The Sunday Times
Jonathan Kwok
30/3/2014
One million dollars seems like a huge sum of money to any young adult.
It can probably buy you a small condominium. Or a few cars. I wouldn't even know what I would buy if I had $1 million.
It stretches my imagination to think about how long I will have to work to get to that magical seven-digit sum.
But for those of us starting our working life, we had better hope that we accumulate that amount in the next 30 to 40 years. Because we may all need around $1 million for our retirement.
That was the surprising conclusion last week when I used the retirement estimator on the Central Provident Fund (CPF) website.
My premises were simple. Assume a 25-year-old hoping to stop work at 62 and expecting to live to 83 - the life expectancy for Singapore men.
I assumed that the person would need $2,000 a month in "present dollars" - basically, that after retirement, he would consume the amount of goods and services that $2,000 can buy him today.
The CPF site assumed an inflation rate of 3 per cent and investment returns during retirement of 4 per cent.
And after the number-crunching, the figure of $1.14 million was generated.
"Owing to inflation, your desired monthly income of $2,000 (in today's dollars) would be the equivalent of $5,970 in 2051 when you retire," said the website to the hypothetical 25-year-old.
A smidgeon of good news was in the next paragraph.
"Similarly, the amount of $1.14 million at 62 is the equivalent of $381,000 in today's dollars," the site noted.
Ah, so the future $1 million is not really today's $1 million, if you get what I mean.
That gargantuan retirement sum exists in a future world where a bowl of prawn noodles will cost $10, and a small condo, not less than $3 million.
Fresh university grads had better be earning $10,000 a month by that time.
But still, it is a daunting figure to aim towards.
Who cares about "today's dollars" or "tomorrow's dollars"? The thing is, we better have seven digits in our bank accounts at 62.
If our investments or salaries cannot catch up with the assumed 3 per cent inflation rate, we will in fact be slipping further and further back.
I sure hope the McDonald's fast- food chain still hires older workers when I hit retirement age.
Far from our minds
It is safe to say retirement is one of the furthest things on our minds when we start out in the workforce - and understandably so.
There are a thousand financial commitments that suddenly creep up. The costs associated with getting a job include the daily commute and buying the right attire to look professional if that's your line of work.
There might be study loans to pay, and you may want to contribute financially to your family.
Unsurprisingly then, I was one of the youngest attendees when my company last year organised a talk on retirement planning.
The company had invited a speaker from the MoneySense- Singapore Polytechnic Institute For Financial Literacy.
As she asked for a show of hands, I found out that many of those in the auditorium had served the company loyally for 20, 30 or 40 years.
Those in the "less than 10 years" category, like me, were in the absolute minority.
"Who has time to think about retirement?" many people around my age may ask.
"It's so far away and right now I have so many immediate financial needs."
Unfortunately, such an attitude flies in the face of sound financial advice.
"Ideally, you'd start saving (for retirement) in your 20s, when you first leave school and begin earning pay cheques," said an article by CNN Money. "That's because the sooner you begin saving, the more time your money has to grow."
CNN isn't the first to extol the virtues of compounding and it won't be the last.
Basically, this refers to the ability for our money to snowball over time, as each year's investment returns get more returns in the next year and so on.
We will need all the help we can get from compounding, especially with inflation and longer lifespans.
The life expectancies of men are presumed to be 83 years while women can expect to live to 88, said the speaker at the company talk.
Such longevity should in theory be a blessing, but it can be a nightmare if we outlive our savings.
Many Singaporeans point to their CPF accounts, but really that should just be a part of our savings.
It may be a good idea to squirrel away a few hundred dollars each month just for retirement, leaving the money untouched come what may.
For the more enthusiastic ones, there is the Supplementary Retirement Scheme (SRS) to give tax incentives for retirement saving.
Not so simple
Of course, it is not so simple and there are multiple demands on our finances as we trudge through our 30s, 40s and 50s - making it harder and harder to save.
Planning our exact budgets for the decades to come can also be a headache.
You cannot just take the final retirement sum and divide it by the number of working years, to arrive at a figure of how much to save each year.
It isn't so simple, as our income and expenses will fluctuate throughout.
Alongside the simple retirement estimator that churned out the $1.14 million figure, CPF's website has a more detailed retirement calculator to help you plan your finances.
Using that more complicated calculator is tough, as you have to dig out all your financial details such as all your expenses, assets and liabilities.
Sometimes it turns into a fortune-telling exercise that would baffle the most experienced tarot card reader.
We are asked to impute our expected annual increment and bonuses, and the maximum salaries that we will hit in our lifetimes. I don't know how to pluck these numbers out of thin air.
With real-life personal finance so complicated, it makes the exercise very tedious and the results will have a margin of error.
I didn't complete filling in the calculator. So my retirement plan remains the same: Just save as much as possible and invest prudently.
Of course, critics will point out that this is as haphazard a "plan" as you can get. You can never know if you are saving too little until it is too late, and you find out you need to work beyond retirement.
For the love of a million dollars, I probably should use that complicated retirement calculator. And so should you.
jonkwok@sph.com.sg
--------------------------------------------------------------------------------
Background story
Start saving early
"Ideally, you'd start saving (for retirement) in your 20s, when you first leave school and begin earning pay cheques... That's because the sooner you begin saving, the more time your money has to grow."
Sunday, March 30, 2014
Sunday, March 23, 2014
How to avoid retirement blues
The Sunday Times
Goh Eng Yeow
23/3/2014
Recently, I took a break from work to attend a two-day workshop designed to equip older working professionals with the know-how to cope financially.
One exercise generated some surprising responses from course participants.
We were asked to work out how a 55-year old breadwinner could continue to support a homemaker wife, a son doing national service and a bedridden mother being looked after by a maid, if he loses his $7,000-a-month job.
To a hard-headed financial writer like myself, the first thing the breadwinner should do is to check if the investment strategy he uses to deploy his $700,000 CPF savings and cash can generate sufficient passive income to carry on with the lifestyle his family is used to.
But other responses were sometimes bizarre, such as the suggestion to bump off the ailing mother in order to send the maid home.
Others were hilarious, like the advice from one person who said the son should live permanently in the army barracks so his room could be rented out for extra income.
But the consensus was that the breadwinner and his wife should both try to get part-time jobs, as their $700,000 nest egg would be insufficient to last them through their golden years even though it seemed like a large sum.
There would also have to be painful adjustments to be made, such as getting rid of the family car and the maid - in short, giving up the lifestyle to which they had become accustomed.
Since this exercise relates to a typical Singaporean family, it is a chilling reminder of the fate which may befall us if we fail to do proper financial planning while still gainfully employed.
It is also a problem which may become more prevalent, since Singaporeans aged between 45 and 64 make up about 29.5 per cent of the resident population.
A report released last year by the Institute of Policy Studies, based on interviews with 5,000 senior citizens in 2011, sheds some light on the financial issues faced after retirement.
It noted that one in five respondents had no savings by the end of each month. For those aged 75 and older, the figure rose to an even more worrying 40 per cent. Among the respondents looking for a job after retiring, more than half said they needed money for current expenses.
In the light of this, it should come as no surprise that a financial adviser is likely to serve up a blunt message: Save your way to retirement - and try not to spend more than you earn.
Still, I don't believe in trying to cut expenses to the bone and confining myself to a fixed budget every day just to reap some savings.
Such strictures make a person feel small and kill the spirit.
Our lives lie ahead for us to enjoy. It would be very miserable if we have to worry about how we spend our money all the time. That condemns us to a life of mediocrity and makes us unwilling to take any kind of risks.
Having said that, I have many friends who stopped working in their late 40s or early 50s and chose to live only on their savings and investments. They do not seem to be any worse off for it.
Indeed, they live rich and fulfilling lives. One of them volunteers twice a week at a hospice after giving up a career as a high-flying investment banker, while another is a former partner with a top accounting firm who spends her time teaching pre-school children for free.
How do they do it? One common trait is that they have tended to live below their means even while they were holding high-paying jobs which would have enabled them to live a much more lavish lifestyle if they chose to. They are more likely to be savers than spenders.
But that does not mean that they are miserly about how they spend their money. Rather, it is more a matter of making better use of the money they earn in order to enjoy the finer things in life, as they consider the value of each purchase before deciding to hand over their cash.
And since they have always lived modestly, they do not feel the need to make any big adjustments to their lifestyle after they stop working, like downsizing to a smaller house or switching from driving a flashy luxury car to using public transport. It's life as usual for them, job or no job.
Another trait is their high personal involvement in managing their own money. They gauge the risk of each investment carefully before they put in the money.
You are unlikely to find them getting panicked by a sudden rout in the stock market, or joining the queue to buy a condo in order not to miss the boat because real estate prices are going up.
Maybe some of my friends' excellent traits have rubbed off on me, based on the personality profile provided free for each participant in our course.
Mine described my personality type as having learnt how to master money and use some of it for enjoyment.
"This balanced way of operating gives them a real sense of security when it comes to financial matters," it said. The description is flattering. I hope it holds true.
engyeow@sph.com.sg
Goh Eng Yeow
23/3/2014
Recently, I took a break from work to attend a two-day workshop designed to equip older working professionals with the know-how to cope financially.
One exercise generated some surprising responses from course participants.
We were asked to work out how a 55-year old breadwinner could continue to support a homemaker wife, a son doing national service and a bedridden mother being looked after by a maid, if he loses his $7,000-a-month job.
To a hard-headed financial writer like myself, the first thing the breadwinner should do is to check if the investment strategy he uses to deploy his $700,000 CPF savings and cash can generate sufficient passive income to carry on with the lifestyle his family is used to.
But other responses were sometimes bizarre, such as the suggestion to bump off the ailing mother in order to send the maid home.
Others were hilarious, like the advice from one person who said the son should live permanently in the army barracks so his room could be rented out for extra income.
But the consensus was that the breadwinner and his wife should both try to get part-time jobs, as their $700,000 nest egg would be insufficient to last them through their golden years even though it seemed like a large sum.
There would also have to be painful adjustments to be made, such as getting rid of the family car and the maid - in short, giving up the lifestyle to which they had become accustomed.
Since this exercise relates to a typical Singaporean family, it is a chilling reminder of the fate which may befall us if we fail to do proper financial planning while still gainfully employed.
It is also a problem which may become more prevalent, since Singaporeans aged between 45 and 64 make up about 29.5 per cent of the resident population.
A report released last year by the Institute of Policy Studies, based on interviews with 5,000 senior citizens in 2011, sheds some light on the financial issues faced after retirement.
It noted that one in five respondents had no savings by the end of each month. For those aged 75 and older, the figure rose to an even more worrying 40 per cent. Among the respondents looking for a job after retiring, more than half said they needed money for current expenses.
In the light of this, it should come as no surprise that a financial adviser is likely to serve up a blunt message: Save your way to retirement - and try not to spend more than you earn.
Still, I don't believe in trying to cut expenses to the bone and confining myself to a fixed budget every day just to reap some savings.
Such strictures make a person feel small and kill the spirit.
Our lives lie ahead for us to enjoy. It would be very miserable if we have to worry about how we spend our money all the time. That condemns us to a life of mediocrity and makes us unwilling to take any kind of risks.
Having said that, I have many friends who stopped working in their late 40s or early 50s and chose to live only on their savings and investments. They do not seem to be any worse off for it.
Indeed, they live rich and fulfilling lives. One of them volunteers twice a week at a hospice after giving up a career as a high-flying investment banker, while another is a former partner with a top accounting firm who spends her time teaching pre-school children for free.
How do they do it? One common trait is that they have tended to live below their means even while they were holding high-paying jobs which would have enabled them to live a much more lavish lifestyle if they chose to. They are more likely to be savers than spenders.
But that does not mean that they are miserly about how they spend their money. Rather, it is more a matter of making better use of the money they earn in order to enjoy the finer things in life, as they consider the value of each purchase before deciding to hand over their cash.
And since they have always lived modestly, they do not feel the need to make any big adjustments to their lifestyle after they stop working, like downsizing to a smaller house or switching from driving a flashy luxury car to using public transport. It's life as usual for them, job or no job.
Another trait is their high personal involvement in managing their own money. They gauge the risk of each investment carefully before they put in the money.
You are unlikely to find them getting panicked by a sudden rout in the stock market, or joining the queue to buy a condo in order not to miss the boat because real estate prices are going up.
Maybe some of my friends' excellent traits have rubbed off on me, based on the personality profile provided free for each participant in our course.
Mine described my personality type as having learnt how to master money and use some of it for enjoyment.
"This balanced way of operating gives them a real sense of security when it comes to financial matters," it said. The description is flattering. I hope it holds true.
engyeow@sph.com.sg
Saturday, March 15, 2014
St James and Perennial in $1.56b reverse takeover deal
Published on Mar 15, 2014
Acquisition will see St James' entertainment business taken private
By Mok Fei Fei And Ivan Teo
REAL estate developer Perennial Real Estate Holdings is set to be listed on the Singapore Exchange (SGX) in a $1.56 billion reverse takeover deal.
Listed entertainment operator St James Holdings will be transformed into a real estate developer once the deal goes through.
Under the plan, Perennial's assets will be injected into St James, which will pay $1.56 billion by issuing new shares at a price of 2.35 cents per share, representing 99.27 per cent of its own enlarged share capital.
St James' existing leisure and entertainment business will be divested and taken private. It will return the business to shareholders, it announced yesterday.
Following the acquisition, St James will also consolidate every 50 shares into one share, bringing the issue price to $1.1756.
St James' controlling shareholders, comprising Dennon Entertainment, EK Capital and FJ Benjamin Concepts, which now own a combined stake of about 57 per cent of the firm, have stated they will vote in favour of the deal at an extraordinary meeting.
If the acquisition goes through, St James will be more than 70 per cent controlled by a team of prominent businessmen and their partners. They include Perennial president and retail mall veteran Pua Seck Guan, Wilmar chairman Kuok Khoon Hong and Osim founder Ron Sim.
After the proposed acquisition, an offer will be made by St James to acquire all units of Perennial China Retail Trust (PCRT) at a price of 70 cents per unit via a share swap. Perennial is the sponsor of PCRT.
St James will be renamed Perennial Real Estate Holdings Limited (PREHL). The ultimate aim is for PREHL to become a listed entity that combines Perennial's vast assets in both Singapore and China.
Mr Pua told The Straits Times there are plans for the new company to expand beyond Singapore and China to other countries in the region, such as Myanmar.
"We're very excited about this new platform. We can rationalise all the businesses we have together and take advantage of other opportunities in the market, backed by strong shareholders who know those overseas markets."
St James is ending its gig as a listed entity. Its chief executive, Mr Dennis Foo, noted that it costs almost $800,000 a year to be listed.
"Nightlife and entertainment is a challenging industry, especially in the face of high cost and labour crunch... St James will eventually become a private enterprise again," he said.
St James and PCRT both called for a trading halt yesterday at around 2pm. The deals were announced after 5pm, when markets closed. St James shares added 0.1 cent to 5.4 cents, while PCRT was last transacted at 54.5 cents, down half a cent.
feimok@sph.com.sg
ivantyh@sph.com.sg
Acquisition will see St James' entertainment business taken private
By Mok Fei Fei And Ivan Teo
REAL estate developer Perennial Real Estate Holdings is set to be listed on the Singapore Exchange (SGX) in a $1.56 billion reverse takeover deal.
Listed entertainment operator St James Holdings will be transformed into a real estate developer once the deal goes through.
Under the plan, Perennial's assets will be injected into St James, which will pay $1.56 billion by issuing new shares at a price of 2.35 cents per share, representing 99.27 per cent of its own enlarged share capital.
St James' existing leisure and entertainment business will be divested and taken private. It will return the business to shareholders, it announced yesterday.
Following the acquisition, St James will also consolidate every 50 shares into one share, bringing the issue price to $1.1756.
St James' controlling shareholders, comprising Dennon Entertainment, EK Capital and FJ Benjamin Concepts, which now own a combined stake of about 57 per cent of the firm, have stated they will vote in favour of the deal at an extraordinary meeting.
If the acquisition goes through, St James will be more than 70 per cent controlled by a team of prominent businessmen and their partners. They include Perennial president and retail mall veteran Pua Seck Guan, Wilmar chairman Kuok Khoon Hong and Osim founder Ron Sim.
After the proposed acquisition, an offer will be made by St James to acquire all units of Perennial China Retail Trust (PCRT) at a price of 70 cents per unit via a share swap. Perennial is the sponsor of PCRT.
St James will be renamed Perennial Real Estate Holdings Limited (PREHL). The ultimate aim is for PREHL to become a listed entity that combines Perennial's vast assets in both Singapore and China.
Mr Pua told The Straits Times there are plans for the new company to expand beyond Singapore and China to other countries in the region, such as Myanmar.
"We're very excited about this new platform. We can rationalise all the businesses we have together and take advantage of other opportunities in the market, backed by strong shareholders who know those overseas markets."
St James is ending its gig as a listed entity. Its chief executive, Mr Dennis Foo, noted that it costs almost $800,000 a year to be listed.
"Nightlife and entertainment is a challenging industry, especially in the face of high cost and labour crunch... St James will eventually become a private enterprise again," he said.
St James and PCRT both called for a trading halt yesterday at around 2pm. The deals were announced after 5pm, when markets closed. St James shares added 0.1 cent to 5.4 cents, while PCRT was last transacted at 54.5 cents, down half a cent.
feimok@sph.com.sg
ivantyh@sph.com.sg
S'pore Reits may be back in favour
Published on Mar 15, 2014
Their high-yield returns appeal to investors as interest rates stay low
By Goh Eng Yeow Senior correspondent
REKINDLING a love affair can be a tall order when the attraction fades, so analysts deserve some kudos for trying to reawaken the passion investors once felt for real estate investment trusts (Reits).
Their rationale is simple: Reits offer investors an attractive high-yield return when compared with the measly sub-zero interest rates which banks pay savers for their deposits.
Interest rates are unlikely to rise any time soon, even with the efforts of the US Federal Reserve and other central banks to rein in liquidity.
Investors are therefore looking for high-yield assets in which to park their cash again.
One gauge of their growing appetite for risk is the boom taking place in the corporate bond market. Issues such as the recent $200 million five-year bond sold by Amtek Engineering, offering a yield of 6.9 per cent, were snapped up.
The performance of the FTSE ST Reits Index also tells the story of a slow recovery.
At the start of January, it stood at 714. It then fell to a low of 691.63 on Feb 5, as emerging market jitters rocked the local bourse, before climbing back to the same 714 level last week.
Yesterday, it ended 0.65 point down at 712.82.
For many Reits, it is essentially the same story: CapitaMall Trust started the year at $1.905 and sank to as low as $1.81 on Feb 17. It then clawed back its losses, ending flat at $1.895 yesterday.
But Barclays Equity Research analyst Tricia Song said in a note that local Reits are poised for more gains as they play catch-up with Reits elsewhere.
"Singapore Reits offer the best forward yield spreads of 4.8 per cent, compared with Reit peers in Japan which offer 3.3 per cent, US ones at 1.8 per cent, and Hong Kong ones at 2.6 per cent."
Also, local Reits are offering yields of between 0.9 percentage point and three percentage points above their historic averages. "This suggests potential outperformance versus the Straits Times Index in the next three years," she added.
Ms Song had another interesting observation: In the United States, there were six periods in the past 20 years when Reits suffered sharp corrections because of interest rate hikes.
Such corrections were subsequently followed by "periods of strong absolute returns, with the Reits outperforming widely watched market indexes such as the S&P 500", she said.
Given the strong correlation between local Reits and US ones, she believes that the US experience may be repeated in Singapore.
For some analysts, however, the big question is where Reits will get their growth from here on as growth was the big driving factor behind their price surge in recent years.
Goldman Sachs said in a note: "We see rising rates as largely priced in, and we expect investors to focus on the importance of growth fundamentals during the next phase of the market cycle."
In the past 10 years, the catalyst driving the Reits' unit prices higher was acquisitions as they built their property portfolios. But the focus is likely to shift to "topline growth and cost controls" in order to grow revenues. This is because "acquisition-led growth will pose a challenge to Reits, as the cost of their equity goes up with rising interest rates".
engyeow@sph.com.sg
Their high-yield returns appeal to investors as interest rates stay low
By Goh Eng Yeow Senior correspondent
REKINDLING a love affair can be a tall order when the attraction fades, so analysts deserve some kudos for trying to reawaken the passion investors once felt for real estate investment trusts (Reits).
Their rationale is simple: Reits offer investors an attractive high-yield return when compared with the measly sub-zero interest rates which banks pay savers for their deposits.
Interest rates are unlikely to rise any time soon, even with the efforts of the US Federal Reserve and other central banks to rein in liquidity.
Investors are therefore looking for high-yield assets in which to park their cash again.
One gauge of their growing appetite for risk is the boom taking place in the corporate bond market. Issues such as the recent $200 million five-year bond sold by Amtek Engineering, offering a yield of 6.9 per cent, were snapped up.
The performance of the FTSE ST Reits Index also tells the story of a slow recovery.
At the start of January, it stood at 714. It then fell to a low of 691.63 on Feb 5, as emerging market jitters rocked the local bourse, before climbing back to the same 714 level last week.
Yesterday, it ended 0.65 point down at 712.82.
For many Reits, it is essentially the same story: CapitaMall Trust started the year at $1.905 and sank to as low as $1.81 on Feb 17. It then clawed back its losses, ending flat at $1.895 yesterday.
But Barclays Equity Research analyst Tricia Song said in a note that local Reits are poised for more gains as they play catch-up with Reits elsewhere.
"Singapore Reits offer the best forward yield spreads of 4.8 per cent, compared with Reit peers in Japan which offer 3.3 per cent, US ones at 1.8 per cent, and Hong Kong ones at 2.6 per cent."
Also, local Reits are offering yields of between 0.9 percentage point and three percentage points above their historic averages. "This suggests potential outperformance versus the Straits Times Index in the next three years," she added.
Ms Song had another interesting observation: In the United States, there were six periods in the past 20 years when Reits suffered sharp corrections because of interest rate hikes.
Such corrections were subsequently followed by "periods of strong absolute returns, with the Reits outperforming widely watched market indexes such as the S&P 500", she said.
Given the strong correlation between local Reits and US ones, she believes that the US experience may be repeated in Singapore.
For some analysts, however, the big question is where Reits will get their growth from here on as growth was the big driving factor behind their price surge in recent years.
Goldman Sachs said in a note: "We see rising rates as largely priced in, and we expect investors to focus on the importance of growth fundamentals during the next phase of the market cycle."
In the past 10 years, the catalyst driving the Reits' unit prices higher was acquisitions as they built their property portfolios. But the focus is likely to shift to "topline growth and cost controls" in order to grow revenues. This is because "acquisition-led growth will pose a challenge to Reits, as the cost of their equity goes up with rising interest rates".
engyeow@sph.com.sg
Friday, March 14, 2014
5 Essential Habits of Early Retirees
Thursday, 13 March 2014
By David Ning
The idea of retiring early can seem so far-fetched you've never considered trying to get there. Still, this select group of people is worth emulating in many ways, even if kicking back early isn't on your radar. Here are a few traits of early retirees you should consider adopting:
They save a lot. There are an exceptionally lucky few who inherit their wealth, but the vast majority of early retirees spend years saving to increase their stash, plugging away towards their goal until they've saved enough to buy their freedom. While you may not care to retire before everybody else, having a big cushion can give you the necessary ammo to take significant risks that can pay off big time. Perhaps it's a new job opportunity with a better career path that requires a short-term pay cut, or taking time off to obtain additional certifications to significantly lift your salary trajectory for the rest of your life. Whatever it is you want to do, having the comfort of not running out of money as soon as the paycheck stops offers choices.
They understand their spending habits. Talk to enough people who are financially independent and you'll realize they have a pretty firm grasp of how much they spend. After all, how could anyone who's not a billionaire know they can afford their lifestyle indefinitely unless they know how much they are spending? Yet, how many people know where their money is going? The good news is that once you start tracking your expenses, you are likely to find many areas to cut spending without affecting your quality of life.
They have an investment plan. No one is going to live off their savings for 40 to 50 years with all their money hidden under a mattress because inflation is relentlessly chipping away at their wealth. While not every early retiree is an expert in finance, they've all had to come up with a way to finance their lifestyle using their portfolio as the primary source of funds and deal with market volatility along the way. By learning about investing, you'll be able to increase your wealth much faster than if you just stick everything in a savings account thinking that's the safest place to put your money.
They pursue happiness instead of more income. It's obvious that quitting the rat race early is leaving salary on the table, but that's fine with those who retire early because they value freedom much more than a higher account balance. Unfortunately, many people in our consumer society do just the opposite, slaving away for long hours while sacrificing their health, family ties and happiness. The new smartphones sure are nice, but are they more important than all the other things you could be doing with your time?
They are optimistic. With the heavy reliance on investment returns to sustain a long retirement, you have to put quite a bit of faith in the stock market to leave your job. Early retirees are willing to make the leap, while pessimists who fear running out of money might work longer in order to save more and shorten the period of retirement they need to finance. But the power of optimism goes way beyond expecting lucrative investment returns. A positive attitude will help motivate you, which can lead to better opportunities, more promotions and ultimately a better retirement.
Link
http://createwealth8888.blogspot.sg/2014/03/5-essential-habits-of-early-retirees.html?m=1
By David Ning
The idea of retiring early can seem so far-fetched you've never considered trying to get there. Still, this select group of people is worth emulating in many ways, even if kicking back early isn't on your radar. Here are a few traits of early retirees you should consider adopting:
They save a lot. There are an exceptionally lucky few who inherit their wealth, but the vast majority of early retirees spend years saving to increase their stash, plugging away towards their goal until they've saved enough to buy their freedom. While you may not care to retire before everybody else, having a big cushion can give you the necessary ammo to take significant risks that can pay off big time. Perhaps it's a new job opportunity with a better career path that requires a short-term pay cut, or taking time off to obtain additional certifications to significantly lift your salary trajectory for the rest of your life. Whatever it is you want to do, having the comfort of not running out of money as soon as the paycheck stops offers choices.
They understand their spending habits. Talk to enough people who are financially independent and you'll realize they have a pretty firm grasp of how much they spend. After all, how could anyone who's not a billionaire know they can afford their lifestyle indefinitely unless they know how much they are spending? Yet, how many people know where their money is going? The good news is that once you start tracking your expenses, you are likely to find many areas to cut spending without affecting your quality of life.
They have an investment plan. No one is going to live off their savings for 40 to 50 years with all their money hidden under a mattress because inflation is relentlessly chipping away at their wealth. While not every early retiree is an expert in finance, they've all had to come up with a way to finance their lifestyle using their portfolio as the primary source of funds and deal with market volatility along the way. By learning about investing, you'll be able to increase your wealth much faster than if you just stick everything in a savings account thinking that's the safest place to put your money.
They pursue happiness instead of more income. It's obvious that quitting the rat race early is leaving salary on the table, but that's fine with those who retire early because they value freedom much more than a higher account balance. Unfortunately, many people in our consumer society do just the opposite, slaving away for long hours while sacrificing their health, family ties and happiness. The new smartphones sure are nice, but are they more important than all the other things you could be doing with your time?
They are optimistic. With the heavy reliance on investment returns to sustain a long retirement, you have to put quite a bit of faith in the stock market to leave your job. Early retirees are willing to make the leap, while pessimists who fear running out of money might work longer in order to save more and shorten the period of retirement they need to finance. But the power of optimism goes way beyond expecting lucrative investment returns. A positive attitude will help motivate you, which can lead to better opportunities, more promotions and ultimately a better retirement.
Link
http://createwealth8888.blogspot.sg/2014/03/5-essential-habits-of-early-retirees.html?m=1
Why getting enough sleep matters
By Michael Chee
March 14. 2014
Last year, an opinion-editorial that I wrote on the perils of short sleep received an unexpected flood of attention. Some wrote tongue-in-cheek commentaries on local sleep patterns. A few concerned parents made appeals on forum pages to have morning-session secondary schools start later. Others thanked me for helping them counsel their children. Is this acknowledgement that the effects of sleep on health are being taken more seriously? Perhaps not.
Independent surveys have shown that, on average, East Asian young adults sleep one to two hours less a night than their European and Australian counterparts.
In the past 12 months, more evidence regarding the growing menace of short sleep has emerged. Market research has identified midnight to 1am as ‘prime time’ for mobile usage in Malaysia. Yet, unpublished data from student surveys indicate that our elite students sleep less than five to six hours a night. Students in one school averaged less than five hours.
Developing brains need sleep. Memory consolidation — the process where what we learn is made more resistant to forgetting and interference — benefits from sleep as memories formed during the day get reactivated in deep sleep.
Data gathered from more than 120,000 people worldwide showed that adults who had the best performance in an Internet-based, standardised test set were those who reported sleeping seven hours at night.
A new finding last year found that when we sleep, channels for waste and neurotoxic substances open up by as much as 60 per cent more. Indeed, in other research, removal of beta-amyloid, a substance implicated in Alzheimer’s disease, was found to be substantially higher during sleep.
SOCIAL NORMS
GUIDE BEHAVIOUR
Why do many seemingly successful, motivated persons continue to give sleep the short shrift?
In East Asia, hard work is worn as a badge of honour. We know top students who have bragged about their all-night cram sessions, akin to smokers who boast it is their non-smoking friends who die from lung cancer. However, epidemiological data do not lie. Like betting against the house in a casino, most people and societies eventually lose if sleep is habitually sacrificed.
Like most good things, more hard work is not necessarily better. Beyond a point, returns for effort turn negative. Work from my lab has shown that a single night without sleep reduces the maximum rate at which one can process visual information by about a third. Our capacity to block out irrelevant, interfering information is likewise reduced and not dissimilar from that observed with cognitive ageing.
This is not to say I am decrying quality effort. On the contrary, there are productivity gains to be realised from getting adequate sleep.
Even before Twitter and Facebook, social networks exerted powerful influence on collective behaviour. About 17 years ago, it was found that the friends of overweight people had an alarming tendency to themselves be overweight. By and by, consumption norms for entire societies started shifting; ‘heavier’ has become the new normal.
The same appears to be happening for attitudes to sleep. Indeed, the nihilism I encounter when speaking to many students is troubling. Many know they are not getting enough sleep, but few seem willing to do anything about it. “I’m just going to have a short life” was the response of one student. While people have the right to lifestyle choices, if such a choice affects others and society negatively by raising healthcare costs, should governments not weigh in?
In the case of smoking, legislation has been passed to significantly reduce the risk of exposure to passive cigarette smoke. Smokers can be readily observed and cigarettes purchases can be taxed. But how are we going to reduce the costly burden of lack of sleep if corporate and government leaders themselves sleep little (perhaps as a result of favourable genetic endowment) and expect others to do likewise?
PROMOTING GOOD SLEEP
While insufficient sleep elevates the risk of death and several chronic illnesses, its effects are cumulative over long periods and are masked by other more visible risk factors. This results in sleep being downplayed when positive health tips are being dispensed.
With the advent of wearable, personalised health monitors (for example, Jawbone’s ‘UP’, an app that helps one understand how he sleeps, moves and eats so he can make smarter choices), I foresee the day when people compete to get ‘good quality’ and ‘personalised for me’ sleep.
Using sophisticated time-locked auditory stimulation applied during deep sleep, researchers have been able to boost memory performance in young adults. This may be extended to improve cognition in older people, who tend to have poorer sleep.
As biological signals to sleep and wake up later kick in when children turn 13-14 years old, secondary schools that start one hour later might find their average students improving test scores.
If health warnings fail, we can exploit vanity concerns. Research sponsored by Estee Lauder suggests that the skin of sleep-deprived young women shows less resilience to stresses such as ultraviolet light and ages prematurely. Beauty sleep has value! And when there are fortunes to be made, sleep can be commercialised just like the exercise industry.
If you are sleeping one to two hours longer on rest-days than on workdays, you are probably not getting enough sleep. If you fall asleep at work or in class regularly, your brain is telling you something.
Even for the die-hard, utility maximising economist, where sleep is concerned, the only bargains on offer are Faustian ones. Similar to exercise and good diet, improving sleep duration and quality can improve productivity, short-term well-being, long-term health and ultimately the economy. Nothing to sniff at, and lots to sleep over!
ABOUT THE AUTHOR
Michael Chee is Professor at the Neuroscience and Behavioral Program at Duke-NUS Graduate Medical School and a National Medical Research Council STaR Investigator. This commentary was written to commemorate World Sleep Day on March 14 on behalf of the Singapore Sleep Society.
March 14. 2014
Last year, an opinion-editorial that I wrote on the perils of short sleep received an unexpected flood of attention. Some wrote tongue-in-cheek commentaries on local sleep patterns. A few concerned parents made appeals on forum pages to have morning-session secondary schools start later. Others thanked me for helping them counsel their children. Is this acknowledgement that the effects of sleep on health are being taken more seriously? Perhaps not.
Independent surveys have shown that, on average, East Asian young adults sleep one to two hours less a night than their European and Australian counterparts.
In the past 12 months, more evidence regarding the growing menace of short sleep has emerged. Market research has identified midnight to 1am as ‘prime time’ for mobile usage in Malaysia. Yet, unpublished data from student surveys indicate that our elite students sleep less than five to six hours a night. Students in one school averaged less than five hours.
Developing brains need sleep. Memory consolidation — the process where what we learn is made more resistant to forgetting and interference — benefits from sleep as memories formed during the day get reactivated in deep sleep.
Data gathered from more than 120,000 people worldwide showed that adults who had the best performance in an Internet-based, standardised test set were those who reported sleeping seven hours at night.
A new finding last year found that when we sleep, channels for waste and neurotoxic substances open up by as much as 60 per cent more. Indeed, in other research, removal of beta-amyloid, a substance implicated in Alzheimer’s disease, was found to be substantially higher during sleep.
SOCIAL NORMS
GUIDE BEHAVIOUR
Why do many seemingly successful, motivated persons continue to give sleep the short shrift?
In East Asia, hard work is worn as a badge of honour. We know top students who have bragged about their all-night cram sessions, akin to smokers who boast it is their non-smoking friends who die from lung cancer. However, epidemiological data do not lie. Like betting against the house in a casino, most people and societies eventually lose if sleep is habitually sacrificed.
Like most good things, more hard work is not necessarily better. Beyond a point, returns for effort turn negative. Work from my lab has shown that a single night without sleep reduces the maximum rate at which one can process visual information by about a third. Our capacity to block out irrelevant, interfering information is likewise reduced and not dissimilar from that observed with cognitive ageing.
This is not to say I am decrying quality effort. On the contrary, there are productivity gains to be realised from getting adequate sleep.
Even before Twitter and Facebook, social networks exerted powerful influence on collective behaviour. About 17 years ago, it was found that the friends of overweight people had an alarming tendency to themselves be overweight. By and by, consumption norms for entire societies started shifting; ‘heavier’ has become the new normal.
The same appears to be happening for attitudes to sleep. Indeed, the nihilism I encounter when speaking to many students is troubling. Many know they are not getting enough sleep, but few seem willing to do anything about it. “I’m just going to have a short life” was the response of one student. While people have the right to lifestyle choices, if such a choice affects others and society negatively by raising healthcare costs, should governments not weigh in?
In the case of smoking, legislation has been passed to significantly reduce the risk of exposure to passive cigarette smoke. Smokers can be readily observed and cigarettes purchases can be taxed. But how are we going to reduce the costly burden of lack of sleep if corporate and government leaders themselves sleep little (perhaps as a result of favourable genetic endowment) and expect others to do likewise?
PROMOTING GOOD SLEEP
While insufficient sleep elevates the risk of death and several chronic illnesses, its effects are cumulative over long periods and are masked by other more visible risk factors. This results in sleep being downplayed when positive health tips are being dispensed.
With the advent of wearable, personalised health monitors (for example, Jawbone’s ‘UP’, an app that helps one understand how he sleeps, moves and eats so he can make smarter choices), I foresee the day when people compete to get ‘good quality’ and ‘personalised for me’ sleep.
Using sophisticated time-locked auditory stimulation applied during deep sleep, researchers have been able to boost memory performance in young adults. This may be extended to improve cognition in older people, who tend to have poorer sleep.
As biological signals to sleep and wake up later kick in when children turn 13-14 years old, secondary schools that start one hour later might find their average students improving test scores.
If health warnings fail, we can exploit vanity concerns. Research sponsored by Estee Lauder suggests that the skin of sleep-deprived young women shows less resilience to stresses such as ultraviolet light and ages prematurely. Beauty sleep has value! And when there are fortunes to be made, sleep can be commercialised just like the exercise industry.
If you are sleeping one to two hours longer on rest-days than on workdays, you are probably not getting enough sleep. If you fall asleep at work or in class regularly, your brain is telling you something.
Even for the die-hard, utility maximising economist, where sleep is concerned, the only bargains on offer are Faustian ones. Similar to exercise and good diet, improving sleep duration and quality can improve productivity, short-term well-being, long-term health and ultimately the economy. Nothing to sniff at, and lots to sleep over!
ABOUT THE AUTHOR
Michael Chee is Professor at the Neuroscience and Behavioral Program at Duke-NUS Graduate Medical School and a National Medical Research Council STaR Investigator. This commentary was written to commemorate World Sleep Day on March 14 on behalf of the Singapore Sleep Society.
Thursday, March 13, 2014
Investing in Reits: There’s No Free Lunch
March 13, 2013
BY BOBBY JAYARAMAN
REITS are all the rage now. It seems there is an initial public offering (IPO) for a new Reit/business trust every other month, the latest one being that of Mapletree Greater China Commercial Trust (MGCCT), which, predictably, had a strong debut in SGX last week.
Amid this euphoria, it is easy for investors to get caught up with yield investing without doing their homework and understanding fully what they are investing in. My intent here is to take a critical look at this new IPO and raise some fundamental questions for the investor to think about.
Sponsor motivation
First off, it should be noted that MGCCT is not a typical Reit, in the sense that it consists of just two mixed use assets – Festival Walk, a mall in Hong Kong with some office space, and Gateway Plaza, an office building in Beijing with some retail space.
From an investor’s perspective, it is really just one asset – Festival Walk, which makes up 75 per cent of the asset value and gross revenue of the Reit. One cannot help but wonder why Mapletree had to go through the trouble of listing a Reit just to sell a single large asset.
The implication for investors is that their fortunes are tied to the fate of Festival Walk. Given such a high concentration risk, investors had better be sure that they have a good sense of the future earning power of this mall – or they could be in for some nasty surprises down the road.
Festival Walk was a rather quick flip by Mapletree. It had bought it from Swire Pacific, one of Hong Kong’s leading conglomerates, in July 2011 for HK$18.8 billion (S$3 billion) and injected it into MGCCT 18 months later for around HK$20.7 billion, making a profit of around 10 per cent.
It fared much better with Gateway Plaza, its office property which was acquired by Mapletree India China Fund in February 2010 from a Hong Kong-listed Reit for 2.9 billion yuan (S$580 million) and injected it into MGCCT for five billion yuan. This was a more than 70 per cent gain in three years.
Gateway Plaza is now the subject of a lawsuit detailed in the prospectus. As it is, Reit investors have to face enough uncertainties regarding the property cycle, they can surely do without the added headache of a lawsuit.
Anyway, the sponsor has certainly made good returns on these assets. What about investors buying into MGCCT at IPO levels? Will they be rewarded over the medium-long term?
Quality of assets
To understand this better, let us first dig a bit deeper into the quality of the assets, that is, the long-term earning power of an asset under different economic conditions.
Let us start with Festival Walk, a mall built in 1998 in an upscale suburb of Kowloon. This asset is slightly larger than Ion Orchard, well connected and upscale. It is patronised mostly by local shoppers, with tourists making up only 18 per cent of sales last year, said the prospectus.
The shops there include luxury brands such as Rolex, Bally, Piaget and Armani. Investors would thus need to be convinced of the attractiveness of such a positioning, in which the mall will not benefit much from the onslaught of millions of mainland Chinese tourists who go to malls in the tourist areas of Central or Tsim Sha Tsui; the earnings of Festival Walk will also not be as stable as those of suburban “necessity malls” owned by Link Reit (a Hong Kong-listed Reit).
How has the mall performed over the years? The prospectus says its revenues have been resilient through economic cycles. A graph showing Festival Walk’s gross revenue (without citing a source for the data) and retail sales growth since 1999 supports this.
However, the manager, citing a host of reasons, is unable to provide detailed historical statements of financial performance for the past three years as mandated by SGX.
An investor is free to draw his own conclusions. I would personally like to see verifiable hard data on net property income (NPI), rather than high-level gross revenue and sales numbers, which can be increased in a variety of ways without benefiting the bottom line, such as by spending heavily on marketing and promotion to attract tenants.
Another important point to note is that the mall’s lease expires in 2047, or in just another 34 years, similar to that of many industrial properties in Singapore. Investors need to form a view on whether the dividends are in fact part capital repayment.
Finally, the mall was built in 1998, and would need to be refurbished in a major way if it is to remain competitive with newer centres. This would require heavy capital expenditure.
Let us move on to Gateway Plaza in Beijing. The office building is in a good location with high-quality tenants, but with no direct access to a subway station. The nearest one is a 700m walk away – quite a disadvantage for a prime office building, in my view.
The office sector in general is highly volatile and the Beijing office sector more than bears this out. After hitting a trough in 2009, office rents in Beijing have doubled over the past three years. They are now the third highest in Asia after Hong Kong and Tokyo, and command close to a 50 per cent premium over Shanghai.
The Beijing office market today seems to show similarities to the roaring early 2008 Singapore office market. The problem is that office rentals cannot go sky-high. Today’s cost-focused companies show great resistance to paying high rentals and have the option of moving to less centralised locations. Sooner or later, supply comes up to match, and frequently exceed, demand.
Given these realities, investors need to decide what the upside is in this stage of the office cycle. The sponsor certainly got the timing right buying in during early 2010, just when the market was turning, and selling after rentals had doubled. Investors hoping for increased rentals and capital gains from these levels may not be as fortunate. Gateway Plaza is also on a short lease, with just 40 years remaining.
Leverage
Leverage plays a key role in determining a Reit’s level of risk, distribution yield and valuation.
As at IPO, MGCCT had S$4.3 billion in assets (the combined valuation of Festival Walk and Gateway Plaza) and S$1.78 billion in debt (net of S$132 million in cash). That gives it a gearing of close to 42 per cent.
Given the reliance of the Reit on cash flows from mostly one asset and currency risk – the Hong Kong dollar has depreciated close to 20 per cent against the Singapore dollar in the past three years – the gearing looks to be on the higher side.
As a comparison, S-Reits have no currency risk, a more diversified pool of assets and a track record going back several years. As at end December last year, CMT had a gearing of 36.7 per cent; CCT’s gearing was 30.1 per cent, and FCT’s, 30.1 per cent.
In today’s environment of ample and low cost funding, debt levels have taken a back seat to dividend yields, but smart Reit investors would do well to remember that the credit taps are extremely volatile and Reits that are dependent on high debt levels and low cost funding to generate returns will pay heavily when the credit cycle turns against them.
Valuations
Festival Walk and Gateway Plaza have been injected into the Reit at S$4.3 billion. However, there is not much information in the 700-page prospectus on the basis for these numbers.
The valuation reports mention that they use an income capitalisation approach and discounted cash flow (DCF) analysis to value the assets. There are also plenty of standard clauses and disclaimers in the report, but important information such as the capitalisation rates used, the year for which net income is capitalised and the discount rate used for DCF valuations is missing.
More than a decade ago, Singapore’s first Reit CMT put out a 300-page IPO prospectus including this information clearly in a table. It looks like while the IPO prospectuses have been gaining bulk over the years, the quality of meaningful information is decreasing.
Going through the prospectus, it appears that the key operating number is the “projection year 13/14? NPI of S$185.7 million. Dividing this NPI by the asset valuation of S$4.3 billion gives us a property yield of 4.3 per cent. The distribution yield of 5.6 per cent at IPO price is higher than the property yield due to the 42 per cent leverage used.
Over the past couple of years, commercial property cap rates have been compressing all over Asia, with top retail spaces in Hong Kong even trading at cap rates of less than 2.5 per cent.
Investors, however, need to decide whether today’s benign interest rate and credit environment will continue and if such levels of valuation provide a sufficient margin of safety over the long term.
The sponsor makes some optimistic projections on rental increases in the coming years without providing a clear rationale. Investors would do well to test the reality of these projections under conservative scenarios.
Management fee structure
One of the major attractions of MGCCT, going by the press coverage, is the DPU-based fee model rather than the traditional asset based fee structure that most S-Reits use.
There are certainly major drawbacks to an asset based fee model that a DPU-based model avoids. However, it does not mean that a DPU-based fee model completely aligns management and unit holder interests. For starters, investors should keep a close eye on the leverage and debt maturities. Why?
In today’s credit environment, one can borrow at around 2 per cent and make even a 3 per cent cap rate acquisition yield accretive, thereby increasing DPUs and generating higher fees for the Reit manager. The increased DPUs for the investor, however, come at the expense of higher leverage. (MAS rules allow up to 60 per cent gearing if a credit rating is disclosed.)
This method gets even more attractive if short-term debt is used instead of long-term debt due to its much lower cost. Though this would mean having to frequently roll over debt.
Any Reit that employs such methods can earn high fees through increasing DPUs, but set itself up for disaster owing to a deteriorating capital structure.
This is not to suggest that MGCCT or other Reits will behave in such a way. The point is that no fee structure is fool-proof. Ultimately, whether a Reit ends up creating long-term value for unit holders depends on the quality and integrity of its manager.
Conclusion
Investing in Reits is no different from investing in any other asset class. The fundamentals need to be sound and the pricing should be reasonable. Investors get a relatively high yield from Reits because they take on the asset price risk.
The writer is a private investor and author of the local bestseller ‘Building wealth through Reits’.
This article first appeared on http://www.businesstimes.com.sg/specials/executive-money/investing-reits-theres-no-free-lunch-20130313
BY BOBBY JAYARAMAN
REITS are all the rage now. It seems there is an initial public offering (IPO) for a new Reit/business trust every other month, the latest one being that of Mapletree Greater China Commercial Trust (MGCCT), which, predictably, had a strong debut in SGX last week.
Amid this euphoria, it is easy for investors to get caught up with yield investing without doing their homework and understanding fully what they are investing in. My intent here is to take a critical look at this new IPO and raise some fundamental questions for the investor to think about.
Sponsor motivation
First off, it should be noted that MGCCT is not a typical Reit, in the sense that it consists of just two mixed use assets – Festival Walk, a mall in Hong Kong with some office space, and Gateway Plaza, an office building in Beijing with some retail space.
From an investor’s perspective, it is really just one asset – Festival Walk, which makes up 75 per cent of the asset value and gross revenue of the Reit. One cannot help but wonder why Mapletree had to go through the trouble of listing a Reit just to sell a single large asset.
The implication for investors is that their fortunes are tied to the fate of Festival Walk. Given such a high concentration risk, investors had better be sure that they have a good sense of the future earning power of this mall – or they could be in for some nasty surprises down the road.
Festival Walk was a rather quick flip by Mapletree. It had bought it from Swire Pacific, one of Hong Kong’s leading conglomerates, in July 2011 for HK$18.8 billion (S$3 billion) and injected it into MGCCT 18 months later for around HK$20.7 billion, making a profit of around 10 per cent.
It fared much better with Gateway Plaza, its office property which was acquired by Mapletree India China Fund in February 2010 from a Hong Kong-listed Reit for 2.9 billion yuan (S$580 million) and injected it into MGCCT for five billion yuan. This was a more than 70 per cent gain in three years.
Gateway Plaza is now the subject of a lawsuit detailed in the prospectus. As it is, Reit investors have to face enough uncertainties regarding the property cycle, they can surely do without the added headache of a lawsuit.
Anyway, the sponsor has certainly made good returns on these assets. What about investors buying into MGCCT at IPO levels? Will they be rewarded over the medium-long term?
Quality of assets
To understand this better, let us first dig a bit deeper into the quality of the assets, that is, the long-term earning power of an asset under different economic conditions.
Let us start with Festival Walk, a mall built in 1998 in an upscale suburb of Kowloon. This asset is slightly larger than Ion Orchard, well connected and upscale. It is patronised mostly by local shoppers, with tourists making up only 18 per cent of sales last year, said the prospectus.
The shops there include luxury brands such as Rolex, Bally, Piaget and Armani. Investors would thus need to be convinced of the attractiveness of such a positioning, in which the mall will not benefit much from the onslaught of millions of mainland Chinese tourists who go to malls in the tourist areas of Central or Tsim Sha Tsui; the earnings of Festival Walk will also not be as stable as those of suburban “necessity malls” owned by Link Reit (a Hong Kong-listed Reit).
How has the mall performed over the years? The prospectus says its revenues have been resilient through economic cycles. A graph showing Festival Walk’s gross revenue (without citing a source for the data) and retail sales growth since 1999 supports this.
However, the manager, citing a host of reasons, is unable to provide detailed historical statements of financial performance for the past three years as mandated by SGX.
An investor is free to draw his own conclusions. I would personally like to see verifiable hard data on net property income (NPI), rather than high-level gross revenue and sales numbers, which can be increased in a variety of ways without benefiting the bottom line, such as by spending heavily on marketing and promotion to attract tenants.
Another important point to note is that the mall’s lease expires in 2047, or in just another 34 years, similar to that of many industrial properties in Singapore. Investors need to form a view on whether the dividends are in fact part capital repayment.
Finally, the mall was built in 1998, and would need to be refurbished in a major way if it is to remain competitive with newer centres. This would require heavy capital expenditure.
Let us move on to Gateway Plaza in Beijing. The office building is in a good location with high-quality tenants, but with no direct access to a subway station. The nearest one is a 700m walk away – quite a disadvantage for a prime office building, in my view.
The office sector in general is highly volatile and the Beijing office sector more than bears this out. After hitting a trough in 2009, office rents in Beijing have doubled over the past three years. They are now the third highest in Asia after Hong Kong and Tokyo, and command close to a 50 per cent premium over Shanghai.
The Beijing office market today seems to show similarities to the roaring early 2008 Singapore office market. The problem is that office rentals cannot go sky-high. Today’s cost-focused companies show great resistance to paying high rentals and have the option of moving to less centralised locations. Sooner or later, supply comes up to match, and frequently exceed, demand.
Given these realities, investors need to decide what the upside is in this stage of the office cycle. The sponsor certainly got the timing right buying in during early 2010, just when the market was turning, and selling after rentals had doubled. Investors hoping for increased rentals and capital gains from these levels may not be as fortunate. Gateway Plaza is also on a short lease, with just 40 years remaining.
Leverage
Leverage plays a key role in determining a Reit’s level of risk, distribution yield and valuation.
As at IPO, MGCCT had S$4.3 billion in assets (the combined valuation of Festival Walk and Gateway Plaza) and S$1.78 billion in debt (net of S$132 million in cash). That gives it a gearing of close to 42 per cent.
Given the reliance of the Reit on cash flows from mostly one asset and currency risk – the Hong Kong dollar has depreciated close to 20 per cent against the Singapore dollar in the past three years – the gearing looks to be on the higher side.
As a comparison, S-Reits have no currency risk, a more diversified pool of assets and a track record going back several years. As at end December last year, CMT had a gearing of 36.7 per cent; CCT’s gearing was 30.1 per cent, and FCT’s, 30.1 per cent.
In today’s environment of ample and low cost funding, debt levels have taken a back seat to dividend yields, but smart Reit investors would do well to remember that the credit taps are extremely volatile and Reits that are dependent on high debt levels and low cost funding to generate returns will pay heavily when the credit cycle turns against them.
Valuations
Festival Walk and Gateway Plaza have been injected into the Reit at S$4.3 billion. However, there is not much information in the 700-page prospectus on the basis for these numbers.
The valuation reports mention that they use an income capitalisation approach and discounted cash flow (DCF) analysis to value the assets. There are also plenty of standard clauses and disclaimers in the report, but important information such as the capitalisation rates used, the year for which net income is capitalised and the discount rate used for DCF valuations is missing.
More than a decade ago, Singapore’s first Reit CMT put out a 300-page IPO prospectus including this information clearly in a table. It looks like while the IPO prospectuses have been gaining bulk over the years, the quality of meaningful information is decreasing.
Going through the prospectus, it appears that the key operating number is the “projection year 13/14? NPI of S$185.7 million. Dividing this NPI by the asset valuation of S$4.3 billion gives us a property yield of 4.3 per cent. The distribution yield of 5.6 per cent at IPO price is higher than the property yield due to the 42 per cent leverage used.
Over the past couple of years, commercial property cap rates have been compressing all over Asia, with top retail spaces in Hong Kong even trading at cap rates of less than 2.5 per cent.
Investors, however, need to decide whether today’s benign interest rate and credit environment will continue and if such levels of valuation provide a sufficient margin of safety over the long term.
The sponsor makes some optimistic projections on rental increases in the coming years without providing a clear rationale. Investors would do well to test the reality of these projections under conservative scenarios.
Management fee structure
One of the major attractions of MGCCT, going by the press coverage, is the DPU-based fee model rather than the traditional asset based fee structure that most S-Reits use.
There are certainly major drawbacks to an asset based fee model that a DPU-based model avoids. However, it does not mean that a DPU-based fee model completely aligns management and unit holder interests. For starters, investors should keep a close eye on the leverage and debt maturities. Why?
In today’s credit environment, one can borrow at around 2 per cent and make even a 3 per cent cap rate acquisition yield accretive, thereby increasing DPUs and generating higher fees for the Reit manager. The increased DPUs for the investor, however, come at the expense of higher leverage. (MAS rules allow up to 60 per cent gearing if a credit rating is disclosed.)
This method gets even more attractive if short-term debt is used instead of long-term debt due to its much lower cost. Though this would mean having to frequently roll over debt.
Any Reit that employs such methods can earn high fees through increasing DPUs, but set itself up for disaster owing to a deteriorating capital structure.
This is not to suggest that MGCCT or other Reits will behave in such a way. The point is that no fee structure is fool-proof. Ultimately, whether a Reit ends up creating long-term value for unit holders depends on the quality and integrity of its manager.
Conclusion
Investing in Reits is no different from investing in any other asset class. The fundamentals need to be sound and the pricing should be reasonable. Investors get a relatively high yield from Reits because they take on the asset price risk.
The writer is a private investor and author of the local bestseller ‘Building wealth through Reits’.
This article first appeared on http://www.businesstimes.com.sg/specials/executive-money/investing-reits-theres-no-free-lunch-20130313
Learning Points From Buffett’s Recent Letter To Shareholders
by Louis Kent Lee 13/03/14 3:00 pm
The Oracle of Omaha, Warren Buffett, has recently, in his annual letter to Berkshire Hathaway’s shareholders, shared insights, which I think are good learning doctrines for anyone investing in stocks.
Investing Like You Are Buying A Business
It’s true that buying a stock requires you to do quite a bit of homework. Many retail investors I have spoken to do their homework diligently. I mean, honestly, no one wants to lose money in the stock market. I have heard sound profitability analysis, valuation analysis but yet, most fail to do the most important homework that needs to be added into the equation; “The understanding of the business itself.”
Said best by Benjamin Graham, a man that Buffett holds highly in regard when it comes to investing, “Investment is most intelligent when it is most businesslike.”
What many fail to really understand, is the business of the company that they are investing in.
Several questions that ought to be asked are:
• What are the specific competitive advantages that is unique to the company?
• How big is the company’s market share?
• How fierce is the competition scene like?
• Is the business one that naturally have loads of geo political risk?
• Is the business one that is very much affected by weather conditions?
• How is the company’s competitors faring against the company?
• What is the likelihood of recurring earnings of the company?
• Are there any reasonable clues that point to a sustaining business moving forward?
If you can’t have a solid understanding of the business, studying numbers of the company alone, will be effectively useless, because if there is no case of business continuity, or that the competition is seriously bleeding the company, the numbers that you based your analysis on, will probably be non-representative after all.
Buffett’s understanding of the companies he have invested in is so solid, to the extent that he does not care about the daily valuations of the companies, nor even macro opinions and predictions, which so many media outlets blast us with.
Market Noise And Crisis Situations
Market noise is something that is impossible to avoid. But on the part of how much it might affect you, Buffett strongly believes that “forming macro opinions or listening to the macro or market predictions of others is a waste of time”.
Trust me, not as easy as it sounds. However, Buffett’s statement which hit me the most, was that “listening to macro or other market predictions is a waste of time because it may blur your vision of the facts that are truly important.”
He revealed that had he owned a 100 percent of a solid business even during the 2008 financial crisis, it would have been a foolish consideration to dump it. Essentially, if the investment rationale is done in a solid way, and the business will continue being a solid business, whatever happens outside the scope of the business, will be of no importance to him.
Conclusion
It is endearing how personal the Oracle’s tone of voice is in his letter to his shareholders, and more so the lessons embedded within letter itself.
The takeaways are practices that Buffett abides by diligently and effortlessly, which, admittedly, takes real discipline for others to really follow through.
As Buffett is known for value investing, his thoughts on speculation were both funny and insightful, and I shall end it off with his quote on speculation.
“I am unable to speculate successfully, and I am sceptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a good reason to buy it.” – Buffett
The Oracle of Omaha, Warren Buffett, has recently, in his annual letter to Berkshire Hathaway’s shareholders, shared insights, which I think are good learning doctrines for anyone investing in stocks.
Investing Like You Are Buying A Business
It’s true that buying a stock requires you to do quite a bit of homework. Many retail investors I have spoken to do their homework diligently. I mean, honestly, no one wants to lose money in the stock market. I have heard sound profitability analysis, valuation analysis but yet, most fail to do the most important homework that needs to be added into the equation; “The understanding of the business itself.”
Said best by Benjamin Graham, a man that Buffett holds highly in regard when it comes to investing, “Investment is most intelligent when it is most businesslike.”
What many fail to really understand, is the business of the company that they are investing in.
Several questions that ought to be asked are:
• What are the specific competitive advantages that is unique to the company?
• How big is the company’s market share?
• How fierce is the competition scene like?
• Is the business one that naturally have loads of geo political risk?
• Is the business one that is very much affected by weather conditions?
• How is the company’s competitors faring against the company?
• What is the likelihood of recurring earnings of the company?
• Are there any reasonable clues that point to a sustaining business moving forward?
If you can’t have a solid understanding of the business, studying numbers of the company alone, will be effectively useless, because if there is no case of business continuity, or that the competition is seriously bleeding the company, the numbers that you based your analysis on, will probably be non-representative after all.
Buffett’s understanding of the companies he have invested in is so solid, to the extent that he does not care about the daily valuations of the companies, nor even macro opinions and predictions, which so many media outlets blast us with.
Market Noise And Crisis Situations
Market noise is something that is impossible to avoid. But on the part of how much it might affect you, Buffett strongly believes that “forming macro opinions or listening to the macro or market predictions of others is a waste of time”.
Trust me, not as easy as it sounds. However, Buffett’s statement which hit me the most, was that “listening to macro or other market predictions is a waste of time because it may blur your vision of the facts that are truly important.”
He revealed that had he owned a 100 percent of a solid business even during the 2008 financial crisis, it would have been a foolish consideration to dump it. Essentially, if the investment rationale is done in a solid way, and the business will continue being a solid business, whatever happens outside the scope of the business, will be of no importance to him.
Conclusion
It is endearing how personal the Oracle’s tone of voice is in his letter to his shareholders, and more so the lessons embedded within letter itself.
The takeaways are practices that Buffett abides by diligently and effortlessly, which, admittedly, takes real discipline for others to really follow through.
As Buffett is known for value investing, his thoughts on speculation were both funny and insightful, and I shall end it off with his quote on speculation.
“I am unable to speculate successfully, and I am sceptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a good reason to buy it.” – Buffett
Sunday, March 2, 2014
Can't start your own firm? Invest in someone else's
Published on Mar 02, 2014
Depending 100% on wages won't help when costs go up, so buy shares in companies
By Jonathan Kwok
I was shocked and disappointed when the price of my "fan choy" was raised yet again.
The dish - basically a small snack of rice topped with roast pork and a bit of egg - will now cost 10 cents more at $1.70, I learnt last week.
It does not even contain alcohol, so my regular food stall could not blame the rise in duties announced in last month's Budget.
"What to do, it's the decision of my boss," said the tubby, middle-aged stall assistant in Mandarin.
I was surprised because the price already went up 10 cents in 2012.
A serving of "fan choy" cost $1.50 at end-2011 and is now $1.70 - an increase of 13 per cent in about two years.
At 6.5 per cent a year, the increase is higher than the inflation rate.
I asked the helper if his salary is going up as well. After all, the stall will be making more money, right?
"No, in fact he wanted to cut my salary," he said with a sigh. "But I told him that I won't work any more if he cuts my pay."
That struck me as quite unfair. After all, the helper is the one staying up through the night - it is a 24-hour stall - and sweating buckets in the stuffy hawker centre.
I've never once seen the boss at the stall.
Of course, we can argue that raw material costs are rising so prices need to go up too. I hear from hawkers that the prices of flour and some types of meat have risen significantly in recent years. But there is every chance that the extra money is going either to the hawker centre landlord - as increased rent - or to the boss of the food business as higher profits.
No matter how we look at it, the increase surely isn't going into the wages of the stall helper.
It is an issue I've thought about for some time.
Singapore has one of the highest national incomes in the world, when divided by its population. But the share going to workers is lower than most other developed countries.
About 50.4 per cent of Singapore's national income went to companies as profits between 2000 and 2009, said a Ministry of Trade and Industry (MTI) report last year.
A further 7.1 per cent went to the Government as taxes and 42.5 per cent to workers via wages.
Most developed countries have workers pocketing about 50 per cent or more of the national income.
About 57.1 per cent of national income went to workers' wages in the United States from 2000 to 2009, while the figure was 52.3 per cent in Hong Kong and 51.2 per cent in Japan.
Singapore's Government has taken pains to emphasise that our country's low wage share does not mean that workers are underpaid, and it makes some valid points in the MTI report.
Wage shares in capital-intensive sectors, like biomedical and electronics, will be lower as higher profits are needed to provide returns that are commensurate with the high level of investment.
Importantly, the MTI says that "Singapore's wages are in fact higher than that in some developed economies with higher wage shares".
The wage share has also risen slightly over the past three decades.
In last month's Budget speech, it was also highlighted that median wages among citizens have risen by about 9 per cent, after adjusting for inflation, in the five years to 2013.
The wage share data does not dissect how much money goes to owners of property as rental income. I suspect this figure will be quite high in Singapore.
But looking at the figures that we have, how should we as individuals react?
Very few of us are in a position to substantially influence Singapore's economic structure so that is out of the question.
Many people around my age have read the situation and taken to the high-risk, high-return route of setting up their own firms. A lot of them are Internet businesses while there are also more traditional enterprises in food and beverage and fashion.
But some of these folks are from richer families that can afford to support them in case the business goes bust. Most of us don't have the same appetite for risk.
A more pragmatic solution would be to be what academics call "worker capitalists".
This refers to those who earn wages, save, and invest those savings to be part-owners of companies. It has served many Singaporeans well over the years.
There are several reasons why market watchers advocate some form of investing.
One point of view is that money should be viewed as your personal workforce, working hard and earning more money for you.
But an additional reason can be gleaned by looking at the structure of the economy.
With much of the country's income going to companies as profits, it makes sense to be joining them, rather than to remain purely in the ranks of the employees. It may be an exaggeration to call the company owners the "winning side", but we can say that they seem to be the ones with an advantage.
Let's say that costs rise with inflation. A business owner at least has the option to pass on some of these costs to consumers via higher prices.
But if you depend 100 per cent on your wages, your bargaining power is essentially zero as it is extremely difficult to go to your employer and demand a higher wage, just because living costs have gone up.
For those who can't set up their own business, we can at least buy shares to become part-owners of companies.
As the Government says, we may not be underpaid as workers. But still we can improve our financial health by investing more.
Some are still holding back. I learnt last week that a colleague who has been in work for more than four years still does not have a Central Depository account - needed to keep shares - despite her father being a remisier.
"I'm just lazy, lah," she said, as a friend and I looked on with some disbelief.
Of course, there are many issues with investing. We need to find out which industries are going to do well, and which companies in those industries.
The game feels stacked against smaller investors, who have fewer chances to meet top management and read analyst reports.
Even if you do end up with shares of an awesome profitable company, you are subject to the whims of the majority shareholder who may choose not to pay out any dividends.
But these are risks I'd rather take. The worst thing is to avoid investing altogether.
jonkwok@sph.com.sg
Depending 100% on wages won't help when costs go up, so buy shares in companies
By Jonathan Kwok
I was shocked and disappointed when the price of my "fan choy" was raised yet again.
The dish - basically a small snack of rice topped with roast pork and a bit of egg - will now cost 10 cents more at $1.70, I learnt last week.
It does not even contain alcohol, so my regular food stall could not blame the rise in duties announced in last month's Budget.
"What to do, it's the decision of my boss," said the tubby, middle-aged stall assistant in Mandarin.
I was surprised because the price already went up 10 cents in 2012.
A serving of "fan choy" cost $1.50 at end-2011 and is now $1.70 - an increase of 13 per cent in about two years.
At 6.5 per cent a year, the increase is higher than the inflation rate.
I asked the helper if his salary is going up as well. After all, the stall will be making more money, right?
"No, in fact he wanted to cut my salary," he said with a sigh. "But I told him that I won't work any more if he cuts my pay."
That struck me as quite unfair. After all, the helper is the one staying up through the night - it is a 24-hour stall - and sweating buckets in the stuffy hawker centre.
I've never once seen the boss at the stall.
Of course, we can argue that raw material costs are rising so prices need to go up too. I hear from hawkers that the prices of flour and some types of meat have risen significantly in recent years. But there is every chance that the extra money is going either to the hawker centre landlord - as increased rent - or to the boss of the food business as higher profits.
No matter how we look at it, the increase surely isn't going into the wages of the stall helper.
It is an issue I've thought about for some time.
Singapore has one of the highest national incomes in the world, when divided by its population. But the share going to workers is lower than most other developed countries.
About 50.4 per cent of Singapore's national income went to companies as profits between 2000 and 2009, said a Ministry of Trade and Industry (MTI) report last year.
A further 7.1 per cent went to the Government as taxes and 42.5 per cent to workers via wages.
Most developed countries have workers pocketing about 50 per cent or more of the national income.
About 57.1 per cent of national income went to workers' wages in the United States from 2000 to 2009, while the figure was 52.3 per cent in Hong Kong and 51.2 per cent in Japan.
Singapore's Government has taken pains to emphasise that our country's low wage share does not mean that workers are underpaid, and it makes some valid points in the MTI report.
Wage shares in capital-intensive sectors, like biomedical and electronics, will be lower as higher profits are needed to provide returns that are commensurate with the high level of investment.
Importantly, the MTI says that "Singapore's wages are in fact higher than that in some developed economies with higher wage shares".
The wage share has also risen slightly over the past three decades.
In last month's Budget speech, it was also highlighted that median wages among citizens have risen by about 9 per cent, after adjusting for inflation, in the five years to 2013.
The wage share data does not dissect how much money goes to owners of property as rental income. I suspect this figure will be quite high in Singapore.
But looking at the figures that we have, how should we as individuals react?
Very few of us are in a position to substantially influence Singapore's economic structure so that is out of the question.
Many people around my age have read the situation and taken to the high-risk, high-return route of setting up their own firms. A lot of them are Internet businesses while there are also more traditional enterprises in food and beverage and fashion.
But some of these folks are from richer families that can afford to support them in case the business goes bust. Most of us don't have the same appetite for risk.
A more pragmatic solution would be to be what academics call "worker capitalists".
This refers to those who earn wages, save, and invest those savings to be part-owners of companies. It has served many Singaporeans well over the years.
There are several reasons why market watchers advocate some form of investing.
One point of view is that money should be viewed as your personal workforce, working hard and earning more money for you.
But an additional reason can be gleaned by looking at the structure of the economy.
With much of the country's income going to companies as profits, it makes sense to be joining them, rather than to remain purely in the ranks of the employees. It may be an exaggeration to call the company owners the "winning side", but we can say that they seem to be the ones with an advantage.
Let's say that costs rise with inflation. A business owner at least has the option to pass on some of these costs to consumers via higher prices.
But if you depend 100 per cent on your wages, your bargaining power is essentially zero as it is extremely difficult to go to your employer and demand a higher wage, just because living costs have gone up.
For those who can't set up their own business, we can at least buy shares to become part-owners of companies.
As the Government says, we may not be underpaid as workers. But still we can improve our financial health by investing more.
Some are still holding back. I learnt last week that a colleague who has been in work for more than four years still does not have a Central Depository account - needed to keep shares - despite her father being a remisier.
"I'm just lazy, lah," she said, as a friend and I looked on with some disbelief.
Of course, there are many issues with investing. We need to find out which industries are going to do well, and which companies in those industries.
The game feels stacked against smaller investors, who have fewer chances to meet top management and read analyst reports.
Even if you do end up with shares of an awesome profitable company, you are subject to the whims of the majority shareholder who may choose not to pay out any dividends.
But these are risks I'd rather take. The worst thing is to avoid investing altogether.
jonkwok@sph.com.sg
Saturday, March 1, 2014
Buying a Ferrari for the price of a VW
Published on Mar 01, 2014
Knowing how to spot a good company can help a ready investor identify an undervalued stock
FORGET market trends. Forget market timing. If one believes that the global economy will be stronger in five years' time, the present is always the best time to invest in shares.
That view comes from someone who remains fully invested in stocks even as volatility roils markets around the world.
For Mr David Kuo, chief executive of Motley Fool Singapore - a portal that offers stock market and investing information - the ability to recognise a good company, one that is run by strong management, is more important than timing investment market trends.
With that skill, the investor is always ready to jump in when a stock looks undervalued.
Unlike investors who believe that only high-growth companies can generate exceptional returns, Mr Kuo watches out for businesses that are "valued by the market at 50 cents, but are really worth a dollar".
As he puts it, he is "looking for a Ferrari that's selling for the price of a Volkswagen".
"That rarely happens when the market is trending higher, which probably makes me a contrarian."
The secret to high returns…
Is compounding capital growth and reinvested dividends.
I have a portfolio of good stocks that gives me plenty of opportunities to add money to.
Any cash that I don't need for the next five to seven years is generally put to work in the stock market. I just keep adding money to the companies that I like.
I am fully invested, which means that the only cash in my portfolio comes from regular dividends. I am not a fan of fixed income, and property is too troublesome to manage.
Property can take too long to liquidate and can't be easily sold, brick by brick.
My only exposure to property is through Reits (real estate investment trusts) and the roof over my head.
My investment strategy is…
I started investing in stocks in my 20s. At the time, buying and selling were done over the phone, and getting information about companies took ages. But poring over company accounts in annual reports was a good learning experience.
Most people start out trying various investing techniques before settling on one particular style that suits their temperament and personality.
I was no different and, in my case, it turned out to be income investing. To me, it is logical, it can be rewarding and, if you pardon the pun, it pays dividends.
Investing is a business…
I am a great believer in capitalism, in allocating capital in an efficient way to achieve an acceptable rate of return.
Not many of us will have the opportunity or the resources to run our own business. But when I invest in a business, I become a part-owner. I am not involved in the day-to-day running of the business, but that doesn't mean I can't be interested in how the business is being run or enjoy the rewards when the business does well.
What should one do or have to be a successful investor?
Investing is not difficult.
The one skill to attain is how to recognise a good company when you see one. When you do, don't ever let it go, whatever the market might say.
Likewise, having the patience and the ability to stick to an investment strategy is important.
Some of the most boring and mundane companies can generate some of the most lucrative returns - if you are patient.
Within the Straits Times Index, firms such as Keppel Corp, Sembcorp Industries and SIA Engineering have delivered, on average, annual double-digit returns since the turn of the millennium.
During the dotcom boom, I mistakenly believed that the world was entering a new paradigm and invested in a company that eventually went bust.
The point is, there is no such thing as a new paradigm. The old rules always apply. If a company has too much debt or if it is making losses, then chances are it will go bust.
Many think they can dance in and out of the market and use fancy mathematical formulas and theorems to profit from shares.
It just doesn't work. The most profitable investment is the one that you understand best.
What shouldn't one do?
Never borrow money to buy shares. Leveraging - using other people's money - can amplify your gains, but it can also magnify your losses; the market can stay irrational longer than you can stay solvent.
Overtrading is another thing to avoid. Buying and selling incur costs, and every cent of cost paid out is a cent that could be earning you money in the market.
Knowing how to spot a good company can help a ready investor identify an undervalued stock
FORGET market trends. Forget market timing. If one believes that the global economy will be stronger in five years' time, the present is always the best time to invest in shares.
That view comes from someone who remains fully invested in stocks even as volatility roils markets around the world.
For Mr David Kuo, chief executive of Motley Fool Singapore - a portal that offers stock market and investing information - the ability to recognise a good company, one that is run by strong management, is more important than timing investment market trends.
With that skill, the investor is always ready to jump in when a stock looks undervalued.
Unlike investors who believe that only high-growth companies can generate exceptional returns, Mr Kuo watches out for businesses that are "valued by the market at 50 cents, but are really worth a dollar".
As he puts it, he is "looking for a Ferrari that's selling for the price of a Volkswagen".
"That rarely happens when the market is trending higher, which probably makes me a contrarian."
The secret to high returns…
Is compounding capital growth and reinvested dividends.
I have a portfolio of good stocks that gives me plenty of opportunities to add money to.
Any cash that I don't need for the next five to seven years is generally put to work in the stock market. I just keep adding money to the companies that I like.
I am fully invested, which means that the only cash in my portfolio comes from regular dividends. I am not a fan of fixed income, and property is too troublesome to manage.
Property can take too long to liquidate and can't be easily sold, brick by brick.
My only exposure to property is through Reits (real estate investment trusts) and the roof over my head.
My investment strategy is…
I started investing in stocks in my 20s. At the time, buying and selling were done over the phone, and getting information about companies took ages. But poring over company accounts in annual reports was a good learning experience.
Most people start out trying various investing techniques before settling on one particular style that suits their temperament and personality.
I was no different and, in my case, it turned out to be income investing. To me, it is logical, it can be rewarding and, if you pardon the pun, it pays dividends.
Investing is a business…
I am a great believer in capitalism, in allocating capital in an efficient way to achieve an acceptable rate of return.
Not many of us will have the opportunity or the resources to run our own business. But when I invest in a business, I become a part-owner. I am not involved in the day-to-day running of the business, but that doesn't mean I can't be interested in how the business is being run or enjoy the rewards when the business does well.
What should one do or have to be a successful investor?
Investing is not difficult.
The one skill to attain is how to recognise a good company when you see one. When you do, don't ever let it go, whatever the market might say.
Likewise, having the patience and the ability to stick to an investment strategy is important.
Some of the most boring and mundane companies can generate some of the most lucrative returns - if you are patient.
Within the Straits Times Index, firms such as Keppel Corp, Sembcorp Industries and SIA Engineering have delivered, on average, annual double-digit returns since the turn of the millennium.
During the dotcom boom, I mistakenly believed that the world was entering a new paradigm and invested in a company that eventually went bust.
The point is, there is no such thing as a new paradigm. The old rules always apply. If a company has too much debt or if it is making losses, then chances are it will go bust.
Many think they can dance in and out of the market and use fancy mathematical formulas and theorems to profit from shares.
It just doesn't work. The most profitable investment is the one that you understand best.
What shouldn't one do?
Never borrow money to buy shares. Leveraging - using other people's money - can amplify your gains, but it can also magnify your losses; the market can stay irrational longer than you can stay solvent.
Overtrading is another thing to avoid. Buying and selling incur costs, and every cent of cost paid out is a cent that could be earning you money in the market.
Make your first investments with confidence
Published on Mar 01, 2014
By Lynn Gaspar
"A JOURNEY of a thousand miles begins with the first step," goes the saying attributed to Lao Zi, the father of Taoism.
For new investors entering the stock market, that first step is often intimidating.
While many young adults see the stock market as an appropriate platform to make their early investments, finding the "best" entry point isn't always obvious.
The good news is there are plenty of resources available to help investors, including investment advisers, textbooks and courses.
These offer advice on how to study the market, research companies, read annual reports and run financial and technical analyses.
As valuable as these are, they can still feel daunting to those not familiar with investing. And importantly, they don't answer the question of what to invest in that first time.
To give new investors a head start, here are some simple rules to help you take that first step more confidently.
Invest in what you know
It sounds obvious but it is one of the soundest pieces of investment advice around.
What are you most familiar with? It could be the company you work for or - if your company is not publicly listed - consider firms whose products and services you consume.
Examples can be found in the food and beverage, consumer products and services sectors. What do you know about their products, business models or growth prospects?
Another good place to start is the blue chip stock.
Blue chip stocks are those of well-known listed companies that have large market capitalisations and are generally considered financially sound.
In Singapore, the 30 companies that make up the Straits Times Index (STI), for example, are blue chip companies. The regular commentary and coverage they receive from the media and analysts can help you learn about their performance and stay informed about their prospects.
Use available tools to narrow down and validate your investment choices
Websites such as SGX's MyGateway investor portal (www.sgx. com/mygateway) and various online broker sites provide investment tools that can be used to analyse market and company performance and help investors shortlist their options.
Stock screeners are particularly useful for filtering the stocks available based on your preferred dividend yield, market cap, share price and other criteria.
Chart viewers display the historical prices and trends of specific stocks and let you compare them with each other.
For those who are still hesitant, stock watchlists (often found on trading and finance portals) and portfolio applications let you simulate a stock portfolio and monitor its performance.
Just remember, these utilities are only simulations. The sooner you begin your investments, the sooner you may begin earning real returns.
Ease in with small, regular investments and diversify
If you don't have time to monitor the market, consider using a regular share savings (RSS) plan.
RSS plans let you make regular investments in small dollar amounts (as low as $100), which is less scary than making large single investments.
These plans also lock in better returns over the longer term through the use of the dollar cost averaging investment method.
Diversification typically requires a large enough portfolio to take effect.
Exchange-traded funds (ETFs) let you access a broad range of stocks with a single investment and provide good returns.
A good place to start is with STI ETFs. In the 10 years to June 2013, a dollar cost averaging plan consistently executed at the end of every month on the SPDR STI ETF would have generated an average annualised total return of 6 per cent, including reinvested dividends.
Start with a single step
Just about every important decision we make in life involves some risk. While taking that first step can be intimidating, there are ways to dip your toes into the stock market without accidentally drowning.
A more realistic way of thinking about the challenge is to consider what would happen if you didn't take the step.
With the cost of living in Singapore outpacing the interest payments on bank deposits, the bigger risk lies in not seeing your investments grow.
As Facebook founder Mark Zuckerberg put it: "The only strategy that is guaranteed to fail is not taking risks."
In other words, taking calculated risks today can help reduce the certain loss of real wealth that we face tomorrow.
The writer is head of retail investors at Singapore Exchange.
By Lynn Gaspar
"A JOURNEY of a thousand miles begins with the first step," goes the saying attributed to Lao Zi, the father of Taoism.
For new investors entering the stock market, that first step is often intimidating.
While many young adults see the stock market as an appropriate platform to make their early investments, finding the "best" entry point isn't always obvious.
The good news is there are plenty of resources available to help investors, including investment advisers, textbooks and courses.
These offer advice on how to study the market, research companies, read annual reports and run financial and technical analyses.
As valuable as these are, they can still feel daunting to those not familiar with investing. And importantly, they don't answer the question of what to invest in that first time.
To give new investors a head start, here are some simple rules to help you take that first step more confidently.
Invest in what you know
It sounds obvious but it is one of the soundest pieces of investment advice around.
What are you most familiar with? It could be the company you work for or - if your company is not publicly listed - consider firms whose products and services you consume.
Examples can be found in the food and beverage, consumer products and services sectors. What do you know about their products, business models or growth prospects?
Another good place to start is the blue chip stock.
Blue chip stocks are those of well-known listed companies that have large market capitalisations and are generally considered financially sound.
In Singapore, the 30 companies that make up the Straits Times Index (STI), for example, are blue chip companies. The regular commentary and coverage they receive from the media and analysts can help you learn about their performance and stay informed about their prospects.
Use available tools to narrow down and validate your investment choices
Websites such as SGX's MyGateway investor portal (www.sgx. com/mygateway) and various online broker sites provide investment tools that can be used to analyse market and company performance and help investors shortlist their options.
Stock screeners are particularly useful for filtering the stocks available based on your preferred dividend yield, market cap, share price and other criteria.
Chart viewers display the historical prices and trends of specific stocks and let you compare them with each other.
For those who are still hesitant, stock watchlists (often found on trading and finance portals) and portfolio applications let you simulate a stock portfolio and monitor its performance.
Just remember, these utilities are only simulations. The sooner you begin your investments, the sooner you may begin earning real returns.
Ease in with small, regular investments and diversify
If you don't have time to monitor the market, consider using a regular share savings (RSS) plan.
RSS plans let you make regular investments in small dollar amounts (as low as $100), which is less scary than making large single investments.
These plans also lock in better returns over the longer term through the use of the dollar cost averaging investment method.
Diversification typically requires a large enough portfolio to take effect.
Exchange-traded funds (ETFs) let you access a broad range of stocks with a single investment and provide good returns.
A good place to start is with STI ETFs. In the 10 years to June 2013, a dollar cost averaging plan consistently executed at the end of every month on the SPDR STI ETF would have generated an average annualised total return of 6 per cent, including reinvested dividends.
Start with a single step
Just about every important decision we make in life involves some risk. While taking that first step can be intimidating, there are ways to dip your toes into the stock market without accidentally drowning.
A more realistic way of thinking about the challenge is to consider what would happen if you didn't take the step.
With the cost of living in Singapore outpacing the interest payments on bank deposits, the bigger risk lies in not seeing your investments grow.
As Facebook founder Mark Zuckerberg put it: "The only strategy that is guaranteed to fail is not taking risks."
In other words, taking calculated risks today can help reduce the certain loss of real wealth that we face tomorrow.
The writer is head of retail investors at Singapore Exchange.
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