Monday, December 31, 2018

Thinking of Every Investment In A 10 Year Timeframe Will Help Frame Your Decision Easier

Happy New Year Folks!

With the official start in 2019, I wanted to start with an article that advocates a long term mindset strategy that can help you make better informed decisions as investors.

This is something which I've personally used when I look into buying the equity of these companies.

It has helped me tremendously from the very first I began investing, especially the way I framed my thesis into making an informed decision.

Investing is an incredibly tough and arduous activity because many investors made them so.

For years, folks have begun to experiment on deep theories and implement different strategies to meet the needs of their returns, often high returns that ended up not quite working for them.

For beginners who have never touched investment previously, I can sympathize with them.

With the ubiquitous of news floating around these days, it gives people plenty of choices to ponder upon which can be good if they know how to be patient and dissect each information to their advantage. Unfortunately, we are born to be impatient in nature and are often blinded by greed which can lead us to the wrong side of ending.

Fortunately, there is one strategy which I think it could help.

That strategy is to consider every investment that you make in a 10-years time frame.



Now, at face value, you may ask me if holding on to a stock that long warrants a feasible strategy.

Read it again.

Positioning ourselves into thinking in a 10 year time frame doesn't mean that we have to hold the position for that long.

All it does is it gives us a different perspective looking into things and help frame our decision easier, ensuring that we consider all aspects of the business cycle, valuation and be mindful of the potential downsides so it does not throw us into the deep end of getting into the hottest wrong stock in town (Hello Creative).

If you buy a company with that sort of mindset to begin with, and for any reason, Mr Market decides to throw you a surprise by appraising it 20% higher in a few months time for instance, then you are most welcome to divest them when you see fit.

Again, most money is made when you purchase so it is imperative that you purchase with a solid reasoning and margin of safety.

You can also use the 10-years time frame strategy if you are a strong dividend investor but an amateur at valuing companies.

What this means is you are strong in your capital and you have a large base which makes it easier to pursue a dividend investing strategy.

Because your capital is large, the required return on your dividend investing doesn't have to be on the extreme end on the high.

This entails that you avoid companies that either pays out high payout ratio or high dividend yield that might sound you out a little bit as a trap. So you filter a lot of fluffy companies out that will increase your risk.

You ended up with a slightly "safer" companies after the filtering, assuming you have some basic knowledge to read up on the business model, history of the company, and financials (free cash flow in particular).

So you picked up a company, and say for instance it's Far East Hospitality Trust or Far East Orchard Limited.

One is a Reit, while another is an investment holding developer company.

The latter owns the former some 30% or so.

Far East Hospitality Trust (FEHT) is a pure Singapore based real estate investment trust company with the principal investment strategy of investing in the hospitality industry such as hotels and service apartments on a long term basis.

FEHT is currently trading at 60 cents, which gives a valuation of a forward dividend yield of 6.9% and a price to book value of about 0.7x.


Their properties are not exactly your typical A-grade well known of Fullerton or Marina Bay Sands, but they are a very respectable upscale to midscale grade of your Oasia Novena or Rendezvous Hotel. They also have a few in the neighbourhood area such as the one in Changi.

If you see the lease tenure of these buildings, they will at least last on average another 60 years or so and possibly seek an extension after that, which by then will not be my concern anymore because I am probably gone from the face of this earth at that stage.

Sure, they will need to ramp up to enhance some of the old buildings for maintenance and to remain competitive and this will need money but a good management is there to watch this out for us.

Now, if you are a beginner and you adopt the 10-Years time frame strategy I was advocating in this article, then you'd know that at the end of the 10 years, you'd have received a dividend return amounting to 6.9% x 10 years = 69% return, without accounting for any capital gain (or loss).

You can then look at it two ways.

First, you look at your dividend return as a part of your overall ROI on your capital payback. You know that doing the maths you'll get your money back after around 14.5 years or so (100/6.9). We have mentioned that the lease tenure of these properties goes well beyond this 14.5 years so just by sitting doing nothing and assuming FEHT is still around after that, you are likely to end up winners as an investor.

The returns might be slow, but you get the idea.

And ending up as winners means you beat 90% of the retail folks out there who are blindly losing their money not knowing why or how.

Second, you can take a look at the dividend you received as part of your reduction in the company's residual valuation.

This is actually similar to point number one I was making with the difference only by looking at it from a different angle.

If you have received a dividend return of 6.9% x 10 years = 69% return, which is equivalent to 41.4 cents, and you deduct this from your purchase price of 60 cents, then your average price will go down to 18.6 cents. If the NAV of the company stays the same after 10 years (which most likely be or can even increase for good Reits), then the valuation of the company will become so attractive at Price to NAV of 0.2x.

The same can be said of Far East Orchard Limited, which currently trades at 5% dividend yield and an attractive valuation of 0.4x Price to Book.

Even if this investment ended up as a dud or trap at the end, you get your money back through dividend after 20 years and you can be sure companies like Far East Orchard are less likely to go bust, with their history track record.

Final Thoughts

For folks like you and me who's been investing for sometime, we are always looking at returns differently in a way we wanted to challenge ourselves harder than simply just floating above the water.

But the challenge for the new investors is surreal and real.

They are not only overwhelmed by the seemingly high returns their friends are making but many are attracted to value traps or companies they buy at the peak and ended up losing their hard earned money, which spiralled down as scars for the rest of their lives.

To begin well a new investor has to be patient, remain calm and accept that floating above the water in the first few years is the norm. And most importantly, adopt the correct mindset and strategy that he can improvise after getting more experienced in the market over time.


Thanks for reading.

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Thursday, December 27, 2018

Topping Up $7,000 For My Special Account (SA) For Tax Relief Purpose

You know you are always behind when it is towards the last day before the new year and you are rushing towards finding reliefs for your tax assessment before it closes.

This year, I am leaving it again to the last minute month of the year as cashflow was struggling a little bit in the earlier months and I have finally some spare cash to devote to CPF in order to boost my future retirement income.

The more intriguing part of this topping up aspect is of course the tax deduction relief which plays a big factor for me in trying to reduce my overall assessment. A quick back envelope calculation tells me that I will be able to "save" a total amount of $7k x 11.5% = $805 right away, without even taking into account future 4% per annum benefits on this top up that I made.

From a ROI point of view, it's worth the top-up, as it's incredibly hard to make more than that in the market out there right now with such volatility.

Do note that there is a maximum cap for cash top-up relief per Year of Assessment (YA) which is $14,000 (Self $7,000 and family members $7,000).

There is also an overall personal income tax relief cap of $80,000 for those who have plenty of them though it won't be applicable in my case.


The top-up is pretty hassle free and all it took me was an easy 5 minute to finalize the transfer via internet banking.



An alternative to this cash top up is to max out your medisave account which has a ceiling of

The annual contribution limit has now been revised to $37,740 so in case you didn't hit that (most will not hit that), then you can still make voluntary contribution to your medisave account for tax relief.

In the grand scheme of things, either of the two would be pretty much the same as Medisave can be used to offset your insurance premium before 55 while for Special Account you will have to wait until it becomes a retirement account after 55.

Both account currently earns 4% risk free, so there's no worry on this part.

If you have a spare cash lying around and your tax bracket is in the higher region, I think it's worth the shot at the very least.

Do watch out the timeline as today is the last day for topping up as the account will only be credited towards the next working day which is next Monday.

Thanks for reading.

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Sunday, December 23, 2018

Reflection of 2018 And What To Look Forward In 2019

As we wind down this week towards the last week of 2018, I wanted to reflect on a few aspects related matters that is important to me.

I feel it is important to keep abreast of the situation and we reviewed them after each year has passed.


Job / Career

I left my 6 years job in the logistic company to move into an unchartered territory towards the last quarter of the year starting in September.

The increase in pay was always a welcome addition but it came with a totally different kind of challenge, a challenge which I am still accustomed to trying out.

Moving to a different company doesn't make me indifferent to how I feel all along about being the corporate slave. I feel like I am still the running front for the antagonism towards being the rat in a race.

That doesn't change my opinions until I am proven wrong.

Travel

I burst my budget for travelling this year with 7 holiday plans during the year which spans across the different countries:

Taiwan (with family) - 14 days

Johor Bahru (with family) - 4 days

- Jakarta (with family) - 15 days

- Phuket (with friends) - 4 days

- Taiwan (with friends) - 4 days

Kuala Lumpur (with family) - 7 days

Bali (with family) - 10 days

Don't ask me how I managed to escape from taking so many leaves. Honestly, I don't know that myself and it spans across the different weekends + public holidays combo.

On the travel expenses, I think I busted over $25k and is definitely one aspect I wanted to cut down in 2019.

Expenses & Savings

Despite the over burst in travel budget, we managed to keep our purse tight during the year with vigilant spending in the other categories, specifically on transport where we frequent BMW (bus mrt and walk) a lot more often, even when we are bringing our two kids out.

Meals and groceries spending were also monitored closely so we don't overspend on unnecessary things.

Savings were a modest $40k or thereabout during the year which I managed to capital inject it into the portfolio.

Family

I get to spend a whole lot more of my kids and also my parents this year which was really great.

The idea to be able to live a work life balance and to truly prioritise it stems from the fact that we were more confident to walk away from something which doesn't gels with our priority in life.

Turns out it is always a non-event but the feeling of having that trump card advantage is imminent.

Investing

Last but not least, this is the growing the pot segment.

As with all the years in the past, there are many lessons which I've learned and this year was no different.

A couple of reflections on this front:

1.) As a value investor myself (I define value investing broadly as something that is opportunistic in nature), I seem to find myself jittery at times with when to hold cash or when to take a position. Even when I am so damn sure about a position that will make me money in the future, I still wanted to perfect time it to the best of my ability so that I extracted out the maximum profits or minimized the losses.

2.) I hate to be on the wrong side of things when my call didn't turn out to be correct, especially the avoidable ones such as the Keppel KBS case. Even if this case was an isolation, I still didn't quite like the feeling of being in the wrong side of things.

3.) I swing my bat a lot lesser this year as compared to the previous year and it worked quite well. I believe this has got to do with me positioning a defensive position since the start of the year so with market volatility there is nothing much that I need to rebalance.

4.) My portfolio would suck badly should there be a bull run this year like the one in 2017. Despite being almost 100% vested all the time, the portfolio nature is defensive and they perform well when the markets are seeing red rather than green. I like the irony of these things.

5.) This is also the first year which I have picked up the shorting strategy to be on the opposite fence of things. There are people asking if it was easy and the answer to that is there are no easy stuff in investing so just watch out the risk tail on that end.

6.) I learned that you can still make money in a bear market and lose in a bull market. It all depends on how you identified your opportunity.

7.) There are a few industry leaders which was badly hit this year that caught my attention which I might turn the swing around and place a long position a bit more in 2019 if it falls under my radar. A few of those names are like CDL, Keppel, Dbs and Singtel. This is almost like doing a Dogs of the STI method but I'm only interested in industry leaders.

8.) I managed to end in 2nd position of the sgx challenge this year after losing to the bear prowl on the last day of challenge, even with a 29.6% return.

Congrats to the bear prowl for winning the competition and it was a great honor to challenge with the rest of the warriors too.



9.) There are a few folks who have messaged me about if I can reinstate my portfolio transactions back every month. There are some things which I am still working on but once things stabilised I will bring it back in the early 2nd quarter of 2019. This is more of an update.

10.) Since my article was featured on yahoo and Cpf, a lot of people has mistaken me thinking that I earn a great deal of income so I just wanted to clarify. As a single individual maybe that is true but as a household that is not the case because I am still well below the median which means technically a couple both earning median income would easily trump my income.

Having said that, there are certain advantages and circumstances which I was privileged to which was different from anyone but this is not a race against one another. This is a race against our own selves of yesterday.

What to expect in 2019?

I am expecting big changes to come in 2019 from the personal front but I'd like to only announce it once things are closer and with more certainty ahead.

On the financial matter, I am going to challenge myself with the $1m race challenge which is going to be extremely tough but I am not calling it impossible. At this point, I am "just" about $170k to that goal so I'm sure it won't be "tough". Read the opposite.

I just need to make sure I avoid falling into silly traps and watch the risk tail very closely on some of the companies.

Capital preservation is also key at this point so I wanted to be on the safer side of things (a big no to bonds for me).

Health and families continue to be the priority so I will continue to work hard on this front and not neglect it. If any, there is a big chance I might enhance this in 2019.

With that, I wish everyone a happy Xmas to all your family, stay safe health and happy.

Thanks for reading.

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Monday, December 10, 2018

2018 XIRR Performance & Networth Updates

Time really flies these days when we are in our mid 30s, pegged by a combination of busy work and heavy loads of watching our children grow as each year past by.

I wanted to wrap things up for the year given that I will be taking a holiday trip to Bali with my family for the next few days until Christmas, and wanted to do a reflection of my equity performance this year before I then wrap things up for 2018 on an overall scale. 

I received some good feedbacks last year on how I presented with my performance review, especially clearly positioning my winners and losers so I thought I’d continued with the same format for this year. 

Please bear with me as this will be a pretty long post.



Overall Market Thoughts

This was a tough and rough year for investors because this was supposed to be an expansion year where interest rates are going higher because the economy is improving and there wasn't a clear sign of global slowdown in the economy yet the market experienced some of the highest volatility we’ve seen in many years due to the trade wars and other stuff.

All major indexes including the DJI, S&P, Nasdaq, HKEX, Nikkei, DAX were all down for the year and STI was not spared either. 

What this means is that if you’d been just holding cash all along this year, you would have outperformed majority of the people. Of course, it is a very narrow angle of looking at it this way because equity as an asset has proven that they have and can perform better than cash in a much longer run. 

A couple of my fellow financial bloggers and close friends that I knew got caught in some of the situations this year unguarded.

There were the suspension of Hyflux incident, then the chronicle of APTT yield whore incident. We also have the Lippo cases of First Reit and some of the rights issue from OUE Comm and Keppel KBS. 

Even banks went down in the face of higher rising interest rate, and most Chinese and HK stocks are impacted by the tension in the trade war.

We don't even need to go to cryptocurrency to make our case.

In other words, investing in this year is tough because even if your portfolio has been sufficiently diversified across industries, you might still be caught this year by some of the incident which played out.

2018 XIRR Performance

Throughout the years, I’ve been implementing strategies that allow me to extract the maximum amount of return with the least amount of risk. I do this by either rebalancing my position or tweaking my strategies from time to time to meet the needs of my portfolio.

This year, I used a dual strategy of both going long on a high dividend companies demonstrated by my X+Y strategy (in case you're wondering what is this, you can read it here) and going short on some weak momentum fundamental companies.

I have yet to find a time to write on the latter strategy but I promise to do so once I have more time in 2019.

My portfolio remained a heavily concentrated portfolio consisting of only 8-9 positions, which remain suitable to my character to date. 

These are very high convictions position and this strategy entails that I take into account the risks and downside as much as possible because all it takes is one or two to blow up my portfolio so I put a lot of effort into watching that risk tails over there. 

This year, my lucky stars continued to provide me with great guidance in the face of many distresses in the market. 

While the Dow and S&P have returned slightly negative to date this year, our local STI index has also returned negatively at about -6.5%.

I was fortunate that my returns this year has outperform them at a decent 18.2% based on the last stockscafe report I checked. There will be some minor adjustment up and down in the next 2 weeks but I reckon it won’t dampen much of the return already locked in.

The long term 8 years return on average is about 18%, so I think I'm keeping up this year pretty close.


This is also the 8th consecutive years my portfolio has managed to do better than the index so I hope to continue this trend next year.

Let me break this down by my top 5 gains and losses details inclusive of dividends (last year I did top 10 but didn’t trade as much this year) 


Top 5 Profit Based on % Gains

The goal in my concentrated portfolio is pretty clear and that is to:

i.) Always on the lookout for an opportunity to make gains; and
ii.) Make sure my top few positions contributes positively to the returns. 

It was also around the same time that I started experimenting on my short strategy in the 2nd half of this year that I found out there was room to maneuver in this opportunity because the market was not pricing in certain downsides that I felt was adamant.

So I tested my thesis to this strategy.

APTT was amongst one of the opportunities that I managed to get in because we all knew earnings were going to be poor and that the company would be facing issues with their cashflow given certain of their debt covenants going to due sometime soon. So I went to take a short position two days before the earnings release with the intention to cover them back immediately after that. The dividend cuts whilst certainly not surprising to many, was a strong catalyst to the downside and I managed to cover back with a decent profits. Still, I have many close friends who were caught by this so I have mixed feelings on it.

The second company I managed to test with my strategy is with SIA Engineering which I blogged recently about it here on their fundamentals and although it was a pretty good gains in terms of % gains, it was immaterial in terms of the $ dollar amount.

The third company I currently have open with my short position is on UMS which I've blogged about it here on the fundamentals and the opportunity with it. I intend to have them closed after their full year earnings result next Feb. It is currently sitting near 10% gains at the moment. 

For my long position, I was fortunate to have 2 out of my top 3 holdings – Vicom and M1 made it to the list. 

Vicom has been one of my important general in this year’s volatile market and I am glad to have this around because it gives me both a decent capital gain and 6% dividend this year. This is probably a good exemplary of what I define by a 6% + 4% company when I gave the talk at Investors Exchange earlier this year.

M1 is probably the dark horse this year. 

When I accumulated M1 throughout 2017 and 2018, it was met with a lot of scepticism because the industry were in a doldrum (see my poor Singtel investment below later) and there are so many competitions out there that it was hard to “gain” from such an investment as an investor. 

I bought and accumulated them because I thought the valuation was cheap enough to give me that dark horse element and a nice 6% yield to wait for it to happen. Fortunately, the patience was well rewarded and after the announcement I sold off my shares at $2.10 to book a handsome profit from it.

Top 5 Profits Based on $ Value

The top 5 profits based on $ gains are pretty much similar to the one above so I won’t repeat again myself. 

The only exception changes is FLT moves up to the list while SIA Engineering moves out from the list because of the $ amount in value. 

I think FLT is another great example of the long term 7% + 3% strategy. 

Top 5 Losses Based on % Loss
Top 5 Losses Based on $


I've had my fair share of losses during the year and the most affecting me was the Keppel KBS due to the rights.

I clearly knew the downside scenario play of rights which I've written a lot in my past articles but was disappointed to have been caught by this when I went in too early in order to catch the mother share price.

Then, I exacerbated my mistakes further by applying for the excess rights too little given that I had limited funds to apply for the excess. When I looked at the rights results, I knew I blew my chances away. If I had played to my game, this could have been averted and I would be in the green.

Now, with all this and a potential tax case arising, this could be fatal if things doesn't go my way. I am still reviewing my position in this and Manulife for the next few weeks to see if I should divert away from that risk tail end.

It's a big lesson to learn and I had to pay for the mistake.

I was also rather disappointed with my Sasseur and Capitaretail China Reit investment because I think the entry price could have been better and the downside risk is pertinent given the trade war and devaluation of the RMB this year.

Again, I will continue to monitor on Sasseur and have them reviewed after coming back from my holiday.

Tuan Sing and Far East Hospitality were the more okay type of losses that I can accept because I think there were macro things that went against them during the year which was unprevented. I called this the "inevitable" type of investment losses I have to incur from time to time.

Networth Portfolio (2011 to 2018)

Overall, I think it's been a pretty decent year in terms of my networth portfolio growth.

The key in a rough market is really to contain your losses and make sure we don't get caught in certain situations that we don't want to.

Things like high risk equities, leverage are all tools that can be dangerous in markets where we put our guards down and am instilling a very heavy discipline when using these sort of tools.

I am fortunate that my losses (apart from Kep KBS which I'm still pissed off at myself urgh) were rather contained within and I found a couple of good opportunities during the year to nullify the impact.

Because of this, I am pleased that I managed to grow my networth this year by about $170k from the start of the year.

Out of that, the gains coming from equities and dividends during the year amounted to about $130k, while capital injection from savings took about $40k.

This is net after all the day to day expenses incurred and the savings portion are excluding CPF (because I always get this question).







Whilst we still have 2 more weeks to end the year, I will record down the networth of the portfolio to end 2018 at $833,750.

Do note that the Dec amount includes my wife's and children's portion of their shares as I have decided to consolidate them for easier reconciliation purpose with the CDP. This amounts to about $50k. Without this impact, the portfolio would end the year at about $783k.


I think 2019 will be another turbulent year because of the many elections that are happening across the Asia region. Still, what I wanted to highlight is in the midst of all the turbulence there are still opportunity that lies upon.

It is up to us to protect what matters when that happens.

Meantime, wishing everyone an early Xmas ahead :)

How has your 2018 performance been? Are there any good lessons to learn that you wanted to share with others?

Thanks for reading.

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Friday, December 7, 2018

SIA Engineering - Is It Time To Buy This Company After 22% Decline This Year?

SIA Engineering has been an investor's favorite for many years because of their moats servicing the maintenance and repair lines for various different airlines, with their own SIA planes taking up the majority of the recurring business.

It does look like a defensive business because every capacity planes that are increasing each year would have to undergo maintenance one way or another.

Over the years, the operating environment gets tougher due to longer maintenance interval perhaps as the quality gets more resilient for the newer next generation aircraft and there are many more competition in this small niche space of the industry.

The JVs are giving them good growth over the years as the company continues to invest in this segment partnership, notably with Stratasys in the areas of manufacturing technology and Cebu/Airbus for their respective maintenance with the airlines.


This year alone, the share price has dropped from $3.20 to today's low of $2.47, that is a drop of over 22.8%.

If you are someone who held this stock from the start of the year, you'd probably be screwed all over by now.

But is there really no value to this? What would be a good price to enter for this company?

I run my model using the discounted cash flow methodology by forecasting the terminal growth over the next 5 years to 1.2%, with an initial -1% for the first 2 years, then 2% growth thereafter.

I added back the depreciation which is a non cashflow item as well as their investments in the JV & Associates which are quite significant.

Their investments in the various JV & Associates are quite an important element to their business model so it is probably fair to value them separately.

What we are saying here in the DCF exercise is that we will take them out and see how much is the true value of the SIA Eng business.

PER of between 18x to 22x is probably a fair way to value this company with a discount rate of 8%.

What we get is an intrinsic value of about $2.66, which is about 7% higher than today's price.

Do note that this implies some growth into the future so if there's further deterioration to the business, then the value would plunge much further.



For investor, there's probably not enough margin of safety yet in this one.

The company has just recently cut its interim dividend and the balance sheet is weakening.

There's also no sort of catalyst at the moment and there are much better dividend counters out there to buy at the moment.

Thanks for reading.

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