Thursday, June 22, 2017

What did I buy in Jun 2017?

The previous posts
- What did I buy in Nov 2016?
- What did I buy in May 2017?

I bought Silverlake Axis at $0.53 in late May. The price fell to near its 1 year low ($0.48 was lowest) and the yield looked attractive 5.6% assuming a 3 cent/year dividend. The business model was heavy on IT maintenance projects with banks which was a rather stable economic moat. However, before you plonk it your cash, be wary that they had a scandal in 2015 -- alleged inflated profits. The share price fell to as low as 35.5 cents on 26 Aug 2015.

Silverlake Axis past 3 years.

I sold some of my SIA Engineering shares in Jun. In the past 6 months, its price had risen 25%. If you recall, I bought some SIA Engineering in Nov 2016. The only reason why I sold some shares was to free up cash to invest in other companies.

I bought Design Studio shares in Jun. It has an attractive yield of 11% assuming a 6.5 cent/year dividend. The business model is doing interior design and renovation projects for condos and hotels. This share caught my attention because I regretted not buying when I saw it 6 months ago. It's price jumped from 46 cents to 64 cents recently. In any case, regretting doesn't justify why I bought. Overall, its business looks sustainable as more buildings are doing renovation, especially when occupancy is rising and rental yields are falling, so landlords usually will zhng their rooms to attract tenants. Before you plonk your money into this share, just to let you know, it's just 2% of my portfolio that is taking this risk. I would love to just throw more money at a 11% yield but I am unsure whether its a value trap.

Saturday, May 20, 2017

What did I buy in May 2017?

The previous post was What did I buy in Nov 2016?

I was queueing for a few stocks (Japan Food, Chuan Hup, Figtree) in Dec-Jan but did not manage to buy any. As the price went up and up, I sat out of the market.

Recently I sold 25% of my DBS shares at $20.80 to return some cash to my warchest. In 1 month, DBS share price rose from $18.60 to $21.00 or 13%. It was also the 5th wave of rises since its lowest point of $15 in Nov 2016. $15 to $21 is a 40% increase. I will never know if the prices will fall back to it's low of $13 or rise further to $26 (100% increase). 5 waves of rises and 40% in 6 months is certainly a little feverish to me. I will just sit tight and see where the waves are heading.

The rest of my portfolio remained the same. I did not buy any stocks.

DBS technical chart

I also did a stock take on my portfolio distribution as I had not calculated it since a year ago. Effective yield is 4.1% p.a. For all the effort put in, I am just matching the CPF Special Account (SA) yield of 4%. Excluding Keppel Corp, the yield is 5.13%. 20 years from now, I hope (and I know hope cannot be eaten) that I can tell myself that I made a right bet with Keppel Corp.




Sunday, April 16, 2017

Book Review: Lee Kuan Yew by Allison and Blackwill

- The Grand Master's Insights on China, the United States, and the World. Interviews and selections by Graham Allison and Robert D.Blackwill with Ali Wyne. Belfer Center Studies in International Security. Published by The MIT Press.

This book focused on international politics and what Lee Kuan Yew's thoughts of the future were. There were a few key ideas which might help the retail investor decide whether to bet for or against the Singapore economy.

Future of welfare states
In general, he believed that welfare states would pass on more and more debt to the next generation just to implement popular policies that win popular votes. For example, the US and most European countries are severely in debt funding welfare. It incentivises the unemployed to remain jobless, and disincentivises the hardworking workers with 40-50% tax on their income. This will only stop when something drastic enough happens, for example, bankruptcy or major government changes.

Future of corrupted states
This is a no-brainer, but these countries will continue to remaining in their third world or developing status until the government puts in proper order and law. He explained it that order had to come before the law is in place to enforce it. India was an example of having the law but no order. Brazil, Russia, China, were other corrupted countries whose growth had been sabotaged by corrupted leaders.

Future of globalisation
He believed that technology and air transport advancements had offered everyone with equal opportunities to sell goods and services. It will continue to change the way businesses operate and how governments manage their countries. Protectionism will be the downfall of a country. Capitalism is necessary to motivate the good to do better and more for the country. Talents will leave their home country if they don't like their government.

China and US
China will have no reason to want to be a superpower. China is just progressing peacefully. China and US relations will had big impact on every economy. The best outcome is to have good trade relations between the two.

Threat of Terrorism
He mentioned that the threat had been seeded since the 1970s and will be difficult to eradicate. The solution he offered was for the Moderate Muslims to counter the extremist Islamist views being taught in schools.

Future of Singapore
Singapore's future depends on its ability to continually retain talent to run the country. The government needs to build an environment where investors and employees want to be in. The innovative spirit needs to be fused into the young, from young, at home and in school. The future workforce is one that continuously learns and adapts.

I am now interested to read the book From Third World to First. This book is not really a propaganda-type of book. It is written objectively, and perfect for anybody interested to learn about international politics. I am still betting my money on Singapore's economy, by buying Singapore stocks, and also choosing companies which have overseas investments. There is definitely a lot of economic potential in China and India after their leaders get their act together.

Thursday, February 23, 2017

Stock Review: Singapore Airlines

Singapore Airlines (SIA) is hallmark of Singapore. The brand name itself probably is royalty worthy. We know their business took a hit when the budget airlines entered the market and their hey days were a thing of the past. At their current price of $9.90, is it a value buy?

Usually, the first metric I look out for in a services company is profit margin because these companies usually rely on staff to earn their income. In a service business, premiums are levied, and customers pay if the customers are willing to. As long as they can find enough customers to happily and repeatedly pay them premiums for their services, it's a good business.

Profit Margin
According to the latest financial report, net profit margin is 5.1% for 9 months (568.3M/11,148.5M), which is lower than the previous year's 5.3%. This means that they spend $95 to bring in $100. One thing I don't really like is that fuel costs forms $26 out of the $95. When fuel cost is something we have no control over, we need a fatter margin to cushion the increase in fuel costs..

Return on Assets (= Net Income/Total Assets)
As SIA buys aircrafts and it forms a large part of their assets, which also depreciates a lot, the next important factor to me is the return on assets, which means how efficient SIA is to generate income from its aircraft assets. ROA is 2.6% (568M/21,660M), which is rather low to me. This basically means that for every $100 of assets on their balance sheet, it is earning $2.60 of income. Fancy it like a CPF account. The number will be higher if we exclude some assets, but it won't tilt the scale much.

Dividend Sustainability
Yes, they have a lot of cash, but they also have a lot of debt. Are they paying their dividends with debt or income? We look for companies that have their Free Cash Flow per share >> Dividend per share. This is like saying you need to earn more than you spend to be debt free. FCF per share is -$0.76 versus a Dividend of $0.44. You don't want your parents to borrow money $76 just to give you $44 right? Anyway, SIA's FCF has been negative from 2012 to 2016. FCF was $0.048 in 2011. They probably emptied their warchest in 2011 with the $1.30 dividend. Will they payout $1 dividend again? Well, I don't know, but if they do, I am quite sure they will need to take on a $1.2B loan.

Overall, SIA isn't attractive at $9.90. If I have to give a rough stab on a price I will consider buying SIA, it's probably $5, based on $0.20 dividend and 4% yield. If you are just riding the waves and following the tide, it doesn't really matter which stock you buy (gamble with).

References:

Monday, January 30, 2017

Book Review: How I Made $2,000,000 in the Stock Market by Nicolas Darvas

This is an e-book freely available on the internet with a simple search of the title. I read it yesterday (yes, can finish in a day, just a 100+ pages) and I would like to write a short review for keepsake.

According to Wikipedia, there was controversy over whether he really made those money because nobody had been able to verify the details of his brokerage accounts. He claimed to have made $2.2M within 18 months, from a capital of $10,000, and he documented all the key transactions in his book.

As he was travelling to different countries to dance, he relied on just a weekly Barron's subscription that details all the stock details he needs, and his daily telegram from his broker. Although he claimed that he doesn't need to analyse the fundamentals of companies, I suspect that he was downplaying the role of fundamentals. He merely stated earnings growth as his main fundamental criteria.

He also learnt from every transaction. He analysed why he made profits and losses. He read up a lot to understand how the stock market works. All these are important traits to learn from. He sums it up by saying that you can only trust yourself. He shuts himself out from all news, rumours, people, and just focuses on analysing the numbers. Something still applicable to this day is never ever be emotional about the price.

His box theory that made him famous believes that following price momentum will insure yourself against not being able to know what insiders are doing. Stock prices fluctuate in boxes and move between boxed. If it moved one box up, he would buy, and he would place a stop loss at a price below the box. The main selection criteria for him to start monitoring boxes was a spike in volume compared with previous days/weeks. This is a logical reasoning because when there is an insider rumour/information, usually the volume will spike first, before the official release of information. The problem with this approach is that you will also be buying blind -- purely based on the stock movement. And when prices increase and you are thinking whether to sell, as long as the momentum is still on an uptrend, there is no reason to sell.

He would also spead his purchases into 4 or 5 parts. A proof of concept to buy 5% of the intended total, then when he sees that the price is following his projected path, he adds another 20% each time, then he will just wait and see. When the volume drops, or when the price starts to fall to the lower box, he will sell.

He also acknowledged that this method will only work when the stock market is active. If there are many people sitting out of the market, there won't be enough stock movement for you to follow. To be understood his context, he came up with his theory in the height of a bull run, and his stop loss orders saved him from the 1957 "market crash" where stocks dropped by 50%. He was also lucky because the market recovered within a few months (which suggests that the crash was just a correction and wasn't caused by fundamental economic slowdown), and he rode the upwave for the next 1 year to reap the $2M profits. He also borrowed agressively -- 70 to 90% margin -- to fund his stock purchases. Margin purchases are risky on all counts.

His method likely only works in this one-off scenario. If somebody had done something similar in 2008-2009, he would also have been able to reap similar profits. I doubled my capital too in those years, and I am a nobody. If I had leveraged 90%, I would have multiplied my capital 10 times and will be a millionaire now. His method will also fail to work in the 1997 crash because recovery was prolonged and price fluctuations were erratic because of low volume.

Overall, it is still a good read to learn about market cycles.

Wednesday, December 28, 2016

Grinding to farm money

If you are familiar with computer games, you will know the terms "farmer" and "grind". Basically, you grind -- brainlessly and boringly kill mobs to earn gold coins -- coin by coin. After a few weeks or months, you accumulate enough gold to buy or upgrade equipment, so that you can fight high level mobs to earn more gold and so on and so forth. A person who continuously does that is sometimes called a farmer because he farms gold coins, and supposedly loses out on the story of the game play.

If you were associated as gold farmers in any game, I am going to guess that you can live with some grinding -- really really boring stuff of saving money every day, tracking expenses every month, ensuring you run a surplus every year, and forcing yourself to save if you forgot to save -- with your sheer will power silencing any procrastination that you have.

I was one such farmer, but I was more of a trader, where I buy goods low during weekdays and resell them higher during weekends when demand is higher, but I can grind.

What I grind:

  1. Record income and expense daily, monthly and yearly (14th year)
  2. Desk-bound job, email warrior, telephone mistress (11th year)
  3. CPF Special Account top-up -- transfer $7000 every year (2nd year)
  4. CPF OA to SA transfer -- transfer max to SA every year (3rd year)
  5. Medisave Account top-up for daughter -- $1000 every year (1st year)
  6. SRS contribution -- transfer max every year for 10 years (3rd year) $12750 previously, now $15300
  7. Monthly investment budget -- $3000 every month for 5 years (3rd year)
  8. Read a financial report -- at least 1 every month (3rd year)
  9. Learn french -- read french every week (2nd year)
Achievements:
  1. Next year Jan, after I make my last CPF Special Account top-up to claim $7k tax relief, I will reach the Minimum Sum or Full Retirement Sum (FRS). => I have 2 things less to grind... Phew. 
... but it will be replaced with 1 new grinding task: repay mortgage loan with OA balances until loan is cleared.

This is a very boring post about the boring tasks of a farmer.

Friday, December 23, 2016

How much have I earned and lost in 2016?

How much have I earned and lost in 2015?

My objective for 2016 was to aim for a $10,000 of investment and interest income, with $12,000 being stretch target. Unfortunately, I did not hit my target. Income for the year was $9,700 but I also netted a loss of $2,100, which means my nett is $7,600. I realised losses because I decided to cut loss for 1 stock.

One of the biggest mistakes in 2015 was probably betting big on Keppel Corp, 75% of my portfolio then. I really liked the property assets they hold, so I bought a lot. I will remember this lesson for the next few years of my life -- never bet big big because I don't have the luck. I had to start looking at stocks that paid 6-10% yield to cover the shortfall from Keppel Corp, and had to keep diversifying my purchases (which could be a blessing in disguise). Keppel Corp now forms 30% of my portfolio and I had promised myself not to buy anymore of it no matter how tempting, and work towards doubling my portfolio size by end 2020 to reduce Keppel Corp to 15% of portfolio.

Excluding Keppel, my capital gain is +11.5%, excluding dividends, and I would have beat the market.

Including Keppel, my capital gain is -9%. Portfolio capital gain + dividends is -2%, so I didn't beat the market because of my big big bet on Keppel.

I sold my shares in Sembcorp Industries (profit), Keppel TT (profit) and Tiong Seng (loss).

The overall dividend yield with respect to capital is 5.2%, and 6.2% if I exclude Keppel, which means I met my 5% target. I probably will never hit 7% with Keppel forming 30% of my portfolio yielding just 3.5%.

Objective for 2017: Maintain existing portfolio and receive $10,000.
Stock to cash (exclude emergency funds) allocation ratio: 50:50.


Learn -> Earn -> Save -> Invest