Friday, April 20, 2018

Bedokian Portfolio In Graphics

A graphical look on some of the important points mentioned in The Bedokian Portfolio ebook.

Diversification Levels

Bedokian Portfolio Allocation

Fundamental Analysis Levels

Sunday, April 8, 2018

Tariffs, Tit-for-Tats and Trade Wars

Recently the financial markets are jittery over trade issues between the two largest economies of the world, China and the United States. With figurative blows at each other, the markets are experiencing a roller coaster ride of sorts. Over the past five days from 2 Apr to 6 Apr, the S&P 500 index swung between 2558 and 2671 points1, while our STI fluctuated between 3339 and 3445 points2.

While it is not confirmed whether some or all of these tariffs will come to fruition, such news could bring butterflies to most stomachs. Though some may consider these market swings as minor, in reality we do not really know what is in store for investors in the future. So in case of a trade war happening, what should we do about it?

Think Regional and Country

Though the atmosphere of the markets may be pessimistic, there are some places in the world that are not affected by tariffs totally. Since tariffs work on imports and exports, economics 101 dictate that if goods from a certain place get more expensive, it would be natural to source them cheaper from another location. This “another location”, in turn, would reap the benefits, ceteris paribus.

For example, Australia is seen as one of the likely beneficiaries if a trade war happens, as it could provide what is on China’s tariff list of American products, such as wine, steel, etc3. Also, China’s proposed tariffs on American soybean imports may prompt Chinese buyers to source the beans from elsewhere, which could be Brazil or Argentina, the next largest producers4.

With this information, you could consider investing in counters and ETFs that has exposure to these regions and countries.

Think Domestic

Ironically, we could also look at the domestic markets of China and the United States. Sounds oxymoronic? Not really. Again a reminder, tariffs affect imports and exports, so we could look at sectors and companies in those countries that have minimal exposure to the items on the tariff list.

Goldman Sachs recommended companies that have large domestic sales exposure5. This seems to be a legitimate reason as the revenues of such companies are not affected by trade wars, since their customer base is mostly from within.

Thought, Final

Overall the strategy and maintenance of the Bedokian Portfolio in terms of your preferred asset allocation, as well as the basic rules such as the 12% limit6 still holds paramount. Furthermore, we do not know if the looming trade war is ever going to happen. In investing, the most important thing is to stay calm and react accordingly should any event occurs.

1 – Yahoo Finance. S&P 500 Index, 2 – 6 April 2018. (accessed 7 Apr 2018)

2 – Yahoo Finance. STI, 2 – 6 April 2018. (accessed 7 Apr 2018)

3 – Neuman, Scott. Who Wins A U.S. – China Trade War? Maybe Australia. National Public Radio. 3 April 2018. (accessed 8 Apr 2018)

4 – Karuga, James. 10 Countries With Largest Soybean Production. Worldatlas. 25 April 2017. (accessed 7 Apr 2018)

5 – Kim, Tae. Goldman Sachs says here’s where to invest during a global trade war. CNBC. 4 April 2018. (accessed 8 Apr 2018)

6 –

Wednesday, March 28, 2018

Bond Coupon Rate and Yields

After starting this blog back in 2016, I realised that I have yet to write a single post on bonds. Let me start the bond ball rolling by explaining bond coupon rate and the two common bond yields used, current yield and yield to maturity.

Coupon Rate and Current Yield

The coupon rate of a bond is always calculated based on its par value. If a $1,000.00 bond’s annual coupon rate is 5%, the bondholder will get $50.00 per year (5% of $1,000.00 = $50.00).

Like any investments, the market value of a bond will fluctuate depending on its demand and supply. Since the coupon rate is fixed, we could use current yield calculations to see if it is higher or lower than the coupon rate.

If the market price of the bond is $950.00, the current yield would be $50.00/$950.00 x 100% = 5.26%.

If the market price of the bond is $1,050.00, the current yield would be $50.00/$1,050.00 = 4.76%.

From the calculations, it is observed that if the bond is at a premium (above the par value), the yield would be lower than the coupon rate, and vice versa if the bond is at a discount (below the par value).

Yield to Maturity

Another way to look at bond yields would be the yield to maturity (YTM). According to Investopedia, YTM is “the total return anticipated on a bond if the bond is held until it matures”1, and some bond investors prefer to look at YTM as it could be used to compare with other bonds that have different coupon rates and tenures.

Calculating YTM is a bit more difficult than calculating current yield as the former involves present value calculations, but the good news is there are online calculators available.

Providing some examples, if a $1,000.00 bond with a 5% coupon rate (paid annually) and 10-year tenure is priced at $950.00 in the financial markets, the YTM would be 5.67%. If the same bond is priced at $1,050.00 instead, the YTM is 4.37%.

Relationship Between Coupon Rate, Current Yield and YTM

From the above example calculations, we can clearly see the relationship between the coupon rate, current yield and YTM. Below shows the relationship summary conveniently.

Bond priced at par: coupon rate = current yield = YTM
Bond priced at premium: coupon rate > current yield > YTM
Bond priced at discount: coupon rate < current yield < YTM

1 – Investopedia. Yield to Maturity. (accessed 27 Mar 2018).

Sunday, March 18, 2018

Did You Miss The Sale?

Everyone loves a sale. It is during a sale period that you can shop for things at a bargain. There are sale periods in the financial markets as well, but there is a huge difference; Department stores will tell you when the sale starts and how long it will last, but financial markets will never tell you such things.

The most recent sale period was during the market downturn in early February. As above, there was no announcement that share prices were going to take a dip, and also in my post here I had stated that we do not know how long this was going to last.

Looking back, the question asked was did we miss the sale during those few days? For me, it would be yes, for I had only bought into one REIT during that period, and before I could deploy my resources, things were going back to normal.

However, we could learn something from this episode and better prepare ourselves for the next sale. Like an avid shopper, we could draw up a wishlist or shortlist of sorts.

Prepare a Shortlist

In my ebook, I had mentioned about preparing a shortlist of the financial instruments available for your Bedokian Portfolio1. The shortlist contains counters that you are interested in, but it is not at the right time to enter. Also, it could be a list of your existing counters in your portfolio with a new target price of entry.

It is entirely up to you on how much information and parameters to put in the shortlist, but it is important to keep it updated. You could pluck off the figures from Google or Yahoo finance for a first glance, and if you want to go deeper, read them off the last quarterly or annual report available from the companies’ websites.

Such a shortlist serves as a useful quick reference in a sale period, so that you could make a fast decision of whether to buy in or not.

1 – The Bedokian Portfolio, p94-95

Wednesday, March 7, 2018

A Must-Read Investment Book

When it comes to the realm of investment books, there are tons of them. Some are written by famous greats, like Benjamin Graham’s The Intelligent Investor and Peter Lynch’s One Up On Wall Street. There are also books on the different portfolio styles, like The Permanent Portfolio by Craig Rowland and J.M. Lawson, Pioneering Portfolio Management by David E. Swensen, and not forgetting my humble contribution in the form of The Bedokian Portfolio.

There is another investment book which I felt is a must-read by both beginners (for learning) and seasoned investors (for re-learning), and it is Essentials of Investments. It is written by finance professors Zvi Bodie, Alex Kane and Alan J. Marcus.

Hold On, Is This a Textbook?

Well, yes it is, and it is about 700-plus pages thick.

A school textbook usually provides the basics of a subject in a structured, topical manner, along with worked examples, problem questions and a few real-life articles pertaining to the topics covered. Essentials of Investments is just that, as it covers almost everything you need to know about investing (and trading), plus the whats, whys and hows. It talks about equities, bonds, portfolios, options, futures, basic economics, financial statements, etc. Now you know why the book is that thick.

But 700+ Pages, It May Take Too Long To Read

In my opinion, if a reader has the drive, focus and passion, no measurement of book thickness is able to stop him/her (Harry Potter book fans are a good example). Granted, however, that the mathematics and formulae inside may be a bit daunting and dry to some, but you could casually read through at your own leisure or you could just jump around the chapters; After all your time limit is not one semester.

I personally feel the key takeaways in terms of additional knowledge gained are priceless and can open additional doors in your investment journey.

Happy reading!

You can purchase Essentials of Investments from bookstores such as Amazon and Books Kinokuniya, or borrow it from the public and institutional libraries (use the respective library portals to search for it). Currently it is at the tenth edition, but you could still read up the previous editions.

Tuesday, February 27, 2018

Yield on Cost

We all know that by normal convention, yield is calculated as the annual dividend/coupon/interest amount divided by the current price of the security, which is current yield. However, some investors, instead of using current price, used the entry price as the denominator. This is also known as yield on cost. They would prefer to look at this version of yield as they wanted to know the returns based on their initial investment amount.

For example, a person bought Company A’s shares at $1.00 a few years ago. Fast forward to the present day, the share price had risen to $1.50.  If the current year dividend was $0.15, the “normal convention” would be $0.15/$1.50 = 10%, but to him/her who uses yield on cost, it would be $0.15/$1.00 = 15%.

Do note that for yield on cost, we would have to take in two major considerations. The first would be the inflation effect. Assuming he/she bought the shares at $1.00 each back in end 2010, and with a 3% annual inflation rate, the new cost at the end of 2016 (for six years) would be about $1.19. Using the above example, the yield would actually be $0.15/$1.19 = 12.6%.

The second major consideration would be the factor of capital gain/loss. What if the share price dropped to $0.80 and the dividend is at $0.20? It would be $0.20/$1.00 = 20% for him/her, which looks good, but (not taking inflation into play here) there is a capital loss of $0.20. Of course, any investor would have noticed it, but if one concentrates on this yield only, the capital loss would be like the elephant in the room that was not addressed.

Whether an investor wants to look at current yield or yield on cost, it is entirely up to his/her preference.