As the market continue being battered down, I am getting ready to pounce.
Personally, I don't feel that it will go down to the Great Financial Crisis (GFC) levels of 2008. Historically, the market retracts 10% once a year, 20% every 4 years, 30% every decade and 50% few times a century.
We are heading towards 30% correction, and in my opinion things are quite cheap already. STI are trading at low valuations of 10.5 P/E (historical average 16), something you don't see outside of big crisis.
Still, nothing is for certain and we must thread carefully. We don't want to use up all our ammunition in case the enemy is much stronger than expected. From now on, I will also eliminate all speculative buys (Super, Accordia, Oil & Gas) and focus solely on defensive stocks (i.e Companies that 99.9% will be around and make money for a long long time).
There are dozens of companies I want to pick up:
1. Telcos
Singtel, Starhub and M1 have all retracted to 2011 - 2012 levels, falling by 20 - 30% and giving yields from 5% to 7+%! With the projected 6.9m population, I would just buy all 3 telcos if I could.
Just ask yourself: Do you think your mobile plans will get cheaper or more expensive 10 years from now? Do you think people will use more or less data? I think it is obvious it is a "sure win" business. Just diversify across all of them to avoid any single one of them blowing up, and you will earn no matter how consumers churn from 1 to another.
2. REITs
Many well-managed and good REITs have corrected more than 20% and now giving yields over 7%.
Personally, I have been following Capital Commercial/Mall Trusts and Keppel DC REIT (very resilient) closely. If they drop just a bit more I will really want to pick them up.
3. SGX
A monopoly. Each time anyone buy/sell a stock, this company (only stock exchange in Singapore) makes money. How can this not be a good buy?!
The price has fallen from $8.8 to $6.8, a 20+% correction, with 4.2% yield now. This is despite much better results, higher dividends and a solid zero-debt balance sheet.
Looking to fire a bullet once it stabilizes.
4. ST Engineering
I am already holding a good amount, but current valuation are definitely inexpensive if we look at the historical price. Management have been doing share buybacks for like forever which limits the downside. The caveat is the lower earnings guidance by the management, but this is one company I can feel safe holding forever.
Share has fallen from $3.8 to near $2.8. If it maintains 16 cents dividends per year, that's over 5.5% yield. I will fire a bullet should it inches closer to $2.8. (There's 2 dividends payout coming very soon in April and August)
5. The Banks
All the banks have fallen greatly. DBS from $22 to $15+, OCBC from $11 to below $8. Some have even gone below its NAV!
To me, DBS and OCBC are like the "bluest of the blue chips". DBS is the lifeblood of Singapore and OCBC is the 'world's safest bank'. And they are trading at discount to book value!
IMO, they are some of the safest long-term bets you can make at current valuation.
6. Raffles Medical Group
This is the "least safe" stock on the list, but greatest potential with a wonderful growth story on the back of an aging population.
I always wanted to pick it up, but didn't because I feel it's too expensive. Despite falling 20% to below $4, it's still valued at over 30P/E. Will be keeping a closer watch.
----------------------------------------------------------------------------------------------------------------------------
Offensive Strategy
As much as I want to, I can't afford individual bullets on all 3 banks and Telcos
as I won't be able to average down. Buying (and averaging down) one of
them exposes me to too much company-specific risk.
After considering, I decided to revert to the most
conservative strategy - Straits Times Index. Singtel + 3 Banks + Keppel
makes up 50% of the STI. They will form the basis of my portfolio.
The STI basically let me pick up the 3 banks + Singtel which I do not yet have in my portfolio. The main advantage is I can fire
bigger and fuller bullets, and most importantly average down without
fear. I intend to launch 1 bullet for every 10 to 15 cents drop in the STI - let the war begin!
Defensive Strategy
To prevent any single collapse from doing too much damage, I will not be averaging down on individual companies (despite me really wanting to).
Aside from the STI, I will not allow any single holding to take up more than 20% of my equities base.
----------------------------------------------------------------------------------------------------------------------------
Current Troops Strength
Reserve Units: The defenders of my castle, my emergency funds and warchest. It is earning decent risk free interests and I intend
to keep them at max strength. Most importantly, they are what keeps me sleeping peacefully at night, and
I do not intend to deploy them unless some catastrophic event happens.
Ally Units: A separate battalion from the main force. There are about 3 company of troops here which I will use solely to whack the STI.
Regular Forces: I have 3 - 4 company at my command. 1 will be used against STI next week, with 1 more as backup. The other 2 shall be reserved for Starhub/ST Engineering/SGX/REIT, depending on how
the situation changes.
Rearguard: About 2 company , but I do not know when they will join back to the main force. I look forward to your return!
Reinforcements: This is coming very soon, and will add a good amount of strength to the Regular Forces.
TO WAR!!! (time to boost my passive income gao gao)
"Do not fire until you see the white of their eyes."
- Battle of Bunker Hill, a colonial military command given to troops to hold their fire until the moment when it would have the greatest effect, especially in situations where their ammunition would be limited.
Monday, January 18, 2016
Saturday, January 16, 2016
CPF Investment Decisions
Since the start of the year, I have been doing a lot of reading on the CPF system and many opinions on it. While I am still unconvinced about voluntarily contributing to CPF, I have been deliberating on what to do with the monies in CPF-OA.
Personally, I view the CPF as the "last line of defense" in our financial wealth. Hence, we should definitely spend some time to learn about it and manage it.
I have read extensively on 2 mainstream arguments, and their opposing stance can be best-represented by 2 bloggers. I will just summarize their points below:
AK and his CPF-SA
AK advocates transferring monies from OA to SA account while you are young to allow compounding to work its magic. Guess what, he receives more than $8000 a year from SA interest alone!!!
With the kind of interest he's getting, it is more than enough to cover all future minimum sum increases. Basically, his stance is to 'make full use of the government' to help you save for your retirement.
Some research: If say I transfer $20K from OA to SA (an additional 1.5 - 2.5% interest), I will receive an additional $600+ every year. That will result in an additional $20K in about 20 years time, and will definitely go a long way in meeting the minimum sum!
The appealing part of this is while we are young, our contribution percentage to SA is very low. However, SA pays the highest interest (5% on the first $40,000). If you are willing to give up the flexibility of OA, that extra 2.5% will grow your money much faster. Once it reaches a substantial amount, you no longer need to worry about future minimum sum increases.
Note: A possible "good problem" is that if your SA reaches the minimum sum, you can no longer do voluntarily contribution to reduce tax.
--------------------------------------------------------------------------------------------------------------------------
Keith from Investment Moats
On the other side, Keith highlighted the dangerous of doing such transfers.
Flexibility and Safety - Even though I have no intentions of wiping out my OA for housing, it's still a safety net. What if you lose your job and is unable to service your mortgage? OA gives you that last line of safety.
Political risks - It's 25 years to withdrawal and who knows how the rules may have changed by then. However unlikely, they may increase withdrawal age, reduce SA interest, etc... It's a risk of the unknown that we have to keep in mind.
Opportunity Costs - I am in a huge dilemma because of this. Doing the transfers "locks in" your monies until 55, at a fixed interest of 2.5%. There is the potential cost of delayed financial independence.
--------------------------------------------------------------------------------------------------------------------------
It's a choice between safety and opportunity.
In the end, the deal-breaker for me came down to this: Can I beat the 2.5% "risk free" rate in OA account?
According to the media, over 80% failed to do so. I find that quite unbelievable because the STI provides an average returns of 6% (as of now) over the long term. There's a few possibilities:
- Selective reporting in bear markets.
- Same reason why 90% of traders/hedge funds fail to beat the market, but 2.5% is really not high in my opinion.
All I need to do is to buy the STI, keep calm and collect dividends. This is especially so given the recent 25% correction (dropping from 3500 to 2600) - the yield alone (as of now) is already 3.6%, even if we were to exclude capital appreciation altogether). With that, I should hopefully beat the OA and possibly SA returns.
Even though I've never been through the GFC, I know I am not the kind of person that would panic-sell. I know I am a long-term investor, and I believe in the future of Singapore.
And so, I abandoned my initial plan of doing an OA to SA transfer, and opened an CPFIS account. I think I would re-look into doing a SA transfer in the near future if the market recovers and the investment pays off.
In conclusion, I still look at CPF-SA as a final safety net that I would likely never touch, unless some black swan event happens where STI crashes below 1500. 5% risk free interest rate is very very good good. On the other hand, I also want to adopt AK strategy, give myself a peace of mind and build up this safety net while I am young.
Personally, I view the CPF as the "last line of defense" in our financial wealth. Hence, we should definitely spend some time to learn about it and manage it.
I have read extensively on 2 mainstream arguments, and their opposing stance can be best-represented by 2 bloggers. I will just summarize their points below:
AK and his CPF-SA
AK advocates transferring monies from OA to SA account while you are young to allow compounding to work its magic. Guess what, he receives more than $8000 a year from SA interest alone!!!
With the kind of interest he's getting, it is more than enough to cover all future minimum sum increases. Basically, his stance is to 'make full use of the government' to help you save for your retirement.
Some research: If say I transfer $20K from OA to SA (an additional 1.5 - 2.5% interest), I will receive an additional $600+ every year. That will result in an additional $20K in about 20 years time, and will definitely go a long way in meeting the minimum sum!
The appealing part of this is while we are young, our contribution percentage to SA is very low. However, SA pays the highest interest (5% on the first $40,000). If you are willing to give up the flexibility of OA, that extra 2.5% will grow your money much faster. Once it reaches a substantial amount, you no longer need to worry about future minimum sum increases.
Note: A possible "good problem" is that if your SA reaches the minimum sum, you can no longer do voluntarily contribution to reduce tax.
--------------------------------------------------------------------------------------------------------------------------
Keith from Investment Moats
On the other side, Keith highlighted the dangerous of doing such transfers.
Flexibility and Safety - Even though I have no intentions of wiping out my OA for housing, it's still a safety net. What if you lose your job and is unable to service your mortgage? OA gives you that last line of safety.
Political risks - It's 25 years to withdrawal and who knows how the rules may have changed by then. However unlikely, they may increase withdrawal age, reduce SA interest, etc... It's a risk of the unknown that we have to keep in mind.
Opportunity Costs - I am in a huge dilemma because of this. Doing the transfers "locks in" your monies until 55, at a fixed interest of 2.5%. There is the potential cost of delayed financial independence.
--------------------------------------------------------------------------------------------------------------------------
It's a choice between safety and opportunity.
In the end, the deal-breaker for me came down to this: Can I beat the 2.5% "risk free" rate in OA account?
According to the media, over 80% failed to do so. I find that quite unbelievable because the STI provides an average returns of 6% (as of now) over the long term. There's a few possibilities:
- Selective reporting in bear markets.
- Same reason why 90% of traders/hedge funds fail to beat the market, but 2.5% is really not high in my opinion.
All I need to do is to buy the STI, keep calm and collect dividends. This is especially so given the recent 25% correction (dropping from 3500 to 2600) - the yield alone (as of now) is already 3.6%, even if we were to exclude capital appreciation altogether). With that, I should hopefully beat the OA and possibly SA returns.
Even though I've never been through the GFC, I know I am not the kind of person that would panic-sell. I know I am a long-term investor, and I believe in the future of Singapore.
And so, I abandoned my initial plan of doing an OA to SA transfer, and opened an CPFIS account. I think I would re-look into doing a SA transfer in the near future if the market recovers and the investment pays off.
In conclusion, I still look at CPF-SA as a final safety net that I would likely never touch, unless some black swan event happens where STI crashes below 1500. 5% risk free interest rate is very very good good. On the other hand, I also want to adopt AK strategy, give myself a peace of mind and build up this safety net while I am young.
Thursday, January 07, 2016
Crimson River
We are barely into the first week of 2016 and there are bloodshed on the streets. I can only described it as "血流成河". Logon to SGX and all you can see are red.
I don't care if you are holding blue chips, mid-caps, telcos, reits, pennies... etc... Even the so-called defensive ones aren't spared.
I just personally experienced the biggest single day decline in my portfolio since I started investing - almost $2000 loss in a single day. I know this is nothing compare to the 2008 Great Financial Crisis, but it's still shocking for a newbie investor.
"Be greedy when others are fearful" - It's much easier said then done. You can 纸上谈兵 all you want, but it isn't until you actually put in your hard-earned money do you feel the fear. For myself, I am disappointed, yet even more excited. The losses are great, but the potential returns are even greater.
Every generation of young people will experience a few financial crisis that can potentially shaped their financial future - if they recognize the opportunity in the crisis and have the emotional capacity to take action.
Look here - We have Singtel, DBS Bank, OCBC Bank, Capitaland Malls (e.g. Plaza Sing, Raffles City), Dairy Farm (e.g Guardian, Seven Eleven, Cold Storage), ST Engineering (essentially SAF), to named a few, going at 20%, 30%, even 50% discount! And we have people selling and selling when their profits (some) and earnings haven't change at all. All out of fear of "global economy".
The question is - do you dare to buy?!
When you buy and see your $5000 become $2500 - can you control your emotions and not sell in fear? More importantly, do you dare to double down and buy even more?
Ask yourself - Do you doubt any of their ability to survive/thrive? Do you think Singtel will still be around 10 years later? Can you imagine a Singapore with DBS/POSB? Do you think SAF can exist without ST Engineering? For me, I cannot forsee a Singapore without these companies, and I have no doubt in their ability to grow with Singapore.
-------------------------------------------------------------------------------------------------------------------------
"The stock market is the only market in the world where things go on sale and all the customers rush out of the store".
Ridiculous but true. Alas, I have not mastered the courage to buy more in a sea of falling knives, but I definitely have no problem holding on.
I have saved up for years for this moment.
For this bear to hit.
I am not gonna back out in fear. What I need to do is to strategically deploy my limited ammo.
I don't care if you are holding blue chips, mid-caps, telcos, reits, pennies... etc... Even the so-called defensive ones aren't spared.
I just personally experienced the biggest single day decline in my portfolio since I started investing - almost $2000 loss in a single day. I know this is nothing compare to the 2008 Great Financial Crisis, but it's still shocking for a newbie investor.
"Be greedy when others are fearful" - It's much easier said then done. You can 纸上谈兵 all you want, but it isn't until you actually put in your hard-earned money do you feel the fear. For myself, I am disappointed, yet even more excited. The losses are great, but the potential returns are even greater.
Every generation of young people will experience a few financial crisis that can potentially shaped their financial future - if they recognize the opportunity in the crisis and have the emotional capacity to take action.
Look here - We have Singtel, DBS Bank, OCBC Bank, Capitaland Malls (e.g. Plaza Sing, Raffles City), Dairy Farm (e.g Guardian, Seven Eleven, Cold Storage), ST Engineering (essentially SAF), to named a few, going at 20%, 30%, even 50% discount! And we have people selling and selling when their profits (some) and earnings haven't change at all. All out of fear of "global economy".
The question is - do you dare to buy?!
When you buy and see your $5000 become $2500 - can you control your emotions and not sell in fear? More importantly, do you dare to double down and buy even more?
Ask yourself - Do you doubt any of their ability to survive/thrive? Do you think Singtel will still be around 10 years later? Can you imagine a Singapore with DBS/POSB? Do you think SAF can exist without ST Engineering? For me, I cannot forsee a Singapore without these companies, and I have no doubt in their ability to grow with Singapore.
-------------------------------------------------------------------------------------------------------------------------
"The stock market is the only market in the world where things go on sale and all the customers rush out of the store".
Ridiculous but true. Alas, I have not mastered the courage to buy more in a sea of falling knives, but I definitely have no problem holding on.
I have saved up for years for this moment.
For this bear to hit.
I am not gonna back out in fear. What I need to do is to strategically deploy my limited ammo.
Subscribe to:
Posts (Atom)