Thursday, November 29, 2018

Is Investing In Growth Always A Good Thing?

When investors like us invest in the stock market, the goal is always trying to grow our wealth over time. 

Investors are generally thrilled by the prospect of growth in general, whether they are referring to their income, savings or even the companies that they invest in. 

We just love things going in the "up" and "grow" direction.

It is so tempting for investors to see their companies growing by double digit each year because i.) they expect the management to take the shareholder’s earnings and reinvest them to propel for further growth or ii.) Higher growth means higher dividends that the management can decide to payout or iii.) the share price would eventually re-adjust themselves to the same valuation. 

What do I mean by that?

For example, Colgate’s share price is $63 today. If Colgate’s valuation based on price to earnings ratio is currently at 20x and the company prospects a guidance growth of 10% per annum over the next 3 years, then the forward price to earnings ratio at the end of the 3 years is expected to be at 14x. Most of the time, the market will not allow such scenario to happen and upon the announcement of the news, the share price would adjust itself to the range up to $84 such that the valuation of the company goes back to 20x. 

Of course, such scenario is a very simplistic way of putting it in mathematical form. 

In reality, we all know that not everything will go according to plan in the next 3 years. 

Well, mostly in that sense.

From a downturn to the economy to the change in the fiscal or monetary policy of the macroeconomic factor or the company could have internal labour, production or acquisition issues that they did not anticipate for. There could be a scandal in the making or a new competitor coming in with better quality and cheaper products. The possibility of any event happening in the 3 years is seamless. 

The problem is the share price has usually priced the news in earlier before allowing what the company can really perform.

The market is often forward looking and that's when most investors get caught in their pants, i.e buying when the valuation is high.

Most investors notice the prospects of a "good" investment only either when their friends tell them or when they read about it on the newspaper. By the time they put their foot on the water, most if not all of the good news have been baked in and the investor is left to pick up the mess should anything goes wrong or if the company is not able to meet the ambitious guidance they project.

Unless you are a damn good timer in exiting the market, the investor who uses this strategy are most likely to end up poorer over time.

Growth investing also has the tendency to caution the day when finally that growth slows down.

You can't have a company that grows perpetually and exponentially higher growth each year. 

At some point, the company is going to register a slower growth and when that happens the market is going to take it quite badly, re-adjusting to the slower growth outlook for the valuation it entails.

I don't have a good strategy to go long on growth companies because I'm always skeptical about either what the management say or what the world might crap on me.

Being in the financial and accounting sector myself doing forecast for the past 10 years of my work experience, I've seen almost every single time the forecast has gone haywire, even if they are only for the next 3-6 months, let alone multi-running years.

It is also extremely difficult to spot on the very few companies in their early stage of growth and then ride on them because it entails a lot more expertise on the sectors you are eyeing for (almost like going for a private equity seed stage).

I'm interested to listen though to the strategy of those who've been investing in growth companies for some time with some measurable success and how they decide to enter and exit and what are their cautious approach to not being caught.

Let me know in the comments below.

Thanks for reading.

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Monday, November 26, 2018

Investing Action Bias Can Be Detrimental To Your Strategy

I was having a short holiday trip with my family to KL in the past week so I did not particularly overlook the market too much other than quickly checking for news at night when my children has fallen asleep.

At times, I felt a bit guilty for ignoring my portfolio a little while I have some fun on the same side of the world.

Then I quickly reminded myself for why should it be that way.

While it is true that I literally did '' nothing'' to the portfolio, I reminded myself of the strategies I employed for the portfolio which has been working well for years.

My strategy to stick with a defensive dividend portfolio has been a boon bore for most of the days. It goes up a little and down a little in some days but they gradually move up after some years of convinced positioning.

Of course, I also opened a short position for UMS before I went to KL based on a couple of fundamental reasoning I have in my previous article and then I just leave it there for the thesis to work it out.

And then mostly I just leave it aside and wait for the events to play out.

I get on with my other side of life that I have.

Today's article is about how much action does an investor needs to have in order to feel justified that he or she considers certain aspects as trying to achieve.

Of course, it is common sense to everyone to know that most of the actions might not turn into desired results but many did not realise the behavioral aspects of trying to get involved with the herds.

Consider the recent events of First Reit which stole the limelight news in the past week for being the highly most volatile Reits jumping double digit day in and out.

Naturally, with such volatile event, it will be the town topic to talk to for many. Some may be fleeing for exit, while others may see it as an opportunity. Until today, we have not really received a proper explanation for causing such a train wreck other than some credit downgrade for the related associates.

The best action in this case is perhaps then to sit and do nothing until you've clearly visualize in your head the justification you need to buy/sell.

But most just wants to get a piece of the action for sake of "doing something"

This week, the big story is circulating the news about a manufacturing company Hi-P over a privatisation offer.

With such news circulating, it doesn't matter if fundamentals earnings or outlook are going to be good or bad, the share price would fly on such rumor.

Again, naturally it'll be the talk of the town and you'd be silly not to participate in such hot news right?

Does that even reminded you of the once great crypto currency which has now been quiet down quite a bit these days.

The more seasoned investors probably already know about this and are sticking to their strategies. The more experienced traders are probably having the last laugh of the day.

The newbies are most likely the lambs that get the slaughter.

Maybe, it's better for them to avoid the forum crowd, for many of the lions there are lurking, without knowing the consequences they have for "participating" in an action bias.

Monday, November 19, 2018

Investing Is So Damn Tough You Are Right

To say that this has been a tough year for investment is an understatement.

Investing, as a general form of growing your wealth is so damn tough that for one not to be losing money is sometimes already seen as a form of success.

I can totally relate why many people avoided them like a plague because contrary to many popular beliefs, it can jolly well diminish your money.

Imagine yourself being invested in Asian Pay TV Trust at the start of the year, having intrigued by its stuttering share price and a high dividend payout.

You might have thought the dividends they pay out is unsustainable hence you made a decision to project them conservatively at the fcf you think they can give out.

When APTT announces their recent results, the management is even more conservative than you are and slashed their dividends like they did to slaughter a dying pig, causing its share price to fall by 50% in one day.

APTT might be a bad example because the more savvy investors could have been advocating investors to avoid them since their ipo days.

What about a stronger company like First Reit, which owns several hospitals in Indonesia and homes in Korea and has triple net lease master arrangements with a solid industry and sponsor background.

Imagine if you are someone who've just started out and would like to form a sustainable decent dividend paying reits and you come across First Reit as a company that has a great background history in terms of both operational and financial.

You got in at $1.20, thinking a 6.7% yield is decent enough for a hospital industry and then out of nowhere got whacked down by 20% in a week without having any clue or news to what was happening.

That is 3 years of dividend panadol that you need to wait before you even recoup back your capital.

Sounds like a ponzi scheme to many.

For those that turns to arguably one of the safest company in Singapore, Singtel did not fare any better.

Singtel earnings have been dragged down by weaker regional performance and their share price have been languishing low, back to where they are in the last 10 years.

You could argue that you receive a lot in terms of dividends over the past 10 years but that's mostly for consolation.

You know that is not good enough.

At the end of the day, you might just turn to the Singapore Savings Bond and decide to wait until the recession is here but I can tell you that by waiting your skills aren't polished enough to handle such situations when it comes.

You'd be just waiting and waiting and waiting.

Investing does not guarantee that you build up your wealth and I do not have an answer to one that can guarantee that you will.

The environment we face in the next 10 years should make it even harder to make money.

It is so damn tough you are right.

Thursday, November 15, 2018

Recent Action - UMS

This is a recent strategy which I am experimenting on my CFD account which I will be explaining more in detail when I have the time to blog the full implementation on it.

I recently opened a short position in UMS Holdings at the price of $0.66 for 50,000 shares.

This was somewhat a different strategy I have for my main portfolio which focuses on dividend income strategy and will remain the core of it for the most part of things.

UMS has been a very popular stock in the past 2 years due to their recent semi-conductor upcycle, which seen their stocks price goes as high as $1.30+ prior to the bonus offer 1 for 4 sometime during this same time last year.

Since then, their results this year have not been particularly good, with the trade war between the US and China impacting the demand production of their products and some delays in capacity production.

The cut in the interim dividends from 1 cents to 0.5 cents based on their most recent results are probably the most clear signal as their businesses are slowing down and they’ve strayed away from their usual high cash balance in their book to preservation mode as they’ve started to spend some acquisitions this year, which we don’t know what kind of return it might bring back to the company.

In their recent results, sales were down by 26% for the quarter and net profits were down by as much as 41%, most exacerbated by the increasing manpower cost.

Margins for the core business remain largely intact.

Economic conditions remain largely challenging.

In the short term (and am taking a position only for the short term), this is a negative for me as most investors are looking to UMS as an income play more than anything else. 

With an interim being cut, partly due to the decline in business and also cash acquisitions, there are huge possibility that the full year dividends might be cut too as after the acquisitions, they have only $20m cash as compared to $60m a year before. This resulted in them going from a net cash to a slight net borrowing position.

Free cash flow for the 9 months is at $15m and I expect full year fcf to come in just under $20m.

I foresee full year dividends to be cut from 6 cents (which they need $32m) to 4 cents (which they need $21m), which gives them a dividend yield of about 6%. Not attractive enough for me as a long investor and I'd rather sit in the opposite fence of things. 

AMAT will report their 4th quarterly results tonight, which will impress but they have cautioned on the 2019 sales outlook, which will dampen the mood further if the cycle has finally peaked. This is perhaps also the reason why UMS is diversifying their businesses away from one customer through their recent 2 acquisitions.

For now, I am seeing some opportunity to make money by being on the opposite fence of things so let’s see if this strategy would play out on the down momentum.

Will be updating when I close the position.

P.S: If you are interested in opening an account for CFD, do refer to my banner link on my right hand side.

Wednesday, November 14, 2018

Dividend Income Updates - Q4 FY2018

I am writing this dividend update quarterly in an attempt to compile my quarterly dividend performance for the year. 

With a rising cost of living under the belt, in particular with the two kids in tow and hence require some bits of maintenance spend to keep hold, it can be particularly stressful to keep up with the expenses or cash outflow. 

Many times, we are dependent on our sole income which comes from our source of salary which we received monthly. While these may be the norms in the beginning, it is not healthy to be overly dependent on it over long periods of time as it may anytime snap behind your back. 

This is the reason why all of us need to think ways to grow our side income while we can so that we may unravel opportunities that can supplement our monthly income from salary. 

For many, these activities can range from being an Amazon affiliate seller to vlogging for a youtube channel to being a freelance writer. 

Some others in the investment space include investing in alternative assets, bonds or stocks that can give them dividend income on a regular basis. 

For myself, dividend investing has worked very well in the past few years due to the familiarity of the company and regularity of the payout, which I like it very much. 

It has helped me to curb my rising expenses when the need arises and further propel my portfolio growth through regular capital injection via dividends reinvested.

Still, with many get caught in the high yield trap as evident from the APTT incident this morning, it pays to be cautious of the payout that you are receiving.

Without further ado, here’s the Q4 FY18 dividend income details: 

CountersAmount (S$)Ex-DatePayable Date
Fraser Logistics Trust4,168.54 12-Nov19-Dec
Netlink Trust1,251.72 12-NovCFD
Far East Hospitality Trust1,050.00 5-Nov13-Dec
Starhill Reit1,150.00 5-Nov29-Nov
Total 7,620.26

After tabulating the dividends for all the companies, the 4th quarter dividend income came up to $7,620.26.

4th Quarter is arguably the weakest quarter of all, so we should see some better improvement in the next quarter.

With that, the annual dividend income has now summed up to $42,972 for the year, which so far is a record high for the portfolio. 

Together with the past dividends received, the portfolio has now accumulated $124,063 worth of dividends received and this number will keep on growing over the next few quarters and one day will become an integral part of my sustained income to live off. 

Thanks for reading.

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Tuesday, November 13, 2018

CFD Experiment - Dividends Credited and Cost of Financing

Following my experiment using CFD account to purchase shares which I blogged here a few months ago, I have finally received my first dividend payout credited to my account.

Although rather straightforward, but they operate somewhat a little differently from holding a normal ordinary shares account hence I wanted to document this for future users.

For those who've read my past articles, you would have known that I have opened up an account with Cityindex and have tried to experiment leveraging through a series of different level financing.

Being conservative since this is my first few encounters with leveraging instrument, I have only leveraged up to 1x which means for whatever position I have opened, I have half purchased it using cash and the other half using borrowing.

The cost of financing is estimated to be at about 3.2% per annum, though computed daily.

I currently hold open positions in Netlink Trust and CapitaretailChina Trust.

You can see that the cost of financing is computed daily, and I incur a financing cost of about $10 on a daily basis for these two relatively large positions.

Netlink trust also went ex-dividend on the 12th Nov and payment date for the ordinary holder will not happen until the 27th Nov.

However, for CFD account, your dividends are immediately credited to your account given that you are borrowing the shares and your borrowing cost is computed liable on a daily basis.

Given the usual nature that the share price will usually drop on the day of the xd, it usually nets off before the share price grows gradually up again.

I have not found a sweet position to utilize my CFD better but am tinkering to think that holding long term using this strategy might not be the best strategy.

But this is an experiment, so I get to see both the nice and ugly side.

Currently, Netlink is in a green position while CRCT is in a loss position.

I might tinker shorting a position for the short term in the near future when I get the chance to do so.

That'll be my another experiment I wanted to try out.

P.S: Double the risk, double the reward, but it won't be nice for those who fell prey to it.

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Friday, November 9, 2018

5 Key Highlights From Hobee Q3 FY18 Results

Ho Bee Land Limited is a property developer and investing company which has developments in various parts of Australia, China and United Kingdom. 

The company has recently announced their Q3 FY18 results which brings about some of the key highlights: 

1.) Rental Income has once again grown both year on year (up 28.3%) and quarter on quarter (up 26.1%) mainly due to the full quarterly contribution from Ropemaker Place (25 Ropemaker Street) which they acquired on 15 June 2018. 

Extrapolating this to full year, this means that rental income contributes more than $200m to the company’s recurring income base. This translates to an earnings per share of about 28 cents before deducting the corresponding expenses. 

Rental income continues to play a large role in Ho Bee business model going forward. 

2.) Residential Sales in Singapore has remained lacklustre following the new cooling measures introduced in the 2H18. 

The company has only managed to record $1.95m sales for the quarter with a 36% net profit margin on the sales. 

The management continue to be pessimistic in this demand sector. 

3.) Shares of Profits from Associates continued to perform strongly this year and momentum in this quarter due to its sales from the residential development projects in Shanghai and Zhuhai. 

This will not yet trickle down to cashflow impact until the associates declare dividends at the end of their financial year. 

In Tangshan however, the company recorded lower profits from the sales. 

Management has also sounded cautious outlook on the demand for China residential properties.

4.) Following the European fund loan of EUR 90m made in March earlier this year, the company has not made any further announcement on the use of this fund. This however, has appeared in the balance sheet section under the “Financial Asset”. 

Separately, the company has also completed a 200m pounds Green Loan with HSBC in Aug, which we should expect some further acquisitions by the company. 

Gearing (Total Borrowings / Total Assets) has now grown to 0.42x, an increase from last year of 0.29x. 

5.) Leadership changes by promoting Mr. Nick Chua as Deputy CEO as well as Mr. Ong Chong Hua as COO of the company. 

The company currently trades at a P/BV of 0.51 and a trailing dividend yield of 4% (using 8 cents ordinary + 2 cents special).

I'll update the spreadsheet once the full year results are out.

Still in my watchlist with their strong growth potential.

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Thursday, November 8, 2018

My Thought Process On Discretionary Spending

First of all, apologies for the lack of posting as I just came back from my trip from Taiwan which my friends and I did our main objective of the trip which is to cycle. 

During our time there, we also witness a nice fireworks display and we also walked around a few of the night market. 

The topic that I wanted to write today however is about controlled spending, and this came up because my friends who were with me were asking why my spending was so low and how I manage my controlled spending, even though some of the stuff that we came across in Taiwan was really tempting at one point but I walked away from purchasing it. 

I thought I’d come up with a post on how I liberate my thought process when it comes to discretionary spending. 

First, by clearly segregating my spending as discretionary vs non-discretionary expenses in my budget, this gives me an immediate avenue to think straight between a need versus wants. 

Discretionary expenses are clearly “wants” and a nice to have and by it’s very nature you can walk out of it and nothing significant will happen to your life. 

For instance, your first and second purchase for your shoes are probably a need but beyond that it will probably go into the wants bucket. 

But these are items that are very tempting to buy, we can understand. 

A lot of money is paid to marketers to promote, market and brand their products to lure consumers to purchase them. With many various designs and brands competing against one another, this quickly becomes a buyer’s haven as they have limitless products to choose from. 

This brings us to the second point, which determines what should we be considering should we decide to buy them. 

The first and foremost is to to have a quick consult with the budget in our mind to see if we can still afford them this month. 

This will help ensure that we kept our spending tight within the intended budget we plan at the start and it doesn't viral rapidly elsewhere. 

If this criteria is not met, then I would walk away from it immediately without pondering further. 

If the criteria is met, I would then ask myself the utilization utility of the product I wanted to buy. 

If the product warrants a frequent use, then perhaps it gets closer to the need than wants and I can shift the category around. 

The idea of doing this is simply to ensure that it isn't an impulse buy that are based on first impression or look without using them much often. 

For frequent shoppers, this becomes a very important point because they generally like frequent changes or updates to the things they buy or wear, such as phones or shoes. 

I would also at times check if there was a cheaper version online for the same product that I'm eyeing because there might just be. 

Last but not least, I would then try to maximize my spend by using my Citicard Miles reward, which gives me 1.2 miles on per dollar spend. 

Some may think it's such a hassle to go through so many consideration before buying but once you are accustomed it comes naturally to you at a finger of a tip. 

We can still live a fruitful lifestyle, indulge in infrequent luxury at times and still manage to get our budget financials in shape. 

That's the best of all scenario.

Thanks for reading.

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