13 blog posts for a sharing session on investing for income.

I participated in a sharing session earlier today on investing for income in the local stock market. The group was made up of experienced real estate investors who are possibly interested in diversifying their passive income stream by investing in the local stock market.

So, I shared with them my little ideas regarding bonds and stocks and, to a large extent, drew upon past blog posts for this purpose. These were the ones in the notes I gave out:


1. Nobody cares more about our money than we do.

2. Perpetual bonds: Good or bad?

3. Leverage up and buy investment properties now?

4. Gear up and receive more passive income.

5. Bonds, REITs and the instant gratification of yield.


In the course of my rather long winded discourse, I also made verbal references to several other blog posts and I am listing them here for easy reference. Yes, I know it is a chore to comb my blog. I find it a bit demanding myself but thank goodness I still have a fairly good memory:


6. How should we approach REITs as investments for income now?

7. AIMS AMP Capital Industrial REIT: Making money.

8. Saizen REIT: Sell the entire portfolio or find a bigger partner.

9. A simple way to a double digit yielding portfolio.

10. Motivations and methods in investing.

11. Save 100% of your take home pay. What?

12. Recommended books for FA and TA.

13. How to be "One Up on Wall Street"?


It was invigorating as I fielded questions from participants and got to make some pocket money at the same time. :)

Related post:
Two blog posts I would like the recovery group to read.

SembCorp Marine: A nibble.

Shareholders of Marco Polo Marine would remember that they ordered an oil rig from SembCorp Marine earlier this year. The value of the contract was about US$214 million. That is a lot of money. SembCorp Marine is a leader in the building of oil rigs, of course, and they have an impressive order book.

That led me to wonder if it might be a good idea to be a shareholder of SembCorp Marine too and benefit from Marco Polo Marine's purchase of the oil rig. Yes, I know. I am so greedy. Bad AK, bad AK!

SembCorp Marine was trading at about $4 to $4.20 a share back in February. The stock price was in a downtrend. (It still is.) Support was at around $3.90. The moving averages were all descending and the momentum oscillators were not supportive. (They still aren't.) So, there was a good chance that prices could go lower.

The many times tested support at $3.90 gave way eventually and, this morning, stock price hit a low of $3.54 a share. The CMF hinted that selling pressure has reduced. It could be that some short positions were being covered and it could be because this is the last trading day of the week.

Ahead of a long weekend, short sellers might think it safer to close their positions. Selling could resume next week or it might not. So, with share price more than 10% lower than it was in February, I wondered if I should wait a bit more or buy this morning?

I took a look at some numbers:

From a valuation perspective, the stock is more reasonably priced now. In April 2011, when it touched a high of $6 a share, it was trading at a PE ratio of 16.66x. Pretty high. Mr Market obviously expected better earnings to come but better earnings did not come.

Today, share price touched a low of $3.54 in the morning. At that price, assuming an EPS of 24c, annualising 1H 2014's figures, we are looking at a PE ratio of 14.75x. This would seem like a fairer valuation although still not cheap.

If we believe that oil is still going to be an important energy source in the world and if we believe that any weakness in oil prices is temporary, then, weakness in the share prices of rig builders with good track records like SembCorp Marine presents an opportunity to get in at more reasonable valuations.

As I like to be paid while I wait, I looked at the dividend payout record of SembCorp Marine:

It seems to me that SembCorp Marine normally pays out about 50% of their earnings as dividends to shareholders and more during good years with better earnings. An 11c to 13c DPS would mean a dividend yield of 3.1% to 3.67%, given an entry price of $3.54 a share. As an investment for growth and income, I feel that this is pretty decent.

So, although a PE ratio of 14.75x  does not look cheap, I decided to initiate a long position this morning at $3.56 a share. A nibble, so to speak. Didn't throw in too much and definitely not the kitchen sink. Continuing weakness could see gap cover happening at $3.30 and for people who believe that gaps will eventually be covered, it could be worth waiting a bit more.

What would I do if price should test $3.30? I would probably be buying more.

Related post:
Marco Polo Marine: Drilling for higher income.

A H&S story: Make money that helps us spend less money.

Hospitalisation and surgery (H&S) insurance coverage is a must have for everyone. What might not be perceived as a must have is the rider that is usually offered and one possible reason is that this is an out of pocket item which means that we cannot use our Medisave savings to pay for it.

However, I am quite happy to pay for the rider and will encourage anyone who can afford the rider to get it. Early last year, I shared that:

"So, it means that I only have to pay 10% of my total medical bills if I were to be hospitalised and this 10% has an annual cap of $3,000 in my case. So, if my hospitalisation and related bills were to total more than $30,000 in any year, I would still pay a maximum of only $3,000."

Hospitalisation bills could turn out to be quite burdensome. Knowing that I have only got to pay $3,000 even if my bills should exceed $30,000 in any one year gives me peace of mind.

The rider costs more as we age but don't let that dissuade us from having it because the rider will become even more important as we age. Why?

The chances of being hospitalised and of being hospitalised for many more days per visit will only go up as we age. This is quite natural. So, naturally, we should keep the rider. Simple.

So, in the case of my mom, I told her I will pay for her H&S rider if she cannot afford it. I would rather pay for the H&S rider and also the maximum of $3,000 annually in case of hospitalisation than to pay the regular deductible and co-insurance with each stay in a hospital for her. There is no way of telling how much these might cost on a per visit and per year basis but with the H&S rider, I know how much I should be prepared to pay every year.

If only risk management was always so easy.

Get ourselves and our loved ones insured well and we will not have to fear big hospitalisation bills that will one day come to us. This is simple enough to understand. So, for those of you who have yet to act on this, there is no time to lose.

Of course, I understand that it is a pain having to pay for anything. It would be wonderful if everything in this world was free but that would remain a dream. So, we work so hard to make money only to see the money going to pay for all the expenses in life? I know the feeling. Ouch.

Well, it would be less painful if the money used to pay for all the expenses in life were money that we did not work so hard to make. Huh? Well, what if it were money that was made by money that we worked hard to make? OK, I am sure you get the idea now.

Make some money that will help us spend less money especially on necessities in life. H&S and the rider are two such necessities.

Related posts:
1. How to get free medical insurance?
2. Enhanced Incomeshield for my mom.

Which investment and personal finance bloggers to follow? (5 revelations from a regular retail investor.)

Whether we like it or not, many things in life have to be measured. However, it gets rather irksome when people want to measure us against others. 

If you get the feeling that AK is going to be ranting in this blog post, you are right!






My school results were measured against my cousins' all the time, I remember.

When I was a bit older, I told my mom and my aunts very firmly that I didn't like that. They stopped.

I think it was more fun for them than it was for me.

Now, for investments, it is the same thing. For some people, is not enough that we do well, we must be the best. 

Why do some people get so fixated with measuring and comparing everything?






"Wah, you are short! I am long!"

(Hey, I am talking about positions lah. Think straight hor. Huh? What do you mean 64 positions? Aiyoh, I don't know what you are talking about.)

Anyway, it gets so tiring sometimes that I wish I do not hear or read anything like this for a long time. 

It just gets quite pervasive at times.

I have been asked by some people on and off to give more details regarding my portfolio so that they can decide if I am beating some benchmark. 






What benchmark? 

The only marks I know on benches are graffiti in the public parks which might include the odd phone number offering some services by some people. 

Huh? Financial services? 

You say leh?

When I politely declined (for the umpteenth time), some people asked, 

"How would I know if you are worth following if I don't know?"

Wah! WAH! WAH!!!!!

Which color tastes better?

Hey, bro. Here are a few things I don't mind revealing:

1. Don't follow me. 

I have this fear of stalkers. I don't know why. I am just so scared of being stalked.

2. My investments might beat the index or they might not. I don't really care. 

All I care about is getting in with a margin of safety and having a dividend yield that makes sense. 

OK, sometimes, I get a little adventurous but I try to make sure that the occasional misadventure will not kill me. Yes, what I do care about is not losing money overall.





3. I never claim to be an expert or a guru. 

I am just a regular retail investor who got lucky quite regularly (I will admit). I say this all the time. There are some people who believe me and although not all are polite about it, I have no doubt that they are all clever chaps.

4. I am not very clever at spotting growth in companies. 

I can't seem to see very clearly what is in the future. I don't think anyone can guarantee growth. So, I rather get my hands on something which is more or less guaranteed, trying to avoid being stung at the same time.





5. The only person you should really follow is yourself. Know yourself. Know your temperament. Know your aptitude. 

You could be good at some forms of investment. Then, just stick to these.  If you want to be the best in the field, well, go ahead. Just, please, don't think that I feel the same way and that I have to be the best too.

OK, now I have a blog post I can direct some people to in future.

Related posts:
1. Motivations and methods in investing.
2. Market gyrations, my portfolio and a sabbatical.

Singapura Finance: 1 for 1 rights issue.

I have been a Singapura Finance shareholder for a few years. If you have not heard of Singapura Finance, well, it is not surprising as it is one of those sleepy stocks that don't really shout out for attention.

Why did I become a shareholder a few years ago?

1. They have a good track record of rewarding shareholders with meaningful dividends.

2. The stock was trading at a big discount to NAV. (It still is.)

Nothing exciting, really. Just the usual stuff I look out for.

In the last few years, however, earnings came under pressure. EPS declined and dividend per share (DPS) also declined.

The reason really is due to the low interest rates environment and the Chairman said:

"The Singapore Dollar interest rate, which closely tracked the US Dollar interest rate, remained at an exceptional low level throughout the year. As a result of the continual low interest environment coupled with the relentless market competition, interest margin was subjected to immense pressure and deteriorated further during the year. Against such challenging external backdrop, and the need to provide additional collective impairment for the loan allowance, the Group profit after tax for the current year declined 21.2% to $5.3 million." (Taken from Annual Report 2013.)

How are things looking now? Results improved in 2014 and profit after tax rose 10.2%.

Now, with interest rates likely to rise next year, it seems that Singapura Finance might do much better again in future. To ready themselves, they are strengthening their capital base by having a 1 for 1 rights issue at an issue price of $1.00 per share. This rights issue is renounceable which means that shareholders could sell nil-paid rights in the open market if they do not mind having their shareholdings diluted.

I know that some readers might be thinking about possibly buying Singapura Finance's stock now to participate in the rights issue. If you are one of them, you might want to consider the following first:

With a theoretical ex-rights price (TERP) of $1.275 per share, nil-paid rights selling at any price lower than 27.5c (when they start trading) would be "cheap". At a NAV/share of $2.10, a share price of $1.55 is cheap (26% discount to NAV) but, post rights, NAV/share becomes $1.55 or so. So, the TERP of $1.275 is less cheap (17.75% discount to NAV, post rights issue). Of course, rights shares at $1.00 each represents the best value for money (35.5% discount to NAV, post rights issue).

Expect EPS and DPS to half as well, ex-rights. 3.5c and 2.5c, respectively, perhaps? Of course, this is assuming that everything else remains equal and that there is no improvement in business performance in future which seems unlikely to me.

For existing shareholders to subscribe for the rights allotted to them is, ultimately, to show confidence in the management that they will be able to improve earnings by more than 100% in due course. It has to be more because even if earnings should improve by 100%, it would mean that business performance has not improved one bit on a per share basis. Then, it would be better not to have had the rights issue.

I will subscribe for my rights as I am confident that interest margin will improve in future although the business environment is likely to stay competitive. I will apply for excess rights too but I will give the nil-paid rights a miss.

Taking part in the rights issue is to believe that the additional funds will generate a much higher EPS in the medium term. In the short term, business performance could continue to be lacklustre and whether this would put downward pressure on the share price or not is hard to say.

See announcement on rights issue: here.
Visit Singapura Finance's website: here.

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Saizen REIT: Sell the entire portfolio or find a larger partner.

One of my more successful investments in the last few years is probably in Saizen REIT and regular readers who have followed the story would be quite familiar with it. So, I shan't repeat the narrative.

In the past issue of The EDGE, it was reported that a major investor in Saizen REIT is unhappy with the lack of growth in the REIT. Well, actually, the fact that Argyle Street Management (ASM) is unhappy isn't anything new and I blogged about my view in November last year.

Now, the CIO of ASM is suggesting that "we either sell the entire portfolio or find a much larger partner." There is quite a bit of frustration but it is probably justifiable.

This is because Saizen REIT's NAV/unit is $1.22 and it is trading at around 90c a unit. If all the REIT's properties were to be sold at valuation, shareholders would receive $1.22 a unit or a 35% gain from the current market price. So, if there should be a willing buyer, selling the entire portfolio at valuation makes sense.

In fact, I am inclined to believe that Saizen REIT's properties are worth much more since they managed to sell a property in May at 19% above book value and another one in August at 12.8% above book value. This suggests that the book values of the REIT's properties are rather conservative.

The REIT's NAV could be about $1.35 to $1.40 per unit. This means a potential capital gain of 50% to 55.5%. It is, however, I believe, harder to find a buyer for the entire portfolio at such high prices.

Well, whether or not the current managers of Saizen REIT are replaced, for me, is less important than how my investment in the REIT could be impacted.

I have examined before the sustainability of the current day DPU and, if I remember correctly, I said it should be sustainable for the next 8 years. Could we see the Japanese economy and currency strengthen in the next 8 years? I don't know but I do know that there is enough resources to maintain the current level of distributions for a few more years. Beyond that, I expect DPU to reduce, everything else remaining equal.

A DPU of 6.3c translates to a distribution yield of about 7% at a unit price of 90c. If I should be paid $1.22 per unit for my investment in the REIT, I would liken it to collecting many years of income distributions in advance which is not a bad thing. A bird in hand is worth two in the bushes, as the saying goes.

So, am I going to increase my exposure to the REIT? No. Why? Isn't it a good investment for income? I believe it is but my exposure to the REIT is already quite large and I estimate it to be some 12% or 13% of my entire portfolio. My only other two investments which are bigger are AIMS AMP Capital Industrial REIT and First REIT. I don't see any need to increase the weighting of any of these REITs in my portfolio.

What if I did not have any exposure? Well, if I should be happy being paid a 7% distribution yield buying into rather undervalued freehold Japanese residential real estate, I might initiate a long position. Then, all that is left for me to do is to wait.

Related posts:
1. Saizen REIT: Good investment for income?
2. Saizen REIT: Undervalued.
3. Saizen REIT: Is the dividend sustainable?