Saturday, September 13, 2014

Are you prepared for the next equity stock market crash?

First of all, apologies for the lack of postings in the last couple of days as I was busy preparing for both work and school projects due.

Being as busy ever, I still kept a look out everyday on the macroeconomic front news to keep up with the latest news on what is happening around the world.

Recently, as the stock market hits a new high in the US, there's been a growing feeling that some investors have been looking for an exit opportunity before the "potential" stock market crash that no one really knows when will it be coming.

Some big players like Soros, for example, have been preparing for the crash by accumulating a huge long position in Gold, where he believes acts as a proxy to safe haven when the stock market crash is on the horizon. Another big player, Icahn, increased his holdings in energy stocks to hedge against a stock market crash.

There are fellow bloggers I know that kept their eye solely on the business and valuation of the company without accounting for any noises from the market. And then there are other bloggers who kept their current holdings without selling but increase their allocation of investment warchests to prepare for the next crash.

I think it is fair to say that different investors have different types of strategies to prepare for the next market crash. For myself, there's really a couple of things I would like to do personally:

1.) I am open to selling my current positions if I feel they are somewhat fairly or overly valued. I always feel that if the price of a stock is not what you would like to buy, then it would be the price you would like to sell. So while the buy and hold strategy still holds true, I do take into account its price multiple valuations closely, i.e how much price relative to earnings it has run up.

2.) I see gold as having a unique feature to outperform as speculative assets when there are uncertainties that might threaten our currency fiat system. I currently hold some physical bullion that makes up about 4% of my overall portfolio allocation, so I think it should be fine for now. I would like to build up this position up to 10% eventually, so we'll see what happens.

3.) I would also be building up my investment warchest somewhat aggressively from now on, so I would not expect too much action on the buying front for the next couple of months, unless something becomes a value buy.

What about you? What kind of strategies do you employ when preparing for a market crash?

Thursday, September 4, 2014

Jeremy Grantham - Market will crash badly after S&P tops 2,250

The week has been really productive for me as I've managed to stay at home and read a few good articles and understand a bit on the valuation theories by various asset fund managers, one of which is Jeremy Grantham whose articles have been published a few times by fellow blogger Drizzt.

For those who are not familiar on the guy, he is the asset fund owner of asset management firm, GMO who has correctly predicted the dotcom market bubbles in 2000 and the housing market bubbles in 2008 based on his theory which I thought was interesting to share.

To him, a bubble is indicated by a 2-sigma event using Tobin's Q indicator and when that happens, he believes the market will eventually corrected itself by reversing to the mean. Past market bubbles, including the dotcom bubble in 2000, have exceeded the 3.2-sigma before imploding while the 2008 GFC crisis was a >2-sigma event. The U.S Housing market in 2008 was an incredible 3.5-sigma event.

*Tobin's Q is an indicator developed by Nobelate prize winner James Tobin that measures the market value over the replacement value of a company. A 1.0 indicates that the market value correctly reflects the book value of the company.

In 2014, the US stock market are currently a 1.4 sigma event as of 31 Mar 2014 when the S&P was at 1,880. Today, the S&P have breached the 2,000 point which indicates that it's probably gone higher and closer to the bubble. According to Grantham, a 2-sigma event is when the S&P hits 2,250, so that's just another 10% more from current levels.

The thing about this Tobin's Q indicator is it measures a long time horizon and not short term. So an overvaluation sigma event can remain high for a number of years before eventually reverting to its mean and vice versa. As and when the market hits new high, it is always prudent to look at some indications and justify whether you are able to stomach the risk for a given level of returns for your portfolio. 

Wednesday, September 3, 2014

Reversal Turnaround - B's incident

If you are a football fan, you would have heard the news that Shinji Kagawa has returned to his previous club Borussia Dortmund after a rather disappointing move to Manchester United that did not quite work out for him. I used to think that was weird because I thought he would have think and agree the terms and conditions rather carefully before joining the club.

I experienced the same situation myself recently unfortunately (or fortunately).

I joined a new company 2 months ago that didn't quite work out for me. Something was missing evidently but I shall spare the details in this post. To cut the story short, I rejoined my ex-company who at the same time has not found a replacement after 2 months. I thought the bosses there were sincere when they convinced me of rejoining the company and so I obliged.

Even though this whole incident may seem like a nightmare to begin and end with, I reflected on the situation and chose to see the positive out of this.

First, most of us know that the grass isn't always greener on the other side of the fence in theory but to experience it ourselves is a different story altogether. There are certain things that you can't know just from the interview alone and you have to be there on the site to experience to feel it.

Second, when work is involved, it's always 90% chores and 10% fun, regardless of any work you do (almost all work). To think that you could seek better environment and better fun at your new place is virtually almost impossible, and that's including Disney if you have ever worked there before.

Third, people are more important than work. I used to belittle the importance of people I worked with. I used to think that even if you don't like the person you are working with, just get through the day and everything is ok. Apparently, it is not the case and the people makes the experience of going to work all the while meaningful.

Fourth, I do learnt a great deal from my short stint at the new company, something that I will never be able to find out if I am just a retail investor. The learning was great so I do take into that positively.

It is an unfortunate incident, but I think I do come out from this stronger and more matured. Had I not decided to move, I probably still have thoughts about moving to another company some other day and it could have been the same situation or a totally enriching experience altogether, whichever luck takes me.

I told my bosses that I will not seek a move anywhere else in the near term though I did mention my plan to have totally quit from a corporate role when I turn 35. That is exactly 6 years from now. Meanwhile, it's business as usual and the journey remains.

Monday, September 1, 2014

Even Singer Jason Mraz plans for early retirement before 40

Known for one of his famous single, "I'm Yours" which broke records chart for the consecutive 76 weeks, Jason Mraz is ready for early retirement before he reaches the age of 40.

Now, at the age of 37, he has one more album left on his contract with Atlantic records and then he plans to cool off his hectic lifestyle.

During the interview, he mentioned that he is ready for a break and the daily grinds he has been doing feels like a corporate job at times. His plan after he "retires" is to do more gardening, surfing, having a kid and donating some money he has generated from his album all these years towards a good cause. For this, he has started a campaign #RetiredAt40.

Fans of Jason Mraz will feel surprised by the news, and that's including myself. We all thought that he loved music, singing and songwriting and he probably is. Then why did he choose to retire from doing something he likes in the first place. Doesn't that defies... gravity?

The answer is probably he wanted OPTIONS

Yes, it is true that he probably has music in his blood but at his age he probably sees something which he thinks is worth doing more than simply churning out good music. At any case, he can always still come back to music anytime he wants with his talents.

That goes back to where we are in our daily lives. Some of us love our jobs and some of us don't. Many people think that finding a job that one likes is the holy answer to life. But does that warrant you not to plan for any financial planning for retirement?

Take myself for example - I am vested quite heavily in Reits in my portfolio and I am working at a Reits company right now, so it appears to be a good match. But if I have to be honest, it's probably 90% chores and 10% fun for me and it's probably the same for most people out there. I still do my job efficiently as my role needed me to, but to think that I will have to do this until retirement age is like being handcuffed in prison until the day I see light.

I wanted TIME and OPTIONS and this is precisely why financial planning becomes critical not just for anybody but everybody. Proper planning gives you time to adjust to your priority in life as you age at your own discretion without having the society to dictate the direction. I want to be able to take control of my life and not let anyone dictate them. It's not just about the money, it's about more than anything in life.


Saturday, August 30, 2014

29th Birthday Edition Post - What's the next target?

I turned 29 years old today and this is third edition of the birthday post. As a customary edition of this posting, I usually start by evaluating how I did in the past one year against the projection target set. Then   will post on something lighter on this birthday edition.

It's glad to know that I am doing relatively well on what I deemed as a very stretched target set at the beginning. My current portfolio for Aug 14 stands at $277,695, which is 13% higher than the original target of $245,920.

Some readers have asked me how I managed to put in $60,000 capital a year. This is really just a stretched target that I have set for myself. I doubt I will be able to do that unless the bonus or other income coming in are really strong for the year. With a kid now on the boat, it is even harder to inject that much capital monthly into the portfolio. The savings rate has also dropped significantly since.

But hey, so far so good so no complaint from me. The next target for next year will be the big one as I hit the glamorous age of 30 years old and we'll see how the portfolio goes. The market conditions will play a big part to succeed that.

Projection Target
YearYearStarting CapitalCumulative Annual Capital Injection Dividends on Starting CapitalTotal Yearly Dividend PayoutMonthly Passive Income
 *Above excel spreadsheet was extracted from

So, on a more relaxing note, I brought my family to Marina Bay Sands where we planned to eat the Pizzeria Mozza. It was tightly packed so we went to the neighbour to eat the DB Bistro.

It was a heavy spending for the meals. The four of us, and my baby (he didn't eat anything of course) consumed a total of $350 worth of food. It was quite pricey and the food was too westernized for my liking. I preferred a chinese meal where it might suit the overall taste of the recipient better. In any case, it was a good meal, a good gathering with the family, and it was my first birthday celebration together with my son :)

No present this year but no worries. I am probably too old to get mad for not getting any present anyway.

So that is it. I dream today and wake up tomorrow and when I do so, I live to look forward for the next 365 days to my big 30th birthday. Until then, I wish everyone healthy and happy.

                                          "Dream as if you'll live forever. Live as if you'll die today"


Friday, August 29, 2014

Mapletree Greater Commercial China Trust - Issuance of $75M Bond

Mapletree Greater Commercial China Trust has been granted provisional condition for their issuance of a $75 Million Bond on the 28th Aug and here are the terms and conditions:

- Issue Amount: $75 Million
- Maturity Date: 8 September 2021
- Coupon: 3.2%
- Issue Price: At Par Value
- Payment Date: Yearly on the 8th September

What does this mean for the Trust?

If we take a look at the issuance amount, it's really negligible and almost certainly they will not be used for any acquisition project for such an amount.

They are likely to be used for repayment purpose with their debt expiry profile looking like this:

  • 2014: -
  • 2015: $534 Millions (29%)
  • 2016: $666 Millions (36%)
  • 2017: $646 Millions (35%)
What this means is that with this issuance of debt, their costs of debts will increase marginally from 2% to 2.05% and gearing ratio will increase marginally from 38% to 39%.

I think with potential interest rate coming up within next year, we will see a lot of management action in other reits as well trying to either refinance their debts or secure as low interest debts as soon as they can.

Cache for example, has one of the highest debt expiry due for next year FY2015 at 60% and we can almost certainly see their costs of debts increasing and will affect the bottomline when that comes.

Wednesday, August 27, 2014

Treating Dividend Income as your Bonus

Bonuses are a very subtle object when it comes to performance management. And it is very strange to see that because as the name suggests, they are basically .... "bonus". So if your employer gives it to you, thank you and take it and if they do not, employees should not grumble too much.

You see, we, as employees get paid by sacrificing our human labor and time in return for a salary. So you do 40 hours a week and multiply this by 4 and they give you your monthly salary at the end of the month. Fair. If your employers refuse to pay you for this, you can rightfully get angry and feel unjustified.

Bonuses are a totally different thing. These days, they are being almost packaged as a whole remuneration but they are meant to be discretionary. Employees are much happier when they receive their bonuses because it feels like you do not have to work for it but yet are rewarded pretty nicely - which is almost like the case for dividend we will see later.

As an employee, there are 3 types of bonuses that I am currently getting.

1.) Annual Wage Supplement (AWS)

This is also known as the 13th month salary.

For AWS, employees generally receive the same amount as their last drawn salaries, regardless of position, tenure or performance rating. This type of bonus really has no effect on performance because it's the type of bonus which is customary at the same time every year at almost all companies we have here. Employees tend to expect it and there's no reason to work harder or smarter or put in extra hours to get it.

In fact, there are people who argue that this isn't considered a bonus. It is rightfully theirs to begin with.

For instance, February is usually the only month that you get paid "correctly" as they had a full blown 4 weeks to that month. In other months, there are usually 30 or 31 days depending on the type of months. So employees argue that they are being underpaid in other months. If we add those days up throughout the year, then we will get 29 days as being "underpaid" using this theory.

Jan - 3 days
Mar - 3 days
Apr - 2 days
May - 3 days
Jun - 2 days
Jul - 3 days
Aug - 3 days
Sep - 2 days
Oct - 3 days
Nov - 2 days
Dec - 3 days

Total = 29 days

2.) Performance Bonus

The second type is the discretionary performance bonus which usually links the two matrix together - company's performance and individual performance.

Usually, people will get very excited when the company's announces their performance bonus matrix to the staff. As these incentives are strongly tied up to how much the employees alone and as a whole contributes to the bottomline of the company, they really want to see strong figures coming out from this.

Again, another expectations that can come down really bad especially that it's difficult to control both the two matrices.

3.) Dividend Bonus

This is my favorite type of "bonus" amongst all the three mentioned above.

As a business owner having an equity stake in the company, I do receive these dividend income regularly as part of their quarterly or half-yearly distribution out of their earnings to reward shareholders. Instead of having my own limited time and effort working hard to achieve the above performance bonus we talked about, this is having other people time and effort working hard for your business so that you will be rewarded as a business owner. In other words, you have money working hard for you, not the other way round.

I currently draw around $17,000 per annum for my dividend bonuses from my portfolio and this translates directly to around 2.8 months of my current salary. The best thing to this is it gives me almost consistently increasing payout every year, even if I do not add anymore capital to it or better still even if I had completely stopped from working full-time.

So there it is - 3 types of bonuses for me and perhaps there might be more for other people. But take a look closely and decide for yourself which one that will give you sustainable payout throughout your life. 

Do you really want, for the rest of your life, attempting to justify your employers the bonuses that you deserved to get for the hard physical 9-6 work that you put in every single day or would you rather have these bonuses coming in even while you are enjoying your holidays on the other island of the Caribbean.

You decide.