29th Birthday Edition Post - What's the next target?

I turned 29 years old today and this is third edition of the birthday post. As a customary edition of this posting, I usually start by evaluating how I did in the past one year against the projection target set. Then   will post on something lighter on this birthday edition.

28th Birthday Edition

27th Birthday Edition

It's glad to know that I am doing relatively well on what I deemed as a very stretched target set at the beginning. My current portfolio for Aug 14 stands at $277,695, which is 13% higher than the original target of $245,920.

Some readers have asked me how I managed to put in $60,000 capital a year. This is really just a stretched target that I have set for myself. I doubt I will be able to do that unless the bonus or other income coming in are really strong for the year. With a kid now on the boat, it is even harder to inject that much capital monthly into the portfolio. The savings rate has also dropped significantly since.

But hey, so far so good so no complaint from me. The next target for next year will be the big one as I hit the glamorous age of 30 years old and we'll see how the portfolio goes. The market conditions will play a big part to succeed that.

Projection Target

Year	Year	Starting Capital	Cumulative Annual Capital Injection	Dividends on Starting Capital	Total Yearly Dividend Payout	Monthly Passive Income
0	1/9/2012	$100,000.00	$60,000.00	$6,000.00	$6,000.00	$500.00
1	1/9/2013	$166,000.00	$60,000.00	$9,960.00	$13,920.00	$1,160.00
2	1/9/2014	$245,920.00	$60,000.00	$14,755.20	$19,190.40	$1,599.20
3	1/9/2015	$345,030.40	$60,000.00	$20,701.82	$25,453.25	$2,121.10
4	1/9/2016	$469,594.05	$60,000.00	$28,175.64	$33,302.84	$2,775.24
5	1/9/2017	$627,460.53	$60,000.00	$37,647.63	$43,245.80	$3,603.82
6	1/9/2018	$828,572.82	$60,000.00	$49,714.37	$55,909.12	$4,659.09
7	1/9/2019	$1,085,594.23	$60,000.00	$65,135.65	$72,090.20	$6,007.52
8	1/9/2020	$1,414,705.83	$60,000.00	$84,882.35	$92,807.76	$7,733.98

 *Above excel spreadsheet was extracted from www.investmentmoats.com

So, on a more relaxing note, I brought my family to Marina Bay Sands where we planned to eat the Pizzeria Mozza. It was tightly packed so we went to the neighbour to eat the DB Bistro.

It was a heavy spending for the meals. The four of us, and my baby (he didn't eat anything of course) consumed a total of $350 worth of food. It was quite pricey and the food was too westernized for my liking. I preferred a chinese meal where it might suit the overall taste of the recipient better. In any case, it was a good meal, a good gathering with the family, and it was my first birthday celebration together with my son :)

No present this year but no worries. I am probably too old to get mad for not getting any present anyway.

So that is it. I dream today and wake up tomorrow and when I do so, I live to look forward for the next 365 days to my big 30th birthday. Until then, I wish everyone healthy and happy.

                                          "Dream as if you'll live forever. Live as if you'll die today"

                                                                                ~~

Mapletree Greater Commercial China Trust - Issuance of $75M Bond

Mapletree Greater Commercial China Trust has been granted provisional condition for their issuance of a $75 Million Bond on the 28th Aug and here are the terms and conditions:

- Issue Amount: $75 Million

- Maturity Date: 8 September 2021

- Coupon: 3.2%

- Issue Price: At Par Value

- Payment Date: Yearly on the 8th September

What does this mean for the Trust?

If we take a look at the issuance amount, it's really negligible and almost certainly they will not be used for any acquisition project for such an amount.

They are likely to be used for repayment purpose with their debt expiry profile looking like this:

• 2014: -
• 2015: $534 Millions (29%)
• 2016: $666 Millions (36%)
• 2017: $646 Millions (35%)

What this means is that with this issuance of debt, their costs of debts will increase marginally from 2% to 2.05% and gearing ratio will increase marginally from 38% to 39%.

I think with potential interest rate coming up within next year, we will see a lot of management action in other reits as well trying to either refinance their debts or secure as low interest debts as soon as they can.

Cache for example, has one of the highest debt expiry due for next year FY2015 at 60% and we can almost certainly see their costs of debts increasing and will affect the bottomline when that comes.

Treating Dividend Income as your Bonus

Bonuses are a very subtle object when it comes to performance management. And it is very strange to see that because as the name suggests, they are basically .... "bonus". So if your employer gives it to you, thank you and take it and if they do not, employees should not grumble too much.

You see, we, as employees get paid by sacrificing our human labor and time in return for a salary. So you do 40 hours a week and multiply this by 4 and they give you your monthly salary at the end of the month. Fair. If your employers refuse to pay you for this, you can rightfully get angry and feel unjustified.

Bonuses are a totally different thing. These days, they are being almost packaged as a whole remuneration but they are meant to be discretionary. Employees are much happier when they receive their bonuses because it feels like you do not have to work for it but yet are rewarded pretty nicely - which is almost like the case for dividend we will see later.

As an employee, there are 3 types of bonuses that I am currently getting.

1.) Annual Wage Supplement (AWS)

This is also known as the 13th month salary.

For AWS, employees generally receive the same amount as their last drawn salaries, regardless of position, tenure or performance rating. This type of bonus really has no effect on performance because it's the type of bonus which is customary at the same time every year at almost all companies we have here. Employees tend to expect it and there's no reason to work harder or smarter or put in extra hours to get it.

In fact, there are people who argue that this isn't considered a bonus. It is rightfully theirs to begin with.

For instance, February is usually the only month that you get paid "correctly" as they had a full blown 4 weeks to that month. In other months, there are usually 30 or 31 days depending on the type of months. So employees argue that they are being underpaid in other months. If we add those days up throughout the year, then we will get 29 days as being "underpaid" using this theory.

Jan - 3 days

Mar - 3 days

Apr - 2 days

May - 3 days

Jun - 2 days

Jul - 3 days

Aug - 3 days

Sep - 2 days

Oct - 3 days

Nov - 2 days

Dec - 3 days

Total = 29 days

2.) Performance Bonus

The second type is the discretionary performance bonus which usually links the two matrix together - company's performance and individual performance.

Usually, people will get very excited when the company's announces their performance bonus matrix to the staff. As these incentives are strongly tied up to how much the employees alone and as a whole contributes to the bottomline of the company, they really want to see strong figures coming out from this.

Again, another expectations that can come down really bad especially that it's difficult to control both the two matrices.

3.) Dividend Bonus

This is my favorite type of "bonus" amongst all the three mentioned above.

As a business owner having an equity stake in the company, I do receive these dividend income regularly as part of their quarterly or half-yearly distribution out of their earnings to reward shareholders. Instead of having my own limited time and effort working hard to achieve the above performance bonus we talked about, this is having other people time and effort working hard for your business so that you will be rewarded as a business owner. In other words, you have money working hard for you, not the other way round.

I currently draw around $17,000 per annum for my dividend bonuses from my portfolio and this translates directly to around 2.8 months of my current salary. The best thing to this is it gives me almost consistently increasing payout every year, even if I do not add anymore capital to it or better still even if I had completely stopped from working full-time.

So there it is - 3 types of bonuses for me and perhaps there might be more for other people. But take a look closely and decide for yourself which one that will give you sustainable payout throughout your life. 

Do you really want, for the rest of your life, attempting to justify your employers the bonuses that you deserved to get for the hard physical 9-6 work that you put in every single day or would you rather have these bonuses coming in even while you are enjoying your holidays on the other island of the Caribbean.

You decide.

"Aug 14" - SG Transactions & Portfolio Update"

No.	Counters	No. of Lots	Market Price (SGD)	Total Value (SGD) based on market price	Allocation %
1.	FraserCenter Point Trust	30	1.955	58,650.00	21.0%
2.	Vicom	6	6.60	39,600.00	14.0%
3.	SembCorp Ind	7	5.07	35,490.00	13.0%
4.	SPH	5	4.16	20,800.00	7.0%
5.	Ascott Reit	15	1.23	18,450.00	7.0%
6.	Mapletree Greater China Commercial Trust	20	0.92	18,400.00	7.0%
7.	China Merchant Pacific	19	0.945	17,955.00	6.0%
8.	FraserCommercial Trust	11	1.40	15,400.00	6.0%
9.	Neratel	20	0.79	15,800.00	6.0%
10.	ST Engineering	4	3.65	14,600.00	5.0%
11.	First Reit	10	1.235	12,350.00	4.0%
12.	Ascendas Hosp. Trust	7	0.74	5,180.00	2.0%
13.	Second Chance	7	0.46	3,220.00	1.0%
14.	Stamford Land	3	0.60	1,800.00	1.0%
	Total SGD			277,695.00	100.00%

It almost seems like infinity since I last updated the previous month portfolio update (Jul 14 Portfolio Update) as I've started my new role in the new company and it was a tough first month to endure to be honest. Henceforth, the income that was invested for this month investment was memorable and reminded me once again how not easy it is that money came along. There are definitely much tougher jobs out there so I should really look on the brighter side. The rat finally gets his meal.

For this month, I have added 2 lots of Sembcorp Industries on recent price weakness heading southwards at $5.08. To me, the fundamentals of the company is still as solid as ever and the recent price weakness seems to be an entry opportunity. The utilities segment might have seen some tough growth in the Singapore sector but their overseas sector should be contributing and outpacing the local sector soon enough. The marines segment are doing fine in line with previous year so it is something that I am personally satisfied of. The urbanization is something that will be a dark horse for the next future years to come as this segment is becoming increasingly strong and optimistic.

The recent 5 cents interim dividend from Sembcorp seems to be a little surprising, considering that they don't usually gives this out at this stage. I think the reason why they do this is perhaps they've been repurchasing lesser share buyback at this stage as compared to the previous year. Based on the graphs below, it appears that year on year (annualized for FY2014) they have approximately the same amount of profits and CAPEX and it is only because of the lesser repurchase done this year that they have included the interim.

Based on the recent price weakness, it appears that the earnings multiple has become somewhat attractive to me at just around 10.14x. If you check out the earnings multiple based on the past 52 weeks, it seems to have hit the lowest at this stage. So I'll take that for now.

I have also decided to trim half of my investment in Second Chance this month as there are lesser directions on what the company is intending to do for the next 12 months or so. The latest news coming out from them was instead of selling all their properties units they decided to trim a third of those. I'm not sure if there are any near term catalyst for this stock to be honest as price seems to move almost sideways peak at $0.46. I'll have to hold the rest of the few lots and see where they go from here.

The portfolio now stands at 14 stocks and I may be looking to trim off one or two more which I have identified as potential weaknesses.

There are no changes to my Child Portfolio for this month as lao bei didn't receive any angbao money for him since. Well, I'm sure he is fine with it :D

There are a couple of stocks that I'm keeping a close look on e.g SIAEng STEng so maybe there will be a chance to add them for next month.

Until then, please stay safe and vigilant and look out for potential noise that might present good opportunities ;)

Why replicating another person's portfolio can be dangerous?

All of us wants to earn good returns in the stock market.

While some retail investors do their diligent fundamental analysis about the company they are invested in, some others are simply taking the short cut by replicating other's portfolio - usually the person they admire.

A quick look at the hardwarezone forum and/or facebook and you can see many people either asking for advice or simply just replicating the portfolio for almost every stock they are invested in without having any justification for doing so.

For those of you who are guilty of doing so, note that doing this can be inherently dangerous for you.

1.) You are not aware of the average price the person bought the stocks. For example, I own 6 lots of Vicom in my portfolio and so can you, but if we are buying at a vastly different price, then you might be taking a much lower margin of safety (if there is any in the first place) should price heads south.

2.) You might be underestimating the different strategy between the party you are replicating and yourself. One might be inclined to go for growth stocks and highly cyclical stocks while another might be going for a slower pace dividend style of investing. The same strategy might not fits both parties.

3.) You might not aware of the portfolio allocation of the party you are replicating. Usually, financial bloggers would list down only their equity holdings in their blog and leave out the rest (e.g CPF, Cash, Gold, Bonds, Property) unknown. While he has some cash holdings and hedging at hands, you might not have one to mitigate your risks.

It is too easy and tempting to look at someone you really admire and photocopy the same portfolio as what he did. Nevertheless, the outcome is always going to be different. The risk and returns you undertake by doing that will be much more dangerous than what it really is.

Anyone you know that are doing that? Pls share your thoughts.

Job Vacancy - Accountant and Portfolio Analyst

This is going to be a very unusual post that you do not often see in my blog.

Frequent readers of my blog would know that I am currently working in one of the Reits company listed in Singapore and since I've been in the company, I've been covering a number of roles including the two mentioned roles above.

In this regard, I am here to look if there are anyone with the right criteria and skillset who would be keen to explore more on the Reits industry to apply for the roles. I do not have the specific JD at the moment, but for those who are genuinely interested and have the right skillset, I can forward your resume right to the hiring manager to arrange for an interview. In any case, both positions require approximately 3-5 years of relevant experience and accounting/finance background and the candidates must have the passion to learn about the Reits industry.

For those who are interested, you may leave me your email in the comments section and I will get back to you so that you can send over your JD.

* I do not wish to disclose the name of the company over here so if you are genuinely interested and qualified, we can discuss more in our email exchanges.

Reits - Aug Update

Following up on my last post regarding how credit ratings would play an impact on the Reits listed in Singapore, it is also important to look at other metrics that would determine your choice of the investment.

Using this post, I will also share on what factors that I feel it is important to look at before deciding to invest in the Reits. Note that this is my personal choice of factors so yours can be different.

Corporate Ratings

This is the ratings based on what I have discussed in my previous post. As you can see, most of the reits are in the B range ratings while more notable CMT and Ascendas Reit are in the A range. For the investors, people may tend to overlook this factor but for the management of the Reits, this becomes a very important factor. For example, if you drop to a no rating, your cap for the gearing allowed by MAS would only be 35% as compared to others at 45%. There are other repercussions beside this as well.

Costs of debts

This is the average all in costs of the debts they currently have outstanding. As you can see, some of the more recent listed Reits such as MGCCT and SPH Reit managed to get it down at the lower 2+% range as compared to others who are in the higher range. This factors are important as it will impact the reits bottomline earnings and ultimately your DPU. Surely you would want to keep this as low as possible.

% of Fixed Debts

With impending news that FED tapering will finally be here, it is important for Reits to lock down the amount of fixed vs floating interest rate early, lest the uncertainties. For example, Croesus and FCT have locked it down 100% and 75% of their fixed debts at 2.15% and 2.49% respectively. This will ensure no surprises to the earnings when management are doing their budget. And investors will ensure that your DPU will not be impacted too much by the volatility of the interest rates.

Interest Coverage Ratio

Linking this back to the Interest Coverage Ratio, this factor is determined by using the NPI / Finance expenses. The greater the ratio, the better the ability of the company to repay its debt. Companies like Plife Reits leads the charge at 10.4x interest coverage ratio!!! Incredible.

Debt Expiry

Last but not least, it is important to look forward at the debt maturity profile to ensure that the company has no short term obligation to refinance their debts. If there is, then it is imperative that the company needs to be able to refinance it at low interest rates to not impact their earnings distributions.

My Picks

When I choose Reits to invest, I usually use a few metrics that I take a closer look at. 

1.) DPU Growth - I like to see how the management grow the company's bottomline from the past to present. Most of the listed Reits here will have no issue regarding this.

2.) Short-term catalysts - I look for Reits that have potential short term catalysts as this will mean re-ratings from analysts that will positively impact the shares. For e.g FCOT will have a rental reversion from its Alexandra office which expires in Aug this year. What this would mean is the next few results would see them doing better than previous year and hence this would enable positive re-ratings.

3.)  Costs of debts and debt maturity profile - I like companies that have an all in costs of around 2.5% and below. For companies with a higher costs of debts, the yield would have to compensate even much higher.

There isn't really a hard and fast rule as to what metrics you should look at when investing in Reits. With companies balance sheet doing much better now as compared to GFC period, I do not see the yield to shrink much even at times of higher interest rates. As always, do your homework and make sure you can justify your investment.

Credit Rating methodology for Reits - how it can help you choose the right investment

The investment community in our globalized world has grown ever so bigger each day and it is easy to see why some investors can get lost when picking their investments.

One tool that can help you decide is the credit ratings assessed by the credit agency. The three top agencies - Moody, S&P and Fitch are the world's top rating agencies which provides assessment on companies accredited ratings. Different rating agencies give you slightly different framework but from the broad view they generally serve the same purpose - the higher your risk profile, the lower your ratings and vice versa.

For the purpose of the post, we will take a look at the framework from Moody in determining the credit rating for Reits listed companies in Singapore.

There are generally 4 main factors used by Moody in analyzing a company's internal and external characteristics. These factors are:

Factor 1 - Liquidity and Funding (24.5%)

Factor 2 - Leverage and Capital Structure (30.5%)

Factor 3 - Market Position and Asset Quality (22.0%)

Factor 4 - Cash Flow and Earnings (23.0%)

Factor 1 - Liquidity and Funding

Under this factor, it covers the ability of the companies to hold ample liquid assets under their books. This includes things like debt maturities, dividend payout ratio and the amount of unencumbered assets.

For instance, under the debt maturities, the higher the amount of weighted debt maturities out of the total debts, the lower will be the ratings.

Factor 2 - Leverage and Capital Structure

This probably takes the highest weightage out of all the four factors and you can see why they have placed a huge importance on leverage assessment.

Under this factor, items such as the gearing ratio and whether the debts are secured or unsecured does play an important factor in assessing the company's ratings.

For Reits, the gearing probably is capped at 45% out of your total assets and if you exceeded this, then you are probably screwed by the MAS regulators.

Factor 3 - Market Position and Asset Quality

This is probably the factors that are most subjective as you really need to assess external environment if your assets are in other locations of the world. Another item that falls under this factor is the company size, so the bigger your total gross valuation of assets the better your credit ratings.

Factor 4 - Cash Flow and Earnings

This factor covers the ability of the company to provide earnings, positive cash flow and cover costs such as the interest coverage ratio.

For instance, the better the company is at covering their finance expenses, the better their credit ratings will be.

These ratings might not be important to you right now but it definitely gives you a checklist to see which areas are companies weak in. As investors, we need to be vigilant on the companies we want to be invested in, lest any weaknesses might upset what happened back then during the gfc.

Dividend Income for August -- The reality of dream

National Day is here and it means it's another month of dividends for investors.

This has become one of my favorite section as I continue to build my warchest while at the same time able to reap the fruits from the existing portfolio. Dividends are basically rewards to investors without having active work that you have to do like in the office. The best part is it gets really automatic now and it keeps on piling up till the day you retire or leave the earth, whichever is later.

Dividend investing continues to play a big part in my plans to retire from the corporate world early as time becomes more precious as each day past. I have colleagues who are still working at the age of 60+ and it is easy to see how frail they are at the mercy of the employers. When retrenchment comes, they are usually the first to go, leaving much uncertainty to how they will cope with their daily lives. I certainly wouldn't want that type of uncertainty when I get old and the earlier I settle this issue the better it is for myself and family.

Receiving $6,132 in dividend income in May earlier this year was a fantastic feeling, August is another fantastic month with dividend income coming in at $3,239. Even if the amount is unable to cover the full expenses for the month, it still prove to be useful. I certainly think dividend investing will continue to be my strategy for this year and the next as my portfolio looks to grow bigger.

Counters	Dividends (S$)
FraserCenterpoint Trust	188.00
Sembcorp Ind	250.00
Ascott	591.00
FraserCommercial Trust	240.00
Neratel	400.00
First Reit	200.00
ST Engineering	90.00
China Merchant Pacific	665.00
Stamford Land	90.00
Vicom	525.00
	3239.00

With SGX loosening from 1000 to 100 per lots from 2015, I hope this strategy could be useful to those who are starting out. As always, it is a nice cycle to be in, whenever national day comes, your dividend comes in as well ;)

Treat your bad debt as your greatest sworn enemy

We know that debt can be classified as good or bad.

While it is possible to live completely debt-free for most of your life, it is not necessarily the best move you will make.

Good leverage can be a form of investment that will multiply your income and generate greater returns. Bad debt, however, can do exactly the same - the opposite way in fact and it will harm you over the course of time.

There was an article that was posted a couple of days ago about a person named Ken Ilgunas (Article link) of how he managed to save 95% of his income by living in his van and eating some simple food to repay off his student loan debt of $32,000.

A few of the highlights from the article was:

- He managed to repay off his student loan debt of $32,000 within 2.5 years while making less than $10/hour and $18,000/year.

- He mentioned about not being an expert of personal finance but it was clear to him that the more money he could allocate towards savings the earlier he is going to be debt-free.

- Never at once was he deprived of food - he had oatmeal for breakfast, banana and peanut butter sandwich for lunch and spaghetti for dinner.

- He took on jobs that provided him with food and lodgings, so he has technically zero life expenses.

- Think of your debt as your greatest sworn enemy. Think of indebtedness as a life and death situation. He advocates not to put 8% income towards it but rather 100% if possible. Obsess over it. Despise it. Murder it. Kill it. Grand tasks require grand thinking.

In his spare time, he wrote a book called the "Walden on Wheels" which is a day to day experience during his toughest times. 

When you've got past that toughest times, you began to realize how strong you have emerged, how things look much simpler in this world.

How much capital should you have at your age?

We often hear financial bloggers preach that different people requires different needs in different situations.

The amount of savings a person needs is highly dependent upon how much he earns and spends, and going back further how much a person earns and spends is very much dependent upon his education qualification and judgement of what is enough.

Chris Farrell, author of "Your Money Ratios" has some rule of thumb regarding how much capital a person should have at their respective age. The way he did this is through a ratio of the Capital to Income (CIR) which means this could technically applies to everyone.

Age	Capital to Income
25	0.1
30	0.6
35	1.4
40	2.4
45	3.7
50	5.2
55	7.1
60	9.4
65	12.0

So for example, if you are currently 30 years old and earning pre-tax income of $70k/year, you should have an allocation of capital of around $70k x 0.6 = $42k.

The figure may look somewhat conservative to you but you'll be surprised at the number of people who doesn't have that kind of savings at their age of 30.

The way the ratio is structured probably also ascertain a few assumptions that your income will increase proportionately as you age older and assume a withdrawal rate of about 3% each year until the day you die at the age of 100.

What do you think? Do you agree with the ratio as the author suggests?

Olympic Gold Medal up for grabs at USD35K

Many times we hear of poor financial planning from the rich and the recent news have proved once again it's still in existence.

Here is the story extracted out:

In 1993, when he was drafted by the Milwaukee Bucks in the years before rookie-scale contracts, Vin Baker signed a 10-year agreement with the team. That deal included an opt-out after the sixth season, by which time Baker had made nearly $17.3 million. He then signed a seven-year, $86.7 million contract with the Seattle SuperSonics, though he chose to negotiate an opt-out settlement after five years in order to make himself a free agent, strangely negating the final two years of the deal. The smaller contracts Baker played on over his final few seasons put his official career earnings at nearly $100 million.

Half of that career was spent disappointing his teams and various fan bases, as Baker struggled with weight issues and an admitted alcohol problem. Though he made four consecutive All-Star teams from 1995-98, Baker’s confidence tailed off in the 1997-98 season (especially at the free-throw line), and his weight ballooned extensively in the lockout months following that campaign.

Baker was still held in high enough regard in 2000 to be awarded a spot on Team USA’s men’s basketball entry at that year’s Summer Olympics. Though the team isn’t as fondly remembered as other recent Olympic outfits, it still earned a gold medal in the tournament.

According to Grey Flannel auctions, via Sports Illustrated, Baker has decided he doesn’t need his medal any more, and he’s deciding to put it up for auction. From the Gray Flannel description:

The gold-plated silver medal weighs 6.85 oz, is 5mm thick and measures 68mm across. It is attached to a 39” turquoise-blue ribbon embroidered with “SYDNEY 2000” in silver. The medal features a design by Australian designer Wojciech Pietranik; it depicts Nike, the Greek goddess of victory, seated above the stadium and chariot along with “XXVII OLYMPIAD SYDNEY 2000”. This translates to “Games of the 27th Olympiad Sydney 2000”. The artist’s initials “WP” appear at the bottom of the design in relief. The verso of the medal features the Olympic rings along with an image of the Sydney Opera House and an Olympic torch. “BASKETBALL” and “MEN” have been engraved along the perimeter. The medal is in MINT condition and comes in a white leather case.

The minimum bid starts at $35,000, and the auction runs until Aug. 20.

So for those of you wanting to own an olympic medal, all you need is 35K ;)