Letter To Shareholders (15) - Performance Review 2019Q2

Economy Commentary
The market continue to fluctates on the wimp of Donald Trump and his tarriff wars. Fed's 180 degree turn to a dovish outlook was a huge surprise that led to an incredible REIT rally.

As an example, I thought CMT was quite fully valued at $2.20+. It's now at $2.60+. Almost all REITs had an  insane run making me so tempted to sell my long-time REITs.


Performance Review Highlights / Acquisitions & Developments
We managed to fire a few bullets during the May downturn; strengthening our STI position, subscribing to Frasers Centrepoint rights and finally averaging down on Sembcorp. In the long term, we still believe in the value of Sembcorp's utilities business. As long as the Marine segment can "pull through", there is more upside to come for the energy market.

Singtel and Kimly remains our largest holdings. Kimly unexpectedly announced a doubling of dividends payout despite their business growth is still weak. Personally, I feel it is a move to support the share price by attract yield investors. Hopefully, we can see some light in the 2nd half of 2019 when they start rolling out more innovations.

We distributed $1200 dividends this quarter, lower from $1900 in the same period last year largely due to absence of M1 and Capitamall Trust. 

Operating Highlights - Income
Despite lower dividends, our quarterly income remains roughly the same due to an enlarged base salary.

We would perhaps have to make a huge decision on whether to switch our operational income. It's a tough decision, much tougher than the previous time. In terms of monetary benefits, it comes down to the long-term vs the short-term.


Operating Highlights - Expenses
Regular expenses were about 10% lower than last year and in-line with long term average. Essentially, this fluctuates at around $2000.

1-time expenses were also much lower than average, with basically only Taiwan vacation (spend less than $700SGD for the entire trip, tickets and accomodation inclusive). 

This made 2019Q2 our lowest expense quarter in 2 years.  

Operating Updates
N/A. 

Outlook

We continue to maintain our total saving rate at around 80%, and saving rate of salary after passive income at 90%.

The huge recovery proves once again how unpredictable the stock market is. Just 2 months ago, it was all gloom and doom due to the trade war. Now, the DOW is once again breaking all-time high.

We will continue to maintain our strategy of investing for the long term, that time in the market beats timing the market. 

Shiny Things II

Some additional tidbits from Shiny Things Thread since 3 years ago

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How To Transfer To Interactive Brokers:

Basically you want to pick SGD, and choose "Wire" as the funding method. You can optionally enter your sending institution name or SWIFT code if you know it (pro tip: DBS's SWIFT code is DBSSSGSG, OCBC's is OCBCSGSG, UOB's is UOVBSGSG), and the account number you'll be sending from; this helps them match the incoming deposits to the funding notifications. 

Once you've created the funding notification on IB's website (which tells them "I'm going to send you $1,000 SGD from account 12345 at DBS, please watch out for it"), then you need to do a FAST transfer from your bank to the account number that IB gives you. Once that's done, it's usually a day or so tops before the cash shows up in your account. 

Anyway, yes you want to fund in SGD; yes, "Cash" is usually the right choice. 

Benefits of & FAQ Interactive Brokers:

- On the "$10USD Minimum activity fee", the commission for converting currency is counted for activity fee. For anything monthly, IBKR is always better because the fees will be US$10 (assuming less than US$16k per month), whereas with SCB it will be US$10.70 + 0.9% (assuming less than US$4k per month).

- "Beginning January 1, 2019, accounts with a Net Asset Value (NAV) of USD 100,000 (or equivalent) or more will be paid interest at the full rate for which they are eligible. Accounts with NAV of less than USD 100,000 (or equivalent) will receive interest at rates proportional to the size of the account. For example, an account with a NAV of USD 50,000 will earn credit interest at a rate equal to one-half the rate paid by IBKR to accounts with a NAV of USD 100,000 or more." (See "Interest Paid On Idle Cash Balances")

- Aside from everything else, Saxo's commissions are higher and they (last I checked) have started charging ridiculous custody fees.

- How long does it take for IB to transfer money to ur local account after initiating the transfer on fund withdrawal? Around 2-3 business days.

What pricing structure to use?
Short Answer: Tiered is almost always the best answer (99% of the time) for everyone

Long Answer: Fixed is not subject to LSE exchange fee and clearing fee. If you are mainly buying USD denominated ETFs (such as IWDA and EIMI) in LSE, the below applies. 

Tiered
- 0.05% commission, min USD 1.70, max USD 39 (under "EUR, CHF, USD, PLN, ILS and HUF-Denominated Products Tiered")
- 0.0045% LSE exchange fee, min GBP 0.10
- GBP 0.06 (~USD 0.08) LSE clearing fee
(Note: USD1.70 is only the execution fee. There are other fees such as the exchange fee, regulatory fee and third party clearing fee. All these add up to the total commission of USD1.90+.)

Fixed
- 0.05% commission, min USD 5

This means that Tiered is better for trades below USD 9,028 (commission of USD 5), and trades above USD 85,890 (commission of USD 42.945).
It's unlikely that retail folks would do a single trade as large as USD 86k (well, unless one has been building a big warchest and markets go into meltdown), hence the decision point is really on the USD9k.

TL;DR
Go with Tiered if your LSE IWDA trade size is less than USD 9k.
Go with Fixed if your LSE IWDA trade size is greater than USD 9k.

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On worry that Interactive Brokers aren't regulated by Singapore/MAS:

IBKR is regulated by the US Securities and Exchange Commission, and the US Commodities and Futures Trading Commission, both of which are (in my opinion at least) a lot stricter than the MAS’s light-touch regulatory regime.

One characteristic of U.S. brokers is that they’re SIPC insured. That means among other things that the cash, in any currencies, you might have on deposit at IB is insured up to US$250,000. And that’s good, of course. SIPC membership requires significant regulatory oversight.

How about cash held at a broker in Singapore? Is there any equivalent to SIPC? Nope, sorry.

But let’s consider banks in Singapore. Surely they’re safer, right? Well, U.S. deposit insurance (FDIC or NCUA) has a US$250,000 limit, and it’s not all that hard to raise that limit effectively. (That involves strategic account title variations and, if that’s not enough, CDARS.) The limit in Singapore is S$75,000, only recently raised. And that limit in Singapore is much tougher to lift (basically impossible) and only applies to Singapore dollar deposits. All other currencies on deposit at a bank in Singapore are completely unprotected. FDIC and NCUA coverage, just like SIPC, will make all depositors whole up to the insurance limit and at the current U.S. dollar exchange rate. And they do it over a weekend.

Anyway, while I and others think U.S. regulators need to be even better, they are very good at these basics — and much better than the Monetary Authority of Singapore is.

It’s a big world out there, and there are some — OK, many — better, stronger regulatory protections than the rather weak ones in Singapore. If you’re looking for greater regulatory safety then you really ought to transfer most of your wealth out of Singapore as fast as you can and put it some place safer.

I have phobia dealing with institution not domicile in SG & not subjected to SG laws. When things go wrong with IB you have no recourse in SG.

That's your hang-up, and it's not rational. The Singapore government has already told you that you're entirely on your own if anything should happen to your U.S. dollars (or any/every other foreign currency) held at every bank in Singapore. This government won't lift even one finger to help you.


In contrast, the SIPC, FDIC, and/or U.S. Treasury (as applicable) are 100% guaranteeing your U.S. dollar and even non-U.S. dollar denominated wealth held in those vehicles I've listed. The very safest places and ways to park U.S. dollars are most definitely not in banks in Singapore, where there's absolutely no protection at all.

And when things go wrong with any bank in Singapore you have no recourse in Singapore. The SDIC only insures Singapore dollars, not anything else. You become an unsecured creditor. By keeping USD in Singaporean banks you have zero insurance coverage. You have no FDIC coverage, no Singaporean deposit insurance. If the bank goes down you have nothing. 

IB is a brokerage & all around the world, banks are much more strictly regulated & enforced than brokerages. Will My Money Get Stuck If IB Goes Down?
The brokerage is simply facilitating your investment in particular assets. Below SDIC limits there's no "stuck." The absolute worst case ever was MF Global, and every MF Global account holder was made whole at fair market value. Every single one, even above SDIC coverage limits. It was the account holders with assets above SDIC coverage limits that had to wait a fairly long time for recovery, but they were all made whole.


SDIC covers up to US$500,000 in securities positions with a sublimit of up to US$250,000 in cash holdings, in any currencies. At or below those limits and you're extremely well protected, and those checks are cut very quickly. This is U.S. government protection. There is no SDIC, FDIC, U.S. Treasury, MAS, Singapore government, or anybody else that'll save your U.S. dollars at any Singapore bank. Absolutely zero protection.

You can take risk if you wish, but you're seriously deluding yourself if you think parking U.S. dollars at Singapore Banks/Foreign Banks SG Subsidary (note: this is the reason why they have to offer higher interest for your deposits, because there's no deposit insurance) at all comparable in risk to, say, U.S. Treasuries via IB or via any other SIPC covered broker. That's literally insane in financial terms.

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IB Charges For Deposits / Withdrawals

IB does not charge anything for deposits.


Your first withdrawal per calendar month in any currency you wish in any amount is free of charge. IB charges nothing for that, not even for the wire transfer. If your receiving institution charges, that's all on them (and you).

The spread at Interactive Brokers (convert SGD to USD and back) is 0.01% (practically free). You have to buy USDSGD to convert SGD to USD.

Foreign Currencies in Local Banks

DBS is charging you for an inbound fund transfer. If you absolutely insist on landing U.S. dollars (a foreign currency) at a bank in Singapore, pick a different bank. ICBC, BOC, Citibank, and CIMB are among the banks in Singapore that don't charge. 

Note there's no equivalent to FAST (i.e near instant transfer) for U.S. dollars or for any other foreign currency.

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Which Bond Fund? A35? MBH? 
Just use Singapore Savings Bonds (SSBs)! A35 is holding Singapore Government Securities, so it's the same basic holding (Singapore government bonds), except with SSBs you've lowered your costs. There's no fund management fee to pay, and the maximum you'll pay to buy and hold a SSB is 0.4% ($2 on a $500 minimum per SSB purchase).


A35 is no longer interesting at all for most savers/investors. Just buy your government bonds directly from the government using your DBS/POSB, OCBC, or UOB bank account, that's all. And if you're buying at $100/month, just wait 5 months and buy a $500 SSB. Loop, repeat.

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Replacement For IWDA? (July 2019) VWRA
The big V launched a new ETF that might be a better option than IWDA without the hassle of EIMI.

Ticks all the boxes, domiciled in Ireland + Accumulative, just launched 2 days ago.

FTSE All-World UCITS ETF (USD) Accumulating (VWRA). 
TER is 0.25%, AUM is US$2.7b, same as VWRD.

https://www.vanguard.co.uk/adviser/investments/product.html#/fundDetail/etf/portId=9679/assetCode=equity/?overview

Interesting note: The A in IWDA means Accumulating, the D in VWRD means Distributing.

Compare Expense Ratio of the Irish domiciled funds: IWDA(0.2%) + EIMI(0.18%) = VWRA (0.25%)

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This is how and why most retail investors lose money. 

a) They buy in when the market is in a clear bull run, which usually means that the market is probably in the later part of the bull run. They sell when the market is dipping and it finally crosses their pain threshold, which is usually towards the near end of the crash.

b) They keep a tonne of cash waiting for the stock market to crash. When a crash comes, they hesitate to catch the bottom. When the market bottoms out and turns, they worry if it is a dead cat bounce. By the time they are convinced that the market is recovering, the good deals are over.

c) Humans are pattern seekers, even when none is present and we will convince ourselves that a pattern is there.

Why do people lose money on the stock market? Human psychology. Plotting out and staring at the market only exacerbates it. 

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People have been saying that markets are overvalued since at least 2010. For that matter, I remember hearing a fair bit of it in 2009, and we've done nearly 17,000 Dow points since then. Even Tyler's admitting it these days (and don't say "who's Tyler", I know you read ZH). 

The truth is that there's always doomsayers; there's always people saying "oh no, the crash is right around the corner". A better strategy is to buy, regularly and in small amounts—because that way, if you're wrong, and the market rallies right in your face for a decade like it did from 1988 to 1999, you'll at least be participating in the gains. 

People who say "oh just wait for the plunge and buy it then" (and I've made fun of wahkao and others for saying this before) are handwaving away three very important questions: 

1) What's "the plunge"? Was it the 3% selloff last December? Singapore stocks have risen nearly 14% since then, so maybe that was "the plunge" that we should all have bought. What about the 2015 emerging-market panic, when Singaporean stocks dropped 25%? What about the 2008/09 GFC, when stock markets around the world halved? I mean, in hindsight, March 2009 was a sensational buying opportunity, but...

2) When "the plunge" comes, will you have the balls to buy it? Buying the dip is hard!. Buying in March 2009 felt sickeningly awful, because it felt like the world was imploding around your ears, but in hindsight it was the best buying opportunity that our generation is ever going to see. (I mention this a lot, but I still have the confirmation for a clip of SPY I bought at $72 on March 6th, 2009.) The entire point of dollar-cost averaging is that it takes the emotion out of investing; it's a lot easier to press that buy button if there's a hard-and-fast rule telling you to press it.

3) And what if "the plunge" never comes? US stocks sextupled between 1998 and 2000 with basically no pullback; if you waited for "the plunge" you'd have been sitting in cash for over a decade, missing out on dividends, and missing the opportunity to buy SPX in the 200s, 300s, 400s... those are levels that we never saw again, even after the tech wreck and the GFC. 

And here's the thing. I've said it before, I'll say it again: a balanced stock-and-bond portfolio is the single best long-run investment that regular people can invest in. It performs better than straight bonds, with lower volatility than straight stocks; it's more liquid than real estate, and it's better than commodities in every respect. Putting your money in stocks and bonds, and leaving it there—resisting the temptation to over-trade, to chase winners, to panic-sell at the lows—is the single most reliable way to invest for retirement. 

And that's what I'm doing here. I'm not offering a get-rich-quick scheme. I'm saying "this investment strategy is simple, and it works, and it won't line the pockets of unscrupulous insurance salesmen".

Trip to Taiwan (Taipei) & My Thoughts On Traveling

It's been over 4 years since I last took a plane overseas.

Incredible for a Singaporean, right? Isn't the love for traveling imbue in our DNA? Isn't this our national hobby? Many of my friends/colleagues find it weird when I say I don't like to travel. Contradictory to what people may think, money is not a big factor. People think I don't travel to save money, but that is really the result, not the reason.

Anyway, it is not to the extend that I hate to travel, but it is not something I would actively pursue. I simply don't have the urge to go traveling like most people do. And this trip definitely confirms that.

Nevertheless, I'm still thankful to my DS mates for jioing me on this trip - it's a nice break from the autonomy of office life. We stayed at an AirBNB (first time!) near the Taipei Main Metro which was really convenient and cheap (~$120/pax for 5 days!). All in, I spent less than $700 for a 5 days Taipei trip.

Roughly off the top of my head, we went to:

Day 1
- Took a nap at Qtime, a 24 hour 'comic shop' to make up for the midnight flight before we could check in.
- Chiang Kai-shek Memorial Hall at the freedom plaza. Had to climb a huge flight of stairs.
- Ximen District, ate some famous food like the Ah Zhong Mee Sua
- Ningxia night market, did not eat anything LOL.

Day 2
- Chiang Kai-shek residence
- Xinbeitou hot spring area. Went for some foot massage.
- Ate at their local mcdonalds (they have pork burgers)
- Stroll near the 'Danshui old street' and tried the 'big intestine cover small intestine'.

Day 3
- Visited the nearby land bank museum and taipei art museum
- Xing Tian Temple
- Went to chill for almost the whole afternoon at my friend's friend's cafe, chat with their barista, etc...
- Sun Yat San memorial hall (国父纪念馆)
- Songshan cultural district
- Went up to Taipei 101 for almost $30... reminded me of the Pearl of the East I went a long time ago.

Day 4
- Had brunch at a more atas local cafe
- Went to Palace Museum (故宫)... quite a disappointment as it was not exactly what I expected. I thought it would be more 'rise of fall of dynasties' and 'kingdom succession' history, but it's more of seeing pottery, glassware, calligraphy, painting etc... yes, I admit I am too uncultured to appreciate these.
- More atas cafe hopping
- Stroll near "Da-dao-cheng' docks
- Walk the huge underground malls all the way back to Taipei metro

Day 5
- Lunch at restuarant
- Longshan temple. Went and got the first divinition lot of my life. I am astonished at the accuracy of the prediction.
- Very relaxing and chilling final day. Went back to rest by late afternoon.

As you can see, it's a super chill schedule which we all agreed on prior to the trip. Instead of cramping in many destinations, we often tire out be early evening and choose to head back to rest. Seriously, tell me who goes back to hotel at 7pm to watch TV when overseas?

Even during my cruise trip last month, I often prefer to stay onboard to relax (instead of disembarking). After these 2 trips, it really made me believe I'm not built to be a traveler.

There are many reasons why I do not love traveling, and it has everything to do with how sheltered we are in Singapore. Yes, I admit I am pampered by how developed Singapore is.

In no particular order:

1. I hate extreme heat or cold weather. During the trip to Phuket, I cannot wait to return back to an air-conditioned room. I do not get the appeal of subjecting myself to the blazing sun.

2. Food and toilet hygenie is a big concern to me due to 'health issues' (Let's just say I do not have a strong tummy). Even a pretty developed city like Taipei, there are still restrictions like not being able to flush paper down the toilet. I also cannot overcome things like eating 'roadside stalls'. I always carry a 'standard medical pack' of panadols, po chai pills, etc... because of this.

3. Anyone who knows me would know I have a smaller than average appetite and many food restrictions. I do not eat exotic food. I do not eat beef, or lamb, or most kind of non-standard meat. I think that already removes one of the biggest joy of traveling. Often when my companions want to order more food, I have to reject simply cause I really can't eat anymore. It kind of makes me feel bad.

4. On top of that, I also don't like shopping - another big reason for people loving to travel. On average, I definitely spend less than $200 a year on average on clothing. After I started practicing minimalism, I have even less desire for 'stuffs'.

5. I find the preparation to travel a HUGE hassle and pain. Just how much work have to be done. Researching the locations to go to, deciding the best time, camping the best price, booking the flight, booking hotel, packing your lagguage, etc... Even the actual traveling itself is a huge drain on the body. When we take leave, aren't we suppose to relax? To me, all these feels like additional work. When I return, I don't feel re-energize. I feel even more tired.

6. I think this reason might be because I have not travel a lot, but I do have a slight fear of flying. I always imagine the worst that can happen, to the point I wrote a will when I left for the trip (ha!). It could be due to the recent Boeing crash and my lack of flight experience.

7. I also don't like huge crowds. When I go to their local night markets and see flood of people, I just feel like going back to rest. Yep.

All in all, think of all the above as the "cost of traveling". To me, the "rewards" I get, such as thrill of seeing a new scenary or tasting local food, just isn't worth the "costs" above.

Maybe it is because Singapore is too "comfortable" that traveling often feel like "suffering" to me. Ha.

Perhaps one day I might find a country that I really love (or a really good traveling companion), which would make me change my mind about traveling.

Letter To Shareholders (14) - Performance Review 2019Q1

Economy Commentary
The market largely recovered in Q1, with STI raising from 3100 to 3300 against major expectations, proving how once again how you can never predict the market. Our portfolio recovered all losses incurred in Q4 2018.

In local market, the implosion of Hyflux dominate the news - a good article I came across on how you can't always trust "independent valuation report". You cannot depend on the authorities to do the governance for you - look at Noble, Ayondo, Midas, etc...

Remeber: "Every asset on the balance sheet needs to be dilligently questioned and verified, but every debt and liability is real."


Performance Review Highlights / Acquisitions & Developments
REITs valuation exploded after the Fed announced no further hikes. We mistakenly sold Capitamall Trust early, but this was impossible to see coming.

M1 is finally off our hands - we made capital loss of almost $2800 and a total loss of $850 after dividends. As one of our earliest holdings (for nearly 5 years), it's a educating lesson at a relatively small cost. Defensive industry are only defensive until the moat is broken. We have seen the collapse of all 3 major telcos over the years and it is the best example of technological disruption effect. Your dividends comes from cash (payout ratio), and to get cash you need free cash flow. 

For now, Singtel and Kimly remains our largest holdings. $2100 of dividends for another record-breaking quarter!

Operating Highlights - Income
Our income grew 10% YOY with slightly larger bonus. base salary and dividends. Nothing much else to add.


Operating Highlights - Expenses
Even though regular expenses were lower than average, the large 1-time expenses made this our highest ever -
totalling almost 50% higher than Q1 last year.

Biggest item were our Genting Dream Cruise trip, CNY angbao gift to mum, several board games and some social events.

Operating Updates
N/A, except manage to avoid giving up DBS Multiplier Feb salary thanks to my colleague's advice!

Outlook

With the sale of M1, Capitamall and March bonus coming in, we are getting extremely cash-heavy that exceeds all the high interest account limit

We are reluctant to invest in this market, but it seems I have no choice but to get some STI very soon to rebalance our assets.

Gambling In Casino

Went to a cruise ship recently and of course visited the casino on board.

I think the enjoyable thing about table games is really the crowd dynamic and social aspects. This happens even if you are just an onlooker, but becomes much more intense when you're putting your money on the line.

If you're trying to make a killing, then you got your priorities wrong. With the house edge, that is impossible in the long run. Your only hope is to come out lucky in the short run.

Instead, treat it more as entertainment expenses, like how you spend on an air ticket or watch a movie. Allocate a fixed amount of money that you are willing to spend as entertainment. Then find a table with good dynamics.

It's hard to explain until you experience it yourself.

Trying to play 1 on 1 against the dealer is foolish in my opinion. In this case, there is no social aspect to enjoy (and you also get to lose money much faster).

The feeling of the whole table shouting "PICTURE!" in hope of the dealer busting in Blackjack, or the intensity at the Bacarrats when a player is squeeze-peeking the card. I think there is a funny "bond" that starts to develop among the gamblers. A group of degenerates fighting against the dealer. It also helps when you get a dealer that is entertaining, or at least interact with the players.

If you do visit the casinio, here's my advice.

Find a table with a good group, never fight the house alone.
Enjoy your time - ask for drinks, talk to others if they are friendly.
And most importantly, quit while you are ahead :)