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.    

Saturday, September 24, 2016

Do not buy when a listed company makes record profits

Do not buy the shares of a listed company when the newspapers report that it has made record profits.

If you hold the stock of the company, you can choose to sell it or to hold on for special dividend.

If you do not have the stock, and you happen to buy early in the morning at a relatively low price, you have to sell it by the end of the day to lock in the profits.

The share price rarely rallies much after the newspapers report about the record profits.


The insiders have already stocked up the shares before the financial result is out, and they are not going to buy at a high price.

The existing shareholders or in the same industry or those who have followed the announcement closely have anticipated the record profits for the current year.

A listed company does not make a record profit all of a sudden.

For a property developer, the record profits come when it has a few projects gaining the TOP (temporary occupation permit) signaling the completion of the project.

If each project yields 2000 homes, and all are fully sold, you can expect a bountiful year, since they can only recognize the bulk of the revenue after completion of the construction.

In the years that the homes are being built, they can recognize only a small percentage of the revenue. 

At the point of TOP, they can recognize 100% of the revenue.  That leads to a very volatile profit and loss statement.

I do not know why the newspapers reporters always focus on the profits, and not on the cash flow.

If you look at the cash flow in relation to the profit and loss statement, you will find a few very puzzling things.

Sometimes a company can have a record profit, and yet the cash flow is negative.

That means the cash at the beginning of the year is higher than the cash at the end of the year.

If a company makes $2 billion profit in a year, and yet the cash in the bank is much lower, where does the money go?

The money can go to the repayment of bank debt or redemption of corporate bond or expenses associated with new projects or to capital investment in the form of a bigger premise or the acquisition of another company.

That is why do not focus on the profit. 

Focus on the cash flow. 

If the cash flow is negative, you can find out the reason for it.

If you do not think that the company is spending money wisely, do not buy the shares.

For example, the company uses the money to acquire another company.  You do not think that is a good thing, since the acquisition leads to higher debt and burns away the existing cash.

If that is the reason, you can wait for a year or two to see if the acquisition makes sense.

The focus is always on cash flow, not the profit.

There are instances where companies report a loss, and yet the cash amount increases.

The loss can due to depreciation, or a markdown of the inventory known as impairment loss.  It has nothing to do with the cash.

The cash keeps coming in, and yet the company keeps reducing the value of the inventory.

Friday, September 23, 2016

Assessing Walmart Stores Inc (WMT) as a recession proof dividend stock

Millions go to Walmart every day to buy their essentials, yet the same millions who are customers never think of becoming a shareholder of Wal-Mart Stores, Inc.

Walmart (WMT) as a stock is a recession proof dividend stock.

That does not mean that you do not have to pay attention to the price.  A low entry price will guarantee that you will make money just from the increasing dividend.

The following dividend detail is taken from Walmart website

April 2, 2007
Regular Cash
June 4, 2007
Regular Cash
Sept. 4, 2007
Regular Cash
Jan. 2, 2008
Regular Cash
April 7, 2008
Regular Cash
June 2, 2008
Regular Cash
Sept. 2, 2008
Regular Cash
Jan. 2, 2009
Regular Cash
April 6, 2009
Regular Cash
June 1, 2009
Regular Cash
Sept. 8, 2009
Regular Cash
Jan. 4, 2010
Regular Cash
April 5, 2010
Regular Cash
June 1, 2010
Regular Cash
Sept. 7, 2010
Regular Cash
Jan. 3, 2011
Regular Cash
April 4, 2011
Regular Cash
June 6, 2011
Regular Cash
Sept. 6, 2011
Regular Cash
Jan. 3, 2012
Regular Cash
April 4, 2012
Regular Cash 
June 4, 2012
Regular Cash
Sept. 4, 2012
Regular Cash
Dec. 27, 2012
Regular Cash
April 1, 2013
Regular Cash
June 3, 2013
Regular Cash
Sept. 3, 2013
Regular Cash
Jan. 2, 2014
Regular Cash
April 1, 2014
Regular Cash
June 2, 2014
Regular Cash
Sept. 3, 2014
Regular Cash
Jan. 5, 2015
Regular Cash
April 6, 2015
Regular Cash
June 1, 2015
Regular Cash
Sep. 8, 2015
Regular Cash
Jan. 4, 2016
Regular Cash
I do not take the whole dividend history since that will take up too much space.

From the dividend history from 2007 onwards, we can see that Wal-Mart Stores, Inc pays dividend every quarter, even in the worse year of the recession.

We can reasonably conclude that in the coming years when there is a deep recession again, Walmart will continue to pay dividend.

In fact, the business will boom because more people will cook at home, and they will cut down on overseas travel, and spend more money on essentials, and grocery.

For me personally, I prefer to have a buying price and a selling price before I buy any stock.

In the case of Walmart, I will use a dividend yield of 4% to set my minimum price.

Taking the full year dividend payout for financial year 2015, the dividend amount is $0.49 x  4, which is $1.96.

$1.96 divided by 4% will give me a buying price of $49.  Walmart has increased the dividend to 50 cents per quarter for the current year.  At the rate of 4% yield, my buying price will be $50.

The current price is $72 which is way too high a price for me. 

There were a few days in 2007 to 2010 when the share price of Walmart was below $50.

That means if I were to buy the stock of this company, I would have to wait patiently for the next recession to cause a market crash.

As for the selling price, I would set it based on dividend yield.  Anytime when the share price reaches sky high and the dividend is not increasing at the same rate, I will sell.

My selling price will be based on a dividend yield of 2%.  At the current annual dividend of $2, my selling price will be $100.

In a nutshell, my buying price is $50 and selling price is $100 based on the current year dividend.

When the dividend increases, my buying price and selling price will change based on dividend yield of 4% to set a buying price and 2% to set selling price.  

Thursday, September 22, 2016

Attending paid seminars to meet rich and successful people

There are many paid seminars about investment and personal development.

Sometimes you will find many millionaires paying the same rate to attend the seminars.

You would think that they know all about the topics, and in fact, they may be better off than the motivational speakers.

Why do they want to pay money to attend seminars when they are so rich and successful?

There are a few reasons.

One reason is that they know they do not know everything about investment.

Another reason is that they want to meet more people who can be their partners.

Investment is always a process that requires great partners.

Nobody becomes successful without knowledge, and great partners.  Even if you just want to buy a house for rental income, you need the real estate agent, the lawyer to do the conveyancing, and the banker to approve your mortgage.

You need the insurance agent to advise you on the best renter insurance.

You need to know the tax accountant so that you know what to claim and what not to claim from tax authority.

You can meet all these people when you mingle more through paid real estate investment seminars.

Wednesday, September 21, 2016

Should Asia Enterprises Holding Ltd delist from Singapore stock market

Personally I see no reason for Asia Enterprises Holding to continue its listing in the Singapore stock market.

Asia Enterprises is in the business of buying and selling steel. 

It buys steel from the suppliers overseas, meaning from China, and sell to the marine and construction industry in Singapore and neighboring countries.

The company has no debt.  It is a cash rich company that is not likely to need bank loan.

If the cash is evenly distributed to all the shareholders, each shareholder will get about 19.9 cents.

Given that the current share price is still less than 18 cents, it is a no-brainer that the market value is too low.

Asia Enterprises Holding Ltd meets the definition of a net-net stock.  Net-net concept is credited to Benjamin Graham, the teacher of Warren Buffett.

That means you are using 18 cents to buy cash value of 19.9 cents, and you get the real estate (the premise is fully paid), and the business free of charge.

That is why I do not see any reason for Asia Enterprises Holding Ltd to continue its listing in the Singapore stock market.

It is not aggressive in expansion or acquisition of other businesses.

Given the cash holding in the company, there is no need to get bank loan or issue rights to raise funds.

What is the point of paying money to maintain the listing status?

Since the share price is so much lower than the cash holding, it might as well use the money to buy back the shares to the full limit of 10% of the share capital.

Once the limit is exceeded, Asia Enterprises Holding Ltd can issue an offer price to buy back the remaining shares and privatize the company.

It will definitely save cost in the long run.

It does not have to pay to maintain the listing status, and to pay for compliance of listing requirement.

The recent minimum trading price of 20 cents for mainboard listed companies is a really stupid rule.

Since Asia Enterprises Holding Ltd is a mainboard listed company, it will have to push the share price up to 20 cents just because stock exchange says so.

That is a really stupid idea because it adds cost to the listed companies without adding value to the shareholders or the employees of the listed companies.

Even though the stock exchange has put a moratorium on the implementation of minimum trading price, it has not given up on the idea.

If Asia Enterprises Holding Ltd privatizes, it will save the management a lot of time.  They do not have to keep on watching the stock price.  They can focus on the business, and enhancing the value for shareholders, suppliers, their employees and their customers.

Tuesday, September 20, 2016

Characteristics of a well-functioning stock market

You often hear people make money or lose money in the stock market. You have the impression that investing in the stock market is risky, even though you have invested in mutual funds or index funds.

Most people have no idea what the stock market is. They heard so many horror stories about bad investments in the stock market. To them, they think that the stock market is a money-sucking monster.

What is a stock market? What are the characteristics of a well-functioning stock market?

Stock market is a mechanism for buyers and sellers to meet. The buyers are investors who want to put their money in growing companies. There are two types of sellers in the stock market. One type of sellers is the companies that need money for expansion. Another type of sellers is investors who want to sell off their stock. Stock market serves as a platform for trades to take place.

The stock market does not own the stock of the listed companies. The New York Stock Exchanges does not own the stock traded on its trading platform.

A well-functioning stock market must be transparent. The prices and volumes of the stock market are available to the public. The stock exchange requires that listed companies disclose timing and accurate information to the public. The stock exchange requires that listed companies disclose important information that has an impact on the share prices to the public.

A well-functioning stock market must be liquid. Liquidity means that buyers and sellers can buy and sell quickly.

Investors like to invest in the stock market because of the liquidity. They take a few months to finalize sales of real estate. However, they take just a few minutes to buy or sell in the stock market.

Many people like to boost of making a killing in the stock market. They like the thrill of buying shares in the morning, and selling shares in the evening. In a matter of hours, they are able to make a few hundred to a few thousands dollars.

The liquidity of the stock market is helping people to make quick bucks. On the other hand, the liquidity of the stock market is causing huge losses for those speculators.

A well-functioning stock market reduces transaction cost to buyers and sellers. Compared to real estate investment, the transaction cost of buying or selling shares are very low. The low transaction cost increases the profits to the investors.

A well-functioning stock market adjusts quickly to new information. Many new investors are surprised at the speed that the stock market responses to bad news. A few words of doom by a high-ranking government officer can send the prices of the stock market to a new low.

So folks, before you sink your hard-earned money into the stock market, make sure you understand the function of the stock market. Do learn the basics of stock market investment.

Monday, September 19, 2016

Extreme frugality to save money

When you are making very little, you have to exercise extreme frugality to save money.

That means literally to live on the bare minimum, and to deprive yourself of everything that costs money and is not essential to life.

That means not going for any movie, and not even switches on the TV to watch any show.

Another way is to find out all the edible fruits and leaves that are available freely.

Some families have relied on road kills for meat.  That helps them to cut down on purchases of meat.  That is definitely not the way I want to save money. 

I value my health more than the money saved from buying meat.  I rather buy soup bones to get the taste of meat in my food. 

It is surprising that many people do not know that you can eat sweet potato leaves, but not potato leaves.

You can also grow carrot tops in water and harvest the leaves to cook instant ramen.

Once you have got used to the life of extreme frugality, you will definitely save some money.  This may not be the lifestyle that you will enjoy, but you will not die if you try it for a couple of weeks a year.

Even if you have money for the little luxuries in life, you can treat extreme frugality like a financial detox.

This will help you learn to live more simply, and find out how much you really miss the activities or food that you are used to.

Sunday, September 18, 2016

My buying price for Hutchison Port Holdings Trust

I have eyed Hutchison Port Holdings Trust for many years.  It is a business trust holding the container ports in Hong Kong and Shenzhen.

The earning model is rather simple.   The core business of a container port is to get the imported goods unloaded from a ship, and then load goods that are meant for export.

When the economy is good, and there are more goods coming and going, then the container ports will make a good profit.

The weak global economy means lesser import and lesser export, and that means lesser earnings for Hutchinson Port Holdings Trust.

The first time I considered buying Hutchison Port Holdings Trust was about two years ago.

The only thing that stopped me was their capital expenditure announcement.

The 3 years capital expenditure for building deep sea berths in Yantai means less money for the investors.  Since Hutchinson Port Holdings Trust is a dividend play, cash is king.

Most cash towards expansion means less cash for the shareholders.

That was the time when I decided to wait till the capital expenditure program ended.

However, Hutchinson Port Holdings Trust announced earlier this year that it will pay down its debt from 2017.

The debt repayment plan means that it will repay HK$1bn every year from 2017.

In the long term, the capital expenditure and debt repayment are good for the investors, since that will lead to potentially higher earnings, and lower expenses (in term of interest paid to the banks).

However, in the short term, that means less cash to give out to the investors.

I still like Hutchinson Port Holdings Trust, so now I have to take all the available information, and compute my buying price.

I assume that the earnings for the next few years will be just as bad, since the global economy is not likely to improve so much that the earnings will skyrocket.

I assume that the economy is not going to worsen much too.  Since US is recovering, the rest of the world is not likely to get into a deep recession.

The dividend paid for the period Jan 16 to Jun 16 is HK 14 cents.  The amount paid to all investors is HK$1,219.6 million.

The dividend paid for the period July 15 to Dec 15 is HK 18.7 cents.  The amount paid out is HK$1,629 million.

I will take the full 12 months as a basis.   Out of the earnings from July 15 to Jun 16, a total of HK2,848.6 million is paid out as dividend, and each share gets a dividend of HK 32.7 cents.

I assume conservatively that in 2017, a billion HK dollar is used to repay the debt and the amount remains for investors is HK1,848.6 million.

That means dividend per share is just HK 21 cents.

At the current exchange rate of HK 1 dollar converts to S$0.177, the dividend in Singapore currency is just S$0.037.

I usually expect a 5% dividend yield, so based on the expected dividend of S$0.037, my buying price is S$0.74.

However, in this case, I will have to add in a margin of safety to account for the exchange rate risk, and the risk of another labor strike.

I will only buy when the dividend yield is 7%.  That brings my buying price to S$0.52.

The current share price in Singapore currency is S$0.595.

I doubt I will to wait very long.  Hutchinson Port Holdings Trust has proven to be a falling knife since its IPO. 

Even though it is part of the STI components, and those who invest in STI ETF will have shares in it, I do not think the share price will increase.

It will probably fall all the way to 50 cents within a year.

The only certainty is that the share price will not reach 0.  No matter how bad the business is, the port is still making money, and the economy of Hong Kong and Shenzhen cannot do without the ports.

I will have to think about the selling price before I buy the shares.

This part is harder since the share price is unlikely to see an increase within 2 years.   I doubt I will see a huge capital gain even if I hold for 5 years. 

Hutchinson Port Holdings Trust will be a pure dividend play for me, if and when I manage to get it below 52 cents (Singapore currency).

Saturday, September 17, 2016

Do not buy the shares when engineering and infrastructure companies secure multi-million dollars contract

When you read in the news that an engineering and infrastructure company secures a huge contract, most novices will see it as a sign to buy the shares.

My advice is: do not buy.

If you have the stock, you can choose to sell or hold on to the stock.

Why is that so?

The reason is that this company will have to increase its inventory, manpower and other cost in order to commence the construction work to fulfil the contract.

It has to take on huge debt to finance its working capital. 

This means that the dividend will be lesser, and it also means that the risk of the company getting bankrupt is higher.

In many cases, for such multi-million dollars contract, the payment will be made after completion of certain stage, and even then, there is a risk of re-work that adds to the cost. 

Sometimes when the project is delayed, the company has to pay the damage. 

Such large contract usually means the resources of the company are tied up for a number of years.

If the construction takes three years, you can wait till three years later, when the company successfully completed the work before you buy the shares.

You are more likely to gain from both capital gain and a bountiful dividend payout.

This concept of not buying at the point of announcement applies to construction companies too.

The best is to buy just after the completion and handover of the project, and before the release of the annual result.

Once the annual result is out, and the announcement of a special dividend on top of normal dividend is out, the share price will be much higher.

If you buy a month before the release of the annual result, you will have bought the shares at a low price, and you can sell it for capital gain or keep it for the high dividend yield.

Friday, September 16, 2016

Introduction to Economics: The concept of opportunity cost

The concept of scarcity tells us that we cannot have everything we want because resources are scarce.

The concept of opportunity cost tells us that there is a trade off. The opportunity cost is the giving up of next best alternative use for a resource.

For example, we have a hundred dollars. We can invest the hundred dollars in mutual fund. We can use the hundred dollars to buy grocery. We can donate the hundred dollars to charity. We can use the hundred dollars in many other ways.

When we narrow down the use of the hundred dollars to two choices, we make it easier to make a decision. We can choose to invest the dollars in mutual fund or buy grocery. Let us assume that we use the hundred dollars to buy grocery. The opportunity cost of the grocery is mutual fund investment.

Once we use the hundred dollars to buy grocery, we forgo the chance of investing in mutual fund.

The concept of opportunity cost is the central theme of the study of Economics.

We see people make decisions every day. We see the governments make decision every day. Every decision has an opportunity cost.

When a student has to choose between work and attend the lecture in the afternoon, he is evaluating the opportunity cost. Since he cannot work part time and attend the lecture in the same afternoon, he has to make a choice. Let us assume that he chooses to work instead of class. The opportunity cost of work is the lecture.

Another student may make a different choice. The opportunity cost is different. The opportunity cost will depend on what we have to give up by our decision. The opportunity cost differs from person to person.

Some people choose to sleep and miss work. Ultimately, the opportunity cost of sleeping more is the job. That is a very high cost to pay for a few hours of sleep.

In some cases, the opportunity cost is computed mathematically. When you have two job offers, you can compute the opportunity cost in the monetary sense. Let us assume that company A offers you a salary of $2,000. Your total transportation expenses for going to work costs $200. Company B offers you a salary of $1,900. You can walk to work, and save time and money on travelling. It is not that hard to make a choice when you can compute the opportunity cost mathematically.

On a national level, the opportunity cost is higher. When the government decides on land use, it has to consider the opportunity cost. No government will allocate a piece of land for farming in the prime area of the city. It is stupid to let farming takes place in the most expensive land in the country.

The concept of opportunity cost is the central theme of Economics and Finance. The concept of opportunity cost helps us to improve decision-making skill. Do ask yourself: what is the opportunity cost of making a choice?

Source: Macroeconomics Demystified by August Swanenberg (ISBN:0-07-145511-6)