ZZ Financial Education Series 3 - Assets Classes

Now that you know what are assets and why you want to buy assets, it's time to learn how to use assets to grow your money.

For starters, you need to know what is "risk free interest", the 3 main factors that differentiate assets and what are the common assets.

What is Risk Free?

First, we need to understand the concept of "risk free asset".

There is technically nothing in this world that is risk free. Countries can go bankrupt, currency can become worthless, a nuclear bomb could strike your city, aliens could invade Earth and everything could go to zero.

Hence, by risk free, we mean 99.9999% risk free. In case the unimaginable happen, it would be a doomsday scenario and you would have more to worry about than your assets becoming worthless.

The most common risk free asset in Singapore context would consist of things such as Singapore government issued bonds, CPF, etc. Think about it, if these things ever become worthless, that would mean the entire SG currency would be worthless.

Three Main Factors That Differentiate Assets

They are Returns (how much rewards you get), Risk (how much and what probability you stand to lose) and Liquidity (how easy it is to access/sell your asset without penalty).

It all seems very vague, but you will get an idea once I list some common assets.

Asset	Returns	Risk	Liquidity
Cash	None	Risk-Free	Very-High
Bank Savings	Very-Low	Risk-Free	High
CPF-OA	Low	Risk-Free	Low
CPF-SA	Med	Risk-Free	Very-Low
Singapore Saving Bonds	Very-Low	Risk-Free	High
Blue Chips Bonds	Low	Low	High
Blue Chips Shares	Med	Med	High
Penny Stock Shares	High	High	High
Investment Linked Policies	Low	Low	Low

As you can see, there are always trade-offs between the 3 factors. There is no assets that gives you high returns, risk-free (capital guaranteed) and let you withdraw anytime.

Think about it this way:

Suppose your bank saving account guarantee you super high returns similar to shares. Would anyone in their right mind invest in shares then?

Suppose CPF-SA grants you the ability to withdraw anytime. Would anyone in their right mind put their savings in banks? The logical thing would be to top up everything into CPF.

The "market' always adjusts itself.

Suppose you can choose to loan money to POSB Bank, or to a hardcore gambler. Both offer you 5% interest. Would you loan your money to the gambler? I guess not.

But what if the gambler promises you 20% returns? 50%? 100%? At what point would it be enticing enough for you to make the switch?

As you can see, the market will "correct" itself until the risk-returns (and liquidity) factors are balanced. This is how all free-markets (including stock market) works.

What Are Good Assets Then?

How good an assets is would greatly depend on your risk tolerance, how important is liquidity a factor for you, etc... Generally, a good asset should score highly in 2 of the categories.

For instance:
Blue chips gives you good returns with moderate risks and are highly liquid (sell anytime).
CPF gives you reasonable returns and are risk-free, but are non-liquid (many conditions).

A typical bad asset are investment linked policies.

While risk of it going kaput is low, it gives low returns (many just average 2 to 3% returns, much worse than stocks) and are highly non-liquid (you must keep paying premiums, once you stop you lose a lot, and you can't withdraw the money as you like).

Quarterly Results Review - 2017Q2

Frasers Centrepoint Trust	Revenue dipped 1%, mainly due to AEI at Northpoint. Phase 2 is expected to complete in September, so I expect the next result to be similar. Shopper traffic is up ~3% if we exclude Northpoint. All is well except Bedok Point, but I guess it can't be help at this time. All eyes are now on the grand opening of Northpoint City. Rejoice Frasers shareholders!
Netlink Business Trust	Really small position due to IPO allocation. Nothing much to say except this stock is not meant for flipping. This is a 5.7% yield dividend machine. I expect very small fluctuations and investors to treat this more like a bond. If in the unexpected case that it gets sell down harshly (to 70c), I will consider unleashing a full bullet. Otherwise, it'll probably just occupy a small position on my portfolio for a long time.
Sembcorp Industries	I thought the results was okay, considering the several one-offs deductions. Marine continue to be down in doldrums. For Utilities, it is mainly supported by Singapore (50% of net profit) now. India's might continue to make losses for 2 to 3 years as they secure the power purchase agreement. Interim dividend goes down to 3c, from 4c last year to build up their cash reserves. Strategic revamp of the company will complete in 4Q.
M1	M1 posted another bad quarter (-20% profit) and is my most concerned counter at the moment. DPU has fallen to 11c, below my previous worst case estimate of 12c. I am strictly monitoring its performance. Revenue is stable, fibre customers is climbing up slowly ($8K), data exceeding basic bundle is raising, and yet their profits keep falling. They are really squeezing their margins to retain their customers as can be seen from the falling ARPU. My interpretation is that major shareholders refuse to sell at ~$2.1 due to low ball offers. Hence, the majority shareholders must felt that M1 is worth more than that. I really have no confident in their CEO. Temasek selling is not a good sign as well. They are diversifying into data analytics, smart nation and IOT initiatives, but these all take time to become profitable. Yield at $1.9 is 5.8%, based on trailing results.
Capital Commercial Trust	CCT has always been worry free for me. DPU inch up 4.6% despite office sector headwinds. I don't even pay attention to this due to confidence in its management and assets. Main catalyst now is the redevelopment of Golden Shoe Complex. The problem is I believe the fair value is $1.6, and now the price has gone up as high as $1.75. First world problem.
Accordia Golf Trust	This quarter gave me a confidence boost, being one of the better earnings for a while, with utilization and player numbers going 2 to 3% above 3 year average. Profit went up 10%. NAV dropped from 0.89 due to weaker Yen. I really like their asset enhancement initiative slides which was pretty cool. GPS navigation systems, junior and ladies programmes, special events, collaboration with partners like car rentals. It gave a more 'story' perspective to their business instead of all numbers.
Far East Hospitality Trust	Property income dipped slightly to 1%, while DPU slide by 4%. It will continue to be challenging in 2017 until hotel supply taper off and hopefully recovery in 2018.
Singtel	Singtel proves its resiliency compared to the other 2 Telco, and profit would have been up 3% if not been for intense competition at Airtel. While ARPU is lower (a macro trend), it is much higher at $65. Its $2 billion profit from Netlink will be recorded in Q2. Very safe 4.6+% yield and my largest position.
Frasers Centrepoint Ltd	Another good set of results. Frankly, I'm treating this like a property ETF so I am not reading much into their individual segments. 70% of the assets and 50% of net profits are from recurring sources (i.e REITs), which provides a good "baseline" of dividends. Dividends has been maintained at 8.6c for the past 3 years and I expect it to continue.
Capitaland Mall Trust	Capitaland Mall once again erases all rumors of "death of retail malls" in Singapore you see all over the news. Glad I did believe myself and brought in a substantial position. Its all about asset quality and location. Despite the absence of Funan, they still manage to maintain their profits, shopper traffic and most importantly DPU. Quite confident that their 11c, 5.5% yield is very safe until the grand opening of Funan. I am not a professional investment guru; I'm a income machine builder.
Straits Times Index	DPU is back to 48c (2015 level). At current prices, yield is ~3%.

Insomnia Problems II

I've been trying dozen of ways to combat insomnia. Unfortunately, they only work from time to time, and in the worst case I still have to resort to sleeping pills.

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1. Contract tightly, then relax your muscles starting from toes to head and back to toes.

2. Place tongue behind 2 front teeth. Breath in counts of 4, hold for 7 and breath out for 8. Do not assume regular breathing in between.

3. Use White Noise App (Slumber, Calm, Headspace)

4. Wearing socks

5. Glass of milk / Chamomile Tea / Banana

6. Lavender Oil Essence

7. Squeeze left first, release and repeat for right first, counting each as they were sheep.

8. Close your eyes and try your best to stay awake

9. Immerse your face in very cold water for 30 seconds

10. Practice left nostril breathing. Block off your right nostril with your right thumb and take long slow deep breaths through your left nostril only. This is said to have a soothing and relaxing effect on body mind in Yoga.

11.Yoga poses

12. Sleep delta wave music/sound

13. Take a warm bath or shower. Research show this can decrease body temperature and trigger sleepy feeling because your heart rate, digestion and other metabolic processes slow down.

14. Melatonin and other supplements