Why we don't keep an emergency fund?

An esteemed blogger, CW, had this to say:

No emergency fund? Never mind. But still have to maintain adequate level of liquidity to meet unforeseen multiple life events happening.

It is never one hole that sinks a ship. It is several holes happening one after another that sinks that ship.

The blogger, My 15 HWW, replied:

I admit my life experience is lacking compared to many qianbeis like you but I do hope that life would not be so harsh as to sink my small boat. Because it’s small, it could also be nimble and flexible enough to steer clear of impending danger (unlike Titanic)?

If several holes happen, think the emergency fund might not be enough too and one might have to liquidate other assets.

To which, AK says:

I get where you are coming from.

However, I would really encourage some kind of demarcation and even a blurry one is useful. Why?

Let us say that Mr. Market gives us that correction some of us have been waiting for, how much of your cash on hand would you put to work? Doing what you do, if we put in 100%, then, we would have no money left for emergencies.

A small craft might be nimble but try watching “The Perfect Storm” instead of “Titanic” to see the other side of the coin.



"We never want to count on the kindness of strangers in order to meet tomorrow’s obligations." Warren Buffett

A perfect storm could sink us if we did not have a meaningful emergency fund.

Update (29 May 2015):
How much should we have in our emergency fund?

Related post:
Don't think and grow rich.

How much for hospital and surgical insurance?

The renewal certificate for my hospital and surgical insurance just arrived. So, what is the cost?

Total: $904.00.

$665.00 will be deducted from my CPF Medisave Account and $239.00 will be deducted from my designated savings account.

The importance of having good hospital and surgical insurance cannot be over-emphasized. We are not being frugal if we save money by not having such insurance. There is another word that starts with the letter "F" to describe those who do.

The insurance premium will increase as we age. My mother's yearly H&S premium is in excess of $2,000 now. Yes, we pay more as we age but don't let this scare you. What should scare you is the size of hospital bills which will surely come one day (although we could continue to hope that they don't).

My mom told me that my uncle who is almost 60 was thinking of cancelling his H&S insurance due to financial difficulties. I told her to dissuade him from doing so. We could help with the premium. It is only a few hundred dollars a year in his case as he opted for the least expensive plan available. If he should be hospitalised, we could help pay the deductible and co-insurance but without the H&S insurance, it would be a much heftier burden.

I remember when an uncle was hospitalised for cancer a few years ago, my dad had to help to pay his bills. It amounted to a rather hefty 5 figure sum. My dad's bank account took a long time to recover but my uncle never did.

Suggested checklist:

If you don't yet have H&S insurance, go get it.

If you have basic H&S insurance but can afford a better one, consider upgrading.

If people you care about don't have H&S insurance, make them get it.

H&S insurance might just be the best investment we could ever make in life. How so? I am sure you have the answer to this one.

Related post:
Enhanced Incomeshield (H&S) for my mom.
"...I only have to pay 10% of my total medical bills if I were to be hospitalised and this 10% has an annual cap of $3,000 in my case. So, if my hospitalisation and related bills were to total more than $30,000 in any year, I would still pay a maximum of only $3,000."

Atas and healthy lunch.

I decided that I should treat myself to an atas and healthy lunch once or twice a week from now on.

What is in the box?


One.


Two.


Three.


Time's up!

Salad!

Price? An atas $3.50.

Related post:
What's for lunch?

Sabana REIT: 3Q 2013 results and outlook.

Sabana REIT has announced a DPU of 2.38c which is slightly higher, year on year, but slightly lower, quarter on quarter. Some other numbers:

NAV/unit: $1.06
Aggregate leverage: 37.5%
Interest cover ratio: 5.0x

The recent decision by Sabana REIT to purchase a half vacant property from AMD generated quite a bit of concern. Although the management of the REIT suggested that they are quite confident that they would be able to find tenants to fill up the space, it remains to be seen if they could deliver.

Well, you know what they say about how it never rains but it pours? It now seems that Sabana REIT's management will have more vacant space to deal with come 25 November 2013. This is because 4 of the expiring Master Leases will not be renewed.

Now, before we go into a hysteria, the vacant space represents only 6.6% of the REIT's NLA.

As investors for income, we are really concerned with how income distributions could be impacted by all these. Realistically, we have to expect some downward revision.

Taking the DPU of 0.18c from 24 Sep to 30 Sep 13 as a guide, I estimate a DPU of 2.16c for 4Q 2013. This is a 10% reduction from 2.38c for 3Q 2013.

There is nothing rigorous in this estimate. It really is just 0.18c x 12 weeks.

If I were to instil a bit more rigor in this non-rigorous exercise, I would say the DPU could be closer to 0.18c x 7weeks + 0.168c x 5 weeks = 2.1c. This is to account for the loss of income from the 6.6% of NLA vacated through the non renewal of the 4 Master Leases mentioned earlier.

Based on the closing price of $1.10 per unit, this gives us a distribution yield of just 7.64% which brings us closer to the distribution yield offered by AIMS AMP Capital Industrial REIT currently. It seems that Mr. Market is quite efficient. Does this mean that Mr. Market will not go into a manic depression tomorrow? Your guess is as good as mine.

There is a chance that Sabana REIT could manage some positive rental reversions with the sub-tenants and command a higher psf rental for the vacated space in 2014 relative to what the Master Leases were paying. If we are level headed, we will realise that as long as Sabana REIT achieves higher occupancy again, DPU will improve from my back of the envelope estimate. While there exist a chance that Sabana REIT might not achieve higher occupancy again, this probability is rather low.

At the current unit price of $1.10, I believe that Mr. Market has priced in the negatives. If there should be a 10% or so decline in unit price, I would consider it a mispricing which would give interested investors an opportunity to buy in for an attractive yield of about 8.5% with a possibility of some upside in 2014 thrown in.

See presentation slides: here.

Related post:
Sabana REIT: 2Q 2013 results.

Is that stock a bargain or a value trap?

Not long ago, I asked how can we tell the difference between a real bargain and a value trap in stock investing.


I recently came across a video by Pat Dorsey which I believe answers this question really nicely:





Thinking of any particular stock now?


Related posts:
1. 3 points in stock investing.
2. Tea with Solace: Valuation, PER and Value Trap.
3. Be cautious as we accept higher risks.

3 points in stock investing.

I like to keep my life simple. I try to avoid complications. 

Life, unfortunately, is rarely as simple as we would like it to be, isn't it?

I am sure we want to keep stock investing simple as well but can it be simple?

1.  Focus on values and not prices.
"Price is what you pay. Value is what you get."

2.  Focus on competitive advantage (economic moats).
“In business, I look for economic castles protected by unbreachable moats."

3.  Focus on having a margin of safety.
"The dumbest reason in the world to buy a stock is because it is going up."





All quotations are, of course, Warren Buffett's.

Distilled to just 3 points, stock investing can be simple. Simple but it definitely requires work.

It can be simple but it is not easy.

Some related posts:
1. 5 rules for successful stock investing.
2. When to BUY, HOLD or SELL?
3. Tea with Solace: Getting ready for investment.
4. Interview with Matthew Seah: Value Investing.
5. Why is Warren Buffett the greatest money maker?

Lending money to someone you care about? Ask questions!

Not too long ago, I blogged about how anyone should have to think like a donor if he was to be a lender of money. 

If we are not comfortable with donating, say, $2,000 to a charity, then, we should not feel comfortable lending $2,000 to anyone! To me, it is quite simple. Why complicate things?



However, a friend who took my advice to heart, quite surprisingly, told me that he lent $10,000 to a cousin recently. Now, he worries that he will not see his money again since the cousin has been borrowing from other relatives as well in the last few months.

I asked him why does his cousin need to constantly borrow so much money. He said he didn't know. Huh?

Why did he lend $10,000 to his cousin if he did not know the reason why the cousin needs to borrow? "Oh, because we are family and we are very close."

I told him to write off the debt right away. He struggled with this idea and I don't know if he has managed to do this.

It makes perfect sense to write off the debt and it is consistent with my belief.

Imagine that the money has vaporised and gone to a better place. If it should come back one day, well, go celebrate!

I am not heartless. I quite understand that there could be certain situations when we might feel obliged to lend money especially to family members.

However, as a prospective lender of money, I have the right to know why a loan is required and why the would be borrower is short of money.

Of course, knowing the answers to these questions will not guarantee loan repayment. Then, why ask the questions? 

Well, if you are asking me this question, then, my earlier point about thinking like a donor when lending money is lost on you.

Just throwing money at a problem might not make it go away. If we understand the problem, we might be able to offer a better or more permanent solution. 

If we truly care for the borrower (why would we even contemplate lending money to the person, otherwise?), we would ask the questions that need asking. 

There is nothing to be embarrassed about.

Related post:
The difference between lending and donating.

A war chest called "SRS".

I have blogged about the advantages of having an SRS account before. Basically, if we are paying income tax, we should think of contributing to our SRS account. It is quite simple.

Now, I am holding a fair bit of cash in my SRS account. Excluding what I will be contributing by the end of this year, the cash portion of my SRS account is about $60,000 now.

Some might wonder why I am not putting the money to work. Even putting the money in a fixed deposit might get me $300 a year in interest income.



http://www.ecitizen.gov.sg/Topics/Pages/Tax-free-investments-with-the-SRS-scheme.aspx

Well, I really want to keep the liquidity on hand to take advantage of any deep correction in the stock market which could happen anytime. Could something like this happen in the next 5 years? It could, couldn't it?

So, over a 5 year period, I would "lose" $1,500 for holding on to cash in my SRS account. Can I afford this? I think so. For me, this is the cost of holding on to liquidity.

However, the cost of not having liquidity could be higher since I could potentially make much more money by deploying the cash during a deep correction in the stock market.

The cash portion in my SRS account now forms one of my 4 war chests. The other 3 war chests are money in my savings accounts, money in my CPF-OA and money in my CPF-SA.

Related posts:
1. SRS: A brief analysis.
2. SRS, CPF-OA, CPF-SA. (Note publishing date.)
3. CPF or SGS.
4. Don't see money, won't spend money.

AK71 is watching Groove Adventure Rave!

I think the is some relation between Fairy Tail and Groove Adventure Rave. There is even an anime where characters from the two came together.

Love the music too!

This will be a busy weekend.

Related post:
AK71 is watching Fairy Tail.

SPH: Results are within expectations.

Some people have expressed disappointment at the final dividend of 15c per share announced by SPH. Some people have expressed disappointment at SPH's business performance. What about me?

I am neither disappointed by SPH's final dividend nor its performance because they are within expectations.

I have blogged about how we could see an annual DPS of 21c in future from SPH. If this year's interim and final dividends should become the new norm, then a DPS of 22c a year is 1c more than my lowest expectation. I also said that if I could get a dividend yield of 5% by being a shareholder of SPH, why would I be interested in SPH REIT. That was when I revealed that I increased my long position at $4.20 a share.

SPH's weaker performance when it comes to revenue from its print businesses has been discussed and, some would say, beaten to death. The pertinent question to ask is whether this weakness is going to kill SPH rapidly. Have naysayers focused too much on this and painted a negative picture that is too dramatic?

If we believe that SPH is going the way of the Dodo, then, we should not invest in it. If we believe that SPH has predictable earnings with predictable weaknesses and that its strong balance sheet is able to withstand certain headwinds, then, to be invested for a 5% yield doesn't sound so bad.

Apart from my more recent purchase at $4.20 a share, the majority of my investment in SPH are at prices much lower. Now, even with those purchased at $4.20 a share, I received the recent special dividend of 18c a share. If I do not sell these shares, I would receive another 15c a share later in December this year. That doesn't sound like a bad deal, does it?

SPH is a fortress for anyone investing for income. It is less convincing as a growth story even if we should take into consideration Seletar Mall which is still under construction. Of course, things could change in future and they very often do.

How would Mr. Market react to the results? Your guess is as good as mine. The important thing, as always, is to know what to do in any situation.

See press release: here.

Read a recent guest blog by Mike:
Fundamental Analysis of SPH.

Related post:
SPH or SPH REIT?
"My purchases last month were the highest prices I have ever paid for SPH's stock. Prior purchases were made at between $2.86 and $3.55 a share. However, believing that the management has unlocked value for SPH shareholders in this latest exercise, I am willing to pay reasonably higher prices for the company's stock."

What's for lunch?

What's for lunch? I wonder.

Hmmmm.... I know, take a bite and we will find out.

Tuna and cheese. Yum, yum.

Cost? Less than $1.00, maybe.

Related posts:
1. Healthy bread and healthy jam.
2. Save $1,200 a year by packing lunch to work.

Tea with Matthew Seah: Thoughts on having a regional common currency (Part 2).

Is a common currency for member nations of ASEAN feasible? Matthew goes through some pertinent points:

Economic development

ASEAN countries have highly diverse economic development stages. According to the International Monetary Fund (2011) Singapore and Brunei, the richest countries in ASEAN, has a GDP (PPP) per capita of $59,936 and $49,517 respectively. In comparison, Myanmar’s GDP (PPP) per capita is a mere 2% of Singapore’s at $1,327. In fact, the sum of GDP (PPP) per capita of the other 8 countries namely, Malaysia, Indonesia, Thailand, Vietnam, Philippines, Laos, Cambodia, and Myanmar is less than Brunei, at $43,676. 

This degree of diversity in income could make it near impossible to sustain a monetary union amongst ASEAN countries. Just like how the PIIGS of the European Union (EU) is causing the richer nations in the EU to pay for their fiscal incapabilities, the “less fiscally endowed” countries will cause Singapore and Brunei to pay for their debt in the event of an economic shock.

Economic structures and business cycles

The income differentials across countries within ASEAN also reflect the dissimilarities in the economic structures as well as business structures across countries. This could impede relative price movements and production outputs across the countries.  Singapore and Brunei is probably at a peak-contraction transition phases, while countries like Malaysia, Indonesia, Thailand, the Philippines, and Vietnam are in the expansion phase of the business cycle. Myanmar, Laos, Cambodia are undergoing the trough-expansion transition phases.

The business cycle is affected by the forces of supply and demand. A country that is more exposed to the international market will thus be more affected by the global market. Civil unrest in countries like Laos and Cambodia in recent years have dissuaded investors from investing in them thus creates a void in economic growth, even a decade after the Asian financial crisis in 1997.

Stabilised transfer systems

Due to the differences in business cycles and income differentials, it has proven to be difficult to have a centralised banking system to make transfers of resources across countries. Fiscal irresponsibility also undermine the monetary cooperation of the members within the currency union as witnessed in the EU where Germany has been reluctant in bailing out PIIGS. Much reformation and restructuring in the financial sectors and government policies is required before a common currency could be adopted.

Legal, cultural, and linguistic barriers

South East Asia is home to myriad cultural and linguistic differences. Unlike Singapore which promotes mutual respect and racial harmony, as well as having a common working language (English), the other ASEAN countries have been intolerant to other races and religions as can be seen in Indonesia and Malaysia to say the least. Political unrest also plagues countries like Laos, Cambodia, Myanmar, and Thailand.

It would be a high bar to reach for ASEAN nations to achieve cultural and religious tolerance. Most of the natives of the ASEAN countries also speak a different language across countries. A linguistic barrier would dampen the mobility of workers across countries. Hence, it would be hard for a Thai or Viet to find a job in an MNC in Singapore where the common language is English even if they may be highly skilled.

Yet, if the economic advantages of a regional monetary union are large, it is possible that countries may make political compromises so as to reap the economic benefits. Economic interests may persuade countries to set aside political differences and forge strategically beneficial political alliances. Economic and political integration in the region may span perhaps decades.

Though a common currency area seems improbable now, as the ASEAN nations become more developed, it may then be feasible to create a common currency area in ASEAN.

Related post:
Tea with Matthew Seah: Thoughts on having a regional common currency (Part 1).

Land Transport Master Plan 2013.

If you have yet to do so, watch this video.



Looks good. Don't you agree?

I will be 59 years old by 2030. It seems that all the improvements will be just in time for my golden years. :)

Related posts:
1. Can Singapore really house 6.9m people?
2. How to get free rides on buses?
3. Tea with AK71: Nightmare at Bugis.

Tea with Matthew Seah: Thoughts on having a regional common currency (Part 1).

The Euro is a common currency for members of the European Union. When it was implemented, there was much hype on the new currency. However, over the years, the member nations are in a state of inequality in income, welfare, employment, prices, etc.  Is it really feasible to have a common currency? Should ASEAN have a common currency like the Euro? 


With the integration of our stock exchanges, one might be thinking about whether a common currency is feasible in ASEAN, especially those in the upper echelon within each member country in ASEAN. (I think policy makers in Singapore are probably thinking of integrating, and they are using the European Union as a case study.)

I would go through the pros and the cons of having a common currency. Let’s start with the advantages:

A common currency creates ease of trade and investment among countries under the common currency area. This allows for the facilitation of trading of material goods as well as services, thereby promoting income growth within the region, by the reduction of transaction costs in cross-border trades, removal of exchange rates’ bid-ask spread, and the removal of the exchange rates’ volatility. 

A single currency also implies having a central bank (like that of the European Central Bank). Having a central bank with note-issuing powers provides the necessary liquidity to cater for inter-ASEAN payment using a single currency.

Under a floating exchange rate system, volatility in exchange rates tends to be disproportionately greater than the underlying economic fundamentals of the affected economy. We can see this in the day to day fluctuations in the exchange rates between member countries even though the economy of each country is pretty much the same (just like a business, the underlying fundamentals of a country takes a long time to change, perhaps even longer than individual companies). This volatility creates much uncertainty, which in turn, creates unexpected losses and diminishing returns on investment. As a result, a floating exchange rate system discourages cross-border trade and reduces overall economic growth, especially among small and medium sized enterprises. A common currency can therefore potentially negate the adverse effects of having a floating exchange rate system, where there is no worry of potential losses caused by exchange rate changes.

A common currency area allows factor mobility within the ASEAN region, factors such as labour and capital. As such, individual ASEAN nations can focus on developing their comparative advantage while workers immigrate through the region to countries where the workers feel can develop their niche in specialisation. Wages and price flexibility further improves labour mobility within the region.

With a single currency, a consumer can easily compare prices of a product between countries, creating efficiency in market pricing. Thus a single currency would create a more uniform price within ASEAN and enhances competition among business entities.

Skilled labor and experts in various fields such as pharmaceuticals, petrochemicals, finance etc. can better serve member states and provide their expertise to benefit the region as a whole.

Although there are benefits, there are many challenges and obstacles hampering the integration of a common currency area in ASEAN. It is also not feasible for ASEAN to have a common currency area for now. In order for a common currency area to be successful, the member states must have similar business cycles, economic development and structures, absence of legal, cultural, and linguistic barriers that would limit mobility, wage flexibility, and a stabilised transfer system.

In Part 2, Matthew considers the challenges to having an ASEAN common currency: Part 2.

Related post:
Mr. Lee Kuan Yew on the Eurozone crisis.

Healthy bread and healthy jam.

No Trans Fat. Filled with rolled oats and raisins.
Price: S$ 3.00 for a 400gm loaf.

 PLUS



No additional sugar. Healthier choice!
Price: $8.85 for 2 jars of 284 gm.

 EQUALS

 

Yummilicious lunch!
Price?
You say leh?

Related post:
Afternoon tea break.

Is it OK to underperform the market?

Some mutual funds require fund managers to stay fully invested. Sometimes, large investors in a specific fund stipulate that the fund avoid holding cash.

Mr. Will Browne, a manager of Tweedy, Browne Global Value Fund whose fund holds nearly 17% cash said he pushes hard against such demands.

He prefers to buy companies at prices that are lower than what an informed buyer would pay in an acquisition. If he cannot find them, he is prepared to lag behind market returns for a while.

Source:
The Business Times, 9 Oct 13, page 36

Sounds familiar?

"In the pursuit of passive income, it makes sense to do a bit less pursuing and, instead, be pursued."

Source:
$15,000 passive income. To pursue or be pursued?

It is OK to underperform the market in the short term. Don't feel compelled to put all our money to work here and now. It is more important that we have the resources to load up on undervalued stocks as and when they appear in future.

“In the short run, the market is a voting machine, but in the long run it is a weighing machine.” Benjamin Graham. In the long run, the true value of a stock will be reflected in its price. Don't be too bothered with the short run. The long run is what really counts.

Related posts:
1. When to be fully invested in the stock market?
2. Little Book of Value Investing.

Romance of the 3 Counters: Blumont, Asiasons and Liongold.

Romance of the 3 Kingdoms, despite the elegant name, is about a bloody past in China.

Blumont, Asiasons and Liongold remind me of the 3 sworn brothers, Liu Bei, Guan Yu and Zhang Fei. Are the 3 counters just just down on their luck? Could they not regain the lofty heights attained only a few sessions ago?

Today, the counter opened at 30c, 17c higher than the closing price of 13c yesterday! To those brave enough to buy at 13c yesterday, congratulations. Short covering in progress, perhaps?

Like I said on my Facebook wall, I hope no one was exposed or overly exposed to the carnage. I wonder if people would look back and romanticise this whole episode when it finally ends.

Of course, I also wonder if there will be an episode 2.

Blumont Group Ltd, Asiasons Capital Ltd and LionGold Corp Ltd have shed up to S$8.7 billion ($7 billion) in combined market value since Thursday's close, transforming the companies back into the penny stocks that they once were before the strong run-up in their shares this year.

Source: REUTERS

Dinner with AK71: Ben & Jerry's CCC Dough.

Haven't had ice cream in a long while. This is one of my favourites:

I was watching TV at the same time and...

Argh!!! What happened to all the ice cream? Did I do that?

Bad AK! Bad AK!

OK, I must do something about it. Some Genmaicha?

Better. ;)

Related post:
Genmaicha.

$15,000 passive income. To pursue or be pursued?

Regular readers know that I would never tell people what to do. I am not qualified to and neither am I allowed to. Partly for the same reasons, I have declined invitations by a few readers to conduct talks for private groups or to have courses for the public.

Of course, we know that there are many investment courses out there and, recently, there has been discussion as to whether the authorities should step in to regulate these.

R Sivanithy says it well in a column in The Business Times recently that we "should always be leery of claims of fantastic performance that come with profit guarantees and no risk. After all, there are no free lunches in the cut throat world of finance - unless of course, one happens to be in the business of conducting "get rich quick" seminars."

So, when someone who is receiving about $15,000 in annual passive income from his investments in stocks and REITs asked me what he should buy next, I was ready to side step the question in my usual style but I decided to ask what percentage of his portfolio was in cash. He said about 3%.

Pause.


Pause.


Pause.


Pause.


The pause should be longer but I think you get the idea.

There is nothing wrong with keeping more cash even though cash is an asset that earns practically nothing in a savings account. Well, some banks offer 0.4% to 0.88% per annum now and although Garfield would say, "big, fat, hairy deal", having cash provides us with a peace of mind. The low returns for holding cash is the price we must pay for now. It is like having insurance and insurance cost money or don't we believe in insurance?

In an article I read some time ago, it was revealed that the UHNW rich in America (those with investable assets of $15m) would only feel rich if they had at least a million dollars or two in cash. That means a minimum cash position equivalent of 6.6% to 13.3% of their total wealth.

Remember, however, we could do quite a lot with a million dollars or two. If our 6.6% to 13.3% is ten or twenty thousand dollars, can it make a big difference?

In the pursuit of passive income, it makes sense to do a bit less pursuing and, instead, be pursued.

Related posts:
1. If we want peace, be prepared for war.
2. Be a real estate owner the easy way (4).
3. STE's story: The Millionaire Next Door.
... it is revealed that most high income earners are not wealthy. They make a lot of money but they don't keep much of it.

Tea with Mike: UOB KayHian Holdings.

Getting a sense of a fair price to pay: UOB KayHian Holdings as a case study.

I was screening for companies with decent yield and growth for the past 5 to 10 years, using a Google screener, and I decided to do some in depth study of UOB KayHian.

UOB KayHian pays out about 50% of earnings as dividends for almost a decade. In the earlier years, the payout was more than 50%. So there is certainty of payment, and it has been profitable for the past 12 years, and last year was actually the weakest year in a decade.

I use the spreadsheet to churn out important numbers such as revenue, NP, margins etc for the various markets, such as Singapore, Hong Kong, Thailand. I wanted sustainability of dividend income. So, I want to know what income I can expect going forward and I gave myself a few scenarios:

Click to enlarge.

At its peak, net profits is almost 3 times of what it is in 2012, if you take the average of $100 million over 12 years, it is still higher than 2012.

1H2013 results has already recovered, its 1H EPS of about 8 cents, is already almost as high as full year EPS of about 9 cents in 2012. Assume full year EPS to be 16 cents, they will pay out about 8 cents, giving a yield of 4.8%. That is my best case scenario.

If you take the average of 12 years, EPS is about 13 cents, so payout will 6.5 cents, giving a yield of 3.9%. This is my conservative scenario.

Although Singapore contribution is in decline, it is generally in line with SGX trading income revenue, which reflect the prevailing market conditions and not loss of competiveness. The “other” and Thailand operations have been bucking the trend and is contributing more despite market weakness, this could be due to its expansion bearing fruits.

Next,

Click to enlarge.

I want to get a sense of market valuation of the counter throughout the years, so I use the highest price, lowest price and average price of each year to calculate the corresponding yield and PE.

If I take away the super exceptional year of 2007, the average lowest yield is 5% and average highest yield is 9%, and the average lowest and highest PE is 10 and 17 respectively.

If I take conservative EPS of 13 cents, and DPS of 6.5 cents. I would like a yield of 6% and a PE as close to 10 as possible, and what would that price be?

To give a yield of 6% based on EPS 13 cents, price will be about $1.09 and PE 8.4.

If I am content with PE 10, I need the price to be $1.3.

To give a yield of 6% based on EPS 16 cents, $1.33. And a PE of 10 at EPS 16 cents will be $1.6.

Now, I know I will not touch this company at price above $1.6, unless I believe the next few years will see EPS growing to its peak soon. But there were not many years in which the company had above average results. So, most probably I will only start buying at $1.6 and below.

Other considerations like market share, gearing level and positive average FCF are also looked at, they are not significant enough to offer a further discount or premium.

I do like its profit resilience and rather undemanding valuation as compared to SGX and GK Goh, but given the amount of competition and my estimated calculation of only 10% Singapore Market share, I would not allow myself to pay a premium above $1.6.
 

Related posts:
1. Tea with Solace: Valuation, PER and value traps.
2. STE's story: Investment strategy.
3. When to BUY, HOLD or SELL?
4. Interview with Matthew Seah: Value Investing.