Monday, April 15, 2013

A Story of two hypothetical Starhub Investors

John and Sam are twin brothers who had the same habit of savings when they were young.
 
 
 
Both of them had always been interested in investing and so they looked around the stock market and they tried to purchase a stock that has the greatest probability of producing the highest underlying profits, without any major sell off risk 10-20 years from now.
 
The two brothers decided to purchase Starhub at different times of the year in 2008. John gets the lowest price possible while Sam gets the highest price possible during the year. John bought Starhub on 8 Dec 2008 at S$1.76/lot while Sam bought Starhub on 14 Apr 2008 at S$3.10/lot.
 
John invested S$100,000 of his life savings and managed to purchase 57 lots (rounded to the nearest) of Starhub while Sam who invested the same amount managed to get 33 lots (rounded to the nearest). Over the subsequent years, they managed to reap the benefit of dividend investing and both brothers managed to receive the steady dividend returns from Starhub.
 
Fast forward to 15 April 2013, John who managed to purchase the stock at the lower price, managed to receive S$48,450 worth of dividends and a capital gain of S$151,050. Sam, on the other hand, managed to receive S$33,000 worth of dividends and a capital gain of S$43,230.
 
The only reason why John collected S$15,450 worth of extra cash dividends and extra capital gain of S$107,820 is because he paid the stock at S$1.76/lot while Sam paid more at S$3.10/lot. John is able to use the extra receipts of these income to buy gifts, spend on vacations or simply reinvesting the dividends into his portfolio. The longer the time period that passed, and the better the business did, the larger this differential became in absolute dollars.
 
Note that the two brothers owned the exact same business, the same rights, the same management and the same brand. The only difference is that each paid a different price for their ownership stake.
 
With markets fairly priced in now, ask yourself... Would you rather be John or Sam?

7 comments:

  1. so you are saying we should sell now?

    ReplyDelete
    Replies
    1. Buying and selling is always relative to the stock's valuation and people's emotion.

      Even Sam who is buying at the higher price is reaping good returns now, albeit lower of course.

      Delete
  2. Replies
    1. I love Pillow stock.

      It neither gives me excited enough or worried enough.

      Delete
  3. Dont forget david who did not even buy any starhub at 3.10.... he currently still has $100,000 including interest from his FD.

    ReplyDelete
    Replies
    1. Precisely.

      Note that I don't mention Sam, who bought at a higher price, is not doing well.

      In fact, he still reaps benefit at a much higher return than many people.

      Delete
  4. The lesson learned is to buy good stocks during crisis. Only then can you get more value from your investment.

    ReplyDelete

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