Wednesday, 30 September 2015
Sunday, 27 September 2015
Below is the composition of my complete investment portfolio at cost since I started earning. This portfolio will change over time as and when I deem fit.
Aside from stocks, I consider cash, property, CPF, SRS, precious metals, insurance-investment-linked-product as my part of my investment portfolio since these are components that can potentially earn tangible returns.
Every cent here is from my own hard-earned money with no external support whatsoever.
Property - Includes down payments, installments, stamp duties, first time renovations and furniture expenses. All recorded as cost and excludes capital appreciation. It also excludes my wife’s portion of payments.
CPF & SRS - Includes current balance of CPF not wiped out for my properties & SRS. It also includes CPF and SRS used for investments in stocks and funds.
Warchest - Cash waiting to be deployed when stock market is beaten.
Stocks - Excludes stocks bought from SRS.
Emergency mortgage pay down - Cash to be used for paying down home loan if interest rate increase.
Emergency fund - Cash or liquid bonds such as SSB to last approx. 5-6 months of expenses. I did not consider the worst situation that both my wife and myself are out of job. The reason being if that really happens, I am still able to utilize my cash labeled as warchest and mortgage pay down as E fund expenses. Or worst scenario of all, I can also liquidate my equity or gold and silver.
Gold & Silver - Cash waiting to buy gold and silver as appropriately. I think setting aside at least 10% of portfolio of cash and stocks in precious metals as an hedge against inflation make sense.
Insurance Investment linked product (ILP) – Sum of total monthly amount spent on insurance and ILP since day one. I first started buying ILP since 1997 when I was completely ignorant about financial literacy.
Bonds - I will also be looking to add high grade corporate bonds into my portfolio in time to come. Meanwhile, I had applied for SSB, but it is classified under my E fund.
To me, money spend on intangible investments can be considered even more important. This includes money spent on health, family members, friends, relatives, hobbies, leisure, entertainment, tour etc.
This is because life isn’t only about tangible returns.
Refer to my 5 sets of priorities in life here.
Friday, 25 September 2015
Asian Offshore Support Journal (AOSJ) Conference
About two weeks ago, I attended a two-day conference in Singapore - Asian Offshore Support Journal (AOSJ). This is an event where industry people gather. To explain simply, the Offshore Support industry consists of companies that own, build or in one way or another related to the Offshore Support Vessels (OSV) supply chain.
source: Asian Offshore Support Journal
Familiar names of OSV companies listed in the SGX are – Nam Cheong, Pacific Radiance, POSH, Swissco, EMAS and Triyards (subsidiaries of Ezra Holdings), Falcon Energy, Vallianz etc.
Speakers included in this event are:
- EMAS - Jon Dunstan, CEO (replaced as CEO on 25 Sep)
- Nam Cheong - Leong Seng Keat, CEO
- Pacific Radiance - James Pang, MD Commercial & Business Devt
- POSH - Lee Keng Lin, COO
- Swissco - Sam Kwai Hoong, Hd OSV
- Triyards - Chan Eng Yew, CEO
Day 1 - 8 Sep 2015
Today’s oil price only partially explains present market difficulties in the offshore support vessel sector, DVB Bank’s head of shipping and offshore research told delegates at Riviera’s third annual in Singapore on Tuesday. The sharp decrease in the oil price partly explains the present recession in the OSV sector, Henriette Brent-Petersen told an audience of more than 200 industry professionals, including representatives from some of the industry’s leading charterers, owner/operators and suppliers. Cost inflation, a reduction in the barriers to entry for offshore shipbuilding and the fact so many companies are highly leveraged also play a significant part.
Drawing parallels with the bulk carrier market, Ms Brent-Petersen warned that shipyard overcapacity and the fact newbuilding production cycles are so fast, means that the sector risks "killing any rebound in the market before it even starts".
Day 2 - 9 Sep 2015
Delegates at Riviera’s Asian Offshore Support Journal Conference in Singapore heard that Malaysia is Southeast Asia’s star performer. Confidence was also expressed in offshore India, West Africa and in the Middle East.
However, offshore Brazil remains a frustrating market and the Mexican Gulf is falling short of the hype seen a year ago.
Effects on Keppel, Sembcorp or Ezion?
Thursday, 24 September 2015
Legendary investor Warren Buffett is almost every investor's favourite including myself.
He was born 1930, started investing at age 11 years old, becomes a millionaire after 20 years of investing, and a billionaire in 1990. Today, his net worth is US$67 billion.
Did he go through Great Depression? No.
World War 1 or 2? No.
Enjoy the best years of United States for the last 50-60 years? Yes!
Imagine Warren Buffett is born 100 years earlier? See below chart, what will happen?
Long term investing Vs born in the right era?
Sunday, 20 September 2015
Just what is the impact of Fed rate hike? Why the hoohaa over it? Job is still intact, life is still as per normal, nothing really change? True?
Interest rates changes do affect people/businesses. For instance, household who has higher loan with variable interest who has been enjoying zero interest rate for the past years, will see higher installment payments every month if rate hike. Interest rate simply refers to cost of borrowings. If the interest rate is high, home, car and business loans etc with variable interest increase. In general it means debt repayment burden rises?
Refer to my previous article on interest rate here.
Interest rates at zero percent. Isn’t it good?
So Fed keeps interest rates at zero percent, isn’t it a fantastic thing. I can continue to enjoy low debt repayment, so that I can spend more! But how come people are worry and stocks did not rally after the announcement of no hike?
One reason is because Interest rate has floored for seven years. The low interest rate is viewed as a lifeline support to keep the economy healthy since the deadly GFC. Now that the economy has recovered, shouldn’t your lifeline support be removed? If it is still at zero, does that means that the economic health is still as bad as seven years ago?
To understand why low interest rate environment is not sustainable forever, we also need to understand how the economy works.
Using Ray Dalio’s concept to explain
Lately, I researched a lot about Ray Dalio, the head of the largest hedge fund in the world. I listens to him explain about how his economic model works. Each day, I spent hours on his articles/videos. I must confess, I kind of idolize this guy! His views resonate within me. I also like his transparency and sincerity during interview. Eventually it’s all about my gut feel and intuition that tells me that he is a great guy. Never mind if I am wrong.
Refer to my earlier article on Ray Dalio video of Economic Machine here.
For now, I will try my best to use Dalio's model to convey why Fed’s rate hike has an important impact to the economy and hence our lives. If anything incorrectly explains, do correct and pardon me. To understand Dalio’s economic machine, it is paramount to first understand the three main forces of the economy.
1) Productivity 2) Short-term debt cycles 3) Long-term cycle
The economic machine model explains that many transactions make up a market, and multiple markets form an economy. In a transaction, one person’s spending is another person’s income. You can spend either by cash or credit. If you spend by credit, then the lender has an asset and the borrower has a liability. If the credit is repaid, the transaction is settled.
Without credit, an economy can only improve when productivity grows i.e. GDP growth over time is almost linear as shown in the chart above. Productivity growth means, we can produce more output (goods and services) in an economy for the same input. For e.g. it can be due to technology, more efficient systems, or people becoming more savvy or hardworking etc to raise productivity. Now you know why Singapore government advocates Singaporeans to raise their productivity.
Short-term debt cycles
When there is credit, the economy creates what we Dalio described as the short-term and long-term debt cycles. The short-term debt cycles normally happens once in every 5-8 years. It is also known as business cycles. During the short-term debt cycles, government can use monetary policy such as interest rates, money supply (or printing money a.k.a Quantitative easing) to inject the economy.
During the GFC, Fed lowers interest rate to zero percent to stimulate the economy. People and businesses can borrow more, so spending increase. And because one’s spending is another person income, income also increased. Imagine you are earning 100k and can borrow 10% of income i.e. 10k. Now you can spend 110k. It means another person who is earning 110k can borrow 11k. He can then spend 121k. This effect spirals up and spending grows, hence economy improves. On the contrary if the spending becomes higher than income growth, there will be inflation and central bank will increase interest rate to deter spending and the spiral goes in the opposite direction.
Long-term debt cycles
This normally takes place once in every 50-75 years or more. The last one was seen in 1929-30 during the great depression that causes a “lost decade”, before WWII set in.
In a zero rate environment like today, debts are mounting in many countries. Today there are a lot more debts than actual money in the US economy. US owed more than US$16 trillions and has a Debt to GDP ratio of 300% or more.
So why bother about the increased debts? Just keep interest rate low and ignore the debts and we all will continue to enjoy the prosper of the economy. Is this true? Not quite!
In a zero percent interest environment, there are no incentives to save or to repay your debt. You will spend on goods and services or financial assets. Asset price will rise. This is why stocks and property prices had rally since the GFC. Once asset price rises, yield will become lower for the same asset investment. Investors will then relocate resources to buy other assets with higher yield which is more risky.
You may think that the economy is good. But the reason is due to cheap credit and may not exactly due to productivity growth.
Consider also that most of the money in this world is concentrated in the hands of the few percent rich. There will come to a point when the rich only spend on more financial assets rather than on consumer goods and services. This means that the increase spending is misallocated. Despite debt continues growing in the economy, businesses demand are not keeping in pace.
If debt grows at a rate faster than income, then the burden will become increasingly heavier. People will come to a point that they have difficulty servicing their debts. Spending will decrease. And since your spending is another person’s income, lesser spending means lesser income for another person, so on and so forth. Eventually the debt bubble burst and economy spiral down rapidly.
Interest rate cannot reduce anymore
And because the Fed can no longer lower interest rate since it is already zero percent, they cannot stimulate spending anymore. Everyone will just rush to sell their assets. Supply outstrips demand. Debts are written down, people and businesses declare bankrupt and jobs are cut. This is what Dalio classify as long term debt cycles. It last happened more than 80 years ago during the great depression. The world economy did not turn around until when WWII started in 1939.
Maybe Fed can raise taxes on rich or print more money?
There are two ways a government can have money. Raise Taxes or borrow from the Central Bank. The central bank will then prints money and buy government bonds.
When economy is filled with debts and recession already takes place, the government can only tax on the rich to re-distribute wealth. Will the rich be happy? No! The poor will continue to leave on social benefits. This is not sustainable.
Printing more money, which is what Fed has been doing? With more money around, your existing money will worth less. This is the effect of inflation, which decrease your purchasing power. In extreme cases, money will become worthless just like during WWII when Japanese print so much of their “banana notes” that causes hyperinflation. Another example is in the late 1970s when the Fed kept interest rates too low for too long because it feared that higher interest rates would be economically harmful. That produced double-digit inflation that created chaos for many Americans.
When cost of living increase, debts unable to be repaid and have to be written down, delayed or with lesser interest repayment, it is going to be painful for everyone. The poor will resent the rich and social unrest will take place. In extreme cases, just like in during the 1930s great depression, it can even lead to people like Hitler coming into power and lead to war.
When debts are abundance, an economy needs to go through a process of deleveraging. Typically, an economy can deleverage in 4 ways.
1) Debt reduction which means write down debts! One’s man debts is another man assets, hence this may cause negative wealth effect which can painful also.
2) Austerity measures which means cut spending and pay down your debt. But it will mean lesser spending and lesser income for others, which is deflationary in nature.
3) Tax the rich and redistribute the wealth from the rich to the poor. Just like in Europe, wealth is currently redistributed from Germany to Greece, southern European countries. Ultimately, it will reach a point where the rich will not be happy anymore to redistribute their wealth.
4) Lastly, debt monetization or print money. But all things being equal, more money means inflationary and the cost of goods will increase and causes social unrest.
Therefore “Printing of Money” if printed in the right amount and right rate, it will result in what Dalio described as “Beautiful Deleveraging!” This is what happened since GFC in the US economy.
Beautiful deleveraging is when inflationary measures balance deflation. Basically interest rate cannot be higher than inflation. This is to ensure income grow faster than debt to pare down the debts in a deleveraging process.
Can the Fed continue to deleverage beautifully? For now, it seems that they still cannot deleverage (i.e. no rate hike). Fed cited external environments effects from emerging markets and China slowing, but some suspect US economy is still fundamentally weak.
So now we probably know why increasing of interest rates is actually a good sentiment. This is because it represents that the economy is improving and moving in the right track to deleverage. No rate hike for now can mean that the economy is still in bad shape and Fed is cautious. This is even in the face that the recent rate hike is only targeted at 0.25%, which is considered extremely low.
For now, it seems certain that there are more uncertainties ahead.
Prolonged periods of low interest rates encourage risky and unsustainable investments and in general are not healthy. Due to the historical high debts US is currently incurring, many reckon that they are near to their long-term debt cycles now. And if there is a downturn, they will have no more interest rate tools to rectify the situation, and it may lead to financial catastrophes! If depression really takes place, it can be even more disastrous than that in 1930s. This is because the world is more interconnected today than 80 over years ago. Singapore will not be spared due to our open economy!
It is so scary and I sincerely do not want that to happen in my lifetime, and neither my children’s lifetime. That said, many unexpected events take place since my adulthood For instance, 911, SARs, GFC, the current oil crisis! Nonetheless, each time I learnt and become stronger.
So what should I do now? Fret and prepare to meet doom?
To me, it is all about “AWARENESS”, and nothing to do with pessimism, unnecessary worry and complaints. With awareness, comes preparation. With preparation, hopefully my family will be able to withstand the shock when unexpected crisis take place.
Moreover I am more known to people around me to be positive and take charge in my own life with actions. For now, I will be prudent, but carry on my life as usual happily. I will approach everyday as it comes, with a healthy mind and body. More importantly I will cherish each moment being together with my loves.
Friday, 18 September 2015
Ray Dalio is the founder of one of the largest macro hedge fund firm Bridgewater Associates which has approx. US$169 billions today. The company serves institutional clients including pension funds, endowments, foundations, foreign governments and central banks, rather than private investors.
Bridgewater embraces a corporate culture that encourages transparency and the elimination of the decision making hierarchy! For example, excerpts from Wikipedia;
Dalio encourages employees to do "whatever it takes to make the company great" and emphasizes transparency and openness in its decision making processes. All meetings are recorded and can be viewed by any employee, as long as the meeting topic is not proprietary.
Dalio company’s culture, at a glance suit me a lot. I love transparency in speech “in an intelligent and non-egoistical manner”, in expressing what I truly belief and yet constantly accepting constructive comments for things that are beneficial to onself – Absorb, Adapt and Accelerate!
Akin to writing a blog, transparency attracts criticism, debates, attacks on specifics etc. That said, as far as I am concern, this is how we learn! However transparency must not mean insults, criticisms filled with anger, or just to satisfy one’s big ego in an irresponsible way. Transparency will not tolerate ulterior motive with aim of benefit oneself at the expense of others too!
123 Page Handbook - Principles
Dalio also self-published a 123-page handbook in his company, called Principles, which was distributed to all his employees. Refer to the handbook here. Being so transparent and having a bizarre culture led to criticism with many labeled his company culture as “Cult”. In an interview (refer to video link here), Dalio countered that Bridgewater’s culture is instead the exact direct opposite of "Cult". He said:
“Do not believe in anything and now THINK FOR YOURSELF about what is true together, but we cannot start that with ego, we can’t let that barriers stand in our way, so we going to live in a culture to which we can do that!...Now that is the opposite....It is a belief system, in other words, I will ask you do you believe that we should operate this way with each other...It is the opposite of Cult...It means Think, Speak up, Don't Hide it, Don't talk behind people's back..."
“when people disagree and you can take forth people disagree, you have then the potential of learning a lot. If people who are disagreeing can say why we are disagreeing and work through that conversation in an intelligent way to try to find out what’s true, you can learn, you can make progress, it can be a fabulous thing!”
I am going to read the 123 page handbook next! “Think for yourself – to decide 1) what you want, 2) what is true and 3) what to do about it. …No ego!”. I simply quite love it (yes that's me, the self-believer!). Then I will drop my ego, drop the generation gap, drop my “pants even” (haha) and fail, then acknowledge my mistakes, and start learning from each other! Fail, Learn and Forward Faster!
The Economic Machine
Dalio also shared his "investment secrets" and economic theories via a 30-minute animated video which called it “How The Economic Machine Works.”
I watched the video and it is a simple and individualistic way of defining Economy. For all we know, an economy is of course not as simplistic as it is showcased here. Nonetheless, in my opinion, it is very interesting and commendable on the effort. It does not matter if it is absolutely correct or not, or if I think it is correct or wrong! It is the thoughts running through “My Own Mind” that counts!
Sunday, 13 September 2015
In view of the Hazy outlook ahead, I am currently sitting with approx. 75% cash and 25% equity invested. The cash here is all my cash which includes rainy day cash expenses, while the investment excludes property, CPF, other insurance saving plans etc.
If you are wondering did I suffer REALISED LOSSES after cashing out? The answer is YES!
BUT, overall I am glad that I break-even in REALISED TRADES this year including dividends received so far! Having said that, I suffered PAPER LOSS OF 7-8% in my overall portfolio YTD.
Of course, if you are a truly long term fundamental investors, the hoarding of large amount of cash does not make any sense. If you are already well-prepared for a crisis with all your rainy day expenses locked up, please go ahead to commit your balance resources in a sustainable manner over long term. Nonetheless do remember to at least have some cash to take advantage of unexpected plunge in the market. Staying 100% invested without diversification and rainy day expenses now is going to be kind of risky.
Knowing where you stand
Therefore what you are going to read as follows is for someone “Kiasi” (scare to die) like me, and still struggling to attain the “so-called” long term investor syndrome. Also, for someone like me, who face larger expenses coming from more mouths to feed and for someone like me who fear the losing of jobs for prolong period of time?
Do not get me wrong. I vouch that by no means I am proselytize how pitiful I am having coming from a background with so many mouths to feed. I need no empathy for I know myself better than anyone else in this world - That I am very sure!
It is just my way to remind of my own situation and be prudent in view of uncertainty ahead. Frankly, I love having many mouths to feed. My family/children are not dragging me down. On the contrary, they are my best impetus to strive ahead, and I boldly predict that they will be my best investments ever too!
Given that I has not gone through several cycles in the market for decades to be able to stomach the losses and gains “emotionlessly”, I am not ready to classify myself as a 100% long term investor! Yet, a good way to propel my experiences, is to read as much as I could. The accelerated knowledge can then replace what I lack in decades of experiences in the market.
Haze – something we cannot control
The Haze is getting worse recently. I hate it, as it put a halt to my favorite outdoor activities such as swimming and jogging. If you are at home, then aircon is turned on for longer periods inevitably. It is not just that utility bills will swell, but it is also for the fact that I dislike staying in air-con environment for a long time.
Can we control the haze? The haze is something we cannot control. Not even our government! As PM put it during the recent National Rally 2015 :
“On our National Day, just recently on the 9th of August, one Indonesian newspaper published an overview of the relationship between them and us. And they quoted a senior Indonesian politician what he said about the haze. He said, “I would only consider apologising for the haze if Singapore and Malaysia are thankful for the oxygen from Indonesian forests for 11 months each year”.
So you know where you stand and please know your place in the world. Do not get uppity. This may not reflect the Indonesian Government’s view, but we have to take note of it. It is a deep seated mindset – that a little red dot red dot should know its place in the world – and this mindset will not disappear for a long time.”
This is another stark reminder of the need to know where you stand!
Stock market - Uncertainties Ahead
Similarly, if I am to view the stock market today, the short term outlook ahead is equally “Hazy” and it seems that even IMF, US Fed, ECB or any governments are already running out of tools to fix the situation if it worsens.
There are just too many uncertainties at the moment. China is slowing, emerging markets confronting recession, dubious interest rate hike, volatility in oil and commodity prices etc.
As I read somewhere, the market will prefer to have a sustain bull or a bear for ease of planning, rather to have market volatility bleeding into the real economy without you knowing or getting ready.
Is stocks really dirt cheap now?
After the Black Monday on 24 Aug this year, which seen close to 20% wipeout of market cap in a single day, some investors are streaming “Leh Long, Leh Long” , Time to be greedy? I am cautious instead!
Let us use Shiller CAPE ratio to illustrate if stocks are really cheap now.
The Cyclically Adjusted Price-Earnings (CAPE) ratio also known as the Shiller Ratio or the P/E 10 ratio was developed by Dr. Robert Shiller (who won the Nobel Prize for his work on 10/14/2013) and Dr. John Campbell in a paper written in 1988 and can be traced to the principles of Graham. This Price earnings ratio is also based on average inflation-adjusted earnings from the previous 10 years.
Shiller PE ratio for the S&P 500.
Current CAPE ratio: 24.86
Min: 4.78 (Dec 1920)
Max: 44.19 (Dec 1999)
As of Fri Sep 11, current Shiller PE Ratio is 24.86. It is not the most expensive, but it is also by no means cheap. In fact S&P 500 is on the high side now! Please also note that the US stocks already has a good run of 6 years or more now since the GFC. Is the bull run in US going to continue indefinitely?
How about Straits Times Index?
Currently STI is valued at PE ratio of ~12.99. Meanwhile, STI’s average PE ratio over the 37-year period stretching from 1973 to 2010 is 16.9. STI’s floor is during GFC with PE ratio of just 6, while ceiling is in 1973 when PE ratio hits 35.
Not crazily expensive but not dirt cheap too!
Ok, one certainty at least for Singaporeans is that PAP won again to provide continuity! And it is not just a victory, but a really convincing one at 69.86%. I “sort of” gathered that sentiments reflected in my last post. Refer here.
The Harbinger – Prudent man prepares!
I just finished reading the book “The Harbinger” by author/pastor John Cahn. I am not a Christian and this book was a birthday gift from my former boss who is a staunch Christian. To get an idea about the 9 Harbingers, refer to a 2012 interview on Glenn Beck TV here.
The ancient mystery, according to Cahn, explains everything from the September 11 attacks to the financial collapse of 2008 and beyond. The author posits that God is sending the U.S. a “prophetic message” of what is yet to come, just as he did once in ancient Israel. Thus, according to the book, these same “Nine Harbingers” are now manifesting themselves here on U.S. soil.
I have no crystal ball and is sceptical on the Crash Date of 13 Sep 2015, which apparently is today or tomorrow when stock markets are concern. Meanwhile, please please please do not let your imagination run wild! The main point for me in the 9 Harbinger is not market crash.
What I appreciate MOST is the fact that Cahn advocates that “Prudent Man Prepares!”
Focus on what you can control
So its obvious I cannot control the Haze, neither is PAP for now. But what I can do it is to get ready my N95 masks in case PSI conditions worsen over a prolonged period. Otherwise stay indoors, switches on air-cons more often but that will mean more expenses though. As such, I shall be more careful on my expenses. And maybe I should pray more often for rain or wind to blow in other direction.
Likewise, I am unable to foretell which direction the stock market will trend in the short term. But what I am going to do now, in view of the current volatility, is to sit on more cash. This is at least something I can control and can do now, to prepare for the worst, if it really turn worse. If not worse, I am also happy and probably can wait till the market is less volatile. How long is the wait? I am not sure!
I am more comfortable to diversify my allocation to put more resources into cash. Ignore the percentage of cash/equity 70-30, 40-60, 50-50, 40-60 etc. It all depends on each individual. Do not get mistaken with figures! This is because you are not me, and you do not really know how much is my expenses or if I may have other investments, and how much they cost for me – property, other life-saving plans, CPF etc.
Know where you stand now and what is most comfortable for you in your allocation of resources.
The most worrying thing about doing a book review is that readers will start thinking that I am 100% in favor of the author of the book. The objective of my book review is for the sake of sharing. To be honest its primary objective is not even meant for public readers! Sorry guys, I love your comments flowing in...! In the main, it was meant to be a platform, so that I can discuss with my kids in a easier and portable manner.
Even before and after reading the book, I am absolutely in favor that positive thinking does not create positive events happening in our life! It is the action that is needed. It is pretty clear for me.
Nevertheless being positive can put me in the right frame of mind, so that my actions can be more constructive when I experiences difficult times in my life. That applies to me. If it is not working for you, I sincerely respect you.
People who truly know me in real life, knows that I never complain about my humble past, and hate to brag about any achievements (if any few ones) as well. Ok...I love to share and that invites unnecessary perceptions/comments. But this is something I can do little about.
For now, whether it is hazy or clear sky outlook ahead, I still stick to my philosophy as follows:
Be positive and prudent, learn from the past, while focus on the present and the future!