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Monday, August 3, 2015

Recent Action - China Merchant Pacific

I made some portfolio reshuffling by partial divesting 29,100 shares of CMPH at a price of $1.02 today. 

I am still left with 45,000 shares as of writing and they still remain one of the top holdings in my portfolio so the decision to sell was purely due to portfolio balancing than anything else. I will most likely direct the proceeds to two counters I have long been interested in which represents a better risk reward ratio and the recent market selloff does provide some opportunities to load in. I am still queuing for it and will post in due time should I happen to catch the train. 




But first, let me provide a little of my thought on CMPH since I received quite a few inquiries about this. 

I remain firmly in believe of CMPH business model and they provide very predictable cashflow to their quarterly results, though the short concession model they had on their toll roads would mean that the management needs to constantly look for new tolls that can execute the same high internal rate of returns they had on their existing portfolio. The execution risk will be there when that happens, so investors need to acknowledge it when it comes, along with the other risks not aforementioned. 

There has also recently an article written on CMPH about the company producing negative yields, giving out dividends only to take it all back when they issued rights. Investors need to know that this is a concept very similar to Reits since both business models have a limited span of concession life and they require acquisitions of assets to lengthen the portfolio WALE concession. Whilst what is being written is true, the writer obviously failed to consider the future cashflow the assets are able to generate which would in turn consummated into dividends for investors. In other words, the future returns resulting from the expansion capex purchase are not being considered, which means that it does not present the true picture of the whole story. Imagine borrowing $1m from the bank and you used the money to buy a property for rental. Does that mean that the purchase yields you negative returns right away? The answer is yes. But should you have considered too the future returns the property might yield you in 50 years time? If you are not convinced, just take a look at how CMT operates on their acquisitions for the past 10 years. 

The recent 1-for-2 rights they have issued has also bring some worries to investors. My take on this is that it is pretty obvious by now that no minority shareholders will take up the offer, which then means that the parents will probably take up all the excess shares to fund the 3 acquisitions. I take this as positive because the company have strong parents backing who are willing to take up a more expensive offer than if they are being issued at such a huge discounts. That would bring about even more dilution to existing shareholders. The results from this will be immediately dilutive, even with the acquisitions, though in the long term the hope is that the tolls will become a heavy-weight tolls like Yongtaiwen or Beilun who have outperformed.

One of our fellow blogger, Investment Moats, have blogged about the recent acquisitions proposal in much more detail. Everyone should take a look at the article he has written to understand the situation better.

With the divestment, my warchest has now increased to $126,000, though I'll have to wait if I am able to get the other counters I am eyeing on.



Saturday, August 1, 2015

Is Keppel Corporation Worth The Buy Now?

Keppel Corp and Sembcorp Industries have been one of the main culprit highlights in the recent oil bear scenario, which brings it's share price down from the recent 5 year high of $11.57 to the low of $7.50.

Some readers have asked me whether Keppel is worth a buy at this price and I am pretty sure there are plenty who are considering to enter as well, given how "attractive" the last 5 years Keppel has bring to shareholders.




Personally speaking, I have not done an in-depth research of Keppel's core business while my previous couple of posts on Sembcorp was because I have previously been vested with them. In any case, conglomerates are a bunch of different core business integrated together which can make it very difficult to value.

For the purpose of this posting, I'll just do a simple sum of the parts method and if you are interested you can tweak from it.




Part A

The recent move to privatize Keppel Land means that Keppel Corp has now owned 95% of the properties arm. 

This move has helped to mitigate the drop in earnings for its O&M segment, though the purchase would also increase its gearing from 0.11x to 0.42x.

Keppel Land

For the purpose of this exercise, we'll take an easy way out by valuing the value of the properties arm based on its privatization price at $4.38. Since Keppel owned 95% of the same, the market value for SOTP purpose is $4.16.

If you take a look at the upcoming projects they have up until 2017, I think this segment will be the main driver for the company while the other segments take a beating. That's the advantage of being a conglomerates, having other segment to step up when the other is nursing its wound.





Part B

I've included both the infrastructure and investment in this segment.

This is the part most promising to the group and one of the trump card I reckon they are going to use during these recent years. For instance, they have divested a 51% stake in Keppel Cogen to its infrastructure trust while recycling its capital for other use. I'm pretty sure there will be a day when Sembcorp will follow suit with its utilities infrastructure trust but for now, they can only sit in envy.

Following the recent Q2 results, management has guided that revaluations, impairments and divestments (RID) remain a huge part of their recurring income, forming almost 21% of the annual PATMI for the past 5 years. Given the recent hit in the O&M earnings, I am pretty sure they will utilize this segment even more to sustain earnings in the future.

The SOTP for this segment is pretty straight forward by taking the market value of the individual listed entities, multiplied by the percentage holdings they owned. The market value for this segment is $2.27.

Infrastructure & Investments

Part C

This is the hardest segment to value because this will be the hardest hit since they are related to the O&M.

For your information, the current EBITDA valuation based on the 2014 end year results for the O&M segment is at $5.55, based on 11x FY14 results. Obviously, you are not going to see that kind of number in the next few years as the sectors take a hit, so the million dollar question would be how much they are being valued.

I am actually taking a lazy way out by taking reference to the previous oil crisis low and replace the O&M margins to calculate my forecast PATMI for the next 5 years. Thus, for the purpose of this exercise, I have forecasted earnings for the next 5 years to drop 20%, 20%, 10%, and then stay constant for the next 2 years. The normalized PATMI for the next 5 years will go almost in half what they have in 2014. You can immediately see how bad it becomes.

Of course, I am playing only with the margins here and assuming order books remain the same. If the other variable factor of order books are also lowered, you can be sure that it will only get worse. Having said that, I've factored in quite possibly a very bad case scenario so the figures can be pretty conservative.

Other analysts are using a direct 11x EBITDA FY16 numbers, so their numbers are much higher than the one you see below because they are only accounting for the next one year forecast, and not the longer views that it may further drop.

The market value based on the below assumptions is $1.42.



Part D

This part is pretty direct and I am taking the available cash balance net the borrowings they had on their books.

The market value for this is -$2.77.


Summing up the total of (A) + (B) + (C) + (D), we get a total of $5.08.


Final Thoughts

This is just a very simple exercise to understand how much each segment are worth in the market but you can see how the group are playing out its other card when the other takes a hit. 

If you believe that the O&M segment loss is temporary, then buying at current price could prove to be very worthwhile when oil price eventually recover. However, if you are those who wants further margin of safety before entering, then you can consider the impact of earnings the group can take.

Other major weight producers such as Exxonmobil and Chevron have taken a huge hit on their recent earnings and you can read their outlook for the next 5 years. The cut on jobs and capex are glaringly high so investors who want exposure to the oil industry needs to be mentally prepared that you can potentially sit on a huge paper loss for the next foreseeable years, unless some other segments can step up, like what we've seen for Keppel.

What I was trying to show here is that everyone thinks Keppel is "supposed" to be a $11 to $13 stock, but many forget that it is based on the assumptions that margins for their O&M segment are at the peak when the normalized oil price was above $100. If for the next decade, normalized oil is lowered to around $50 to $70, you can be sure that Keppel will be worth lesser than that. Suddenly, the new generation of investors will see Keppel as a $8 to $9 stock. So while the current price of $7.50 may look "cheap" to some investors out there, who thinks that mean reversion will take place in the longer term, you might want to ask if there are any margin of safety build in it.


What do you think? Is Keppel Corporation worth the buy at current price?


Wednesday, July 29, 2015

Developing The 5 Whys Technique In Investing

I came across this technique when I was studying for my MBA last year and has found them to be very useful when it comes to investing. 

Many times, we as investors, have failed to ask relevant pertinent questions causing the underlying reasons for the companies we are interested or vested in. Even though it appears that most investors have done the first level of due diligence by screening check the financial numbers, many failed to consider the underlying root cause that explains why the share price of the company may be languishing where they are at the moment. 

This is where the 5 Whys Technique might prove to be useful in investing. Mathematicians called this the power of second derivative thinking. In simple terms, it means going beyond the first level screening where everyone is able to see or figure out. This makes sense because in investing, you need to be able to think and prospect ahead of the pack (mostly retail investors or research brokerage analysts) and take action before they do in order to earn higher than average returns. Otherwise, you’ll be better off investing in an ETF index fund for longer sustainable returns. 




The 5 Whys technique was formally developed by Sakichi Toyoda and first used within the Toyota Motor Corporation during the manufacturing evolution decades ago. They are an iterative question-asking technique used to explore the cause and effect relationship, each depth going deep and deeper to uncover and determine the underlying root cause of the problem. They are important in investing because for most of the times, the underlying root cause to the problems are not so formally evident at an investor’s eyeball level. They require the tenacity of the investor’s persistence in asking the right questions and the ability to see what is ahead in order to make a calculated risk return assessment on whether the investor should buy the share at present

Let’s take a look at an example: 


1st Why - Q: Why do you write a blog? 
                A: Because I want to document my journey towards financial independence. 

2nd Why – Q: Why are you seeking financial independence? 
                   A: Because I want the freedom to do things that I love. 

3rd Why – Q: Why do you want the freedom to do things that you love? 
                  A: Because my current job does not satisfy me, but money is an issue. 

4th Why - Q: Why is money an issue? 
                 A: Because my current expenses are exceeding my current income. 

5th Why - Q: Why are your expenses higher than your income? 
                 A: Because I have a family of 6 to feed and I am the sole breadwinner of the family. 


This is just a very simple example but you can see how each questioning uncovers the underlying root cause of the problem as the question moves along. We can also apply the same to investing. 


1st Why – Q: Why are you interested in Keppel Corp? 
                 A: Because they are trading at an "attractive" low P/E valuation. 

2nd Why – Q: Why are they trading at such valuation? 
                  A: Because the share price has gone down more than the drop in earnings. 

3rd Why – Q: Why did earnings (and share price) goes down? 
                  A: Because their O&G segments are dependent upon the oil price. 

4th Why – Q: Why did oil price drop? 
                  A: Because there is an oversupply and alternative replacement of shale gas. 

5th Why - Q: What is the tolerance level of sensitivity of oil price the business can take the hit? Can oil goes back to pre-crisis level?, etc etc...


I think by now you should get the idea of how you can use the 5 Whys technique. You can modify or customize it to your liking, but the idea is to get a deeper understanding of the underlying root cause before you decide to action.

What do you think? Is this useful to you? Do you conduct second derivative thinking when analysing companies?



Sunday, July 26, 2015

The Temptation To Invest Without Research‏ing

A few months ago, I divested my position in one of the counters I used to be vested in - Sembcorp Industries (Link Here). Back then, I remember receiving a few criticism coming in from a few readers. 

One of the criticism which I remember vividly was from a reader that commented I was doing plenty of research, analysis and valuation runs on the company, but only to end up in a loss upon the divestment at the end of the day. On the other hand, the reader commented that he did not have to do much research on the company but yet was making a profit. He questioned the need to undergo such a detailed process when investing doesn't seem difficult to him.

I digested his words and compiled a few learning points from the incident. 

The thing about doing homework on companies before you invest is this. I do not mind doing a lot of homework and analysis on companies and still made a loss at the end of the day. From my view, I will know that I have learnt something from my mistakes and probably there are many more instances like this in my investing journey. After all, we are all vulnerable to making mistakes in our lives.

I replied to the reader that I am happy because he has made a profit but I am more worried for him because he has not done his homework but yet made a profit out of it. I hope he understands what I was trying to say.




Temptation To Invest Without Research

Investing is a tricky and risky thing to begin with. 

You would not necessarily ended up going into profits immediately, even if you are already putting so much effort in researching the companies. There are the other market forces you have to contend with, for instance recession cycle – things like this that are out of our control. 

On the opposite end, you can make profits just by randomly picking the stocks that you think would outperform, but you will never know if it is attributable to luck or skills at the end of the day. The question to ask is if you are making sustainable profit calls in the long run. If the answer is a resounding yes, then by all means go ahead with your strategy.

Since it appears that the outcome comes across as multi-dimension matrix, many investors chose the easy way and go for the short cut by investing without preparing sufficiently in trying to understand the company better. There are also other investors who have “done” their homework by reading multiple brokerage analyst’ reports and/or blogger’s opinions. No strategy is wrong of course, until hindsight proves otherwise. 

Temptation To Invest Before Research

This is a trickier one to be honest. 

Some investors tried to invest before researching sufficiently on the companies. The key word to look out here is before. By the time they are vested, they would then spent their time looking for positive news surrounding the companies that made them believe they have made the right decision. This is called confirmation bias. Confirmation bias is harmful because your brain is wired only to take in positive information, and filter out everything that might come across as negative.

It’s actually pretty difficult to set this straight in our brains because I remember making the same fallacy of errors when I started my investing many years ago. I think this is a pretty common fallacy committed by many investors because as human beings, it is only natural that we see what we wanted to see and it is made even harder through the widespread coverage of the media which is deemed as noise and are often no much use to any investing decision made.


Final Thoughts

Investing is easy but successful investing takes a lot more effort than that.

Often, it requires many than simply the first level of screening, and even more so, it requires a lot of disciplinary strategies such as proper asset allocation and emotional investing. For many, it can take a heavy toll on the health and family relationship when things doesn't work out properly.

For investors who are not prepared to do spend too much time monitoring the market or picking individual stocks, but would like to participate, they can do so by investing in an ETF index fund which has proven to be much simpler and outperforming many other average investors. At the end of the day, what are we looking for when we are investing? What are our objective of investing? Isn't not losing money our main objective or are we looking for more beyond that?

What are your thoughts on this? Let me know.



Thursday, July 23, 2015

"Jul 15" - SG Transactions & Portfolio Update"

 No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
China Merchant Pacific
74,150
1.03
76,375.00
25.0%
2.
Vicom
8,000
6.22
49,760.00
16.0%
3.
Nam Lee Metals
70,000
0.29
20,300.00
7.0%
4.
Silverlake Axis
14,400
1.02
14,688.00
5.0%
5.
Kingsmen
15,000
0.99
14,850.00
5.0%
6.
Accordia Golf Trust
17,000
0.65
11,050.00
3.0%
7.
ST Engineering
3,000
3.39
10,170.00
3.0%
8.
Stamford Land
10,000
0.58
  5,800.00
2.0%
9.
Noel Gifts
18,900
0.31
  5,860.00
2.0%
10.
MTQ
7,000
0.72
  5,040.00
2.0%
11.
King Wan
5,000
0.28
  1,400.00
1.0%
12.
Warchest*
95,000.00
31.0%

Total SGD


310,291.00
 100.00%




There's a couple of changes that I have made into the portfolio as I continue to seek and incorporate highly qualified businesses which meet my criteria that I feel will present a sustainable long term returns as the businesses continue to grow.

For the month of Jul, I have divested both FCT (Link Here) and FCOT (Link Here) which I thought was overvalued in terms of valuation. I like the way the management has operated for both companies but the steep price makes it as such that they will be prone to a much larger fall should the market heads downwards. I will continue to monitor their situation including their recent quarterly performance which they did well as expected.

I also added Kingsmen and Accordia into the portfolio which I have blogged on my thoughts here and here. On top of that, I have also added a small position for an O&G play in MTQ which I did not post a blog on but have exhibited the same strong characteristics of strong operating cash flow, increasing free cash flow, strong balance sheet and a reasonable valuation. I am closely monitoring the O&G situation so the amount I've nibbled is really small but will increase over time as and when I think is wise to do so. You can view here under the "Recent Transactions" for the details.

The amount of warchest currently stands at 31% of the overall portfolio, a position which I am comfortable to hold at the moment while waiting for the right opportunity to come by. I wouldn't want to rush utilizing these amount of warchest even though they yield really low returns because you never know when you are going to get your opportunity of a lifetime in the market. In any case, these will be utilized if the right opportunities came by, and not a matter of when.




The equity networth has increased for this month to $310,219, mostly due to the divestment mentioned earlier as well as some improved performance from the portfolio and bonus shares received for CMPH and Silverlake.

The projection target is to reach the end year networth of $333,105 (Link Here), which I have revised back in November last year due to certain circumstances. With Aug and Nov being a strong dividend month, and December having an AWS to cater to, I am silently confident that I can hit the goal by year end. In addition, online income has recently came in rather unexpectedly strong as well which has definitely helped to push on. For this, I'd like to thank everyone who has supported the blog.

Projected dividends based on the current portfolio stands at $12,232 per annum, which translates into about $1k/month, and they are not as high as I would like mostly due to the amount of warchest which I have accounted for zero dividends. I guess this just reinforce the idea that it takes years to build an arsenal of solid dividend paying portfolios, and it requires years of perseverance to see it out. I know it will pay off one day so I'll just have to keep the motivations high, and keep it going.

For now, we'll just have to see where the market is going and an important factor which I can't control. One thing for sure, I don't mind having more opportunities presented even if it means not hitting the goal by year end. So that's it from me for now and I hope everyone has a solid month in the month of July as well.

How did you fare for the month of July?


Friday, July 17, 2015

Recent Action - Accordia Golf Trust

I made a recent purchase of 17,000 shares of Accordia Golf Trust at a price of 64.5 cents

As far as I can remember, I do not have a very good impression of trust that are listed here in SGX. I have made my fair share of loss when I balloted for the IPO for Ascendas Hospitality Trust (AHT) which I then subsequently sold at a loss (link here). Other trusts such as Asian TV have not been performing since its debut as well. For Accordia, they have lost nearly 32% of their value since their IPO at 97 cents. But I will elaborate later on why I think they might represent a value for turnaround play.




Back to the earlier, there are a few common reasons why I think the share price for these trusts have been lingering low since their debut. 

First, most of these trusts have underperformed against the prospectus they have set during the IPO. When the actual performance does not corresponds to the expectations they have set out in the prospectus, there are usually a spiral down of pessimism that kicks in that brings the share price down. Management needs to be aware that they need to set out a realistic prospectus even if the original intention of the underwriter is to raise funds. This includes requisiting for sufficient margin of safety, especially if there are currency and market risks that their assets are exposed to. In this case, AHT, Accordia, FEHT, APPT have all failed to do so in this aspect, which explains the low hanging share price. 

Second, most of these trusts (or Reits) that have been performing poorly have been mostly tied to the economic risk of the country their assets or borrowings are tied to. We have the Accordia from Japan, AHT from Australia, LMIR from Indonesia and Ireit from Germany. These countries have not enjoyed the best of economy in recent times and as a result, their respective central government are utilizing monetary stance that weakens its currency.

As with all companies, the share price might go down to a point which might represent value. I think this case applies to Accordia and the reason why I am now vested in the shares. Here are also some of the other reasons that propel me to invest in the shares:

1.) Freehold Title Deed of the Golf Land Course

This is pretty straightforward. 

If the land title is freehold, then the trusts will theoretically be able to utilize them to infinity. This is favourable to leasehold properties tied to industrial or commercial, who has only 30 to 40 years of lease life. Theoretically speaking, Reits whose assets have a limited number of life will have to constantly source for new assets in order to lengthen their WALE life concession. This is partly the reason why most Reit managers are constantly looking for new assets or extend their current lease concession when it is nearer to maturity. 

If you have a freehold land, then the title will always be yours, perhaps subject to constant maintenance to ensure the stability for use.

2.) Juicy Dividend Yield

I have to be honest that for the most part I am interested in this business mainly for its high dividend yield they are currently offering. I have my reasons though, and I don’t try to do that blindly. 




First, the normalized DPU for the full year excluding the one off is coming in at 6.07 cents/share, which is about 12% off target from the prospectus. This is based on the assumption that the exchange rate from SGD to YEN is at about SGD1: JPY 90.61. 

Assuming the Yen continues to weaken, we might see the JPY coming in at SGD1: JPY100. Should that happens, you can be sure that performance and DPU are going to be impacted. My guestimate is that it will probably happen and DPU will come in nearer to the 5.5 cents/share, which translates into 8.6% based on my purchase price. That is still a very respectable amount of yield we are talking about, given that there isn't any hidden agenda tricks such as the income support other reits are currently using. There is also a high probability that the yield would be boosted given their acquisition agenda which I will talk more in detail below.

3.) Low debt Gearing 

The trusts have a rather conservative gearing rate at around an Loan-To-Value (LTV) of 30.1% (debt/appraisal value). This is rather conservative considering that many other trusts and/or reits have gearing in excess of 40%.

Based on the latest AR, management has guided that they would like to gear up to around 40% to 50% and it even has a plan to acquire up to JPY 50 billion by end of Mar 2017. They also mentioned that in the interests of unitholders, they would only acquire golf course which will boost the trust DPU growth. This is not difficult at the moment as we will see later most of the NOI (Net Operating Income after deducting all maintenance and related expenses) for the existing golf courses are yielding in excess of 10%. 




Gearing of up to an LTV of 40% would mean that the trust can undertake a further debt of JPY 25 billion. This means that the trust can swallow almost 4 times of Daiatsugi Country Club Course, which is the number one highest appraised golf course the trust currently have at JPY 6.6 billion or 6 times of Izumisano Country Club, which is the number two highest appraised golf course the trust currently have at JPY 4.8 billion.

Gearing of up to an LTV of 50% would mean that the trust can undertake a further debt of JPY 40 billion. This means that the trust can swallow almost 6 times of Daiatsugi Country Club Course, which is the number one highest appraised golf course the trust currently have at JPY 6.6 billion or 9 times of Izumisano Country Club, which is the number two highest appraised golf course the trust currently have at JPY 4.8 billion.

4.) Inorganic Growth 

The plans from the management for the next 2 years are crystal clear. 

The trusts have sufficient debt headroom (see above) for further acquisitions and they will add another JPY 50 billion assets injected into the portfolio. Given how the existing assets capitalization capability rate the assets are generating, it should be an easy target for the trusts to inject further similar type of assets into their current portfolio. 


NOI Capitalization Rate %

Just take a look at the NOI yield highlighted and you can be impressed that the existing assets are generating a NOI capitalization rate close to 12.4% on average. This is based on the assumption that the utilization rate is at around 77%. Imagine if the management can ramp up the utilization rate higher and NOI yield should rise even further. Comparing this to a 40 years odd office leasehold (e.g OUE Tower) at a capitalization rate of 4% and you would see how good it is to own a golf business. 

Since the current existing yield is approximately at 8.6% at estimates, this means that any acquisition they make will most likely be accretive to the DPU since first, they will most likely be funding it via debt and second the existing NOI yield > dividend yield. This means that there are potential that the DPU can grow over the next 2 years rather rapidly, assuming they go ahead with the expansion plan.

5.) Catalyst for Olympic 2016 and 2020

After an absence of more than a century, golf as a sport will return as an Olympic event in 2016 and 2020, an event which will bring favorable take up rate for more members to get interested in the sport that will increase the utilization rate for the company.

Tokyo will particularly host the 2020 Olympic, so it'll be interesting to see whether the operations are able to draw larger crowds given that the premises will mostly likely be used to host the event.




Risks

Investors should note that there are inherent risks which they need to take note, and to me they represent the biggest risk that I consider:

1.) Currency Risk 

Since the company's operation is based in Japan, there are a direct currency risk especially since reporting and dividends are paid out in Singapore dollar. The japanese yen has not been performing well over the past few years and a depreciation of its currency this year led to the underperformance of the trust compared to the prospectus.

Fortunately for investors, there are the natural hedge between its earnings and borrowings as interest swaps are both done in the japanese yen, so it provides the natural hedge towards currency risk for the assets it owns. Their NAV is still at a respective 87 cents based on the latest results, which put the P/BV currently at 0.74.

Management has guided that they are looking into hedging a part of their currency to the Singapore dollar. A hedging of the currency might costs some money to the trust, but at least it makes performance reporting and budgeting more predictable to everyone.

2.) Natural Disaster Risk 

Earthquake is a common occurrence in Japan and massive natural disaster can be detrimental to the company’s operation which can destroy the golf course as well as its other extended operations in the hotel and f&b segment. From the prospectus, management has guided that it is very difficult to insure the whole assets because of the size of the golf course that does not make it worthwhile for the company to insure the assets for natural disaster protection. As far as earthquake insurance is concerned, they are only insured on the Probable Maximum Loss that would be incurred in excess of 15% of the replacement costs. Anything beyond that will result in material losses borne by the trusts itself. This is similar to China Merchant Pacific who does not insure all of their toll roads because the size makes it impossible to do so. 

For others that are interested to know more, Liberal Hills, Onahama and Miyagino Golf Club were affected by the great earthquake and the resultant nuclear power plant accident which took place in 2011. Even though they did receive some sort of compensation for the loss, you can see how this remains one of the main risks investors need to take note of.




Final Thoughts

There are a lot weighing on investor's mind on how one can operate a golf trust business successfully. The truth is, it is not something that we can have plenty of information to research on other than what is already presented in the AR. As investors, we just need to read between the lines and numbers more discreetly such that we do not miss certain information that might be important for our investing decision. 

The trust is not without the risk as I have rightfully presented both sides of the arguments, but whether or not they represent a value from a risk adjusted return point of view remains the call of an investor. One thing for sure is that the trust is losing investor's interest at the moment given the lackluster first year performance that disappointed badly because mainly of the depreciation of the Yen but you need to decide if that is something permanent that will impact the most part of the earnings for the next few years to come. 

For me, I'll be happy if this can yield somewhere in the range of 8% while my other counters in the portfolio are aiming for more growth. My take is that the decline should be quite overdone and I'll be surprised if I see them continue to slide down hard the way they have been sliding over the past few months. Nothing is impossible though so interested readers should do their own due diligence on the matter. 

What do you think of this trust? Will you be interested to add this into your portfolio?


Wednesday, July 15, 2015

Why Are Investors Afraid Of Opportunity Losses More Than Actual Losses?

Since I began investing about 5 years ago, I developed a state of consciousness and conclusion that investors are actually afraid of losing more opportunity losses than actual losses. This conclusion was made through a series of events, including looking at fellow investors' activities as well as experiencing some of the investing decision myself.

This of course does not simply apply to investing alone. In fact, we see this sort of behavior in almost every aspect of life. We try to keep up with the Joneses, buy diamonds that are bigger, go to vacation destinations that are more exotic than the norm, etc. We are always constantly comparing ourselves with the people we know because we want to be better ahead, even if we are already winning the game ourselves.




We, as investors, regardless of whether we subscribe to the risk taker or risk averse mentality, are aware of the risk of permanent loss of capital that we may be subjected to when we invest. Nevertheless, we still believe that stocks represent a long term investment that can multiply our returns over time. Some of us subscribe to fundamental value investing while the prevalent may be towards more of technical analysis these days. The level of individual activities in investing is of the belief that one can perform better than the average people does and if we compound these returns over time, this can add up quite substantially.

Take bonds for example which are assets that grown to be relatively unpopular in Singapore (as compared to stocks and properties). Most of us know the basic of how bonds work as an assets. As a bondholder, we are essentially providing loans to the government (or companies) and in return we get a fixed percentage of coupon paid to us. The main reason I can think of why bonds are generally unpopular with the community is because they offer a fixed percentage of coupon rate until maturity that are stagnant without accounting any "growth" or "increment". Again, because we are a bondholder instead of equity holder, we are not entitled to any growth a business owner would enjoy. This was not helped by the fact that in recent years, we have liquidity favoring the equity market because of low interest rates. By using this logic, investors flock to hot assets like property and stocks that provide supposedly higher returns for them and investors do not certainly want to miss out on these opportunities while liquidity is pushing these assets up.

The STI ETF or the Permanent Portfolio structure is another example of proven returns based on a long term historical data available. Investors could simply stick by the simple investing principle and enjoy decent returns over the long run. However, many investors do not choose to do so because they are afraid of losing more opportunity losses if they didn't invest elsewhere, especially highly driven assets at certain point of time. The high level of individual activities has instead returned them lower returns than these simple investing methods because they aren't capable beating the system.

This could well go down due to psychological matter and the notion that more activities in investing results in higher returns over the long run. It's probably akin to going in to a casino and yet you're spending your precious time playing the slot all night along.

I have not even included people who are in a binary position of all in cash versus all out cash. Talk about the investors from the 2008, 2011 and 2015 I just mentioned in my previous post. Hmm.

Are you like that too? Why do you think investors are more afraid of opportunity losses than the actual losses?


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