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Wednesday, December 31, 2014

OUE Ltd - Updates on Gemdale stake and Incheon consortium resort


There has been a couple of news coming out from OUE Ltd as we approach towards the year end.

The last article I blogged about was about the divestment of Crowne Plaza Changi Airport.


A couple of days ago, the management announced that they would acquire a stake in Gemdale Properties at an issue price of HK$0.52, which represents approximately 22.97% of the enlarged issued shares of Target Company. The issue price of HK$0.52 represents a discount of approximately 16.1% to the Target Company's net tangible asset value of HK$0.62 per share as of 30 Jun 2014.

The management cited the rationale for the proposed subscription to gain access and exposure to the real estate market in China through its shareholding in the Target Company as well as the opportunity to leverage on future potential collaborations and partnership.

Some of the investors are not that familiar with the acquired company, Gemdale Properties so maybe we can explore that a little bit.

Company Overview

Gemdale Properties is a company engaged in the property development, investment and management of residential and business park projects. The company has to date returned -44.2% from its peak of  HK$0.75. We will see this in more detail in a later stage.

Some of the major competitors in the same industry includes Y.T Realty Group Limited, Kong Shum Union Property Limited and 21 Holdings Limited.

Profitability Analysis

Gross Profit Margin for 2013 is much better as compared to the previous year due to different accounting standards adopted. However, during the 2nd Quarter of 2014, the company reported a loss of HK$0.01/share. Of all the product lines, Business Park had the highest operating profits leading the pact while the Property Development sector reported a loss equivalent to 241% of the sales.

Profitability Comparison

The company announced dividends of HK$0.01/share, which implied a dividend of around 2% at the current price of HK$0.50. It is no surprising that as a growth company, the payout ratio is at the lower end of the tail.

Book Value

If we take a look at the book value, they are currently trading at a discount, which is what OUE claims to be saying by taking a stake at HK$0.57. We know that the China residential market is similar to Singapore and they are mostly facing headwinds at the moment, so you can see why the stock price has been performing very badly this year. Obviously, OUE see this as an opportunity.

Book Value Comparison

Conclusion

As stated from the OUE management, the impact to this is likely to be small in the near term, though they see this as a further step to break into the Chinese market and taking advantage of it. The Riady family is good at engineering this sort of deals and latest news I hear they even managed to secure the deals to buy the Korean resort which OUE is going to own 40% of the purchase from Lippo.

News are certainly circulating fast but it remains a concern why the share price is not moving as fast as the news. I'll give this stock some more time to see what they are up to.

Sunday, December 28, 2014

My 2015 Goals & Objectives

A couple of days ago I've just posted a reflection of what I have went through in 2014. As we draw towards the end of 2014, a new year awaits us as we begin on a whole new journey. That means it's another round of objective setting as the goals we set give us a target to work on for the new year. I've been working hard to put some of these goals together to make sure that I don't keep myself too slack in the upcoming new year. I also made them very specific so that they are easily measurable rather than simply stating the general (For instance, improving better health conditions). Without further ado, these are my 2015 goals and objectives:


1.) Capital Injection of $36,000 and Networth of $333,105

I've blogged quite detailed on this not too long ago and you can view them here.

This is probably one of my biggest goal to work on as I began to scale down on my savings due to some family expenses. One other thing which I have not mentioned previously was that Mrs. B has tendered her resignation from her job to become a full-time housewife. She is currently serving her notice period and should be done by the middle of Jan next month. This decision was made ourselves in consensus to give little B a better focus in growing up as he ages older. What this means financially is things will get even tighter as we are one less income as a household.

The other thing I wanted to focus for this year was to track on what I can control. I used to track down my networth as my goals in the past but no longer so much the case from now on. While I would love to see my networth grow higher, I wouldn't put too much focus knowing that these are not within our control as they are very much dependent upon the market condition. What I would work hard on is to focus on the processes and savings rate that would enable my portfolio to do better over the long run, though I would reiterate again to myself that they would not be a walk in the park.


2.) Projected Dividend of $18,000/year ($1,500/month)

The projected dividend is based on a projected Networth figure of $333,105 and a dividend yield rate at about 5.4%. This should well be within the achievable range if everything goes according to plan. By having a dividend income of $18,000/year or $1,500/month, this should take off some of the burden in the expenses which is seemingly going to keep increasing.

I used to assign each dividend dollar to a specific job in the past, for example paying off the child medical expenses. This coming year, I am going a little aggressive by assigning them a role to be reinvested into the portfolio. In other words, on top of the $3,000 fund injection I am intending to make every month, I will be using part if not all the dividend income to be reinvested into the portfolio as well. However, if there are no good investment available at the time, I will put them into the warchest fund.

The dividend should also help in navigating my personal cashflow rotation so that the working capital remain active and healthy, if needed.


3.) Improving Personal Cashflow

This is going to be hard to track in numbers though qualitatively I have been wanting to improve on controlling my personal cashflow especially on a monthly basis. I've blogged about this issue here not too long ago and it is easy to lose track and control of our cashflow regardless of how much you are earning. More is less and less is more.

I think controlling my cashflow would directly relate to testing my patience, budgeting accuracy and dictating skills. On top of increasing the frequency of the cashflow, I plan to do this by specifically using last 2 months income to dictate my spending for both this and the next month income. This only means that should things go a little sidetrack, I would have at least the current month income to buffer for any unexpected increase in the expense.


4.) Writing more regularly and Blog content

One of the goals in 2015 is to keep writing with the same level of intensity as I did this year.

I expect to end the 2014 with a total of 124 posts which translates to about 12 posts on average a month. As always, the focus is on writing better content each year which will benefit the community as much as it benefits myself learning from the community. I strive to learn from both the new and seasoned investors or writers and I believe that there are always learning points to pick out from.

I doubt I will be able to do one better this year as I'm working on a personal project which I will described a little bit more later below. With time spent on the project, I will probably need to balance my time once again. We'll see if it works out at the end of next year.


5.) Reading at least 1 book a month

LP and Henry inspired me with this one.

I think through reading books, I am able to pick out many capabilities and learning points which are shared by the author. These are very important to me because investing is more than just a capital injection or buy low sell high kind of theory. There are a lot more behavioral aspect which is not evident to me at this point in time which I need to self-realize when the time comes.

With realistically more time on my side this year, I should be able to pick up more books this year than the last. My goal is to read at least 1 book a month and I will start this off by keeping the goal realistic. I shall finally update My Books Trending page more frequently!!!


6.) Eat less than 8 instant noodles in a year

This is going to sound a little insane but I am going to start tracking the number of cup or instant noodles I eat in a year with effect from 2015.

Many of you know that instant noodles have the addictive nature of ingredients which want to make you come for more. I have been a fan of instant noodles throughout my entire life and I know how damaging it can have to your body over the long term. By setting this as part of the goal, I will be putting my resistance skill to the test, on top of a healthier body over the long run.


7.) Personal Mystery Project

As mentioned above, I'm going to work on my personal project in 2015 which I hope is going to work out by the end of next year. It's really something I hope to be doing and I'm going to put the goal as one of my own next year to attempt it.

As with all projects, they usually have a name attached to it. I do not know what to call them yet currently so I'll call them a Personal Mystery Project (PMP) for now. I'll work out the details in the coming months and hopefully it'll be a successful one by the end of next year.



So that's the end of 2014. With 2015 looming, I hope everyone stays healthy, safe and vigilant towards everything you do in life. This will be my last post in 2014. I'll see you guys again in 2015 in a few days time ;)

Friday, December 26, 2014

"Dec 14" - SG Transactions & Portfolio Update"


 No.
 Counters
No. of Lots
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
FraserCenter Point Trust
30
1.92
57,600.00
21.0%
2.
SembCorp Ind
9
4.47
40,230.00
14.0%
3.
Vicom
6
6.39
38,340.00
14.0%
4.
China Merchant Pacific
40
0.98
39,200.00
14.0%
5.
Ascott Reit
15
1.26
18,900.00
7.0%
6.
Mapletree Greater China Commercial Trust
20
0.95
19,000.00
7.0%
7.
FraserCommercial Trust
11
1.43
15,730.00
6.0%
8.
Neratel
20
0.77
15,400.00
6.0%
9.
ST Engineering
4
3.41
13,640.00
5.0%
10.
OUE Ltd
5
2.03
10,150.00
4.0%
11.
Ascendas Hosp. Trust
7
0.67
  4,690.00
2.0%
12.
Stamford Land
10
0.54
  5,400.00
2.0%
13.
King Wan
5
0.30
  1,500.00
1.0%

Total SGD


279,780.00
 100.00%

This is a relatively quiet month as I've made my only purchase for King Wan for the month of December. You can review my previous post on the analysis of KW here.


The portfolio has decreased slightly from previous month of $280,820 to $279,780 this month mainly due to the drop in SCI as further pressure on oil prices remains. As it seems, I will end the year with a lower portfolio figure but I have no worries yet as I remain confident in the business in the long term.

The amount of annual dividend income as a result of this month's purchase is estimated to be at $14,528. This represents an average of 5.19% yield based on current market price.

I'm keeping some of the bonus as warchest for next year opportunity so I'll be keen to see where the market will move early next year. As always, Jan month is the best month indicator of how the market is going to perform overall so it'll be good to keep some cash for these opportunities.

This is it. The last portfolio update for the year and I am pretty satisfied of how things are going at the moment. Hopefully, it'll be an even better year next year as we probably will see good opportunities coming in.

I'm vested in the above 13 companies as of writing. How has your portfolio done in 2014?

Tuesday, December 23, 2014

Reflection of my 2014 Achievement and Failure Journey

As we approach the end of 2014, it seems legitimate to slow down and think through what we have gone through over the last 12 months. In fact, I have actually taken weeks to write this post and pen my thoughts down because there are so many learning points to reflect on which will be good for my own future reference. Of course, there are both achievements and failures along the way, which makes it rather balance and fair. This post itself will cover a range of incidents which has happened this year.




The Light is at the end of the tunnel

My last recorded equity networth currently stands at $280,820 as of Nov 14 (I'm still working on the final Dec 14 portfolio updates). You can view them here. The portfolio currently yields about $14,428/year which is a great achievement because this serves to provide me with additional income on top of my usual monthly salary.

Looking back at my investment journey 4 years ago, it seems an improbable task that reaching financial independence in only but a dream back then. I try to continue working hard for it as much as possible and every dollar that is aggressively saved has a role to play for acquiring companies that yield me passive income which will one day harvest the much awaited financial independence. For instance, I remember how I have to endure hours after hours of overtime work that allows me to purchase shares of OUE this year. Looking back, it was all worth the effort which will pay off one day.

4 years into the journey, I am getting closer each day to the finishing line. My goal is to keep focus on improving the processes despite the many “turbulences” along the way. Hopefully next year at this time I’ll be able to get even a step closer. In the meantime, it’s perseverance business and hard work as normal. No slacking.

Investing in growth and yield

Dividend investing has been a very popular strategy for investors over the past few years because of the low interest rate environment. I have too embarked on the very same strategy I advocate since I started my investing 4 years ago which have returned me well.

In 2014, I have gone a step better by focusing on companies with strong moats that yield decent return with potential growth opportunities. The key to this is to analyze companies that remains undervalued with strong balance sheet and earnings potential. They are not easy to find, but I have been trying to look deeper into the details and analyze companies more substantially. I am still learning just like many others so there will be mistakes along the way. I just need to learn from those mistakes to become a better investor.

Posts, Site Traffic and Ads Income

I've written more posts this year already (at 122 counting) and my site traffic has improved much as compared to last year. As always, I focus on writing good content than counting the post and I hope the community has learnt as much as I have learnt from the community.

It is also only this year that I have started to put some ads in my blog. They are generally from Nuffnang and Google Adsense and whilst the amount is paltry, they do generate quite a bit of income already. On average, I generally earned about $50-$60 a month based on the past 6 months data and I am just glad it's making progress. For this, I want to thank all the readers for the great support and deep appreciation.

Personal expenses are rising but for the right reason

Over the years, I have been saving up a huge chunk of my active income as a result of leading a single and relatively simple lifestyle myself. On an average month, I could save as much as 80% of my gross income. Combined this figure with the mandatory CPF saving (social security) I had to make, this figure could rise up as high as 90%. This aggressive savings have led me to purchase some great companies which has yielded me great returns so far.

This is a year I took on a different level of responsibility by becoming a father to my son which I have been yearning for years. Many people didn't know about this but I actually planned for my financials to be stable before having a kid. I think that's very important because as you can see, even with proper planning I do incur a lot of unexpected expenses which I have never thought previously. Life has been much more meaningful, though it is no coincidence that expenses have been rising fast as I expected it to be. As a result of this, my savings rate has generally declined to an average of 40% (adding CPF savings will be 50%). Definitely not the kind of savings rate I am used to saving but they are all for the right reason. No regret.

The Grass isn't always greener on the other side

Things are not all that rosy and there are failures along the way.

Some readers would know that I made a switch in the middle of the year to a company where I thought I could gain some industry knowledge and experience that would help in my investing. There wasn't a happy ending at the end as I went through a period of unhappiness in the role and decided to move back to my old role upon the request of my boss and have been there since. Even though I was only in that company for a short period of time, my learning curve was steep and I managed to pick up a lot of valuable learning points and knowledge which was not visible to me before hand. I do share some of them if you refer to my posts during the Sep/Oct period. The grass isn't always greener on the other side but they have been helpful nevertheless.

Better allocator of time and productivity

2014 was one of the busiest period in my life.

I have to juggle in between work, school, family (with kid) and blogging with the finite time I had. The transition from a single to multi-tasking so many things at the same time was overwhelming. I had to admit that giving up halfway was an option as I made ridiculous appeal to myself many times that this will all be over one day. I thank the support from my family and employer for allowing me to go through this busy period.

I wrote about my experience dealing with multi-tasking quite a bit recently. From this experience, I had become a better allocator of time as I do things swiftly with higher productivity. With finite time not on your side, there is hardly little time to waste.

Interacting and Meeting with fellow bloggers

I've known many of the fellow local financial bloggers through active interaction via blogs, chats and comments. And I have personally met a few of them on site. The finance community is small in Singapore, so it's good to be able to know their character and personalities in close detail. Many of us shared the same vision and objective, so there are many common topics that we talked about. There are plenty of learning points that I have learnt daily from the experience of these bloggers themselves.

It is also enlightening to see that we have many new blog entries into our finance community this year, some of whom are as young as 20 years old. They reminded me of myself when I started blogging 4 years ago, going into the unknown territory and learning from the peers. I hope they are able to persevere and continue to contribute to the learning of the community which would benefit all of us.

Last but not least, there's a couple of one-off incident and tension in our local finance community which I hope will not happen again. I think everyone is entitled to their own opinions and it will be good to show reciprocate courtesy to one another to benefit the overall experience we already had.

So this is it!!! It is now counting days to the end of 2014 and we are abound to start 2015 pretty soon. I am currently working on some of the 2015 goals and will be updating them shortly in the blog. For this, I wish everyone a successful 2014, Merry Xmas and looking forward to a better 2015.

What about you? How has your experience in 2014 been?



Monday, December 22, 2014

Recent Action - King Wan

I know we are a few days away from ending this fabulous year and everyone is already busy reflecting how they have spent this year and setting goals for the upcoming 2015. I am working on that as well so this most likely be my final action for 2014.

I initiated a new position by purchasing 5 lots of King Wan at a price of $0.295. This is a counter which I have been monitoring for months and I decided to take a small long position given the availability of a good company at a fairly fair price based on my analysis below. The post will be rather long so more on it will be explained below.

The big news over the past 12 months have been the listing of KTIS shares in Thailand SET which made King Wan $45.4 million richer through the share holdings it has with the company. Since the news was announced, shares of King Wan has shot up from $0.26 to $0.34 in April and even went as high as $0.36 once in July. The shares has since retreated downwards by around 20% to about $0.30 and I think it's fair to give this counter a chance for a review.

Business Overview

King Wan Corporation Limited has been one of the more famous Singaporean based company listed which needs no further introduction to investors. The company is operating within the 4 main business segments - M&E, Property Development, Rental Services and Vessel Chartering. If you need further information on the business segments it operates, you may refer to their website here.






The Financial Numbers

If we take a look at the past 5 years performance, we can see that profitability has not been consistent and rather lumpy throughout the years. This is not surprising given the nature of the project business they are operating under especially for the M&E and Property development segments. Moreover, King Wan's management has been well known for their track record in investing and divesting its shares in the associates if they feel it would increase shareholder's value for King Wan.

For example, in 2011, EPS rose to one of the highest due to stable increasing contracts from the M&E business and higher contributions from its associates, which includes a one-off disposal of Cables International Pte Ltd which increased the Group profits by $4.3 million. For the 1H2015, EPS increased to 7.63 cent due to the recognition of a one-time net gain from the completion of divestment of the two Thai associates. Because of this, this has made profitability year on year rather inconsistent.




Interestingly, King Wan has been rather conservative in giving out dividends during 2010 to 2012 when their EPS reached a high of 4+ cents during the years. Because of the unlocking of the assets and earnings retained during those period, the price to book value of the company has increased consistently year on year. We will touch again on this when we look at the balance sheet at a later stage. Over the last 2 years however, the company looks to struggle keeping their EPS at above 2 cents due to the lack of the one-off divestment. This is further exacerbated by the slowdown in the Property Development segment which see little gain contribution to the bottomline. The company's core business in M&E remained the core pillar after having secured contracts for both residential and commercial development. With price increasing faster than the increase in EPS, the company had struggled to pay out dividends and last year the payout ratio had to go beyond the required availability.

Next, we take a look at the extended Dupont Return on Equity where it is broken down into 3 levers (Profitability, Operating Efficiency and Financial Leverage). This metric packaged the different financial ratios into one and is one of the most important metrics I always use in my analysis.




Profitability - This is taken by taking the net profit over sales. As mentioned above, the profitability is rather inconsistent year on year given the one-off divestment in the specific years such as 2011 and 2015.

Operating Efficiency - This is taken by dividing sales over assets and measures the efficiency of an asset in generating its revenue. You can see that the company is rather poor in this efficiency metric because their customer is project based, which means that revenue recognition will only be made based on percentage of completion method. The recent receipt of KTIS shares as balance payment also increases the total assets figure.

Financial Leverage - As the amount of total assets and equity increase, the company has been taking on further borrowings as you can see from the increased equity multiplier ratio over the years. Some of these money are used for investment in associates while some were being used to pay off the dividends to shareholders. Something definitely to worth taking note of.

The ROE has been dropping over the last 2 years visibly because of the lack of one-off divestment of its business. As investors, the concern would be whether the core business is able to sustain the profitability of the company without further leveraging and divestment of its business. Let's take a look at how these business segments contribute to the earnings.


M&E

The M&E segment is the company's bread and butter of its core business. Within the segment itself, the company is involved in the field of design and installation of electrical, plumbing, air-conditioning, fire protection and alarm system for both residential and commercial developments.

The company has won a couple of new M&E contracts this year, including installation for workers dormitory, with order books now at $184.6 million and contracts lasting until 2017. These provide clear earnings visibility for the M&E segments of the business until at least 2017.

If we take a closer look at how much this segment is actually contributing to the earnings over the past few years, we see that they have ranged at about 12-20 cents/share. With new contracts lined up until 2017, we know that this segment will contribute at least $7M to the bottomline over the next few years which translates into about 2 cents/share. At current market price of $0.30, this translate into a PER of 15x just for the M&E segment. This should be the bare minimum investors are ready to pay.

M&E Segment

Investment Holding

This portion of the segment is divided into 3 types of businesses: Property Development, Vessel Chartering and Operation of Worker's Dormitory.

1.) Property Development

In Singapore, the Group's investment in property developments are spearheaded by Meadows Bright Development Pte Ltd via 40% stake in the associate company. One of the projects currently at construction is The Skywoods which will be completed by 2016. To date, the company has sold 179 out of the 420 units and it is evident that the property market condition we are currently in is not at all bullish. The breakeven price for the development is at around S$1,100/psf and current market price is selling very near to the breakeven price. We will see if the soft market will result in a loss for this segment.



The Skywoods is a residential development which is located at the lush greenery of Dairy Farm Estate.

Developer: Bukit Timah Green Development Pte Ltd
Address: Dairy Farm Road
District: 23
TOP: 2016
Tenure: 99 Years
Total units: 420 Mixed Units
Units sold (Dec 14 YTD): 177 (42.6%)
Units unsold (Dec 14 YTD): 243 (57.4%)
Source: URA
Highest Price: $1,344/psf
Lowest Price: $1,152/psf
Median Price: $1,302/psf

In China, the company owns a 36.6% stake in Dalian Shicheng which is currently developing both residential and commercial use while in Thailand, the company has also 35% stake through its associates.

2.) Vessel Chartering

The company has bought its first vessel bulk carrier named "Hai Jin" in 2013 which is designed to carry dry bulk commodities. The investment was made through an investment associate, which the company has a 30% stake in.


It may feel somewhat weird to have the company venturing into a totally different business but Managing Director Ms. Chua Eng Eng has mentioned in her interview that it was an opportune time during a selldown that the vessels were selling at a good price for such market specifications and equipment. The seller has actually some cashflow issues which require them to sell the vessels at a discount from US$25M to US$21M. The vessels have since been chartered to a 3rd party. Source Here

There isn't any indication how much this actually contributes to the bottomline but I would think it's not significant.

3.) Worker's Dormitory

This year, the company has entered into the growth sector of worker's dormitory operations via a 19% stake in the consortium which will be involved in the design, development and operations of one of the largest worker's dormitory projects in Singapore. This is a good growth sector as we see increasing worker's demand over accommodation needs and future projects might be awarded similarly to the company. As owner operator, KW is expected to draw revenue from this segment over the next 20 years. This will help to diversify the company's earnings who is primarily dependent on their M&E business.

KTIS

As a result of divest­ing its 20% shares in both Envi­ron­ment Pulp and Paper Com­pany Limited (EPPCO) and Ekarat Pat­tana Company Lim­ited (EPC) on 25 April 2012, King Wan received THB 1,224 bil­lion (approximately S$50.2m), of which 5% in cash and the rest in listed Kaset Thai Inter­na­tional Sugar Corporation Pub­lic Com­pany Limited (KTIS) shares. Based on the SPA agreement signed in 2012, the Group holds approx­i­mately 3.01% (116,318,000) of KTIS issued com­mon shares after the IPO, which is worth approx­i­mately S$45.4m when it was listed on the Stock Exchange of Thai­land (SET) on 28 April 2014. The net prof­its accru­ing from the com­ple­tion of the SPA is approx­i­mately S$24 million. 

Since then, the company has been selling down its holdings in KTIS, albeit only minor. For example, in the latest Q2 results, the company has sold $126,750 worth of KTIS shares. Taking an exchange rate of SGD1 : THB 25, this translates into 44,800 shares ($126,750 / 25 / 11.3) less.

KTIS Financial Snapshot FY2014

Taking the recent LTM annualized EPS of THB 0.47 and an announced payout ratio of 69.5%, this translates into a dividend of THB 0.30 / share. Since KW owns about 3% of the stake in KTIS, this translates into a dividend of about THB 0.09 cents/share or SGD 0.0036/share. Certainly not a bad deal overall, but not a deal breaker.

KTIS Financial Results FY2012 - FY2014

Conclusion

Based on the above analysis, I am expecting at least $0.02 + $0.0036 = $0.0236 cents/share for EPS over the next few years assuming no contributions from its investment holding which comprises of Property, Vessels and Worker's Dormitory. This is rather conservative knowing that there would be some form of earnings contributions especially if the property sectors managed to bounce back and the operations for the dormitory commences in 2017. To make it even a step conservative, I have discounted the estimated EPS by another 10% to allow room for any error. The final estimated EPS came up to about $0.0212.


At current market price of $0.295/share, this translates into a PER of 13.7x which is slightly higher with their long term average of 8.4x. Heck, the book value is increasing and at $0.34, we know how we can only view them from an eagle angle. Do note also that the KTIS is held as an investment holding so they are being marked to market value and this may affect the earnings and NAV. Other risks may also avail in the form of lower projects, higher tightening labor costs and competition and loans it made to its associates. These are things that needs to be considered.

I initiated a very small position in the counter, so it will be interesting to see its progress over the next few months where it develops. At least for this financial year, I would be expecting a final dividend of 2 cents (in addition to the 0.7 interim announced), giving a yield of almost 9%. Maybe not so bad after all.

I will update my Recent Transactions and My Portfolio shortly.

Thursday, December 18, 2014

Is my MBA worth it?

I have just completed my MBA degree at a local institution which has lasted for 18 months and I thought I could share my experience with the program for the benefit of those who are interested to get one.
 
To begin with, there are always two sides of a coin. While there are people who are pro doing it, there are people who are against it on the other side. In this post, I will try to balance both views from my experience with the program.
 


 
My Experience
 
I started off applying for the program much younger during the days. I was 26 when I submitted my applications along with my GMAT score and was contemplating choosing between taking an overseas or local degree and the opportunity costs for each of the program. At the end, I decided on a local institution which allows me to complete the course on a part-time basis and they are located near the town area so I can commute easily after work. Even then, I postponed the admission until a year later due to marriage and job change factor during that year.
 
Midway through the course, I was juggling between work, school, family (with a kid) and blogging at the same time. There were some really busy times when I thought I would have given up but I did not. As a result of these grinding experience, I have become a much better allocator of time where I had to do things very productively with little time to waste. Until today, I still bring this to apply to my everyday life.
 
There are different set of objectives for the people who chose to do their MBA program. Some wanted to change career while others wanted to land an investment banking or consultant role or simply a higher paying job. For me, I wanted to improve on my self-efficacy throughout the program so I could be a better person myself. My objective was clear throughout the program so I just had to focus on it.
 
Thinking back, I have no doubt that taking the course have led me to become a more complete person. For instance, on soft skills, I had become more outspoken and confident giving presentations to the upper management which was not the case prior to the program. The fact that every single module in an MBA class requires at least one project presentation helped to mitigate the fear and get used to it. In terms of the hard skills, I started to look and analyze things on a deeper level and from a different angle, something which was not too apparent to me previously. Also, I learnt that for every decision I made had to be supported with justifications which in some way helped me in my investing because I no longer had to depend on gut feels.
 
Is the $69K MBA worth it?
 
However, to make the argument more logically balanced especially for those who are interested to get one, the MBA is not all rosy as what the media or internet suggested.
 
One of the biggest opportunity costs for taking the MBA is the tuition fees which does not come cheap. I paid $69K for the program over 3 instalments during the 18 month span and $69K can buy you many things, including knowledge. There are also people who will argue that you can learn the course online on your own. Through experience, I affirm that is a true statement. However, what you will miss is the interaction with fellow classmates and professors who will give you different inputs based on the same objective. You probably will also need to be really determined to learn things by yourself and not lose focus along the way. For me, the program was sort of acting as an enforcement to ensure that I adhere to all these commitments without losing focus to the external noises.
 
There are readers who have asked me previously whether the huge tuition fees is worth going for. To me, there are certain financial efficacies in life that should be prioritized first. Basic needs and emergency funds are one of those that I would place a greater focus above anything else. Once these financial issues are sorted out, only can we think about whether the tuition fees are worth going for.
 
There are also some people who think that the MBA is a gateway ticket to higher paying jobs. While to some extent that is true, many will be disappointed if the sole focus is on achieving a high paying dream job.
 
Overall, the MBA is a great program. Taking the MBA is akin to investing in growth companies with potential growth catalysts incorporated into the high target prices set by analyst. It will be up to us to ensure that our own intrinsic value match the expectations at the end of the day. Now, whether or not they are worth going for will depend on your needs, goals and financial situation in your life. Are you game?

Saturday, December 13, 2014

Revisiting Projection Target for 2015

I've been wanting to revisit my projection target for some time now but fails to do it everytime I said it to myself. Some readers have also asked regarding how I came up with my projection target so I thought this would be a good time to explain them.




When I set my projection target back then in 2011, I was leading a single life with an aggressive mode of savings plan with very little mandatory expenses to care for. Saving money was very simple back then. If I feel I wanted an extra challenge to save more money for the week, I'll settle for hawker food all week long and stay out of the malls for the weekends. I am an introvert by nature so staying weekends to play either Football Manager or watching drama would make me very satisfied. Those who played the game or has a habit of watching drama would know what I am talking about. They are addictive in nature so time would pass by extremely quickly. On good times, I could save up to around 90% of my pay. On average, they are usually in between 80% to 85%.

Given the situation back then, I made a very stretched projection target for myself to retire (or semi-retire) from the corporate office by 2020, accumulating $1,414,705.83 in the process and yielding passive income enough to pay for my household expenses. This was done by injecting $60,000/year or $5,000/month and yielding a dividend rate of 6% reinvested into the portfolio. I took out all the other assumptions such as bull or bear scenario because it is something I cannot predict anyway.

Projection Target (Original)
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


Dividend yield of 6% per annum was somewhat the baseline target I would like to achieve at the end of the day. Of course, judging by my current portfolio, it is yielding at around 5.14% right now so it's not a major problem I would foresee going into the future.

Capital injection of $60,000/year or $5,000/month is the key to the acceleration and this pose a bigger problem going into the future. I was drawing around gross at $5,000/month back in 2012 (I only received started contributing to CPF in 2013 after my SPR application was approved) so the amount of capital injection projected was based on 100% savings rate to target for. Of course, there is still the allowances, 13th month and performance bonus which I did not include that played a part as well but the idea of injecting the full $5,000/month was stretched. I was pretty sure that this was not going to be sustainable but I keep it as it is until today.

Getting a higher education, married life and a kid change the whole perspective of my financial set up today. I am drawing a higher salary compared to back then but the expenses have gone faster than the increase in income. I have also since started my contribution to the CPF since 2013 so the net salary I am taking home has very much been reduced. I am no longer able to save in the high end of the bracket like I used to in the past. These days, I am usually looking at the 50% rate as a personal target. Anything above that, I would consider the month to be extremely successful.

With that in mind, I will be doing a revised projection target by using a rolling forecast method to incorporate my short term target. Since I am using the rolling forecast methodology, I will be revisiting them regularly to see where I stand at certain situations and make changes to them more regularly. The advantage of doing this is I can incorporate changes whenever there are a bull or bear case scenario that are not within our control.

The changes I would make to this is to the capital injection which I have revised from $60,000/year to $36,000/year ($3,000/month). The current starting capital and dividend yield rate would remain as what I currently have in my portfolio. Even though there might be a chance that I will miss out on my 2020 target or possibly face a bear case scenario in the market, I think it's much more realistic to project a short term target this way.

Short-term Projection Target (Rolling Forecast Method)
YearYearStarting CapitalCumulative Annual Capital Injection Dividends on Starting CapitalTotal Yearly Dividend PayoutMonthly Passive Income
31/1/2015$280,820.00*$36,000.00$14,434.00$16,285.00$1,357.00
41/1/2016$333,105.00----






*Based on market value as at Nov 14 portfolio update

I'll be updating my About Me page in a while to incorporate these changes and provide a more realistic and sustainable way of tracking them.

What do you think of the idea? How would you plan for your short term target?Interested to know on some of the other methodology other people are using.


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