First-time car buyer? Get a Mercedes Benz!

I was reading the weekend edition of The Business Times and the front page story was headlined "First-time car buyers disappearing fast".

When I read that, I thought I could guess what the article was about. It would probably go along the line of how the "cooling measures" are working because 100% LTV is a thing of the past, I thought. Well, I was right but only partially.

Although the report said that most first time car buyers are young working adults and that most of them are unable to come up with the required 40% or 50% down payment, something very interesting was also reported.

While most first-time car buyers of entry level cars (which I understand from the article are those priced at around $120,000 each) have been priced out of the market, Mercedes Benz is still doing a roaring trade with first-time car buyers!

The A-Class

"We are seeing more kids bringing their parents to the showroom to book a CLA-Class or A-Class," said a senior executive at Mercedes Benz. Their A200 is priced at $156,000. "... it also looks like more parents are buying a Mercedes for their children."

The CLA at $179,888. Ouch.

Well, I suppose the cooling measures are not targeted at the rich. Rich people can well afford the luxuries in life and cars are definitely a luxury in Singapore. 

Even so, to have a brand new Mercedes Benz as a first car for a young adult given all of today's restrictions is ... er ...

Could someone help me with an adjective here?

The cooling measures have definitely worked to prevent the less rich to be more prudent because, in the past, it was possible to borrow 100% of the car's asking price with a loan repayment period of 10 years. 

A young person could then drive out of a car showroom in a brand new car paying as little as $500. He would probably have been wearing a big smile on his face and thinking to himself, "Wah! So affordable!"

Who says money cannot buy happiness?
(But buy already still have money or not?)

Related posts:
1. They were just showing off their wealth.
2. Polish your own car and save money.
3. Tea with AK71: Bought a new car.
4. Mature and sophisticated consumers lease cars, not buy.

Saizen REIT: DPU of 0.63c.

Despite a much weaker JPY, Saizen REIT has delivered a respectable income distribution in S$ terms, a DPU of 0.63c to be precise.

Saizen REIT's DPU in JPY terms has been improving steadily in recent years. In the last half a year, DPU in JPY terms has shown an improvement too but a much weaker JPY means that DPU took a hit in S$ terms.

Income in JPY terms climbed mainly due to new acquisitions. Of course, a buy back and cancellation of shares also helped.

As of 30 June 2013:

NAV/unit: 25c
Gearing: 38%
Interest cover ratio: 6.0x

To reduce the impact of a weakening JPY on income distributions in S$ terms, Saizen REIT's management entered into hedging transactions.

The rate for the 6 months period which ended on 30 June 2013 was JPY75.12 = S$1.00. The rate for the 6 months period ending 31 December 2013 is JPY 81.15 = S$1.00. It is going to be some 14% costlier to buy S$, it seems. So, if I read this correctly, we should see downward pressure on the next income distribution in S$ terms, everything else remaining equal.

Saizen REIT has refinanced and in so doing brought down its average interest rate as well as its rate of amortisation. Yes, regular readers will remember that Saizen REIT's loans are amortising in nature. It will also not see any loan maturing until four and a half years later in February 2018.

So, is reducing the rate of amortisation a good thing? Well, it will mean that the REIT will have more income from operation available for distribution. However, it is unlikely to mean a higher income distribution in JPY terms because the REIT is currently using its cash resources to offset amortisation in order to free up more income from operations for distribution to unit holders anyway. It will, however, mean that there is less strain on the REIT's current cash resources.

The management is also proposing to do a 5 to 1 unit consolidation. This is a bit of a déjà vu. I remember the time when AIMS AMP Capital Industrial REIT did a 5 to 1 unit consolidation too. Fundamentally, it really doesn't change anything.

Qualitatively, investing in Saizen REIT now is to invest in freehold Japanese residential properties at a discount to their valuations. If we believe that the Japanese economy will enjoy a revival as Abenomics gain traction, then, Saizen REIT could be a good proxy as the country frees itself from deflationary forces.

The REIT's numbers are good but the persistent weakness of the JPY as the BOJ stays the course with its own brand of QE is going to lower income distribution in S$ terms in the foreseeable future. A conservative forecast of 1.1c in annual DPU would mean a distribution yield of 5.8% assuming a unit price of 19c. Compared to J-REITs with residential properties in Japan, this is relatively high and although it is not particularly cheap at current prices, Saizen REIT is not overpriced.

See FY2013 presentation: here.

Related post:
Saizen REIT: DPU of 0.66c.

Three possible ways to build our savings (Don't see money, won't spend money).

I know someone who finds it very hard to save money. 

He has hardly any savings as he spends money very freely. He sees, he likes, he buys. 

He is also generous to a fault. 

So, you can imagine that he is rather popular amongst his friends.




When I asked him if he was worried about having very little savings, he replied that there is always next month's pay cheque. 

This feeling of invincibility in an environment of extremely low unemployment in Singapore could be increasingly common but that is another topic.

Anyway, as I talked to him, I found that he is really a very pleasant person. No airs and not given to showing off. 

He is simply very easy with money.




He vaguely knows the importance of saving but being very comfortable now, he just spends freely. It has become a habit. 

So, since we arrived at the conclusion that if he sees money, he would be inclined to spend it, the only way for him to save is not to see the money.

Top up CPF-SA.

I suggested that he does the following:

1. 
Start an SRS account and contribute the maximum of S$ 12,750 a year. (From 2016: $15,300).

2. Minimum Sum Top Up of $7,000 a year to his CPF-Special Account.

3. Religiously lock up 10% of his monthly take home pay in 12 months fixed deposits with the auto renewal option intact.




#1 and #2 will also help in reducing the amount of income tax payable while #3 will help to create a higher level of liquidity. He needs to build up an emergency fund pronto.

Having never given much thought to how he should build up his savings, he said that the suggestions are practicable and also practical. 

He decided to adopt all three measures. 

I am glad I was able to help him take an important step towards personal financial security.




If we know people who make a good salary but have trouble with saving money due to spending habits, talk to them. 

We would be doing a good deed.

Related posts:
1. The very first step to becoming richer.
2. A common piece of advice on savings.
3. Build a bigger retirement fund: CPF-SA.
4. SRS: A brief analysis.
5. Ambassadors of financial freedom.

Are you ready to come out on top from a recession? (Part 2)

Think that a recession will be beneficial to you? 

Ask if you have these:

1. Certainty that you will not lose your job or take a pay cut if you still need the income.

2. Certainty that you do not have debts which might turn crippling.

3. Certainty that you have the funds to take advantage of any value for money investments.





Of course, you know what they say about the only two things which are naturally certain in this world and they are none of the above.

The first statement is basically the most important for the majority of us. 

How to have a secure income? 

Work in the civil service? 

That is the closest to an iron rice bowl I can think of. 

If we do not have an iron rice bowl, we better be thinking of having more than one rice bowl just in case.





The second statement is an important consideration for anyone who has debt. 

Anyone from the middle income category devoting more than 60% of his monthly income to debt servicing, in my opinion, is running a big risk. 

This is also why the government came up with the latest property cooling measures to prevent people from over extending themselves.





The third statement is something that regular readers are familiar with. 

We must have a war chest. 

Now, this war chest is not money we set aside in case of an emergency. 

This war chest is money in excess of that emergency fund. 

It is truly money that we can afford to lose. 

I mean we wouldn't want to lose it but if we should lose it, it should not sink us into financial difficulty.

For a recession to be good for us, we must be in a good condition. 

Are you ready?






Related posts:
1. Do you want to be richer?
2. Get on top of your finances.
3. Be prepared for war!
4. Are you ready to come out on top from a recession? (Part 1)

Are you ready to come out on top from a recession? (Part 1)

Really? Not save more money har?

Things have become too expensive in Singapore. 

You name it and the price is probably much higher now than just a few years ago.

This has led to not just a few people thinking that a recession is probably good for the country as it will bring down prices and that these lower prices are beneficial to Singaporeans. 

This is pretty one sided in thinking.





Nonetheless, there is more and more talk of an impending recession and some "gurus" are seeing precursors of the 1997 Asian Financial Crisis now. 

Would it be Thailand to lead the pack again? 

Or would it be Malaysia or Indonesia?

I have been through quite a few recessions and I can say with certainty that they were not pretty. In severe cases, people lost their jobs and their homes. 

In many cases, people took pay cuts and had trouble making ends meet. 

The 1997 Asian Financial Crisis was particularly depressing for many.

I am very sure that recessions make life for the common people more difficult.

The only people who benefit from recessions are the rich.

When a recession hits, we will read in the papers how the very rich lost millions of their wealth and, perhaps, this makes the general population feel better. 

However, what the rich lost is mostly just on paper. 

It is immaterial to them. 

They are still very rich, in many cases, and their lives go on unaffected, especially if their assets are still generating meaningful income.





After a recession, we would read in the papers how the very rich emerged even richer! 

Why? 

They made use of lower prices to buy more income generating assets which would see their prices rise in an economic recovery! 

Recessions are good for some people and they are the rich!





So, recessions are not natural equalisers. 

Recessions usually make the gap between the rich and the poor bigger.

Do you have what it takes to benefit from a recession?

Find out in Part Two: here.

Related post:
STE's story: The Millionaire Next Door.

A bit of history.

How big is a 452 sq ft apartment?

UPDATE (October 2018):
I have lived in a shoebox apartment for 4 years!
------------------------
A while ago, there was quite a lot of discussion about apartments smaller than 500 sq ft in size and, in some quarters, there was also talk about whether they are good enough as habitats for humans.






When I revealed that I bought one such apartment early last year, there were mixed response from people. 

Some said I made a good decision since there are many advantages of buying a small format apartment. 

Some said I made a terrible decision since there are many disadvantages too.

Many of those who said it was a terrible decision questioned if there is actually going to be enough space for me to live in.

The smallest apartment I lived in as a child was a HDB one room flat. 

As a teenager, the smallest apartment I lived in was a HDB three room flat. 

For 13 years of my life (in my late teens and as a young adult), I lived in a HDB five room flat. 

In the last flat, my share of living space was about 300 sq ft.

So, a 452 sq ft apartment is more than enough space for single me, I reckon.

Anyway, to stop all the guessing, I went online to search for videos of what 452 sq ft of apartment space might look like. 

Here is one which doesn't have some background music or commentary:






Fit for human habitation, you think? ;p

What about a 200 square feet apartment?

Tea with Solace: Getting Ready For Investment. (Part Two)

Solace continues:

Building up Investment Knowledge

To me, this is the most tedious and tiring part. I was not educated in the field of finance and accounting. So, I have to learn everything by myself from scratch.

I need to create my own personalized winning plan. In order to do it, I need to know what I want, specifically my investment objectives and risk profile. This should be the first step before I start to invest.

I am only investing in stocks but note that there are other products available such as commodities, FOREX and derivatives (Options, Futures, Contract for Difference). Many of these products, however, are riskier than stocks and often involve trading with leverage. I believe that we should not invest in something which we do not have enough knowledge in. So, I avoid these.

There are two main approaches when it comes to the analysis of stocks. They are fundamental analysis and technical analysis.

Fundamental analysis involves making an assessment of a company operations. Various factors such as profit, forecast profit, outlook for the industry, key personnel in senior appointments and members of board of director are considered in a fundamental analysis.




Three key financial statements are used:
1. Statement of Cash Flow 
(see Cash Flow Statement)
2. Balance Sheet
(see Balance Sheet)
3. Profit and Loss Statement
(see Income Statement)

They are available in the annual reports.

I watch the valuation of a company carefully. Even the most wonderful and fundamentally strong company is a poor investment if purchased at too high a price. Look out for P/E, P/B, PEG, earning yield, cash return and discounted cash flow etc.

Always have a margin of safety when purchasing shares.

Safety first!

Technical analysis is the study of a stock's actual price, to help form an opinion on the likely future direction of a stock. It makes use of charting software and looking at trends. Some of the common indicators I used are moving averages, Relative Strength Index, MACD, Stochastic Oscillator and On Balance Volume (OBV).




Conclusion

In closing, I think that we need to arm ourselves with the necessary tools to be a successful investor. I am continuously learning and discovering new things from time to time. Never think we have learnt enough about the markets, one should always continue to seek further knowledge.

The day we believe we have learnt enough about investment will also be the first day on our way to failure as we have become complacent.

Related post:
Tea with Solace: Getting Ready For Investment. (Part One)

Food from my childhood days.

Sometimes, I get asked for examples of food I had in my childhood days. Well, today, I found something that I have not had in years! Really, years!

Recognise this?

OK, without the plastic bag?

Yup, these triangular curry puffs which I think are made by the Indian Muslims are yummy!

Probably about 15cm along its longest side, it is actually smaller than the ones I had when I was a boy. Honest!

Price: S$ 1.30. Yup, it costs as much as an Old Chang Kee curry puff now.

OK, in case I get comments on how unhealthy this is, I balanced it with a Kiwi fruit for dessert. Balanced dinner. No? ;p

Tea with Solace: Getting Ready For Investment. (Part One)

This is Part One of a blog post by a reader, Solace, who recommended a book, "The Little Book That Beats The Market" here in ASSI not too long ago. 

All copies of the book were sold out within a day, I remember. I just checked and a few copies have become available again at US$6.48 each. For anyone who missed out the last time, check it out: The Little Book That Beats The Market.

Cheap Ferrero Rocher!

I can identify with many things that Solace is sharing here including his love for chocolates! I also buy them when they are available at a discount and never at full prices! Apart from this, in investment, I also use a combination of fundamental analysis and technical analysis just like him.

All of us can learn or be reminded of things important about personal finance and investment in this guest blog post. Read on:

Solace says:
I embarked on my journey of investing when I was in my mid-twenties, fresh out from the university.

My objectives in investing are to:

1) Generate a return that can beat inflation

2) Create an income stream through long term stock investing

First, however, I had to get my backyard in order. What do I mean by this?




Emergency Funds

In life, we should expect the unexpected. We could lose our job or become seriously ill, for examples. This is why we need an emergency fund.

Emergency funds should be highly liquid. This allows quick access to funds, which is vital in emergencies. A saving account with any bank would do.

I believe one has to set aside at least 6 months' worth of emergency funds. Some may even set aside 12 to 18 months' worth depending on their situations. If we have children, liabilities or debts, we would have to set aside more, for examples.

I do not recommend that we invest with money that we cannot afford to lose. Such money should stay in the emergency funds. The volatility of the stock market could cause us to lose money leaving us in a fix when we need the money for urgently.




Managing Personal Finance

I believe how rich we are depends on how much we can save at end of each month. In my opinion, managing personal finance comes first before investing.

I always aim to save between 40% - 50% of my take home pay every month. Majority of what I save will go into my investment funds. From there, I can build up my investment fund over time. We should watch our expenses and save as much as possible.

Very often we can make changes to our lifestyles to save more money. For example, I switched from drinking Starbucks coffee to making my own coffee at home. I love chocolates and candies but I only buy them when they are selling at a discount. One can still enjoy life and be happy without excessive spending.

Car ownership is expensive in Singapore. We should avoid owning one unless we really need it.

By staying away from smoking, excessive drinking and gambling, we are also giving our savings a big boost.





Insurance

Having adequate insurance is important. There are basically three main types of life insurance policies. They are Term Insurance, Endowment Insurance and Whole Life Insurance. One has to know the differences and decide which type is suitable.

Do take a look at the effect of deduction and distribution costs when evaluating a policy. Very often the deduction can be very high!

For me, I prefer Term Insurance. I do not like to mix investment and insurance. Term Insurance premiums are not as high and it does the job of providing insurance protection. With the lower premiums compared to Endowment or Whole Life Insurance, I can have more savings which means I have more money to invest for better returns.

I would like to point out that for young people who have just started working, they might not have so much money. Term Insurance is a viable option, but very often insurance agents/financial advisers will not mention this.

Read Part Two: here.

Tea with Matthew Seah: Dollar Cost Averaging and expected returns.

Although many have asked questions on which investment account is better, no one has asked about the expected returns from opening these accounts.

I feel that knowing the expected returns is as important as educating readers on the pros and cons of opening an investment account with POSB/OCBC/POEMS.

Thus, I have created a spreadsheet for readers to use:

https://docs.google.com/spreadsheet/ccc?key=0AtcoupwJgDW_dG1FRDRTSmtEcU9JcEliZzFwRFJqa1E






Below are the assumptions made in creating the spread-sheet:

1. Investing commenced since inception of STI ETF (ES3).

2. Investing is done on the last trading day of each month at closing price.

3. Fees are charged according to non-promotional rates as stated in the FAQs.

4. Fees are charged on investment capital used in buying the shares.

5. Dividends are recorded on 'Record Date.' 

(A fee is charged on the dividend received using POEMS ShareBuilder Plan, thus the dividend received is lower compared to the banks’ accounts.)





Why use STI ETF?

STI ETF has been around for a longer time (11 April 2002 - amended-) than Nikko AM STI ETF (24 Feb 2009). 

At inception on STI ETF, STI at 3344.53 was nearer to the all-time high of 3889.68 than STI’s value at Nikko’s inception date. 

Thus, STI ETF will give a lower and more conservative long-term return as investing starts near the peak as compared to investing in Nikko which started near the bottom of the recession.

Why last trading day of the month?

I don’t think there is much difference over the long-run with regard to the day in which to invest. 

Last trading day is just my preference.

Fees as charged?

Dividends are recorded on the Record Date as that is the date when your shareholding is confirmed by the manager. 

Since my purchases are at the close price, when the Record Date coincides with my purchase date, the dividends received are based on the pre-purchase number of shares.

I used Internal rate of return (XIRR function), which gives a more holistic measure of the true annual return as opposed to Compounded Annual Growth Rate (CAGR), which does not account for capital injection after the initial investment.





What you need to do is input your desired monthly investment amount and you will be able to see the total return and XIRR since 10 Jan 2008. 

On top of that, you can also compare the returns across the 3 different regular investment plans by looking at the "Overview" section of the first worksheet.

As mentoned, 10 Jan 2008 is near the all-time high for STI, so the simulation can show how the investment plan would perform when u buy near the peak of the bull cycle. 

Since we are near the 2007 peak, we can justify that the performance shown is close to what one would get for an entire economic cycle of bull and bear (similar to the peak-to-peak or trough-to-trough of a wave signifying one full cycle of the wave).





I feel that this is as close as we can get to determine the potential of the investment plans through an entire economic cycle (though the current bull market has yet to become a full fletched bear).

Please note that past performance DOES NOT guarantee future results.






Related post:
Tea with Matthew Seah: POSB Invest-Saver Account.

AIMS AMP Capital Industrial REIT: DRP likely a flop.

In May 2013, I said that "with the DRP offered by AIMS AMP Capital Industrial REIT with regards to 4Q FY2013's distribution, I have decided to accept some DRP units and the balance in cash."

I was able to make some extra money in the last Distribution Reinvestment Plan (DRP).

This time round, however, it is impossible and the DRP is likely to be a big flop for the REIT with its unit price last traded at under $1.50 a piece.

Related post:
AIMS AMP Capital Industrial REIT: Distribution Reinvestment Plan.

When to BUY, HOLD or SELL? (Part 2)

Now, a question that people sometimes ask me with regards to selling is if they should cut loss? 

Well, from a valuation perspective, if we got into a stock which we thought is worth $10 a share at, say, $8 a share, and if the price should fall to $6 a share, should we sell?

OK, let us push this a little and let us say we thought the stock is worth $10 a share but for some reason, we bought it at $12. At $6 a share, should we sell? 

I think you know the answer.

Well, if we need the money urgently because there is an emergency at home, then, we don't really have a choice, do we? 

This is also why we must always use money we can afford to lose for investing. 

If we don't need the money, everything remaining equal, should we not be thinking of buying more if prices fall? 

This is why we must always have a war chest ready!

What we have to remember is that we want to buy at a price we would not sell at and sell at a price we would not buy at. This is a general mantra we should chant to ourselves and embrace its spirit.

Although we might think that $10 for a certain stock is cheap, it does not mean that it would not become $8 or $5 or even $2. 

Of course, if we are sure that our facts are correct and our reasoning is right, we should be buying more as prices fall.

Isn't it risky to buy more as prices fall? Of course, there is risk involved. Cheap could get cheaper. This is why I feel that some knowledge of technical analysis (TA) is useful. 





Purists in fundamental analysis (FA) will pooh pooh at this idea, of course, but unless we have very deep pockets, I think a bit of TA is useful. Anyway, I will talk a bit more about TA later.

Now, since we are on the topic of risk, some would argue that the level of risk associated with an investment should be considered when we talk about valuations. 

So, in the case of a business trust, for example, if it is perceived to be more high risk in nature, we would need a higher distribution yield before we invest in it, wouldn't we? 

I blogged about how this was the case for me when I invested in Perennial China Retail Trust: here.

The same goes with bonds although in the case with bonds, the holders are more lenders than investors and I blogged about bonds before: here and here.

Now, with interest rates rising and we are seeing higher coupons from 10 year bonds, the risks associated with REITs have risen. 

This is why their unit prices have fallen because Mr. Market is now demanding higher distribution yields for investing in a riskier instrument compared to 10 year government bonds. I am not saying anything new, of course.

As anyone can see, there is no one size fits all valuation technique.





So, some have thrown up their hands in despair and decided that they would only use charts to help them decide when to buy and sell. TA gives us a peek into Mr. Market's psychology. 

We then buy and sell based on technical signals which tell us the sentiments in the market. 

Of course, TA is about probability and never certainty. 

TA is about managing probabilities!

There is no exactitude, no matter which approach we choose to use. There are only approximates. 

As long as we are approximately right, we are better off than being exactly wrong. This is good enough. 

This is what Warren Buffett would say. If you have yet to watch the video on why he is the world's greatest money maker, watch the video: here.

Make money using the tools available to every person.

Valuation is a subjective exercise and often, whether to BUY, HOLD or SELL, we have to rely on experience too. 

If there was a magic formula that worked all the time, Warren Buffett and any investment guru for that matter would never have made bad investment decisions in their careers. 

So, it is important to remember this and not become narrow minded when we think of valuations.

Related posts:
1. When to BUY, HOLD or SELL? (Part 1)
2. Recommended books for FA and TA.