2014 full year income from S-REITs.

For my investments in S-REITs, the biggest thing that happened this year was the reduction in exposure to Sabana REIT.

Some might remember that I first invested in Sabana REIT in March 2011 at 92.5c a unit. As its unit price declined to under 90c, I bought more. It became one of my top two investments in S-REITs for about three years, delivering a distribution yield on cost of about 10% during that time.

I actually started reducing my investment in Sabana REIT in late 2013 and not this year as I started to build a larger position in Croesus Retail Trust then. I chose to reduce my investment in Sabana REIT instead of AIMS AMP Capital Industrial REIT because I felt that the latter was doing a better job of building value for unit holders as an industrial properties S-REIT.

After the major divestment of Sabana REIT early this year, my remaining exposure to the REIT is barely 10% of what it was at its peak. Now, my top three investments in S-REITs are:

1. AIMS AMP Capital Industrial REIT.
2. First REIT.
3. Saizen REIT.

AIMS AMP Capital Industrial REIT's Mr. George Wang constantly adds to his investment in the REIT, aligning his interests with those of minority shareholders'. The management have shown themselves to be capable in creating value for unit holders in their exploitation of existing properties' plot ratios. They have also improved the financial resilience of the REIT by securing other forms of funding and in strengthening its debt maturity profile.

This year, I took part in AIMS AMP Capital Industrial REIT's rights issue and sold the rights units for a profit some time later. Although the REIT has been doing well, it is my single largest investment in the S-REITs universe and I want to keep my exposure to a level I am more comfortable with.

In January this year, I wrote a blog titled "A simple way to a double digit yielding portfolio". It was an account of my journey as an investor with First REIT, more or less. First REIT is another example of how a REIT, if properly managed, could be a very good investment for both income and growth. It is also a REIT in which the CEO constantly puts more of his own money in.

With its DPU growing while its balance sheet stays relatively strong, my blog post titled "First REIT: This one is for keeps." in March 2010 could turn out to be quite prophetic. As long as the management continues to be prudent and as long as there is stability and a gradual pace of growing prosperity in the economies of Singapore and Indonesia, the REIT should continue to deliver good results.

Saizen REIT, my third largest investment in the S-REIT universe, has been a very rewarding investment so far. It seems to be a more complicated investment in more ways than one and as an income investor, the fact that it receives income in JPY and pays its investors in S$ is something we must consider.

The weakness in the JPY is definitely a concern. Although the downside can be hedged, it is not cheap to do so. So, realistically, I would expect some decline in future income distributions in S$ terms as the BOJ continues to expand money supply. Whether Prime Minister Abe's QQE will work or not is still a matter of contention but a weaker JPY is the new reality.

However, Saizen REIT remains a strong value proposition and the fact that a substantial shareholder has been fighting to unlock its value is proof of this. I have said time and time again that patience will be rewarded for investors of Saizen REIT's. I am sure it is beginning to sound rather tired but I will say it again. Patience will be rewarded.

For both First REIT and Saizen REIT, I have not done anything to add or reduce exposure this year. I have simply sat back, relaxed and collected income from them.

So, what did I buy this year in the S-REITs universe? I nibbled at Soilbuild Business Space Trust in August. It was a nibble because I thought it was a fair price but not undervalued. I rather like the numbers and the management seem to be competent. For those who have not read my blog post on the REIT and why I decided to buy some, please see related post no. 6.

I also have investments in the following S-REITs:

A. Keppel REIT
B. Frasers Commercial Trust
C. Lippo Malls Retail Trust
D. Cambridge Industrial Trust
E. Suntec REIT
F. Cache Logistics Trust

These are largely legacy positions or what are left after I reduced my investments in these REITs in a big way. My investment in Sabana REIT should rightly join their ranks.

With income from Sabana REIT significantly reduced this year and the fact that it was one of my largest investments in S-REITs, 2014 full year income from S-REITs has reduced drastically.

Total income received from S-REITs in 2014:
S$ 88,476.22

Although this gives me some $7,373.02 of income per month, this is a more than 25% reduction from what was received in 2013 last year. This is a significant reduction, no matter how we slice it.

Some might wonder what is AK the income investor to do? Well, I have been increasing my exposure to some other investments to make up for the shortfall in income. I might have to talk to myself in another blog post regarding these investments.

Related posts:
1. 2013 full year income from S-REITs.
2. Added Croesus Retail Trust and reduced Sabana REIT.
3. AIMS AMP Capital Industrial REIT: 7 for 40.
4. A simple way to a double digit yielding portfolio.
5. Saizen REIT: Rewarding patient investors.
6. Soilbuild REIT: A nibble.

Make money at all costs or do the right thing at all costs?

It has been almost 20 years since I lived rather high up in a building. Discovering a relatively good value for money deal for a high floor unit in a newly built high rise means I am once again closer to the clouds.

I took some photos of the skies this evening from my balcony as my mood turned contemplative. What do you think I saw in the skies?

When I looked at the skies, I am reminded of how small I am and how there are forces out there that make problems in our mundane lives more mundane.

To some of us, we might also feel that there are divine forces in the skies observing everything that we do. The heavens have eyes, as the Chinese saying goes.

It is good to be reminded that although money is important in modern day life, we should be careful to do the right things to make money.

君子爱财取之有道

Be righteous and make money in righteous ways.

I try to remember this always and that is also why there are certain events or programs I would not want to be a part of. Perhaps, ignorance is bliss but I rather be aware and do the right things. I can't live without air conditioning and hell is way too warm for me.

Related posts:
1. Questions we must ask and people I detest.
2. Nobody cares about our money more than we do.
3. Make more money, do good and pay less tax.

Wisdom, wit, some vegetables and a fish.

I was chatting with my mom and she talked about looking at the skies and laughing at the follies of man. I told her she is so poetic and reminded me of 文章. Younger readers might not get the joke.

Have a listen:





I think this was more than 20 years ago. I am feeling my age. Thanks, mom.

I also decided to give myself a lunch treat today and I think it is a lunch that most people would approve of:

Price: $3.50.

Who says AK's lunch is always under $3.00? Who? Who?

Related post:
Old fashion or growing older?

Marco Polo Marine: My comment in another blog.

I stumbled upon a blog on Marco Polo Marine and I was reading the comments section and felt compelled to make a comment to correct one of the readers. This was my comment:

For readers who are interested in the blog I am referring to, you might want to follow the link here to read the rather well written article: Valuestocks.sg: Marco Polo Marine - Still waiting.

For readers who just want to know what could have compelled me to make the above comment, this was the comment responsible for my response:

It seems that AK the blogger has been gravely misunderstood. It is either that or I have misunderstood what I should be doing as a blogger or whether I should be blogging at all.

Some time off from blogging to do some serious thinking is probably in order.

Related posts:
1. Portfolio review: Unexpectedly eventful.
2. Managing exposures in AK's portfolio.
3. The matter of letters and FY 2014.

Invest in hotel projects for income?

UPDATE: 
I was chatting online with another reader on this matter. Frankly, if I were after passive income by investing in hotel rooms, I would rather invest in a hospitality Trust and there are plenty of options here in Singapore alone.

For anyone who is considering buying hotel rooms as investments for passive income, ask how well do you understand this investment product?

"The rule of thumb is that a hotel room must earn $1 per night for every $1,000 it costs to buy the unit. That means if it costs $125,000, then the room has to rent for $125 per night, on average, and be occupied 60% to 70% of the time. Examine the hotels in the area, as well as the average vacancy rates, along with average room rates. Only then can you get a true picture of whether or not you’ll earn money on rental revenue." Romana King

"...vast majority of people don’t know the full facts. They are sold on a made up ‘projected’ cash flow and a glossy brochure. That is nowhere near the due diligence that should be done on a specialised investment strategy like this." Brett Alegre-Wood
-----------
A reader wrote to me about investing in a hotel project in Phuket recently. This was my reply:

Hi R,

I have a friend who bought into a similar program offered by a hotel group in Phuket.

There are actually plenty of risks in such investments and you have to be one with rather deep pockets. I cannot remember the full discussion I had with my friend but here are a few points off the top of my head:

1. Concentration risk. It is one property.

2. Prospects. You have to question why the developer does not want to take a bank loan or a syndicate of loans to fund the project? If it is lucrative, they should do it. Or is it more lucrative selling rooms in the project to private investors?

3. Management risk. If the project does poorly and the management is not getting paid adequately because of this, could they simply walk out?

4. Is a guaranteed 5% return adequate compensation? I am inclined to think not.
(In fact, could it be a case of "taking back our own money"? Investor could be paying an inflated price for the hotel room to get the guaranteed yearly return for X number of years.)

If you wish to invest in Phuket properties, have you looked at condominiums and apartments? For the same amount of money, if I remember correctly, you could get a bigger property and in pretty good locations too.

Best wishes,
AK

THB 1.0M = S$40,000.

There are many investment opportunities out there. Some are legitimate while some are not. Those which are legitimate, we want to ensure that we would be adequately compensated for the risks that we are being asked to undertake.

For sure, I am not an expert when it comes to investing in properties and hotel projects in Phuket. I was just voicing my concerns.

Related post:
Returns of 15% per year invested.

"Many of the hotel room investment options are fractional ownership. Fractional ownership no matter what the marketers say is Timeshare reborn. You only own a fraction of the property exactly like a timeshare. We all know what happen with the timeshare market and if you do a quick Google search, it will show you how millions of pounds were lost by investors. For me this is a deal breaker if you are offered a fractional ownership investment don’t walk away, run!"
Source: 
http://rmpproperty.com/2013/03/why-we-wont-sell-hotel-room-investments/

"An investor who only wants to be known as Mr Wang bought two units at Ibis Lymm. He had heard about the investment from a friend who had purchased two rooms at Ibis Knutsford and then went on to buy a unit at Ibis Lymm as well. The $400,000 that Wang invested in the hotel rooms had been savings put aside for his retirement and his children’s university education. “And we need the money,” he sighs. “It’s been a burden.”

"Another investor, Mr Fu, who bought two rooms at Ibis Lymm, agrees. “A lot of us had sleepless nights,” he admits. “And so, we have been communicating with each other.” The amount invested, $400,000, may not sound like a lot, but it’s not a small sum either. “We have to answer to our families,” Fu says. “We thought we could get a brighter future, but it has turned out to be something opposite.”

"Mr Koh believes he was most likely the last investor from Singapore to participate in the Ibis Lymm scheme. The whole experience has made him more vigilant, and since then, he has begun to scrutinise property advertisements, especially those offering high guaranteed returns."
Source:
http://www.theedgeproperty.com.sg/

AK went shopping in the (stock) market.

Mr. Market has been feeling rather pessimistic of late.

Winter has come?

In the last trading session, I bought stocks of the following companies':

1. SembCorp Marine
2. SembCorp Industries
3. ST Engineering

These companies have relatively strong balance sheets and order books to keep them busy for years. It is hard to imagine that they might be going the way of the Dodo.

Of course, prices could weaken further. If they should weaken significantly, I would probably buy some again. Buy some again? Yes, I will continue to pace my purchases in the face of possible continual market weakness. We do not know when prices have bottomed until we are past the bottom.

So, nibble, don't gobble.

Not quite the Great Singapore Sale, for sure.

During the GFC, we saw SembCorp Marine and SembCorp Industries trading at PE ratios of 7x to 9x. Personally, I do not think that we will see another GFC but we could see a soft landing. So, PE ratios of 10x to 11x, perhaps? Based on my estimates, SembCorp Industries could see its share price at between $4.00 to $4.40 then. What about SembCorp Marine? Perhaps, as low as $2.50 a share.

ST Engineering's PE ratio has always been somewhat higher and even during the GFC, its PE ratio was still pretty high at about 15x. Currently, ST Engineering is trading at a PE ratio of almost 20x which isn't crisis cheap but seems fair enough with a prospective dividend yield of about 3.8%, assuming a 75% pay out ratio. Compared to about $4.40 a share more than a year ago, current price level presents a more comfortable entry in more ways than one.

Learn from the squirrels?

Of course, it is hard to say whether Mr. Market would go into a depression or not. So, it is important to have a war chest ready. When to roll out that war chest? When valuations approach crisis levels and if that should happen, we want to be able to take advantage of the much cheaper valuations.

Related posts:
1. SembCorp Industries: A safe price.
2. SembCorp Marine: A nibble.
3. Mystical art of wealth accumulation.

Work because you want to and not because you have to.

Recently, I had a chat with someone on my preference to invest for income and how I am now able to work because I want to and not because I have to.

He said he would like very much to quit his job and focus on making money from the stock market.

He asked when would he be able to do that if he should follow my methods?

I told him that it really depends. 

For some, it could take just a few years. 

For some, like me, it could take almost 20 years. 

For some, it could happen by the time they retire at age 62. 

For some, it might never happen.





He wasn't impressed and told me that a couple of presentations he went to told him that he could retire within a few months if he should follow their methods. 

I said that I am aware of such courses and claims out there but I really cannot comment much on these apart from saying I would exercise caution.


To his credit, he did not walk away but instead he asked when I said "it really depends", what did I mean?







Well, following my philosophy, how soon a person can choose to work because he wants to and not because he has to depends on:

1. How much money does he need in life?

2. How much money is he saving (not making)?

3. How much money are his investments making?

We went through his answers to these questions and he was shocked to find out that he probably would not be able to stop working till he is in his 60s. 





I reminded him that it is actually not too bad. Some people cannot stop working even in their 70s.

He said he would like to stop working in his 50s although if he could stop working before he hits 50, it would be better. 

What should he do? 

Well, the answer is in those 3 questions mentioned above again.







1. How much money does he need in life?

Are the needs really needs?

After all, we only need so much money in life and the rest is for showing off, someone said.






2. How much money is he saving?

To save more money, he has to increase his income and reduce expenses.

It is quite simple. Find legitimate and ethical ways to do so.





3. How much money are his investments making?

If he is leaving the bulk of his money in savings accounts, he is doing himself a disservice. He has to make his money work harder.

One way is to make use of weaknesses in the stock market to accumulate some good stocks that will generate good income.





When we parted ways, he said he had plenty of thinking to do.

I do not know if he would become an income investor or if he would take up courses which would allow him to retire in a few months. 

The choice is definitely his.





Related posts:
1. How much do we need?
2. Common advice on saving money.
3. To protect our wealth, we have to take risk.
4. Retiring before 60 is not a dream.
5. How to have a comfortable retirement?

Save money and have a good dinner for $1.75?

It has been quite a while since I shared photos showing how I prepare my meals.

Regular readers know that such sharing sometimes invite rather big reactions from people, both positive and negative, but I guess that is what makes society interesting, isn't it? Diversity!

As long as we are all civil about it, I think it is definitely OK to disagree.

Anyway, what did I have for dinner this evening?

Chop up some fresh cucumber.

Shred up some ham.

Add a small can of baked beans and mix it up.
(Wouldn't be complete without baked beans, would it?)

A cup of hot green tea.

An orange for vitamin C and fibre.

Cost of the main course: about $1.00.

Cost of drink: about $0.15.

Cost of orange: about $0.60.

Total cost of dinner: about $1.75.

Related posts:
1. Be $48,000 to $60,000 richer in a decade.
2. Have a free lunch with Roy Ngerng.
3. Yummy yum yum (60c) breakfast.
4. Have restaurant quality ramen at home.
5. Prepare a healthy, low cost meal.

Why was my comment not published?

I have said this before but I guess I should say it again.

My blog makes a bit money in the form of advertising income and to be fair to myself and all paying advertisers, I cannot allow attempts by commercial entities to have free advertisements in my blog in the comments section.

So, if you have left comments in my blog with a link or a reference to a website (especially one that I know you have a vested interest in) that provides goods and services, financial or not, don't be surprised if you do not see your comment published.

Tsk, tsk, tsk.

You might have a great comment and I might want to publish it but if you have included a link or a reference to a commercial website, I am not able to delete the link and publish the rest of the comment. 

It is not possible. 

At least, I do not know how to do it.

So, for those people who have been affected by this house rule, if you would like to comment again, I would be happy to publish your comments as long as they are relevant and do not advertise your business ventures, whether directly or indirectly.

Please note that attempts to draw me into a discussion on the issue will be ignored.

OK, I should include a smiley emoticon here to show that there are no hard feelings. There. :)




Related post:
Do you want to be richer?
"If you have some really good ideas, please feel free to share with us but please keep the comments genuine.  Any effort to advertise should be emailed to me and should not go into the comments section.  Having some advertising revenue is one way I make some money from blogging. "

Marco Polo Marine: The matter of letters and FY2014.

I receive emails from a handful of readers from time to time regarding Marco Polo Marine's share price and some wonder if I am still a shareholder.

Well, I did reduce exposure many months ago and I blogged about my reasons for doing so. Since then, I have held on to my remaining long position and have done practically nothing as I wait to see how things pan out with the purchase of the jack up rig from SembCorp Marine. There should be greater clarity in the next 9 to 15 months.

I received another email from a reader when the share price plunged to an intraday low of 29c a share in the last trading session. The reader was concerned about her ballooning paper loss. Well, although 29c is below my entry prices, I am not concerned about the paper loss. Why? There is nothing we can do with how Mr. Market feels and what prices he might offer on a day to day basis.

I am more concerned with whether the business is doing what I expect it to do. If not, has the situation deteriorated to a point where it is no longer a worthy investment. So, I go back to my reasons for investing in the business and the reasons for the reduction in exposure later on.

Remember that the main attraction for investing in Marco Polo Marine was the rosy outlook for its OSV chartering business and how it was protected by Indonesian Cabotage Laws. I liked its relatively low gearing level and the decision to start rewarding shareholders with meaningful dividends.

Then, later, there was the decision to buy a new jack up rig from SembCorp Marine. This was not in my initial investment thesis. It would increase gearing level and finance cost. Although the terms of the purchase are actually very good, the fact that there is not going to be any income from the rig in the building stage is simple common sense.

So, earnings would be impacted negatively and I said that I would not be surprised if no dividends were to be paid for a while. The framework in asset allocation that I use requires that I reduce my exposure to the stock.

To stay invested was to believe that Marco Polo Marine would continue to grow as a business. To stay invested was to believe that the existing businesses would continue chugging along and that they would have no trouble in servicing the heavier debt burden. Although the tugs and barges business segment underperformed and caused massive losses, Marco Polo Marine is still profitable, overall.

Even though, year on year, EPS has reduced some 54.6% from 6.56 to 2.98 cents, Marco Polo Marine is still growing. NAV per share is now 49.4c. As I expected, no dividend was declared and, I believe, this is prudent, given the big financial commitment that is the jack up rig.

At 29c per share, that is not a price I would sell at unless I should believe that Marco Polo Marine is worth less than that. It is a 41.3% discount to NAV. Imagine knocking off 41.3% in the prices of everything that Marco Polo Marine owns and taking over.

Of course, one could argue that Marco Polo Marine's assets are worth money only if they are utilised and generating earnings. With an EPS of 2.98 cents, at 29c a share, we have a PE ratio of 9.73x. By the standards of their industry, this is not cheap. However, to latch on to this PE ratio is to believe that the business in future will stay very much the same as the last 12 months. This is where a judgement call has to be made.

Given the CEO's foresight in transforming the company from just a tugs and barges owner to becoming an OSV builder and owner, I would like to think that his bold decision to purchase a jack up rig with advanced specifications to be delivered just as Indonesian Cabotage Laws expand to cover such rigs at the end of 2015 is another right move. Of course, only time will tell.

So, what do I do? Give them time.

I am comfortable with holding on to my investment in a business that is still growing but at a slower pace. Investing only for growth and no income in the meantime, I am comfortable with a much smaller long position, following my asset allocation framework that is the pyramid. I am not bothered by the daily movement of prices because, overall, I believe the business to be sound.

Of course, I don't profess to know what readers who followed my decisions and actions might have thought or are thinking. This blog post is simply to share my thought processes and I hope that it is helpful to some people in sorting out their own thoughts.

See:
Marco Polo Marine Full Financial Year ended 30 Sep 14.

Related posts:
1. Marco Polo Marine: A price I would not sell at.
2. Marco Polo Marine: Reason for price weakness.
3. Marco Polo Marine: Drilling for higher income.

Lost $1m and left with $4.2m. What should I do? (Part 2)

Here is part 2 of the email exchange:

Hi AK,

You may publish my correspondence without my email address.

To help you help me more, these are the answer to your questions:

1. I invest or speculate for the sake of making double what i take home every month, over the last few years, i actually make 40k a month from market when timing is good.

2. I would like to do what you do as a income investor, but i just cannot get over the fact that you actually allow your buy price to drop and continue to average down during a crisis. that does not make any sense to me.

3. that is why i resorted to punting hit-and-run style of most time the last 7 years as a speculator. but now that i got slap twice both on the left and right cheek, it seems pointless to continue this style of punting in market.

So i hope to revert to the income generator like you. Just wondering does all income dividend player ignore dropping share price? I need to know, because I cannot seems to get over the fact that if i didn't have entered the stupid market, i would have another 1mil more in my bank account. This pain, till to date, i am feeling it inside me, without anyone knowing. really felt like a loser but can't show it.

AK's reply:

Hi L,

It is all in the mind. :)

If I am interested in the income an asset is generating for me, if the price drops but the income being generated is the same as before, why wouldn't I buy more of this asset? If the asset has a life of decades and is able to make money for me for decades, what is a paper loss of 10% or 20% in the short term? I am still being paid dividends regularly.

However, if we can avoid losses, we should. This is why entry prices are important. Like I said before, we don't want to overpay. Bear in mind that even if we pay a fair price or a price undervalued, price could go lower. We cannot explain Mr. Market's moods. We can try, of course.

I do a bit of trading myself. So, I understand the pain you feel from your trading losses. I did a bit of speculating as well but I am not a very good speculator. So, I have lost money too.

In the end, I settled for what works best for me. It is a journey of self discovery. You will have to discover for yourself what suits you best too. To me, if it gives me peace of mind, it cannot be too far from being right. :)

Best wishes,
AK

Related post:
Lost $1m and left with $4.2m. What should I do?

Lost $1m and left with $4.2m. What should I do?

Here is a long email exchange with a reader which might be of interest to other readers:

Dear AK, i followed your blogs constantly. Now I would like to write you so to seek seek your views on my situations. I am writing from my wife's account, so pardon me for the difference in email name.

I am 41, married and have 3 young school going kids with a home maker wife. Over the last 20 years, I worked my ass off to come to where I am today. I am a very frugal person where I do not spend on anything unnecessary in life except on my family members and my loves for cars. I do not invest in properties as I believe it is at the whims of the government policies, hence I stay in a 3 room flat since married bought resale. I do not like taking large debts nor insurance (other than health insurance for all family member) too. To date, I have S$4.2 million cash and S$400k CPF saved. It could have been more if I have not dabbled with STI stocks over the past 7 years. So this is my story and I hope to share with you perhaps to get some views on how do I move forward in life now.

 

My work life is reasonable well and not very stressful since about 10 years ago. I got promoted fast due to my capability and brains. But here comes the problem, due to the fact that it is quite relax as the top man in town, I began dabbling with shares in 2007 out of boredom and also in hope to 'fight' inflation. So there I was opened up the trading account and attempting my 'brains' at the local market. At first, it was some micro broken penny that lead to small cut lost of lesser than S$5k. Then come the 2008 August panic where I had to cut lost almost S$700k of 'specu-vestment' of s-shares and bluechips. Along the way, I am still in full cash and no other investment asset mindset have changed. Since the GFC completed in 2009, from 2010 to 2013, I 'made back' the lost S$700k using my sell-profit-keep-lost day trading last-in-first-out strategy. That is to say, I do not invest long term like you do in dividend generating stocks but scalp the market in big amount to make money. It was going well all along from Oct 2013 when the penny market in singapore to a turn for the worst due to the ABL saga, all liquidity seems drain from pennies in STI and there is when my paper lost in those pennies start amounting. And I cut lost again this year al the sick counters for a lost of S$600k and now still stuck with some holdings in a illiquid counter, DMX (5CH). Not willing to admit defeat, I went short on the SP500 and end up with another paper lost of S$100k now still running due to the Bull ramp this October.

 

So here I am, lost and shame. My wife understands and do not scold me for my mistake, same goes for my kids. I have many questions now that I am in my early forties and not having done any right thing in investment make a fool out of myself though no one in my circles of associates and friends knows. I have seek books for opinions but they don't seems to have my similar experience and how they deal with it. So after much thinking, I turn to you to seek a friendly view of what I should do now?

 

So I thought to myself at this juncture of my life:

 

1. Should I be messing around with stock speculation, or wait for the next recession to invest like you in value stocks? I have since stop taking positions in the market other than holding the illiquid counter.

 

2. Should I cut the paper lost in SP500 short and quit bucket shop for good? Many told me that bucket shop are made in such a way, that you will lost even if you win over the long run just like casino. Is this true? I feeling so now.

 

3. What are my chances with the illiquid counter DMX? Can you help do a review on it?

 

4. I read your blog and notice that as a investor, you do not bother about the share price and DCA down whenever there is lower price? Isn't this catching a dropping parang?

 

5. I am currently putting every saving in high deposit saving account of 1.35% pa to wait for the right opportunity.

 

6. Should I buy property in Singapore? I really dont like the small market here and the fact that the future may not hold well for singapore. Who is buying from us buyer whom herd into surplus supply of properties? Aging population or foreigners?
 

If it is not so much of a trouble for you, do hope to hear from you soon.

Cheers

L

 

 

 

 

AK's reply:

 

Hi L,

I have a friend who says that some of us have luck in some areas and some of us have luck in other areas. Although it is probably debatable, I feel that luck is very important in all areas of life.

In your case, I feel that hard work, brains and probably a dash of luck have helped you accumulate what is quite a bit of wealth. At 41, to have about $5 million in assets is admirable. The fact that you did not make any of the money from your investments and speculations makes the achievement even more admirable. Singapore needs more hard working people like you.

I know someone who told me before that if we had a good career that pays well, we will not need to invest for extra income. I look at what you have achieved and I am reminded of that. However, I would add to that by saying if we had a good career and saved most of our income, then, we might not need to invest for income. You have saved a lot of money, by any standards. I am impressed!

You seem a bit lost now and you have listed many questions for me but you will have the answers once you know what motivates you.

Are you investing for income which is what I do mostly?

Are you investing for growth or a mixture of income and growth?

Are you mostly a speculator?

Depending on what you are after, you will use different sets of tools. I won't tell you what you have to do because that is not my style but do you know what the tools are and do you know how to use them properly? If you don't, you want to get educated and there are tons of free resources online to help you.

For example, if you like what I have done, then, you have to subscribe to my philosophy as an income investor which is to invest in assets which can generate meaningful income sustainably. Try not to overpay for these assets and you should do well enough over time.

Finally, I could modify some personal information which you have revealed in your email to me and publish our email exchange in my blog to see if we might attract comments from others. There are hidden dragons amongst my readers, I believe, and you are one of them. ;)

Best wishes,
AK

Related posts:

1. Motivations and methods in investing.
2. How to make recovery from losses easier?

Keppel and CitySpring Trusts: An unequal marriage?

I got into K-Green Trust (now renamed Keppel Infrastructure Trust) a few years ago at $1.11 per unit. I was attracted by its zero gearing and relatively decent distribution yield.

Over time, I received a DPU of almost 8c a year from K-Green Trust. So, with a closing price of $1.09 per unit in the last trading session, I have achieved a return of about 7% per annum which is not too bad for an income investment.

With zero gearing, together with other unit holders, I was waiting for K-Green Trust to gear up and acquire some DPU accretive investments but after waiting for 4 years, nothing really happened. Well, that is not until now.

Honestly, I don't have good feelings towards the merger of K-Green Trust and CitySpring Infrastructure Trust. To be honest, again, this probably has to do with the experience I had with CitySpring and I shared my thoughts here in my blog many years ago.

It would have been much cleaner for K-Green Trust, which I believe to be stronger financially than CitySpring, to acquire assets on its own and grow its DPU. The merger complicates things. Well, at least, it does for me. The first thought that came to my mind is that CitySpring's weaker balance sheet will strengthen with the merger.

Granted that K-Green Trust's assets have limited lifespans but it is like a good cup of coffee that is slowly being finished. We just have to top it up with more good coffee. CitySpring, to me, is coffee that is not so good. Now, these two cups of coffee are being mixed up.

It is easy to see that K-Green Trust has had a better track record compared to CitySpring's in the last few years. CitySpring has had two rights issues and seen its DPU reduced by more than 50% in the process over the years. What? They took more money from unit holders and it resulted in less income distribution per unit? Pui!

Now, with the proposed merger, existing unit holders of K-Green Trust will receive 2.106 new CitySpring units for every K-Green Trust unit owned. Oh, my. I am going to be a unit holder of CitySpring's again after so many years?

I lack the inclination to dig into the numbers as I am disappointed and flabbergasted by K-Green Trust's decision to give up its strong balance sheet by merging with CitySpring. There is no need to, in my opinion.

So, although it could be a mistake because I might not be able to see the big picture that more savvy investors are able to see, I will probably be saying good-bye to my investment in K-Green Trust, taking advantage of its higher unit price as a result of somewhat positive sentiments.

Out of sight and out of mind. Zen.

Related posts:
1. CitySpring Infrastructure Trust: Divestment.
2. K-Green Trust: Zzzzzzzzzz.

Retirement adequacy for a senior needing long term care.

This was a recent email exchange with a reader:

Hi AK
My sis is 60 years old, single and stays alone. Recently, she fell very sick and was admitted to hospital for a few weeks. Now she is at home on medical leave.  We got a maid to look after her.  Don't think she will be fit enough to go back and work.

She doesn't earn much as an admin staff, but still managed to save quite a bit through many years of working and saving -  about $150,000 in Cash and $100,000 in CPF.  And she has also paid up fully for her HDB flat, so no debts except for some insurance premiums which she is still paying, her medical expenses and expenses to employ the maid @$720 per mth.  

She knows that her saving will not last her very long. She has asked me to invest her money so that she could collect some dividends and help pay for her daily expenses since she will have no income in future.  I am not a savvy investor.  Most of the times I bought stock based on reading your blog and some other financial blogs.  I have no qualms to invest using my own money but how to invest for her?

I still do not dare to invest for her as I can't afford to lose her hard earned money.

What were you do if you are in my shoes?  How can I help my sis? Safest is to put in FD but the interest rate is so low.

My reply:
If I were in your shoes, I would be very cautious too. Losing some of my money is one thing but losing my sister's money would be something else. I actually gave my sister a capital guaranteed privilege at one time. If the investments should lose money, I would bear the losses. Bad idea, I know.

Anyway, back to your case. What would I do?

If your sister needs $720 a month or $8,640 a year. Obviously, relying on her savings of $150,000, it would take only 17.36 years to be depleted. This is not considering any interest income earned during that time, of course. Add other expenses, maybe $800 a month, and her savings will take half the time to deplete. 9 years, perhaps? So, there seems like a need to invest for income.

However, we must not forget that she is eligible for CPF Life payouts in another 5 years from now at age 65. If she has $100,000 in her CPF retirement account (RA), she could be drawing $800 or so (this is a rough estimate and you should call CPF to check the exact amount) every month for the rest of her life and this would be enough to pay for her medical expenses and the maid.

In my opinion, there isn't any need to take on risk by investing your sister's money in the stock market now. 

Of course, I am not asking you not to invest on her behalf in the stock market. You could keep an eye on the stock market and buy some good dividend paying stocks for her when Mr. Market goes into a depression. In the meantime, your sister has enough financial resources to take care of her needs.
---------------------------------
To have peace of mind, always ask if it is money we can afford to lose. If it is not money we can afford to lose, don't invest it.

Related posts:
1. What happens at 55 and CPF Life?
2. The PM on retirement adequacy.
3. Free e-book: Retiring before 60 is not a dream.

Mortgage a fully paid home and invest the money?

I have always been rather reluctant to borrow. Some might laugh at me for not taking advantage of "good debt" but I believe all of us have different levels of tolerance for debt. It is almost like a religion. It is very personal.

Indecent? Lewd? Maybe, to some.

Here is an email exchange with a reader on the issue:

Hi AK,

Love your thought process and your discipline and I was hoping you can give me your opinion.

Recently I have been toying with the idea of putting my name on my parent's property (1%) which will allow me to take a loan of up to 2 million based on my current income at a current interest rate of 1.4%.

The proceeds of the mortgage is purely for investment purposes.  One reason for doing this, is that I am thinking of leaving my current job, meaning that the option for a "cheap loan" (i am not referring to the interest rate but rather a mortgage backed loan) for none property related investments. Apart from the risk of making poor investments and losing all your money while still owing the bank money blah blah, what are the risks that you see?

As background, I have 750k in various asset classes ranging from cash to shares to foreign property and no outstanding loan. Looking to retire in the next 5 years!

Happy if you want to share this as a post but don't put my name!

Cheers,
H

AK's reply:

Hi H,

Depending on your personal consumption level and the productiveness of your assets, $750K worth of assets could possibly provide a rather comfortable retirement income. So, I would question if there is actually a need to mortgage a fully paid up property to fund more investments.

This was something offered by my banker as well a few years ago. However, being very conservative when it comes to using debt, I chose not to do it. On hindsight, I could have made more money if I did it but I wonder if the feeling of unease which I am sure I would have had would be worth it. It is rather personal.

The question on the possible risks apart from the ones that you are already aware of is very wide. I definitely cannot see all the risks but if we are of the opinion that interest rates cannot possibly go lower, then, we must expect finance cost to rise. We might want to question whether the expected returns on our investments will be able to rise in tandem.

Also, we want to bear in mind that rising interest rates are not good for real estate owners, usually. The much higher asset prices today is mostly due to the abnormally low interest rate environment in recent years.

We could see real estate prices declining as interest rates rise. It would probably affect the valuation of your mortgage property and this, as you can imagine, could create an issue. Of course, depending on the property's characteristics, it could be affected more or less. It is hard to say for sure.

I will share our email exchange in my blog to see if others have thoughts to share. I will make sure not to include your name. ;)

Best wishes,
AK

We welcome other perspectives on the matter as well. So, please feel free to leave a comment.

Related posts:
1. Good debt is always good?
2. To rent or to buy: Rule of 15.
3. Gear up and receive more passive income?

Should I have just left my money in fixed deposits?

This blog post is a reply to a comment made by a reader, pf.

Read pf's comment: here.

Hi pf,

Actually, some time ago, that was what someone told me too. I have provided the link to the related post at the end of this blog post, if you are interested in reading the story.

We can make money from stocks in one of two ways, capital gains and dividends.

So, although I like to say that entry prices are important because that has a bearing on future capital gains and also dividend yields, if we had paid a fair price for a good business, we should do OK too in the longer run. Yes, longer run.

In the longer run, we might not do as well by way of capital gains but if the stock pays regular and meaningful dividends out of its earnings, we will still do quite well over time.

However, if we should need the money for specific purposes in the near future and are forced to liquidate, then, we could end up losing some money if Mr. Market should be feeling depressed at that point in time. So, it is important not to use money earmarked for specific purposes in the near future for investing in equities.

After many years of struggle, I like to think that I have found my way and I am glad to say that my current home will be fully funded by capital gains and dividends paid to me by Mr. Market.

Some money are best left in FDs and some money should be in equities. Once we have sorted this out, we should do better.

Related post:
To be richer, be comfortable with being invested.

How to grow money put aside for home purchase faster?

I received this email from a reader and provided my take on the situation:

Reader's email:

Dear AK,

I have only recently read your blogs and I must congratulate you for your passion and energy in keeping up such an engaging community going.

I have been in Singapore for a little over two years and am renting a condo with my family of four. I had applied for Singapore Permanent Residence but that hasn't come through. One of my intentions after becoming a PR was to buy a condo but obviously that has to wait (with all that one is reading about on prospects of property market in the next 2-3 years and the supply glut...I am just beginning to think may be that's a blessing in disguise :)

With the above intention, I've been keeping my money in rather safe but unattractive bank Fixed Deposit. Now that am not buying at least for another 12-18 months, would you have any advise for me to park my funds in options that can generate moderate returns? Of course i know i will have to forgo the perceived security of FD :)

Many thanks in advance!

A

AK's reply:

Hi A,

I will be very reluctant to take any risk with money that I will need within the next 2 or 3 years. I think fixed deposits are a good option if I were in your shoes.

I would also open an OCBC 360 account to get a higher interest income on the first $50K of deposit. I blogged about this not too long ago too.

If you like, I could publish your email in my blog, leaving out your name, to see if readers might have ideas that they could share with you. After all, I do not know everything.

Let me know if you would like me to do this. :)

Best wishes,
AK

The reader has agreed to have the email exchange published. So, if anyone has any good ideas, please feel free to share. Thank you.

Related posts:
1. Getting paid more while waiting for opportunities.
2. Eight pragmatic reasons to be Singaporeans.
3. Get VVIP discounts at condo launches?