How to make recovering from investment losses easier?

Although we might feel quite clever or even smug from time to time, it is good to remind ourselves that we are not infallible and that we make mistakes.

In the same vein, it is quite impossible to make money in all our investments. Sometimes, we lose money. It is only natural. 





Of course, I always say that if we know our motivations for being invested, we will know what to do when thrown into any situation.

However, what if we were to suffer massive losses? 

Is the decision making process going to be any different?

Well, from a principled perspective, it shouldn't be any different. 

If an investment is no longer the investment it was, if it no longer fits our motivation for being invested, then, it should be removed from our portfolio. 

For many, this might be hard to do.

Avoid investing with borrowed funds.

I am assuming that no one likes a hard time. Normally, anyway. It could mean lots of stress, depression and sleepless nights. 

So, how do we avoid situations like this?

This might not be new to regular readers but if I were to distil what I have to say to just two points, they would be:

1. Do not invest more money than what we can afford to lose.

2. Recovery is made easier when we have a war chest ready.




Yes, AK sounds like a broken recorder but when the same things keep popping up, they are probably very important in one way or another and deserve some repeat mention.

Now, some might remember my experience with China Minzhong. 

I was convinced it made a good investment. 

The outcome was a good one but what if things had gone bad instead?

I said, "it might come as a surprise that I am not too affected by the possibility of a total loss if all allegations by Glaucus Research were proven true in due course...

"However, for people who have invested much more than they should have in China Minzhong, this could be a tall order. This is why I have said time and time again that we should always only invest with money we can afford to lose and not more."




For anyone who might not know what I am talking about or who might be interested in the blog post, here is the link: 

China Minzhong: What could happen and what to do?

In a reply to a reader and guest blogger then, I said,

"It is fortunate that I limited my exposure to S-chips to no more than 10% of my portfolio. It is unfortunate the exposure to S-chips at this point in time is in a single stock."

So, what was the worst case scenario then? 

10% of my investment portfolio could have gone down the toilet. 

Painful? Yes. 

Catastrophic? Not really. 

I could probably recover the potential losses in a year, give or take a couple of months and this brings me to the next point.

Losing 10% of all our bananas?

Not investing more money than what we can comfortably lose in the worst case scenario makes it easier to have closure in case things go wrong. 

However, it is my experience that it is easier to have complete closure if we are able to make up for the losses through future gains.

"Remember, we do not have to be 100% invested all the time although it is easy to feel a bit left out or a bit regretful that we are not putting more of our money to work as stock prices climb higher. Now, it might not be a bad thing to have a war chest full of cash and not do anything with it."

See related post #1.




I have had my fair share, maybe more than my fair share, of bad investments in my life as an investor. 

What I have shared in this blog post, distilled really to just 2 points, will hopefully be useful to anyone who is realistic enough to accept that investments can turn bad and how closure does not have to be too hard a process.

Related posts:

1. Revisiting AK's simple strategy with Charlie Munger.

2. Achieving $1 million in retirement funds.
"... without any money put aside, there is no way we would be able to take advantage of opportunities to buy on the cheap! Indeed, we might not even have to wait for a bear market to buy bombed out stocks as mispricing by Mr. Market could happen anytime ... "

Profitable Plots, EcoHouse, A2A and Macro Realty (The thought process of EcoHouse scam victims.)

UPDATE (3 AUG 17):
Macro Realty Developments Pte Ltd promised returns as high as 18 per cent yearly.

Singaporean police are investigating a property company believed to be involved in a ponzi scheme that conned hundreds of Malaysians investors out of millions.

According to an ABC report, the company is controlled by Australian Veronica Macpherson and received over A$110 million (S$119 million), mostly from Singaporean and Malaysian investors.

Although based in Singapore, Macro Realty Developments Pte Ltd offered investments to fund property developments in Pilbara, Western Australia.

Investors were promised returns as high as 18 per cent yearly.

The investment scheme was reported to have been heavily promoted in Singapore and Malaysia since 2014.

However, KPMG liquidator Hayden White told ABC that the scheme collapsed last year with creditors owed more than A$200 million.

...the alleged Ponzi scheme raised almost A$110 million from its 1,700-plus investors who were told their funds were being used for property developments but were instead used to pay the company's expenses, including the interest payments to early investors.

Source: http://www.asiaone.com/singapore/hundreds-singapore-and-malaysia-investors-duped-millions-property-company

Remember what is the question we must ask?
"How in the world is your company able to pay me XX% per annum when the properties are still being built and not generating any income?"

UPDATE (6 APRIL 17):
Profitable Plots, EcoHouse and now A2A. Why do people keep falling for these?

Lesson:
Marketing presentation plus a well decorated office is enough to make some people part with their hard earned money.

Lesson:
This is tragic. In our golden years, don't be too adventurous with money. It could turn out to be a case of misadventure.
-----------------
Remember Profitable Plots? It was a huge Ponzi scheme and money paid by Singaporean investors were used to pay investors in the U.K.

Timothy Nicholas Goldring, 60, was sentenced to seven years.

"Investors lost some $3.1 million in the Boron bonds scheme between November 2008 and August 2010. The two directors of land banking firm Profitable Plots promised 12.5 per cent in returns within six months. Most of the money ended up being used for unrelated purposes, including paying off debts to investors from the firm's UK business."

Source: AsiaOne, June 2014.

EcoHouse Group was international too and there were investors who gave money to EcoHouse in the USA as well:

Click to enlarge

Source: Alternative investments.

The blogger and investor has woken up to the fact that it is a scam, I believe.

I share this because I think it is useful to see what an average and reasonably intelligent investor's thought process might look like before he plonked down not an insignificant amount of money in an investment proposed by EcoHouse.

In summary? The investor

1. Liked the promise of very much higher returns.
2. Liked the relatively short investment horizon.
3. Noted a booming economy.
4. Noted the purported track record.
5. Noted the purported backing by the government.
6. Noted the purported 100% security of the investment.

EcoHouse Group was an elaborate scam and they knew how to push all the right buttons to get people to part with their money.

Most investors sucked in by the scam are probably swayed by points 1 and 2 above and were just nudged into the cooking pot by points 3 to 6. They probably didn't even bother verifying the truthfulness of points 4 to 6.

To me, all the justifications made to invest in projects by EcoHouse should have taken a back seat because the most important question to ask should have been:

"How in the world is your company able to pay me XX% per annum when the properties are still being built and not generating any income?"

Now, if we should be approached by salespeople or "advisors" promoting similar investments and I dare say that there are still quite a few around, what should we do?

"Seek as much transparency as possible. If they do not understand exactly how a manager is making money, do not invest. If there is a secret process that cannot be explained, run."

Read:
Samuel Israel, hedge fund manager of a Ponzi scheme.

Related post:
EcoHouse: Questions we must ask and people I detest.

EcoHouse: Questions we must ask and people I detest.

In the Singapore Armed Forces, we have a saying that "TSR is written in blood."

TSR stands for Training Safety Regulations, if I remember correctly. The regulations are written in blood because new regulations are introduced or existing ones improved after some fatal accidents. Unfortunate, I know, but being humans, a failing that we have is a feeling of invincibility until bad things happen to us.

This is why some friends and fellow bloggers feel that the best way for people to learn is through experience, falling down and picking themselves up again. OK, not everyone is able to pick themselves up again which is why I think fall prevention is still the way to go.

Having said this, there is a camp that believes no amount of education is going to work if people are not willing to listen or if they choose not to believe. Fair enough.

How many investment scams have been exposed? How many people have been scammed? How many millions of dollars have been spirited away? How many confidence tricksters have been convicted and put behind bars?

Surprisingly, many people are still falling victim to scams.

Hundreds of investors here, who ploughed millions of dollars into the hands of a developer claiming to be working with the Brazilian government on a social housing programme, were left fearing the worst after the Brazilian Embassy said on Thursday (Aug 14) that its government had no dealings with the company.

EcoHouse, which has abruptly shut down its Suntec offices, is neither affiliated with the Brazilian national housing programme nor registered as a partner of its state-owned bank.

On its website, EcoHouse claims that it was chosen by the Brazilian government as “the only UK company to date officially authorised to build developments under Minha Casa, Minha Vida”, which aims to provide three million homes for the country’s growing middle class.

The company was founded in 2009 by Mr Anthony Armstrong Emery. Various media reports have put the number of Singapore investors in EcoHouse projects at between 800 and 1,500. Up to S$70 million had reportedly been ploughed into three housing projects.

Some investors have begun legal action against EcoHouse to recover their capital investments, which amounted to a minimum of £23,000 (S$47,810) per unit.

EcoHouse had promised a 20 per cent fixed rate of return for a 12-month investment contract, but many investors said they have not received their returns or their capital despite their contracts reaching maturity.

Source: CNA

I feel very sad for these people who have lost their money and I would like to remind everyone that as investors for income, we must always ask the questions that matter. See related post #1 below.

I really detest people who have no qualms about cheating others of their hard earned money. I also detest those who work for them knowing well what they are doing and I do know of someone who was involved in one of those gold investment scams. Just because we know how something works and that we can make money from it does not mean that we should do it. To say nothing of legality, what about ethics?

The Chinese people have a saying:

君子爱财取之有道
"A righteous man makes money in righteous ways."

Related posts:
1. EcoHouse Group placed on IAL.
2. Just like taking candy from a baby.

The mystery of the extra money in my account.

I did an audit on my investment portfolio because of a discrepancy. There seemed to be an extra $2,200 which was deposited into my savings account. OK, I guess when there is more money, it is a "good" discrepancy to have but I don't like not knowing where the money is from.

As I am very much a pen and paper person and all my trading and income records are hand-written, it took me a while to flip through them as I checked line by line. Strangely, everything seemed correct.


Then, I dug out the Tax Invoices sent to me by my broker and checked them against my records. After going back some 12 months, I found the problem.

I am happy to say that the money, all $2,200 of it, is legitimately mine. Whew!

So, what was the matter?

I actually added to my long position in SPH last year in August when its share price plunged after the counter went XD (with regards to the Special Dividend of 18c per share). 

I got 10 lots at $4.03 per share. Some of you might have increased exposure too as SPH's share price went on to touch a low of $3.91 back then. Now, I remember a joke on my FB wall about how buying a few bids lower than AK's price can't be wrong. Good lesson for me. LOL.

Of course, these shares were not entitled to the special dividend and, somehow, I forgot about making an entry in my own records.

Since then, SPH has paid dividend twice, 15c a share towards the end of last year and 7c a share earlier this year. That makes 22c a share and explains the mysterious "extra" money of $2,200.

The feeling is similar to discovering a stray $5 note in my piggy bank when I was a boy months after emptying piggy of all the coins to buy a toy I was saving up for.

Related posts:
1. When to buy SPH's stock?
2. Tea with Mike: An analysis of SPH.

NeraTel: What is a sustainable dividend payout?

I was having a conversation with a friend this evening and he asked whether a 6c dividend per share is sustainable and I remember I replied to a similar question on my FB wall not too long ago. So, for those who do not follow me on FB, here it is:

"One of the assumptions I had when buying into NeraTel was a sustainable dividend payout of 4c per share. So, when I got in at 42c to 63c, I was looking at a yield of 6.3% to 9.5%. At 68c, when I added to my position, the yield was 5.88%. Even at 73c, the yield was 5.48%.

"As a company tries to grow, it is possible that dividend might reduce. However, being a net cash company, NeraTel could sustain higher dividend payouts if they want to. However, this will be essentially a return of capital if DPS should be higher than EPS."

Related posts:
1. NeraTel: 6 points to note.
2. NeraTel: Added to my long position.

Make money from subletting HDB flat.

I have always believed that HDB flats should be for Singaporeans who need them. HDB flats are subsidised public housing, after all. If we do not need subsidised public housing to stay in, don't be a dog in a manger. What do I mean by this?

Well, I have heard quite a few accounts of how some people buy HDB flats only to rent them out without ever staying in them. The rental yield can be as high as 10% per annum! Really, I am not kidding. This is an amazing yield. Imagine that in 10 years, that flat is virtually free. Then, imagine a high yielding asset for passive income for the next 89 years. From subsidised public housing?Something sounds very wrong, doesn't it?

So, do I think that HDB should compulsorily acquire such flats from errant owners? Yes. Obviously, they do not need the flats. Why shouldn't they be evicted?

Of course, "eviction" is probably not the right word to use. The flat owners weren't even staying in the flat. How do we evict phantom occupiers?

Then, there is the matter of owners renting out a room or two in their HDB flats, flouting some guidelines on short term rentals and possibly disturbing the peace in the process. What about those people? Where would they stay upon being evicted?

Well, apparently, HDB would arrange alternative accommodation in the form of rental flats. So, these people would not be homeless, contrary to some popular belief. Pretty decent of HDB.

For those of us who care enough to listen, there is something we should remember:

Even as we think to improve our quality of life, we should not compromise someone else's.

For those who are in doubt, this is from HDB's website:

HDB allows flat owners to sublet their whole flats after they have fulfilled the Minimum Occupation Period (MOP)... Flat owners who wish to sublet their whole flats after meeting the MOP must obtain written approval from HDB before they do so. While the approval of HDB is not required for the subletting of rooms, flat owners must register the subletting with HDB within 7 days of doing so.

Subletting of the entire flat without approval from HDB is an infringement of the lease. Those who commit the infringement can have their flat compulsorily acquired by HDB, or face a financial penalty.

There also have been cases of flat owners who try to circumvent HDB’s rules by locking up one room and subletting the rest of the flat without physically staying in the flat. Such cases will be treated as unauthorized subletting of flats if home owners did not meet the minimum occupation period and did not seek HDB's approval to sublet their flats.

HDB takes a serious view of unauthorized subletting and cautions home-owners against allowing moneylenders to use their flats for illegal activities. Flat owners are also reminded to seek HDB’s approval if they intend to sublet their flats. They must also register their subtenants if they sublet rooms.

Source: HDB

There will be people who would rant about such rules being unfair. Why can't they decide what they want to do with their HDB flats?

 

Hey, a reminder, these flats are subsidised public housing. They are subsidised by the State. The State is able to subsidise these flats partly because of taxes which are collected from the people.

 

When we buy subsidised housing which is made possible because of public funds, we have to think of the collective good. Now, that is being fair.

Related post:

Worse than losing money to XXXXX.

Worse than losing money to XXXXX listed on the IAL.

Thinking of renting out your spare rooms at home to make some extra money?

Well, make sure you don't rent them to tourists!

Earlier this year, two home-owners had their flats confiscated by the Housing and Development Board (HDB) because they had broken public-housing rules by renting their units to tourists.
Source: Channel NewsAsia

What is worse than losing money to scams investments which are listed on the IAL?

Losing our homes lah!



Don't play, play. Not worth it hor.

Related post:
EcoHouse Group placed on the IAL.

Managing exposure in AK's investment portfolio: Examples.

I received a few emails and comments both in my blog and on my FB wall regarding Yongnam and Marco Polo Marine. In the wake of their dismal results, some are wondering if they should stay invested. Of course, I won't tell people what they should do but I can share with them how I manage my portfolio so that I do not lose sleep over it.

 

Regular readers and attendees of InvestX Congress a couple of months ago might remember the graphic of a pyramid which I shared. In case you do not remember, it is found in this blog post: Motivations and methods in investing.

Many know that I invest primarily for income and these investments form part of the wider base of the pyramid. It is about investing for a predictable and, ideally, sustainable flow of income. Such investments provide my portfolio with a measure of stability that I desire.

I also invest for income and growth. This is about investing in companies which have the potential to grow and have shown some promise through their track records. On top of this, I like for them to show a commitment to pay dividends. Of course, I said before that both Yongnam and Marco Polo Marine were in this category.

I also invest purely for growth but this is higher up in the pyramid and such investments, without any dividends, should form a smaller portion of my portfolio.

So, for example, I reduced my exposure to Marco Polo Marine as it would probably struggle to pay a dividend now because not all its businesses are doing well but I am still optimistic that the company would see impressive growth if the purchase of the oil rig should work out the way the CEO thinks it should.

Now, what about Yongnam? They announced a bigger loss than expected in its latest results. A question to ask is whether this weakness is enduring or is it temporary? I am inclined to believe that it is temporary. So, I am staying invested.

With Yongnam, it is about securing more projects and, hopefully, those with higher margins. Although I am optimistic that Yongnam will do better in future, in the near term, the thesis for investing in Yongnam for both income and growth has been shaken. So, I might reduce exposure, similar to what I did with my investment in Marco Polo Marine.

Now, some might ask if I would lose money by reducing exposure. I might.

Might? Yes, might, not would.

It is good to remember that in all my investment decisions, it is partly about getting in with a margin of safety. Of course, with trading decisions, it could be quite different.

Also, because I usually invest with an income angle in mind, losses, if any, are less daunting, taking past dividends into consideration.

If I had divested some of my investments when stock prices ran up, then, I could actually end up with a gain even if I were to reduce my remaining long positions at a loss later on. I did this for Yongnam before but, unfortunately, I did not do so for Marco Polo Marine. Why?

Yongnam's share price ran up because of speculation regarding its chances of getting that big job in Myanmar. Marco Polo Marine's share price ran up, I believe, because it was undervalued compared to its peers. So, a partial divestment in Yongnam's case when prices ran up was only reasonable to me but not in Marco Polo Marine's case.

We don't always do well in our investments as conditions change and these changes might throw a spanner or a few in our analyses. However, if we

1. Invest cautiously, always demanding a margin of safety,

2. Take some gains off the table when given the opportunity,

3. Stay invested if the investment still holds promise,

Over time, we won't do too badly.

Finally, it probably pays for some to remember that my investments in Marco Polo Marine and Yongnam are bits of a bigger investment portfolio. They are not my only investments. Remember the pyramid. Know what we are after and our methods should reflect our motivations.

Related posts:
1. Yongnam: DPS of 0.6c.
2. Marco Polo Marine: Reason for weakness.
3. Portfolio review: Unexpectedly eventful.