Recent Action - Fraser Commercial Trust (FCOT)‏

I made a decision to divest all my current holdings for FCOT of 11,000 shares at a price of $1.525. 

This has not been an easy decision (just like the recent FCT divestment) because they are two of those Reits that have been with me for the longest of time and have performed remarkably well since I purchased them. However, my strategy involves buying and selling at a valuation where I think gives me the best risk reward advantage and therefore at any given time, I had to consider if they have breached my limitations. 

I had in the previous week written an article (Link Here) regarding the possible short term fluctuations about the placement activities in the acquisition of the 357 Collins Street, which are expected to be yield accretive but just SLIGHTLY yield accretive. The decision to divest is actually much more to it than meets the eye.

First, I am looking at this from the Reits and balance sheet structure point of view and have compared them against CapCommercial (CCT) and Ho Bee Land. While the current capitalization rate for FCOT is comparable to the other two companies mentioned, especially for the office properties located in Singapore, the Australian properties which they have on their books are having higher capitalization rate, so this gives them an advantage in terms of the net property yield the company is able to generate. However, in terms of balance sheet and NAV, I believe FCOT ranks the lowest amongst the other two and this is something that propels me to be more wary. 

	Gearing (%)	P/BV
FCOT	37.2	0.99
CCT	29.9	0.91
Ho Bee	30.1	0.53

Secondly, given the parent’s company (FCL) obvious direction to divest more of their Australian properties into their Reits wings, there will be plenty of acquisitions opportunities for FCOT (And FHT) in the next few years ahead. It’s a little tricky here because given the structure of Reits to pay out majority of its earnings, acquisitions will have to be funded via debts and/or equity.

The point I am trying to make is given the relatively high current valuation of the Reit in terms of its NAV (compared against their relative peers), any drop in the stock price means that it is much more difficult for the company to acquire a yield accretive acquisitions since the net property yield of the acquisitions cannot be lower than the yield they are already offering to unitholders. We see the latest Collins Street acquisitions as one of those examples where the difference between the NPI and current yield are not significantly different. In other words, share price would have to continue to move upwards in order to make sense for them to issue equity at an attractive price. The management can always choose to fund the acquisitions via debt, which is a much cheaper form of financing, though the limitations of the gearing and the rising interest rate would not have helped them much.

Conclusion

The divestment has now increased my warchest fund in the range of 39% of the overall portfolio.

I have also utilized part of the proceeds from the sell to purchase something else today, a company which I think presents a better risk reward ratio in the long run. I may blog in the next day or two regarding the purchase, given if time permits. Let's see if the decision to do so in right over the long run.

Thanks for reading.

Why Is It So Difficult To Take Annual Leave?

As an employee of an organization, we are usually entitled to an annual leave amounting to different number of days as regulated by the ministry labor. Each employees' annual leave is also usually dependent upon the industry, job grade seniority and serving tenure in the company.

The purpose of paid annual leave given to employees is pretty clear. Annual leave allows employees to take paid time off from work for the purpose of having regular breaks so that they can rest, re-energize and come back to work fresher. It is also know from research studies that employees who take regular short break holidays can be more motivated about their work and perform more effectively than those who do not. They are less prone to suffer from anxiety and stress because they get to relax their mind off any related work stuff and they will feel like they have life after all outside of work.

Although it seems like that's the general knowledge that everyone could understand, that's not exactly the case of what we are seeing in many organization. As an accountant having worked in several organizations myself, I am required to make leave accruals on a monthly basis for the general provision purpose. The trend that I am seeing is a lot of employees tend to have many outstanding leave balance that tends to increase for the first 8 months, then slowly trend down within the last 4 months heading into the end of the year. The Christmas holiday could be an excuse for such trend at times, but the overall impression I get from most is they tend to carry forward the leave balance to the next calendar year or forfeit them altogether.

My Experience

I can relate to this as I experience the same dilemma myself.

I am entitled to the normal 24 days of paid leave a year. Perhaps, the nature of my role in the organization makes it such that it is very difficult to plan for long leave break, not to even mention the possibility of a sabbatical. With many companies suffering from the high manpower costs of labor crunch, it is also very difficult to have sufficient manpower to back up one another. As a result, the vicious cycle between giving the much needed break to employees and balancing the needs of the company comes into question.

This ties back to the recent posting I wrote about FI (link here) which sparks about different thoughts from different readers. I guess the point I am trying to bring across there is that FI gives you a call option to have more flexibility to choose about the things that you care most about. I have no qualms about people who likes to continue working. In fact, they can even choose to work 100 hours per week for all they like, but different people have different priorities in life. What is mine is definitely uniquely different from yours.

With that said, my difficulties in taking a long break of annual leave is definitely tied down due to the nature of my role, which I can't inherently do anything much about it.

What about your experience with utilizing annual leave from your workplace? Does it boils down to the culture of the company and/or roles?

Prioritizing For Negative Knowledge To Become A Successful Investor

Most investors strive for excellence when they enter the market, building a sense of confidence that they believe will do well for themselves. Unfortunately, too few of them focuses on the negative aspect of the knowledge that is so critical to become a successful investor.

The concept of negative knowledge is about experientially acquiring knowledge about what is wrong and what to be avoided during performance in a given situation. In short term, it is to learn from the mistakes investor made and avoid a repeat of them in a crucial situation. A common misunderstanding is that negative knowledge is deemed as bad, poor and disadvantageous because of what is being described literally. But because everyone is liable and prone to making mistakes at some point in our lives, and just because negative knowledge is  non-viable in certain situations, it is not necessary worthless or superfluous.

Negative knowledge can in fact be much more powerful than positive knowledge because cutting down on unforced errors on either investing behaviors or decisions can determine the long term returns of our portfolio. It does not necessarily mean that we will avoid making such mistakes. But given the idea that making enough good decisions over time and cutting down on those unforced errors will enforce the number of winners and probability of success in your portfolio.

Take a tennis match for example. When an average player is playing a top seed player, his probability of winning the match is usually higher when he cuts down on the unforced errors rather than playing for winner shots, and at the same time hope that the top seed player is having a bad day and making more than average unforced errors. The same goes for investing. When we cut down on the silly mistakes we know we are prone to making, we come up better and stronger.

Let's now take a look at some examples of those negative knowledge we tend to acquire:

1.) Collective Rationalization (Herd Investing)

I've written an article previously on the subject matter explaining my position regarding herd and crisis investing (original article) in greater detail.

Herd investing is usually a recipe for disaster.

The herd investing mentality allows the tendency to think that whatever the behavior or decision the group made must be coherently correct because there are multiple minds think alike. Time and time again investors fall for this sort of rationalization because they think that strength is power and they are in a much comfortable running away from the fire instead of being a firefighter contrarian. If you are interested to read my original article on the firefighter contrarian concept, you can read it here.

Following the herd is what caused investors to accumulate into the technology stocks during the dotcom bubble, real estate during the great gfc and chinese stock during the recent manic run. What happens to the market after that, we will (had) already know(n).

2.) Not Having A Plan

This is a hard one because it's a huge narrative concept that is open and can range from almost anything else.

The first and foremost is to have a plan on portfolio allocation, including how much are you willing to allocate for emergency funds, warchest, stocks or bonds. I didn't start rationalizing the importance of this when I started investing until recently when I found out the utmost importance of doing so. Going top down regarding portfolio allocation is usually the safest method to ensuring that one doesn't over / under invest unnecessarily in any products at any single time.

Next is to have a strategy on the types of investors you are willing to be and most comfortable with. Some are more comfortable with dividend investing strategy or others may be more willing to adapt the asset based strategy. Regardless of the type of investors, we need to ensure that we have a plan in place to execute our strategies in the market well.

3.) It's Not A Matter of If but When

The worst part about investing is that it is going to be inherently slow, especially if you aim to become a successful investor. Most people are thrill seekers and they ended up in the bottom of the bin soon after.

Markets have been known to have its dark days and as investors, we need to acknowledge that it is only a matter of time that we will all be sunk in the dark pool of bloods when things get rough. During this period, successful investors will be able to survive and pounce on opportunities while the tide will wipe away the rest of weak investors who have been swimming naked.

To quote Sir John Templeton, he said "To buy when others are despondently selling and to sell when others are euphorically buying takes the greatest courage, but provides the greatest benefits".

Perhaps the next time you see new investors lurking for advice, you might want to tell them to prioritize on the negative knowledge first before dreaming for the big glory of winning the capital market system.

What about yourself? Do you think prioritizing on negative knowledge is important? 

Recent Action - FraserCenterPoint Trust (FCT) (3)

Today, I made a divestment for my last batch of 10,000 shares of FCT at a price of $2.09.

The last two divestment I made in batches was in the previous couple of months at the price of $2.15 and $2.06 respectively. You can view my rationale for divesting here:

Recent Action - FraserCenterPoint Trust (FCT) (2)

Recent Action - FraserCenterpoint Trust (FCT)

The investment thesis rationale for divesting remains the same as previously discussed. I think given the impending increase in interest rate and with the yield hovering at around 5.4%, the premium return yield in excess of the risk free rate continues to linger low, perhaps not having the required margin of safety that suits my comfortability.

Some may ask why didn't I divest all then when the share price was at $2.15. The only reason I could think of is I was awaiting for further development for both the economy in general as well as the Reits. Now with more information, I think I am comfortable enough to sell the holdings, diverting the proceeds to the warchest which has now grown to around 34% of the overall portfolio.

I'll be patiently waiting for a much better risk adjusted reward returns. Given the economy we are at right now, I am sure there are plenty of meats to choose from in a short while more.

"It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities" — Charlie Munger

What's Your Pre & Post Financial Independence Schedule?

I was reading Jason's post on post-financial independence (Link here) and was intrigued by the prospect of thinking about life after financial independence. In the post, there's a couple of financial bloggers who have span out their thoughts on pre & post financial independence weekly schedule which I thought was interesting to ponder around.

Whenever I spoke about to anyone relating to financial independence, there's a misconception that financial independence equate to retiring from the corporate world and to lazy or sit around doing nothing. Look, there's a vast difference between financial independence and early retirement, though the same can be said to be congruent with one another. Whilst early retirement isn't for everyone, financial independence is something every individual should think about attaining as early as possible according to what the circumstances may be for you. Unless you are born from a silver spoon, this does require a vast amount of time and effort to make that happens and by no means that this is an easy task. Just ask around those who've done it before us if you are not convinced.

I have written this post to make more of a fun exercise to think about what you can do pre and post financial independence. Remember that whilst you may like working for your employer and continue to do so post financial independence, the ball is in your court and you can tweak to find your own preferred schedule. That is the biggest advantage of reaching early financial independence ahead of time. 

Without further ado, let's see how I would have fared differently (guestimate) pre and post financial independence weekly schedule.

B's Full Time Work Schedule

Full Time Work Schedule

Work - I do not particularly dislike anything about my work in general but one look at the weekly schedule and you can see that work takes up the majority of the time ahead of all other activities. For anyone with a full time job, the schedule should look pretty much similar to what I have above. The thing is it would have been great to compromise between the two by having lesser amount of time spent on work while increasing the other activities so that you would have a more complete life as a whole. Unfortunately, it is almost entirely impossible to work lesser or even considered part-time for my role as the nature of the work doesn't allow to.

Physical - I would have loved to get involved more in exercise activities as we all know the importance of doing so but circumstances of the amount spent on work and families make it as such that there are only time to do any physical activities during the weekends.

Fun - Plenty of the fun activities, especially spending time with the kid, blogging, watching tv and surfing internet are done mostly at night after I had my dinner at home. Even so, you can see how these activities are being squeezed very tight because they are mostly the best time available to do these things without much interruption. I often take spending time with the kid precedence over other "fun" activities including blogging, so it depends very much on what time my kid goes to bed.

Social - I am hardly able to squeeze in any social activities these days with friends or colleagues because of family commitments. Things were quite different when I was still single and I have more time on my side to do other social activities with friends. These days, it's usually just about the Friday night and/or weekend gathering.

B's Guestimate Post FI Work Schedule

Post FI Work Schedule

Work - This is a lot more leisure and flexible now, given the vast difference from the release of the mandatory 9 to 6 work I have to endure. I foresee over the course of time I will be increasing the pace and amount of work done post financial independence, though it will be entirely on my discretion and choice on what I want to do with it.

Physical - I'd love to increase the physical activities by way miles more than the current state. I think having a regular exercise does wonder to one's mind and body and I would love to spend more of my time beefing up my health more than wealth.

Fun - I can already see how I''ll be integrating fun a lot with social and physical activities with my son and learning some skills ready to made activities along the way. At the end of the day, it's about doing whatever you want to do with your life, so this "fun" factor can ranges from anything you find it interesting in your life that you have dreamt to be doing all the while.

Social - I will have some time on catching up with old friends over coffee or simply just remisce the old days when we were still in school. Given the arrangement of time, social activities can fit in almost any days I want it to be, again at my discretion.


Final Thoughts

My weekly schedule will vary differently from each and everyone of you.

You may like to travel, so you might plan to take some long sabbatical out of the country. Some may also like to do more volunteer, so the time could be spent more on doing meaningful social work. Regardless what it is, your schedule will be on your discretion and you have more flexibility to play it around the way it suits your needs and style.

Although this is just a fun exercise, but I'll encourage everyone to try and think on your schedule now and into the future. You may have thought about it at some point in the past on your head, but to draw and plant them out is an entirely different think altogether. Try them, it's just a fun way of thinking about financial independence.

Anyone who are interested to do the same exercise can get the template from where I've saved mine:

Link Here

I've drawn mine. How are your schedule looking like?

"Jun 15" - SG Transactions & Portfolio Update"

No.	Counters	No. of Shares	Market Price (SGD)	Total Value (SGD) based on market price	Allocation %
1.	China Merchant Pacific	74,150	1.06	78,600.00	26.0%
2.	Vicom	8,000	6.24	49,920.00	17.0%
3.	Fraser Centerpoint Trust	10,000	2.02	20,200.00	7.0%
4.	Nam Lee Metals	70,000	0.29	20,300.00	7.0%
5.	FraserCommercial Trust	11,000	1.48	16,280.00	5.0%
6.	Silverlake Axis	12,000	1.09	13,080.00	4.0%
7.	ST Engineering	3,000	3.32	9,960.00	3.0%
8.	Stamford Land	10,000	0.58	5,800.00	2.0%
9.	Noel Gifts	18,900	0.29	5,480.00	2.0%
10.	King Wan	5,000	0.28	1,400.00	1.0%
11.	Warchest*			79,000.00	26.0%
	Total SGD			300,020.00	100.00%

*Does not include emergency, social security (CPF), insurance endowment, and short term (1 month) funds for immediate working capital.

We continued to see some pertinent weakness going into the month of Jun as the STI index has dropped about 5% from is recent high. Like everyone else, my portfolio was also affected by the movement, though the drop was smaller than expected.

Using this as an opportunity, I utilized some of the warchest into buying Silverlake (original article here) when it continued its fierce selling in recent weeks. The stock has bounced back a little from the last I bought, so I hope the fierce selling will stop from here.

I've also used this opportunity to accumulate some odd lots of CMPH when the share price retracted backwards last week. Further details can be found in my "Recent Transaction" page link. It's not any serious amount of any accumulation though I would love to add more to it if not for the already high percentage holding in my portfolio. In terms of moat, cash flow, dividend yield and valuation, it still fared as one of the best out there compared to its peers. The investment thesis remains largely the same as before.

The amount of warchest has now dropped to about 26% of the overall portfolio due to the recent buying activities. I will be paring off some of the buying activities unless a very good opportunity comes by, otherwise the risk adjusted return doesn't seem to pay off well at the moment given the current market situations.

On a personal front, I have also not managed to add on anything to the warchest for this month because of the extremely high expenses incurred. The big bulk of the difference in expenses is due to the money spent on purchasing flight tickets and hotels for our upcoming family trip in Nov later this year, which I have decided to expense all off in this month. We have not had a decent family holidays since the birth of my son so we will be looking forward to our upcoming trip later this year. Next month should look decently better, though much hope will be towards the month of August when I will receive some dividends which will help in terms of managing some of the expenses.

The net worth of the portfolio has fared disappointingly for the past two months as we've seen a general market decline more than anything else. It has dropped from the previous month of $304,430 to $300,020 for this month. I will not be overly concerned with the drop as the market is known for its volatility in the short term but tend to perform much predictably in the long term. I'll continue to sit while waiting for the dividend paying companies to announce dividends in the second half of the year.

What about you? How has your portfolio fared for this month? Did you add on to any opportunities?

Fraser Commercial Trust (FCOT) - Beware This Is Coming‏

Shareholders of Fraser Commercial Trust (FCOT) should already receive a circular notice stating their intention to purchase the 357 Collins Street at an estimated price of AU$200 Million. These development gets interesting because of certain situations that draw parallel to the recent case of Lippo Mall Trust (LMIRT) for their acquisition of Kemang mall, which I am familiar with and will bring more attention to it later. 

As we know, the management of FCOT has stated that the acquisition will increase its forecasted NPI by 14.7% as well as increase its DPU by 0.8% on the enlarged portfolio. The main reason for this is because the acquisition is supposedly meant to be yield accretive which would be funded through internal cash, debt and private placement of equity. This calculation was done when the share price of FCOT was languishing at the top of somewhere around $1.58, when the yield was at 6.2%. Obviously, these acquisitions usually take time to conclude as they needed to conduct an EGM for shareholders’ approval but this also means that they will be subject to the unpredictability of the market forces when it materialize. 

The circular has provided more information regarding the estimated NPI yield of the proposed acquisition and on page 53 of the circular, it was calculated to be at 6.3% yield. When the proposed acquisition was being made, it was still yield accretive because FCOT was trading at 6.2%. Things get interesting now because the recent fall in the share price of FCOT (and the whole Reits in general) to $1.48 means that they are now yielding 6.4% and assuming all funding terms and conditions remain the same, this will no longer be an accretive acquisition anymore for FCOT. Since private placement is usually offered at a discount to the current market share price, it becomes key to how much FCOT can receive from the placement should the share price continues to fall downwards.  

Think about it this way. If the proposed share price during the calculation is $1.58 at that point in time and FCOT is offering 5% discount for private placement (which translates to $1.50), they cannot do it now because the share price has fallen to $1.48. In other words, they will either receive less funding from the placement (which then means that they have to use more internal funds or take more debts) or increase the number of issued equity which means more potential dilution if the yield becomes not accretive. Either way, this is not a good sign for the existing shareholder. 

I wanted to draw parallel to the same incident of what happened to LMIRT not too long ago in their recent acquisition of Kemang mall. I blogged about this in detail at that time (original article here). What we do see is exactly similar to what I have described above. The share price of LMIRT continues to languish low for a period of time, causing the management to lower the issuance price for the placement than expected. The result of this, as what we’ve witnessed from LMIRT, is a drastic fall in share price, which could happen the same to FCOT if the share price continues to fall further. This is a classic case where a value proposition becomes a value destroyer to shareholders.

Final Thoughts 

If you are vested in this Reit counter and are thinking of getting out after reading this article, I think it’s probably a little too late now. The share price is already dropping from the recent high.

What this lesson taught us is that probably any acquisitions that companies made needs to be fairly compensated by sufficient yield increment of the enlarged portfolio, especially if the funding is done via equity. This is because we are taking into factor certain market forces that are not within our control and could go in the direction against our favor.

Things could still pick up from here and the share price could rise up before the EGM is being made.  Alternatively, the management can still make this an accretive acquisition by revising the funding capital structure by taking on more debts, which increases the gearing. Until then, I can only pray that the odds be in my favor.

Vested with 11,000 shares as of writing.

Recent Action - Silverlake Axis

Silverlake Axis has been one of those stocks I've been waiting to add into the portfolio for a very long time. I missed the great run-up a few years ago and I've been waiting since then. Today, I took the opportunity to add them at a purchase price of $0.94 for 12,000 shares.

It appears that given the fierce short selling these few weeks, it does look like I am playing a catch to a falling knife. In any case, I'll present my views given that I have now purchased them as part of inclusion into my portfolio.

I shall not delve too much into the fundamental numbers which EOTS has done a great job on it (Link Here), so I'll touch on the others which he has not.

High Gross & Net Profit Margins

I love companies that has the ability to churn out high gross and net profit margins. 

The business models operate in such a way that they do not particularly incur high overhead costs and as such bottom line margins are very strong at more than 55%.

Strong FCF and Low Capex

The majority of their assets consists of the intangible assets which gets amortized from time to time. This adds back into the operating cashflow which is also one of the reason why their free cash flow is so strong. The company also do not require high maintenance of capex and often use their excess cashflow to grow the business through inorganic acquisition phase.

Valuation

Before the previous drop in share price from $1.49, Silverlake was trading at around 28x PER. At the current price I bought, it was trading at around 20x PER. It's still not cheap by any standard but given the extremely strong profit margin, relatively no debt structure in balance sheet and a very strong return on equity, this is a premium that I am willing to pay for its business moat and aggressive expansion. If you are looking to get something cheaper, then you would most likely compromise either of the following or perhaps be waiting for a recession to come to get them cheap.

Some of the other competitors such as Infosys or Oracle are trading at around 20x PER, but take a look at their debt structure.

The other thing to take note is that the company has been very aggressive in their growth with the acquisition and expansion into other region through the placement of shares. Given that the management wants to increase liquidity of its own shares, it seems logical that they are issuing equity instead of using their own internal funds, though is is more expensive to do so.

The management has proposed a bonus consideration of 1 free share for every 5 existing shares held. This is a 20% dilution should EPS remains the same and a big worry to existing investors. Given the track record and aggressiveness of the management, my take is that the company will grow its EPS for next year for more than 20% in order to make the issuance of shares accretive. Some people may not like the way the management operates but there's a lot of other companies who are doing the same strategy. CMPH and 2nd Chance are one of those companies doing almost the same way.

Alleged Accusations?

I've read on the article a few times regarding the content written relating to this.

Obviously, I am not a subject expert on this matter as the writer has done but based on my professional accounting knowledge and experience, I will provide my views.

1.) Acquisition to inflate profits

Based on the article, the writer mentioned that Silverlake acquires some of the related party companies with high profits, high ROE but weak balance sheet. They recognize the huge profits first, then subsequently impaired them as a loss in their balance sheet over time. In other cases, they would book the loss as part of the share of loss in associate, but revenue and profits have already been recognized in the income statement.

My Take - This obviously has implications such that profits in income statement looks overstated if proven true but from the accounting (and auditor) point of view, not to mention layman, it is actually very difficult to ascertain the probability of impairment at the point in time when the audited statement is being done. Now that we look back at what is being done historically, we can easily ascertain what is true and what is not, but the fact that whether they are being done intentionally or not remains in question and the company has obviously denied the allegations.

2.) Timeliness of Revenue Recognition

Based on the article, the writer argued that due to the business model they are operating, they are required to collect cash upfront from customers, including regular maintenance fees, before selling the product later on to recognize the gain. This leads up to potential manipulation of numbers in revenue recognition principle as deferred revenue are recognized only when services have been rendered and the rest are amortized over a straight line basis.

My Take - As someone working in this line, I can ascertain that revenue recognition principle is one of those things that is extremely difficult to handle and can be subject to manipulation and still is very difficult to be caught by auditors. This is not solely a problem for Silverlake itself but for many companies since everyone is doing the accrual accounting and not cash accounting method. The thing about this is it is often very grey in certain areas and one end of the stakeholders could have different views from the others, and yet both can still be right.

If this is merely a timeliness issue, I wouldn't be so worried at that. But if these are incomes that are purposely manipulated for future income that will not come, then that will become an issue. Investors will have to note at that more closely when that happens.


Final Thoughts

Everyone is obviously going short on this counter at the moment.

But there will come a point where the share price proves to be an attractive entry once again, as long as the company's fundamentals remain solid. For those who are trying to long this stock, please do your own due diligence.

How Do Buffet Restaurants Price For Profits?

I've been thinking of writing a slightly different content from what I usually write relating to personal finance and investing so glad that I managed to churn out one.

At work, one of my main task is to make budget plans for the company and have them revisited regularly to allow the company to meet the required pre-set budget target. At home, I make my own personal financial planning to make rooms for sufficient working capital so that cash doesn't run out and get depleted unnecessarily before the end of the month.

Sometime during last year, I wrote an article explaining on the amount of financial planning you will need to have before you decide to open up a cafe. You can view the original article here. Today, I'm taking a look at the same industry with a slightly different proposition -- Buffet Restaurants. It's always interesting to find out how these businesses work on the back of our mind when we gulped our food down our throats.

Consumer's Standpoint

If you are a Singaporean, you shouldn't be a stranger to the wide variety of choices for Buffet restaurants to choose from. These All-You-Can-Eat buffet are usually available in most hotels and restaurants and if you are savvy enough, you might pick up a discount or two using a credit card or coupon from Groupon, depending on availability.

The interesting thing that makes All-You-Can-Eat Buffet psychologically attractive to consumers is that you get to eat a variety of as many foods as they are available, get yourself sickeningly full and you pay a fixed amount of price. After all, if the price of the buffet costs you $50, you might as well gulped down as many food as possible because it's the only way to get most value from there.

Well, in theory, this is the same as budgeting for our stomach because you can visit a normal restaurants and still eat as many variety of foods to choose from the menu and get yourself stuffed full. The difference probably lies in the fact that people are generally risk adverse when it comes to spending on food and having buffet style means that they are insured against any probability of bad outcomes where the expected bill might exceeds the amount of budget originally planned. This is especially true when you are treating a bunch of friends or having a huge family gathering where you don't want to be the one paying when you have an eater the size of a sumo wrestler or drinker the size of a barrel and costs are unexpected.

Restaurant's Standpoint

It gets interesting when you think from the restaurant's standpoint because now they're exactly at the opposite end of the spectrum.

We mentioned earlier that consumer gets to plan for a fixed price ahead of schedule when they go for buffet style but for restaurants this can be very difficult to plan because they do not know the amount of food consumers will consume. They certainly do not want a sumo eater to come to their restaurants on a daily basis as they know it will dent their profits. This is interesting because in economic terms both the buyers and sellers have asymmetrical information and the restaurant owner does not know who is going to turn up for the day or who is going to consume more food on any given day.

I spoke to a client who is in the business of running a buffet restaurants and he mentioned that they often revisit their budget plans and the average amount consumed on a frequent basis. After all, you can't have an average amount consumed worth $30 and have the restaurants priced lesser than that. They'll soon go out of business in that case. So if the average amount of food consumed is worth $30, restaurants will price it above that depending on the margins they want to take home. This means that if you come to a buffet restaurant as a family, you are probably going to get the father eating (a lot) more than $30 worth of food, but the mother and daughter eating (a lot less) than $30 worth of food, making it profitably for the restaurants to churn out at the end of the day.

The reviewing process continues until there is a marginal increase in the average amount of food consumed and they will have to raise the price to protect their margins. In the case where the marginal price is decreasing, restaurants will usually keep the price the same (they will not adjust the price downwards) and bring home bigger margins.

Other Benefits

One other benefits I could probably think of from the owner standpoint is on the limited number of staff required to attend to the individual customer. With labor costs becoming such a crunch for service industries these days, restaurants could perhaps review their strategies as they do not require particular staff to attend, take orders and bring food to the tables for each customer that dine in.

Maybe this is just what companies like Japan Foods or Sakae Sushi needs, as we've seen their labor numbers creeping up over the years.

Half-You-Can-Eat Buffet

An alternative to the primitive All-You-Can-Eat Buffet is the Half-You-Can-Eat Buffet concept I was thinking about. I do not know how cost effective is this going to be from the restaurant or consumers viewpoint but it may worth taking a note if the concept becomes popular in the future.

The first reason is due to the sustainability as we want to see reduced food waste going to the bins. Through this direct method, we can impose a fine or penalty if the customers could not finish the food they've ordered or taken. In fact, we see this being imposed on many restaurants as a deterrent to wasting food.

The second method is the customer retention methodology where consumer that comes for the first time gets measure of how much he or she eats and this will then get pro-rated when the consumer comes back for the second and subsequent visit.

The third method is the regurgiation methodology where the consumer eats half full and then get challenged to eat the same proportion for the other half to obtain some sort of promotion/discounts to the full original price.

Conclusion

There's a lot to think about given the different settings restaurants are trying to price and make to entice consumers. Some entices them with credit card discounts while some entices them totally with unlimited servings. This post serves as a change of writing content from financial freedom but makes an interesting business plan to consider.

The next time you are going for a buffet, maybe there's something you can ponder about behind the concept for the food you are enjoying.

How do you think Buffet Restaurants priced their margins? Are the profits sustainable? How do they adjust to changes? Is the Half-You-Can-Eat Buffet concept going to work? I am interested to hear your views.

Can You Be Frugal Without A Goal?

When I first started off this blog on my investing journey, I had a clear objective of what I wanted to achieve at the end of the day. There are several steps that I needed to follow and habits that I needed to change in order to achieve that and frugality is one of those high in priority.

The hard truth is not many of us are born to be frugal in nature and it will be very difficult to mimic what Buffett has achieved throughout these years. For a small percentage of people, frugality is just how they live and who they are. They don't have to think about it and those frugality habits are engraved in what they do on a daily basis, be it spending on food, groceries or accommodation.

In my opinion, adopting a frugal lifestyle is an intelligent thing to do. First, it creates an awareness of difference between cheap and frugal. Being cheap is about focusing on the price where quality can be compromised in order to but what is cheapest. However, being frugal is about focusing on the value where price and quality merge to form a conclusion regarding whether they are worth a buy. Second, since there aren't unlimited resources on the demand and supply, it probably make sense to conserve to be frugal and waste as little as possible. Again, this is focusing more on what you need rather than how much you can afford.

For some people, having a goal is important in order to achieve and motivate the frugal lifestyle effectively. For instance, when you had a goal of losing 100 pounds in 6 months, it probably make sense to start planning on your dietary meals and gym schedules accordingly. Similarly, when you had a goal of achieving early financial independence, frugality had better be part of your plans along the way. The problem is when a person had achieved their ideal status of financial independence, what would be their next motivation to remain frugal.

For many financial bloggers alike, every financial budgeting and decision we make is grounded in our desire to achieve higher savings rate, higher disposable income and therefore higher capital to put to use for investment. And thanks to that goal, frugality isn't exactly a rocket science or struggle for us. But would our desire to remain frugal in the absence of such clearly articulated plan works without a goal? This is something difficult that I haven't exactly had an answer myself.

What do you think? Would you remain frugal without a goal? Are you born to be frugal?

Singapore O&G Ltd IPO - Balloting Results

The IPO balloting results are finally out this evening after quite a number people I know have applied, including myself. I had applied for 101,000 shares and didn't expect much from it. True enough, the chances of getting 7,000 shares were probably very slim at 5% probability and the bid was not successful.

There are a couple of others I know who have bidded around the same range as well who didn't manage to get them and they were pretty disappointed. I think we can all now look beyond this episode as the scene will die down pretty quickly, similar to what happened during the IPO balloting for SPH Reit. 

For those who didn't manage to get them but still would like to get them from the open market, you can do so when it starts trading tomorrow morning but I doubt you will get them cheap. My prediction is that it will open at around 32 to 33 cents tomorrow when it starts trading and by then, it would have already been 30% above the IPO price.

Pacing Your Buying Activities

We've had a couple of consecutive negative returns in the Singapore market in recent times now given the lacklustre start to the year. 

It feels weird because on one hand it seems like a pretty normal things that we know the market will react but yet on the other hand because we have not had such negative returns for a very long time, thus a small minor correction in the market makes investors feel pumped up and jittery about it. Already, I've seen a few investors getting hands itchy these few days, getting into plenty of buying activities to each of his own. 

Telcos down, banks down, Oil & Gas down. So many opportunities, yet too little funds to allocate. This is what we've been hearing on the side these days.

Perhaps, it is during this time that we should remind one another of the virtue of patience when it comes to buying. Kiplinger called this the general rule to remind investors to never allow yourself to be bullied and tricked by your own emotions into buying something that “can’t wait”. The fact is most things can wait and there isn’t the last train that is going down the track. Even if you had found a stock proven to be in a great position to buy, pace your fund allocation into buying these stocks such that when things get uglier, you would still have the funds to take advantage of them. 

For instance, during the global financial crisis in 2008 / 2009, there are plenty of low hanging fruits awaiting for investors to purchase them. These stocks belong to the category where they are strong fundamentally but yet are trading at a very attractive valuation. However, due to market fear at that point in time, there are few investors who are willing to stash their hard earned money into the market, choosing to sit and wait instead. For others, they probably do not have enough cash left to take advantage of the situation.

Buying at the bottom or selling at the high is near impossible task for most investors out there. The hard truth is most of the buying and selling activities would range from within the standard deviation and it can be quite hurtful to see your stock goes up higher when you have sold or lower when you have bought. Even the best fundamental stocks out there could succumb to market decision when the economy gets rough and market will misprice itself. This is why pacing your fund allocations and activities is an important factor that every retail investors should consider. 

For an opportunity loss it may seem difficult to endure, a permanent loss of capital is harder to absorb. With that, I will leave you one of the past record showing a few of these blue chip and Reits stock and how their market valuation at that point in time. The situation might be totally different from what it is today, but a food for thought all investors out there.