Friday, July 25, 2008

Good article on outlook of Oil

World Oil

World oil demand is surging as supplies approach their limits.

By Paul Roberts
Photograph by Randy Olson

In 2000 a Saudi oil geologist named Sadad I. Al Husseini made a startling discovery. Husseini, then head of exploration and production for the state-owned oil company, Saudi Aramco, had long been skeptical of the oil industry's upbeat forecasts for future production. Since the mid-1990s he had been studying data from the 250 or so major oil fields that produce most of the world's oil. He looked at how much crude remained in each one and how rapidly it was being depleted, then added all the new fields that oil companies hoped to bring on line in coming decades. When he tallied the numbers, Husseini says he realized that many oil experts "were either misreading the global reserves and oil-production data or obfuscating it.".
Yet even oil optimists concede that physical limits are beginning to loom. Consider the issue of discovery rates. Oil can't be pumped from the ground until it has been found, and yet the volume discovered each year has steadily fallen since the early 1960s despite dazzling technological advances, including computer-assisted seismic imaging that allows companies to "see" oil deep below the Earth's surface. One reason for the decline is simple mathematics: Most of the big, easily located fields—the so-called "elephants"—were discovered decades ago, and the remaining fields tend to be small. Not only are they harder to find than big fields, but they must also be found in greater numbers to produce as much oil. Last November, for example, oil executives were ecstatic over the discovery off the Brazilian coast of a field called Tupi, thought to be the biggest find in seven years. And yet with as much as eight billion barrels, Tupi is about a fifteenth the size of Saudi Arabia's legendary Ghawar, which held about 120 billion barrels at its discovery in 1948.
Worldwide, output from existing fields is falling by as much as 8 percent a year, which means that oil companies must develop up to seven million barrels a day in additional capacity simply to keep current output steady—plus many more millions of barrels to meet the growth in demand of about 1.5 percent a year. And yet, with declining field sizes, rising costs, and political barriers, finding those new barrels is getting harder and harder. Many of the biggest oil companies, including Shell and Mexico's state-owned Pemex, are actually finding less oil each year than they sell.

Full article can be read at National Geographic here:

SPH: To invest or cut loss?

For readers who have been following my blog, many of you will know that a significant weightage of my portfolio consist of SPH. I have also bought 6 lots this week at $4.005 per share but contra it off the following day at $4.08 when STI went up 3%, realizing a contra gain of $280. Of course the reason is I believe I will be able to buy SPH at the same or lower price soon. I queued to buy 6 lots of SPH at $3.38 yesterday but was unable to get it.

In the thread I started in Sgforum introducing my blog, there have been many discussions on SPH pertaining to its growth outlook, potential dividends payout and fair value. Some forummers wanted to cut loss when SPH drops to $3.90, to my surprise. Below are some excerpts of the postings:


Some opinions on SPH:
Sky 11 will continue to recognise profits till 2010; operating revenue has increased 20% to 344m, profits before investment is up 26% to 135m or a 39% profit margin. I see the core business still steady at current point of time. If you consider in 2005, net profit was 488m, dividends was 28 cents, in 2006 net profit was 428m, and dividends paid was 24 cents. At current point, I see FY 08 profits to be somewhere between 460m-500m. Hence dividends should at least be the same as last year's 26 cents. This means there is an outstanding dividend of 18cents, or 16 cents if you choose to be conservative.
Outlook: Singapore is a knowledge economy and a high percentage of the population read papers, which is an effective way for business to reach potential clients, compared to the net. With limited channels in Mediacorp, SPH is in a strong position to increase it's revenue from advertisements, benefiting from increasing population and foreign investments. (SPH has a 20% stake in Mediacorp).
PE ratio will be 14 if assuming FY 08 EPS is 28.5 cents, price at $4. I will be happy to pick up more when it falls further. I have already bought 6 lots today, 15 lots this month. My holding period is min 2 years, but I will be happy to sell if it reaches $4.60. It reached a high of $4.82 last yr, one day before Dec XD. For investors thinking of cutting loss, do so only if you need the funds for better investments elsewhere. Or else just treat it as FDs, you get at least 6%.


I have to disagree with that (on my outlook). A large number of my friends do not read the local papers because they feel that its bias and its information is outdated. Articles inside are also not creative. Instead, they would rather subscribe to wall street journal or some other papers. They only tune in to the TV news for local news. If I remember correctly, take a look at the latest circulation numbers. You will see some dropping numbers. The only thing that is propping SPH now is Sky Eleven and Paragon.

Jfc 18:

If you have analysed SPH results fully, you should realise that their advertisements revenue has been steadily growing instead of declining. For YTD 2008, the ad revenue has grown by 8.2%, while in 2007 the growth for ad revenue is 6.8%. If you have analysed SPH results fully, you would realise tat SPH valuation ain't tat expensive as most people thought to be.
SPH sum-of-parts valuation (outstanding shares 1,586,318,621):
Paragon: $2bn, Per Share $1.26 (recently valued by Frank Knight)

Other properties in balance sheet: $481m, PS $0.30 (includes Toa Payoh News Centre, Jurong Print Centre, Hong Kong Lippo Tower unit, 3 properties in Nassim Rd, etc)

Cash and Investment portfolio: $1.256bn, PS $0.79

Debt: $574m, PS $0.36 Hence at the share price of $4, after stripping off all the assets above and adding debt, the balance is $1.99.
This is the price of SPH Newspaper operation.
The YTD 2008 profit from its Newspaper ops is $292,320,000, which is $0.1842 per share. Hence at $1.99 (divided by $0.1842), the SPH Newspaper ops PE ratio is an undemanding 10.5x.
Mainstream newspaper is clearly still the most effective form of advertisement in Singapore. SPH enjoys a monopoly in its newspaper ops. And the best testament of a wide economic moat company is to be able to increase cost in an inflationary environment. SPH will be increasing its ad cost by 3-9% starting Sept 2008. Will advertisers stop advertising on SPH newspaper/magazine because of this rise in cost?? I do not think so. For a high margin and ROE newspaper business (augmented by a wide economic moat), is a PE ratio of 10.5x considered expensive? Again, I do not think so.


For me, I am not an aggressive investor and prefer steady returns, liquidity (for bargain hunting) and relative little volatility with a 6% or more target return on investment. Although I can't beat the inflation, technically, I make do with less by spending lesser. In fact, being more prudent these days with spending has allowed me to save more. Hence, I still buy SPH for the predictable returns and a piece of mind. Btw, SPH bought slightly more than 1m of its shares from the open market when its price fell below $4 yesterday. I am expecting some directors to pick up the stock soon. I remembered a few directors picked up SPH last year at an average price of $4.50.


Hi all, I know I'm a little late on this particular discussion, but I would like to share my opinion having worked for 9 years in the advertising/journ industry. I own a share in a pte ltd creative agency. From an investment perspective, SPH and all media publishers are losing their economic moat. In addition, advertising as an industry has lost more than 40% of its power over the last 10 years because of the rise of PR. I am personally not confident that SPH will be able to sustain good growth in the long run. It's primary market is saturated and under heavy assault from electronic media. I'm not going to put my money on mass media publishing ever. I'm not even going to put my money on advertising. The ad industry is not growing much at all. It will continue to be profitable for the company, but I think shareholders looking for growth will be disappointed. Just my insight into my own industry.

There are also many replies to other views on SPH not shown here, but from what I see, everyone has his/her take on SPH. The reason is because different people are analyzing SPH from different perspectives. Of course this is not exclusive to SPH but to any other stock listed in the world. This is also the main reason why people buy and sell at different prices! It is impossible everyone sees SPH the way I look at it, or everybody is bearish/bullish on the same stock. Or else, everyone will be buying and selling it at the same time! However, judging from the price trend, it seems that SPH is losing its appeal to investors.

Why is this so?

Some random reasons include:

SPH had a poorer YoY results, due to M1 and Starhub capital distribution the previous year and poor equities return from its investment portfolio.

The general market is really bad for equities. Component stocks like NOL, Cosco, Citydev, SGX, Yangzijiang has retreated 50% from their peak. Other more established blue chips like DBS and UOB has retreated 30% from their all time highs (last year). Compared to SPH, it’s Dec 07 high of $4.82 to recent low of $3.97, it has only retreated 17.6% outperforming the decline of STI index of 25% from its Oct 07 peak. Shrewd investors would rather invest in stocks that have declined by a larger margin than steadier stocks like SPH.

As interest rates are expected to rise across the world, yields for long term bonds are on the uptrend. Dividend stocks prices will take a beating as investors will demand the same risk premium spread to compensate them for investing in equities over bonds.
Example: Assuming risk premium is 3% above the 4% 10 year bond yield, investors will only purchase dividend stocks that are yielding 7%. With dividends payout unchanged, prices of these stocks will have to come down to yield investors the 7%. This explanation can be used to explain the price decline of Singpost, Starhub, SPH and other dividend stocks.

The rising interest and awareness of REITS, shipping trust and other high yielding instruments perhaps also contribute a little to the loss of appeal for SPH.


As I have mentioned earlier in my post on Sgforum, my aim for investment is only a modest 6% per annum or a cash flow of $1000 monthly. So far, I am able to achieve the objectives from trading blue chips and collecting dividends. One thing to note is that dividends usually pay me better than capital appreciation. SPH fulfills most of my criteria listed here: and hence I will again be buying more on dips if there are no better alternative to invest my cash.

The current market is worth a second look at current gloom and doom. We all know that the bear market usually doesn’t last more than 2 years. Some end in 8 months. As long as we stay invested and hold on to fundamentally sound companies, profits and dividends will increase ultimately. It will be too late to buy by than and tell yourself, “ Damn.. I should have bought earlier!”

Wednesday, July 23, 2008

Stretch your dollar series: Commission Rebates


Many car and insurance salesman argued that (prospective) clients should not request for a commission rebate. It is unfair to request a portion of one’s salary when they work for you. Sounds correct?

In a way, yes. But in my way, NO.

I personally have experience buying insurance and cars. I too ask for commission rebates in CASH, rather than vouchers, sports rims, solar film, sound proofing and other non-cash items.

Am I being unfair to them? After all, they derive their main income from their sale of cars and insurance. Essentially, customers who buy from them, pay them their salary. If everyone were to request rebates from them, they might end up robbing the banks to make ends meet. (Thus some unscrupulous agents resort to just robbing you, if you know what I mean).

Customers who purchase the cars or policies also exercise authority, decisions (to purchase) based on the recommendations/ advice of the sales agent. WOW, sounds like my boss.

My boss decides my salary. If I am not willing to do the job at his stipulated salary, someone else would. By the same token, if the sales agent is not willing to give me cash rebates to make my purchase cheaper, I will look for someone else. Somebody out there wanting to make just a little from my sales is more than willing to give me a $1,000 rebate for my car purchase; a 40% rebate on my life policy.

Wait wait. Will they starve? Let’s take a look at one car agent’s and one insurance agent’s sales commission. The below illustrations were given by my agents:

Car Agent Rob working in Brother Motors, sells 15 cars per month.

Basic pay: $500 monthly

Commission for selling a normal sedan: $500

Insurance: 12% of motor insurance

Loan: 0.5%-2% of loan amount, depending on loan amount and tenure.

Trade-in vehicle: Depending on make, modal, age: $0-$1000.

John bought a car from Rob, trading in his 3 year old car for a new one.

His insurance premium is $1500 and his loan tenure is $50,000 for 7 years.

Rob earns: $500 (Bro Co. commission) + $180 (insurance commission) + $ 1% of $50,000+ $200 (trade in car commission) = $1380.

How accurate is the figure? Rob is my university classmate. I am quite sure he did not lie to me. The figure should at least 80% correct. It can be less, but it can be MORE as well.

How much did Rob gave John in cash rebate? John asked for $1,000 cash back and he gave him, happily.


Even earning $380 per car will yield him $5,700 monthly before his basic salary. The paperwork he has to do is simple.

In reality, only 30% of his customers “squeeze” him. Most of them are just happy with few hundred dollars worth of paint protection, rims or solar film.

No wonder he has 2 condominiums.

From John’s and my perspective, we choose the person who can lower our purchase price to the minimum, stretching our hard earned dollar.

As for commissioned insurance agents, selling a life policy will yield them 50% of premium paid for the first year (assuming a traditional whole life). My policy cost me $3000 annually. A rebate of $1,500 was given to me.


This is because for the 2nd, 3rd and up to the 6th year, the agent will still able to derive a percentage of your premium as his income. If I am not wrong, it goes something like this:
Year 1: 50% (of premium)
Year 2: 30%
Year 3; 20%
Year 4: 10%
Year 5: 6%
Year 6: 5%

Again, the figure might not be 100% accurate, but it is at least 70% correct. ILPs also allocate a similar percentage of premiums (as commission) to the financial advisor. No prizes to guess why agents are pushing such products aggressively.

My agent earned nothing for Year 1, but for the next 5 years, he has a recurring income from my policy. My agent, a primary school friend, earns $8,000 a month.

My car and insurance agent will not starve at all. In fact, I am more likely to starve than they are!

The point I am coming from is not to say that since they earn a high salary, hence we should get something back from them. My point is both parties should aspire to be in a win-win situation. I choose the product and pay the price I want.

Of course there are intangible benefits like sales and customer service. However for me, I rarely look beyond dollars and cents when it comes to purchasing commercial products.

Disclaimer: The purpose of writing this entry is not to encourage prospective clients to ask for cash rebates. You should work something out with your agent to acheive a win-win situation. The figures illustrated may not be 100% accurate.

Monday, July 21, 2008

Going for a job interview

I went for a job interview at a well known company in my industry. I actually submitted my application for fun as I feel really saturated at my current workplace. I was pleasantly surprise when the VP of the company offered to buy over my bond from my company if I was selected for the job. Though I did rather poorly at the interview and have no intention to break my bond, the interview process made me rethink my career path. I guess I need a radical change to meet different challenges in life and not stay in my comfort zone all my life.

Strictly speaking, that was my first job interview in my life, as I was offered a sponsorship by my current company after the interview 10 years ago.

Below are 10 random interview questions I remembered:

1) Why are you leaving your current company? (as if I will tell the truth!) (scored)
2) Why did you choose us? ( Testing my knowledge and preparation of the company) (scored)
3) What other companies have you applied? (Testing my “loyalty” preference) (scored)
4) What are the qualities you have that will enable you to excel in the post you are applying? (scored)
5) Describe yourself (flunk)
6) Tell me how your boss will describe you? (flunk)
7) How will your colleagues describe you? (scored)
8) What was the most challenging encounter you met this year and how did you resolved it? (flunk)
9) Tell me more about the awards you receive during your career stint. (scored)
10) What do you think we can offer you? (scored)

Obviously I did not prepare for the interview! I believe I scored a 6.5/10 for my performance. I believe I will not get selected, but my takeaway is that it gave me a good feel of what employers will want from prospective employees. Oh well, better luck next time! Actually I am not keen to join that firm also, heard that people there work longer hours than my side. I will be in a dilemma if I am eventually offered a post. In any case, I having more options in life cannot be a bad thing, right?

Let time tell!

Saturday, July 19, 2008

Why is the property market still steady?

From the newspaper reports these days, we can see that mid tier and slightly up market property projects are still enjoying decent take up rates, showing only little signs of slowing down. With the current bear market and poor growth outlook, why are we seeing such “erratic” buying interest? Shouldn’t the property market be also in “bear” phase together with stocks?

I have some opinions on this phenomenon.

We know people invest with their spare money. Some put it idling in FDs, some buy shares, UTs, currencies and properties. The definition of investment basically means to postpone current consumption for higher or more purchasing power in the future. Hence, money will be constantly flowing into the financial markets as investments when people do not spend it on goods and services.

There are five main components of the financial market, namely: Securities, bonds, futures, forex and property. The first 2 components are not doing well due to high inflation, low interest and growth rate environment. Our forex and futures market does not have much investment interest due to lack of education and awareness. MAS gradual currency appreciation policy does not encourage prudent investors to invest into alternative currencies.

Hence, investors with spare cash are likely to place their interest on the property market. Of course our low interest rate, growing population (migrants) and small land area is another positive motivation for our property market.

The income distribution in Singapore is also another contributing factor. In China, due to exceptional high income disparity, 80% of the bank deposits are held by 20% of the population, according to official figures. I am not sure about Singapore, but I am inclined to believe that 40% of our bank deposits are held by 60% of middle income families. Hence, slightly up market and mass market properties are still having healthy take up rates for investment and residential purposes.

The recent OCBC preference shares offer was 5 times over subscribed. This shows the excess liquidity or free cash, our population is holding. I believe that retail investors contribute to a large bulk of the buying interest. For the wealthy, they have better avenues to invest their money, such as through private bankers, their own businesses, antiques, fine wine, watches etc. Only poor people like me will be interested in gains of 5% and above. Again, this explains why mid-tier properties buying interest is sustained. Rental yields of 5% are not difficult to achieve at current property market.

With excess liquidity competing for limited goods in the economy, prices will have to go up to match demand and supply. Unless everybody work together to spend less and bring down prices of goods and services, high inflation is here to stay at least for the next 5 years.

I am also interested in buying a property when there is a good opportunity. For readers who are interested, I have a tip from my family trusted property agent. He said that there are people who bought a few high end properties at one go during the height of the property boom. These greedy people have no holding power to ride over the lackluster luxury property segment and bargains may be out there towards TOP. Check with your trusted property agent for potential fire sale deals. However, make sure you are investing for at least 3-5 years, to be safe.

Monday, July 14, 2008

Calm your nerves

Below are some quotes to calm your nerves amidst the volatile market. If the stocks you are holding are having excellent sound fundamentals, just hold and collect dividends for the time being. The returns will still be better than keeping in the bank. A person’s true tolerance to risk will only reveal during a bear market. I am taking this opportunity of this period to assess my risk profile more accurately.
The investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances. He should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored. He should never buy a stock because it has gone up or sell one because it has gone down.
Benjamin Graham, The Intelligent Investor, 1949
It is nonsense to assess the economics of a business over the next five years and then trade its shares based on market perceptions of the next financial quarter.
Montgomery, Curtis J
The strategy we've adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it. In stating this opinion, we define risk, using dictionary terms, as "the possibility of loss or injury."
Academics, however, like to define investment "risk" differently, averring that it is the relative volatility of a stock or portfolio of stocks - that is, their volatility as compared to that of a large universe of stocks. Employing data bases and statistical skills, these academics compute with precision the "beta" of a stock - its relative volatility in the past - and then build arcane investment and capital-allocation theories around this calculation. In their hunger for a single statistic to measure risk, however, they forget a fundamental principle: It is better to be approximately right than precisely wrong.
For owners of a business - and that's the way we think of shareholders - the academics' definition of risk is far off the mark, so much so that it produces absurdities. For example, under beta-based theory, a stock that has dropped very sharply compared to the market - as had Washington Post when we bought it in 1973 - becomes "riskier" at the lower price than it was at the higher price. Would that description have then made any sense to someone who was offered the entire company at a vastly-reduced price?
Warren E. Buffett, 1994

Wednesday, July 9, 2008

Just for laughs

Lesson 1
A man is getting into the shower just as his wife is finishing up her shower, when the doorbell rings. The wife quickly wraps herself in a towel and runs downstairs. When she opens the door, there stands Bob, the next-door neighbour. Before she says a word, Bob says, 'I'll give you £800 to drop that towel.' After thinking for a moment, the woman drops her towel and stands naked in front of Bob. After a few seconds, Bob hands her £800 and leaves. The woman wraps back up in the towel and goes back upstairs. When she gets to the bathroom, her husband asks, 'Who was that?' 'It was Bob the next door neighbour,' she replies. 'Great!' the husband says, 'did he say anything about the £800 he owes me?'
Moral of the story: If you share critical information pertaining to credit and risk with your shareholders in time, you may be in a position to prevent avoidable exposure.

Lesson 2
A priest offered a Nun a lift. She got in and crossed her legs, forcing her gown to reveal a leg. The priest nearly had an accident. After controlling the car, he stealthily slid his hand up her leg. The nun said, 'Father, remember Psalm 129?' The priest removed his hand. But, changing gears, he let his hand slide up her leg again. The nun once again said, 'Father, remember Psalm 129?' The priest apologised 'Sorry sister but the flesh is weak.' Arriving at the convent, the nun went on her way. On his arrival at the church, the priest rushed to look up Psalm 129. It said, 'Go forth and seek, further up, you will find glory.'
Moral of the story: If you are not well informed in your job, you might miss a great opportunity.

Lesson 3
A sales rep, an administration clerk, and the manager are walking to lunch when they find an antique oil lamp. They rub it and a Genie comes out. The Genie says, 'I'll give each of you just one wish.' 'Me first! Me first!' says the admin clerk. 'I want to be in the Bahamas , driving a speedboat, without a care in the world.' Puff! She's gone. 'Me next! Me next!' says the sales rep. 'I want to be in Hawaii , relaxing on the beach with my personal masseuse, an endless supply of Pina Coladas and the love of my life.' Puff! He's gone. 'OK, you're up,' the Genie says to the manager. The manager says, 'I want those two back in the office after lunch.'
Moral of the story: Always let your boss have the first say.

Lesson 4
An eagle was sitting on a tree resting, doing nothing. A small rabbit saw the eagle and asked him, 'Can I also sit like you and do nothing?' The eagle answered: 'Sure, why not.' So, the rabbit sat on the ground below the eagle and rested. All of a sudden, a fox appeared, jumped on the rabbit and ate it.
Moral of the story: To be sitting and doing nothing, you must be sitting very, very high up!!!!!!!!!!!!

Lesson 5
A turkey was chatting with a bull. 'I would love to be able to get to the top of that tree,' sighed the turkey, 'but I haven't got the energy.' 'Well, why don't you nibble on some of my droppings?' replied the bull. 'They're packed with nutrients.' The turkey pecked at a lump of dung, and found it actually gave him enough strength to reach the lowest branch of the tree. The next day, after eating some more dung, he reached the second branch. Finally after a fourth night, the turkey was proudly perched at the top of the tree. He was promptly spotted by a farmer, who shot him out of the tree.
Moral of the story: Bullshit might get you to the top, but it won't keep you there.

Lesson 6
A little bird was flying south for the winter. It was so cold the bird froze and fell to the ground into a large field. While he was lying there, a cow came by and dropped some dung on him. As the frozen bird lay there in the pile of cow dung, he began to realize how warm he was. The dung was actually thawing him out! He lay there all warm and happy, and soon began to sing for joy. A passing cat heard the bird singing and came to investigate. Following the sound, the cat discovered the bird under the pile of cow dung and promptly dug him out and ate him.
Moral of the story:
(1) Not everyone who shits on you is your enemy
(2) Not everyone who gets you out of shit is your friend
(3) And when you're in deep shit, it's best to keep your mouth shut!

Monday, July 7, 2008

Cutting loss

Cutting loss is extremely painful thing to do. Not only it shows that you have made an error judgment on investing in a particular stock or fund, you also face the reality of losing your hard earn money by acknowledging this mistake. You will also face the dilemma to wait for “a few more days” to cut loss or to terminate your relationship with the loss-making investment immediately. There will be a number of “what ifs” resonating in your mind when you are contemplating to cut loss.

What if the stock rises after cutting loss? I already feel stupid for buying that stock at a lousy price. Now I feel even more stupid to sell the stock at a lousier price.

What if I don’t cut loss now and if falls further? Now I feel stupid not to sell earlier. Do I cut further losses immediately then or wait for recovery? Either way there is risk of feeling even more stupid if things do not go my way and I cut my loss anyway.

Is it possible NOT to feel this way?


Investors that face such dilemmas often only have an entry strategy (ie to buy stock) but no exit strategy (ie to sell for profit or cut loss).

One of the maxims in value investing is that you only exit when you make money. In value investing, you NEVER cut losses. You buy more when your stock drops. The rationale is simple from the illustration below.

Assume you believe Singpost is a value stock (like me).

It has long operating history, high profit margins, consistent dividend payout history and policy, high ROE and low debt. It is currently trading at below historical PE.

If you are willing to buy 10 lots of Singpost at $1.10, when Singpost dips 10% to $0.99, you should buy at least the same number of lots or even more. This is because for the same amount of price I spend on Singpost originally, I can now buy more with less money. I will collect more dividends with the same amount invested and at the same time, dollar cost average my investment.

Assuming I bought another 10 lots at $0.99, my average cost will be $1.045/lot. Singpost only need to rebound 5.6% from $0.99 to breakeven. It will take Singpost to rebound more than 11% from $0.99 for me to breakeven at $1.10.

You must believe in the companies you have initially invested in. Do not lose faith just because others have bought and sold it at a different price you had bought. The price changes all the time, not the fundamentals. Hence, do your homework thoroughly before you take the plunge and only invest in companies you believe in.

Then, you will never need to cut loss. You will be happy to buy more.

Friday, July 4, 2008

Financial advisors EVERYWHERE

I meet up regularly with my JC classmates and at the age of late twenties, we inevitably meet the crossroads of our careers: To continue our present job or head for a career switch?

Some of us are in favour of a career switch, citing low pay, high pressure and boredom as the main reasons, with the exception of those in the financial industry.

In fact, 80% of my JC friends who studied engineering, computing and science are in the finance industry doing sales. Even at the current market, they are able to clock an average of $10,000 in sales commission monthly.

No wonder the remaining 20%, including myself are attracted by the prospects of finance industry.

One of my friends had even given up a $5,000 a month salary as an accountant to join an IFA firm with ZERO basic pay.

I am sure this phenomenon is not exclusive to me. Do you hear more and more of your friends joining banks as personal bankers or joining insurance companies as agents? Of course, becoming an IFA is also a highly sought after career alternative given the potential lucrative income.

If you have read today’s Recruit, it yet again featured a young chap in his thirties earning in excess of $300,000 per annum by simply giving financial advice and selling insurance.

A first class honours graduate after going through the HSBC management associate programme, will become a relationship manager (RM) in commercial banking (also a sales commission driven post).

With successful examples and role modals “everywhere”, it will be queer if there is no rush to join the ranks of financial consultants.

However, consider this scenario: Who is going to buy insurance from you when every other man on the street have either bought it or can buy from someone he knows better from school? Worse still, the man on the street is likely to be an insurance agent himself.

Insurance companies are selling their products, banks are aggressively advertising with free gifts and higher FD rates, IFA firms are dishing out free seminars and claim nobly being exclusively “fair and unbiased” in selecting the best plan for their clients.

I think the main reason for the current phenomenon is the low barrier of entry required to become a financial advisor. Just 4 “O” levels passes, a few hundred dollars and several hours of self-studying will give one the relevant qualifications and licenses to dish out useful, life long financial advice.

This sounds rather silly and dangerous to me. I have personally interacted with a fair number of RMs, IFAs and tied agents. To be really honest, from the products and plans they offer me, it seems that they are only interested in selling products and squeezing me for their benefit!

Example: All tried to sell me life policies when I have told them I already have a $200,000 whole life policy. I have also informed them that I am remain single and my parents have reached financial independence. In other words, I have no dependents. Then why do I need a whole life policy? Well, because the commission is the highest!

Actually I only need a top up term insurance for critical illness and a private H&S policy. However, all are not willing to even meet me to sell the H&S policy or follow up on it as the commission is too low for their attention.

Of course many tried to sell me unit trusts by recommending Japan, European and US Funds. Sales talk includes Japan stocks have been in decline for the past 10 years, a rebound is likely; US and European Funds have large market capitalisation companies and should give good returns every year etc.

Of course I will prefer to DIY and buy UTs and stocks through online portals for investment.

In my opinion, there are a large number of incompetent and sales driven financial advisors, and only a small number of them who place clients’ needs before their personal pay cheque. In fact ideally, the most competent advisors should be those who have earned an average income throughout their lives and yet have reached financial independence through careful planning and investments. Such people, far and few do not have to worry about sales targets and will be able to provide proven and tested strategies to their clients on achieving financial freedom. They are living examples, isn’t it? Just like a teacher who teaches a subject he has a degree conferred for his area of expertise. He is proven to be a master of the subject is thus qualified to provide guidance and advice to the young. Can you imaging paying hefty sums to learn maths from someone who has just taken a few lessons in advanced?

I guess I will not be entering the financial industry for now, but to continue saving and investing for a better tomorrow.

Tuesday, July 1, 2008

AM Fraser: SPH

SPH ($4.28) – Falls to low end of $4.20-60 trading band seen as opportunity to accumulate as long term 10-year support around $4-$4.20 signals a buy

Target price $4.50-60
Support $4.10-20

It is a marvel to know how under-performing SPH when we consider that its 1998 high was $3.93 and 10 years later it is hardly above water if we compare with this year’s $4.09 low.

Thus it is not surprising that patient traders would accumulate the stock whenever it drops to near $4.20 which is at the low end of its past 4 years’ trading range.

It may be hard to believe that when STI bottomed out at 1205 in March 2003, SPH had reached a high of $3.82 that month and when the new STI peaked at 3831 last Oct, SPH’s high was only $4.64, a gain of a mere 21% compared to 218% for the index.

It is thus hardly surprising that the counter has fallen out of traders’ radar screens but there are still some trading chances especially after a prolonged downtrend which has just been seen.

The price has fallen to its lowest level last week ($4.21) since its early April year’s high of $4.64 which matched the Jan 22 close of $4.21 when SPH hit intra-day low of $4.09 (STI also hit first support around 2860-70 that day). Underpinning this low is the 2007 low of $4.06.

With so obvious historical support around $4-$4.20, traders who have remembered this stock stuck around $4.40-60 for much of the time since late2006, would have the courage to accumulate around current levels as the chances of a return to this higher band are good.

After all SPH is still an index heavyweight with a market cap of $6.8b and attractive dividend yield of about 6% and trading around market PE of 13-14x with lots of loyal long term shareholders.

It should be relatively resilient to a market selldown based on its sluggish 10-year track record, which suggests the absence of stale bull positions.

The short term technical picture shows the daily MACD beginning to improve and the Bollinger bands suggest it is unlikely to break $4.20 support. In fact the 2-month sideways pattern should have ended and SPH moves back to its traditional $4.40-60 range.

Sgbluechip says: I have analysed SPH’s past 10 years’ dividend payout and dividend growth rate. For the past 10 years, the dividend growth rates range from -53.3% to 172.7% (YOY). The mean growth rate for past 10 years is about 15%, 10% for the past 5 years. The lowest dividend payout was $0.08 (1997, split adjusted), highest was $0.30 (2000, split adjusted). The past 10 years’ dividend payout has amounted to $2.33.

If you had bought SPH in 1997 at a price of $4.00 and sold it at $4.45 immediately after getting this year’s $0.08 dividend, your total gain will be 58.2%(dividends)+11.25%(capital gains) = 69.45%

I believe dividend growth will slow down to about 5% annually. Hence, the dividend payout for FY 2008 for SPH is estimated to be $0.28 or a minimum of $0.27.

I will continue to pick up SPH when it hits $4.20.