Friday, December 26, 2008

Spending my year end bonus

I just received my annual payslip and was pleasantly surprised to know that I have earned a gross annual income of $80,000 this year, $10,000 more last year. I expect next year’s income to be around this region or at most $2,000 more, assuming I stay on to my current job. As I did not travel overseas, I decided to spend more on buying material goods for my family, close friends and myself.

Some of the purchases were in the grey region of needs and wants. For instance, a comprehensive health checkup is a need and I have signed up for SPA and gym to improve my overall health being. It can be justified that it is a “need” I want.

Same goes with humidifier, which improves my sleep (and health); new clothes are definitely “wants”, yet necessary spending “needs” for working people.

Fortunately, I have applied for some credit cards that come with cash rebates helped to defray my costs.

I have calculated that I have a budget deficit of about $1,000 after adjusting for a cancelled $2,400 travel expenses. I guess the additional $1,000 will have to come from my dividends and additional bonus. No harm to exceed the budget as long as you know where the money is going.

I shall work harder to earn and save more in 2009!

Wednesday, December 24, 2008

Merry Christmas!!

Wishing all my readers Merry Christmas!! May you enjoy the season of sharing with your friends and love ones!

Liu Chien

For the past few months, I often find myself glued to Channel 56 for the Magic Show. One of the judges, Liu Chien left a very deep impression on me. Based on Liu’s performances, dialogues with contestants and past accolades, I find him (among other professional magicians) to be the most humble yet highest skilled magician.

Some of the magician judges are downright arrogant (though it may be for show), humorous (but mediocre in magic) or is simply there for the sake of money.

If you have watched Liu Chien’s criticism towards contestants, you would find several commendable traits in him:

He is absolutely a master in his profession.

He takes A LOT of pride in his job and expects others to respect this occupation as well.

His criticisms towards contestants are meant to educate and reform, rather than impress and entertain, which many other judges (non magicians as well) are guilty of.

He looks beyond every magical performance and gives recognition to contestants who put in rigour and heart into their preparation, though the performance may be a flop.

He is an articulate speaker and his words are often apt and concise, backed with strong convictions.

He is respectful towards any performer on the stage even though some of the contestants are really crappy.

The above traits are worth learning. How many people, being a master in a subject can still be humble, patient towards other learners?

Liu Chien actually did not aspire to be a professional magician. After graduating from university with a Japanese language major, all he wanted was to work in a Japanese MNC or become a translator. However, due to unfavourable circumstances, he couldn’t find any company willing to take him in.

Liu Chien decided that perhaps he could give magic a try, since it is something he is good at from young

The rest is history.

Liu Chien’s career accomplishment is a classic textbook example of pursuing one’s passion /finding one’s niche/ pursing one’s dreams/ when one door closes, the other (or bigger one) open etc.

I am quite inspired by his one size fits all classic example. Finance being my passion could possibly be my next career path. Do not be surprise if you find SBC writing analyst reports on SBC!! Haha! Do look out for my classic superman logo though!!

If you have never seen Liu Chien or you are curious how he looks like and his brief history, check it out below. He will perform a illusion at the 3rd minute. Do let me know if you know how it is done!

Monday, December 22, 2008

Mandatory block leave: My Retirement Preview

I am put on mandatory block leave to clear my outstanding leave from last week till early next year. I do not quite like the idea as holidays at the end of the year are packed with people and much more expensive. My working friends would prefer to travel during the off peak season, which unfortunately does not coincide with my working schedule. Hence, instead of going to Japan or Hong Kong this year, I have decided to skip my overseas holidays and stimulate the economy by spending and holidaying here!

My leave period was quite a retirement preview. A typical day will be as follows:

8am: Wake up, shower, papers (headlines)

8.30am: Watch Channel 8 Morning Express for local and international news, including overnight US markets closing data and analysis.

10am: Light breakfast together with reading newspapers.

12pm: Swim or hitting the gym (just sign up) for weights and treadmill.

1.30pm: A bit of TV, DVD (rental), reading of The Edge, car magazines, surfing net, afternoon shopping (where crowd is tolerable) and hitting the library to pass my afternoon. I usually do not do lunch but instead will have a more filling tea break, consisting of waffles, tea, cakes or donuts. Napping is a wonderful occasional affair.

Sometimes I meet up with ex-colleagues or friends for lunch and the day will fly by amidst our chatter and laughter at a heartland café and a movie thereafter.

6.00pm: Dinner and watching 6.30pm News (OR Meeting friends for dinner, shopping and I will catch up the Channel 55 drama serials on the following day afternoon).

8pm: Watching Channel 55 drama serials.

10pm: News

10.30pm: Bedtime music and reading OR Supper with the usual kakis

12am: Lights Off!

Now, that’s retirement!

When I am at home for the past 2 weeks, I realized that many of my variable spending during a typical day is actually quite affordable. I can happily pass a day by spending about $20 (on average, mainly on food and transport). However, the unseen costs are things like rent (or mortgage), utilities, club memberships, phone bills, internet, cable TV, personal effects, insurance, property and road tax together with other fixed costs all add up to a hefty amount. Moreover, we also need to set aside cash for less common things like gifts, repairs, overseas travel and even parking summons too!

I would think that to lead a modest retirement lifestyle, a $2,000 monthly retirement budget (in 2008 dollars) is likely to be sufficient if one’s mortgage is fully paid up.

I guess I will need to work harder to accumulate more savings and increase my passive income to retire comfortably!

Sunday, December 21, 2008

DBS Rights Issue. To subscribe or not?

DBS announced that they will raise $4 billion of capital through a rights issue. Every two shares that a shareholder owns will entitle/her to subscribe for a DBS share at a price of $5.42.

The shares trade ex-rights date will be 29th December 2008 from 9am.

This is not exactly a good time to issue rights, as it sends mixed signals to the investors. Is DBS in dire need for cash that they need to issue rights to shore up capital? Has loans default rate increased?

If you are a DBS shareholder, will you be subscribing to the rights?
If you are holding only 1,000 shares (like myself), you have several options:

A) Buy another 1,000 DBS shares so that you can have 1,000 rights to purchase an additional 1,000 DBS shares @ $5,420 (you will end up with 3,000 DBS shares).

B) Buy 500 rights on the exchange so that you are entitled to buy 1,000 DBS shares @ $5,420 (you will end up with 2,000 DBS shares).

C) Sell away your 500 rights to people interested in purchasing DBS shares @ $5.42 (you will end up with slightly above $1,000 cash but your share in DBS will be diluted and price of DBS will fall more than $1 upon XR).

What will my option be? Very simple, I need to do some guess work and attempt to choose the most economical option. A simple calculation will be as below:

I am willing to purchase DBS in the open market for $8.80 to earn an additional 500 rights. Hence, at the end of the day, I will spend $8,800 (DBS shares) + $5,420 (subscribing to DBS rights shares)= $14,220 (which will end me up with 3,000 DBS shares).

If I were to purchase an additional 1,500 rights in the open market, how much will each right cost to justify my purchase?

By purchasing 1,500 rights, I will also end up with 3,000 DBS shares (including my 500 rights as well). Hence, I will need to spend $5,420 x 2 (to get 2,000 DBS rights shares issue) + cost of 1,500 rights= or lesser than $14,220. Hence each right will be worth buying if it costs less than (14,220-5,420 x 2)/1500 rights= $2.25

However, take note that rights can only be traded after DBS goes XR, or else it will be like trading derivatives.

Personally I might buy an additional DBS lot @ $8.80, sell away my rights above $2.30 and attempt to purchase DBS later @ $5 instead.

Saturday, December 20, 2008

Stress and Cancer

Why are you stressed? Work? Money? Irritating colleagues? Unreasonable demands or expectations from your spouse or partner? Ailing parents?

Beware, all the above will cause cancer, although it is not proven. Dr. Ang Peng Tiam, my favourite regular medical columnist shares his insights:

Proof is key to science, which can thereby make a lot of demands. As a doctor, I do subscribe, by and large, to evidence-based medicine - the practice of rigorous and repeated tests, clinical trials and journal reviews.

I hardly ever make a statement without scientific proof. However, I believe there is at least one notable exception: Stress causes cancer, even though I cannot prove it.

This is not from lack of trying. Others too have long tried to correlate stress to cancer.
Over the past 30 years, studies that examined the relationship between psychological factors (including stress) and cancer risk have been inconclusive. Although the results of some studies point to a link between various psychological factors and an increased risk of cancer, a direct cause-and-effect relationship has not been established.

With 26 years of medical experience, I offer some hypotheses, albeit without firm scientific proof.

Whenever one of my patients has cancer recurrence, I gently probe into what is going on in his or her life. Often, those who open up talk about unfaithful husbands, money problems, unhappiness at the workplace or problems with children and their studies.

Recently, a pleasant woman came to see me with her husband, after having been diagnosed with advanced stomach cancer. One of her questions was: 'Why did I get stomach cancer?'

There are many possible causes for this cancer, like preservatives in food, carcinogens from smoked or barbecued meats (which happens to be one of my favourite foods) or Helicobacter pylori (a bacterial infection of the stomach). I also suggested to her that stress might be a factor.

Although she did not say anything, the way she turned to look at her husband spoke volumes. Her husband nodded, agreeing that she was indeed going through a stressful time.

Such anecdotes are unscientific and I can understand why it is difficult to prove that stress causes cancer. After all, two individuals can be doing the same stressful work. Yet one may thrive on the excitement of the work intensity while the other struggles with the same workload.
I remember a conversation in 1992, when ProfessorSun Yan, a renowned oncologist from Beijing, visited Singapore. He was asked whether he believed that stress can cause cancer. Without hesitation, he said: 'Of course, stress definitely causes cancer.'

I was taken aback and asked him why he gave such a confident response. He went on to talk about the Cultural Revolution in China.

During that period, between 1965 and 1975, ordinary Chinese people came under tremendous psychological stress. Betrayal by friends and family, oppression of thought and mandatory and harsh new routines created an upheaval in their lives.

'During that period, I was already a doctor and there was a sudden rise in the number of cancer patients in all the hospitals,' Prof Sun related.

'We saw many more cancer patients. The common factor among them was the tremendous psychological stress they were all experiencing. That's why I'm sure that stress is one of the causes of cancer.'

At the time, I had doubted his conclusion. Today, after more than 20 years in the field of oncology, I am more inclined to believe him.

So how does stress cause cancer?

Evidence from animal and human studies has shown that chronic stress weakens the immune system which is responsible for constant surveillance within our bodies for infections and cancers.

This system seeks out and destroys abnormal cancer cells which may arise from time to time. When it fails, the cells can go undetected and grow into malignant tumours.

For the same reason, patients suffering from Acquired Immunodeficiency Syndrome, or post-kidney transplant patients on immunosuppressive drugs, are more prone to developing certain cancers.

There is also some data suggesting that cancer patients who feel helpless and have negative emotions tend to be worse off. The 'bad vibes' promote the growth or spread of cancer, although this relationship was not consistently seen in all the studies.

So how can anyone, particularly a cancer patient, cope with stress?

Faith in God is one way. By entrusting one's life to a supreme being, the burden is taken off oneself. Exercise, meditation, leisure activities, counselling and use of anti-anxiety drugs may all help in improving one's psychological well-being too.

Even though I sometimes struggle to see the many patients waiting to see me, I constantly remind myself to practise what I preach: 'Be happy and live each day to its fullest'.

You don't need science to tell you that.

Dr Ang, the medical director of Parkway Cancer Centre, has been treating cancer patients for nearly 20 years. In 1996, he was awarded Singapore's National Science Award for his outstanding contributions to medical research.

Dr. Ang has written clearly that although there is insufficient empirical evidence to prove that stress causes cancer, he believes that it is possibly one of the main causes.

We do not know the formula that concocts cancer. It could be stress (20%), diet (20%), exercise (or the lack of; 20%), genetic (20%), being happy (20%) or other parameters as well. Other than genetic reasons that cannot be controlled, I think 80% of cancer factors are possibly within our means to control.

If you feel that your work is too stressful, change it.

If you have no exercise regimen, start one.

If you are feeling unhappy, it is time to pick up your old hobby or start a new one. Watching some Channel 56 variety shows help too!

Eat the canned, fried, oil, fatty, sweet and alcoholic food in moderation. Go for more organic, steam, fresh and nutritious food. Spending more by eating better food is actually another form of insurance!

Actually it can be stressful to pursue happiness if we equate happiness with having lots of money. Sometimes it is the thought of having lots of money that gives us the misconception that diving into a sea of gold coins daily is a luxury (Reference: Duck Tales). Yet it is often the penniless kids (duck nephews) that are often happier than the adults (uncle scrooge).

The key is really to find the optimal balance of family, friends, finance and personal interests

I do hope Dr. Ang writes more medical column to educate us on health matters. After all, prevention is always better than cure.

But I do hope that I never have to see him for business one day!

Good health is still true wealth!

Friday, December 19, 2008

Market thoughts

Today as I browse through the Straits Times Recruit, it reminds me scarily of the SARS period. Recruit was packed with little jobs’ advertisements, mainly hailing from statutory and government agencies. It is apparent that the private sector has little interest in hiring new employees now. What does it translate to the stock market?

Refer to the below graph:

During the 9/11 and SARS period, STI bottomed around 1200 points. However, the problem we are seeing now is more difficult and perhaps even more prolonged.

Where would the bottom level be then?

Many analysts are calling the situation with conviction that things will turn for the better from 1H 09. Respectable economists (local and overseas) believe that economy will recover in 1Q 2010.

My personal view after reading all the reports and statistics so far is that the downturn has only begun. Recovery for the job market and economy is likely to come earliest in 2010 or 2011.

Stocks being forward looking may only pick up (earliest) from 2H 09 onwards. Hence, if my assumption is right, from now till 2H 09, stocks will experience a bottoming process. Hedge funds still have a lot of redemption orders on their cards. In Jan and March 09, there might be carnage of equity sales.

I still prefer to resume buying blue chips when STI falls to 1400 points or below. There is a strong margin of safety at this level. It might go lower, perhaps even to 900. But I am not betting on such distress.

Take note however, that there are still a lot of uncertainties going on. Will the US motor industry fail, merge or become state owned? What policies will Obama bring to stimulate the economy? How will China tackle the yuan appreciation problem, which has cause many export firms to fold? With US external debt ballooning, and the only way to repay debt is by borrowing, is the US the ultimate Ponzi scam? Will Madoff cause further deleveraging, massive redemption and demise of hedge funds (Madoff effect)? The deferred payment scheme (DPS) will definitely create some fire sales in the property market. What kind of ripples will be sent down to our local stock market?

With a million uncertainties, it is still better to hold cash and invest when one is prepared to see paper losses of 30% or more. The risk is high, but it might take another 10 years to see another crisis. So, don’t rush into it but don’t waste it either.

Monday, December 15, 2008

IPPT and Investment

Yesterday I secured another 200 bucks for Christmas shopping as I obtained a silver award in IPPT (Individual Physical Proficiency Test). It was money well deserved! I had spent the past 4 months training 2.4km and chin ups. My training regimen was simple, running 4km thrice a week and doing chin ups or sit-ups after every run. There is no fanciful gym or treadmill training but just disciplined scheduled workouts at the stadium or jogging tracks.

In order for me to ensure I pass my IPPT, I “invested” in an electronic watch (costing $50). By spending money on the watch, I force myself to commit into taking my 2.4km timing thrice a week in order to “recoup” my investment.

What has this got to do with investment? Plenty!


During the 4 months of training, there are times I really felt like giving up. Running at 8pm isn’t exactly pleasant, especially after a long day’s work. However, the prospect of attending remedial training (2 weekdays evening and 1 weekend afternoon) was simply too daunting to any salaried worker. My work, leisure and social life would be terribly affected, not to mention my self confidence when entertaining questions such as “how come you cannot pass?”, “you mean you failed?” and other “friendly” comments.

Similarly in investment, our ultimate aim is to accumulate a comfortable buffer of assets so that we can do what we like eventually. The motivation to invest also stems from the daunting prospect of having to work till the very day you hit grave, isn’t it? I am sure you wouldn’t want to entertain queries like “how come you don’t want to retire?” and “You mean you still haven’t repaid your mortgage?”

We are effectively spending more time now to free up even more time in the future.


It took me 4 months to train effectively for IPPT. Initially, my 2.4km timings never went below 15 minutes for the first month. However, it did not deter me to give up. Usually, I will try to run as fast as possible for the first 2.4km, followed by a slow jog to complete the remaining 1.6km. I paced myself and listened to my body. Failing IPPT was the worst thing to happen, but if I had pushed myself to the extreme for faster results, I might have been dead. Hence, always strive to be in a manageable pace when pursuing your objective or you might end up being killed by it.

While saving for retirement, we often hear people taking unnecessary investment risks in derivatives (eg accumulators and warrants) or simply investing blindly (eg Lehman mini bonds and structured products). If you do not know where your money is going, you have lost pace of it. It is as dangerous as training without knowing where your body is heading.

The results can be disastrous.

Hence, do not be in a hurry to accumulate wealth and work 20 hours a day, losing your health in the process. Pace yourself, slowly but surely reaching your destination.


As I mentioned earlier, there were a lot of obstacles along the way to my silver award. There are times where I felt disillusioned that after 2 months of training, when my fastest 2.4km timing was still 14 minutes. If I were to miss training for a week, my timing will revert back to 15 minutes! I have to give up dinner meetings, favourite tv shows and eat sparingly to control my weight. Fast food, snacks and chocolates have to give way to IPPT training.

During my investment journey, I do have a fair share of obstacles. I do stumble upon the allure of luxury goods. I feel the “need” to have that “want”. There are times I would just want to break my bond, quit my job and pay a year of salary to my employer. The hottest stock in town has risen 500% in a week, I feel like buying it after it has corrected 20% (when eventually it will correct 90%). My colleagues change car so frequently that my trusty Japanese car seems to have more value if I trade it in with the antique shop.

The above obstacles will stray us away from the investment path and only by focusing on the original objective will we be guided back to the initial path.

Margin of safety

Eventually, I finished my 2.4km run in 11 minutes together with 10 chin ups. It was a far cry from my initial 16 minutes and 4 chin ups history. Nearing my IPPT date, I was pretty sure I can pass and possibly obtain a silver award. However, I continued to push myself, climb steps and increase my training hours, even though I can bag a silver award just by doing 7 chin ups and running 2.4km in 12.00 minutes.

However, I do not want to merely scrap through a silver but persevered to improve on a decent set of results. In fact, there was a rather heavy rain yesterday during the run. If I had not trained harder, I might have missed the silver award. Having a margin of safety here allows me to comfortably enjoy the IPPT process without fear of missing my target.

In investment, the margin of safety concept has been repeated so frequently that even the cows know it. Thus, I will not dwell on it here for now.


The rewards of meeting your objective are sometimes beyond your expectations. I am healthier, more confident (after losing weight), more discipline and basically a happier person after passing my IPPT.

If I were to meet my financial objective now, I am sure other non tangible rewards would follow. Perhaps I have more time to study, enhance family ties, exercise (even more), travel the world, volunteer and do stuffs that make me a happier person.

Who says IPPT and investment are different?

Thursday, December 11, 2008

Earn $20,000 monthly easily

Beware! If you believe my title, you might be the next victim.

Warren Buffet earns only US$100,000 (less than US$9,000 monthly) as a CEO in Berkshire Hathaway today.

His job is not easy.


AN UNEMPLOYED man who cheated four women he came to know on Internet chatlines of nearly $40,000 was jailed for 27 months on Wednesday.

Tan Sze Leong, 29, who pleaded guilty last Friday to seven of 19 charges, boasted that he came from a wealthy family, was living in Bukit Timah and had a personal driver.

Two of his victims, Ms Jiang Wei Yeow, 33, and Ms Ivy Teo Mei Ling, 35, were conned after he said he was looking for a personal assistant who would get $15,000 to $20,000 a month to run his errands.

But Tan said the personal assistant had to pay for his expenses first and be reimbursed later. They volunteered their services.

A district court heard that Ms Teo came to know Tan from the the internet chatline in February last year. He used nicknames 'wealthy guy' and 'rich guy' online and identified himself as 'Barry''.

About five months later after she had volunteered to be his personal assistant, Tan asked her to prepare $5,000 for his entertainment expenses for a client.

Ms Teo, believing that he was a rich man's son, borrowed the sum from her sister and handed the cash to him.

As for Ms Jiang, Tan told her over the 'Singapore 30 Plus'' chatline that he was looking for a personal assistant to run errands and provide sexual services.

He claimed that he ran a company and that the $20,000 monthly salary would be paid through his banker.

Ms Jiang was deceived into buying two Gucci bags, a Louis Vuitton handbag and 18 sets of mobile phones totalling $19,345 which were handed to Tan between June 15 and 17.
Tan gave the branded handbags to his girlfriend.

The other two victims, Ms Marina Wong May Li, 29, and Ms Bai Huiting, 19, were cheated of their mobile phone and laptop respectively. The items were recovered.

The ABCD of this story:

Apply common sense in life.

Be cautious of what others tell you and do not believe it wholesale.

Curb your greed.

Do not expect shortcut in life.

Monday, December 8, 2008


Reading is an enriching activity that can never be overdone. I always keep track of the books I have read in a word file to remind myself the need to increase the running numbers. Below are some books relevant to investment that I have read over the years:

1) Intelligent investor / Benjamin Graham, commentary by Jason Zweig

2) A random walk down wall street / Milkiel Burton

3) Show me the money. Volume 1, Practical readings for investors in Singapore / Teh Hooi Ling

4) Show me the money. Volume 2, Practical readings for investors in Singapore / Teh Hooi Ling

5) One up on wall street, how to use what you already know to make money in the market / Peter Lynch with John Rothchild. Peter Lynch

6) Your money and your brain: how the new science of neuroeconomics can help make you rich / Jason Zweig.

7) Technical analysis explained: the successful investor's guide to spotting investment trends and turning points / Martin J. Pring.

8) Secrets of millionare investors: how you can build a million-dollar net worth by investing in the stock markets / Adam Khoo & Conrad Alvin Lim.

9) Mind Set! / John Naisbitt.

10) The oil factor / Stephen Leeb

11) Who took my money / Kiyosaki, Robert T.

12) The essential Buffett / Robert G.Hagstrom

13) The philosophical investor / Curtis J. Montgomery

14) The prehistoric investor / Curtis J. Montgomery

15) The Ultimate Dividend Playbook / Josh Peters

16) The logic of life / Harford Tim

I seldom blog on investment books’ review as it is too subjective at times to objectively pen down my thoughts. After all, the wisdoms I extract from any book have to be complimented with my actual life experiences before it integrates and forms part of me. In a nutshell, how I perceive investment and life after digesting the books may only be relevant to I, me and myself only.

However, I have been reading lesser investment books these days and am spending more time catching up on current market affairs. Most of the investment books pretty converge to the same theme one way or another. The “trick” is to just package the ideas into different examples or personifications. Essentially, books on fundamental analysis cook the same broth for hungry value investors wannabes.

Following current affairs closely enable me to be forward looking and anticipate the trend ahead. Are we facing an energy crisis in the wake of tumbling oil prices? Or are we looking at a global depression that will wipe off massive wealth and bring banking to its basic mode? What will the world be in the next three to five years? What will be the next bubble? Finance, medical, education, sports and tourism hubs. Can Singapore be a hub of all trades? How can the skills I have be part of the evolving global shift? How do I stay relevant and what additional skills do I need? Is there a future to even stay here?? These are just some of the many questions that I have been querying over the past few months.

Anyhow, The Edge magazine is a comprehensive weekly summary of market updates and investment periodicals. However, the volume of contents can be rather heavy going and I rarely read everything. Usually the new issue gets pile up before I finish 80% of the previous issue. I do get fresh perspectives on the emerging trends every time I digest an issue.

On a daily basis, I usually finish reading ST Money Section within an hour (first thing in the morning) and will make an effort to read the online business times (free after 6pm) at night. The night reading rarely turns out well, as I often (and hate to) read and forget. I prefer to read, think and rethink. It gives reading the real meaning.

Nowadays, I rely on word of mouth for recommendation of good books. I am on the lookout for books that predict future trends. Do drop me a comment if you have such good books to recommend!

Saturday, December 6, 2008

Sky@Eleven: Possible defaults from deferred payment scheme (DPS)?

An international brokerage house recently reported that SPH may cut its dividend payout by 10 cents (or 36%) in 2009 as 100% of SPH property project, Sky@Eleven was sold 100% under deferred payment scheme.

This means that buyers typically put a 10%-20% down payment and would only seek bank funding nearing the TOP (end 2010) date. The average price sold during the launch was about $975. The highest price sold during the launch was $1,200 PSF. The project was sold out completely within 30 hours of the soft launch and the public weekend launch had to be cancelled immediately.

SPH would receive total revenue of more than $600M from the development and development costs would be within $200M.

A last check online showed that Sky@Eleven changed hands @ $900 PSF for a 2,713 sq feet unit. More than 90% of the units this year changed hands above $1,000 PSF, meaning if the seller was the 1st buyer, he would have still made money, up till Sept 08.

There is definitely cause for concerns as the last few transacted price can possibly be even lower than the initial launched price. If the market were to worsen further, we can even see the price falling below $800 PSF. This would mean that buyers who have bought Sky@Eleven (SE) at $1,000 PSF might simply realized a paper loss of 20% and forfeit their down payment. Afterall, they can purchase a new unit at a cheaper price immediately and property market might offer bigger bargains upon SE’s TOP.

Buyers who are reluctant to realized the paper loss may be forced to do so as banks would be valuing SE @ $800 PSF and would only be willing to grant a $640 PSF loan. The buyer might not be able or willing to cough up additional $160 PSF or $440,000 additional cash for a typical 2,713 sq feet unit.

What happens to SPH then? Is there any cause for alarm?

Personally I still feel that based on the last transacted price of $900 PSF, we should not be rushing to sell our SPH shares. Considering buyers who eventually default and forfeit their 20% (typical down payment) deposit, SPH can still price SE at $780 PSF and together with the earlier 20% deposit forfeited by buyers, they are still able to receive the same sales proceeds even after the buyers default. (Though there might not be ready buyers)

Alternatively, SPH can price SE at an even lower fire sale of $700 PSF to entice bargain hunters. The price would be a steal for a luxurious, district 11 freehold property. They would still be earning a cool $500M revenue from this project at this price, after adjusting for forfeited deposits (assuming 100% buyers default, 20% deposit forfeited and the project is sold 100% @ $700 PSF). They can also rent it out and wait for market recovery before selling it off above $800 PSF. The silver lining is that SPH core business is not property development and does not have other properties selling under DPS scheme. The land is freehold and construction costs are not highly leveraged.

Thus, SPH have a lot of flexibility to price and generate alternative income from this project, though I cannot say the same for other developers.

I have personally called and checked the selling price of a new property project, Lucida (2 Suffolk Road) today, which is located beside United Square. This freehold development by Novelty Group is selling its apartment at above $1,000 PSF. A 1066 sq ft 2-bed room unit is going for 1.2M.

The rental prospects of district 11 are still good, with the Novena medical centre and Singapore reputation as a medical hub. Hence I am still cautiously optimistic in SPH Sky@Eleven project.

I will be getting the 2 bedroom apartment at Lucida it if it falls to $650,000!

Sunday, November 30, 2008

Stock transactions and portfolio summary Nov 08










Singpost: $625(FY 08, quarterly dividends of 0.125 cents/share)




In Nov 08, I did not trade and only received $625 dividends from Singpost.

US rallied 7.7% and STI 6% for the past week making some to think that it may be the beginning of a bull rally. I personally think that fundamentals have gotten worse and it is still a tad too early to look for bargains.

I have been looking at REITs lately and found that at the peak of office rental this year, grade A office commands about $17 psf, compared to about $4 psf during the Sars period. The office rent has gone up more than 400% over the past 5 years. If we were to be pessimistic and factor in the over supply of office spaces, REITs have to fall another 40% from current levels to justify the expectations of rental fall.

I will be expected to exceed my monthly target of $1000 investment income upon receiving $9,310 SPH and $200 DBS dividends in Dec. I will give a brief summary of my realized gains in end Dec.

I have about $12,000 of free cash waiting for more opportunities to enter the market. As mentioned last month, my next entry point will be when STI is below 1400 points, while I conserve more cash.

Saturday, November 29, 2008


Today two Christians paid a random house visit to me, attempting to preach and convince me to accept God. We had a rather interesting discussion, as they provide me with evidence of God’s existence. I am no atheist and I keep an open mind to everything.

I remember asking several interesting questions like:

If on the basis that everything we see, hear and touch can justify the existence of God, then who created God?

Can a circular logic of “because there is A, thus there is God; because there is God, thus there is A” be logically consistent and acceptable?

There are many things that cannot be explained in science, but let me give you an analogy. If I have a time machine and I travel back to caveman era, living behind my torchlight, the caveman who finds my torchlight will think that God appeared and gave him portable light, as he cannot explain otherwise. The point is, the history of Science is less than 100 years. Things that cannot be explained now cannot be attributed conveniently to the existence of a supreme being.

Why is there suffering if there is God?

I was told that all the signs point to the fact that God will soon be coming to save his followers. However, we have seen countless signs (e.g., food shortage, wars, famine, natural disasters) during the history of mankind. I would prefer to extrapolate and perceive that such phases will pass and come again, without a saviour.

The Christians gave long and well structured answers to my queries. Though at times I cannot agree with them, I am not rejecting the existence of God altogether. There are things that really, cannot be explained using words, though at the moment I am happy to be without a religion.

I really admire these Christians who remained steadfast in their beliefs and knock very door to spread their faith. I may not agree with them totally, but they often touched me with their unwavering determination. Life is also about accepting and respecting differences too right?

As Albert Einstein had said, education is to fill an empty mind to an open one. I remain open to be convinced of all possibilities.

Thursday, November 27, 2008


What happens when you innovate and move out from your comfort zone?

Ikea: Competition with mail-order firms led to its first showroom. Boycotts by suppliers led to designing and building of house brand furniture. Problems with transportation? They came out with the flat pack concept. Lack of sales staff? The self-service concept was brought in.

Intel: Constantly innovating to encourage consumers to change computers. How? Intel makes its products twice as good by having the corporate target of doubling the speed of computer chips every two years.

Samsung: 40% of its employees are employed by R&D, looking for the next breakthrough. Deadlines are never changed, design teams volunteer to live and work 24/7 in their Innovation Centre. Perfection is pursued until results delivered. No wonder Samsung has over 1,600 patents each year, the industry’s lowest costs, highest profits and weekly announcements of the “world’s first” or “world’s best”.

What happens when you do not innovate and stay in your comfort zone?

GM, Ford, Chrysler: Renowned for building fuel-thirsty SUVs in a high fuel cost climate. Little efforts were made in developing fuel economy engines. They did not come together to stop unions from setting the minimum US$70 hourly wage. They waited for crisis to appear and sought help very much later, in their private jets. Their fate and 10% of US employees are extremely bleak due to lack of foresight and innovation by the management team.

Creative: Did not come out with innovative products after its legendary soundcard. Unable to compete with Apple in the MP 3 market due to its outdated and clumsy product design.

OSIM: Similar fate as Creative, except that it has to contest a lot of cheaper imitations which produce equally good health products. Moreover, massage chairs have lost its appeal as the initial allure of it fades.

Companies attempting to innovate:

SPH: Spent large amount of money to integrate its print media with the virtual media platform. Initiatives include: Classifieds portal ST 701, search engine rednano, Razor TV, STOMP, OMY and has hardware zone as its subsidiary. Bought over to enhance its reach to investors and compliment its business times online. It diversified into property development instead of simply selling its freehold land to developers.

Singpost: Started to leverage on its extensive network to provide pawn, remittance, financial, loans and insurance services. It has recently started offering child care, restaurants and retail services in its larger branches. Mail services are innovated to cater to different consumers’ needs.


It is definitely costly and risky to innovate. SPH went through an extremely rough patch when it tried to take on Mediacorp in the TV market. However, the failure did not stop them from innovating and keep in tandem with the changing market. Instead, they went on and diversified continually from their core operations and have never looked back. Failure to innovate will likely to result in eventual closure of a company. GM, Ford have more than 100 years of operating history; Creative and Chartered shares cost the sky, years ago, yet these companies are brought down to their knees because of their stale products.

So you see, innovate!

Sunday, November 23, 2008

Fortune Telling Part 2 (Final)

Part 2 is rather short as the FT basically summarises my fortune within each 5 year intervals in my life, from one year old onwards.

To my surprise, he had accurately (80%) predicted the ups and downs of my life from one till twenty nine. He can even recite the problems I have with my boss and aware that I am under tremendous stress this year. Words of comfort were given and he assured that life will be much better next year. (Probably those who seek fortune tellers are entering rough patches!)

My worst year in my life will be in 2012, year of Dragon. I need to see him for consultation to “pu3 gua4” on how to advert the crisis. In fact, for the next 10 years from 2012, I will be entering an extended rough patch. I must not be involved in dangerous occupations and be extremely careful. Good fortune will only resume in 2023.

How much do I believe in the $50 fortune telling? I must say I am sitting on the fence. My teacher definitely does not know anything about my life and work problems hence prior “information leakage” is unlikely.

If the fortune teller is just guessing, the odds are high against him to be precise in his predictions.

Anyhow, I believe that my life and fate is in my hands. As long as I exercise regularly, stay healthy, be optimistic and happy, I am sure I can triumph over whatever challenges that confront me.

I choose how to live life and not submit to destiny!

Wednesday, November 19, 2008

Fortune Telling Part 1

I went for fortune telling yesterday, after some persuasion from my aunt. My ex-teacher happened to be the son-in-law of a fortune teller and after listening several times of his FIL’s outstanding predictions, I decided to seek advice after years of procrastination.

It sounds unbelievable but I still went ahead as I am curious to know what my future holds.

The fortune teller (FT) started by asking my date and time of birth. Then he went on to give advice:

He admitted frankly that my life is rather weak. Based on my 8 characters, I belonged to the fire element. However, I have an overwhelming water and gold element which is detrimental to my well-being. Gold grows water and water destroys fire. He went on to give specific advice to different aspects of my life:

Career: As I belong to the fire element, I should be doing work they revolves around wood (W) and fire (F) elemental. This includes: furniture business (W), music instruments (W), book keeping(W); restaurateur (F), computer based work (F), police and army officers (F), electrical engineering (F). I should avoid being a fireman, coffeeshop owner or be involved in water and steel related industries such as sailor or rigs building.

He has advised me to change my current job even though it belongs to the wood element, as it requires expending tremendous “chi” in the process which is detrimental to my health.

Family: As for my family, he is not exactly accurate on this aspect but the takeaway advice is to listen to my mother.

Money: This is the least accurate aspect. He said that I am destined to have a lot of money but I will also spend it rather quickly perhaps on unnecessary items. This is probably because money comes easily for me. I did not rebuke him directly, but I did spend a lot of money trying to make more money with little results though! He did ask me to be thriftier.

Considering my spending habits, I do think I am either a saver or miser! Who is still using a 2001 Acer computer these days? My monitor was borrowed and subsequent given for free by my friend after the old one broke down after 5 years.

Here is a glimpse of my monthly expenses:

Hence, perhaps he meant that I should spend less on investment!

Marriage: As I have a lot of gold element in my life, I should have a lot of wives if I were born in the olden times. However, this doesn’t bode well for a modern person. I do not know how to cherish woman and will usually end up liking someone else in the end.

His prediction is rather accurate here as I shared my love history with him. He advised me to get married the year after as my Ms Right will appear next year. I must control my behaviour or I will be involved in extra marital affairs.

Health: According to my 8 characters, I should be careful of strenuous exercises as it affects the heart (fire element). The most attention I should pay to is my blood, kidney and bladder which all belong to my nemesis element—Water.

Colours: My lucky colours are green (W) and red (F). I should avoid white (gold), black (water) and blue (water).

There is a lot of advice that I can’t crystallize and put them into words at the moment.

Will try to pen down part 2 when I have time.

Sunday, November 9, 2008

Carrying $70,000 spare cash daily

I always have friends commenting on carrying around a thick wallet which looks rather sloppy and uncool. Today as I was sorting out my wallet, I was appalled by the excess items I was carrying. The majority was credit cards.

As you can see, I have too many credit cards! Assuming an average of $8,000 credit limit from each bank, I effectively bring more than $70,000 out everyday! If I were to lose my wallet, I may have to write down this loss if all cards were max out to the credit limit.


Why do I need so many credit cards? Most were applied out of fun and freebies. They do not serve much use nor do I use them to obtain credit. I generally only use the Citibank dividend card for most of my purchases and would only use other banks’ credit cards when there is a special tie up with other retail shops.

The other cards in my wallet include:


Popular card

ATM card

EZ Link

Passion Card (to earn link points)

I have decided to just keep 2 credit cards in my wallet for security purposes.

PS: As I do not have a digital camera, the above picture was taken by my trusty 2 mega pixels nokia camera phone. Apologies for the “poor” shot! (double entendre intended)

Monday, October 27, 2008

Thoughts on recent stock plunge

Stock markets are suffering due to large institutions and hedge funds redemptions from the western countries. The selling originates from financial institutions who want to shore up their balance sheets and cope with redemptions from investors. These firms have massive CDOs that have no market value (no secondary market to trade) and hence, they can only sell other liquid assets such as gold, silver, commodities, stocks, currencies and bonds.

This really explains why even gold and bonds are taking a harsh beating when these safe heavens should theoretically be inversely related to stocks movements.

We also know that hedge funds are de-leveraging by selling assets to pay Japanese banks in YEN. They have previously borrowed YEN as it has very low interest rates and invested in high yielding assets such as Aussie and Kiwi dollars. Stocks and bonds are also not spared in the massive de-leveraging exercise.

Due to the sudden market plunge, many retail investors are forced to sell their holdings in panic and fear. I just checked with my broker and he lamented that many of his clients have sold everything they have and do not wish to visit the market until things “brighten up”. This worldwide phenomenon has toppled the stock prices even lower affecting the confidence of all investors.

Confidence is a powerful emotion that can actualise a self-fulfilling prophecy. For instance, if everyone feels confident that the economy will be good and prosperous, many will start to spend, take up loans and splurge on luxuries. This will translate to higher consumption and GDP growth. The reverse will be true when people start to feel down and stop spending.

As we can see, the above has little to do with the fundamentals of the stock. For instance, DBS earned $2B net profits last year and its share price has retreated by more than 50%. Is the market expecting DBS to have a 50% drop in its net profit next year? The $80M compensation to High Notes investors is less than 10% of its FY 07 earnings.

Keppel Corp has reported higher 3Q (YOY) earnings and FY 08 earnings are likely to be close or higher than last year record $1B net profits. Yet its share prices have come down by 70% this year. Again, this is irrational.

Hence, for investors who are contemplating to sell, I would advise you not to or you are joining the ranks of irrationalism.

How long the selling will last is anybody’s guess. STI seems likely to retract towards 1000 points before the carnage will stop (my guess). In my opinion, it seems to be an opportunity of a lifetime to accumulate excellent blue chips and hold for the long term. How many times in our life can we invest when STI hits 1000 points? It may be the one and only time!

Currently, I save about 50% of my take home pay and save the rest. I do not spend a lot mainly because my hobbies and lifestyle (jogging, reading, playing bridge, watching DVDs and cable tv, Starbucks green tea, weekly restaurants visits with friends etc) are modest and cheap.

I also do not have loans commitment nor marriage plans within the next 3 years. At my current rate of expenditure, I can continue to lead a modest lifestyle while saving for retirement. In fact, I am willing to take a 50% pay cut when I begin a new career next year. I do hope I can continue to save at least 20% of my pay to plan for retirement then.

In case nobody wants sgbluechip as an employee, I guess I will also have to prepare being stuck in my current job until the economy turns for the better. I do hope it will not happen though!

Saturday, October 18, 2008

Fine Singtel

I am rather disappointed by Singtel’s efficiency in slapping late payment fines of $0.50 lately.

Sometimes when I am just behind a month’s payment due date, I would receive a reminder, and my next bill will have an additional $0.50 postage and handling charge for their reminder.

This has occurred several times.

I am a long time subscriber of Singtel services which include landline, broadband before replacing my pager and dial up services.

I also subscribe to Starhub and M1 services. However, I have never received fines from them for being late in payments. Starhub would send me a letter telling me that they understand my busy schedule and are gracious to wait patiently for my next payment.

Of course sometimes I take advantage of that and accumulate months of bills before paying all at one go.

I think it is a nice gesture to allow subscribers more time to pay. Slapping fines to increase revenue and shareholder value is a penny cheapskate, pounds idiotic strategy.

I will be renting the new hubstation to utilise the free internet when my broadband contract for Singtel ends this Dec. After all, it only costs an additional $4/month on top of the usual digital set up box subscription. I get to “watch, surf and play” as well.

Of course, I will be terminating my landline as well.

There will be a $30 monthly savings on my telecommunications costs.

To Singtel:

Nevermind I did not qualify for the red rewards points as my bills do not amount to $100 per month.

Nevermind I did not redeem a single free gift from since 1996 while M1 and Starhub has given me countless movie tickets and Caller ID waivers.

Nevermind I stayed as a loyal customer all these years and never default on any payments.

Nevermind your hotlines are always busy and customer service tellers are often hard to reach.

Nevermind your efficiency in slapping postage and handling fees on us.

Nevermind you lose a customer like me.

Tuesday, October 14, 2008

Good business!

I thought for fun the “recession friendly” businesses that can profit from our current technical recession. I have come up with of a few:

Hawker food

Less people are patronizing the restaurants as we tighten our belts. Hence, hawker fare will appeal to more people. At least we do not have to pay GST, service charge in exchange for poor service and mediocre food.


I will not be surprise if Singpost come out with a better set of quarterly results as we all know that pawnshop business has a negative correlation with the economy. More people are pawning their valuables for short term loans.

Psychiatrist Clinics

As we feel the heat of the recession, many people will be losing sleep over their devalued stocks, impending pay cuts and retrenchments, pushing some to the abyss of depression.
Psychiatrists might possibly profit from higher help seekers.

2nd hand businesses

As reported in the news, some people are selling their cars at fire sale to 2nd hand car dealers. This will translate to lower prices of cars. In general, for middleman buying and selling 2nd hand goods, I believe they are in for a bumper year.

Education industry

As people get retrenched and are unable to find jobs at the moment, many will go back to school to upgrade themselves while getting ready for the economy to recover. Some people will go ahead with courses to stay relevant in their industry and prove their relative higher value to the management to avoid the axe.

Safe box manufacturers

As we know, credit is tightening for all as banks do not trust each other as much as before. There might be a bank collapse while I am blogging this article. Hence, safe boxes will be in demand as people buy to keep their cash/gold at home, safe from banks and full time robbers.

I do hope there is no increase in demand for MRT cleaners to clean the bloody tracks though!

Friday, October 10, 2008

100% guarantee on deposits?

Many financial advisors and investors have advocated MAS providing a guarantee on Singaporeans’ bank deposits. Currently only the first $20,000 is recoverable in the event of a bank failure.

Actually, I do not think it is a prudent move for banks to insure 100% of deposits.

Firstly, it will bring about a huge influx of cash into Singapore from other countries. Singapore banks will be seen as safe heavens for cash. This would ultimately increase demand for Singapore dollar and Singapore exports will suffer. GDP will go down even more as we lose our competitiveness. Do not forget Singapore is an export oriented economy.

Secondly, it will discourage people to invest. Many would believe money in the bank is even safer than keeping it under the pillow since it is 100% guaranteed. This does not bode well for the local equities market and for risk adverse investors. Remember, your deposits will definitely be eroded by inflation, slowly but surely.

Thirdly, it is not cost effective. The depositors will ultimately pay for the insurance. It may be in the form of service charges, lesser interest or just an insurance fee.

Fourth, it might encourage irresponsible lending since the risk of defaulting on its bank deposits is borne by third party. Imagine that I borrow money from A and if I do not pay A, B (insurer) will have to pay. Would I exercise necessary prudence to return money to A? Am 1 less likely or more likely to take on more risk? Answer is clear.

Lastly, we are already compensated to deposit money in the bank through the interest payable to us. The risk of default is small, which explains the low interest rate on our deposits in the first place!

I feel that bank should offer an optional insurance scheme to those who wants to seek a 100% guarantee on his/her deposits. The premium can be 0.1% (per annum) of amount insured. This would save all the debate going on. Of course the insurer can be anyone but the bank itself!

SPH FY 08 Results

SPH has declared a final year tax exempt dividend of 19 cents per share, a notable feat in current financial turmoil.

It has reported a set of decent results:

Revenue had exceeded $1.3 billion, a record high.

Operating profit grew 17.5 per cent to $502 million.

Due to a 67.3% dip in investment income together with an impairment charge for SPH’s investments in associates, net profit decreased 12.4% to S$437 million.

It is worth noting that the dividends paid out will be tax exempt, compared to the usual 18% company tax the previous year. As such, dividend payout actually increased by more than 1 cent this year.

I have adjusted my expectations of dividend cut for FY 09. However, it is likely SPH will at least retain its 27 cents dividend payout for FY 09.

At last traded price of $3.5, the yield is 7.71%.

Take note that SPH has increased its dividend payout for 5 consecutive years. If the economy worsens, government might even cut corporate taxes to support the economy. However, I am not betting on our government to help, but newspapers being a near staple necessity will continue to earn a decent recurring income for FY 09.

Sky@eleven will continue to recognise income till 2010 and there should be larger amount of profit recognition in FY 2009.

SPH has a quick ratio of 3, a rather healthy debt ratio especially when credit is tight now.

Going forward, I will continue to hold on my 49 lots of SPH dearly and reinvest the dividends received.

For those who have sold down the stock due to fear and panic, I think it is rather overdone.

For those who have bought more SPH today, congrats! The dividend payout is likely to give you a great Christmas! I am unable to join you as my cash at hand is too tight!

SPH will XD on 09/12/2008, the dividend will be paid on 23/12/2008 (eve of Christmas Eve).

Wednesday, October 8, 2008

Where to put our money?

One Singapore dollar to 1.02 Aussie dollars. This rate has never been seen for years!

Today I quickly sms my friends and asked them if they would like to go Australia in Dec, in time for their summer farm stay. Of course, the rates were the highlights. After I sold my Aussie dollars at $1.29 last year, Aussie has been coming down especially after the recent 100bps rate cut.

The fall in commodities prices and unwinding of YEN carry trade has brought down major currencies and indices to their multiyear lows.

Indeed, nothing is safe other than gold these days. Putting our money in Singapore dollars deposit will yield nothing more than 1.8% even if you are depositing a million dollars in UOB million dollar deposit promotion.

Of course, the personal banker might sell you something that yields more, but at current market and prevalent fear, no one would dare take it.

Most would rather suffer a real loss of 5% after adjusting for inflation.

Mr. Oei Hong Leong estimated that market would go down even more, as it is the end of the beginning. He recently made headlines buying AIG at rock bottom and selling for a $7 million dollars profit, before donating it.

Fear is clearly prevalent in the market, everybody is anticipating the market to go down further. However, today, I bought 5 lots of STI ETF (CPF) when STI nearly reach 2000 points. Although 90% of the investors are probably selling, I do know that like all crises, this one will eventually be resolved and the bull run will resume.

Human greed is never ending, there will be more market run up and crashes to come.

Do not despair. Rather, find the courage to be greedy now.

Friday, September 26, 2008

SPH updates

SPH will be reporting its FY 08 results on 10 Oct Friday. I do hope they will declare a decent amount of dividends to i) support its declining share price for the next 2 months; ii) earn myself a nice bonus when it is paid out in December. Currently, I have 49 lots of SPH in my portfolio.

It will not be true to say that there will be lesser dividend this year (FY 08) as SPH would need to conserve more cash for building the Next Generation Network (NGN). This is because SPH was only awarded the project yesterday and it is unlikely to hold back dividends to anticipate the award of this project.

SPH’s SGX announcement was as follows:

The project will be funded by a combination of shareholders’ equity, government grant, operating cashflow and external funding. OpenNet forecasts its shareholder investment requirements to be in the range of S$120 million to S$160 million, which will be required during the construction and commissioning phase. SPH’s share will range from S$30 million to S$40 million.

According to the press release, it will cost at least $2B to build the network.

Assuming government grant’s of $700M, SPH’s 25% stake will require it to come out with at least $325M over 4 years.

A last check on SPH’s 3Q 08 financial statements, there is about $216M of free cash sitting in the bank accounts. The current liabilities are only $333M VS the current assets of $1B.

The quick ratio stands at a healthy 3.07.

I do not foresee SPH issuing rights to fund the NGN. There might be a lower dividend payout from 2010 onwards as SKY ELEVEN will stop contributing profits when it is completed in end-2009 and management conserve cash to fund NGN. The prospects of bumper dividends in 2009 will also be dimmer upon the final completion of SKY ELEVEN.

However, I do see that SPH’s share in broadband business is a good strategy to tap on the expertise of Singtel networks and earn itself a perpetual cash cow. Do not forget, the profit margins of broadband business hovers between 25%-35%. With SPH’s stake of 13.97% in M1, it can be assured a steady income from the communications sector, almost a recession proof business.

Starhub’s position as the highest speed provider in broadband will be challenged. It might have to end up leasing the networks from Open Net.

The NGN will also aid SPH aggressive marketing efforts into virtual advertising and information network to compliment its newspapers and magazines.

Back to its dividend payout this year, I do hope to receive at least 16 cents per share or $7840 tax exempt dividend from SPH in Dec. Anything lesser than that will likely to cause its share price to plummet below $3.60 when it goes XD in Dec.

Good luck to all vested!

Sunday, September 21, 2008

Have you bought Lehman Mini Bonds and DBS High Notes?

Today’s Sunday Times ran a feature on the credit crisis, summarizing the events that had unfolded over the year, particularly the market crash and spectacular recovery this week.

I was particularly interested on a small column that reported the loss by many investors who were market DBS High Notes as an alternative fixed deposit (FD) by personal bankers and relationship managers.

Many, enticed by the high coupon payout structure of the investment have invested between $50,000 to $125,000.

It was the same case for Lehman Mini Bonds, marketed by foreign banks.

These structured deposits are likely to pay nothing to investors even if they were to be held till maturity.

Many blamed the bankers for marketing such “high risk” products to low risk threshold investors when many wanted just plain vanilla FDs in the first place!

Yesterday, I met up with a few bankers and enquired the status of the structured deposits. I confidently told them that Lehman mini bonds investors should get back some money as bondholders have priority claim on assets as compared to ordinary and preference shareholders when a company goes belly up.

Below are their replies:

Banker A: Huh, is it? Bondsholders have higher priority to claim debts?

Me: Yup, if not a bond is not a bond when it carries a higher risk exposure to ordinary shareholders and receiving lesser dividend (coupon) payout.

Banker A: Oh I see.

Banker B: Actually I do not think those who invested in mini bonds will get anything back afterall.

Me: How come? Lehman has sold its assets and surely it can receive something back to pay back bondholders right?

Banker B: Mini bonds are not bonds lah. It is just a marketing name for the structured product. We can call it super bonds, high yield saver, or golden bonds. But the underlying product is very complex one. I also don’t know what it is. We just market it when conservative people who want to put FDs walk in and don’t want to invest in unit trusts or equity link notes.

Me: What?! You mean the banks sell bonds that are not bonds and fooling people it is as safe as bonds?

Banker C: Their bank not that bad, sell until mini bond series 2 only. Mine sell till series 8!

Me: So are your sales affected?

Banker A, B, C: Actually it is business as usual. We just concentrate on insurance now. Long term investment mah. But we do not sell UTs or structured products anymore. Currencies market are more welcome by investors also. We have got many products to market.

From the above conversation, I feel that the local bankers have really poor knowledge of simple finance. They do not even know the difference between bonds and shares to begin with. How do you expect them to sell complex products in the first place? And mind you, these banker friends have been in the industry for 2-3 years!

If I am not wrong, DBS High Notes and mini bonds have invested in different underlying assets through options. Derivatives are highly volatile investment instruments and always leveraged to create higher returns (and risk).

Such sophisticated instruments are definitely not suitable for a retiree or a housewife who might not even know how to open a securities account. Derivatives are zero sum games, where one gain’s is due to another’s loss.

Sometimes, these structured deposits are marketed with shopping vouchers and labeled as capital protection products.

However, capital protection does not share the same status as capital guaranteed products. Only the latter has an insurance bought by the bank from a third party to insure the investors’ invested amount.

Should the bankers be blamed?

In a way the bankers are doing their jobs to market aggressively the banks’ products, bringing revenue for their company. Regardless whether they are paid a handsome commission, they are obligated to market the products by the bank. If they are not paid a single cent of commission, but just a salaried worker, should they still be blamed?

There are accusations that the bankers are not doing their jobs and are guilty of mis-selling.

Actually, I feel the banks are the one that should be fully responsible. They should have a system to educate the bankers. Sales should not be commission based as it would lead to unethical selling. Bankers have heavy responsibility. Pay them well so that they can have a high level of integrity. There should be other KPIs to assess them instead of sales figures. They should really be well versed in finance and not just salesmen trying to exceed sales quota.

However, the investors should also share the blame, in my opinion. How can they invest in something that they do not understand?

A coupon rate of 5% is rather high and there should be a fair amount of risk that comes along.

Investors should seek to understand the kind of risks involved before buying any investment products. There are always risks involved. Even FDs have risk. If the banks in Singapore collapse, only the first $20,000 is insured. You can lose the rest.

We can summarise several lessons for the low risk investor:

Do not believe what the banker says at face value. Question him thoroughly. Ask him questions like: What is the risk involved? If he says there is no risk, only gain, leave. All financial products and investment comes with risk.

Ask the banker to explain how the products work exactly. Ask him if there are derivatives or options involved in the product. If there is, leave. Derivatives are only for sophisticated investors.

Do not be enticed by high coupon payout products. The higher the payout, the higher the risk involved. The high coupon payout is commonly known as the risk premium. As the term suggest, you will have to take a lot of risk to earn higher (risk) premium (interest).

Do not buy a structured product because it is the bank’s flavour/theme of the month.

Do not buy a product because there are free gifts. You are actually the one paying for the free gifts from the sales charge.

Do not buy anything you do not understand! Will you buy a washing machine that is so complex that neither you nor the salesman knows how to operate?

Financial literacy is everyone’s responsibility. Pointing fingers at people when things turn sour will not change things. After a few years, you will still make the same mistake. Take charge of your own finances and be accountable for your own investments. If there is anyone to blame, we can only blame ourselves to be too gullible!

Thursday, September 18, 2008

Preparing the worst outcome for my portfolio

I have invested almost all my available cash into the Singapore stock market. As regular readers know, my investment strategy is mainly income investing, with preference to low volatility stocks as main components of my portfolio.

When I purchase stocks, I try to ensure that the dividend yield is at least 6%.

How much risk threshold am I looking at? Is my current portfolio aligned to my risk tolerance?

If I were to say that I feel absolutely nothing to the current market and whistling everywhere I go, I am lying!

The market is indeed worrying!

However, I am prepared to reduce my expectations of dividend yield from my entire portfolio to 3% PA.

This means that from my $300,000 portfolio, I expect my total yearly cashflow to go as low as $9,000 or $750 monthly.

The initial target was $18,000 or $1,500 monthly.

After reducing my expectations, I heave a sigh of relief. I am sure $9,000 a year is still decent dividend payout, compared to leaving money in the bank.

If the market does recover, I will be looking at 10% gains or more.

Meanwhile, I will continue to invest my dividends and free cash back into the market whenever possible.

It is time to avoid timing the market!

I will only subscribe to one belief now: 手中有股心中无股! (Stocks at hand but stockless at heart!)

Monday, September 15, 2008

Quick updates

I have bought Keppel Corp @ $9.28 a fortnight ago (cash) and 4 lots of STI ETF (CPF) @ $2.58 today.

Will the market go further breaching the 2400 mark and go all the way down to 1800 points?

Possibly so.

But I will continue to invest whenever I have cash to dollar cost average and will hold my stocks dearly till the next Bull Run comes.

I do hope SPH will fall below $3.96 for me to pick up more! I intend to sell all my holdings for a modest profit in Dec and cherry pick battered blue chips then! If not I will be happy to receive a decent dividend payout which would enable me to have an added year end bonus too.

Friday, September 12, 2008

SMRT: Over Priced!

SMRT has gone up roughly 10% for the past month due to the transport fare hike revision. This is exceptional performance considering the STI has retreated about 10% for the same period. If we were in the midst of a bull market, SMRT will likely to rise at least 20%.

However, is SMRT’s share price rise sustainable and justified?

I do not think so. Hence I will be plucking some exaggerated numbers to show that its share price command an unhealthy premium over other stocks.

Today’s papers showed that SMRT and SBS will likely to gain an additional $10.1M in fares from the hike.

How does it affect shareholders and how much net profit will SMRT be able to extract from the increase in fares?

SMRT’s turnover last year was $802M, with a net profit of $150M or a profit margin of 18.9%.

EPS was $0.099 and at Friday’s closing price of $2, PE is at 20.2

If SMRT and SBS were to share the $10.1M on a 70-30 basis (biased towards SMRT), SMRT will be able to gain $7M in fares.

I am assuming that the $7M is additional free money and that SMRT does not need to incur cost to earn it (which is unlikely and exaggerated).

SMRT reported a rise in ridership and retail income. This is likely to translate higher profit levels. I am assuming a (exaggerated) 20% increase in net profit with reference from FY 07.

SMRT net profits for FY 08: $150M+ 20%($150M)+$7M= $187M

The actual amount will be lesser as SMRT has already reported 1 quarter of earnings and the fare revisions will only kick in on 1 Oct.

EPS will be $0.124, PE will be 16 even with the above biased favouring towards SMRT.

Though SMRT is a recession proof business, at current bear market, its forward PE ratio of 16 is far too high and demanding. The paltry dividend yield of 4% does not make this stock attractive in anyone’s portfolio too. This is despite the fact that the dividend payout ratio is 80%.

In actual fact, I think SMRT has a forward PE of at least 18.

I believe the current price of SMRT is too high. I would prefer to invest in SMRT if it falls to $1.40 and below, rising its dividend yield to 6% and above.

It is afterall a good business to own. Your colleagues will be contributing to your semi-annual dividends everyday when they pay to be squeezed like sardines on their way to work daily.

Thursday, September 11, 2008

Stop Worrying, and Learn to Love the Bear By Jason Zweig

WallStreet Journal

When you bought into the gospel of "stocks for the long run," did you have any idea how long the long run can turn out to be? Exactly 10 years ago, the Standard & Poor's 500-stock Index was at 1164; it closed Friday at 1239. That's an annualized average return of 0.63%. At that rate, it will take you 111 more years to double your money in the stock market.

Meanwhile, this newspaper, and most of Wall Street, has declared that stocks have officially entered a bear market now that the Dow Jones Industrial Average is 20% below its record high of last October. I think that's poppycock. We've been in a bear market for years; the Dow was almost 600 points higher in early 2000 than it is today. What about that 10% yearly return that U.S. stocks supposedly provide with near-certainty? To earn a 10% long-term return, according to Morningstar, you need to have bought at least 19 years ago and held on ever since.

Could things possibly get worse? I don't know, but I am an optimist -- so I certainly hope things do get worse. Nothing else should satisfy an intelligent investor.

This May, at the annual meeting, boiled down what it means to be an intelligent investor into two startling sentences: "If a stock [I own] goes down 50%, I'd look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month." Knowing he owns good businesses, Mr. Buffett wants prices to go down, not up, so he can buy even more shares more cheaply before the bounce back.

In the last long bear market, 1969 to 1982, stocks returned just 5.6% annually; after inflation, investors lost more than 2% a year. That mauling by the bear made stocks so inexpensive that over the ensuing 18 years they went up 18.5% a year, enough to turn $10,000 into more than $200,000.

The people who so far this year have yanked $39 billion out of U.S. stock funds, and $6 billion out of exchange-traded stock funds, do not understand this. But if you are still in your saving and investing years, a bear market is a gift from the financial gods -- and the longer it lasts, the better off you will be. Instead of running from the bear, you should embrace him.

This new column takes its name from the classic book by Benjamin Graham, who wrote that "the investor's chief problem -- and even his worst enemy -- is likely to be himself." I hope to help you understand the chaotic markets around you, and the even more treacherous enemy within. For, as Mr. Buffett has also pointed out, investing is much like dieting: It is simple, but not easy. Everyone knows what it takes to lose weight. (Eat less, exercise more.) Nothing could be simpler, but few things are harder in a world full of chocolate cake and Cheetos.

Likewise, investing is simple: Diversify, buy and hold, keep costs low. But simple isn't easy in a market seething with "free" online trades, funds that promise to transform losses into gains, and TV pundits who shriek out trading advice as if their underpants were on fire. The real secret to being, or becoming, an intelligent investor is bolstering your self-control.

So, in these columns, I will seek to combine the wisdom we can glean from Graham with the latest insights from psychology, neuroscience and behavioral economics. The result, I hope, will be practical advice that can increase your odds of reaching your financial goals.

For now, bear this in mind: That which does not kill investors makes them stronger. Physiologists have shown that minuscule doses of poison may actually make organisms (including humans) healthier, a phenomenon called hormesis. I do not recommend seasoning your food with cyanide.

But the findings on hormesis do remind us that painstaking investors -- literally, those who can take the pain of a bear market that seems to drop another 1% every day -- will ultimately triumph, by patiently amassing greater and greater equity positions at better and better prices. The ancient King Mithridates of Pontus is said to have made himself immune to poison in constant gradual doses, a tale retold by the poet A.E. Housman:

They put arsenic in his meat And stared aghast to watch him eat; They poured strychnine in his cup And shook to see him drink it up.... I tell the tale that I heard told. Mithridates, he died old.
Sgbluechip says: I think the worst thing to do now is to sell away your holdings. The lower it goes, the nearer we are to the bottom.


My observation on people around me is that people are no longer talking about stocks. In fact, I seldom see my colleagues checking the stock market anymore!

Usually these are the first signs of market bottoming.

Many people are anticipating the market to come down even further. When it does, people will think that they are lucky to have avoided the market.

When there is a mini rally, people will think that it is a bear rally.

“It will fall further.”

And usually, it really does fall further.

Again, it makes people feel that they are right not to buy.

It will go up and down until a point where even the most bullish person turns bearish.

“Bear rally again.”

Finally, it will start a real rally.

Some corrections will occur to consolidate the market once in a while.

Many people will feel it is still the bear rally and avoid the market.

Then, when the market approaches to higher levels, new investors start to come in, pushing the market to an even higher level.

Before we know it, the market reaches a new high.

“It will go up further.”

And it really went up further.

Then, people started to sell and lock in profits.

The market corrects a little and goes up higher, reaching new highs.

The same people who sold start to buy again, fuelling the bubble.

Finally, the bubble bursts and we are back to the bear market, like now.

Tuesday, September 2, 2008

Some thoughts on Oil prices

Since the beginning of the decline of oil prices, commodity prices have been on the downtrend as well. Even the “commodity currencies” NZ dollars and Aussie wasn’t spared. It now seems apparent now that there was no real demand for oil afterall. Those “experts” who have predicted that oil prices will reach US$200 by year end are probably the same people who have speculated on oil futures, at the expense of world economy.

The worst hits were probably airline stocks, many even incurring real losses, compliments from the oil speculators.

I remember discussing with some investors (colleagues) that the oil bubble will not last, last year. I was saying that there are plenty of alternative energy available as substitutes. For instance, solar energy, hydro energy, palm oil, coal, nuclear fusion and fission, wind energy, natural gas etc, just to name a few. If oil prices were to really run up to an unsustainable point, all countries will cut back on energy consumption and rely on alternative energies instead.

I also pointed out that if US (world largest consumption of oil) were to enter a recession (quite likely last year), it will cut back on energy consumption and thus reducing real oil demand. In fact, Warren Buffet has remarked that US was already in recession at that point of time but it was not reflected in GDP because of an increased in US population. Americans are actually worse off by the day.

Also, it does not seem logical that with global economy slowing down, oil prices are doubling at the same time. It is making a mockery out of the basic supply and demand theory.

Even MM Lee came forward and attempted to prick the oil bubble by “predicting” that oil will never exceed US$120. Before we know it, oil went past the US$120 mark and peaked at $148 before its descent. He also did not gain much market support when he wrote on the Asia decoupling theory in Business Times few months back.

Of course I was proved wrong again and again for months, until it seems that oil prices will never come down. Demand seems real. Even I begin questioning my contrasting perspective of steep and speculative uptrend of oil prices.

The oil experts argued that there have been no major oil fields discovered for the past 50 years and the cost of extracting alternative energy will take more time to curb the current energy demand. Besides, India and China accelerated growth will only increase oil demand and prices.

Suddenly, many papers were written by experts to “explain” why oil can only go up.

“Experts” wrote with great zeal on investment strategies to ride the oil boom. SPC went up to $9 (last traded at $5.30); Wilmar went up to $5.70 (last traded $3.68); Golden Agriculture went up to $1.15 (last traded $0.595), while SIA plunged from $20 to $13.80. Not many (myself included) ever dared to buy for its hefty $0.80 dividends when it was trading at $14.

Now, the “experts” are predicting that oil will drop below $80. Have they sold put options this time to ride the oil decline?

I believe oil will resume its uptrend for sure. There is no doubt about it if we look at the 50 year chart. With limited supply and unlimited demand, we should be prepared for high oil prices. However, for oil to double its price within 1 year can only be due to speculation. A more reasonable uptrend of oil price will be 10% per annum, in my opinion.

I do hope the experts are right this time as the stock markets will probably soar if oil prices fall below US$100.

It may be a good time to pick up some gold if it really falls below US$80 as well.

Saturday, August 30, 2008

My 50% loss

Readers will noticed that I have updated a silly investment (SAIZEN REIT) made 1 year ago in my current holdings. I balloted for it through ATM for 10 lots and was given 2 lots, fortunately! I invested the REIT for dividends and since then, it has tanked about 50%. This is probably my worst investment paper loss till date. It doesn’t help as it reported a net loss of $50m for FY 08. The old saying of not investing into unfamiliar territory holds true for all investments.

The reasons I invested in this REIT was because Japanese Yen has been undervalued for many years. I was hoping that its appreciation will bring about interest in Saizen Reit. The fact is, Japanese Yen can continue to be undervalued for another 20 years.

Secondly, the housing ownership cost in Japan is too high (land scarcity) and risky (frequent earthquakes), hence renting accommodation in Japan is a more viable option in my opinion. This is a valid point as the annual report shows growing revenue and higher occupancy rates.

Thirdly, I was also inexperience and gullible to believe the prospectus of the 6.5% annualized yield! In actual fact, the yield will only be 4.67%.

Fourth point, based on historical records on Singapore listed REITS (at Sept 07), many did not incur losses upon IPO launches. I thought it was a “safe” investment. Again, Japanese property was an unfamiliar property play compared to Suntec, Capitalmalls and F&N commercial properties. It was a poor historical comparison on hindsight. The greed of selling it for a quick gain also did me no good.

Saizen Reit issued units as management fees which means that there will be large horde of selling the units for cash. This is a bad move by the management. This is one of the reasons I can think of for its share price volatility, other than the current bear market.

The good thing is that I will be receiving dividends. I will not be selling it as I want to remind myself of this mistake and also to hold it for its miserable semi-annual dividends. To be fair, the loss is less than $1000 dollars, representing only about 0.3% of my overall portfolio. The loss is unnecessary but I believe I will learn, grow and move on. Also, as long as the return on this investment is higher than 0.5%, it is better to keep it than realise the loss. Afterall the $2,000 I had invested last year will probably be idling in UOB current account anyway. Some consolation for me!

NO IPOs for me for the next 2 years!

Stock transactions and portfolio summary August 08


DBS: 1,000 shares @ $18.48

SPH: 5,000 shares @ $4.02

Capitaland: 2,000 shares @ $4.85

SPC: 2,000 shares @ $5.42

HL Finance: 3,000 shares @ $ 3.28 (CD)

DBS: 1,000 shares @ $18.44 (CD)


DBS: Contra 1,000 shares @ $18.80

SPH: Contra 5,000 shares @ $4.06

Capitaland: Contra 2,000 shares @ $4.95

SPC: Contra 2,000 shares @ $ 5. 53

Realised trading gains of $ 528


SPH: 3,000 shares @ $4

HL Finance: 3,000 shares @ $3.40 (CD)


SPH: 3,000 shares @ $4.05

Realised gains of $66


Singpost: $625 (FY 08, first quarter dividends of 0.0125 cents/share)


In August 08, I received $625 dividends from Singpost and made $528 of trading gains. I also bought HL Finance and DBS mainly for their dividends. Together, I have a net cashflow of $1,153 in July 08.

It was actually quite exciting and fun to trade shares even for modest gains. I actually have the target to gain $400 so as to achieve a net cashflow of $1,000 for month of August.

The market is really bad for August 08. STI went down about 6.5% this month. Nobody knows if the bottom has been reached. For me, I will just stick to income investing and hopefully reach my target of minimum $1,000 a month cashflow.

I have about $20,000 of cash standing waiting for more opportunities to enter the market. I do hope that I can sell off DBS at about $18.80 and above in Sept to prop up my cash holdings for better opportunities.

I am expecting $450 dividends from DBS, HL Finance and Saizen Reits to be credited into my account in Sept. It will be a “poor” month for me!