Wednesday, April 5, 2017

Concentrated portfolio works best

I believe in concentrated portfolio, and not diversified portfolio.

I do not see why we have to practice diversification in investment when we practice concentration in other aspects of life.

When we study in school, we major in one branch of study.  If we are very smart, probably we can major in two branches of study.

We do not need to major in law, business, engineering and all other branches to succeed in life.

When we work, we work in one company at any given time, unless we cannot find a full time job, then we are forced to take on 2 part time jobs.

When we get married, we can only get married to a person.  We cannot have 2 or 3 spouses at the same time.

Diversification in work and marriage will cause a lot of problems.

That is the same approach when we invest our hard earned money.

We focus.  We must be very sure of the performance of the company before we sink in our money.

If we are wrong, the result is disastrous, but not as disastrous as getting married to the wrong person.

An investment portfolio can consist of more than one stock.  That is the fortunate thing.

It is best to have at most 5 stocks.  No point having more than that.

That is like saying that 5 persons staying in a household – namely you, your spouse and 3 kids.  You hardly have any spare time when you have a full time job, and your family responsibility.

That is why keep the concentrated portfolio to 5 companies. 

The key is to have the 5 companies in unrelated industries, and yet in industries that you can understand.

You can get 1 company in retail, such as a supermarket operator.  You can get 1 company in food and beverage sector.  Make sure that you like the food enough to notice when the quality drops, and customers start leaving.

You can get 1 company in engineering or utility, and another in construction or property.

You can get 1 company in consumer products, such as the one that makes your shampoo and shower cream.

It takes time to build up a concentrated portfolio, and once you have it, you have to pay attention to the changes taking place in real life before it takes place in the stock market.

If you buy into a food and beverage company because you love the coffee, and you patronized the outlet every day, you would notice when the quality and service drop.

If the quality and service keep dropping, and even you, as the regular customer, starts to go to its competitor, you must sell the stock.

Tuesday, April 4, 2017

Best way to find great dividend stocks

There is a very simple way to find great dividend stocks in the stock market of your country.

You can go to the stock market and find the news or announcement section.

You can search for dividend declaration. 

If you find a company that pays an average market dividend this year, you can go backward for five years.

This will allow you to see if the dividends are really good or volatile in nature.

Before you decide to buy the stock, make sure you check the current price too.

Let us suppose that you find a great company that pays 40 cents dividend this year, and average of 38 cents for past five years, you can see that you have found a good dividend stock.

The dividend payment is consistent.

If the current share price is $4 per share, that means you get a dividend yield of 10%.

When you check the recent price movement, you see that the lowest point in the past month happens when the price is just $3.50.

You may decide to wait till the share price is less than $3.80.

That will increase your dividend yield if the dividend retains at 40 cents per year.

Wednesday, March 22, 2017

Relooking into K1 Ventures Limited

I used to hold shares of K1 Ventures Limited.  In fact, it formed a large part of my portfolio.

A few months ago, I liquidated all my shares at the price of 95 cents per share. 

My reason at that time was that the share price was more or less the same as the remaining value of the asset.

There was no benefit to continue to hold the shares if I were to get back just 95 cents per share upon the full winding up of K1 Ventures Limited.

I missed out on the capital reduction and dividend given out in November 2016.

Now that the share price of K1 Ventures has dropped from 86 cents to 70 cents. I have to review the stock.

Is K1 Ventures worth 70 cents? 

The sentiment on the market seems to focus on the book value of 44 cents per share.

The shareholders of K1 Ventures will vote on 29 March to decide if they want the company to sell off its holdings of KUE 3 LP and Guggenheim Capital LLC.

Many people sold off the shares because the share price of 86 cents was way higher than its book value of 44 cents.

I do not agree with the approach of using book value.  Book value is historical value.  It refers to the price that K1 Ventures bought the assets years ago.

Nobody in the right mind will buy an asset based on book value.

If you buy a house from an owner who has lived there for 20 years, you will not buy the house based on the price he had bought 20 years ago.

You will buy based on current market value.  You do not care if the owner bought the house at the price of $30,000 or $50,000 when the market value is $500,000.

That is why I decide to take a look at the EPS of K1 Ventures. 

The buyers will definitely base on the historical earnings to determine the potential earnings of the asset.

The EPS of K1 Ventures for the last quarter from 1 Oct to 31 Dec 2016 is 1.53 cents.  The half year EPS is 3.95 cents.

I rather take the lower figure of 1.53 cents per quarter.  That means the earnings per share is about 6 cents on an annual basis.

The current share price is about 12 times the earnings per share.  This is the PE ratio.

That is a reasonable price as the S&P 500 index is trading at the PE ratio of 25.  Hopefully the assets will be sold at PE ratio above 15.  After the effect of taxation and currency exchange, shareholders can still get back more than 70 cents per share. 

The next question is: when to buy?

Selling assets take time.  I do not know if there are ready buyers.  If yes, are these private or public companies?

It will take longer to complete the sale to a public company.

The buyer has to hold EGM to seek the approval of shareholders.  The next step will be regulatory approval, and to arrange for financing matter.

If the buyer is a large fund, it will save a lot of time. 

The fund manager still has to seek regulatory approval, and arrange for financing, but there is no need to seek shareholders’ permission.

No matter what, it will take up a few months before cash is available for distribution to the shareholders of K1 Ventures.

That is why I am in no hurry to grab the shares of K1 Ventures at 70 cents per share.

It is better to wait and see if the remaining assets can be sold at a higher PE.

Wednesday, February 22, 2017

North Korea will disrupt world peace

Sooner or later, North Korea will create a major disaster for the world.

The assassination of Kim Jong Nam shows that China does not have insider information in North Korea.

It came as much as a surprise to China as the rest of the world.

The testing of the missile so near to China is another indication that North Korea no longer views China as a friend.

Perhaps North Korea has the ambition to start a war and conquer as much territory as possible.

Fat boy dictator Kim Jong-Un has apparently killed off many North Koreans who had a warm relationship with China.

After the execution of his uncle, Kim Jong-Un has reportedly executed more than 300 senior officials for offences such as bad attitude.

There is no doubt that situation will escalate.

Fat boy Kim Jong-Un is still young, and appears war-ready.

If war erupts, many people will die.  North Korea will not hesitate to use its nuclear weapon.

If China or other countries manage to overthrow Kim Jong-Un and installs a new ruler in North Korea, many North Koreans will die as a result of the crash between those who are loyal to Kim Jong-Un and those who want him dead.

No matter what happens, world peace will be disrupted.

The question is for how long and how devastating the situation will be.

There is also no doubt that gold price will reach record high and stock markets, especially in Asia, will crash all the way down.

Monday, February 13, 2017

Real estate investment is more about politics than location

Everyone knows about the saying that real estate investment is about location, location, location.

From my personal observation, I say that real estate investment is more about politics than location.

The first golden rule about investing, any form of investing, must be “never fight the government”.

You cannot win unless you have the power to overturn the current administration and install your puppet to head the new administration.

If you are so powerful, you must be rich enough to buy your way into anything.

For the rest of us, we have to go along with the government, and make decisions to benefit ourselves.

If the government has sounded out that the real estate bubble is forming, and it will take action to protect the interest of the ordinary folks, that is not the time to buy.

Even if the location is very good, you should wait till the correction is well underway.

The wave of protectionism sweeping across the world will have an impact on housing price, and rental yield.

Without foreigners to come to work and rent a place, the rental yield is low.  When rental yield is low, the housing price will be low.

The effect of Brexit is not fully known at the moment, since UK has not triggered Brexit.

The likely outcome is that jobs will go to Europe, and immigrants and skilled foreign workers will leave UK, and that will lead to lower pounds, higher inflation, lower rental yield, and lower real estate price.

It is just a matter of how bad it will be.  The outcome will depend on how the government will spend to boost jobs.

Sunday, February 12, 2017

Retained earnings

When you read the annual report of a company, you can learn a great lesson about personal finance too.

When a company makes a million dollars, pay 20% of it in tax, it will have eight hundred thousand dollars left.

It is not likely to pay all the money to the shareholders.

It will retain a large portion of the money as retained earnings.

You will see this amount in the annual report.

Since all good companies will do that, it follows that we have to retain a part of our earnings too.

Most of us never think about it in this way. 

Most of us know how to exercise good judgment when we are managing the business of our boss, yet we cannot use the same concept in our lives.  That is very sad.

Saturday, January 28, 2017

Paper profit is meaningless

When you buy shares of a company at a dollar, and the share price is now two dollars, you definitely feel very happy.

Everyone wants to make money from investment.

The problem is that paper profit is meaningless.

You gain only when you sell.

There is no need to feel happy when you see the share price goes up, unless you want to sell it off immediately.

Paper profit is just a term to show that you can make money when you sell now.

If you hesitate, and the share price goes down to a dollar, you are not gaining or losing anything.  That is why no need to feel happy when you have paper profit.

You feel happy only when the money is safely in your bank.

Monday, January 2, 2017

My incident investment in USD

About 8 months ago, when USD to Singapore Dollar (my local currency) was about 1.33 to 1.35, I had an inkling of the direction of US dollar.  At that point, the exchange rate fell from 1.43 (in January) to 1.33 (in May).

At that time, I was not thinking about investing in currency at all.

I was thinking about locking in the exchange rate, so that I can travel to US (especially Alaska) for vacation within the next 2 years.

There is no doubt that US dollar is still getting stronger and stronger.  At the time of writing, the exchange rate is about 1.45.

My thought at that time was: No matter the outcome of the election, US economy would only get better.

I just did not foresee that USD strengthened so much after Trump won the election.

I happened to have the good luck to change a few thousand dollars of my saving to US dollar, and keep the money in cash.

As a result of my quick action, I am able to gain 9% profit if I sell the US dollar now.

Since British Pounds and Euro have fallen so much after the Brexit decision, I have decided not to go US after all.

I will hold the US dollar for a couple of months, and gradually convert to other currencies.

Sometimes, it is just dumb luck to make a gain from incidental investment.