Wednesday, March 13, 2024

Gaining And Holding

There was an interesting point brought up during one of my group investment discussions:

If a crypto trader had earned millions back in early 2021, did he/she ever thought of exiting the volatile positions and put them in a, say, dividend portfolio to earn cashflow?

 

Putting the crypto context aside, this could mean other scenarios, too, like:

 

I had a 2,000% gain on Nvidia over the past five years, and now I want to exit and invest in a portfolio to preserve it. How to go about it?

 

From my anecdotal observations and readings, the above two italicized situations are very far and few between. The reason is simple: with their given risk appetite and methodology, investors/traders would stick to what they are familiar and comfortable with. A switch to investing for safety, like cashflow (e.g., dividend investing) for a trader is like a total shift of paradigm and mindset for them. Especially when the accumulation stage, i.e., raking in those millions, occurred over just a short time (five years or less), the propensity of continuing the strategy that brought in the dough would be high as the conviction of it works all the time is in their minds.

 

Every Day Is Not A Sunday

 

In a battle, both gaining and holding an objective or position is crucial. If we just keep on attacking and capture places along the way, very soon our resources are stretched, and if we are not careful, the other side would probably launch a successful counterattack which may wipe off our earlier gains. Therefore, in military strategy it is important to learn offensive and defensive tactics to minimise losses and to strengthen the overall positions.

 

The abovementioned can be employed in real life investing/trading as well. The first realization is that for every investible instrument out there, every day is not a Sunday; stocks, cryptos, real estate investment trusts, precious metals, etc. have their ups and downs. Though these may go up eventually over time, but we would not want to go through the heart attacks of experiencing ups and downs too often. 

 

While I do not encourage a full shift and I acknowledge the urge of trading is there (disclaimer: the Bedokian has a trading portfolio), a partial move of gains from the high volatility instruments to deemed safer ones would be advisable for wealth preservation. Thus, it is good to learn other forms and methodologies of investing that in a way lessen the losses, and a good one is to adopt a barbell portfolio strategy of having high risk/low risk assets in equal weights, and/or to create a conservative diversified portfolio with blue chip equities, bonds, exchange traded funds, etc.

 

Sunday, March 10, 2024

High-Ho Silver!(?)

Canadian Silver Maples (Picture credit: lecho0047 from pixabay.com)

Gold had recently hit an all-time high of USD 2,190-ish due to the expectations of a cut of US interest rates coming soon. To explain further, a cut in the rates would bring down the demand of the USD, and gold, being typically seen as an USD substitute and non-yielding asset, would go up in value (see my post here for the relationship between gold and USD). 

 

With this, naturally its counterpart silver would be expected to go on an all-time high soon, yet the current price of the grey metal was nowhere near its two zenith points back in 1980 and 2011.

 

The first high was on 18 Jan 1980, when it traded around USD 49.45 per ounce (oz), and that was the result of market cornering by the Hunt brothers (article of this story under the Reference section below), so this was not due to pure economic reasons. The second high occurred on 29 Apr 2011, where silver reached close to USD 49 per oz. Depending on the news source that you read from, this rise was attributed to reasons ranging from the emerging Eurozone crisis, the silver supply chain issues, to the rising demand in its use of solar panels. In both cases, it went back to around their pre-spike price levels after a while.

 

Both gold and silver, though classified as precious metals, have different applications and use cases, thus giving the notion that both are the same and different simultaneously. Gold is mainly used for jewellery and investment, but it also sees some applications in the electronics field. Silver, on the other hand, has a heavy utilization on top of the ones for gold such as photovoltaic cells for solar panels, medical uses and even a component in the upcoming trend of electric vehicles.

 

Silver As An Investment

 

Three main ways of directly investing in silver would be via physical (bullion, i.e., coins and bars), securities (e.g., exchange traded funds (ETFs)) and precious metals savings accounts.

 

For physical bullion, the tips of investing in it would be similar to that of gold’s (see here). However, the premium for silver is higher than that of gold’s. For instance, based on online prices of a bullion dealer, a 1-oz silver bullion’s bid premium is around 15% over spot as compared to a 1-oz gold of 3% to 4% or so. Also, for a given amount to invest, the quantity of silver would be larger than gold, so storage is something to ponder about.

 

If going physical is not your cup of tea, then there are ETFs available, but they are listed overseas and, in my opinion, only a couple are suitable enough (e.g., SLV ETF). In the case of savings accounts, a couple of local banks provide this service.

 

The fundamentals of investing in silver (and gold) are very different from equities, real estate investment trusts and bonds. A popular way is to use the gold-silver ratio (see the write-up here for more information), while others use technical indicators such as lines of resistance and support, among others.

 

How Much Silver To Invest


According to the Bedokian Portfolio, the commodities asset class which silver belonged to stands at about 5% to 10%. There is no hard and fast rule on how much silver to invest in, so in my view it is up to the individual on allocating it with the gold and crude oil, the other two commodities for the asset class.

 

So now begs the question, will we see a high in silver prices like the time in 1980 and 2011? 

 

Only time will tell.

 


Disclosure

 

The Bedokian is vested in physical silver and SLV ETF.

 

Disclaimer

 

Reference

 

Beattie, Andrew. Silver Thursday: How Two Wealthy Traders Cornered the Market. 1 Feb 2024. https://www.investopedia.com/articles/optioninvestor/09/silver-thursday-hunt-brothers.asp (accessed 9 Mar 2024)


Saturday, March 2, 2024

Rational Exuberance?

For those who are experienced in the markets, having that “every day is a Sunday” feeling shared by many spelt signs of a possible meltdown looming over the horizon. In other words, the deemed unrealistic feeling that things will keep going up is called “irrational exuberance”, a term made famous by the then Federal Reserve chairperson Alan Greenspan back in the mid-1990s when he was describing the internet bubble, which eventually popped.

Going by English definition, the roots of irrational are purely psychological and emotional, as opposed to rational where objectivity and fundamentals hold key. Throw in the word “exuberance” which means excitement and is already a mental state, we can see why irrational exuberance is something we need to be wary of when it reared its head in the markets.

 

Now back to the blog post title, are we able to have a thing called “rational exuberance”? It sounds paradoxical, as it implies getting excited while keeping a cool mind. Imagine standing next to your favourite idol and yet display a cool composure (i.e. no giggling or hands-on-the-head-with-mouth-open expression) while having a joint photo taken; to me, that is a form of rational exuberance.

 

Yes, you can have those moments of rational exuberance. Playing again by word meanings, we can devote our investment energy in an objective way. One example would be to calmly scout for bargains when the markets are down. Another is to average up a security when the price is going up and you can still calculate its potential of climbing further. In other words, do not be swept by the maddening crowd, but instead going enthusiastically and rationally along the right direction.


Saturday, February 17, 2024

No More CPF-SA After 55, So How?

As an investment blog, I seldom talk about the dimension of personal finance, but after hearing from the Budget 2024 about the changes to the CPF Special Account (SA) and seeing the vast number of reactions to it, I decided to pen this post on the issue. The reasons being first, it somehow affected our step-down plan; second, it touches on the topics of portfolio drawdown and the portfolio multiverse, which are chapters in my eBook; and third, a lesson on risks and diversification.

To summarize in a one-liner: from 2025 the SA would be closed for all who are 55 years and above of age, and any balance from the SA would move to the Ordinary Account (OA) after setting aside the selected retirement sum into the Retirement Account (RA), if applicable. This meant that SA “shielding” (investing the SA funds to “shield” it from being swept into RA) and the subsequent treatment of SA as a high-yielding interest account would be rendered useless.

 

Our Step-Down Plan

 

With the announcement on Friday, many people online and my friends and acquaintances were busily recalculating the retirement models on their spreadsheets, and we did the same, too. Our moment of step-down was after the age of 55, and we used the assumption of no SA shielding to keep things projectable and simple. With the new ruling, however, two parts of our model were affected: the loss of an additional 1.5% thereabouts compounded from the supposed balance in SA, and the calculation of yield/withdrawal rate of our step-down income from CPF. For the former point, after reworking the numbers, the loss from a lesser compounding effect is not that much as our runway between 55 and the step-down age is relatively short. 

 

For the latter point, instead of using a generic 4% yield/withdrawal rate across our portfolios (which was based on the SA’s 4%), we would have to use two sets of withdrawal rates: 2.5% for the OA portion and 4% for the rest of the portfolios. With the new numbers, our projected annual income is down by around 9.5%, and to us we are still comfortable with the new amounts.

 

As mentioned in this post on our step-down, a good financial plan takes a lifetime, and this SA closure thing is an example of the kind of scenarios where you need to relook at your models and figures, and adjust accordingly to fit into the changing situations.

 

The Importance Of Diversification


Personally, I dislike the word “riskless” and yes, risks are everywhere. The only thing that differentiates between the risks is the probability of them happening. The false security comes when one who did not experience a risk happening would assume that the item/event would never occur, and thus label it as riskless.

 

Why I brought in the topic of risks is the general assumption by some on CPF keeping the things they are in years to come. While it is known that the risk of CPF not paying interest is close to zero, there is another that few did not realise is policy/regulatory risk, which is the possibility of change of rules and regulations pertaining to a policy. If one remembered decades ago (for younger ones you can approach your family elders to verify), one’s CPF funds could be fully withdrawn at age 55, and OA rates were once 6.5%.

 

The main countermeasure to reduce (not eliminate) risks is my oft-preached act of diversification, not just on asset classes but also portfolios, hence our portfolio multiverse concept. Whilst the CPF itself is reliable in fulfilling financial obligations of safekeeping of funds and interest payments, it is good to have at least another investment portfolio funded with cash to augment the former, just in case there are further policy changes. Overall, it is not recommended to base an investment and income strategy solely on one portfolio or even asset class.

 

The Search For Alternatives

 

The caveat that I want to put here is, besides RA, there is no known financial instrument (at least to me) that offers the near-consistency and simultaneous low risk level and high yielding characteristics of SA. So, if one plans to have a higher CPF Life payout from age 65 onwards, topping up RA to the prevailing Enhanced Retirement Sum would be a prudent idea.

 

For those who are not eligible for CPF Life yet and/or wanted to have a higher-than 2.5% yielding cash flow, some risk would have to be taken in the form of investing in equities for growth and/or dividends, and it would be better if the investment time horizon is long. There are bonds, too, and they are currently favoured with the prevailing high interest rates, like fixed deposits. Still, everyday is not a Sunday for equities, bonds, or even real estate investment trusts (REITs) and commodities due to the phenomenon of market cycles.

 

Like it or not, we would need to take it upon ourselves to learn and look for other alternatives if one door is closed. If the world of investment is too daunting, then approach it passively and periodically (e.g., dollar cost averaging into index exchange traded funds). The final word here is there is no excuse for not learning, for it is one’s own financial future that he/she is responsible for.

 

Reference

 

https://www.cpf.gov.sg/member/infohub/news/cpf-related-announcements/budget-highlights-2024?cid=cpfprel:bn:bau:alsgm:cpfoverview:cpf101:announcements


Wednesday, February 14, 2024

Inside The Bedokian’s Portfolio: iShares FTSE China A50 ETF

Inside The Bedokian’s Portfolio is an intermittent series where I will reveal what we have in our investment portfolio, one company/bond/REIT/ETF at a time. In each post I will briefly give an overview of the counter, why I had selected it and what possibly lies ahead in its future.

For this issue, I will discuss about the Hong Kong listed iShares FTSE China A50 ETF (2823.HK).

 

Overview

 

Incepted 0n 15 Nov 2004, 2823.HK tracks the FTSE China A50 index, which consisted of A-class shares (A-Shares) from 50 of mainland China’s largest companies traded on both the Shanghai and Shenzhen Stock Exchanges. The underlying assets are denominated in Chinese Yuan (CNY) and listed under two currencies in the Hong Kong Stock Exchange, CNY and Hong Kong dollars (HKD). The ETF has around 13 billion CNY under management with a fee of 0.35%, and the dividends are distributed annually (usually paid out in December).

 

Why 2823.HK?

 

Back on 3 Oct 2022 I had mentioned about holding this ETF. As stated in that post, I had selected 2823.HK due to two reasons: the A-Share holdings and the diverse sectors it presented. 

 

If you had ventured into the Chinese stock market, there are a few classifications of equities, like the commonly known A-Shares (shares issued in China of Chinese companies listed in the Shanghai or Shenzhen Stock Exchanges) and H-Shares (shares of Chinese companies listed on the Hong Kong Stock Exchange), on top of others. Though technically these two classes of shares are similar, there were instances where price divergences happened between the two, even if both share types were from the same company. This characteristic could be attributed to the availability of share types to different groups of investors; H-Shares are available to foreign participants easily while A-Shares are for mainland Chinese investors/traders and a regulated small group of foreign institutional investors. For investing in a country, our style is to own the securities as direct as possible where available to capture the local investing environment, hence we went for an A-Share ETF.

 

For the reason of diversification of sectors, this is obvious as it plays to our investment playbook. 2823.HK contains a vast spectrum of companies in different sectors such as the distillery Kweichow Moutai (consumer staples), Bank of China (financials), Foxconn Industrial (information technology), etc., thus representing the microcosm of the Chinese economy.

 

For our strategy, 2823.HK is a growth and dividend play in the portfolio.

 

What’s Next?

 

Chinese equities market and economy had gone through a rough patch due to a myriad of reasons including its overleveraged property sector and weakened consumer demand. The authorities had announced further stimulus measures to bring up the economy, so there is some economic positivity over the horizon.

 

The current price is HKD 11.74 (as of 9 Feb 2024). This presented a good opportunity for us to average down based on our previous entry prices (see under Disclosure below) so we may add more in the coming weeks. 2823.HK currently represented less than 1% of our Bedokian Portfolio holdings.

 

Disclosure

 

Bought 2823.HK at:

 

HKD 19.29 at Jul 2021

HKD 18.17 at Jan 2022

HKD 14.20 at Oct 2022

 

Disclaimer


Friday, February 9, 2024

Some REITs Are Having Lowered DPU. Should We Be Worried?

Recently a few REITs in our portfolio had reported their earnings and not all are having good news. To name a few headlines:

Paragon Reit posts 1.9% lower H2 DPU of S$0.0261

 

Lendlease Global Commercial Reit H1 DPU down 14.5% to S$0.0212

 

Aims Apac Reit’s 9M DPU down 4.1% to S$0.0699 on enlarged unit base3

 

Words such as “down” and “lower” do sound queasy, but if we read the news articles in detail, these were mentioned:

 

“Paragon Reit’s manager on Monday (Feb 5) attributed the lower overall DPU to rising interest cost.1

 

(Lendlease Global Commercial Reit) “The lower DPU was primarily driven by higher borrowing costs amid the higher interest rates as compared to a year ago.2

 

(Aims Apac Reit) “This was due to an enlarged unit base resulting from an equity fundraising in July 2023 to strengthen the…(Reit) balance sheet and support asset enhancement initiatives and future growth opportunities.3

 

We need to know that the REITs were reporting on past periods. While this is like a report card for them, we must understand the reasons why the distribution per unit (DPU) was lowered and we need to look into the future beyond the numbers published. 

 

Paragon and Lendlease REITs’ lowered DPU were attributed to high interest rates, and this was no secret as rates accelerated during the past 1.5 years or so. Even so, we see potential in these two REITs for the following two major reasons: the REITs’ crown jewels are malls that are situated along the Orchard Road shopping belt and could benefit from the rising number of tourists visiting Singapore, and; interest rates would be lowered earliest within this year (at least what the Federal Reserve announced, barring any unforeseen economic situations) so the weight of high gearing costs could be lessened.

 

For Aims Apac REIT’s case, the reduced DPU was due to unit dilution, but the increased capital was for future growth opportunities. Industrial properties are more resilient than office ones as the former do not suffer from the “work from home” issue. Furthermore, future asset enhancement initiatives could see increasing occupancy and tenant retention rates, which stood at 98.1% and 80.3% respectively in their latest report4, not to mention the potential positive rental reversions.

 

The conclusion thus would be that we would continue to hold these three REITs and may add more to our positions depending on their prices and sizing in our portfolios.

 

Disclosure

 

The Bedokian is vested in the mentioned REITs.

 

Disclaimer

 

1 – Zhu, Michelle. The Business Times. 6 Feb 2024. https://www.businesstimes.com.sg/companies-markets/paragon-reit-posts-19-lower-h2-dpu-s0026 (accessed 8 Feb 2024)

 

2 – Oh, Tessa. The Business Times. 1 Feb 2024. https://www.businesstimes.com.sg/companies-markets/energy-commodities/lendlease-global-commercial-reit-h1-dpu-down-145-s0021 (accessed 8 Feb 2024)

 

3 – Tay, Vivienne. The Business Times. 31 Jan 2024. https://www.businesstimes.com.sg/companies-markets/aims-apac-reits-9m-dpu-down-41-s00699-enlarged-unit-base (accessed 8 Feb 2024)

 

4 – AIMS AA REIT 3Q FY2024 Business Update, p5. 31 Jan 2024. https://investor.aimsapacreit.com/newsroom/20240131_065714_O5RU_XL1B2BYE753WKKFQ.1.pdf (accessed 8 Feb 2024)


Sunday, February 4, 2024

The S&P500: How High Can It Go?

One of the most common soundbites that I hear while listening in to the financial news channels over the years is this:

“The S&P 500 is at an all-time high today.”

 

And by looking at the charts, it is true; it is climbing, and its rise further accelerated since emerging from the ashes of the Global Financial Crisis of 2008/2009.

 

The obvious question now is: how high can it go? I believe this question has been asked many times before.

 

My answer to this is just four words: I do not know. As with all investment charts, high can go higher.

 

Digging in further, we know that the S&P500 is being hard carried by the Magnificent Seven counters of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. The potential and advent of artificial intelligence, as well as favourable earnings reports for some of them, spell further upside for the index.

 

But there are some talk that S&P500 is overvalued to some degrees, depending on the time frame used; using 5-, 10- and 20-year periods, the average price-to-earnings ratios for the index was 25.49, 23.83 and 24.7 respectively, lower than the current 27.131.

 

I had mentioned that the S&P500 is a good entry for newbies who are venturing into the United States (U.S.) market, being an index and representing the microcosm of the U.S. economy in general. However, if you are still worried on whether to go in given this perceived high, then you may want to go on a dollar-cost averaging (DCA, available for unit trusts and regular savings plan) and/or go in at a set number of shares per regular period (e.g., 100 shares of S&P500 ETF every quarter). This way you would not be worried about whether you went in on a low or a high, because the entry prices would be smoothed out, or averaged, over time.

 

Disclosure

 

The Bedokian is vested in the S&P500.

 

Disclaimer

 

1 – PE Ratio (TTM) for the S&P500. Gurufocus. 2 Feb 2024. https://www.gurufocus.com/economic_indicators/57/pe-ratio-ttm-for-the-sp-500 (accessed 4 Feb 2024)