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.