Monday, September 30, 2019

Buying Cheap Is An Excellent Catalyst In Itself (Because I'm Cheapo)

My wife tends to call me a cheapo, not in any mean way that it hurts my feeling but still well you know those sort of things that can get you riled up if it is of unintended clarity.

You tend to notice that my investing style has evolved over the years.

From what started as a pure dividend investor when I first began my investing journey, I began to explore different styles of investing which I believe can reap me better returns in the long run.

I think that's the whole idea of active investing in the first place - Not to simply let the market dictates your movement but having your instinct and experience in the market dictates the next move you will make.

Over the years, it has not all been gleams of sunshine and flowers as each learning curve takes a step into different directions, but with most outcome comes a glamor of rainbow thereafter.

One thing I’ve learned over the years is that value, or cheapness, and combining the two together is its own catalyst. 

What I mean is that when a stock becomes cheap enough for your own conviction, that very same cheapness may produce its own catalyst either in the form of a mean reversion, situational turnaround or merger buyout.

Take HK Land for instance.

HK Land is a conglomerate asset plays with development in various parts of the world such as Hongkong, China, Singapore and others.

Historically, they've been able to grow their equities based on the NAV from $5.92 in 2008 to $16.50 in 2019. On the depth of the GFC, they were trading at $1.86 at one time, which gives them a P/NAV valuation of around 0.31x.

The share price today of $5.65 gives them a valuation of 0.34x, which in my opinion is close to the trough of their historical mean on average.

Now, it is extremely difficult to forecast if the protest in HK will ever going to stop one day or if the company will take in major impairments for their assets in this current climate. Basing their valuations on forward earnings for such property asset play will be tougher as there are more variables in the permutation.

What we can do as investors is to assess the situation and buy the company when they get cheap enough for your conviction.

You see, when a stock becomes overvalued, it is usually pricing in future optimism or future growth that the people on the street are already expecting it to happen. This is the reason why some companies trade at multiple high earnings. Because people are expecting growth earnings to continue delivering.

Similarly, when a stock becomes cheap enough at some point, it is usually pricing in future pessimism and future decline which again the people on the street are already expecting it to happen.

In the case of HK Land, the ongoing riots weeks after weeks no longer has a major impact to the share price of the company as these news have been baked into the current valuation.

What is cheap enough will eventually cause other value investors to become interested. 

Should there be any positive news that come out from the camp which the market is not expecting, the share price should rebounce back in a massive way, almost similar to the case when the extradition bill was cancelled.

This is mean reversion, and mean reversion is one the greater force in markets. 

When it is applied within the context of an investment strategy, it can yield outstanding results for the patient and disciplined investor. 

One of the great investors of all time is a person named Walter Schloss.

He is not as media-popular as Warren Buffett but what he has accomplished over the years before he left was something not every fund managers can emulate.

Through deep value investing, he built on the foundation of buying a basket group of stocks that are essentially using cheapness as his catalyst. 

The idea he had was simple. 

He simply tried to buy stocks that are cheap and had greater amount of good assets and low amounts of debt, with the idea that eventually, these lowly levered companies as a group will survive, and thus the stock price and the valuation will rise (revert to the mean).

In some instances, the businesses improved and had a turnaround which represented an enormous upside for the stocks in his portfolio. 

Usually, the upside for those cases are so much such that he can stomach a few misses here and there, and yet still looking great for his overall portfolio.

I may not necessarily be an asset guy so much such that I focus solely on the Price to NAV of a particular company but I usually focus on companies which I think have catalysts that have yet to be identified by the market and priced in their valuation.

So my investing style has evolved over the years with that.

And because I thrived in a cheap environment, anything that goes slightly outside the cheap radar zone, will usually be easier to idenfity (and will get filtered out).

I suspect that's what my wife meant when she referred me as a cheapo!

Thanks for reading.

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Friday, September 27, 2019

A New Segment On CNA93.8 "Open Show" Property Discussion

This is just a quick sharing updates.

I was invited by a radio talk show CNA 93.8 to be on air this morning live at 10.30am to present my thoughts on the property market and Parc Clematis mega-project development in particular.

Parc Clematis is a development project by developer SingHaiYi Group located across Jalan Lempeng, which houses over 1,475 units.

It was a refreshing experience as this was my first air-live talk and I managed to experience what it is like to be on a radio show with a few experts in the house.

This was for a morning am session called the "Open House" which is a new segment dedicated to property talk, hosted by Susan Ng and Ryan Ng from, and given how much attention I've dedicated to researching on the property sectors in the past few months, I'm happy to share my view on the sector, in particular from the investing neutral angle.

For those of you who missed the talk show this morning, you may catch the podcast recorded in the link below.

Thanks for reading.

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Tuesday, September 24, 2019

Reloading Warchest & Unlocking Value Through Cash Out Financing

It's been more than a month and half now since we last rented out our home in order to generate a healthier cashflow due to the unexpected situation that happened back in the family.

Things are looking much better these days, with my Dad stabilizing and improving every single day through the rehab and he is also able to eat like a normal person now (he wasn't able to swallow when it first started).

Our family also managed to turnover some of the business around and cashflow is looking very much healthier than before, though there's still way to go before we can rest on our shoulders.

For myself, I have also started a new role this month which means cashflow will be alright in terms of the incoming salary every month. Whilst feeding the family and paying the school fees are not an issue, we are still very much vigilant on our spending as we tend to save as much as possible.

We probably have to cancel overseas trips and travels in the next 2 years until things get a lot more stable. If we have time, we will most probably head a trip back to visit my Dad.

The Original Idea

For a few months now, I've been looking for viable ways in order to increase the amount of warchest I'm holding.

While there are no immediate compelling investment opportunities at the moment, I do have some use for it in my mind which may or may not come true depending on the situation.

Still, I would think that raising the amount of warchest would come in handy at some point, especially with borrowing costs very low these days, and I have the choice to repay all of them back after the lock in period (usually 2 years) is over, should I want to.

My original idea to increase the warchest was to sell the property we lived in, and then move my family to some place which costs cheaper. Buying a resale HDB comes to mind, especially given that my wife and I had now converted to a Singaporean status, and we certainly want to make the full use of it.

However, we managed to find a tenant to lease our property at the end, for a lease tenure of 3 years, which now means the rent itself will be able to take care of the mortgage costs over the next 3 years.

To me, that itself, turns a "liability" into a "cash generating investment machine".

Our cashflow looks a lot lighter from thereon, but the fact that we are still "renting" a place from our in-laws doesn't solve the long term solution at the end of the day that we still need a roof over our head.

Cash-Out Financing

Then comes Cash-Out Financing.

Cash Out Financing is basically a concept of borrowing from the bank.

It involves putting your property as collaterals to the bank, who then values the property based on current market situation, and then decides how much cash they are willing to disburse to you as a loan.

This usually works in an advantage where you purchase your property long ago and you decide to unlock the value by cashing the difference out in cash, while still keeping the name to your property.

Putting your property as collaterals to the bank is definitely less riskier to the bank than taking out personal loan based on income because the bank knows that in the event of default, it still has assets that they can auction off to get some money back.

Because of this, the loan rate tends to be usually very low (compared to personal loan), and in my case, I get a rate that is slightly cheaper than the mortgage rate I'm currently paying.

For example, the bank values your property at $2.1m and you have an existing loan with the bank of $400k.

The bank will take an approximate amount of 70% hair-cut from the valuation and then deduct the full existing loan before deciding how much to disburse the rest of the cash to you as additional loan.

If you have used any of the CPF amount in your purchase previously or used them as loan repayment (which I think everyone does), the bank will have to deduct and discount that too.

So what we have in the example is something like this:

From a borrower's point of view, the risk discretion will still apply on whether you are ultimately able to repay your loan amount back.

Do take note that you are also incurring a financing charge cost to the bank, and unless you can churn out higher than what you borrow at, then it is likely that it is not a good idea to proceed with that.

I'll take a risk with this one, just because I think I have some ideas on where to put my money where it can churn out higher than the 1.85% I am paying, and more importantly it allowed us to unlock the value of our home at today's current market valuation without having to sell them.

Thanks for reading.

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Monday, September 23, 2019

What Should You Look Out For When Buying Your First Investment Property?

When we buy a property for investment purpose, our immediate goal is to ensure that the property is cash generative and can at the very least cover the basic expenses that we incurred such as mortgage interest, maintenance fees and other one-off costs such as agent fees, renovation costs and so on.

Anything that are generated above that will go towards repaying for the principal payment, which technically means you are increasing the equity value of your property over time. 

Your equity value can increase in two ways, which is a function of two variables.

The first is through capital appreciation of your property.

The second is through a reduction of your liability (principal mortgage).

The Equity Value of Your Property is Your Money eventually, so it is important that they are being increased over time.

If you are a renter, which means you are sitting on the opposite fence of the buyer, you are technically expensing off your book, which means it will be a cost in your P&L. Your equity value do not increase, so in the long run it is likely that you will be worse off.

If you are an owner, you are also expensing off through depreciation of your asset, plus any mortgage interest you have to repay back to the bank, but we assume here that the useful lives of the asset is going to stretch longer.

This is why a great majority of Singaporeans are mostly homeowners, instead of renters.

So what's the 3 Most Important Things you should be looking out for when investing in a property?

The first would be the Profiling of the Property.

This includes the location of the property, the floor plan, the finishing quality provided from the developer, the facing, the tenure lease of the property and so on and so forth.

In Singapore, location is one of the most important profile of a property, especially when we thought about being conveniently linked to transportation availability and also convenience to nearby malls and/or groceries shopping.

This brings to the next important point to note which is Rental Yield.

Rental yield is a function of two variables.

The first is how "cheap" you've purchased the asset from and how much it is valued at.

The second is how much rental you can get from the property that you are leasing to.

For example, if you purchase a 1 bedroom + 1 study in a central location area for $1m, and have them rented out at $2,800/month, this would equate to a 3.36% rental yield.

This is assuming an unleveraged number.

Most of the people though does some form of leveraging when they purchase a property so the actual yield is actually a lot higher, even after netting off the mortgage interest and other fees you have to pay.

There are ways you can increase your rental yield through a few creative ideas.

For instance, I know someone who's partion a wall in the living and dining room area to make a 1 bedroom + 1 study to become 4 rooms, and start charging each tenant on a per room basis based on $1000/room. This way, he is able to obtain $4,000/month, which translates to 4.8% unleveraged rental yield.

Now that all the upside is taken care of, the last factor you probably have to look out for is cater for Risk Management.

In this world, not everything will go according to your plan so it is important that you cater for the risk downside when that happens.

For example, during bad times, it may be more difficult to find tenants that are willing to pay a premium rental for your room. It is also likely that the rental rates will be suppressed when times are bad and when they can find alternative cheaper place to rent elsewhere.

In addition to that, you'd also have to cater funds for wear and tear every once in a while, which might take up quite a bit too.

Last but not least, banks might also increase their mortgage interest which means you are paying more financing costs than the original rates when you make your purchase.

Ultimately, there are a lot of factors to consider from when you make your investment in property.

Property investing has been lucrative for most people because of what historically property has performed but historical date is certainly not a reflective of future performance and it would be foolish to think that we could extrapolate data like that.

But if you are savvy and prudent enough, property investing can still be a lucrative investment for you to make.

Thanks for reading.

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Thursday, September 19, 2019

Is Your Home Ownership An Asset, Liability Or Investment?

Buying a home probably ranks as one of the most important milestone in our lives.

After all, it is a huge investment that we have to pay upfront and will have to service for the most part of our working lives.

Hence, it is common for people to think of their home as an investment and humans typically not like to lose out on their investments. No one does.

When the value of their homes drop, their hearts sank together with the times.

This is probably the reason why we see so many older Singaporeans complaining on the lease expiry of their 99 years leasehold HDBs, which may become worthless once the lease expires. After all, they've been servicing it all their lives, and now you are telling them that it is worthless at the end of the lease!

To homeowners, they have a constant worry that they might outlive the leasehold HDB home they "own" and will have no roof over the head. More importantly, they worry about seeing their home as a liability and value of their HDB expires to zero.

This is all playing in the mindset.

The idea that homeowners see their primary residence as an asset or investment comes from the fact that historically the value of their properties rise over time. Think about our elder peers or generations before us that have bought their homes for less than a third of what we are paying today.

Even if not, it is likely that in a limited land supply like Singapore, there is a high likelihood that developers will come in and "buy" out your property before the lease runs out, which is something pretty common these days.

There's also this idea of lease buyback which can be taken into consideration.

This is the reason why property purchase is so popular and you can see the reason why an additional curb of the cooling measures have been put in place.

But here's throwing back the question to you homeowners.

Do you see your home as an asset which depreciates over time, a liability or an investment?

The First Argument: A House must be classified as an Asset. We must follow the Accounting rule!

The accounting rule is pretty rigid and has been around for the longest of time.

When a company purchases a property, they would have to record it as an asset. This asset would then have to be amortized over a period of their useful lives as depreciation.

If the intention is to purchase it for investment and eventually lease out to tenants, it would have to be classified as an investment property distinctively.

It's difficult to argue with the International Standards beyond the stature of this practice.

But Wait! Homeowners don't usually generate Cashflows from the primary residence they stay in!

The idea that when you buy something as an investment, you usually expect to receive some sort of cashflow on that asset, which is something similar in the nature of stocks or fixed deposits.

If the market value of that asset or investment is determined by market forces who decides on what price should that be at any point in time, then it is no different from me picking up a stone on the street and having it valued at $1m myself, assuming I am the only interested party to play this game.

This is why there's always a lot of debates on whether gold or cryptocurrency is classified as an investment or speculation. They do not provide cashflow and their market value depends on how people perceive their usefulness over a period of time.

Homeowners face the same issue.

They live in the space they buy in and it does not generate cashflow returns for them.

You might make a case for cashflow if you have spare rooms to rent out and you derived rental income from it, but what about homeowners who fully utilize the space to themselves.

The Repair, Renovation and Improvement Is a Carrying Cost To You.

You probably have to budget for wear and tear that happens during your stay throughout the years.

If you are lucky, you would only have to spend on minor routine repairs and maintenance, while major repairs such as floor tiling, air con compressors are not uncommon either.

On top of that, you will also need to pay property tax for owner occupied and home insurance, all of which will add up by the time you finished living in the house.

Home Is More Than Just Money! It Is Where The Family Resides And Collect Memories!

The one most probably compelling reason to believe why home ownership is not an investment is because its primary purpose is providing shelter and roof over the top for the family.

Since it is likely that you and your family will need a shelter to live by, you have little control over situation where you needed to sell. Even so, it is likely that you will end up purchasing another in return for a one on one exchange.

The inability to sell the home, even in the most unlikely scenario of a property boom will mean that you are likely to simply sit on the appreciation gain, until one day when you decide to sell it off to another people and realize the gain.

HELOC To Your Rescue!

There is a however one way out if you want to treat your home as an investment.

Home Equity Loan of Credit (HELOC) facility will value the equity portion of your home and entitle you to how much you can borrow depending on your equity. The facility loan is taken under the care of putting the property as collaterals that you put in.

This method works tremendously in the past where people buys house during a property boom period where the value (thus equity) continues to go up and they are able to secure a HELOC to fund another property purchase and the steps repeat itself.

This happens until the cooling measures were introduced, in particular to the additional stamp duty for the second property onwards and the limit to how much they can borrow, that this practice has since slowed down a lot.

I'll talk and explore a bit more on this in my next article series.

Asset or Liability or Investment?

You really have to evaluate on how you define a house vs home and whether you are comfortable moving your family everytime you see an opportunity to do so.

It is definitely not a risk free environment where property purchase is promising good returns based on past historical data.

If you buy your house at a premium, it is still going to bite whether or not you treat it as an asset or liability.

Thanks for reading.

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Tuesday, September 17, 2019

Why You Should Apply For Approved In Principle (AIP) Before Buying Your Ideal Private Property?

Buying your first property can be confusing and time consuming because of the regulation changes that you need to keep up to and remain relevant to these changes.

But whatever the changes are, they are ultimately down to how much the banks are willing to loan based on the regulations of the Tdsr and your own personal commitments.

This is why it is important that you should get an Approved In-Principle (AIP) before committing to purchase a property, no matter how attractive or undervalued the property is.

What Is Approved In-Principle (AIP)?

An Approved In-Principle is basically an official agreement with the bank after they check based on your income and credit history.

The AIP approval is usually short, between 2 to 3 days, assuming you don't have specifics that they need to further investigate.

Their validity is usually 30 days from the approval date, so you can use that as an official that the bank will lend you money and you can proceed to put your Option To Purchase (OTP) on the property that you are buying.

Why Do You Need An Approved In-Principle (AIP)?

An AIP gives you notice how much banks are willing to borrow money to you. From the banks' perspective, it is important they they do their due diligence to ensure you have the financial capability to pay the loan back for the entire duration of your loan.

Without having an AIP in place, it can be difficult to engage in negotiations with the seller because you will not know for sure what's your loan ceiling and thereby unable to make an intelligent choice during the negotiation process.

If that is not all, you might also lose your option to purchase (otp) money should there be complications with the bank and you are unable to get the loans from any banks.

Most agents are also wary of the situation if you do not have an AIP because that would mean the transactions can lapse anytime during the negotiation process and you ended up with time wasting for all parties.

What's The Steps To Get An AIP? 

First, you can check on the rates that are being offered by the various loan providers based on the current market situation.

These rates do change rather quickly so you may want to get yourself updated with the latest available rates.

There are a couple of sites which allows you to compare across the different bank rates but do take note some of the small terms and conditions that are not so evident at first glance.

A good mortgage advisory or independent advisor will be able to explain to you each of the pros and cons and will be patient until you get the right deal before committing a loan.

Once you've set on which loan provider you want to take up the loan with, you will need to fill up their application form together with all the required financial information for them to check on your credit history and availability of how much loan you can get.

These includes your past 3 months payslip, last 12 months Cpf statements, Hdb financial info and latest Notice of Assessment.

What Is Considered During The AIP Review

Not all profiles of income derived are treated as equal.

For example, the TDSR limit recognizes full-time employment income as 100% but variable income as only 70%. This means that if you received $50k per year on your rental, they will only recognized 70% of the $50k in their review. 

The same goes for self-employed owner who derived their income and are only being recognized 70%.

Dividend income is not treated as income under the TDSR limit.

The TDSR bank restrictions also favour younger age profile as they are allowed to borrow up to a maximum of 35 years before you turn 65 years old.

How Long Do You Need To Wait? 

The assessment will usually take at most 2 to 3 days to assess if the information to complete.

If they need more information from you, they will contact to get more supporting documents.

With the AIP in place, you will be in a better position to know how much loans you are able to secure and play the negotiation to your advantage from thereon.

So there you go! Don't take the risk of having committed to your purchase without first knowing if you are able to obtain a loan.

You don't want to lose out on your 1% OTP for sure!

P.S: This is a series of educational post relating to property purchasing which hopefully could help some people out there buying property for the first time.

Stay tuned for more!

Saturday, September 14, 2019

Sep 19 - Portfolio & Networth Update

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


CFD Leverage @ 2.8%




I'll do a quick update on my positions for the month of September since there isn't much going on and I'm also focusing my time with some other stuff most of the time (I'll reveal when the time is right).

The only changes made to the previous month update was the short position which I took for Starhub back in late August which you can read the thesis here if you have not yet done so.

The share price is still lingering around the same as when I placed my position two weeks ago so there isn't much movement to track yet.

Other than that, I haven't really found a compelling case to make more purchases so I'll continue to keep my warchest until I find one that does so.

STI and the rest of the markets have been going up since the last 2 weeks or so it appears that the worst is behind us. Who knows, we might just get a surprise from our most unlikely hero who appears to be very quiet in recent times.

Networth has gone up a bit this month, though it's unlikely to make a big impact in terms of growing wealth at this point.

I'll continue to exercise caution and prudent investing and will only take action and do so when I find something which offers a lot of value on the market.

With work starting to get busier, I guess there will be lots of focus to get my hands dirty and is a good tool to exercise patience.

Meanwhile, till next month's update again.

Thanks for reading.

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Saturday, September 7, 2019

How My Work In Start-Up Firm Is Different From My Other Corporate Roles

As some of you might know, I had to reverse my sabbatical plan and return back to work due to some circumstances back home.

I've completed the first full week of my new role in the startup firm so I thought I put down some thoughts on how is it different from my other corporate roles in the past.

Location & Working Environment

The office is in the co-working space in one of the malls in the Central area so it is something very refreshing to me.

In the past when I was working for my corporate roles, my desk is a squarish cubicle cells so to have something different is a nice scenery change.

The co-working space is shared amongst the many start-up firms they have there so the environment is very vibrant and lively and there's this sense of positive attitude that spreads across everyone.

Most of the meeting rooms are really nice and there are often events (and food) that you can grab or attend while you're there.

They also have a lot of resting area, a nice pantry and a ping pong, football and golf area to do some light exercise, not to mention the countless hunks and syt babes walking past your desk everyday.

No complaints about that.

Casual Dressing Style

For 13 years, I've been dressing up in a corporate style of long shirt and black pants.

In my big 4 days, I even had to wear a tie in the office even when not meeting clients which I thought was rather silly.

At some points, I was rather exhausted with all the corporate dressing requirements because I just felt it took up a lot of my energy to consume.

The dressing style here is casual, which means technically everyday t shirt and jeans will be good to go.

I find my energy level is higher when I am comfortable wearing what I like to start the day with.

Colleagues and Boss

The colleagues are a bunch of pretty fun people but a pity some of them are about to leave the organization soon.

I think they might be looking to hire some operations lead and/or key account sales as replacement. If you are interested to apply, you can always ping me to check.

It appears that some, if not most of them cannot get along well with the CEO and while on my first week I have not experienced something in a bad way, I'd be keeping my toes up on that.

The CEO is 27 years young, and is someone who comes from Mckinsey background so you know the style is fast, aggressive and direct to the point. I think that's what most people who's been working in start-up cannot relate to. For me, I've experienced a lot of such bosses in the corporate role so maybe my tolerance level could be higher.

I think the key here is to manage expectations. 

On my first week, I asked him exactly the kind of information he wants me to update him on a weekly basis so I think I've set the tone and expectations right amongst us to work with.

I am 34 years old this year, which means I am by far the oldest in the company.

The average age of the workforce is only about 28 years old so that speaks volume how lao I am today.

Role & Work

I'm heading the Finance side, but being a start up you literally have to do a lot of things on your own.

This is different from my other roles in the past where I have people under me who I can delegate the work to.

I do have an account assistant which is sitting in the Jakarta office so it will be long distance relationship and some things are difficult to delegate due to the proximity.

There's a lot of outsourcing to third party such as tax accounts and payroll so the roles involve a lot of liaising with third party.

One of the main key roles is to manage the management accounts and then have it present to the parent group and key investors every quarter to let them know where we are on the expansion.

This will be critical because the firm depends on key investors' funding to survive.

Unlike my other roles in the past where there are multiple layers of hierarchy, decisions on this one are made short and sweet because the hierarchy is lean.

Final Thoughts

My overall impression on the first week is rather good.

It could be because of the different working environment, roles or dressing attire which makes it refreshing to me. Having many good looking boys and girls around you doesn't hurt the eyes and minds either.

Being a value investor for so long on the personal front, I have also been overly cautious to invest in such companies whenever the accounts don't look good BUT I think it might not be always the case.

Entering into this different world of domain changes my perspectives of looking into companies differently on this and I think this might the biggest takeaway at the moment.

I get the feeling that for graduates who start working in a start-up firm, it will be very difficult for them to move to a traditional corporate role because I doubt a lot could adapt to the grinding of the expectations. It seems like it is easier to adapt moving from a corporate cubicle to a free working space where you can move around.

Being in a start-up firm however, means your job is likely to be less stable than working for MNCs so that is also something to take into account. 

Does anyone has any experience to share on your account the difference between working for start-up vs corporate firms?

Thanks for reading.

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