Wednesday, August 28, 2019

Is There Light At The End of The Tunnel For SPH (SGX: T39) ?

Following my recent article on Starhub, I've received a few inquiries from readers regarding what I think about SPH and if their current valuations are fair.

SPH has been a very good dividend payers for many years in the past and is a past time favorite for dividend investors so I can understand if there are a lot of them out there who are holding on to the shares and not knowing if they should cut loss or continue holding on to it (perhaps due to sentiments).

Long time shareholders of SPH would have experienced that the shares of the company used to get as high as $18 to $20 before doing a split back to $5. The GFC event in 2008 brought them down all the way to $2.40 before rebounding sharply when the market recovers. This was despite the start of the decline in the media print and ads as people start to read less hardcopy and go more digital. It didn't deter shareholders though as the company continued to pay decent dividends at 24 cents despite the beginning of a structural decline.

It wasn't until sometime in 2013 when they split part of their property portion out to SPH Reit that they started to reduce their dividends every year due to decline in earnings, and the share price has since languished to a new low today of $1.95.

But at today's languished price of $1.95, is there light at the end of the tunnel for SPH? Where is the bottom for SPH?

Let us take a look parts by parts of how much they're worth now.

1.) SPH Reit

Whether you like it or not, the SPH of today is pretty much a property play, which is why SPH Reit is probably the most valuable worthy of the lots.

The Group owns 69% of SPH Reit which is currently valued at $1.10 (thanks to the resilient nature of Reits these days!).

$1.10 x (2,586,531,833 / 1,617,010,890) x 69% = $1.21

2.) Seletar Mall

Seletar Mall spin off into SPH Reit is a matter of time and not if.

SPH Reit has recently established a $1billion multicurrency debt issuance, which is likely to fund a potential acquisition which is likely to be Seletar Mall. Under this issuance, SPH Reit is able to tap into both debt and perpetual securities so it is likely they will acquire something big to tap on both.

In any case, the last appraisal for Seletar mall is likely to be in the region of $488m using the latest appraised valuation last year in SPH's book, so the worth of Seletar mall on SPH's books (70% stake) is likely to be:

$488,000,000 / 1,617,010,890 x 70% = $0.21

3.) Bidadari Site

SPH and KDDL managed to outbid their competitors by winning the tender bid at the Bidadari site sometime back in 2017 at an agreed price of $1,132m.

The intention is to build the site into a mixed commercial and residential use in due time, so it's not currently contributing anything to earnings yet.

$1,132m x 50% / 1,617,010,890 = $0.35

Adding point 1 to point 3 for the property site, we would get a worth value of $1.21 + $0.21 + $0.35 = $1.77

If you are not comfortable with taking the full current asset value and want it to be further conservative, you can slap a discount to the property by 20% and you should get a lower amount to $1.77 x 80% = $1.42.

4.) Orange Valley Healthcare

The Group announces its maiden entry into the healthcare sector when it bought Orange Valley healthcare for $164m back in 2017. The net asset value for OVH is at $71m, so the company is paying around 2.5x, which proves to be too expensive on hindsight given that they recognized an impairment in Q3 FY19 by $22.8m.

Given that OVH's earnings are only at around $5.8m, and if we slap an earnings multiple of 20x for healthcare premium, we would get:

$5.8m x 20 / 1,617,010,890 = $0.07

This is also similar if we take it via the book value method:

($168m - $22.8 impairment) / 1,617,010,890 = $0.08

5.) Other Investments

SPH also has a stake in other investments such as M1 and Mindchamps, which we can value it out based on the last traded price. The company also recently added their stake in the UK student accommodation portfolio, increasing the beds to a total of 5,059 beds across 10 cities.


$0.54 x (241,600,000 / 1,617,010,890) x 20% = $0.016


$2.06 x (930,151,000 / 1,617,010,890) x 16% = $0.19

Student Accommodation:

5,059 x $1,000 / month x 12 x 70% occupancy / 1,617,010,890 = $0.026

6.) Media, Newspaper & Ads Print

SPH's share price decline is probably most contributed by the decline in the structural nature of the media and print business.

Media and advertising profits were down 11.6% year on year and it doesn't seem to abate going into the new financial year in the next two quarters.

Alone, Quarterly newspaper and publication profit declined from $63m in Q1FY16 to $13m in Q3FY19. Margins were down structurally.

With full year media and newspapers earnings expected to come in at $50.8m, and we place a conservative 8x PER multiples on the earnings, we are expected to value the media portion at:

$50.8m x 8x PER / 1,617,010,890 = $0.25

7.) Net cash less borrowings

As at 31st May 2019, the company has cash of $206m and borrowings of $2,177m.

Since the Reits portion are being consolidated into the book, we will have to separate it out.

($206m - $2,177m) x 69% / 1,617,010,890 = -$0.84

Final Thoughts

If we sum point 1 to 7 all up, we will get a sum of the parts of $1.56 worth in value.

There are some very conservative earnings multiple that I have used on the valuation above but there are some parts like the property side which we have also used the book value to justify the nav.

In this regard, I think SPH will still have further room to go down, especially if their media and print earnings continue to decline.

If you are interested in buying SPH just because of their properties, then it is a much straightforward play to buy their SPH Reits instead of going through the indirect way through SPH.

The SPH of today is no longer the SPH of the past.

They ventured a lot into unknown territory which we do not know if things might work out to be good in the end. The Orange Valley purchase gives us a good indication of how they overpaid for a project they are pretty unfamiliar about and have to pay the price.

Sentimental buy? Maybe can reduce them to a smaller position in your portfolio instead.

Short the company? Do it at your own risk. I have a relatively large position shorting Starhub already so I would want to keep my other bullets for other uses.

Having said that, the high likelihood of divestment of Seletar Mall to SPH Reit might buy them some time to breathe in for a moment.

Thanks for reading.

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Monday, August 26, 2019

Why I Think Starhub Is Going Down To $1

I took up a pretty substantial short position for Starhub today at a price of $1.35.

Starhub Limited is no stranger to most Singaporeans, as we probably use their services one way or another.

At the peak of their share price, Starhub was trading at $4.13 back in 2014, but have since seen declining numbers to end the day where they are today at $1.34 due to massive competitions, evolving technology and erosion of quality services that it can offer to customers.

Business Divisions

Mobile Service Revenue fell 10% year on year due to the entry of competitions from the MVNOs across all segments of data usage, voice and IDD services. However, there are brighter scenes in the post-paid customer base numbers as they managed to grow this segment by 7% year on year. Prepaid numbers are down by 11% as customers tend to switch from one to post-paid.

Pay TV numbers continued to struggle as they lost 20,000 subscribers in 2019 while the ARPU dropped 17% year on year.

On the enterprise business, cyber-security managed to outperform by growing by 92% for the first half, but this contributes barely 7% of the Group's overall revenue figures. Furthermore, they have agreed to also sell their cryptographic stake to Temasek, which now means going forward they will only own 60% stake through Ensign. 

Further Dividend Cuts Imminent

In the earlier days of 2019, the Group made a decision to revise their dividend payout policy from a fixed 16 cents to a variable policy of paying out at least 80% of their net attributable profits for FY2019.

The Group committed nevertheless for a 9 cents dividend for FY2019, which translated to about $155m based on their total outstanding shares.

If we look closely at the numbers, that's not looking great.

While net profits attributable to shareholder for 1H FY19 numbers amounted to $93.5m, free cash flow numbers fell to $75.9m for the first half of the year. If we annualized the cashflow, that's $150m, which is barely the numbers needed to sustain their 9 cents dividends, give or take.

For them to maintain this kind of payout at 9 cents, their business earnings would have to sustain at the current level and capex has to be minimal like they did in the first half. Already, the management has guided for capex for 2019 (excluding spectrum) to be in the range of 11% to 12% of their total revenue in 2019. Working backwards, this means 11% x annualized $2,300m = $253m capex for FY2019. They already spent $116m capex in 1H, so I'm expecting 2H capex to be at around $137m.

Don't forget we have not included the 4G spectrum capex which they have to incur an additional $282m which they have committed. 

Why I Think There Are More Rooms To Fall?

What do you get when a company has a declining business division, erosion of margins due to competitions, depleting cash balance (cash and cash equivalent at $97.5m, net debt position of $930.2m, total outstanding capex commitments at $443.8m, including the commitments for 4G spectrum rights of $282m that have yet to be incurred)?

The probable likelihood scenarios are either more borrowings (keep tapping on those while it lasts), equity rights call, or further dividend cuts, or all of the three combined together at the worst scenarios.

In order to "grow" their business and maintain its competitiveness, they will need to spend on capex, like they did with their pay tv business when they introduced brand new TV passes in order to cater to customer's preference of moving to fibre tv content.

Where the world is already moving into the possibility of a 5G network, Starhub is still lingering around 4G. I wonder whats the capex going to be like for 5G should Starhub eventually go into this route. 

Will Starhub Goes To $1?

It's incredibly difficult to call for the bottom when you have companies that are still in the midst of the decline and are shifting model to cater the needs of the new world. It doesn't help also to know that the company's balance sheet have already deteriorated when the fight is not yet over (Knock, knock TPG, when will you arrive?).

While it's a long way from here before it goes to $1, a couple of bad results followed by a further cut in dividends might be the last straw for investors to run. 

On the dividends front, an eventual cut to 7 cents/share dividends, which translates to 7% yield for investors at $1, would be more sustainable moving forward. 

The 7 cents/shares would require the company to fork out $121m, which if based on 80% payout, would require the company to earn a profit of $151m.

It would mean a further drop of around 19.2% from where they are today or a terminal growth of negative 3.5% over the next 5 years but it will not be a surprise if it comes to that stage in the next one or two years.

Combine this with where we are on the global trade war and we might just see a perfect storm brewing for this company.

Thanks for reading.

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Aug 19 - Portfolio & Networth Update

No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
HK Land
Far East Hospitality Trust
Ho Bee Land


I get the feeling that the second half of 2019 is full of events in the market and there's so many talking points that have not been totally apparent in the first half of the year.

Volatility in the market seems to be back as we continue to see the ups and downs with every tweets Trump is going to react in response to the China trade and the market seems to be correlating it very closely.

This was combined with the events happening in Hongkong with peaceful demonstrations turning into a riot scene which seemingly had no conclusive events on how this is going to end. Surprisingly, amidst all the news reported, there are currently no major fatality yet which means the protest is likely to be continued pending which side will back off first. This will probably drag on for quite a while and it will have major impact to the HK economy for many years to come.

With everything that is going, I took the chance to liquidate my position in Vicom which has been giving me decent returns for the past couple of years and is considered a safe haven in times where people are looking for a place to hide.

The first shot I took upon selling was to take up a position for HK Land at a price of $5.61 on the 6th Aug. You can view my full transactions here if you are interested.

I thought it represented some value at the price I bought but apparently the HK protests seemed to be prolonged so I'll wait for the next batch before I start to accumulate further.

The company has also went xd recently for a payout of 6 cents, so my current average position is at $5.55, which is not too far from where it is now, so no hurry to add on to the call.

The warchest is an expensive call option which is vital resources in times like this so I am likely to allocate to a position only if I see real deep opportunity. So far, there's not much that brings me to much interest yet.

After all, with all the events we've been seeing, the STI is still above 3k!!! You can't exhaust your resources when the index is still that high, especially the banks since I feel there's much room for downside should we get into events that might impact the economy. They're always the first ones vulnerable.

Networth has substantially gone down since Jun due to unforeseen events which I won't repeat again here. If you're interested to read about the story, you can read them here.

Without the impact, the portfolio would have hit the 7 digit figures by now which I have never dream of but it has to be reset at this point.

There's still an opportunity to close on the gap should we decide to sell our house which is currently rented out and move on to a cheaper alternative but that's just not happening at this point. We'll have to see how it plays out within this space.

With that, I am likely to start rebuilding my portfolio for the next few years with the aim to grow them and the market might just give all of us a chance to do that.

Thanks for reading.

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Saturday, August 24, 2019

A Relook Back Into The 2016 Bear Case And What I Did To Get The Most Out Of It

The Trade War is escalating.

You can feel that coming as investors as you read the news that both Trump and Xi had continuously been playing a game of cat and mouse and it appears there's no way both could get a mutual agreement that might compromise one another.

Last night was a bloodbath as Dow was down more than 600+ points while Nasdaq had fallen by 3%.

It's pretty drastic in my opinion, but we are getting the hang of it with Trump.

Up 2% on one night, down 3% the next day, and then up another 2%, and then down another 3%.

Monday is going to be interesting especially for our STI index which is still at 3,110, and are still up by about 4-5% (inclusive of dividend) year to date.

Not cool at all given we want a bigger drop like the ones we've seen most recently in 2016, at the very least.

The year is still running with now being only August, so I'm hoping we'll get to that stage where STI goes to as far down to the 2,500 range, which is the lowest on the 11 Feb in 2016.

What Happened In 2016?

The good thing about journaling everything in this blog when it happened is I could easily relate it back when I needed to relook back at something.

2016 was a lovely year for investor as the STI dropped 28.3% from the peak to 2,538.

The first day of trading in 2016 on the 4th January saw STI dropped to close the day at 2,835.

The media news were labeling it as "Black Monday" and I can understand why.

After all, we wanted to start the year fresh and exciting and what we've got is a massive plunge everywhere globally with the China Shanghai index in particular dropping 7% on that day to trigger a circuit breaker. HSI was also not spared as it ended the day at 21,327.

As an investor looking for bargain myself, I happily bought a few companies during that short stint where the market was continuously in red.

I mean, just look at the price of those companies below.

Who doesn't want to buy OCBC at $7.95, or ST Engineering at $2.88, or Ho Bee Land at $1.95 or FCT at $1.89, or Ireit at 66 cents, or CDL at $7.29, or CCT at $1.31, or Keppel DC Reit at $1.02.

These are all companies that are seem brainless to accumulate back then on hindsight given the current valuation they are trading today but I can tell you that things are very much different back then with all the fear news lingering around, causing most people to wait until "the sky is clearer".

There are also a few companies such as Kingsmen, Dairy Farm and First Reit which are trading at less today but we can mostly agree they are due to fundamentals of the company deteriorating.

Don't you love it when you see Areit at $2.21, CRCT at $1.35, FCOT at $1.27, FLT at $0.895, MCT at $1.41, MLT at $0.98 

How Did I Perform The Year In 2016?

Most people was waiting for the market to bottom out but I was going a different direction by buying more each time the market went down and I had exhausted my warchest by the time the market goes into the 2500 territory.

Needless to say, the global market rebounded thereafter and my portfolio gained much from the earlier investment I had made when blood was on the street.

Even if the global market did not rebound on that particular year, I still had my savings and my dividends to add more to those companies over time.

I believe that the entry price was attractive and I believe the market was going to come good someday.

2016 was one of my better performance year as I ended the year with a 22.35% return.

It is also the start of the foundation where my portfolio accelerated quickly over the next couple of years and since then I've been waiting for something which has similar tenacity as that one.

Final Thoughts

Here's a few lessons that I learnt which might be useful to new readers.

In any bull or bear case, there are bound to be many naysayers and "gurus" who are trying to predict where the market will bottom. Unless you are a trader, I'd advise that you ignore these "noises" because they are likely as clueless as any experts out there in the CNBC or Bloomberg news. 

Traders might be a bit different because they are taking a specific position with stop loss and a specific position to take profit, hence their angle of views might be slightly different with investors.

Don't wait for the bottom because it might or might not hit and you might miss your chances on the up.

For as long as you see something which is priced attractively, do get into positions and slowly add from there. If you miss to catch the wave, you are likely to miss a huge chunk of your gains and might have to wait a few more years for that.

Typically, we'll get about one small bear case such as the one we've seen above every 3 to 4 years.

Do concentrated investment.

It might seem that everything is attractive when you see blood on the street but go for the biggest meat that you are confident in and put a larger resources on it. I mean, there are no point when you can finally get OCBC at $7.95 but only allocate a small 1% of your portfolio on it. If you think is attractive, go for at least 5% position at the minimum. Anything smaller is insignificant to your portfolio.

Last but not least, continue spending time to analyse the prospect of companies and building up capacity in asset allocation as an allocator. This will payoff good dividends when you need it later on.

Thanks for reading.

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Friday, August 23, 2019

Jardine Matheson Holdings (SGX: J36) - Valuations Getting Attractive BUT.....

Jardine Matheson Holdings (SGX: J36) has been on a tear this year, dropping by as much as 23% in 2019, mainly due to the intensifying global trade tension, protests in Hongkong and slowing businesses in particular the auto sales, putting the company as one of the worst performer in the STI index.

As a contrarian investor myself, I became interested in the company when the share price keeps falling, which means valuations are getting cheaper in relative to its earnings.

But as an investor with limited resources, is now the best time to put our money into the company?

Company's Background

Founded in 1832, Jardine Matheson Holdings became one of the trading houses that shaped the early days of Hong Kong's development. It moved its stock listing to Singapore thereafter in the early 1990s.

The company is a conglomerate investment holdings company akin to Berkshire Holdings of Warren Buffett, where they held several great businesses that have evolved for the better over time.

The company held these businesses by sectors:

- 100% of Jardine Pacific
- 100% of Jardine Motors
- 84% of Jardine Strategic
- 42% of Hongkong Land
- 65% of Dairy Farm
- 65% of Mandarin Oriental
- 63% of Jardine C&C
- 31% of Astra

Clearly, if you are buying into Jardine Matheson, you are essentially buying into their Astra (particularly automobile) business and also their property division business held through Hongkong Land as these two contributed the most to the earnings.

This followed by their retail business which they held through their 65% stake in Dairy Farm.

The rest of the others was relatively insignificant, for instance their hotel business through 65% stake in Mandarin Oriental and their stake in JLT.

Divestment of Jardine Lloyd Thompson

Earlier this year, the company completed the sale of Jardine Lloyd Thompson (42%) to Marsh & Mclennan for a net proceeds of US$2.1 billion, recognizing a gain of US$1.5 billion on the book in 2019, unlocking the value of their net asset value which ballooned in the Q2.

The sale is valued at about 30x PER of its future earnings contribution.

From this sale, you can see that their underlying earnings drop in Q2 due to the absence of contribution from JLT but cashflow wise was healthy due to the proceeds.

JLT, in my opinion, was also a non-strategic asset which the company did not have heavy involvement or presence in, hence I think it's a good divestment for both parties.

Moving Parts

It's incredibly difficult to analyze an investment holding conglomerate which has many moving parts of its businesses so we'll be just focusing on a few major contributions.

Astra International

The biggest earnings contribution, as mentioned earlier is coming from Astra which accounts for around 27% of the overall company's earnings in 2018. 

Astra, on its own, is a conglomerate company focusing on the primary market in Indonesia, and operates in a few businesses which include automobiles, financial services, equipments, agribusinesses and more.

PT Astra International earnings fell 6% in 1H 2019 as they face higher competitions and lower margins from their automotive and agribusiness divisions.

In it's outlook, management cited it might face some difficult concerning situations for at least until the rest of the year.

Prijono Sugiarto, president director of Astra, said: “The group’s performance in the first half of 2019 was impacted by relatively weak domestic consumption and a downward trend in commodity prices, but benefited from an improved performance from financial services and the contribution from the newly acquired gold mine. The outlook for the rest of the year remains challenging as these conditions may persist.”

Domestic consumption for sales of automobile locally is expected to drop from 1.5m units sold in 2018 to about a range of 1.05m to 1.1m units for 2019. This is almost about a third drop in consumption sales which is a concern.

To counter-combat this drop in sales, they have set up a joint ventures with Gojek to provide cars to the ride-hailing firm, who are also battling with Grab under the same radar.

HK Land

Hongkong Land is their second biggest contributors to the earnings so it is also critical that we look into the property side of the business when analyzing Jardine Matheson.

HK Land's earnings for 1H 2019 fared slightly better as they are up by 2% as compared to the previous year. This is due to the strong positive rental reversion concerning their commercial portfolio which contributed to the steady stable growth of their earnings.

While development sales are lower in Singapore, there will be a good amount of earnings contributions from the sale of their completed China projects in Chongqing in the second half of the year. 

The company has so far injected a massive amount of development projects in Chongqing, as much as 20 projects, so we should see some good fruitions in the next few years to come, as and when they are completed.

Dairy Farm

Dairy Farm's 1H earnings saw a modest increase which is up by 5% year on year for underlying earnings.

The first half of the year saw a strong performance from the Health & Beauty division, Convenience stores and Home Furnishings. While contributions from Yonghui and Robinsons retail are also higher, these are offset by the transformation costs incurred as the Group continued to reshape the business model of the company.

Nevertheless, the Group is expected to see reduction in transformation costs incurred over time and also the fruitions from the reshaping of the business model in years to come.

Final Thoughts

Buying Jardine Matheson is akin to buying an investment model ETF which held many great listed businesses. 

The good thing about buying such a diversified portfolio is their earnings will not be severely impacted by one division which is struggling and you can see this through their steady growth of paying out dividends over the years which has been increasing over time.

However, being diversified also has its downside as one particular struggling division could be a drag to the overall portfolio of the company, which I think might be the case with Jardine Matheson as their biggest contributors Astra is facing some headwinds for this and next year.

In this regard, I think it might be more worthwhile to directly buy the other companies that are listed and have more promising outlook such as HK Land and Dairy Farm, while waiting for the Astra businesses to improve before buying Jardine Matheson.

That said, Jardine Matheson is still a solid company to own and one which I will be monitoring closely too for the upcoming months to come.

As of writing, Jardine Matheson has a trailing PER of 12.4x, dividend yield of 3.2% and P/BV of 0.7x.

Thanks for reading.

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Wednesday, August 21, 2019

Why I Would Not Consider Ireit Global At Their Current Valuation

Ireit Global is a Reit I used to own in the past due to the strong profiling of their freehold assets in Germany, high dividend yield, low borrowing costs and long WALE with concentrated blue chip tenant profile.

You would think that Germany is a strong powerhouse in Europe and they are too big to fail, so everything else equal, it's something which is probably too good to be true, especially since they debuted and listed back in 2014.

I bought them in the past in the range of 63 to 66 cents when most people were skeptical about the relatively new manager at that time and managed to sell them when they were at around 73 cents. The main reason I sold was because Tikehau Capital came in and they kept harping about a possible inorganic growth through acquisitions in their investors presentation slides, which is pretty imminent at that time that they were going to do a rights issue since their gearing was in the 40% range back then.

Since then, 5 years after the listing, there's not much acquisition stories that are developing and revolving around.

Most of the assets remained as what they were during the IPO, there were a few assets that appreciate in value which resulted in the lower gearing today (~36%) while dividend yield remained in range.

Costs of borrowings did went down further from 2% to 1.5% due to the drastic state of the European economy and we just wonder if we will start seeing more defaults or downsizing of their blue chip tenants. It's probably one of the danger of concentration activities and you can see why retail investors keep harping into that as one of the potential risks.

Earlier this year, City Reit Management, a fund subsidiary of blue chip property giant City Development (CDL), came in to purchase a 50% stake in the Manager. CDL did that as part of their growth plans to secure a more recurring income platform through fund management activities.

You wonder why Tikehau wants to allow that since they are big enough players in Europe themselves who are able to grow their AUM if they want to do that.

And we're all waiting for Tikehau to make it happen since they took over back in 2016 and kept harping about growing, but albeit no news so far. Surely, if they want to do that, they can easily find a good property with sufficient passing rent yield and appropriate capital structure to make the acquisitions DPU accretive, so am not sure what's the further wait.

The arrivals of more than one stake in the manager with majority vote for decision making brings about more uncertainties because the plans could be skewed to one side.

CDL, in particular, was familiar with Europe but specializes more in hotel management and not commercial or logistics and Tikehau might be the big brother familiar with it. If so, one might wonder what sort of value does CDL brings to the table. At the worst scenario possible, they might be pressuring Tikehau to make the deal to grow the AUM, this especially if they are only interested in extracting management fees out of the AUM.

I'm still unsure if Ireit Global at this valuation brings anything to the table for investors, especially with so much uncertainties questioning both the European economy and the management's direction of where the Reit is going to go. This has definitely been a lost 5 years opportunities for Ireit Global themselves to grow their assets and they might be in for a rougher ride when the global economy goes back into recession or slower growth over the next couple of years.

At this valuation, I certainly don't find it attractive enough to put my money on it.

At the best, this probably gives you the current 7.7% yield returns per annum which you might get, but you shouldn't expect too much from it, especially if you are gunning for double digit returns. At the worst, you might get into the perfect storm of a declining European economy which will increase the probability of a default or downsizing activity in tenants, a rights issue, and a wasted warchest opportunities.

Surely if you find the current profile attractive, you would similarly found their past profile attractive as well.

Thanks for reading.

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Tuesday, August 20, 2019

Guest Post - Lessons Learnt From My Temporary Retirement

The following article is a guest post contributed by Simon from Financial Expert.

Simon is someone I met on the social media and have chatted with him a few times.

We have similar goals in mind with regards to the concept of financial independence and it is probably the reason why we quickly clicked when we talk to one another.

This is his story about how he achieved financial independence at the age of 29 and the lessons he is sharing with us on his temporary retirement.

Emotions were running high when I returned to my apartment on the last Friday of May this year. I had given my farewells to work colleagues and had left the office after working there for ten years.

My mind raced between all the new potential uses of my time, and the loose ends I might have accidentally left at work. Like Britain attempting to leave the EU, it was certainly a challenge to untangle ten years of projects and responsibilities. 

By the end of the evening, my mind had calmed and I was able to focus on the key headline that frame that day – I had retired at the age of 29! 

Well… for now, at least. I enjoy my work and intend to return to it after a long summer and some travelling in autumn. 

In this post, I would like to share some insights from my experiences from the first three months, as my lifestyle now resembles early retirement.

Nothing Lasts Forever

They say that nothing lasts forever, and this certainly applies to a retirement lifestyle. In a dream retirement scenario, we might picture ourselves enjoying a new hobby, or attending a one-off event that we’ve never had the opportunity to attend. 

What I’ve discovered is how shallow that image can be. It is fairer to label it a retirement ‘snapshot’ rather than a vision of what retirement is like to live through. Real retirement is an evolving beast that doesn’t hold still. 

Despite being only three months into my break, I’m spending my days in a very different way to my first month. 

The takeaway here is that I appreciate that having an idyllic picture in mind might provide some motivation. But as you actually begin to approach retirement, you should begin planning for a much deeper, and fleshed-out lifestyle that will continue to enrich you over the longer term.

Routine Is Everything

In education, teachers run schools with military precision. 

At work, our managers monitor the amount of time we spend sitting down in the cubicle.

In retirement, by contrast, all of this structure falls away. 

While we may have shown great discipline to wake up early and be a punctual employee, this doesn’t mean we can call upon such discipline when all incentives are stripped out. 

I encourage you to reflect on this. 

As a thought experiment, consider the following: How do your habits change at the weekend when none of the usual pressures exists? Do you still wake early and make the most of your day, or do you lie-in and waste many hours in bed? If you lie-in at a weekend, what exactly prevents you from waking at 10am every day of your retirement? 

I have found that establishing a formal wake-up time for each day has helped enormously to instil a sense of purpose and structure to my day. 

In fact, I consistently wake up much earlier now than I did at work. By 9am each morning, I have usually achieved something that gives me a sense of accomplishment, such as a gym workout and a cooked breakfast. I feel proud when I consider that I wouldn’t have even arrived at the office by 8:30am under my old routine.

Socializing Requires More Proactivity & Creativity

When you are successful in retiring early, you will have beaten most of your peers to the goal. 

While you now have unlimited spare time – your friends’ jobs still chain them to a desk or a work shift pattern. Therefore your opportunities may still be constricted by the demands of work, indirectly, because of your circle of friends in the society. 

One solution to avoid this problem is to be more creative with the time you have. 

As I live in a city, I saw an opportunity in the often-wasted lunch break. After spending the morning preparing an elaborate dish, I invite over friends to join me for a quick, home-cooked lunch. We get the chance to catch-up and at the same time, enrich their working day and give them a true break from their work. 

You could say this shares the benefits of retirement with those who haven’t quite made it there yet!

It Takes Time To Orientate To A Time-Rich, Money-Poor Mindset

Three months into my break, I still found myself making decisions with the assumption that time is still a very scarce resource. 

The most dramatic example of this was choosing how to sell my car recently. As a worker, I had never considered selling my car privately. 

I did not want to spend the precious few free hours of my week performing the necessary duties. These include hosting viewers, haggling on price with time-wasters and nervously taking the passenger seat during test drives. 

Therefore, when I began the process of selling my car this month, I automatically began requesting quotes from car-buying services and dealerships, who all offered prices in the region of £21,000 – £23,000. 

Within this mindset, I thought I was chasing a great deal by twisting the arm of a buyer to add another £500 to their offer. 

However, when I researched more widely, I saw that other sellers had listed similar vehicles on Auto Trader for £30,000. This caused a total rethink of my strategy. The decision became hinged on the following question: “Is the amount of time I would need to spend to sell my car privately (e.g. 50 hours) worth £7,000? £140 per hour?” 


Getting to early retirement is a long journey filled with many lessons learnt, but getting to adjust to early retirement lifestyle is in itself a huge lessons to be learnt.

At the end of the day, life is filled with so much learning journey that we just have to try, adjust and see if it shaped us for the better.

About the Author: Simon is a contributor to Financial Expert where he writes about topics such as How To Invest In Property

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Thursday, August 15, 2019

Recent Action - Vicom Ltd

In my previous post on "How Do You Prepare A Growing Warchest", I mentioned about how we can accumulate our warchest through a variety of ways.

One of the ways to do them is through the accumulation of defensive stocks which tend to be more resilient during period of uncertainties.

I was fortunate to have a few of these defensive resilient companies in my portfolio, which include the likes of Vicom, Starhill Reit and Netlink Trust when I started the year, each of them taking up a very large position in the portfolio.

I began to unwind each of them slowly, as I look to build up more warchest in anticipation of events like what we have today, with the divestment of Starhill Reit back in May at a (relatively so-so on hindsight) price of 75 cents and divestment of Netlink Trust back in Jun at a (relatively so-so on hindsight) price of 88 cents.

On hindsight, these are not peak-call divestment since both are still trading at this range today which technically means I lose out on their recent dividends payout, but overall it was still a good contribution to the returns of the portfolio and balancing the overall asset allocation of things.

This week, I began to unwind my positions in Vicom slowly, as the turbulent in the stock market especially HK situation means that I am looking to allocate my money in those sectors that were impacted and I think from a risk-reward angle there could be opportunities to put some money to it.

Vicom is an illiquid stock with not much transactions during the normal trading volume so I'll have to slowly sell them by batches but also watch out for the trading fees that are incurred to make sure I don't incur them unnecessarily.

I sold 500 shares at $7.15 (didn't get the full allocation I wanted) on the 8th Aug prior to our national public holiday, and further this week at a higher price that ranges from $7.14 to $7.19.

Vicom also went ex-dividend on the 16th Aug for a payout of 14.11 cents, but surprisingly the share price was very resilient this morning so I took the chance to further divest them at a range of $7.11 to $7.15. In pre-xd form, this means I am selling them at a range of $7.25 to $7.29.

Incredible! It seems like folks are buying into safe haven and wants to keep these defensive assets ahead of the turmoil.

In all fairness, I think valuation is fair at this price and the next 2 quarters result will be good so unless you wanted to re-allocate your cash for another purchase, it might be a good time holding on to it.

I started with 31,300 shares and as of noon closing today, ended with 8,500 shares left.

With these divestment, I am about 85% in cash after my reduced networth due to recent situation that happened back home. 

I am looking hard to allocate some of these cash into some companies which I have targeted, some of which includes HK Land, JMH, HRNet Group, Sembcorp Industries, banks and some others. You can see these companies have been beaten up quite badly in recent weeks for a reason but there could be potential opportunities as well.

I have already initiated a first batch position in HK Land a couple of days back so I am looking to see if I can get it lower than what they are trading today before building up my position further.

It is always easy to hear people say that they are waiting for prices to go lower but when it comes they either didn't take up a position or build up a position that are too small that it is negligible to the portfolio at best. There's always a risk when we build up a position that has yet to reach the trough but it also comes at a reward if your thesis proves to be right over the longer term.

Meantime, I guess patience is the key here when we have volatilities coming back from both our local and the US market but I guess from the sentiments many of the retail investors are happy to see some opportunities.

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Wednesday, August 14, 2019

How Do You Prepare A Growing Warchest?

Every three to four years, we revisit the topic issue on the importance to keep a warchest in our portfolio. This comes always on the back of something that is brewing, like the Eurozone crisis in 2011, the oil and China crisis in 2016 and the Trade War and HK protests in 2019.

As the name itself implied, having sufficient warchest in your portfolio means you are keeping a sum of money that is ready when you are needed to go to war. 

The thing is this, we always take things granted in our lives, especially when everything are looking good and the sky is shining clear and bright.

When times are good, we don't treasure them hard enough and often it gets overlooked with something which may seem more urgent to us. However, when things go sour, or when we lose it, we wish we could have put on more efforts into building that relationship and moments.

The same theory applies to warchest. We seem to belittle them when things are positive but need them most when things are dire but are often too late to realize. 

Today, we'll talk about how we can prepare a growing warchest and how as investors we can maximise our warchest allocations without losing alternate returns that we can garner if we put them on a positive market. 

I'll also share about how I typically accumulate warchest using my style and we can discuss the pros and cons of each method.

Accumulation Through Salary

This is probably the most common method which most people are already using one way or another at some point. 

The idea of this accumulation of warchest is basically through the leftover savings from the monthly salary (less expenses) that you get from your job. For instance, if you are earning $5k/month and have an expense of $4k/month, you are able to plough in the $1k leftover as warchest. Basically, the more you can grow your income, or reduce your expenses, everything else constant, the more you are able to accumulate your growing warchest.

At some point, as you grow and climb the office ladder over time, the more savings you will have to accumulate for your warchest. 

Accumulation Through Dividends

Recently, a reader emailed me on this question he has about dividend reinvestment and how it affects compounding. 

In theory, the impact on compounding is strongest when you have money rolled on after money on an infinite period at every intervals. What this means is if you have a dividend that is coming on the 8th Aug for instance, you should allocate those dividends almost immediately without wasting any time. This is almost similar to the DRIP method where you get to reinvest your dividends back into the company you are vested in. 

In theory, that is not what I usually do. 

When I receive an incoming dividend, it will usually go to my account and form as part of my warchest, which I would then choose to allocate depending on opportunities availability. I don't usually almost invest them back, unless we are in an attractive down market that I wanted to get in as soon as possible. 

Accumulation Through Defensive Assets (Bonds/Gold) 

Most people usually think of warchest as cash but this is something which I think is quite interesting to explore. 

The idea of keeping your warchest in the form of bonds or gold is something which is quite interesting to explore because of their inverse relationship nature to equities, which means they are likely to outperform when equities go south and vice versa. Even if they don't fully have that correlation in nature, they still are a good hedging to the portfolio.

These assets may or may not make up for the "lost" returns cash does when you are holding them for longer period.

Accumulation Through Defensive Equities

This method is one which I used it most often especially during the build up towards more dividend investing in the early stage.

Through defensive nature of stocks such as Vicom, NetLink Trust, Keppel DC, Plife Reit for instance, you are essentially buying yourself a predictable earning and cash flow that you know you will be getting quarters after quarters.

As the economy goes weaker, these defensive stocks are the last to fall and can act as warchest balancing depending on when you want to cash them out.

The idea of holding onto them as an alternate warchest instead of equity is that you get your dividend and capital gain during a bull market, something which cash cannot give you.

Using my case for instance, I've began unloading my position for Vicom slowly this week to switch to a higher risk reward company such as HK Land for instance. This will continue until I feel the risk reward tilts to the other side. 

Optimal Allocation of Warchest

Everyone is looking for that perfect formula on the optimal allocation of how much warchest they should be keeping in their portfolio. 

These people look and google around for answers through some random blogs like this and hope to find a straight answer that tells them 70/30 or 80/20 is the most optimal allocation. 

The truth is that many are asking the wrong questions in the first place. 

Keeping a warchest is a function of how much initial returns you are willing to sacrifice in order to recoup it back at a later stage. 

Keeping a warchest is a function of how confident you are in today's market macro environment and how good you are as a capital allocator. 

Keeping a warchest is a function of how well prepared and how much knowledge you have on yourself. 

And these are the things that no one can tell you except yourself, just because you are supposed to know yourself better than anybody else. 

Some folks thrive on having 50% warchest at all times. Some thrive on having just minimally 20% and they use them when they see opportunities. Some thrive on having no warchest at all times in the market. 

Final Thoughts

There are so many different school of thoughts to the topics on warchest that you can never get an universal answer.

To a large extent, most people would agree that keeping a sum of warchest is necessary in order to take advantage of the situation but the optimal allocation would have to depend if you are a good allocator yourself.

In this regard, it is better that we know our style from a holistic approach prior to knowing how much warchest that we need.

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