Monday, July 30, 2018

Far East Hospitality Trust - Q2 FY18 Results & Thoughts

Far East Hospitality Trust (FEHT) announced their Q2 FY18 results which was very much under expectations as we saw topline increases 10.2% year on year and DPU increases by 4.1%.

The results is in line with my expectations when I blogged about them about 3 months ago which you can find here.

If you have attended my recent talk in the Investors Exchange, you would also notice that this is an example of the 6+4 = 10% strategy type, where 6% is their current yield and 4% is their inorganic + organic growth potential.



In terms of the portfolio performance, hotels segment outperformed as we see a rebound of the Revpar, which is a function of the ADR multiplied by the Occupancy rate, both increases to a strong 6.9% year on year from $134 to $143. Given the recent hotel segment results from OUEHT and FHT, I am rather worried if we'll see a rebound happening in this quarter as their Revpar results have flattened but it proves otherwise for FEHT.

Unfortunately, the service residences segment continue to disappoint as we see Revpar dropped 4.5% from $177 to $168 as corporate demand continued to be sluggish. I'm pretty sure we haven't seen the bottom yet so we might see more drop in this segment over the next few quarters.

There is also new contribution in the Q2 portfolio as Oasia Downtown contributed positively to the performance with a pro-forma 4% higher to the NPI so that's the inorganic growth I was talking about.

All in all, pretty decent performance.

If we annualized the DPU, we'll get a 6% yield based on 1.01 cents x 4 which was still very low to me given their hospitality nature so we'll have to see if the organic growth can come back strongly over the next few quarters otherwise their high gearing would limit their growth in terms of M&A opportunity.

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What Should Your Networth Be At 20s, 30s, 40s, 50s, 60s

This is something that I think a lot of people are benchmarking their networth to.

Often, I receive email asking if they’ve done good enough by accumulating $X at the age of Y. To be honest, any answer you may get is going to be arbitrary at best because every single permutations depend on many mutual factors that are very relative.

What Constitutes Networth?




Networth, by its own definition, is very personal.

To me, in the local context, networth should consists of all liquid funds including cash, bonds, stocks and gold and also includes retirement social security such as cpf and any endowment plan that have yet to mature.

I have excluded property used for own stay for both the equity and liability portion because I believe the value portion of the asset will always be more than the liability, hence making it positive in the event of a liquidation. Also it is likely that owning a house will be factored in as survival asset because everyone needs a roof over their head to live, unless one is subscribing to the rental model asset light strategy.

What Should Your Networth Be At 20s

Your main goal in the 20s is to get your networth up to a positive number as fast as possible.

At your 20s, your networth is likely at the mercy of your current state of war and fiscal responsibility and the big dark horse determinant is how much your parents contributions add to your circumstances.

For example, if you are lucky enough to have parents that help fund your university, you are likely to start your adult year on a positive note given your student loans are non-existence.

There are also some who started working as soon as they finish their polytechnic and started to contribute positively to their networth at an earlier stage as compared to those who only completed their studies at the age of 25. There are some who also earns a higher salary by having a fast track route to career ladder than the others.

Usually, at this age, this is accompanied by a lot of massive other bombs such as getting married, a new home, renovation loan, car loans, dog loans etc.

Hence, to be able to end your 20s with a positive number is so far a good enough redemption.

What Should Your Networth Be At 30s

Your 30s is where you really want to speed things up.

There will be many financially demanding decisions you have to make, in particular if you decide to start a family but this is usually the stage where you just finished your 20s on a strong note, enjoy greater job security, command a higher salary and physically at the peak of your life.

Everyone at this stage should be cruising along the best decades of your life and the only thing that could sabotage the result is through your very own aspirational reckless spending.

In my opinion, this is where you ramp up your production of higher income, higher saving, lower reckless spending and higher investment return.

At the end of your 30s, you should have minimally a range of between $100k to $250k in your networth.

What Should Your Networth Be At 40s

At your 40s, this is where things start to slow down a little bit because you just had a fully driven F1 race at your 30s and your health starts to decline because you cannot "chiong" as hard as you were in your 30s.

If you have a family, your children would be at a stage where they are getting to be independent so a lot less worry on that part.

If you are lucky enough, you'd probably start thinking of your longer term future retirement plans and what and how should you transition from a phase of rising dragon to a phase of falling tiger.

At the end of your 40s, you should have generated a networth range of between $300k to $450k minimally.

What Should Your Networth Be At 50s, 60s

Ideally, at this age range, it would be nice to have the options of whether to retire or continue to work leisurely in a workplace where they called their second home.

This should be a moment of treasuring relationship more than anything else because everything else in life is arbitrary when you've seen everything out there.

You should be completely free of debt by this stage and start to drawdown on the networth you've been accumulating all these years with your hard work.

At the end of your 50s, 60s, your networth should be north of $500k and enough to last you a lifetime of drawdown expenses.

What Is Required From You?

It seems a hell lot of daunting task for beginners out there to see an amount worth of 6 digits but all it takes is really some simple basic savings technique, an amateur investment skills and a lot of determination.

All you need to do at the age of 25 is to put aside $500/month into an investment that yields you a rate of return of 5% and slowly increase the capital injection gradually as your income increases over the years. We keep doing this until we reach the age of 50 and that's where it gets optional on whether you'd still like to inject more funds or leave your investments run on auto mode.


AgeAnnual ContributionRate of ReturnNet Worth
2560005%6,300
2660005%12,915
2760005%19,861
2860005%27,154
2960005%34,811
30120005%49,152
31120005%64,210
32120005%80,020
33120005%96,621
34120005%114,052
35120005%132,355
36120005%151,573
37120005%171,751
38120005%192,939
39120005%215,186
40120005%238,545
41120005%263,072
42120005%288,826
43120005%315,867
44120005%344,260
45120005%374,073
46120005%405,377
47120005%438,246
48120005%472,758
49120005%508,996
5005%534,446
5105%561,168
5205%589,227
5305%618,688
5405%649,623
5505%682,104
5605%716,209
5705%752,019
5805%789,620
5905%829,101
6005%870,556

Depending on how much you need as a household, you can then play around with the amount at your leisure but with the same ratio that your household needs.

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Friday, July 27, 2018

Some Updates So Far

I just wanted to document a few updates so far that are happening right now.

I tendered my resignation from my current company which I’ve been working for 6 years now to take on a new role outside the Group. The decision has not been easy to make mostly due to the great knit connection I have with some of the people there. Over the years, we’ve been bonded and through a lot and many of our lives activities surround the same group of people that I spent much time with.

Still, I thought if there was a day I would leave my current organization it would be during this period. Obviously, there are certain things that I cannot say too much here but I think the time is ripe. Apart from the social companion, there’s nothing else in the company that would allow me to progress further.



Am I Retiring Yet?

I played some naughty thoughts in my mind and was contemplating close on this but there’s two years more to go since the very first day I started this whole FI objective thing and I wanted to close in on that promise.

I left to join another corporation which is one of the biggest company in Singapore by market cap which I think would expand my horizon further. Being in this new industry, I think it’ll also help in my investment checklist in the future learning more on this industry which is a very important one.

I'm pretty sure though that this will be the last leg towards my drive to corporate working. A few years from now will see me either going downhill or scaling down to freelance or part time work because age is also catching up and I want to make the best of my time.

What Does It Mean For This Blog?

For a start, I’ll be extremely busy for the first 3 months since it’s quarterly reporting season and also budgeting season so I probably will stop writing for a while to focus on my new role.

There might also be some regulatory restriction on writing my personal opinion on company prospecting so this is something I will also have to clarify with my new employer.

One thing that’s almost sure is I will definitely almost scale down on my public appearance with this new role until I get the above approval sorted out but it won’t be fast. First thing first, I think i will need time to settle down in the new company.

What Happen To My Investment?

It’ll be a lot more passive now than ever.

I am still not a big fan of investing in index so it’ll continue to be a combination of equities and reits and the strategy employed will continue to be dividend investing.

My portfolio doesn’t have a lot of companies so it’ll be easy to follow their development with just a few companies which I am already rather familiar with.

I am still cautiously optimistic the portfolio will reach its objective by the end of this year so pillow stocks pillow strategy remains.

That’s about the updates I have right now so meanwhile happy weekend ahead!


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Thursday, July 19, 2018

Wheelock Privatization Shows Why Deep Value Investing Is So Difficult To Execute For Perfection

After a few days of trading halt, there's finally news that Wheelock Properties will be privatized.

Wheelock Properties have been a deep value asset play for a very long time especially for investors who buy based on the premise of a net cash position, their relative valuation to the one listed in HK and waiting for a privatization offer.

The Offer Price values the company at $2.10 per share, which represents a premium of over 20.7% over the last transacted price of $1.74 per share on the 13th Jul.

While this seems like a no-brainer win for most people, one has to look over their real long term return over the last 10 years after recovery from the GFC.



In fact, if we look at the offer price of $2.10, that actually only presents 0.78x of the Price-to-NAV which is way lower than the intrinsic value of the company itself.

Of course, the company tried to present it nicely by relating them to the historical Price-to-NAV trading multiples which is typically between 0.65x to 0.71x but that doesn't change the fact that as minority shareholders, you are being disadvantaged when it comes to takeover play.

If we compute the long term return for Wheelock for the past 10 years since the recovery from the GFC, your return today inclusive of dividend would be only around 4.35%. That is not attractive at all in my opinion and even that, a large percentage of that is due to dividends that they pay out (~3.2%).



We can see similar pattern in the past on privatization cases which most of the offer price are lower than their intrinsic value.

Singapore Land is one particularly the case that I recall which caused quite a bit of news in the market due to their "low" offer - only 11.2% premium to the last traded price but way below their intrinsic value to the NAV.

This usually happens when there are stronghold ownership (e.g family owned) who already owns majority of the shareholding.

Does Deep Value Investing Works For You?

In this particular case, the deep value investing clearly lies in the assets they owned.

When you pay 50 cents for a dollar worth, people tend to call it deep value investing and downside risk is more protected.

But over the long term, it may not necessarily play out well based on different circumstances and to simply buy based on their discount to the assets (even if it is tangible assets) can be detrimental to your portfolio.

It is almost you are market timing when these assets will get fully valued and most of the times it might not be the case from the example we see above.

Some of these returns over the long run can be very poor and you are better off putting your money in a Singapore Savings Bond. After all, the idea to having invested in equity is to get that risk premium over a risk free investment and that clearly doesn't play out in this case.

Deep Value Investing can of course take in other forms too besides assets such as the free cash flow and other things, but again, for as long as the company does not use it for either dividends or growing the company, then as investors we are at risk we will be screwed the longer "no one knows when that" day is.

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Tuesday, July 17, 2018

Getting Superior Returns From The Only Two Companies Thanos Has Yet To Destroy

Let's assume a scenario where Thanos uses his infinity stones to destroy all the universe but two companies remain.

These are companies that remain in sgx listed where one company possess the best growth character in terms of large cap and another company that has the best defensive character.

The two remaining companies in the universe are DBS and Vicom respectively.




Why Choose DBS?

The reason why we choose DBS is because they're a beast. In short, they're our proxy for growth.

DBS is a player that shines in the face of strong economic growth.

In the face of strong economy, they prosper based on increasing SIBOR rates, NIM and loan credit.

They have diverse businesses local and overseas in different multiple geographical areas which reported very strong growth numbers over the years.




Their earnings yield have consistently gone beyond 10% yield and their return on equity have averaged at about 10.5% for the last 10 years. They also gave out dividends of about 4-5% which is decent for such a strong growth play.

Their only problem is they are always expensively valued and will be impacted a lot more than other stocks during the downturn. 

The GFC in 2008, Euro Crisis in 2011, China debt in 2014, Oil Crisis in 2015 all proved that as a case.

Why Choose Vicom?

The reason why we choose Vicom is because they are a defensive player.

Vicom has monopoly moats that owns 7 out of the 9 inspection center in Singapore. 

They also have businesses in other areas that are contributing one-third of their bottomline which is undisclosed.



Vicom is chosen because cash is such a poor generator of returns that over time it will drag our returns unless they are being utilized optimally.

While Vicom has their own risk being an equity in nature, their 6% unlevered yield from their free cash flow makes up much of the rewards in return.

Rebalancing Action

I'll have to make this real simple so that a 9 year old kid or 70 year old grandmother can understand and execute the strategy.

For the purpose of diversification, let's assume we have to hold these two companies regardless of any situation and we only play around in the percentage allocation between the two. 

My example would have only binary decision: 80 - 20 or 20- 80.

There's no other permutation that are allowed because my grandmother demands simple solution or she would be giddy.

The only key criteria that would require a rebalancing act is when the Price to Book value of DBS falls above or below -1SD their 10 years rolling mean within their P/BV band.

What this means is assuming the 10-year rolling mean in 1.29x, then you should you should allocate 80-20 in favor of DBS whenever the current P/BV is below -1SD the average mean and you should permutate switch to 20-80 in favor of Vicom whenever the current P/BV above 1.29x.

If we follow this rule, this means we will allocate ourselves 80-20 in favor of DBS in the cusp on the Great Financial Crisis in 2008 (Sep 2008), the Euro Crisis in 2011 (Nov 2011), the Oil Crisis in 2016 (May 2016) and everything else we would be holding on to the other scenario.

For example, today the current valuation for DBS is 1.40x, which means you should technically switch already to 80-20 in favor of Vicom.

Sure, this idea means you would never catch the bottom neither can you catch the top, but that's where your defensive company play a big part that your cash cannot.




Limitations

Of course there are limitations with this approach.

One limitation is that the figure for the last 10 years is always rolling, so that would be a moving target on its own. I guess it's up to individual preference on the valuations to see which cut-off makes the best sense.

Another limitation is that in the face of economic downturn, Vicom as a defensive company would also be impacted given the equity nature of the company. However, the advantage over cash is it gives out a higher yield and also participates some levels of growth during the good times.

Returns

My test only includes the data from the 1 Jan 2008 to 30 Jun 2018.

The only time the rebalancing act takes place is during:

  • GFC in 2008 (Sep 2008), Euro Crisis in 2011 (Nov 2011), Oil Crisis in 2016 (May 2016), where the allocation of 80-20 would be in favor of DBS; and
  • Recovery from GFC in 2010 (Feb 2010), Increased Rates in 2017 (Nov 2017), where the allocation of 80-20 would be in favor of Vicom.
Everything else is a status quo hold during the period in between before the rebalancing.

Surprise.... Surprise...

The returns over the last 10 years (inclusive of dividends) spike to 29.67% per annum which beats the standard comparison of the STI ETF which yields around 6.7% returns over the same period.

Final Thoughts

I'm only half joking when I say earlier that Thanos destroys all but left with these 2 companies.

I am seriously looking into the aspect of this strategy but with further smaller minor modification to that. Obviously, holding two companies inside the portfolio lies the risk in having too little diversification in itself so I will probably be mixing it around with some Reits play in between to make up the numbers and also to spread the over-exposure on one sector a bit.

The two companies chosen have strong moats and are a proxy representatives to how the Singapore economy is doing.

While there may be some biasness in relying for past historical returns, I don't believe this is simply a look on hindsight.

I think this strategy could work really well if they are being executed properly.


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Sunday, July 15, 2018

"Jul 18" - SG Transactions & Portfolio Update"

No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
Vicom
27,000
6.20
167,400.00
25.0%
2.
Frasers Logistic Trust
126,000
1.06
133,560.00
20.0%
3.
M1
75,000
1.61
120,750.00
18.0%
4.
Singtel
37,000
3.24
119,880.00
18.0%
5.
Far East Hospitality Trust
100,000
0.66
  66,000.00
10.0%
6.
Starhill Reit
100,000
0.65
  65,000.00
10.0%
7.
Warchest
-
-
    1,000.00
1.0%
Total
673,590.00
100%

It's time for another month of updates.



Investors Exchange 2018

First up, I wanted to update quickly on how the investors exchange talk went yesterday.

I thought it was heartening to see so many people turned up and very serious about taking charge of their finances so I think the event is moving into the right direction.

I received some development feedback on the talk myself so big thanks for that too.

There were very little time to mingle around especially that it was only during the 30 min break (which includes light bites) so I can understand if folks have further questions pondering.

I'm more happy to clarify and answer if I have the answer to them. Sometimes I may not have them myself. So keep the questions coming.

One question which I received quite often is on my "so little warchest" as compared to others in the allocation section. I think I've answered it pretty extensively but if you are still unsure you can read my latest position and take on cash here.

Great Turn Out Event @ Investors Exchange 2018

Project Cost-Saving 

This is something which myself and my wife are undertaking for the moment.

We are currently challenging ourselves for a project cost saving and the first thing we wanted to cut down is on transportation and restaurant costs.

Sometimes, with 2 kids, it is too easy and tempting to sell ourselves to the idea of "it is so inconvenient" and hence many times we ended up taking taxi or grab even to near places.

This project aims to cut that sort of mindset and we hope to take more public transportation soon and so far the project has been going excellent. In fact, our recent example of going to Science Center by bus is a good exemplary of that.

While COE has reportedly come down, I don't think the household would need a car given our mobility and high challenges adaptation.

We should see some good reduction in our monthly expenses.

Another way we are doing more saving is to get through every buy that we can associate with "Shopback".

I'm a big fan of Shopback and their cashback are amazing, given that we buy groceries and daily needs on a daily basis without them anyway.

Extra money does indeed helps.

If you are interested you can sign up via my link below. You'll get $5 upon signing in and I'll get a referral of $5 as well.

Click Here

These cashback is not bad at all!!!

Portfolio Updates

There are not much update on this except that I have moved around my portfolio a little bit by divesting some in favor of Singtel.

The recent flush down in Singtel is a no-brainer to me.

They are obviously an action of institutional sell-off rather than further fundamental impact and so I went to take big chances when they dived down and I added a lot of positions at $3.11, $3.09 and $3.08. Too bad my warchest are exhausted, otherwise I would have galloped much more closer to $3.02.

I ended my position for Ho Bee Land just right the week before the news surrounding the ABSD kicks in so my selling position was relatively unscathed hence I could switch to Singtel. Ho bee is very much still in my radar given their fundamental position and I think they'll still continue to do well over the next few years but with blue chip like Singtel offering close to 6% when they dived down, it was simply a case of too good to miss.

Net Worth Portfolio

The portfolio has increased from the previous month of $671,320 to $673,590 this month (+0.3% month on month; +10.7% year on year).

This is also the sixth time in the seven month this year that the portfolio has broken a new all time record high.



Given how the STI market is doing in general (I think down about -2.47% inclusive dividend), I am pretty satisfied with the return of my portfolio so far this year.

I think we'll see a much improved second half performance in the year.

Family Portfolio

This is to update the part of family's portfolio which I managed together with mine.

The goal is to ensure the portfolio grow at a steady rate especially the children's portfolio until they turned semi-adults, which I will then have it transferred to their own account.

1.) Wife's Portfolio

No changes to the previous month update on this.

No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
FLT
13,500
1.06
14,310.00
70.0%
2.
Sasseur Reit
8,000
0.71
  5,680.00
30.0%
Total SGD
19,990.00
100.00%


2.) Baby B1.0 Portfolio (Age: 4 years and 3 months)

No changes as well to the previous month updates after I reinvested the dividends.

No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
FLT
13,500
1.06
14,310.00
86.0%
2.
Singtel
700
3.24
  2,268.00
14.0%
Total SGD
16,578.00
100.00%


3.) Baby B2.0 Portfolio (Age: 1 year and 6 months)

No changes as well to the previous month updates after I reinvested the dividends.

No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
FLT
3,200
1.06
3,392.00
52.0%
2.
Singtel
1,000
3.24
3,240.00
48.0%
Total SGD
6,632.00
100.00%

4.) Mum's Portfolio

No change to the portfolio.

Still owe my mum $220 dividend cash payment for month of Jun dividends for FLT.

No.
 Counters
No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
1.
FLT
6,000
1.05
6,300.00
100.0%
Total SGD
6,300.00
100.00%


Final Thoughts

It's earnings season starting this month so I'll be putting more focus on watching potential development on some of the companies in my portfolio and in my radar.

Between this time and next month, it is also interesting time as many companies are announcing interim dividends which means another bumper months next month.

Meanwhile, I'll stay with my strategy for now since it's working pretty fine.

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Friday, July 6, 2018

This Is The Reason Why People Fear The Stock Market

The stock market is not a place where everyone gathers and make money.

The market is brutal and can hurt those who does not take it seriously.

Today's brutal session in the market shows why people generally fear and avoid the stock market.

The STI index drops about 2.1% today on session close and it is one of the larger drop I have seen in this year.

One of the main cause of drop is due to the announcement made last night by MAS in a bid to tighten the mass retail market demand by raising the ABSD and tightening the TDSR.

Everyone processes the same common information and outcome and you can see how folks went to rush into buying a unit before the official tightening kicks in.

No, it's not a bak choy sale at NTUC for $1.10, it's a freaking condo worth $1m and above!
Demand from last night units sold alone was this for the 3 main condo launched:

Park Colonial Total = 310 units sold
Riverfront Total = 511 units sold
Stirling Total = 187 units sold

When the market opens this morning, investors were treated to a rude shock when large strong cap companies dropped as much as 16% easily.

We are not talking about some crappy companies but a conglomerate with multiple geographical assets and division.

Even companies like Bukit Sembawang which has a strong balance sheet were not spared, dropping a massive 9% in a day.





This is not just about competency we are talking about here.

Property valuations were cheap and they continue to become even cheaper from now here.

I have a couple of friends who were caught by this news and their portfolio suddenly look heavily in red. 

Some of these people are value investors who are depending on Fundamental Analysis to come up with their decision.

I call this day a black swan for property investors, a definition used by Nassim Taleb to determine an unknown-unknown factor that investors cannot avoid from apart from being sufficiently diversified from the sector.

As an investor myself, I can feel such pain when you have to wait a long 5 years of 3% dividend from these developer, only to have it get wiped out in a single day.

This is also the reason why I tend to prefer going the dividend strategy method. Money in the pocket is worth the sum of parts more than paper profits.

This is why folks generally tend to avoid the stock market.

Think of folks that are new to the market and they are exposed to such brutal market in a day.

This is the reason why people fear and avoid the market.

It'll attack the clueless but also the knowledgable folks.

It'll attack the poor as well as the rich.

It'll left scars throughout our body.

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