Saturday, September 29, 2018

$750K - Third Milestone Target Reached!!!

As part of a larger picture to keep track of my financial independence journey, I had planted a few checkpoint to stop and check if I needed to amend any of my strategy and also to give myself a pat on the back for the small achievement each time a milestone is completed.

This is the third installment of a four-series milestone and it is so important that I think it deserves a post on its own.

Rewind Back The History

For those who are reading or following the blog for the first time, you may learn from reading the past articles appended in the archives that this blog is a chronicle journey of an ordinary person who is looking to achieve financial independence at the age of 35 and I have given myself a 10 year timeline to do that from when I started working at the age of 23 (but only "woke up" after 1-2 years of working).

When I first started working, I was not immediately enlightened by this whole idea of financial independence. Having my salary at the end of the month means getting wasted on all sort of gadgets and the latest trends in town that my bank account would quickly diminish from 4 digits to a 2 digits by the end of the month. I was so eagerly waiting for the next paycheck to arrive but I thought at that time this was a common practice among the colleagues who were practically almost doing the same. I wasn't really sure if I should be deviating from that practice.

One day, I was somewhat enlightened by my ridiculous spending and saving pattern, with little to no investment that I started this blog to start afresh of keeping tabs on my spending, saving and investment. The "Cashflow" Quadrant by Robert Kiyosaki was my first inspiration book while there are many bloggers I was inspired that had also contributed well to where I am today.

Over time, I managed to do rather well in all the three aspects of climbing the corporate ladder, maintaining a ridiculously high savings return and getting a very decent return on my investment.

In April 2014, I managed to reach my first milestone target of $250k which I am extremely proud of. It took me 6 years since the start of working to achieve this result. You can view my thoughts on achieving that back then here.

Since then, I had my first parenting where my first son was born and I also upgraded myself to studying a part-time MBA so I thought expenses were going to balloon up and it would derail my journey to the next milestone.

Thankfully, while expenses have creeped up, the bull market also means that I was getting decent return on my investment and hence I was able to continue to push the networth up further and it took me about 3 years to reach the next milestone.

In March 2017, I managed to reach my second milestone target of $500k. You can view my thoughts on achieving this second milestone back then here.

I knew things were going to get even harder, given that our second child was born during the year and that means expenses have to doubled.



$750k Milestone Reached

Fast forward to this week, I am glad that my equity portfolio had managed to hit the third milestone of $750k worth based on its latest market value.

From the last milestone to today, it has taken me about 1 year and 7 months to reach the third milestone.

The recent M1 (top 2 position) takeover saga means the portfolio has bumped up by about $40k during the pre and post takeover news, and gave a nice boost to hit the third milestone.

This was an anomaly one-off which I was not expecting it would come that soon after the failed takeover bid 2 years ago. I guess I was darn lucky with it.

There was also collateral positive impact for my other position in Singtel (top 4 position) because of this news.

Together with some of the equity portfolio for my wife and 2 children, the portfolio has now hit north of $800k and has an FI Ratio of about 0.82x.

P.S: I will be combining the portfolio for the household since I no longer publish them every month here and it is easier to do reconciliation.

What's Next? The Final Milestone

The next milestone is probably the biggest one as it embarks the last piece of puzzle towards the path to the financial independence.

I don't think I am naive enough to think that this will be a smooth ride from here on.

Already with expenses running up and the bull market seemed like it is on its last leg, the portfolio could well take a hit down before it resumes the trend up. For sure, it will be a bumpy ride from here and I am keeping a cautious stance on the outlook and strength of the portfolio.

If the market is kind enough and give me the same returns as they have done in all previous years, I might try to achieve the last important milestone 2 years from today, which will coincides with my 35th birthday.

The strategy will not be anything different. It is to focus on the savings first and then decent investment return. I have probably peaked my human capital and will not be able to contribute to the increment much further from here.

Let's see if that will materialize.

I am crossing my finger and still hoping the answer to that is a yes.

Thanks for reading.

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Friday, September 28, 2018

First Month of My New Work

This is a continuation of a follow up post which I blogged earlier in the month (See here). 

The end of working hours today means I managed to complete the first full month cycle at my new work environment.

My body clock has started to adjust to the earlier timing I had to wake up in this new role, which means literally I get to wake up earlier than everyone else in the family.

I set up my alarm clock alarmingly weird at 6.26am in the morning and put them far away from my bed, so I could drag my body to turn off the alarm, had a quick stretch for a light exercise for about 4 minutes then took a shower for the next 10 minutes. After that, I will head to the dining table for breakfast. By now, my two kids would have woken up as well (one for school and the younger one I guess has the same body clock adjustment as me?). 

I gave them both a light kiss cheek to greet a brand new day in the morning, which my younger son took the opportunity to "kacau" me by requesting to climb to the dining table to feed me breakfast (he loves doing that!). That’s the only opportunity quality time I get to spend with him during the weekday mostly because he was preparing for bed by the time I headed home at around 8 at night. 

The MRT was about 10 minutes away from my place. When walking to the station, I almost see the same group of people on the street, as if I was repeating the same day over and over again. The routines were getting a bit weird for me.



Days quickly started to blend in together, as Monday quickly rolled to Tuesday, then mid-week, then Thursday and then the happy Friday. 

Weekends were a look forward to, mainly because I get to plan proper activities with my family.

In terms of work, the real work is beginning to start to surface.

I am still grasping most of the concept for the work and it'll take time as days go by.

I am a quick learner by nature so I am not worried about falling behind but at times I do hope there are people I can turn to when I have questions. It just feels so difficult getting that connection at the moment.

I am still getting used to the structure in the organization. 

In this organization, I am a small potato in the much larger organization (compared in the past where I had much more authority in a smaller organization). 

There are both pros and cons and I had mixed reviews on this so will not elaborate further in this post. 

The nature of the work was nothing new and they are neither interesting or fascinating.

They are typical accounting work, and folks who are in this line know how much chore it can be at times.

If not because of the very little time I get to see my family during the weekday, I might contemplate just positioning myself there but I can see very little motivation to go by in the role. This is common among the team, and everyone has that same feeling throughout.

The good thing having completed the first month of work means I received my first salary of the month, which was satisfying at its own rights. It's also nice to see the pay higher than my last drawn pay so I can budget and allocate to savings and investment further.

So far, that's the only motivation and goal I have right now and I'll review them again throughout in running.

Thanks for reading.

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Wednesday, September 26, 2018

M1 - Potential GO Dejavu ?

By now, you would have probably heard the news buzzing around surrounding the potential buyout for M1 takeover with two of its largest shareholder Keppel T&T which owns 19.3% and SPH which owns 13.5% dealing with a potential buyer on the cards. 

There’s not much details on the news that have been shared and I can understand why investors are eager to follow up on the story given that this feels like dejavu all over again. In early last year, the 3 big shareholders, namely Axiata, Keppel T&T and SPH went through a similar strategy review when the shares were trading back then around $2.15. Unfortunately, the deal seems to be off and from the way I read the deal, it seems that Axiata has not agreed to the selling while the latter two has preference over divesting their non-core assets. 

In a similar statement made by Axiata yesterday (original script below), it appears that Keppel and SPH decide to proceed ahead with the review given that a successful deal with the two would mean that the acquirer would own a shareholding of above 30%, which would trigger a mandatory GO deal. 



Axiata’s Original Statement Issuance (25th Sep 2018) 

Axiata Group Bhd (“Axiata” or “the Group”) refers to the announcements made today by Keppel Corporation Ltd (KCL) and Singapore Press Holdings Ltd (SPH) to the Singapore Exchange on their joint consideration of a possible transaction involving M1 Limited (“M1"). 

Axiata had on 17 March 2017 and 18 July 2017 previously announced publicly that it was undertaking a strategic review of its stake in M1 jointly with KCL and SPH. Post the said strategic review, Axiata has deliberated with both companies where we made our position clear regarding any corporate action. 

The announcements today by KCL and SPH, as we understand it, may reflect developments from the 2017 strategic review and post discussion, which now has resulted in Axiata not being an active participant in the new corporate exercise. 

Axiata will consider all appropriate and viable options that will enhance our own shareholders’ value depending on the official proposal to be made by KCL and SPH. 

What is the term of a mandatory GO in Singapore? 

The threshold for triggering a mandatory GO for a listed company in Singapore is when a person acquires shares resulting in him or his parties owning 30% or more of the listed company’s voting rights. 

The offer price to the rest of the shareholder must be at least the highest price paid by the acquirer during the offer period or if after the offer period, then the acquirer must increase the offer price to the price paid by the acquirer. 

The minimum acceptance condition must be approved by at least 75% of the rest of the shareholders based on their voting shares. This is the reason why Axiata plays such an important role here because it owns 28.7% of M1 and my understanding is the deal could be off if Axiata backed off from the strategic review once again. This is the problem when you have so many different parties as part of your big shareholders. 

For M1 to continue to remain listed on the market, it must at least retain 10% or more of their voting shares to be held by the public. 

What does it means for you (investors)? 

This could go down to be quite tricky for minority shareholders. 

It appears that to me Keppel T&T is interested to buy up the stakes of SPH and they would make a GO for the rest of the shareholders.

Either that scenario will happen or Keppel and SPH are trying to divest their shares in M1 as they have previously said they wanted to focus on their core areas. For Axiata however, the shareholding in M1 seems to be key to them given it gives them recurring income as part of the associates and from the reports I read, it appears that they are valuing M1 at the valuation of $2/share in their books.

Hence, I believe this is a key critical price for the deal should it go through. 


Thanks for reading.

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Tuesday, September 25, 2018

Investing Action Is Minimal Activity

One of the important traits of a successful investor is being able to gather information and do sufficient research on the company he is eyeing for, wait patiently on the sideline and execute when value emerges from that opportunity. 

For many successful investors, investing action is a minimal activity. 

They would spend hundreds of hours gathering information and researching into the company, scuttlebutting the management, and then spend the next hundreds of days or weeks doing nothing just to wait for that one (or if you are lucky more than one) golden opportunity. 

There are some retail investors have mistakenly assumed that one golden opportunity as a time when the economy undergoes a patch during recession, and so they waited patiently in cash for that one low hanging fruits opportunity in a lifetime, but that strategy can be costly if they are mistimed. 

For the many others, it is usually the other way round. 

These people are usually easily influenced and intrigued by the constant noise coming from the social media, especially when they see how their friends who have little knowledge about investment, made double or tripled their money and get to spend on luxury watches and holidays. This is why Warren Buffett in his recent interview was so confident in saying that history of the human greed will come as nature and repeat itself once again. 

Instead of spending more efforts on the researching part, many people would rather jump on the bandwagon of the hottest stock on the Twitter trend and hopefully they would wish for more people like them to push the price up. For some who managed to exit timely at an appropriate timing, this would translate into a handsome profit earned over a mere couple of days or weeks. Immediately, this would elevate their confidence higher into going for their next hunting ground. 

The problem with this approach is that many clueless retail investors would be victim of that “successful” hunt as you need to be a few among the many to have executed timely, both on the buy and the sell. It won’t be easy for many retail investors because they are hoping to ride on the luck of a few others but for many they ended up losing majority of their savings. 

At the end of the day, many ended up poorer than their initial capital outlay and they gave up investing totally. 

If we analysed the whole situation, it seems like the mistakes were done upon spending too little time upfront on the research but spending too much time on the investing action and jumping on the latest bandwagon hoping for a quick profit. 



If you happen to belong to this type of category, there are a few things you can try: 

First, accept that investing is a long term activity which would allow businesses to flourish over time as they grow. 

What this means is you should only look for companies that have sufficient moats and ensure the company’s objectives to grow are aligned with yours. 

This also means that as investors, you should also give the management time to grow the businesses and enhance your value as a shareholder by returning parts of their profits to you in the form of dividends. 

Second, buy companies with sufficient margin of safety intact to the business. 

This is especially important for companies which are cyclical in nature and businesses would typically fluctuate between the peak and trough, and investors would always be “attracted” to such companies when they are only at the peak of the cycle. 

For growth companies, the margin of safety can come in the form of more conservative growth projected into the future so it will not look overly ambitious. 

Third, if you need some psychological peace of mind, do take a look at the share price of strong moats companies on a multi-decade basis to convince yourself that businesses that grow over time also reward shareholders in terms of capital appreciation. 

Investing action is a minimal activity but the work put behind the research will determine a clear winner.

The art of doing nothing is also the art of devising a process to be a winner. 

It’s best to put our efforts on the right activity.

Thanks for reading.

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Sunday, September 16, 2018

Portfolio Construction On Ensuring The Sustainability of Cashflow

I received a lot of queries pertaining to the amount of little cash that I'm holding for my investment purpose so I thought I'll use this chance to explain the thought process on my portfolio construction.

Our goal as a family has always been to ensure that we have $5,000 / month worth of passive income in order to reach our definition of financial independence. Working back the maths, this means we would need $60k/year or $1m portfolio at 6% yield.

While this amount would give us financial independence, we also know that we needed some sort of margin of safety so over the long term we also aim for our passive income to exceed our expenses by 1.5x in order for our capital to grow.

With this in mind, our objective would look like this:

1.) $1m Liquid Portfolio at 6% yield -> Provides Cashflow which covers expenses at 1x -> Short Term Goal
2.) $1.5m Liquid Portfolio at 6% yield -> Provides Cashflow which covers expenses at 1.5x -> Long Term Goal

P.S: You can insert your own respective short term and long term goal and it doesn't have to be the same with other people.

We have our eyes on meeting our short term goal which we have been working towards the past 10 years and hopefully in about 2 years time from today we'd be able to come close to it.


There's a lot of compounding collaboration among the three which helped to propel the growth of the portfolio faster.

For example, when I receive my salary income on the 25th of each month, the first thing I did immediately was to put aside the amount of expenses (known factor) needed for the next 30 days and invest the rest of the savings into companies which would yield me 6% returns or above (more on this later).

This helps to ensure two things

The first requires us to work on a strict tight budget that we have to put aside on spending but allows some room of flexibility to work with during the month itself. This means that if we are overspending for this week, we are able to adjust our programme for the following week by finding activities to do that require lesser spending. This allows us to consistently practice lifestyle habits that require hunger and restraint.

The second allows us to consistently put our capital to work every month without fail and this contributes to the growing portfolio even though our returns in the market might suck sometimes. For example, we managed to hit a record high in our portfolio 7 out of the 8 months this year through consistent amount of capital injection that we put in each month. This is further propelled by once a year variable bonus one-off and dividends which we never fail to consistently reinvest back into the market. Albert Einstein will call this compounding at its very best and we can already see the outcome of the mechanism working.



With the focus on human capital and savings now working as planned, and at the high level of capital that are being reinvested into the market, we needed to ensure our returns on investment is positive so the money that we put in can work harder for us throughout day and night.

You can sense by now that I am a big fan of compounding, hence the companies that I invested in would revolve around companies that yield consistently high amount of free cash flow and high payout ratio yet have to be sustainable.

Looking back at our own objective in mind, we also wanted to ensure that we invest in companies with minimally 6% cashflow return as this is the hurdle rate that we have in order to reach financial independence.

With this objective in mind, you can see that we are not a big fan of gold because they are commodities assets which doesn't yield cashflow hence it doesn't meet our objectives. Furthermore, we believe that we are in a country where the state of the currency is stable (triple A rated) hence gold investing just doesn't make sense for us to include in our portfolio. Over the long term, we just feel that our equity portfolio will be enough to trump over gold returns.

We are also not a big fan of short or long term bonds, corporate bonds, or any sort of bonds including the Singapore savings bond because of two things.

The first is the nature of the bonds as an asset itself.

Most bonds are essentially fixed income which provides us with payout at regular intervals with no participation in growth. They are essentially debts which investors loan to companies which they will redeem at maturity which we will get back our par value. While they provide regular payout at intervals, it doesn't correlate to our long term goals which is to achieve a 6% cashflow and a growing capital assets.

At our age, we believe this doesn't provide the best avenue to grow our assets.

Second, even if there are corporate bonds that are yielding in excess of 6%, there are the risks involved in the company defaulting as a result of non-payment. We can only look at the recent example of Hyflux perpetual bonds to account for such high yield nature payoff.

With that in mind, we trust that our best avenue to achieve a consistently 6% yield and a growing assets is through investing in an equity portfolio.

For those who attended my last talk on Investor Exchange 2018, you would have heard about the strategy on my preferred 6 + 4 = 10% which Kyith helped to explain in detail here.

What I am seeking is essentially investment that yield characteristics such as:

1.) Generates High Amount of FCF and Dividends Yields That Are Sustainable

There are a few companies that exhibits these characteristics in a nutshell.

The goal of this is to ensure that the dividends investors are receiving are sustainable over the long term basis and in the likely event of a recession, the dividends are less likely to be cut.

Companies that are asset lights and providing services as part of their core businesses are usually in a better position to generate their free cash flow as they are not required to reinvest huge amount of funds back into their assets to fund their growth.

HRNet Group Ltd is one example of such company where it derives revenue by matching companies with employees for a recruitment fee. In addition to professional recruitment, they also provide flexible staffing as part of their businesses hence human labor is a major part of their core expenses.

Between 2007 and 2017, the company's net profit compounded by a massive 12.7% and it even survived a few past recession including the big one during the GFC.

2.) Lots of Cash In Their Balance Sheet

I don't generally like companies that keep a lot of cash in their balance sheet without rewarding their shareholders with it.

But when we combine high free cash flow and high dividend yield with plenty of cash in their balance sheet, this becomes a powerful investment.

A good example of such investment is Vicom, which is one of the core investment in my portfolio.

When you have companies that exhibits such characteristics, it tells a story that the dividend payouts are likely to be sustainable, even in the a period of a recession.

With the company yielding 6% at this point, it is difficult to find another of such company that yields both in terms of high yield and high cash.

Goldpac Group listed in HK is another that exhibits such characteristic and is one in my watchlist.

3.) Nature of Business Model

The nature of a business model, especially how they perform during their trough is also important in my consideration.

For example, the business model of a Developer vs Reits is vastly different even as they are both in the same property industry.

While a developer requires time to bid for the land, build and launched it for a sale, Reits come from a business model of renting it out which means investors will get a more consistent payout as compared to a developer which earnings can be more lumpy in nature.

In addition, I usually look out for Reits that exhibits a long WALE because it would mean that they are locking in a better certainty with likelihood of surviving recession period, if any.

In terms of Dividends payout, it is also more consistent for investors who depend on it to fund their lifestyle.

The different industry of Reits will also play a crucial role in deciding which I will blog separately some other time.

Final Thoughts

I find that I am simplifying my objective a lot today as compared to when I started off.

With the initial availability of a human capital injection, I wanted to be straightforward when it comes to saving and when it comes to choosing my companies for investment. 

They don't have to be complicated that comes with many variable options but can give me the required returns for the objective I am seeking.

In fact, my portfolio today consisted of only 8 companies which I believe provides sufficient diversification but exhibits the same nature as I mentioned above.

So when people question why I am holding so little cash in my portfolio, my answer to them is I am constructing my overall portfolio based on its "cashflow" generation, which started from the day I received my salary to the month I save and to the type of companies that are inside my portfolio.

They are all cashflow cow to me.

Thanks for reading.

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Tuesday, September 11, 2018

How To Play OUE Commercial Reit Rights Issuance

It’s been quite a while since we last had an M&A news that involves right issuance hence I think it is time to refresh our memory on how we can play this for interested parties.

The proposed acquisition this time is from their own sponsor, OUE Limited, with the acquisition of the OUE Downtown, which comprises of both 50-storey building Downtown 1 and 37-storey building Downtown 2, as well as some retail podium and carpark which they had not too long ago carried out an enhancement work.

The proposed acquisition is in the range of $908m, which is a slight discount from the independent valuer perspective, and together with some transaction and admin fee, it will total up to around $956m.

The funding will be made partly via borrowings of $361.6m while the rest of the $588m will be funded via equity rights issuance.

Is This A Good Acquisition? 

The sponsor is well known to recycle their properties to the Reits in order to free up cashflow for other purposes. 

It happens with the Crowne Plaza Changi Airport for OUEHT a few years ago, and then One Raffles Place and now this.

In this case, OUE Downtown is divested at $1,713psf with around 48 years of lease period remaining.  
This compares in line with the recent divestment of CPF Building which was divested at $1,698psf with around 49 years of lease period remaining back in late 2015. 

You can see from the table below that most buildings with longer lease command a much higher price above $2,500psf, so this theory syncs well with the lower revaluation as the lease gets shorter. 

The acquisition also comes with a few years of rental support and this has been a very common financial engineering platform used by most sponsors in order to get rid “recycle” their properties fast. 

Do also note that Lippo Plaza has also 26 years of lease period remaining, so all this so called “NAV” needs to take into account the difference in properties such as OUE Downtown and Lippo Plaza, and properties with longer lease such as OUE Bayfront and One Raffles Place. 

In my opinion, this is not a good acquisition considering all factors but one which we all know they are going to come anyway (that’s the main reason the sponsor list the Reit platform in the first place).



Rights Issuance

The manager proposes to issue 1,288,438,981 Rights Units to raise a gross proceeds of $588m on a pro rata basis of 83 Rights Units for every 100 units held at an issue price of $0.456 per Rights Units, which is a huge 31.4% discount to the last closing price of $0.665 as at 10 Sep 2018. 

The issuance is renounceable which technically in layman terms it means it can be traded in the market. If you don’t like the deal, you can sell off your rights entitlement but risk getting diluted if you are still holding the mother share. 

The theoretical ex-rights price (TERP) in this case is $0.57 per unit.


The 3 Levels 

I am going to repeat the 3 levels that folks have to watch out for the benefits of those who are reading my blog for the first time.

This will impact you as unitholders or someone who are looking to take advantage into this situation.

First Level – The general occurrence is that when a Reit announces their plans on a placement or rights issuance, the market will view that as negative and hence the share price would usually fall. At this point, usually the details of the offering is not out yet to the public but there are sufficient indication to suggest otherwise. 

Second Level – The second level is when the devil details are out. This is especially so when the issuance are done at a huge discount and the acquisition does not result in obvious yield accretive nature. You can see how the market reacts with the share down by 3.5% today once the news are out. The market will continue to adjust until the market deemed the suitable TERP price. 

Third Level – The third level is usually reserved for renounceable rights where the rights are transferable and can be traded in the market. The rights are being traded in the market for people who wants to dispose their entitled rights or who wants to get into the company by buying the rights from the market.




The 3 Groups of People 

In this environment, you then belong to these few types of people. 

First Group – People who are currently holding the existing mother shares:

If you are holding the mother shares, you can choose whether you want to continue holding until it goes ex-rights on the 2nd October or sell them in the open market like you usually did with your other position. 

If you are choosing to hold until it goes ex-rights, you’d be entitled for 83 rights units for every 100 shares, then you have two further options. 

The first option is to sell the rights when it commences trading in the market on the 9th October but keep the mother shares. Do note that doing this will give you dilution right away and your pro-forma yield will go down to almost 6.2% should you participate not to exercise the rights. 

The second option is to exercise the rights during the exercise period and apply for excess rights as much as possible as this will favour those who wants to get more at a much discounted price. 

Hint: If you are willing to go until this point, then you might as well whack and apply as much excess rights as you can as there are good chances that you can get a good amount of excess that other people are selling off. 

Second Group – People who are not holding the mother shares but want to get some actions 

There are a few options that you can take as well. 

The first is buying the mother share before it goes ex-rights on the 2nd October and thus you will be entitled to the rights. You can then follow the first option above. 

The second is simply buying the mother shares right after the whole episode is done and dusted. 

This should set the tone how “low” the shares will go down in this particular exercise. 

For a strong Reit, this usually does not work well as the share price would rebound back quickly but for this Reit I think the chances are good. 

Third, you can dip toe into the market by buying the rights in the market which would allow you the rights to exercise the mother share at the rights price. 

Third Group – People who wants to participate but don’t have enough funds to subscribe 

You’d be surprised to learn that there are many people who doesn’t have sufficient funds when their respective Reits call for an equity fundraising activity. 

Not to worry, if you are in this state, then you can either sell the rights in the market by choosing not to participate or you can use the method of “swallowing the tail”, a term used by philosopher in the past where you can see part of your current holdings, get some funds and then use them to subscribe to the rights offerings.

Final Thoughts

It's still early days so there are plenty of time for you to think about how you can participate in this.

If you are lucky enough, there can be arbitrage opportunities in rights exercise or even if not, sometimes a very good opportunity might surface. 

With the market going southwards and there are other better opportunities in the market, I will be foregoing on this one unless it becomes compelling to purchase by continuing its fall downwards.

Thanks for reading.

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Sunday, September 9, 2018

Does Your Equity Portfolio Needs Hedging?

I received an email from an avid reader who is genuinely concerned if the next recession will put a dent on her portfolio which she has been building for years.

She asked if it's necessary to put a hedging instrument in the portfolio in order to minimize the downside risk of her portfolio given that they are mostly in traditional equities and the nature as such that she is worried her net equity portfolio will go down once recession hits.

While she didn't specify her age, it appears that she is in the 30s range.


It is always difficult to give a guidance advise in this sort of scenario as everyone's risk profiles are different hence the tolerance level would also deviate.

Investing itself involves risk and in order to generate a good amount of returns over time, it is inevitable that we have to take intelligent risk and this includes the risk in our traditional equity portfolio.

Getting An Instrument Hedging in Your Portfolio

This is the most straightforward nature of hedging one's portfolio.

If most of your portfolio consists of equities, then to reduce the correlation you'd have to include asset classes which has a natural hedging character opposite to it.

One example is Gold.

Kevin from Financial Horse wrote a good article on Gold recently which explains how they fare in the long term. The key idea takeaway from the article is that gold outperforms all the other assets when there are big risk volatility movement in the economy when there are recession or threats that try to destroy the economy but in all other scenario, they are mostly underperforming. 

Do note however that while you are in a way reducing the correlation of your portfolio through investing in gold, you are restricting the returns which equities can give you over the long run too.

The other example is buying a put option, which includes adding a derivative nature to it.

Technically, a stock that you own can go down in value and in the most unlikely scenario it can even go down to zero. That rarely happens to solid strong companies but we've seen some example happening to some companies with weaker financial health.

Buying put options lets you determine how much risk of loss that you're willing to endure.

A put option gives you the flexibility to sell the shares at a pre-determined price until the expiration date. You do have to pay a premium to buy that option but it gives you a flexibility to exercise them should you wish to.

Rebalancing Portfolio Allocation Naturally

This is a much easier way to "hedge" your portfolio and is also my personal preference.

Generally, my preference in the portfolio is to include equities and cash with the latter being the option that I can utilize from when I want to add more equities.

When the economy is undergoing a trough, there are usually plenty of options to buy great companies at a decent valuation and that is where the cash is being utilized to add more equities to the portfolio.

When the economy is at the peak, then the portfolio allocation will tweak to the opposite side, since we'd be selling equities with high valuation and going more into cash.

The permanent portfolio advocates including bonds and gold into this method, on top of equities and cash, but I think an allocation of equities and cash are good enough to demonstrate the natural hedging ability.

Invest in Proper Due Diligence with Margin of Safety

This is perhaps the most underrated way of "hedging" but all investors should properly do his or her own due diligence and only invests in companies with good financial standings and a margin of safety.

With the criterias in place, there is even little need to do the traditional hedging because the companies you buy will always do fine in a poor economic scenario and will be able to bounce back once the economy recovers.

Hence, your worry is very much reduced as compared to someone who chase after companies that are "hot" in the market but provides very little value in reality.

Adding Salary As Your Additional Capital Allocation

If you are someone who has a sound job and has been consistently adding part of your savings as additional capital allocation to the portfolio, then the amount of cash you're going to put in will act as a buffer and natural hedging in the form of additional capital cash allocation.

Most of the idea of hedging is to be able to survive the downside scenario and if we can exercise all of this prudently and accept that recession is just a part and parcel of our lives, then we'd be able to thrive when the economy recovers. In fact, most rich people actually thrives the most during recession because they are able to take advantage while the retail investors usually go into hiding.


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Friday, September 7, 2018

First Week of My New Work

I’ve finally completed the first week of my new work at a new environment so I thought I’d pen out my thoughts for my own future reference. 

My first immediate thought was that the office was far away from where I lived hence the commuting time has to be 1.5x longer than the previous job. By comparison, it also doesn’t help that the official working hour was half an hour earlier and ended half an hour later. Hence, I have to wake up earlier and get home later, even when leaving at the dot. This is what Vicki Robin in her book “Your Money or Your Life” called it as “True Hourly Wage” of your time that I did not anticipate it’ll be that critical. Urgh, I guess I have to adjust my body clock for this to make it natural over time.

The office premise was huge and the facilities were nice. I took advantage of the pantry by getting a drink from the vending machine every morning and evening – Latte, Honey Ginger Tea, Chrysanthemum Tea which helps to keep me awake and warm during this raining season. 

They also have a canteen and gym for the staff which I have yet to utilise so far, but will do sometime in the future. 



Since it’s only my first week, I mostly try to lunch out together with the colleagues to understand the team better, listen to gossips and also for better networking. 

The position that I am undertaking currently has been a baton relay, which I understand from my colleagues that my previous 2 predecessors left the role in 1 week and 3 days respectively. If I can come in to office by next Monday, it’ll mean I am the longest serving so far among the three of us. Speaking of irony of this being just my first week. 

I have not received a proper handover so far throughout my first week here since the team are still busy with the budget season. 

Most of the time, I tried to figure out myself the files and tried to connect the dots myself. Since this is a relatively new industry to me, I am also still learning about all the abbreviations and industry terms used in the office. 

I did my first overtime on my third day when I have to assist my colleague in collating some of the last minute information. I left office at about 8 and only reached home for my dinner at 9. Most of my other colleagues are staying till past 10 this week for most of the time. It reminds me of my big 4 days during the peak season. 

My boss is nice and he is a very easy going person in general, so it makes me settled down rather quickly in the new environment. He also often treated us to breakfast, coffee and old tea huts which he bought with his own money so I can see how the team appreciate that. 

I have been blessed to work with boss and colleagues over the past number of years which I am very much appreciate of. That means almost everything to me in a workplace where most of the works are more of the mundane corporate typical stuff.

The role or work I am/will be doing is very pure finance based. It is something which I am familiar and have done earlier in my career but not in my last role as an FC, which was far more business oriented. As the organization is also much bigger, my role will mostly be acquainted with churning of reports after reports and then my boss will represent the team to present it to the higher stakeholders. This is in contrast to my previous role where I had to do a lot of presentation to the stakeholders and take more ownership. There’s more depth with this one with a strong focus on one particular areas but lesser width. 

Mentally, I told my wife that I had somewhat mental burnout from working, which is not contributed because of the new organization but because of the continuous working in general for the past 12 years. 

I was not able to take a break in between the job change and it affects me quite a bit mentally and physically. I hope over time my body and mind would be able to adjust naturally to the clock and expectations but I reckon it’ll continue to be there until my next vacation or rest, which I hope will rejuvenate me back up.

One thing almost definitely for sure though, this will be the final leg of my corporate journey and I will be stepping down in a few years to probably try something different.

Meanwhile, it’s a good chance to be able to enjoy the weekend!

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Tuesday, September 4, 2018

Should You Guide Your Children To Become Millionaire?

The goal to become a millionaire follows a strict direction guide for most people. 

I’ve previously written about the 3 different levers that we may need to adhere if we want to grow our wealth exponentially to the north and they are no different when we are giving advice to our children, except for the part that they may have to study hard first, get a cert then land a good job. 

Okay, I admit my still-to-be traditional form of belief when it comes to landing a good job in our small tiny island. 

Teaching our children how to obtain that millionaire status is a dream for most parents but it could be better off teaching them the millionaire habits instead. 

Teaching good money habits to our children is a good way to start off the front foot as children are usually receptive to new ideas. 

As a society in an open economy like ours, we often don’t do enough to educate the people on money habits as banks and advertisements continue to bombard them with endless card discounts with freebies and waivers, and instalments without highlighting the consequences. As a result, we often tend to spend more than we could afford, risking the consequences we have at a later stage in regret.

Once a kid myself, my parents were strict with how we could spend with our money. 

Apart from spending on food and groceries which they are a bit slack, the rest are pretty much controlled as they want to make sure that me and my siblings were not spending on unnecessary items back then.

We were taught that for every single money that we spent, that is earned through their hard work and sweat, hence it has to be a meaningful spent in that category.

And now, we want to do the same for our kids and teach them the money habit the right way and embed this mindset since young.

This is how we try to educate our kids

With Tempting Sweets and Toys

But with limited $$$...

At the end of the day, the message that we want to put across to our kids is as parents, even though we can afford to buy things, we won't roll out the red carpets to make it a privilege for them.

They have to earn the trust through strict discipline and moderate intellect in order to focus on wealth generation in the future.

When they get to the age where they really have to think about their future and their family, we want them to be cuffed with millionaire mindset by then because that is what is worth for.


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