Monday, December 19, 2016

Hard for oil price to exceed $50 under Trump’s presidency

USA has a large reserve of shale oil in federal lands.

President Obama is not opened to the drilling of shale oil in federal land, but Trump is.

It makes business sense because by renting out or leasing out the land for drilling of shale oil, the government gets income.

It gets direct income by the rental or leasing of the land.

It gets indirect income by taxing the businesses and employees involved.

With the increased income and the low oil price, US can fund a lot of infrastructure works in the country.

It makes a lot of sense to keep oil price low, so the cost of transportation can be kept low.

In this way, a lot of jobs are created in the economy. 

The people, especially the laborers, will be glad of the low oil price, and the number of high paying jobs available in fracking operations and construction.

The breakeven cost for shale oil operators vary from well to well.  Apparently some operators are profitable as long as oil price is above $25.

However, by keeping oil price below $50 and above $40, a number of shale oil operators will be profitable.

The US government can lower the production cost by leasing out large tracts of federal lands to a few large operators.

In view of the strengthening of US dollar, and the resolve of Trump to gain energy independence, it is hard to see how oil price can stay above $50 despite OPEC countries cutting back on production.

The only way for oil price to break above $50 is for a major disaster to happen in fracking operations.

Other than that, it is apparent that fracking operations will produce massive volume of oil for the consumption of US and the world.

I think for the foreseeable future, it is best to stay away from the investment of traditional oil and gas giants.

For Singapore companies in the oil and gas industries, they will have a difficult period of another 4 years.

I sure am glad that I do not hold shares of Keppel Corporation, and Sembcorp Marine.

I do not see how they can get more orders for oil rigs when oil price is kept low.

Tuesday, December 13, 2016

The greed for money creates many superstitions

I guess there are many superstitions in different cultures, especially about money.

The greed for money creates many superstitions.

The older generation in my place, especially the Chinese, believes that you must not give away your rice cooker, pots and pans to others.

If you give away the rice cooker, pots and pans away to others, you are giving them a way to make a living, and you will become poorer.

There are many superstitions about winnings in casinos too.

For example, they will advise you to buy sweets that kids love. 

They believe that children ghosts live in the casino, and they will stop you from winning unless you give them sweets to eat.

I doubt they are right or that they are experts.  They definitely are not billionaires or millionaires.

Despite all their beliefs and adherence to the superstitious beliefs, they are not rich.

Monday, December 12, 2016

The meaning of risk in financial term

The meaning of risk in financial term is a bit different from the way we use it in normal life.

Even though there are many different aspects of risk in financial terms, we are talking about the risk in relation to the return of an investment.

When we say risk in finance, we are talking about mathematics.

That means you can use a formula to calculate the risk factor.  This is known as standard deviation. 

The risk factor starts from using a risk free factor.  In financial term, risk free asset refers to the government bond guaranteed by the government. 

The return is low because it is assumed that government will not default on payment.

That is why when you talk to an investor about risk, you have to define on the risk that you are talking. 

There are so many different types of risks involved, such as currency risk, sovereign risk, inflation risk, credit risk and others.

Thursday, December 1, 2016

I want my investment income more than earned income

My investment goal is very simple.

I want my investment income more than my earned income.

I have stopped going for quick capital gain, since after I make a profit, I have to think about reinvesting the profit.

I focus now on dividend income, passive income, and other investments that will bring regular income.

Even though my saving account still pays interest, the interest is too little to be of use.

Now that I have a very clear investment goal, I have to find ways to reach the goal.

At the moment, my investment income is way below my earned income.

I can never reach financial freedom if I have to rely on my earned income.  

Wednesday, November 30, 2016

My simple stock market buying and selling plan

I have used Excel spreadsheet to list a few listed companies in the Singapore stock exchange.

My selection criteria are very simple.

I choose those companies that pay consistent dividend, and I know the business well enough.

After I have selected my stocks of about 10 companies, I list down the buying price, holding price and selling price.

This is very simple to do.

I will buy when the dividend yield is 7%, sell when the dividend yield is 3% and hold when the dividend yield is 5%.  However for large banks, I am comfortable with buying at an yield of 5%, hold at 4%, and sell at 2.5%.

That means when the average dividend for the past 5 years is 7 cents, I will buy the stock at $1, sell when the share price reaches $2.33 and hold the stock when the share price is $1.40.

The reason I buy at $1 is because the dividend is 7 cents, and that means 7% return.

The reason I sell at $2.33 is because the dividend is still 7 cents, and that means I get only 3% return.

The reason I hold when the price is $1.40 is because the dividend yield is 5%.

That means I buy the shares at $1, and when the share price keeps on going up until $2.33, I will sell.

If there is a change in business environment, then I will sell at any price, even at a loss.

This simple and clear stock market strategy contains both entry and exit price. 

Tuesday, November 29, 2016

Learn investing to gain freedom from slavery of work

Money is a nice thing to have, and a must to have in this world.

When you learn investing, you will experience the miracle of seeing your money grows.

You will gain the freedom from the slavery of work too.

Work by itself is enriching, and satisfying, but when you need to work for a living, work is slavery.

If you can choose to work when you want to work, and stop working when you do not want to work, that is freedom.

You have the freedom of choice only when you have money to give you such freedom.

Saving money alone cannot give you such freedom.  That is because the interest rate from saving account is always lower than inflation rate.

You need to learn investing to make the money grows faster to free you from the slavery of work.

Monday, November 28, 2016

Small investors can achieve better returns than mutual fund managers

Small investors can, and should, achieve better returns than mutual fund managers.

That is because you are not bound by the mandate of the fund.

The mutual fund managers do not have the freedom to liquidate all assets, and keep all cash when they know that the market is heading for a major crash.

They have to keep invested because of the mandate.

They cannot keep 100% of the fund in cash. 

When the mandate allows them to invest in big companies, they cannot sell the big companies and invest in small companies.

The mandate allows them to sell the shares of big companies, but they have to buy the shares of another big company.

They have to stay invested all the time, and keep a small portion in cash to meet withdrawals by the unit holders.

Everyone knows that you have to sell at the peak to lock in profits, and buy at the bottom.

If you are not allowed to sell, you will face paper loss when the market crashes by 75%, and your portfolio of $1000 becomes $250.

Tuesday, November 22, 2016

New businesses fail because of expansion

Many new businesses do not fail because they cannot get sales.

Many new businesses fail because they expand too fast.

The reason is very simple.

When you have a factory that makes and sells $2000 worth of goods every day, you need $1000 for raw material and other fixed expenses.

The suppliers see that you are new, and require you to pay in cash or give you 30 days credit term.

The customer requires you to give 60 days credit term, or else they will buy from others.

You must have enough cash for 30 days, or else your business sinks.

If you keep on getting sales, and you must make $20,000 worth of goods every day, you must have enough cash flow to buy the raw material and pay the overtime of your workers.

You start to take bank loan.

If the customers delay payment by one or two more months, and you run into cash flow problem, and default on payment, your business sinks.

That is why fast expansion is never good. 

Wednesday, November 16, 2016

Life cycle investing is not for everyone

If you talk to any of the professional advisors, they will tell you about the life cycle investing.

They will say that a young person should invest aggressively.  That means most of their money in the stock market.

An old person should have very little or zero asset in the stock market.  An old person should have the money in bond or in cash.

This is the famous life cycle investing.

However, this life cycle investing is not for everyone.

Imagine asking Warren Buffet, Donald Trump and all the rich and famous to park their money in bond or cash just because they are old.

Life cycle investing is the message sent by the investment world of experts, but you have to make conscious decisions for your own investing decisions.

That is not to say that you reject the concept.  Many people do the exact opposite.

They dare not invest in the stock market because they think it is risky.

When they reach middle age, and with little knowledge, and a lot of greed, they enter the stock market.

They lose out big.  They wipe out 20 years of saving due to their greed.

Tuesday, November 15, 2016

Singapore Press Holdings Ltd (SPH) is getting attractive

The share price of Singapore Press Holdings Ltd is getting very attractive.

It has been on a downhill trend, especially since the announcement of the retrenchment started.

In fact, the rumor started it.

Everyone in Singapore knows that the core business of Singapore Press Holdings Ltd is not doing well.

Many people are not buying newspapers.

They do read news, but they read freely online or they collect free newspapers from the MRT stations.  Those who have time on hand will go to the library to read.

They just are not interested in paying for newspapers.

However, SPH is a diversified company with three segments: Newspaper and Magazine, Property, and Treasury and Investment.

The property segment appears to do rather well.

As I am an dividend, I am more interested in the dividend history.

SPH pays dividends twice a year.

The payment in May is consistently at 7 cents.

The payment in December includes a dividend of 8 cents and whatever special dividend declared.

The special dividend is the one that is not fixed. The current year special dividend is 3 cents, down from 5 cents in the previous year.

For conservative purpose, I assume that there will not be any special dividend in the future.

That means I can only rely on 15 cents of dividend every year.

Given the fact that SPH has a solid business and has not made a loss, it is all right to expect that the core dividend of 15 cents to be sustainable.

My expected yield is 5%.  At this rate, I am willing to pay just $3 for the share.

If I lower my expectation to 4.5%, I will buy when SPH reaches $3.33.

It will be long wait for SPH share price to drop till $3.

It is not impossible, though not likely to take place within the next two months.

Monday, November 14, 2016

She refuses to buy when it costs one cent more

When my friend asks for advice in stock investment, I ask her to check the price of a few great dividend stocks.

These stocks have a great track record of consistent dividend payout.

The dividend payout has been the same for the past few years.

In this case, the only decision she has to make is in the buying price.  At the current price, the dividend payout is about 6%.

She takes a look at the price chart for the past year, and decides on a buying price.

When the price is just one cent higher than her target price, she does not want to buy.

As a result she waits for months, and still let her saving sits in the saving account.  The money is earning interest at the rate of 0.05%.

Sometimes I wonder if I have wasted my time with people who simply are not interested in stock investment.

Thursday, November 10, 2016

Always invest for income, not for quick gain

If you want to get richer, always invest for income.

Never try to invest for quick gain.

There are some people who like to find the best penny stock, so that they can make a few thousand dollars in a day.

This is not really an investment.  It is a speculation.  To be it more bluntly, it is a gamble.

It does not matter whether you are talking about the stock market, real estate or other investments, as long as you bear in mind that you are investing for income, you will gain slowly and surely in the long run.

For example, you buy a rental apartment for rental income.  You invest for income.

If the property price improves, you can sell the rental apartment for a gain.  If you choose not to sell, you can still gain from the rental income.  This is the reason why investing for income always works.

Monday, November 7, 2016

The bank is willing to help you get richer

Banks are willing to help you get richer even though most of us think that the banks help rich people get richer.

That is the reality.

The reason is that the poor people do not want to know and learn about the different services of the bank to get rich.

As a result, the rich are the ones who make full use of the banks.

They know to get advice by asking their bankers.

The poor does not even want to ask the bankers, because they do not trust the bankers or they think they know everything. 

You never see the poor people approaching the banker when they want to buy house.  They never think that bankers can help them find the best value house in the area they want. 

Even though the bankers have a selfish interest in whatever answer they give you, most of the times they give good advice.

They know that it is important to make their customers richer so that they have repeated business.

Thursday, November 3, 2016

Alternative investments generally do not produce income

Alternative investments refer to investments outside stock, bond, and property.

Gold investment is one example of alternative investments.

It is a good hedge against the devaluing of US dollar, and against inflation.

However, you do not expect gold to produce income.

You gain a net profit upon selling the gold bar at a higher price.

Most alternative investments do not produce income.

Some of the exotic alternative investments include art investing, fine wine investing, oil exploration, numismatic coins and forex trading.

You need to have expert knowledge or expert guidance in order to succeed in alternative investments.

Wednesday, November 2, 2016

Basic knowledge about real estate investment trust REIT

Real estate investment trust REIT is a great dividend investment.

When you buy a unit of Real estate investment trust, you are buying a piece of real estate.

When you get the dividend from REIT, you are collecting rent.

The difference between a landlord and an investor in REIT is that the landlord has to maintain the building.

That means the landlord has to arrange for repairs and whatever little tasks that all landlords must do.

The building or the house is in the name of the landlord.

When you buy real estate investment trust, you are a part owner of the company that owns the building.

The company functions like the landlord. 

You do not have to wake up in the middle of the night to arrange for plumber to repair the leaking toilet because the maintenance team in the company does that.

You, as the part owner, collect the profit from rental income after paying off all the expenses.

In the context of Singapore, there is another big difference.

If you are a landlord (as in you have a second house for rental), you have to pay income tax on the income generated from your asset.

REITs are exempted from corporate income tax when they pay out at least 90% of the profit.  You, as an investor, do not need to pay income tax from the investment return.

Tuesday, November 1, 2016

Turning liabilities into assets is an art

Most of us cannot get out of the rat race because we have more liabilities that suck money than assets that bring income.

The problem is that we have the potential to turn liabilities into assets, but most of us hate to do that.

There are many ways to turn liabilities into assets.

If you have a car, you can call up businesses in your region. 

You can offer to advertise their businesses with your car.  It does seem weird to drive a car that advertises for insurance sales or plumber service.

However, as long as the advertising brings in money for you, you have successfully turn a total liability into an asset.

You can do the same thing with a room in your house.

You can rent out the space to a tenant or to a company as storage space.

This will bring income to you, and help you pay off the mortgage faster.

Monday, October 31, 2016

Never spend your capital for investment

Many people make the mistake of spending their investment capital when they have made money.

For example, when they sell a rental apartment, they tend to spend the money instead of preserving the capital for future investments.

Let us assume that you have made a profit of $100,000 on top of your investment capital of $50,000. 

Most people can never resist the temptation to spend all the money.

They should spend half of the profits, and use the other half with the original capital for other investment opportunities.

Once you have eaten up all the money, you are back to square one.  That means you have to save very hard, and build up your investment portfolio again.

Thursday, October 27, 2016

Want to get rich or need to get rich

Most of us want to get rich.

We do not need to get rich.

We just want to get rich, because we will have a better life when we are richer than at present moment.

Sometimes we will meet people who need to get rich.

That is because their circumstances force them to work hard to get rich.

They may take on dangerous jobs or leave their family to work overseas because they need to get rich.

They have to support a large family. 

In Asia context, many governments do not give free medical or pension to the elderly ones.

If longevity is in your family, and you have to support your parents, 4 grandparents, your disabled siblings, your spouse and your children, you need to get rich.

You cannot afford to relax and take on a job that pays little.

Wednesday, October 26, 2016

Car park investment in London

Today I spend some time to check about car park investment in places around the world.

It seems that car park investment is one of the best investments for small investors.

You can just buy one car park lot, and make money for the indefinite future.

There is so much less hassle to deal with.

You do not have to worry about tenants not paying you.

Many car parks are well managed, and the drivers pay in one month in advance.

When I search for car park investment, the first few search results focus on London.

I think it is very expensive to park a car anywhere in London, that is why car park investment in London makes a lot of sense.

Tuesday, October 25, 2016

Guaranteed rental return for buying investment property

There are many property developers who offer guaranteed rental return for a period of time to the buyers.

The usual guaranteed rental is for 2 to 3 years.

However, for some deluxe serviced apartments where the property developer manages the property, the guaranteed rental return can be as long as six years.

You must let the management leases out the apartment as part of their hotel asset.

That means thousands of people will be staying there without knowing that you are the real owner.

As owner, you get to stay there for a period of time every year free of charge.  If you choose not to, you can sell the duration back to the management for more rental income.

Monday, October 24, 2016

Age and investment risk

Your age has a lot to do with the amount of investment risk that you can assume.

That means when you are nearer to your retirement age, you must not invest in risky products.

If you lose your capital, you will not have enough time to earn and save for retirement.

A young person who is just out of college can assume higher investment risk.  In general, a risky investment brings more rewards.

However, that is just a general rule.

Many young people are very risk averse.

If they lose as much as 30% of their capital, even if it is paper loss, they cannot eat or sleep well.

They will lose their temper and blame everyone else.

That is why it is important to know your risk appetite before making any investment. 

Saturday, October 22, 2016

Americans give up citizenship to save on tax

After reading the news about Americans, especially overseas Americans, who give up citizenship to save on paying tax, I really feel sad about it.

I feel sad that the politicians think about milking their people dry instead of creating jobs and improving productivity in the economy.

I feel sad that money is more important than loyalty to their country. 

There is no point in singing patriotic songs when people love their money more than their country.

When there are so many people who are willing or who had died for their country, it is sad to see others who just give up citizenship because they are not willing to give up some cash to help their country.

Thursday, October 20, 2016

Borrow money to buy shares makes sense in certain situations

If you are an investor in the stock market, the best advice is to use money that you do not need for a few years.

The experts will tell you not to borrow money to buy shares. 

However, there are certain situations when it is good to borrow money to buy shares.

One of the situations is an exit offer. 

When Company A wants to buy Company B, it will have to offer a price.

If the share price of Company B is $1, Company A may offer $1.25 to the shareholders of Company B.

When the news of the intention is out, the share price of Company B will increase.  It may hit $1.15 or $1.20. 

When the exit offer is confirmed, the price is likely to increase till $1.23 or $1.24.

If you are very confident that the exit offer will go through, because the shareholders of both Company A and Company B are supportive, you can use all your savings, and borrow money to buy shares from $1 all the way to $1.23.   

This is a chance to make money that does not happen frequently.

Wednesday, October 19, 2016

Avoid the love of money in order to get wealthy

If we can avoid the love of money, we can get very wealthy.

That means we have the means to share, and the heart to share.

Many people love money too much to think about sharing with others.

They have the love and the fear of money in them at the same time.

While they know intellectually that they are not really that poor, and that generosity brings its own rewards, they justify that they have too little to share.

This is just an excuse due to their love of money.

Many people know in their hearts that they have to invest their money wisely, and they know that they have the means to learn investing, but they fear the loss of money.

It is actually a love of money that makes them fear losing their savings.

When the loss of money is very real, then we know how much the love of money has a hold in us.

That is why we should have more faith, and learn to avoid the love of money to get wealthy.

Tuesday, October 18, 2016

Investing in solar energy companies

From the standpoint of a conservative investor, it is not wise to invest in solar energy companies.

The solar energy companies do the research, make the solar panels, and sell to the consumers.

The lower and lower cost of production is good for the consumers, but bad for the solar energy companies.

The profitability is not sustainable.

If the solar energy can set up a huge solar farm, and supplies electricity to an entire state or nation, that is a different story.

It becomes a utility company, and not a manufacturer of solar panel.

The profit is recurring since every household needs electricity, especially in the hot summer and cold winter.

That is the time when conservative investors will invest with their savings for a stable dividend.

Monday, October 17, 2016

Investing for income is less risky than investing for capital gain

Investing for income is less risky than investing for capital gain.

When you buy gold, silver, and stocks that do not pay dividend, you definitely want to sell them at a higher price.

This is the method to make a capital gain.

The problem is that you can wait for ages before you make a profit.

You are more likely to make a loss in the coming weeks or months.

When you are investing for income, you are less likely to want to sell.

You look forward for the quarterly or half yearly payment.  You have the certainty of payment if you invest in those companies that pay dividends without fail.

Sometimes they pay more when they are having an exceptionally good year.  Sometimes they pay less in a lean year. 

The only certainty is that you will get paid a dividend every year.

Thursday, October 13, 2016

Learn the language of money

Even if you can speak English very well, and have a powerful command of this language, you are a handicap with it comes to the language of money.

The language of money is not about dollars and cents.

It is not about spending money to buy things.

The language of money involves all the technicalities of money in the world.

You will be familiar with certain terms, such as mortgage, line of credit, credit score, rate of return, cost of fund etc.

You may be less familiar with beta, risk, sharpe ratio, WACC, leverage, arbitrage, return on equity, price to book ratio, acid ratio etc.

The wonderful thing about the language of money is that it opens your mind to all sorts of wonderful possibilities.

You enter into a mystical yet simple world of money.

Wednesday, October 12, 2016

I do not subscribe to IPO

I do not subscribe to IPO.  IPO means initial public offering.

That means the company is offering shares to the public for the first time.

It does not matter what company is going to list in the stock market, I do not, and will not subscribe to IPO.

The big winners of IPO are the ones who are selling shares, not the ones who are buying shares.

If you happen to own shares in a private company, and the company gets listed in the stock exchange, you can sell your shares to get a big windfall.

The persons who buy your shares may suffer a monetary loss. 

Many companies window dressed their annual reports to make it fancy for listing. 

After a year or more, the true color emerges, and you can see how bad the financial of the company is.

Tuesday, October 11, 2016

Difference between dividend and capital distribution

When you receive money from the investment of common stock, it can be a dividend or a capital distribution.

What is the difference between dividend, and capital distribution?

We can use a simple example to show the difference.

If you buy the shares of an investment holding company with portfolio worth $100 million dollars, and this company makes $10 million dollars in after tax profit, it will give out part of the money in cash to you.

That is known as a dividend.

It is the after tax profit that you receive.

If the investment holding company sells off a company, and it makes $20 million from the sale, and give out the money to you, that is a capital distribution.

The reason is that the holding company could have kept the money as capital for future purchase.  When it cannot find a good purchase, it will return the money to the shareholders.

This reduces the capital of the holding company, that is why the money you get is a capital distribution.

Monday, October 10, 2016

Warren Buffet expects cash from his investments but do not give cash dividend to shareholders

Sometimes when I talk to my friends about investment, especially about my preference for cash dividend from share investments, they point out that Warren Buffet does not give out cash dividends to his shareholders.

That is true.

His reason is that he has better use of the money to grow the company for his shareholders.

However, he expects all his investments to produce cash dividend for him.

All of his companies have to forward the excess cash to the holding company.

Warren Buffet does not want them to make capital allocation decision.

He decides how to use the cash.

Me, too, expects all my investments to produce cash for me.  I want cash dividend. 

I want to make my own capital allocation.

That is why I invest for dividend income.

Saturday, October 8, 2016

Do not buy shares until US Presidential Election and Fed rate hike are both over

Both events are “known unknown” events.

That means you know that the event will happen, but you do not know the outcome.

In term of US Presidential election 2016, you know that it will take place in early November, and you know that one of the two candidates, Hillary Clinton and Donald Trump, will be the President.

However, you do not know who.

As for the Fed rate hike, you know that the interest rate hike is coming, but you do not know when or by how much.

There is a high possibility that the rate hike will occur in December and the interest rate will increase by 0.25%.

The “unknown” part of both events has a great impact on the volatility of the stock markets worldwide.

 When Hillary Clinton appears more likely than Donald Trump to become the next President, the stock markets in many parts of the world cheer.

When certain polls or rumors mention that Donald Trump is more likely to become the next President, the stock markets end in red.

The reason is that Hillary Clinton is a “known” factor.  That means the world knows her as a politician, and knows that she will not change the policies drastically.

Donald Trump is an unknown factor.

It is best to wait till both events are over, and the outcome known, and the investors have digested the information to make buy and sell decisions.

By then, the third quarter results of the listed companies are out, and you can use the decision to buy shares for income investments.

Thursday, October 6, 2016

Use DBS Group Holdings Ltd to show dividend and share price relationship

In this blog post, I will use DBS Group Holdings Ltd (as a proxy of the stock market) to show dividend and share price relationship to determine undervalued and overvalued market.

There is no sure way of knowing the exact point when the stock market peaks or bottoms out.

However, if you use the dividend and share price relationship, you can have a good feel of the current market.

Overvalued market means the share price is too high for the value of the stocks.  If you buy at this time, you will overpay for the shares.

Undervalued market means that the share price is very low, and you use lesser money to buy the great stocks.

How do you use the dividend and share price as a guide?

The following is the price chart of DBS Group Holdings Ltd from 2008 till now.

The credit goes to Yahoo! Finance

The share price of DBS Group Holdings Ltd reached a high point of $20.48 in 2008, and dropped to a low of $6.90 in 2009.

The price range in 2010 was rather stable from $13.50 to $15.50.

In 2011, the share price fell below $12 for a short period.  From then on, the trend was uptrend until the share price hit a high of $21.40 in 2015.

As we can see from this chart, the share price goes up and down.

Next, we check the dividend of DBS Group Holdings Ltd.  The data is taken from SGX website, under corporate action.

We will see from 2009 onwards

Unlike the share price, the dividend is more stable.  For many years, the annual dividend is 56 cents (except in 2010 where it is 14 cents lesser).

From 2015, the dividend increased to 60 cents per share.

Now let us see the dividend and share price relationship.

2009 was a very volatile year.  If an investor bought the share at $6.90 and based on the average dividend of the year, the dividend yield would be 8% (dividend of 58 cents divided by share price of $6.90).

If you bought at $15 in 2010, and based on the dividend of 42 cents, the dividend yield would be 2.8%.

If you bought at $12 in 2011, and based on the 58 cents dividend for the year, the dividend yield would be more than 4%

A summary is given below.

Share price
Dividend Yield

Based on the dividend and share price relationship, a dividend yield of 2.8% means that you have bought into an overvalued market.

If the dividend yield is 4% to 5%, that is a balanced market.

An undervalued market happens when the dividend is stable, and the share price is driven down by fear.

Since the share price rises and falls all the time, and the dividend is stable, you can use dividend as a guide to determine the current situation of the market.

No point buying into an overvalued market.  Best to wait till the market is undervalued.

Wednesday, October 5, 2016

Become a shareholder or bondholder

There are two ways to invest in the stock market.

Many stock markets allow you to buy and sell bonds, and shares.

You can buy and sell shares, and you can buy and corporate bonds of the listed companies.

Most investors do not become both shareholder and bondholder of the same listed company.

There is a fundamental difference between buying shares and buying bonds.

When you buy shares, you become the co-owner of the company.

When you buy bonds, you become the creditor or the banker to the company.  You do not care if the company makes a profit of a million or ten million dollars.

You care about your coupon payment which is a fixed percentage.  That means if you buy the bond at a rate of 6% coupon with $1000, you will get $60 per year, and year after year.

If you are the shareholder, your dividend depends on the profitability of the company for the year.

However, both shareholders and bondholders share the same risk when the company runs out of cash.

The bondholders will find that the company defaults on the coupon payment, and the shareholders will not get any dividend, and they will see the share price hits a new low.

Tuesday, October 4, 2016

Buying shares is easier than grocery shopping

Buying shares and grocery shopping have a lot of things in common.

However, buying shares in the stock market is easier than grocery shopping in a large supermarket.

When you want to go supermarket, you have to decide on which one to go.  There are many national chains so you have to decide on one that has most items on sales that week.

It is easier in stock market because each country generally has one stock market.   Some large countries have a few stock markets.

When you are grocery shopping, you have to compare the different packing sizes, different brands, and the preference of all in the family.

When you are buying shares, the only thing you have to know is the profitability in term of capital gain, and dividend income.

When you are grocery shopping, you have to exercise self-control, so that you buy in bulk when the item is on sales.

Sometimes you have to check the price week after week, and mentally compile the price increase or decrease for the past year.  In this way, you will know the likely period when the item will be put on sale.

In the stock market, there are charts available for you.  You do not have to check price every week.

The similarity is that you have to buy when price is low.  That means you invest in stock market when the market crashes.  You buy groceries when the supermarket is having deep discount.

Monday, October 3, 2016

Attempt to time the market is stupid

You have read many reports about how the stock market performs over the years.

That means if you have bought an index fund and hold for 20 or 30 years, you would have made a lot of money if you sell it now.

However, many people do not have the same rate of return.

They try to time the market, and they lose out in the end.

For one thing, the frequent trading results in high transaction cost.  You will have to make much more money to achieve the same rate of return, because you give the money to the brokerage house.

It is best to use the dollar cost averaging method to invest in an index fund if you do not want to take the risk of investing in individual stock.

Sunday, October 2, 2016

Reading Charlie and the Chocolate Factory as an adult

I fondly recalled the magical moment of reading Charlie and the Chocolate Factory by Roald Dahl when I was a kid.

Our family was quite poor, and like Charlie, we got to eat chocolate once a year.

That was during the Chinese New Year period when chocolate was one of the traditional goodies for our family to serve the guests.

I recalled the happy moment of seeing myself in Charlie’s shoes as I took an imaginary tour of the wonderful chocolate factory.

Now that I re-read the book as an adult, I have a different perspective.

I see the sadness of corporate downsizing and the loss of jobs for thousands of workers.

There are two retrenchments mention in the book.

The first retrenchment happened in the chocolate factory.  Mr Wonka realized that the competitors sent spies to steal his secrets of making wonderful products.

He asked the workers to leave, and closed the factory.  Thousands of workers lost their jobs.

The second retrenchment happened to the toothpaste factory that employed Charlie’s father.

Charlie’s father was very hardworking but he was in a lowly paid job.  His work was to cap the tube of toothpaste.

No matter how fast he was, or how hardworking he was, his income was barely enough to feed the whole family.

The whole family included his parents, his parents-in-law, he and his wife, and his son.  It is definitely hard for a sole breadwinner to take care of everyone, especially when the elderly ones are over 90 years old, and have to stay in bed all the time.

Another thing that touches me was the description of poverty.

When you have bread for breakfast, boiled potato and cabbage for lunch, and cabbage soup for dinner, life was not so enjoyable.

As a kid, Charlie dreamt of chocolate.

When his father lost his job, even cabbage became a rarity.  The whole family starved, and for Charlie, all he could think of is food.

That is the form of poverty that most of us never have to experience.

The story took a twist at this point, and it ended up with Mr Wonka selected Charlie as his heir to take over the chocolate factory.

I sure wish that every poor child has a mentor like Mr Wonka.

Mr Wonka agreed to teach Charlie everything, and later on to take over the business.

In today’s context, the only way for a poor kid to get out of poverty is to study very hard, get a scholarship, and gain enough knowledge to start a business or work as a professional.

Most kids in poor countries do not have the chance to do that.

To them, food is the most important in their life.  They can live without an education, but not without food.

They rather work when they are old enough to work, and they rather have the money to buy food for the family.

In many developing countries, that means working at a sweatshop for kids who are less than 14 years old.

Saturday, October 1, 2016

Very easy to buy travel insurance from FWD Insurance Singapore

Of all the travel insurance policies I have bought over the years, I must say that the experience with FWD Insurance Singapore is the best.

So far, I do not have any experience with making claims, so I can only talk about the buying experience.

There was a time when I bought travel experience for a group of 6 persons.

I had to collect all the travel documents, and then keyed in the data one by one, including the name, passport number, expiry date and date of birth.

It was a pain to do all the data entry.

The worst is that later on, one of the persons renewed the passport, and I had to contact the travel insurance to make amendment to the passport detail.

FWD Insurance does not require all the details except for name and IC number for all other passengers.

That makes it easy to buy group insurance.

I sure spend more time reading through the benefits and compare the three plans of travel insurance than keying in the data.

I buy for the three of us for our week-long trip to Thailand.

As of today, the 10% discount coupon is still valid.  The coupon code is FWDST10.

On top of that, a simple survey yields another 5% discount.

After I have made the payment, FWD creates my account automatically.  That means when I want to buy more policies, I do not have to key in my personal data again.

You may check out FWD Singapore to get quotation for travel insurance, car insurance, and term life insurance.

Update on 3 October 2016:

FWD customer officer calls me to ask if I have received the policy details sent by email.  She also asks if I have clicked on the link to login to my account.

As this account login is important in the event of claims, it is good of FWD Singapore to get a customer service officer to call.

As of now, I am very happy that I have chosen to buy the travel insurance from them.

Up to date, none of the other insurers have ever followed up with a call after I purchased the travel insurance.

Friday, September 30, 2016

Attracting money or attracting the opportunities to make money

When people talk about the law of attraction in wealth, they talk about attracting money.

That is not really correct.

You are attracting the opportunities to make money, not the money itself.

It is not possible to have a check in the letter box every day for doing nothing.

You have to earn to get the rights to the money.

That means you attract the opportunities to make money with your talents, and time.

When you have many opportunities to make money, you will attract more money to you. 

Your effort, regardless of physical effort or mental effort, will result in better returns.

Thursday, September 29, 2016

Are you planning to be rich?

Think about this question carefully: Are you planning to be rich?

Most people dream of getting rich.  Some people really desire to be rich.

However, not many people seriously plan to be rich.

It takes very little effort to day-dream of all the things that you can buy when you are rich.  The problem is that day-dreaming does not turn stones into gold.

You need a concrete plan to get rich.

This means planning about getting more money, saving more money, and growing your money, until you are comfortably rich.

It takes concerted effort to work hard day after day, month after month, and year after year to get rich.

Even the rich are constantly working hard to get richer and richer.

Are you planning to be rich?  If not, why not?

Wednesday, September 28, 2016

Basic salary, gross salary and net salary

When you start working, you are likely confused when people ask you about your salary.

You do not know whether you want to answer based on basic salary, gross salary or net salary.

The amount between all the three salary types is huge.

Let us assume that your basic salary is $1,000.

This is the base salary without addition of allowance, commission, overtime or other amount.

If your overtime is $400 for that month, and you have an additional uniform allowance of $100, transport allowance of $100, and commission of $100, you have to add all these to get the gross salary.

The gross salary means the basic salary plus all the additions or deductions.

In this case, your gross salary is $1,700.

That is not the money you see in the bank, because taxation and other mandatory deductions take a huge chunk from your gross salary.

In the end, your net salary is just $1,300.

If you can save 20% of your net salary, and invest to get a return of 5% or more, you can start to think of retirement after 20 years of working. 

That is considered good, since you are likely to be in your 40s, and you still can work to make up for any shortfall in your projection of retirement cost.

Tuesday, September 27, 2016

Can you afford early retirement?

Can you afford early retirement?

Many young people are very optimistic that they can retire young and retire early.

However, their lifestyle shows that they know nothing about early retirement.  They think that they can spend all they want, and still have enough for retiring early.

Many adults realize that they cannot even afford to retire at mandatory retirement age when they are in their 40s.

They realize too late that the inflation rate is eating up their income, and they have savings for just another few years of unemployment.

Retirement income never features high in their past.  They used to think that saving 10% of income is good enough.

If you really want to retire early, you have to save half your annual income, and use the money to produce a return higher than the inflation rate.

It is only when your yearly dividend or rental income or other investment income exceeds your basic salary, then you can decide to retire.

Monday, September 26, 2016

Buying service apartments for investment

Buying service apartments for investment is an interesting concept.

I do not know how profitable it will be, but it definitely merits a consideration if you are interested in real estate investment.

In some cases, you do not have to worry about the management of the service apartments.

When you buy service apartments, you are buying from the company that manages the hotel and the service apartments.

The company will continue to manage for you, pay you a guaranteed rental return of a certain percentage. 

This will cover the monthly mortgage, and give you a positive cash flow.

The problem is that when you want to sell the service apartment, you have to sell through the company.

In other cases, the service apartments are sold as individual unit.  You can choose to buy and rent out the serviced apartment on your own.

In this case, if you cannot get a tenant, you have to cover all the overheads, such as the housekeeping fees, and other charges. 

The cost of buying a service apartment is higher since the apartment comes fully furnished, and daily housekeeping service is part of the deal.

Do you think it is wise to buy service apartment for investment?

Sunday, September 25, 2016

Do not buy the shares of airlines

Richard Branson says that you can start off as a billionaire, and then you buy an airline to become a millionaire.

Warren Buffett says that “Investors have poured their money into airlines and airline manufacturers for 100 years with terrible results.”

The moral of the story is: Do not buy the shares of airlines.

I am a Singaporean, and I am very proud of the achievement of the national airline, The Singapore Airlines Limited.

However, I will never buy the shares of The Singapore Airlines Limited.

The Singapore Airlines Limited is a multi-billion dollars company listed in the Singapore stock exchange.

It is part of the component of the Straits Times Index, which is the index stock representing the Singapore stock market.

Singapore Airlines has won multiple awards, and has many profitable quarters.

However, as with all airlines, retaining the cash it earns and shares the cash with the shareholder is a big challenge.

The nature of an airline requires it to have passenger planes.

That means it has to keep on buying new and large planes from Boeing or Airbus.  It has to spend a lot of money in servicing the planes so that passengers can fly safely.

It has to pay top money to the pilots and crew.  It has to spend a lot of money to train the pilots and crews.

When the oil price falls, the saving from lower fuel cost does not flow to the shareholders as special dividend.

The saving flows to the passengers instead.

The passengers expect a lower fare because the oil price is lower.  When the competing airlines reduce the fare to attract the passengers, Singapore Airlines has to do the same.

They cannot expect to charge very high fare, and still expect all flights to be full.

In this business, many unexpected events can affect the business and its profitability.

When MH370 went missing and MH17 got shoot down in Ukraine, many people dared not travel by air.

They were fearful of aviation disaster. 

When a country has mysterious disease afflicting the people, many people worldwide cancel their travel plan.

In the year when SARS affected a few countries, many flights were cancelled because of the cancellation.

No point flying a plane for just 10 passengers. 

However, the airlines still have to pay the salary of the office staff, pilots and cabin crew.  They still have to pay for the parking of the planes in hangar.

That is why an airline can have a few quarters of profits, and then a single quarter of devastating loss will neutralize all the profits.

Never buy the shares of airlines.