Monday, March 29, 2021

Top 5 Common Spending Triggers

Many companies employ good digital marketers to come up with marketing ploys targeted at human preys whom they know have low boundaries to accept their very own spending triggers and emotions.

Spending triggers subconsciously make many prey to temptation and spend money to replace and magnify an emotion they're feeling - usually desperate, that resulted in a spur of the moment purchase.

They've been so successful at this such that the level amount of consumption is at a record high, with a plethora and flurry of news pouring to us daily in our inbox.

These are the top 5 common spending triggers:


1.) Buy Now Pay Later (BNPL)

A major disruptor over the past few years, the "Buy Now Pay Later" is here to stay to challenge the stereotypes traditional industry of debit and credit cards.

The entire business model for BNPL is built around the premise that these companies are helping consumers manage their cashflow and getting merchants more business from the increase in consumption, but also getting consumers to pay on time.

Unlike a credit card model which relies on consumers paying late beyond the given 30 days term so that they can charge exorbitant charges, the BNPL model relies on consumers paying not just on time but also in full so they will not run into a default. These companies will then charge their merchants a service fee charge in order to make money.

For consumers, this is a viable option that one can utilize and might just be the spending triggers that the business wants.

Local BNPL players such as Hoolah, Atome, OctiFi are some of the leading players in Singapore.

2.) Discounted Deals

Discounting has long been used as one of the effective strategies to incentivize consumers and prospects to make a purchase.

Digital marketers used discounts to get consumers to try their product and in turn get more leads and sales for future purchases.

Companies do this by offering discounts promo code that consumers can key in when they check-out. Some websites are even smart enough to include the amount of savings the consumers can save by purchasing at their website. This gives consumers a sense of satisfaction that they are actually saving when they are actually spending (I know how ridiculous this can sound).

This can be a win-win for both parties because while the company makes an upfront burn by incurring more costs, they can overtime track the amount of return customers as they become more familiar with the product and use them as part of their daily lives.

Local players such as Fave, Pelago, and the Entertainer are good for such deals.

3.) Stress Trigger

Stress spending is an impulsive behavior that makes one jittery and anxious when feeling stressed and one way to cope with the emotion is through reckless spending.

Studies show that most people reacts to stressful challenges with an increase in the hormone cortisol, which leads them to focus their attention toward the threat so that they can alleviate the pain.

These people used money as a form of medication so they can feel better at ease, especially if they have a low level of control of their emotions in check.

For instance, most stressed people would be desperate to rush down to grab a drink or two after office hours so they could finally destress after the long week. This would not only be bad for the pocket but also damage the liver in the long run, if one drinks excessively on frequent occasion.

4.) Fear of Missing Out (FOMO)

According to a study conducted on millennials, FOMO-fueled spending is on the rise and gaining momentum - thanks to the ubiquity of social media leading to millennials overspending to keep up with their peers.

Some companies added another feature in the form of scarcity to toy around with the emotions of buyers to show what it feels missing out on a good deal.

The threat of missing out on something is a powerful motivator in the human psychology, outweighing the prospect of an equivalent gain. For instance, you may not need to upgrade to the latest IPhone 12, but the fear of missing out being one of the first few among your social media friends might be enough for you to hit a buy right away.

5.) Extra Money

Additional income, which most working employees referred to as a bonus, is often a blessing.

It comes and goes as with the performance of the company which often correlates closely on the macroeconomic factors.

Most people will feel on top of the world when they receive additional income that they could spend on.

For some, they may even feel compelled to spend on things that they might not need and use that as an avenue to upgrade their lifestyle.

The problem comes when the season becomes dry and it left them feeling with a sense of helplessness trying to justify the lifestyle they have already upgraded.

Conclusion

Spending triggers happen to everyone at one time or another.

The key to avoid falling into the pit of spending triggers is to have a proper money management that you can rely on and allow you to fall back on.

Set yourself a realistic target and avoid social media as much as you can if you are one of those who have a low threshold tolerance of spending trigger.

With the convenience of online digital marketers reaching its consumers in this era, it's even more important to be able to resist the many temptations and to protect yourself against the fallpit.

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Monday, March 22, 2021

Dividend Investing vs Options Income Strategy - 3Fs Strategy

I've been getting quite a bit of questions from some people who have been following my writing for some time and they noticed the recent strategy changes in my equity portfolio and so they wrote to me to understand the thinking behind the idea.

For those who are relatively new to my blog, my equity investing strategy for the past few years entails investing in dividend paying companies in the Singapore market (and more recently HKG market) while hoping for some sort of small growth as part of the overall capital appreciation.

I termed this as the "X+Y" strategy in my past article here or the "6+4"% strategy if you had attended my past talk during the 2018 BIGS Investing Conference.

Until today, I remain a huge believer of investing in dividend paying companies because of several fundamental factors which I will not talked about it in this article.

Like most people, my strategy evolves over time - and I am constantly opening my mind in pursuit of a better strategy that would fit my investing temperament and style better.

There is the CFD, a platform which I have been actively using for the past 4-5 years and activate whenever there is a huge market downturn and constraint for funds.

In the past year since I have also entered the US market, I have also tried out options investing and this will be the main topic which I will today compare and contrast the difference with dividend investing as both of them threw out similar characteristics in the form of cashflow.

I've been thinking for a while on how I can structure my answers logically because the strategy fits so well with my own philosophy that it feels very natural to me when implementing, yet it can be foreign to others. 

I'll try my best and hopefully it makes sense.

In this article, I'll break down the comparison between these few categories:

  • Cash Flow Frequency
  • Predictability
  • Passiveness
  • Volatility
  • Risk Management
  • Leverage
  • Total Return




1.) Cash Flow Frequency

I'll start with a really easy one.

Both strategy entails you to receiving a consistent amount of cashflow strategy depending on the companies and timeframe you choose.

For Singapore dividend paying companies, the frequency is typically quarterly or semi-annually (quite rarely but there are some who pays out annually), and this can be a huge revolving benefit amongst the retirees who are likely dependent on these income to survive.

For options, the typical amount of cashflow frequency is 30-45 days (for maximum time-decay ROI) but you can structure it to be a bit earlier/later depending on your strategy.

Many investors, including myself, love the psychological benefits of receiving dividends or income as a form of cashflow as this amount of pot can continue to grow over time should you decide to reinvest them.

Winner: Both Dividend and Options Strategy


2.) Predictability

Most dividend paying companies (especially if you analyze through the fundamentals of the company to ensure the payouts are sustainable) are relatively predictable in nature. Not only do they give out at a certain recurring period, but also the amount or payout ratio that they give out to their shareholders. The precedence over this is you have to put your invested money in solid companies with strong fundamental earnings and balance sheet.

Occasionally, you might get once in a lifetime cut in the dividend like what we experience during Covid where most companies in traditional industries are struggling but they are usually short in nature and you should get them back up for stronger companies.

One thing which I really like about option investing (in this case, selling cash secured puts and selling covered calls) is that you get to set the amount of premiums income that you are going to get at the start regardless of where the market is going. Sure, you might "make a loss" if the amount of premium doesn't offset the falling/rising market price but you are supposed to be happy with your strike price if assigned/sold regardless.

Winner: Options Strategy


3.) Passiveness

Most people who embark on a dividend investing strategy did most of their initial research at the start and bought them for the long term because it will continue to pay them dividend for as long as they continue to own the business and the business remains relevant.

There is little to no need to having frequently revisit the thesis unless there are big fundamental changes to the company itself.

For option investors, there is a need to get a little bit more involved as you would have to relook and replace at the whole option premium risk model to get your trade set-up. For those who are looking at the shorter time-frame such as 14 days, then you'd need to frequently revisit again your set-up based on market conditions.

Winner: Dividend Strategy


4.) Volatility

The Singapore market tends to be a little more protected in terms of volatility movement as compared to the other markets thus the share price doesn't move as much as the investors is going to get from the opportunity. Still, at the peak of the crisis, some positions can get really interesting from the forward yield point of view for long term investment.

However, when compared to the options market in HK and US, it pales in comparison as the implied volatility for these premiums at the peak of the crisis can go extremely high, sending the returns really good from a risk-reward view. The GME implied volatility, for instance, at the peak of the times was more than 600% back then, but have since subdued down to around 300% at the moment.

Winner: Options Strategy


5.) Risk Management

Risk management can get a little tricky with both strategies because we are talking about a permanent loss of capital from downside should things go south from here.

Unfortunately, neither dividend nor the options strategy are insulated from downside risk, as investors who engage in both strategies are susceptible to losses if they didn't put a stop loss to their position.

For options however, you are able to get much better risk calculation should you decide to engage long on a call or put but this is a different strategy than what I have which I will talk and cover another day.

Winner: Can be both if applied properly


6.) Leverage

Leverage can be applied to both investing strategies, which can have a double-edged sword that can amplify either gains or losses and significantly increase/decrease your net worth and cashflow.

Maybank margin financing, for instance, is offering 3.3% p.a interests for Grade 1 SGD securities, which include some of the listed REITS under their purview. This can significantly boost the income you received from the dividends, especially if the companies yielded higher than 3.3% dividend yield per annum (which is not very difficult to find in SGX market).

For US stocks, IBKR offers competitive rate for margin financing for as low as 0.85% if you have an AUM of above $3.5m with them, or 0.98% for AUM above $1.5m. Even if you just have $25k with them, their margin financing is still competitive at 1.55%.

Options trading has an advantage in a way such that an investor can sell a naked put and they will not have to pay interests on the margin unless he or she is assigned to the stock. Even so, there are ways to get away with the margin interest such as rolling away the dates.

Winner: Options Strategy


7.) Total Return

Total Return will include the dividends received including any potential form of capital appreciation, if there are any. This goes back to my earlier strategy of talking about the "X+Y", where X is the dividend you received, and Y is the capital growth appreciation you can get from owning the business.

Investing in dividend paying companies during the peak of the crisis has its own merits.

Take for instance, a company which I've invested in during the peak of the Covid - Lendlease REIT.

During the peak of the crisis when the government announced a circuit breaker lockdown, Lendlease REIT has fallen from the pre-Covid price of 90 cents to 46 cents. If you had bought the REIT back then, not only will you be able to get a recurring 5 cents dividends from the REIT every year, you will also enjoy capital appreciation when the share price rebounds back. Today, the REIT is trading at a price of 80 cents, giving investors both dividend as well as capital appreciation.

For option investors who are focusing on the income generating strategy, the return is capped at the premium you know you are getting right from the start. One downside of this strategy is that investors will not be able to enjoy the upside should the company compounds its growth and continue to make its high.

In this regard, the potential total return favors the dividend investing strategy.

Winner: Dividend Strategy


Final Thoughts

There are multiple ways you can use to construct your own portfolio strategy but I find these two income generating strategy to best fit my profile and risk.

I like the very fact that I am keeping the strategy relatively simple and easy to learn for any beginners and it is something which I think almost everyone can construct within their own portfolio.

Clearly, at this point, I am also still receiving income from my full-time job and we also have rental income from the property we rented out (maybe not in terms of cashflow increase but definitely equity increase). I also do occasionally receive side-gig income from my writing.

These income generating multiple ways impacted us favorably month after month and I definitely can already see the snowball compounding takes a good effect to that.

I hope these explanations are useful and for those who wanted more clarifications or exchange on the ideas,  you can drop me a comment in the link below.


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Sunday, March 14, 2021

Mar 2021 - Portfolio & Transaction Updates

No.

 Counters

No. of Shares

Market Price (SGD)

Total Value (SGD) based on market price

Allocation %

Category

1.

Manulife Reit

100,000

US$0.70

     93,000.00

26.0%

Dividend

2.

Lendlease Reit

  85,000

S$0.79

     67,150.00

19.0%

Dividend

3.

Starhill Reit

  90,000

S$0.53

     47,700.00

14.0%

Dividend

4.

Ascendas Reit

  12,000

S$2.91

     34,920.00

9.0%

Dividend

5.

Prime US Reit

  30,100

US$0.80

     32,000.00

9.0%

Dividend

6.

ISHARESHSTECH

    1,000

HK$17.07

       3,100.00

1.0%

Growth

7.

Ho Bee Land

       300

S$2.40

          720.00

1.0%

Leftover

8.

Options (IBKR/Tigers)

          -

-

     80,000.00

22.0%

 

 

 

 

 

 

 

 

Total

 

 

 

   $358,590.00

100%

100%

I apologize for the lack of recent updates in the recent weeks as I was busy transitioning into a new job since late February. As there's more focus being given to the handover, I didn't manage to think much about writing as yet.

The month of March has finally given us a glimpse of opportunities of what the market can do to us. Within just a few days surrounding the fear of treasury yield going back up, we have seen an increase in volatility as rotation within sectors take place into the recovery sectors which include the laggards and badly beaten down banks, oil & gas, hospitality industry, and airlines.

With the increase in volatility across the market, I managed to do some rotations from within the portfolio itself to take advantage of the situation.


Portfolio Updates

I divested three of my lower-weighted non-REIT holdings in my portfolio as I began to raise for more cash.

The first divestment was Hotung on the back of very strong full-year earnings and an increase in dividends, the share price shot up by about 10% the day following the announcement. I was a little hesitant whether I was going to keep for the longer term, but I decided to divest it nevertheless given a better opportunity to park the funds elsewhere.

I also divested non-core holdings - Comfortdelgro and Netlink Trust, mainly to allocate them for better opportunities given that they are consolidating and are likely to return low single-digit return likely this year. CDG's dividend for full-year earnings was also somewhat disappointing and doesn't make up for the wait for now.

I took this month to load up on Manulife Reit after the share price was beaten down quite badly following the XD session. I still believe that this represents upside in both recovery play as well as USD strengthening, so I think there's a lot of story to like about Manulife and other US Reit going forward. For those who are curious about the recent updates on MUST, you can view my AGM article here.

I have also dedicated more of my funds towards the US market for this month as there seem to be some opportunities in the US market that I could take advantage of.

Most of the positions I have for the US market are currently in the options market with long-dated put options. Because these are derivatives leveraged positions and not direct positions, I will not update them here. However, if you are interested, you may follow my Facebook or Instagram page where I will at times update my live position there. 

Networth Updates

Steady but slow - this is in stark contrast to some other position such as meme stocks or cryptocurrency.

The good silver lining is the equity portfolio is still climbing up slowly to a year-to-date high of $358,590 despite a slow start this year.

I am still positioning my portfolio to be extremely low risk in my opinion and I will continue to remain patient in waiting for the big moment to arrive where I will go take on a slightly more risk-on mode.


I am also waiting to receive the dividend payouts in later weeks this month which will be a good booster to the portfolio should we see further opportunities in the market.

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Saturday, March 6, 2021

Taking Advantage of The Recent Tech Correction

The recent tech correction has presented a delightful opportunity for some of the late tech entry players like myself as the market moves funds from some of these heavy tech names into value laggard stocks which have been battered heavily by the Covid-19 impact.

While we have yet to see a full-blown impact from the rotation (doubt it will happen), Nasdaq100 has just broken its weekly chart of EMA20 before closing the week right above the support.

Like many others who are delighted of such an opportunity, I have been aggressively positioning to take advantage of such recent correction, albeit through a sell put long-dated option which based on my computation, can return me great returns for this year.

As some of you might know, I have been putting my excess war chest in the recent weeks in GME, and thanks to the high implied volatility caused by the Reddit army, I have managed to secure low-risk high reward returns which I have blogged in the past few articles through a portfolio update. In fact, I considered this to be as safe back then as a fixed deposit element that I have no qualms putting all of my war chests into it while keeping the bulk majority of my position in the Singapore market intact.

With time decay working as a general characteristic of a put option in my favor, my plan was to take profits off the table when an opportunity landed on my plate and channel the funds through by switching positions. If there isn’t any good or decent enough opportunity, I can continue to wait for my options position at GME to expire.

This was what I have for my open position on Thursday (4th March).

With Tiger Brokers (and I believe all other Brokers as well) requiring a full 100% margin requirement for riskier play such as GME, AMC, KOSS, and FIZZ, it means I could suddenly free up my entire capital with a value above $50k should I decide to close out my positions.


What I Have Added Into My US Positions

Clearly, while the tech correction seems oversold in the past recent week, it is by large still relatively small as tech has enjoyed a very solid run towards the second half of 2020 until recently.

As such, I do not think it warrants a direct long position yet into the portfolio as there is a chance things could go further southward from here.

In such a case, I want to exercise higher prudence by not being caught out in this correction.

1.) Advanced Micro Devices (AMD)

The fundamentals of AMD look strong given its recent Q4 earnings and guidance.

Sales revenue top line grew 53% year on year while net profit broke the record with an over 900% increase year on year during this upcycle season. The company is still in the midst of winning more market share through the CPU and GPU market and is expected to be a growth driver in 2021.

From the chart, it broke through the weekly chart for EMA20 last week before resuming this week's downtrend testing the EMA50 support at $75.


Given the recent correction that sends AMD's share price down which resulted in an increase in implied volatility, the premium has been going up and it came to my alert as it descended towards the support line on Friday intraday.

Using this as a golden opportunity, I have opened a couple of contract positions in AMD by selling put on various intervals period from March all the way until Jul 2021, with strike price ranging from $75 to $77.5. 

For instance, I managed to open a position when the market tanks during the intraday for the 16 Jul 2021 expiry at a strike price of $77.5 for a premium of $9.24. Translating this into returns, this position would yield me $9.24 / $77.5 = 11.9% in a span of 4 months, or 35% annualized.

The other way I could look at it is if I am somewhat assigned at $77.5 in July because of a bigger market correction, my actual average price would have actually gone down to $68.2 because of the premium I have already received.

I believe this is a pretty good deal from a risk-reward point of view.

2.) Fastly (FSLY)

Fastly has a pretty predictable pattern in the last few quarters as the company continues to remain volatile over the past few sessions leading up and after the earnings result.

For instance, based on the below appended monthly chart, you can see that share price has gone up to as high as $136 before dropping to as low as $62 during the post earnings of the previous quarter. The market then priced it up again to above $120 before sending the share price down again to as low as below $60 in yesterday's intraday trading session before closing off above the double bottom support.


Sensing this as an opportunity, I have also opened a couple of contract positions for FSLY by selling put on various intervals period from March to September with strike price ranging from $60 to $70.

To illustrate just how good the premium is, Fastly Put options expiring on 17th September 2021 with a strike price of $60 (I consider this to be relatively safe) are trading at $12.40 when I got it. Translating this into returns, this position would yield me $12.40 / $60 = 20.7% in a span of 6 months, or above 40% annualized.

For whatever reason in case I am assigned later in September, my average price for the company would have been at $47.6 considering the premium I have received. I think that's an insanely good deal and value for money.

In addition, unlike GME, Tiger only requires a 55% margin requirement for FSLY (not sure if the same with other brokers) which technically means your leverage returns would have been much higher because of this.

Again, from a risk-reward perspective, I think it deals with a pretty decent deck to option traders.

3.) Palantir Technologies (PLTR)

Palantir is another position I have been following quite religiously with all the contract winnings, the moat strength, the expiry of the lock-in period, and its busty valuations before the crash.

While there is a strong argument to its competitive moats and its dealings with the government agency, the Foundry business is one which they will face strong competition among its other commercial competitors as it appeals to its strong unique data system and analytic software to other commercial deals out there.

While growth remains on schedule in the next few years, I remain fairly cautious on its expansive valuations despite the strong moats it could bring to investors.

Palantir has been battered recently since the lock-up expiry, sending the shares down from their all-time high of $45 to the intraday low session of below $22 on Friday, before closing at $23.95.

Daily EMA200 and Weekly EMA50 support are converging, so I would think that this will be a good position to start going long.

Nevertheless, I have sold quite some contract positions at strike $18 for the 19 Mar expiry. I am also ready to turn direct long should the $18 support holds.


4.) Xpeng (XPEV)

Xpeng is another company I have started to open long-dated sell put option positions since the returns yield is rather enticing.

I have opened some considerable positions for the 15th Oct 2021 at strike $25 for a premium of $5.35.

I have also opened another position for the same period at a higher strike of $30 for a premium of $8.35.

It's not currently a big position and I remain skeptical over the entire saga surrounding the future of an EV vehicle coming into the market and the valuations of how much these companies should trade at.

Regardless, from a chart point of view, I believe the selling has been overdone and I believe the weekly EMA200 support at $26 should hold.


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