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Sunday, August 30, 2015

30th Birthday Edition Post - The Big 3 Is Finally Here

Finally, the time for the big 3 is here as I bid farewell to the 20s of my life.
 
I turned 30 years old today and as part of the customary edition of the annual post, I usually tried to review part of my finances as a comparison against the target I have set for reaching financial freedom at the age of 35.
 
For the past couple of years edition, I have provided the short link below:

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

28th Birthday Edition Post - What's the next target?

27th Birthday Edition Post


Financial Freedom Target
YearYearStarting CapitalCumulative Annual Capital Injection Dividends on Starting CapitalTotal Yearly Dividend PayoutMonthly Passive Income
01/9/2012$100,000.00$60,000.00$6,000.00$6,000.00$500.00
11/9/2013$166,000.00$60,000.00$9,960.00$13,920.00$1,160.00
21/9/2014$245,920.00$60,000.00$14,755.20$19,190.40$1,599.20
31/9/2015$345,030.40$60,000.00$20,701.82$25,453.25$2,121.10
41/9/2016$469,594.05$60,000.00$28,175.64$33,302.84$2,775.24
51/9/2017$627,460.53$60,000.00$37,647.63$43,245.80$3,603.82
61/9/2018$828,572.82$60,000.00$49,714.37$55,909.12$4,659.09
71/9/2019$1,085,594.23$60,000.00$65,135.65$72,090.20$6,007.52
81/9/2020$1,414,705.83$60,000.00$84,882.35$92,807.76$7,733.98


For those who are new readers of the blog, the above is a projection target which I have set very much earlier when I started the blog almost 5 years ago. This represents a goal which I am keeping track of myself each year to gauge where I am standing in front of the big target.
 
As you can see from the latest portfolio update I did for the month of Aug (See Here), I am very well behind the target of $345,030.40. I spoke a few times about the difficulty in achieving the target for this year because of more family commitments but I'm not giving up the hope yet. The market for this year is also mostly down which brings about relatively unreasonable assumption that it will go in a straight line upwards. Having said that, I am silently confident that if the market represents some compelling opportunities in the coming months ahead, I might be able to nudge the goal well ahead for next year. I'll be keeping my finger cross for this one.


Birthday Celebration

On a slightly lighter note, I treated myself quite a bit of presents these few days.
 
First off, my Dell 5423 laptop which has served me well throughout my MBA days, has gone shut right on the day of my birthday. Given that some of the components are a little weary after using it for some time, I think it's a good time to have them changed and today I bought a new Acer V3-371 at Best Denki at a price of $1,198 after promotion price, with a very good specs of i7-5500U, 16GB memory drive and 240GB SSD, which compares very well against many others with a higher price.




Second, I also bought myself a new Adidas running shoes after tearing the front for my current one. Having a new shoes definitely pushes the motivation to exercise than having a hole-in-the shoe to run. I spent about $148 for this one at an adidas store after finding the Nike running shoes much more expensive.




Third, I also treated my family to a presumptuous dinner at Tung Lok Private Dining at OUE Tower, which allows diners to enjoy a revolving full panoramic view of the whole Marina Bay Sands and Fullerton area in full sight. Of course, I had to choose the place because I am recently vested in OUE Commercial and had to support them :D (just kidding).
 
The course dining for the weekends was having a promotion at $80++/pack for a 7 course meal, which I thought was well worth the value because of the ingredient of the food used and the private dining experience.





And of course, a fun filled companion with family does complete the celebration, though I do wish my Dad, Sister and Little Kiddo were here to celebrate the event as well.






So that is it. I will be starting my 30s journey from now on and I am exactly 5 years away from the financial freedom target. It'll be a whole new experience and I shall end off with a quote I have always used.
 
                                  "Dream as if you'll live forever. Live as if you'll die today"

                                                                                ~~
 
Oh, do you know that my birthday also happens to fall under the same birthday as the great legendary Warren Buffett? Just saying, HAPPY BIRTHDAY Warren too :)





Monday, August 24, 2015

Recent Action - Noel Gifts International

The bloodbath today in the STI market has given everyone plenty of things to think about. However, in the midst of a red market, I managed to divest my holdings in Noel Gifts International at a price of $0.34, a 15% gain from the entry price.




This was on the back of an experiment done when I decided to enter in Mar (see post here) that a dividend yield in excess of 10% would usually trigger a psychological importance to investors, similar to cases seen in Design Studio.

In the post, I highlighted a few catalysts that Noel has won during the year, some of which includes the jubilee year gift which they had won. I had estimated a total dividends of 3.1 cents/share, and the actual dividends came up to 3 cents/share, which translates into a 10% yield based on the last closing price before today.

The company still had major contracts won for FY16, though I suspect earnings will not come in as much as this year. Still, I wasn't much convinced about their core business without these special contracts won.

The divestment has freed up more capital for me which I think will be very useful during these market turbulents.



Saturday, August 22, 2015

My Thoughts On The Silverlake Case

I received a lot of email request asking me on my thoughts about the recent short seller reports that plunged Silverlake to 26% down a single day before it was halted.

I spent the whole weekend reading the 42-page report and it was very comprehensive. To be fair, some of the allegations made was not new and we've seen it before. But this report made it very comprehensive. And I was convinced.




Before I gave my thoughts, I need to state that most of these are beyond the understanding of most fundamental analysts and accountants, even for myself, and a fraud auditor working in the industry would probably know better about this.

Many people have this misconception that once the financial statements are audited and if the auditor's opinion are unqualified, then everything we read in the financial reports must be holy true. That is not the case apparently. It is the management responsibility to ensure that the financial statements are true to the best of their knowledge and it usually depends very much on their integrity to disclose more or less information to the public which was not so apparent. A good example would be off balance sheet disclosure items.

I'll just cover a bit here and there about my thoughts on the allegations matter concerned:


Related Party Transactions Red Flag

This is the main allegations amongst all that is being highlighted.

The report outlines that Silverlake has used extensively in the reporting of its revenue and expenses for the over reliance on its related party transactions, some of whom belongs to the private equity holdings of Mr. Goh himself which can be very difficult to judge once the books gone into consolidation mode, which is what most investors read when they analyze.

The report also stressed that there are some irregularities about the revenue of the private holdings before they are being injected into the group level. It is as if the financial statements are being manipulated in order to account for the higher price sold to the group. In one of the example, it even shows that though the company is making consecutively larger losses over the years, employee numbers have increased substantially, which causes a red flag. The report extensively provided case study on at least 4 of the transactions.







The point on using related party transactions extensively is this. If you are going to use them extensively, then make sure they are being reported extensively in the annual report too. This can be difficult because this is usually the grey area of accounting aspects that isn't made mandatory to report these items in the group level. The reason for this is because each individual entity is supposed to have been audited before they are grouped into consolidation mode.

For auditors who are auditing the book for the group, it is also not easy to ascertain every single related party transactions. The idea is that any transactions made within related party transactions need to be made within an arm length's decision and they are not easy to ascertain for the auditors. For example, when my auditors ask me about the proof on the related party transactions on my company, I usually tell them that it is difficult to get the quotation from the competitors if we are not the customer. At the end of the day, it is the responsibility of the management and their integrity to ensure that their reporting are not a misrepresentation and they are in accordance to the accounting standards.

It also doesn't help when they had changed 12 different auditors in the span of past 10 years. In other words, there could be a case where they may be trying to hide certain things from the auditors who obviously doesn't understand the business well enough.


Chairman's History of Cashing Out At Expense Of Minority Shareholders

The reports stated that historically Mr Goh has been cashing out his stake over the span of 10 years, amounting to RM500M alone. Including the amount of dividends received, this totaled up to RM1B.

On the other hand, you can see how minority shareholders are disadvantaged because the net cash outlay at the end of the 10 years are actually in negative territory. This includes the placement or equity issued to fund the related party transactions, which was thought to be over-priced.

This negative yield ideas are getting more popular these days and you can see how Reits often extensively used this to the benefits of increasing the AUM higher and higher each year.




Over-Valuation

The report made a claim about the over-valuation of Silverlake when comparing them against near competitors and they appear to be overvalued in terms of the price to sales. The report also mentioned that the revenue per employees is unusually high and this is done to inflate the revenue figures so that it looks impressive on the books.

For us investors when we are analyzing, we get attracted to Silverlake mainly because of its great CAGR on their revenue and profit margin, without actually thinking whether these numbers could be manipulated or not. In other words, we usually take the numbers as face value and we think they are a representative of what it should be. The report obviously stated otherwise.


Final Thoughts

When I made a decision to purchase this counter, I admit that I didn't think the figures could be manipulated at all. I take these figures as face value and was impressed by it. There were previously a report on its related party transactions, but it wasn't extensive enough to convince. This report has somewhat convinced.

The company would most probably issued a rebuttal to deny the allegations and I would be very much interested to read the case from their point of view. This would also most likely caused a rebound once the halt is being lifted.

Unless the counter-argument is convincing enough, I would most likely divest my stake in Silverlake when the market opens. I think given that they are operating in such a complex manner, it will be a matter of time before another short seller produces report similar to this to attack the company again. In view of this, I think it is better to stay clear about this stock until things are a lot more clearer. Fortunately for me, my average price for the stock was somewhere at around 72 cents because of the 5-for-1 bonus shares issued, so divesting them right now would not result in a substantial loss for me.

For investors who are thinking of going long because the share price looks much "cheaper" now than before, I would advise that you BUY only when you truly understand the allegations being made and you are truly convinced that those were not true.

Until then, let's see how they are going to respond when market reopens on Monday.



Friday, August 21, 2015

"Aug 15" - SG Transactions & Portfolio Update"

 No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
Vicom
8,000
5.90
47,200.00
15.0%
2.
China Merchant Pacific
45,000
0.96
43,200.00
14.0%
3.
Kingsmen
36,000
0.81
29,160.00
9.0%
4.
Accordia Golf Trust
22,000
0.63
13,860.00
4.0%
5.
CapitaCommercial Trust
8,000
1.30
10,400.00
3.0%
6.
Nam Lee Metals
35,000
0.28
  9,800.00
3.0%
7.
Silverlake Axis
14,400
0.64
  9,216.00
3.0%
8.
ST Engineering
3,000
2.92
  8,760.00
3.0%
9.
Noel Gifts
18,900
0.31
  5,860.00
2.0%
10.
Stamford Land
10,000
0.49
  4,900.00
2.0%
11.
MTQ
7,000
0.52
  3,640.00
1.0%
12.
HoBee Land
1,000
1.96
  1,960.00
1.0%
13.
Far East Hospitality Trust
3,000
0.60
  1,800.00
1.0%
14.
Warchest*
115,000.00
38.0%

Total SGD


304,755.00
 100.00%





What a month it has been for August.

It has barely been a month and it has created a lot more chaos than what we were expecting.

To be honest, things were not much different from what we've seen last month. We always knew that China would have a soft landing and the US is going to hike up the interest sooner or later. It appears that there are some sorts of panic selling amongst the local retail investors scene as I've witnessed many who sells their existing portfolio to raise cash in order to buy back later at a lower price. 

For me, I have been involved in a various of activities this month, much to my delight that I have finally the opportunity to add. I know there will always be people who thinks the market will go lower. If so, great. All the more I am going to get aggressive and buying more. If not, I'll stick to my plan that I had originally planned. This will work out to what I believe to be excellent in the long run. 

For the month of August, I've managed to pare down my stake in China Merchant Pacific (See Here), Nam Lee Metals, and divested King Wan. You can refer to the Recent Transactions for further information regarding the divestment.

I have also been busy allocating capital this month to what I think represents an excellent opportunity, especially for investors who are looking for investing for income. I've added Kingsmen, Accordia, CapitaCommercial Trust, Far East Hospitality Trust and Ho Bee Land. I have not had a chance to write about my thoughts on these companies, and I will do so over the next few postings, but these are companies which has been in my target list for a very long time. When the price represents a decent entry, I will position my sizing to go in batches. It is not in my strategy to catch the bottom of the price, as one can only predict upon hindsight. There's also a few emails asking my opinion on the recent Silverlake allegations. I will have to read the report over the weekends to analyze their stands as it is a long report. Looks like it's going to be a busy weekend now.

The warchest amount is currently at 38% of the overall portfolio in what I believed to be in a decent position to be utilized when the opportunity arises. The dividend income received this month also helps to increase the amount of warchest, which is the reason why I love dividend investing a lot. It provides cashflow repeatedly in a predictably manner and helps to buffer for any capital gain loss while waiting for it to recover.



The equity networth has gone down from the previous month high to the current month at $304,755. I think this is not surprising given how everyone experienced quite a bit of bloodbath in the market recently.Although the amount of networth has shrinked this month, I have added more units of shares that gives out more in terms of dividend income. The cashflow is all we need in order to go through our daily lives.

The projected target is to reach the end year networth of $333,105 (Link Here). It is still somewhat a distance for now, but we'll never know what will happen to the market. With the last quarter of the year representing a strong month to finish off the dividend income, I might just be able to reach there if the market does not head south further.

In the meantime, enjoy the ride to the volatile market and perhaps we might see the bear pops out in a while more.

What about you? How has your portfolio been for August?







Wednesday, August 19, 2015

Pacing Your Buying Activities (2) & Start Actioning

Oh boy, the last time I wrote a piece on the issue of warchest (see here) and pacing your buying activities article (see here) was back earlier in the year in Mar and June respectively. Back then, the mood in the market was extremely buoyant and it appears that nothing could stop the market from trending up and higher each time.

The local STI index is still hovering at around 3,000 points, and we can immediately see the sourness turned mouldy bearish atmosphere in the market. If you have been approaching your buying activities with some margin of safety, you shouldn't be looking at a large paper loss at this point in time. Imagine what would happen if the STI plunge to 2,500 or 2,000 points. If you are already looking at a large paper loss at this point in time, then let this be a learning experience that your entry price have not considered the margin of safety required to withstand a down market.




What can be worse from here is the inability for you to take opportunity in this opportunistic time in the market due to the lack of warchest fund. I've spoken quite a bit on the topic of warchest in my previous article so I will not repeat that again. The truth is these warchest provides us with a valuable call option to strike whenever we think the market presents an opportune time to do so. Some investors may have utilized all their funds previously and are either awaiting for market to reverse up or let the market dictates your holding portfolio. It is true that you can wait 3 to 5 years for the dividends to get even on your buying price, but you certainly want to make some good returns during opportune times like this. If you have a lack of warchest fund, then you lose that moment to capitalize.

There are also some investors who are sitting on plenty of warchest and are afraid to deploy them now that the good times are over. My advice would be to spread them wisely. It is absolutely fine not to have catch the bottom of the shares you are eyeing on. Just make sure you have plans to average them out if the market turns more sourish. For example, you can average down on STE at $3, then next at $2.70, and then at $2.50. I've seen some investors averaging down at $3, then at $2.98, then at $2.95. If you are averaging down this way, you would have exhausted your funds very fast and you will be out of bullets very soon.

Most investors emerge as winners from the behavior they did during the down market and not during the up market. Consider your options, strategies and make the best out of our resources during these opportune times.


Tuesday, August 18, 2015

Recent Action - CapitaCommercial Trust

I recently added 8,000 shares of CapitaCommercial Trust (CCT) at a price of $1.33 into the portfolio.

This is on the back of a great recent fall from the high of $1.94 in recent times to the current low at $1.33. I was looking through closely and waiting for a comfortable price to get in and I thought the current share price offered reasonably good long term returns with a price to book value at 0.77 and a dividend yield at probably around 6.5%.






The office sector is undergoing some corrections right now with massive supply glut going to come in 2016. They are also more cyclical to the economy than any other reits we can find out there. This is probably the reason why buying an office reits require investors to consider margin of safety. Investors who bought near the peak would be waiting to lick their wounds for a prolong period of time.

The company has convertible bonds due in Sep 2017 at a price of $1.54 for it to be in-the-money. If converted, the existing gearing will go even lower than the current. Judging by the looks of it, it appears that the company is able to obtain the cheap financing loan from this one at 2.5%.

I also like the fact that the company is retaining a portion of its distributable income in their retained earnings, which could be distributed if they are suffering any setback to their distributional income in the future.

Investors though should also take note that most net capitalization for office property reits in Singapore stands at the lower of 4%, while the dividends offered are in the north of 6%. This means that there are some form of income support stabilization with regards to the property that are pushing its yield higher than what it looks like. For example, the income support for Twenty Anson will expire in Sep 2015, currently yielding a net capitalization of 5.5%, and when it expires, it will go back to the 4% net yield. If you don't like this type of thing, go instead for FCOT, where most of the capitalization rate is much higher for overseas properties.

There's something about the Grade A premium office properties that Capcom owns that makes them special. Because of that, investors usually have to pay a little bit of premium when considering these Reits. With the rest of the stake in CapitaGreen looking to be acquired sooner or later, we can ensure that the company's assets and WALE remains intact with longer lease.


Saturday, August 15, 2015

Dividend Income Updates - Bridging The Cashflow Dream

The time has come again when we as dividend income investors enjoy the fruit of our labor. This has become one of my favorite section as I am able to enjoy the dividend income received year after year at this very same time as the businesses I am vested in flourish. When they do, these companies return part of their earnings to shareholders in the form of dividends, a cycle that now goes on almost in auto-pilot mode and it keeps on piling up until you are no longer vested in the company or when the latter goes kaput.




The reason why I am doing these regular updates is to account for my own responsibility of what I had set to do from the beginning. The other intention is to provide for some kind of inspiration for any new investors that are having second thoughts on investing and whether these sorts of passive income is a tangible idea or not. All I can say is they have rewarded a lot more to me than anything I can ask for in my investing journey and the best part of it is they keep on getting better and better as we look back on the seed we've planted all these years in the past. Since we've just witnessed and celebrated the national jubilee celebration, I trust that most people can relate to the same.

Dividend income continues to play a big part in my overall strategy to move on from a corporate role into something I would like to embark on. It provides a very predictable cashflow that I can use them almost for any expenses I incurred such as utilities, phone bills, milk powder, etc. When these pots are huge enough that they are able to produce constant income that meets my defined criteria of the projected expenses, then I'll most probably be quite done and over with the money concept.

As the reporting season began to wind down, I've tabulated across the amount of dividend income I will be receiving this month. Some of them will span across and be paid early next month but that doesn't really matter too much to me. Without further ado, here are the breakdown:


CountersDividends (S$)
China Merchant Pacific1575.00
Vicom700.00
Kingsmen360.00
Stamford Land300.00
MTQ140.00
Total3,075.00


That's $3,075 of dividend income I will be receiving just about passively, without having to actively work for it. It could have been a lot more if not for the recent divestment of the Reits I owned previously but those capital are sitting nicely in my warchest pot, and they will be utilized at some point in time purposefully.

One of my goals for 2015 is to receive a dividend income of $18,000 for the year. Including the amount I've received previously during the year, the total amount of dividend income received is so far at $8,678 or 48% of the overall goal. It looks like I will not be making the goal successfully for this year but I reckon it'll come closer. The month of Nov and Dec will be a big one for me now.

Thanks for reading.

How was your month been for you? Does dividend income provides a buffer in this market volatility?



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