Investing reflections

The first quarter of 2018 has just past, finally things are beginning to look a little brighter for my portfolio. However, we are still in the midst of the early earnings season and this early optimism might evaporate quickly.

Still, I want to take the opportunity to quickly pen down my thoughts and reflections on my short 1 year investing journey.

Fundamental Investing

I thought I was a real fundamental investor. Yea, some major illusory superiority going on there. Looking back this image has been shattered, for sure. While gains have been decent, I think I can do much better.

2017 was the year to sow the seeds of the multi-baggers, but I missed this fantastic opportunity. Counters like AEM, TatSeng, Valutronics and Sunningdale were all posting positive results since 2016, but I didn’t pick up any. Instead I went for raffles medical and straits trading, which while fundamentally sound still have quite a bit of time required before their catalyst gestate.

This has taught me a lot about solid fundamental investing and picking counters at a discount. When the portfolio is small, choosing to invest in one counter over another involves a real opportunity cost. I think I can do much better to screen and pick up better value stocks.

Impulse

As much as I would like to say that I am not an impulsive person, the adrenaline of a downward price correction still gets to me. Especially when the focus is on contrarian plays and trying to pick blue chips at a bargain.

On hindsight, contrarian investing takes more skill and practice than just buying a bruised counter. The saying that “Low’s can get lower” is not lost on me, especially when doubling down involves an opportunity cost as well.

I wonder if I should change my mindset about contrarian plays to counteract my penchant to target and buy on impulse. Perhaps, it is yet better to prepare a watch list instead tag price alerts with the requisite NAV and target prices.

Catalyst

Finding and looking for positive catalyst is a difficult thing to do. As catalyst are future events, they are either already priced into the counter, if certainty is high, or are considered potential catalyst, where circumstance might/might not materialize.

Betting on catalyst is rather difficult as due to their forward looking nature are 50/50 in nature. Personally if you are investing based on 50/50, you might as well go gamble.

Catalyst are important but I’d rather have a solid track record or balance sheet. Thinking back, I think this habit of looking for potential catalyst came about after reading analyst reports and letting their opinion and research sway my own.

Conclusion

As my cash position is rather low, I will be looking forward to replenishing this in the next 3 months. During this time, I will try my best to review and revisit some counters and hopefully identify several potential counters to invest in. For now I am happy to wait for the earnings results to come in and collect some long awaited dividends.

Being human in a market crash

Any observer of the market would know that we faced a correction crash this February. It started on Friday and is continued its rampage today. The DOW went from record highs to post the largest single day drop in its history, all 1,600 points worth of it.

So much for history being made.

Some credited the steepness of the crash to the design of the algorithms used by algo-traders. While that might be true, most analysts were already predicting that a correction was on the cards. It’s surprising that for something so well studied and so rewarding to study, we have yet to find a better way of valuing an asset beyond the theory that the “present value of an asset, is its future cash flow”.

For myself, corrections are always a time of opportunity. Judging by the present carnage, most prices are at what they were 2 months ago, if they continue falling, prices could get yet cheaper. So long as we continue to remember to take a long term perspective of the market, we can avoid behaving like a computer and more like a human being.

Till then save often and invest well!

Time value of money

There has been a flurry of IPO’s in 2017 and given prevailing market sentiments have been well received thus far, all but REIT’s that is. Here are all the Reits listed on the SGX in 2017, Netlink trust (17/7), Keppel KBS US Reit (9/11) and Cromwell European Reit (26/12).

For a security class whose value is so tightly linked to its yield, there were some obvious reasons for this phenomenon. All 3 IPOs had a delayed dividend payout of about 6 months to 1 year from listing. Hence, as a yield investor, one could wait and observe the first quarter financials before deciding if the Reit was worth its price.

Unsurprisingly, all but Keppel KBS Reit opened unchanged, with Cromwell even falling below IPO price. But now, after the first reporting season, all are trading above their IPO prices as the dividend payout date looms.

This phenomenon begs a few questions..

Q1: Does this mean all high yielding securities are worth subscribing to? Given that the closer payout dates loom the more certain the Reits value?

I guess not, one does not have to look far to remember HPH reit. Hyped up as owning a portion of Lee Kah Shing’s empire, the stock quickly became one of the biggest falling knife’s in the business trust universe when it became certain that it’s yields were never going to live up to its price.

Q2: Is one season’s financials sufficient to determine the growth trajectory of the securities in question?

I think in the short term, a good earnings report might show that a stock is relatively undervalued (low P/E). But i guess more effort needs to be used to determine if the yields are sustainable or likely to rally further.

I remember in 2016, when i was picking my first Reit that i tended to compare one against another to check on their relative valuations. For example, among Reits within the same PE band, i would compare yield, net gearing and financing costs to come to a conclusion on the outlook of the Reit.

The subsequent rally in 2017 proved that this was somewhat flawed. Institutional and yield seeking investors require a level of certainty on distributions. In 2017, the counters that rallied the most were the brand named Reits with sound fundamentals in growth sectors with quality assets and large AUM. One has to remember that while economic factors weigh a good deal, good quality properties can continue to experience positive rental reversions, when the overall market remains weak.

In conclusion, Folks who want good quality high yielding Reits at the right prices have their work cut out for them. They will have to discern if the current environment makes a for a perfect storm for the Reit and whether it ride the storm to sunny days again.

Change @ Work

Tomorrow one of my beloved colleague is leaving. It’s never easy to say goodbye however, I do hope she is moving on to something that she can potentially enjoy more.

Though it was obvious to me at the beginning, I think it finally dawned on her that she was stagnating in her current role. 

I don’t know what the future will bring her, perhaps she will hate the next job more than the current one or maybe she will finally find something that will bring more fulfillment to her life. Only time will tell. But for now I think it’s for the best.

For myself, I think a season of change is about to come soon. I think there are many hopes and dreams that I wanted to fulfill in my current job and plug the many holes that I see in the organisation. But I’ve learnt that these may holes lie in many a different territories and navigating it is not so easy as no one enjoys having their cheese moved.

Coming this far, I see how perhaps naive I have been, but perhaps also how much I have grown as well. I think only time can tell what the future holds.

You will never be an explorer if you don’t leave your front yard.

Viva and ESR to merge?

E-Shang Redwood Reit has announced today that it is offering a merger with Viva Industrial Trust via a stock buyout. The day ended with Viva gaining 15c off its share price and ESR ending trading at a muted level.

As I am vested in ESR Reit this news is of interest to me. As of now details are hazy but I would like to think that the merger would benefit the holders of ESR more than those of Viva as the latter is trading at a relatively higher yield. That being said, it remains to be seen how many shares would be required to satisfy the shareholders of Viva to come on board.

As this is a stock buyout, I don’t think the unit holders of Viva will be compensated through monetary terms and thus it is interesting to see how the deal is going to be structured. ESR cannot afford to woo Viva’s shareholders at the cost of its own and thus have to strike a balance between the two.

Overall, While Viva has done well without ESR thus far, unit holders of both entities are likely to benefit from the larger AUM as financing cost will be brought to a more manageable level. ESR also has a stronger foreign pipeline of projects which bodes well should the combined entity diversify away from Singapore.

Waiting to learn and understand more!

Do read more here

  1. ESR Reit announcement here and presentation here
  2. Viva Industrial trust announcement here

What makes money?

Someone rich once told me several things in life can make us wealthy.

  1. Time
  2. Land/real estate
  3. Money

At that time I would not have questioned this, as it made complete sense.

Then I pondered, don’t we all at some point in our lives have 1, 2 or 3? Why do some people make more money than others? Did they just have more of the 3 than the average person? Well maybe, what do i mean?

I would opine that the defining difference, is how one maximizes their resources through opportunities. When i say opportunities, i don’t mean just pure dumb luck, I mean the combination of the mindset, skill, execution ability and foresight to spot a trend and turn it into a resource.

Most of the life stories of the rich follow a similar theme. A determined and disciplined life channeled towards the venture of choice, which results in a liquidity event, upon which they were able to get yet richer. In the process of getting there, they also develop a world class nose for success.

All of us may go through the same economic environment, but make different daily decisions. The sum of how we spend our days defines who we are and what opportunities we can smell out.

Most people see their jobs as the primary source of income, those who trade bitcoins might think they are onto something big and frankly that’s not any different from the 101 different ideas floating in the equity markets on a daily basis.

Its funny how while almost everyone wants to be rich most choose not to do the necessary to get there. It starts with you and your approach to life daily..

Giving and Saving

To most people I would imagine that giving and saving would be strange bed fellows. Why bother to save if you are going to give it away? Isn’t giving at odds with achieving financial freedom?

I have been giving regularly to a welfare organization. I did it soon after I started on my journey toward financial freedom as I wanted to remind myself that there was

and I hope to continue to support its work financially even as the portfolio grows in value. My intention is to grow this sum in tandem with my financial portfolio.

To me achieving financial freedom is a shared contribution of everyone in my life, even though the sacrifices may seem personal. Sometimes, its hard to imagine my life with a lot less. It is also recognition that this endeavor towards becoming a good financial steward is not purely a financial one.

If you can’t set aside to give today when you have nothing, you won’t be ready to do so later. I choose to start

In life everything compounds, even generosity. Start the snowball today.

Why I set aside 30% to dividend stocks?

I’d like to set aside 30%-40% of my portfolio to high dividend paying stocks. I mean allocating capital to buying stocks that pay a dividend which can supplement my cash flow, as opposed to buying a stock with the prospect of higher capital appreciation.

Here are my reasons why:

1) Positive Cash flow A positive personal cash flow is the only thing that will allow you to be financially free. Higher positive cash flow offsets expenses, meaning more money for investment. I would like to eventually save >100% of my earned income.

2) Being paid to wait is always helpful While the end game is still to own a larger and better company over the long term, assets and moats take time to strengthen. All things being even, a bigger moat almost always results in a better dividend yield, therefore you should be receiving a larger dividend over time as the company does better.

3) Knowing that you cannot be right all the time – Even the best researched or undervalued stocks have a 50-50 chance of going up or down. Some of my contrarian plays have become falling knives, patience and waiting for the market to react to your investment thesis is tough when you are not being paid to wait.

4) Investing requires patience Wealth building requires the right opportunities and more importantly time. Better always better to be paid to wait then just to wait.

As dividend stocks are typically low beta, its hard to get them at a good price while they are performing well. You can only study and research them well when the markets are up to identify the gems from the blanks.

With time and patience I believe it is possible to supplement your active income with dividends to sustain ever increasing expenses.

The tide rises

We are moving into the reporting season for the 3rd quarter and I must say that if markets were rising in the middle of the year, they are absolutely flying now. Property counters across the board have risen and it remains to be seen how long this will continue.

Personally, I am quite conflicted on the overall outlook for the property sector. For developers, the en-blocs will probably make them money, as they are most likely to intensify the use of the plots. However, I don’t know how the individual homeowner would stand to benefit from this? I think overall prices psf might not rise as optimistically as people think.

Overall, I think it remains to be seen if the property sector is likely to soak up a lot of the liquidity left over from the recession in the last few years.

Watching grass grow or adding fertilizer?

Lately the market has gone up quite and I have been itching to complete some new trades. I guess the general exuberance isn’t unsurprising considering that the perceived positive economic climate seem to be positive and upcoming dividends/distributions are due in June.

As of today, both the STI as well as the SGX S-Reit Index is up almost 10% YTD and most counters are definitely off the lows that we saw in December. Personally, I think the general economic uplift is still rather patchy and while reits were trading at bottom prices, the positives are now priced in and investors are now buying based what they believe are future profits.

I guess the best thing to do now is to go contrarian and start to save for the next storm. Being a person that can’t sit still for long, I have decided to set myself a goal of achieving $20,000 from now till the end of the year. $10,000 will go into the savings account for the house/home reno/wedding that is likely to come within the next few years and $10,000 will go to the warchest!

Problem is that it is now June and factoring my yearly insurance premiums that are due in September, I would probably need to start picking up an extra gigs to comfortably meet these targets. I guess necessity is the mother of invention, so when it comes to this I guess the smart thing to do is try to see how I can try add some additional income streams.

Lets see how far we can go with this plan in 2017…