Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Sunday, 28 December 2014

2015 will be a Great Investment Year

2015 will be a great investment year for everyone - if we buy the right investment.
Historically over the last 70 years, the third year of all US presidents have been the most positive year in the US stock market.

Photo from Kenneth L. Fisher's Market Never Forget, Chapter 7 - Poli-Ticking

Above is a photo shot I had taken from "Markets Never Forget", listing the stock market's (S&P500) historical returns since President John Calvin Coolidge, Jr . 

Since 1943, the 3rd year of all presidents have ended positive; that's 71 years worth of historical data and trend.

Well, you may ask, it is the US market that will be good, how does it benefit investors residing outside of US?

The surprising part is, the US stock market is actually positively correlated to most of the other countries' stock market, and the correlation has only been more positive instead of less. Thus it can be safely deduce that next year will be a good year for most global investments.

Photo from Kenneth L. Fisher's Market Never Forget, Chapter 8 - It's (Always Been) a Global World, After All

The above image is a shot I took from Ken Fisher's book. It shows the price correlation between S&P500 (US Market) and of MSCI EAFE Global Index (Global Markets). As can be seen, other than a few instances, most of the movements are positively correlated, except for the different percentage changes in price.

I think the best books that I have read that talks about all these economic/financial history and correlations comes from Ken Fisher's books - Debunkery & Market Never Forgets.
Ken Fisher (Kenneth L. Fisher) is the son of Philip Fisher (the author of the famous investment book - Common Stock & Uncommon Profit). He has been a Forbes columnist for more than 20 years and manages his fund (Fisher Investments) for an even longer period.

Ken Fisher's 2 books are both written in short chapters with plenty of historical economic data and charts that help investors see clearer the investment world. Eg: Bonds are safer than stocks but only to a certain period.

Both books are good reads to both new and seasoned investors.
I believe they are both available in public libraries.
Do read on them and improve your investment prowess! :D


Friday, 26 December 2014

EVERYONE should Invest

Everyone who wishes to retire should invest in their future, regardless of their jobs and status.
Anyone relying on their savings for retirement is bound to experience a shortfall in their future income for 2 reasons:
1) The interest rates you get from your savings will never be able to match the inflation rate.
2) If you save 10% of your salary each month for 40 years and aim to retire for 30 years, assuming the interest rate you get matches inflation rate, there is no way mathematically you will be able to draw even 10% of your last payment. So if your last salary is not at the $10,000 level, I don't think a comfortable retirement is possible.

Accrued Interest More than Housing Profits?
CPF +1% Interest for those age 55 & Above
5 Financial Things to do in your 20s
Singapore Finance Minister on Personal Finance Part 2
Reducing CPF Housing Accrued Interest
CPF +1% Interest for those age Below 55

Warren Buffett, one of the best investor and richest person in the world, recently gave some advice to all when he was on CNBC, stating that investors should invest for the long-term. He stated that a low-cost investment vehicle such as an index fund is a great choice for the long-term.

I think most people should invest some part of their savings in an investment vehicle such as a low-cost index fund as retirement planning. Start young and allow the compounding interest to grow the money for a future source of income.

An index is a "tracker" that tracks the price of its underlying asset(s). Example, an S&P500 index tracks the price of 500 largest US companies such as Apple, Google, Wal-mart and Mcdonalds.
An index fund is an investment tool for individuals to buy an index.

Recommended Post: What is CPF Basic Retirement Sum?

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Thursday, 25 December 2014

Ethical reporting has never been more important

While the creation of the Internet has allowed information to flow more efficiently and effectively, it has also resulted in extreme volatility in the markets. An example of such is the oil prices, where its price can fluctuate more than 3% in a week due to a simple announcement of the performance of US economy.
This led to the importance of information and especially the "appearance" of it.

What do I mean by appearance? People form views or perceptions on every piece of information they gather and how we perceive it is different from one another. Someone's good news may someone's bad news. As such, these perceptions creates individual opinions of  how the market will move, hence impacting the markets (or prices) differently.

While this might not be the only reason as to why more companies are falsely reporting their financial performance, I believe it is one of the main reasons causing the trend. Management is often paid based on the performance of the company and rewarded with share options. Hence, they are motivated to present a positive performance, some to the extent of cheating or lying.

With current rampant ethical issues, investors must now check and cross reference the financial statements. Investors must also be equipped with skills to detect inconsistencies in the statements so as to protect themselves from getting caught in a financial scam.

I recommend the following book: Financial Shenanigans by Howard Schilit and Jeremy Perler. It consists of numerous guidelines on how the management manipulates accounting rules to adjust or beautify their companies' performance. All of which are illustrated with famous examples such as WorldCom and Enron.

Sunday, 21 December 2014

2 Must-Read for all New Investors

Today, I would like to recommend 2 books that I think are by far the best investment books I have read since I started investing.

Warren Buffett Stock Portfolio.
Warren Buffett and the Art of Stock Arbitrage

Both books are by Mary Buffett and David Clark.
They are easy to read and easy to understand for a new investor.

Warren Buffett Stock Portfolio explains how Warren Buffett identify which companies are great and worth investing in simple layman terms - Earnings Per Share (EPS) and Growth Rates. It comes with plenty of examples as well to aid in the understanding of them.

Warren Buffett & the Art of Stock Arbitrage explains the 7 strategies used by Warren Buffett to grow his wealth. Most of the 7 strategies are still applicable in today's world.

It is available in most public libraries and I would say is a must-read for all investors - new and old.
I recommend this to all my friends who are interested in investing because these 2 books have taught me a lot about investment, and I would recommend it to you too!


Saturday, 20 December 2014

Asset Allocation VS Investment Period

Most investment professionals would emphasize that a good asset allocation is key to great investment returns. Having a portfolio consisting of stocks, bonds, other investment assets and cash is like the safest strategy anyone of any age group can follow.

Today, I wish to offer something different. I would like to say that the Time Horizon you have to invest is equally important as to what you invest in.

Based on the video below by Fisher Investment, stocks tend to perform better than bonds over a long period - despite the higher volatility (price movements).

If you are planning for a retirement 30 years later, putting your investment into 100% stocks makes more sense than to have a portfolio consisting a mixture of stocks and bonds. This is simply because  over long periods, stocks are more positive than not, and provide better returns than bonds or mix.

Compare the above scenario against if you are going to retirement in 3 years time. You might not wish to have periods of high volatility during this period, thus you might wish to skew your portfolio towards more bonds.

Thus, it is not just Asset Allocation that is important, your Time Horizon is equally important!
Do not neglect that part of your portfolio!

Just in case you think stocks are risky, below is the price chart of the S&P 500 from 1950 till 2014.
It is a rising trend. You might wonder "how can anyone lose money on this?"
In fact, a lot people did lose money, because they tried to trade in and out instead of buying it and holding it throughout the whole journey.
If you bought during 1956 at price of $45.35, it is worth nearly $2070 today!
Now that is an investment!

Sunday, 14 December 2014

Is Investing Risky?

Ever heard your parents, your grandparents, your friends or relative told you that investing is risky?
Watch this short clip and understand why investment is not as risky as they say.
Share it to those who tells you that investment is risky and make them all a better investor!


High Inflation Coming to US

High inflation rates will be coming to US because of the huge amount of printing by the Fed and a dysfunctioning fiscal policy. It will not be tomorrow, next year, or 5 years, but it will definitely come when the Fed is no longer able to support the economy.

PS: This will be a economics lesson, and the market outlook will be at the bottom.

The current monetary and fiscal policy in the US (and most other countries) are dysfunctional and highly skewed towards creating inflation.

Fed's duty is to control the money supply and interest rate in the economy. However, the Fed only has the mechanism to pump money into the economy (permanent supply) but am only able to remove money out of the economy by increasing interest rates and issuing bonds (removes money supply temporary).
All bonds have a maturity date. The money will have to flow back into the economy with interest once it is matured. Some may argue that the Fed can keep rolling over its bonds to lower money supply, but it is only snowballing the monetary catastrophe to the future with either higher interest payments (hence higher money supply that inevitably will reach the market) or ever-expanding money supply.
The Fed has no way of removing money from the economy permanently.

Fiscal (Govt)
Fiscal policy on the other hand is unable to pump money into the economy, however, it does have the ability to suck the money supply out of the economy permanently through taxes. Technically, only taxes are able to remove money supply from the economy.
While the Govt are unable to pump money into the economy, they can help ensure that there is more supply flowing in the market by not sucking them out (eg; lower taxes).

Marriage of the 2 is a Disaster
Fed is currently nearly addicted to QE (printing money) and low interest rates because the market demands for it and the Fed does not want big swings in the market - because big swings in market usually results in big swings in the economy, which for a still recovering US economy is not good.
No one likes high interest, every one likes a low interest, it makes the housing loans, student loans, any other loans cheaper. So the Fed in its attempt to please the market and the economy, will have to continue keeping interest rates low.

Govt (Democrats or Republicans) do have the ability to control money supply in the market, but they will not use it until it is the last resort - they might not even use it as a last resort. No one likes high taxes, be it personal, consumption or corporate, no one likes them. Any party that suggest a higher tax rate would most likely face losing the next election. And because getting re-elected is the most important thing for a politician, they will not risk raising taxes even if it is the right thing to do.

With the 2 working hand-in-hand, we have a financial  system that is prone and made for an unrestricted expansion of monetary base without the desire to reduce it. Any politicians attempting to reduce the supply will be faced with unpleasant retaliation from the economy. Fed chief would face a possible market downturn while a politic party risk losing the election.

With an inflationary situation almost unavoidable in US, it is best to position yourself with investment products that are inflation-hedge like stock indexes and commodities (real commodities like gold bar! Yes! start buying gold bars).
On the other hand, you can also start diversifying your portfolio to include securities and assets from other countries to hedge against a possible free-fall of the US dollar.

Tuesday, 9 December 2014

Confession of an undisciplined investor

This is a confession post of an undisciplined investor that sought to cut corners in investing. From what you already know, the market is ruthless and it only reflects your performance to the amount of work you put in. Once you are complacent and assume that you are better at beating the market, it will whip you till you beg for mercy.

Being a young investor, similar to all beginners, I had beginner's luck (sort of). I made some wise investment decisions and made a decent rate of return. While it is not fantastic, I am still proud as I had beaten the market average.

However as time passes, I began to slack off and took shortcuts in evaluating my investment choices. I was not prudent in checking the ratios and analysing the company's strengths and weaknesses. The market knew it and began its punishment.

Slowly, it took away my previous profits and gradually reduced my rate of return. Mistakes began to pile up and more profits were eroded.

The previous trainings on discipline and risk management were off my mind. I lost focus. Then, came the moment when I had to admit my faults. I cut my losses, which was supposed to be done earlier on.

From this humbling experience, I paid a price - my hard-earned profits. However, I gained back several lessons of which I would like to share.

1. Never to cut corners
When times are good and your investment decisions are proving to be on-spot, never let your guard down as you will never know when the market will reach out its paws and claw back your cash. Always analyse the companies well before making any investments.

I was browsing an online article and found this to be useful.

Questions to ponder:

Financials. Are there any potential red flags amidst its financials?

-Ratio of Total Receivables to Revenue (Channel Stuffing?)
Related Party Transactions (Tunneling?)
-5 Year Earnings Trend vs Industry Trend (Does this company consistently keep growing revenues when all companies in the industry are showing otherwise)
-Margins (Comparing the margins of the company to peers to understand the average)
-Management. Is management one that is transparent or dubious?

-Transparency of Annual Reports (Does the CEO only report positive announcements every year?)
-Board of Directors (Country of Origin)
-Chairman vs CEO positions managed by separate individuals (Problems of family-owned companies)

2. When things go wrong (and they usually do), turn to your risk management procedures and follow through. No one is perfect and you have to cut losses sometimes. If not, in order to earn back your losses, you will need to recuperate 2x of it.

While this setback is disappointing, I have gained something in return. The only consolation I have.

Sunday, 23 November 2014

Sticking to a strategy is the most important for an investor

While the Dow is climbing to all-time high, some of us maybe feeling annoyed with the lackluster performance of the Singapore stock market. As a comparison, the Straits Times Index is still 13.7% away from its all-time high that was in October 2007, 7 years ago.

In this period of 7 years, there are numerous events and surprises. All of which leading drastic movements of stock prices, that saw the STI crashing to a low of 1594, more than 50% loss from its all-time high. This crash occurred only 4 months after the STI reached its peak.

Most amateur investors would buy at the high and sell at the low. At the high, they do not want to miss out on the upcoming bull run and jump in without studying the fundamentals of the company that they invest in. Such companies are often of poor standards, only used as tools for speculation. Hence, an investment strategy is key to success in investing. It should include the criteria and purpose of buying and selling. This is to ensure that greed and fear is removed from the selection procedures.

A strategy can be as simple as investing a constant amount of money regularly. This is also known as dollar cost averaging. By investing a regular amount at a fixed interval, the investor's timing of starting such a strategy is key to his performance as his starting entry price will affect its average price afterwards. An investor has documented his investment performance using this strategy. It is modeled after Phillip Securities’ Share Builder Plan (SBP) and the amount is GIRO-ed to automatically invest the amount in the ETF. He invested in this on Jan 2008, just months before the large plunge of the STI but he was able to achieve an annualised return of 7.3%, after reinvesting all dividends and deducting all costs.

This is just an indication of how important an investment strategy is. Should an investor stick to what he believes in and a strategy that is proven to work, even through the bad times, he is bound to reap back his rewards. As data has proven, the market is always upwards moving in the long term, but it is up to the individual to realise the profits, only if he is able to withstand the short term pressures.

Saturday, 1 November 2014

Recent Singapore market events: random reports disrupting share prices

10:12 No comments
There has been a spat of recent events whereby research reports of Singapore-listed companies are being released by unknown authors online. Of which, these reports are circulated widely, leading to high volatility of the targeted company's share prices. A current example is Sino Grandness. If you have not heard of this, do click on the link to find out more:

While these reports are merely speculation and personal opinions of the authors on the company, they have impacted the share prices heavily as the market regards these reports seriously in relation to its financial standing. However, these reports are also biased in a way that it presents the company that is aligned to the interest of the author. Hence, the authenticity of the research might be of a concern, such that it is manipulated to direct the crowd.

In the case of Olam, the share price has dropped to a low of around $1.50 when the reports from the shortists were released. Of which later, Temasek unit offers to buy Olam at a premium of $2.23. Should an investor be able to deeply analyse the company and realise that Olam is truly undervalued, he/she would have stand to gain almost 50% returns when the news was announced.

Comparing that to the share price of Sino Grandness, which has fallen by more than 40% from its previous high, should the reports proved to be untrue, it could be an opportunity for investors to invest at a seemingly cheap valuation. This is, of course, subjected to one's own opinions and research of the data and financial standing of the company, before any investment is made.

Tuesday, 28 October 2014

6 Things Yahoo! needs to do

Yahoo! has rose by almost 15% from its bottom of $37.82 on 15 Oct 2014. In its Q3 earnings, management has said that it will continue to invest in its mobile growth strategy and buybacks. Although this is good news, especially we do see growth in mobile materializing, the capital structure of the company in my view still have room for improvements.

1) The optimal size for Yahoo! is $10 billion or less currently in market cap. With $480 million in 2013 operation income, Yahoo! should be worth between a range of 10x - 20x P/E, valuing its core at $4.8 - $9.6 billion. Yahoo! should not own more cash than what its earnings are fundamentally worth.

2) A company worth $5 billion in market cap based on core operating income should not be given management of more than $35 billion in cash & near cash assets. Excess money should be return to shareholders to ensure management does not make bad decisions because it has a huge cash pile. It is also technically tough for management to utilize the cash and grow the core business to be worth at least 7 times its original size.

3) Yahoo! can continue to act as both an operating company and as a VC company, but it has to return most of its VC investment return more efficiently to shareholders while continuing to grow its core operating business.

4) While buybacks are good for the company's long-term shareholders, Yahoo!'s buyback reduces asset per share of the company, which reduce its price per share because Yahoo! is valued by its asset.

Yahoo! currently has a market capitalization of $43 billion, roughly $8 billion above its post-tax value of $35 billion, meaning that investors believe that management might be able to help save $8 billion of tax expense from its sale of its Asia assets (or its core is worth some money).

With $12billion in cash, if Yahoo! spends it to buyback it shares when its market cap is $40 billion, it would be able to purchase back 30% of its shares. Subsequently, it will have a net asset value of $23 billion + $5 billion value in its core business. The $8 billion in tax savings would put Yahoo!'s market cap at $35 billion, and with 700million shares outstanding, each share will be worth $50.

However, if Yahoo! perform a buyback when market cap is at $40 billion, it will only be able to buy back 26.7% of its shares, leaving a 733million shares outstanding. At $35 billion market cap, each share will be worth $47.75. A difference of $2.25 per share, which at current $43 price accounts to nearly 5% difference in potential returns.

I am not saying Yahoo! is overpriced. I am only saying that it is overvalued for a buyback, but it is reasonably priced.

5) 1% ownership of a failing business and 10% ownership of a failing business doesn't make a difference, the business is still failing. Yahoo! is undergoing a restructuring period and while the management may be doing a great job trying to turn around the company, it is still a 50-50 bet. With reference to point 2, the safer bet for Yahoo! would be to return the capital to shareholders so that we don't own what could be a fail turnaround. IBM is a great example of a most recent buyback failure.

6) They failed to maximise the tax benefits for shareholders in the previous 2 sell-off of Alibaba shares (one during 2012 and one during Alibaba IPO). Management failed in 2 times in situations where shareholder value could be protected, thus it is not very clear if the same management team would be able to effectively protect shareholders from the huge tax bill from Yahoo!'s Alibaba sale.

I am a shareholder of Yahoo!, I am writing this article to show my view regarding Yahoo!'s capital return program. I am also not receiving compensation from the above company or any other company. Above are just my 2 cents view of the company's valuation and are by no means any form of recommendation to purchase the stock.

Friday, 24 October 2014

Buyback is the Wrong Strategy for Yahoo!

During Yahoo!'s Q3 earnings call, we have seen both its CEO and CFO continuing to emphasize that buying back shares of Yahoo! is the right strategy to return capital to shareholders over the long-term.

However, in my view, this is a risky strategy pursued by the company in returning capital to its shareholders. As such, I am more on the side of pushing for Starboard's activist action in Yahoo!.

I laid below some mathematical calculation why Yahoo!'s buyback is a bad strategy:

Yahoo! retains 384 million shares of Alibaba, I value each share at $90, representing $34.56 billion pre-tax and $22.46 billion post-tax of value.

Yahoo! retains 35% of Yahoo! Japan that is valued at close to $7.8 billion pre-tax and $5 billion post-tax.

Yahoo! has cash of $12 billion as of end of Q3, with $3.3 billion of tax liabilities due 2015. Net cash position is $8.7 billion

Yahoo! also has a long-term liability (excluding taxes) of near $1.3 billion.

Net asset value of the company pre-tax is $53.2 billion and post-tax of $35.1 billion.

Share buybacks are only effective when shares are bought when they are undervalued and when the core business is a good business.

Assuming Yahoo! has 1 billion shares outstanding (for easier tabulation).
Yahoo! is a sum-of-parts investment, where its share price is currently the value of its assets - Pre-tax of $53 billion or Post-tax of $35 billion.

Conservatively, assuming that Yahoo!'s total net assets are worth $35 billion, and it spent $1 billion on buybacks. Its new asset value will be $34 billion. With 1 billion shares outstanding, each share price will fall from $35 to $34, unless Yahoo! is able to purchase 2.85% of shares outstanding (1/35) with its $1 billion cash buyback, which would maintain the value of Yahoo! shares at $35.

Unless Yahoo! is able to buyback shares below their net asset value or potential net asset value, its share buyback program is a bad allocation of capital. If Yahoo! over pays for shares during its buyback, it will be destroying shareholder value instead of creating them.

In addition, buyback is only worth when the core business is good. However, Yahoo! is still a company that requires turnaround. The management may be positive about the future of Yahoo!, but they are suppose to, even if deep down they are not positive. Because turnaround carries risk that it may fail, it is better to return capital to shareholders than to perform share buyback.

I am a shareholder of Yahoo!, I am writing this article to show my view regarding Yahoo!'s capital return program. I am also not receiving compensation from the above company or any other company. Above are just my 2 cents view of the company's valuation and are by no means any form of recommendation to purchase the stock.

Monday, 13 October 2014

Where's my Pay Raise?

04:41 No comments

Ever wonder why is inflation almost always rising faster than my paycheck and why that stingy boss of mine who is earning so much is not raising my pay!

Everyone would always wish to earn faster than inflation, but this rarely happens, especially if you have been staying in the same post for a very long time!

*Inflation is the increasing of price of the things you buy

Reasons my pay grow slower than inflation:
  1.  Because in order to pay you higher wages, your boss first need to make the extra revenue. To make that extra revenue, your boss have to raise prices first. So prices go up before your pay goes up.
  2. Prices can go up for reasons other than your pay - such as raw materials, taxes etc. And most of the time there's a limit to how much prices can go up - I think no one wish to eat a cheese burger for $10. So what happens is your boss increase prices of the things he/she sell, but use the extra revenue to pay for everything else but your pay (because you will keep working until one day you cannot take it and quit but your boss's business will fail the minute he fails to pay the suppliers etc).
  1. Create 2nd or 3rd income stream while you can. When you start working, try to save and invest more to create your 2nd income stream and gradually a 3rd. You could start first by setting a small amount of money every month to buy index funds (good if you know nothing about investment and do not wish to know either). Next is by maybe finding a part-time freelance job like free-lance web designing or dance teacher, something that you can help others while making a income for yourself.
  2. Become the boss yourself if you think your boss is making way too much money. No one became a boss to pay their employees more than what the boss is earning (you could become one such boss if you like). If you like to earn more, take it to the next level and become a boss.
  3. Keep improving yourself! Keep learning new skills and keep upgrading your skills. The more skills you have, the more likely you will be able to perform better than others. As Warren Buffett (one of the world's richest person) says, "The best investment you can make is in yourself". As you improve yourself, you become more productive and have a higher chance of promoting, thus able to command a higher salary.

Sunday, 12 October 2014

Cordlife: Analysis

Recently, I have stumbled across a healthcare-related company that is listed on the Singapore Exchange. It appeared on my stock screener and after investigating its financials, I decided to write an opinion of its performance.

Cordlife is a company that stores cord blood. Scientifically proven, cord blood is important, even long after a baby’s birth and can provide a source of stem cells should the need ever arise for a stem cell transplant. Hence, there are numerous health benefits that can be used to treat future diseases.

From its annual reports, the future growth of Cordlife proves to be exciting. It is currently expanding in both scope and scale, improving its future streams of income.

  1. Cordlife has entered into a new licensing agreement with StemLife to explore and develop umbilical cord lining related new services based on cellular technology in Malaysia. This is in addition to the potential synergies of working with StemLife to cross-sell services and products in Malaysia and Thailand. It has also secured new licensing agreements to improve its revenue stream.
  2. It has also introduced an advanced non-invasive metabolic screening service known as Metascreen™.
  1. Cordlife has expanded operations in India, the Philippines, and Indonesia and invested 31.81% interest in Malaysia-listed StemLife. These should start to contribute positively to the Group’s bottom line in FY2014.
  2. Cordlife has entered into a convertible note issued by CCBC which can  potentially raise its interest in China’s largest cord blood banking operator to 17.79%. This can also serve as an additional income stream from the annual coupon payments. 

  1. Compared to its peers, Cordlife is also able to enjoy higher margins and a wider product reach due to its strategic alliances. 
  2. Being a cord blood company, it depends on its assets to generate income. Hence, to judge its performance, we can use return on assets ratio. This can be a risk factor as the ratio has been decreasing at a steady trend since 2010 from 10.37% to 3.60%. This could be due to it increasing its assets while its income varies. However, this would stabilize later as currently the cord blood banking is still a relatively new and niche industry. Furthermore, Cordlife can obtain more market share using the first mover advantage.
  3. Its debt levels and liquidity ratios are also of good standards. Its current and quick ratios have steadily increased from 1.00 to 3.06 and 0.97 to 2.93, from 2010 to 2014 respectively. Its debt ratio, though increasing from 2010 to 2014, still remains at a healthy level of 9.00%.


  1. Relatively new and niche industry where customers need to be educated to realize its benefits. Hence, advertising costs could prove to be a concern.
  2. The sales channels in China is heavily reliant on its China allies.
  3. Its assets turnover ratio is decreasing, indicating that it is not efficient in deploying its assets to generate a revenue.
With these reasons, I suggest a BUY on this counter, especially since its present stock price is at a downtrend. Though there are inherent risks in its expansion strategies, I have faith in its management in mitigating and managing the company.

Note: Currently, I do not have any vested interest in the company.

Saturday, 11 October 2014

Weak Euro = Good US + Europe

Recently, a lot of analysts and economies are saying that a rising dollar and a near recession Europe is going to dampen the US economy and stock market growth. What is even worse as mentioned by those economists, is that Europe will be exporting their inflation to the US, which is going to make the bad situation worse. Today I am going to explain why I think it is not as bad as it sounds.

The economists are saying that a weaker Europe will result in the following problems:
  1. Euro will fall against USD, making US products more expensive to export to Europe
  2. US exports to Europe will fall, causing its Export market and hence the economic growth (GDP) to slow
  3. Because European products will be cheaper in the US due to a weak Euro, it would cause inflation in the US to possibly become deflation, which would cause the US economy more problems
However, I think that the negative part is over-rated. A weaker Euro against the USD is actually beneficial to both countries - Europe & US
  1. 70% of the US economy is consumption. A weaker Euro would increase the demand for European products. While 'Imports' will rise, but 'Consumption' will rise as well, which sort of neutralizes the effect a larger import has on the GDP. After all, what is imported has to be consumed.
  2. Secondly, the US is not a major export country, 'Exports' make up 14% of US GDP as of 2012 and Europe represents slightly more than 20% of it. Assuming a 20% dip in export to Europe, the impact on the US economy is 0.56%, which is pretty small. 
  3. It is not deflation we should be worried about but inflation. Importing deflation from Europe leads to lower US consumer prices and hence lower inflation. This encourages the Fed to maintain its low-interest rates slightly longer and for the bull market to last longer.
My take is: If you are invested in the US, love the weaker Euro, Europe because it encourages low inflation and longer low-interest rates. If you are invested in Europe, a lower Euro will make European goods more attractive overseas, boost exports and improve their economy.

We need to understand the key driver of their economies to know how they grow. The US grow by consumption while Europe grows by Exports.

Thursday, 9 October 2014

Annuities, Have or Not-to-Have

04:10 No comments

Today's topic will be on annuities. The average public has the tendency to buy annuities thinking that they are the best product available in the market for future cash flows, especially during retirement.

Actually, many people do not know what an annuity does, how it works, and how is it beneficial. So today I am going to breakdown what annuities are about.

By definition from Investopedia:

 In a simple sense, you basically do the following thing:
  1. Find an insurance company/bank and buy an annuity from them
  2. What usually happens is you pay a monthly or yearly amount to them (say you start paying at age 30).
  3. You keep paying until you reach retirement age (say age 60) and after that, the bank/insurance company starts paying you a monthly income to sustain your living.
Sounds like a simple, beautiful and "cannot-go-wrong" thing?

On the consumer/buyer side, it is this simple. But it gets more complex when it goes to behind the scenes. This is what the financial institutions do with your money in general.
  1. They take your money (monthly or annual), pay commissions to the person who managed to get you to buy the product.
  2. The remainder gets invested into bonds, stocks, and other financial products.
  3. The investment returns they make, the institutions would take a cut to pay for their expenses (say 5%-10% of the returns).
  4. What is left is then given back to the consumer over a period of time as income.
 Still convinced that it is a great product? Read below on its risk:
  1. If the bank/insurance company goes bankrupt, you lose your annuities paid (depending on the situation you MIGHT get back some of your money back).
  2. Hypothetically, for every $100 you put into the product, imagine some money going to the agent, some money going to pay for the institutions' expense, and the remainder (probably $80-$90) gets invested.
  3. The institutions use your money to buy stocks and bonds, then they take a cut from your returns. This means they cannot actually give you better returns than if you just invest in stocks and bonds yourself (sure there are risk investing yourself, especially if you know nothing. But, if you are investing for your retirement, read to know that investing might not be as dangerous as you think!).
Ken Fisher, a long-time Forbes columnist and well-known guru investor shares his hate for annuities.
Watch the video to learn more about the product!

Wednesday, 1 October 2014

High Dollar Kills the Market?

23:45 No comments

Today's topic is on whether the stock market will be going down if the dollar remain this high or went even higher.

 I saw a lot of people saying that a higher dollar would kill the US economy and affect the stock market because:
1) it hurt exports
2) it makes US goods and services more expensive
3) there might be deflationary concerns

Below shows 3 charts:
1) S&P 500 10 year returns
2) S&P 500 10 year Total Return
3) The Dollar Index (^DXY)

So I will answer all the doubts as to why I believe that a strong dollar will not hurt the US economy, its recovery and the stock market.


The current dollar level is still far from the highest point in 2006.

i) During the period of 2004 to mid 2006, the dollar remained at range above the current level, and the market continue to climb up until the end of 2008 where the Lehman Brother crisis hit.

ii) Since December 2009, the dollar rose all the way till its peak in June 2010. The stock market followed and peak at April 2010.

iii) Since may 2011, the dollar has been steadily rising till now, so has the stock market, and without a correction.

However, this does not mean that a rising dollar is good to the stock market and a falling dollar is bad for the stock market.

i) From November 2005 to october 2007, the dollar fell from peak to trough, the stock market however during this period rose to its peak.

ii) During March 2009 till December 2009, the dollar fell from peak to near trough, the stock market also over the same period rose by nearly 90%. However, this can be attributed to a bounce back from the 2008 crisis.

Through the technicals, it is shown that the dollar has no relationship on how the stock market will perform.


1) A strong dollar will not hurt economic growth, instead, it would more likely improve economic growth. US has been a major importer of goods from abroad. A stronger dollar would only make imports cheaper, which benefits consumers and boost consumptions.  Companies would also face lower cost of raw materials, hence improving profit margins.

2) The US is a major consumption-based or consumption-driven economy, especially domestic consumption. A rising dollar will not hurt domestic consumption because things are going to be cheaper thanks to a stronger dollar and they are at least not as affected as countries trading with the US.

Saying that I am not going to eat at Mcdonalds because a rising dollar will make my burger more expensive in my view is ridiculous. Stronger dollar means each of my dollar is going to get me more stuff, I am going to be able to buy more stuff than before.

3) Deflationary concern is one of the least concern I have regarding the US market and economy right now. With the Fed keeping rates at record low and a possible action of QE anything things looks like they are going in the wrong direction, I am least afraid of a deflation. I am instead more worry about inflation that will be coming over the next 5 to 10 years (Will be writing another article on this).

4) A strong currency mostly affect only those export determinant countries like China, Japan and South Korea. These countries when hit with a higher currency value (Higher Yuan, Yen or Won) will result in their exporting products becoming more expansive and hence leads to a slower growth. However in the case of US, it is the opposite, hence a stronger dollar would make imports cheaper, reduce inflation, improve companies' margins - although it would make the reported earnings look bad because of USD reporting.

The way I see it, the dollar will not affect the market's current upward momentum. The market current sell-off because of a high dollar is a good buying opportunity.

Correction Overdue Follow-Up

05:31 No comments

I received some feedback from people who read my previous post (A Correction Overdue).
One of it was that the chart presented in the post was not enough an evident to prove that correction is not on its way.
Secondly was that the economy is growing at around 2%-4% while the stock market has advanced 7% excluding dividends, stock market grew 2times the economy, which means it is ahead of economy by 2 times.

Firstly, thank you for the feedback. All feedback are welcome and I certainly hope that there will be more to come!

1) So first, I wish to show more evidence that a correction will not occur anytime soon and it is based on the charts. Fundamentally I have proven that a correction will not occur because the stock market is not running ahead of the economy.
Below is the chart that I showed on my previous post on the market:

Below is the chart that shows the last correction in 2010:

A correction occurs when the stock market has charged forward faster than the economy is growing. Based on the above 2010 chart, between the period of February to May (less than 3months), the market went up by nearly 14%. Technically, the economy did not growth that much during the same period, which I guess led to the sell-off near end of April.

Historically, any short-term big rise are often followed by a correction. 'Short-term' meaning within a quarter and 'big rise' usually more than 10%.

Another chart below is from the 1999 correction where the market went up by 14% between June to August (less than 3months) and that was followed by a correction that led to the market dropping back to June's levels.

I believe a lot of the above examples can be found as we research through the history of corrections. Up till now, the market is moving cautiously, where there has not been a more than 10% gain within a period of 3 months. So fundamentally (economy) and technically (charts), a correction is very unlikely to happen within the next several months.

2) The economy is growing at a rate lower than the stock market, this must mean a correction is coming soon right? Well, actually no. The stock market is actually leading ahead of the GDP instead of GDP leading the stock market. GDP data however, is used to create a correction in situations where the stock market grow more than the economy did.

The stock market performance one way or another, is a projection of future growth. GDP data however, is a reflection of past growth. So even though the GDP did not showed good results, the market can still perform well if the market thinks that the future GDP growth will be better.

GDP data is also not reflective of stock market performance because of a lot other factors.
i) Buybacks - this reduce stock supply which leads to higher prices
ii) GDP measures a country's consumption, export and investment. However, it does not measure profits, which is the key determinant of valuating the stock market.
iii) GDP measures domestic progress. However, many companies listed on the US stock exchanges are global companies with global revenues not shown on GDP data. Apple selling an iPhone in China is counted as GDP in China but not in the US.

I hope this clarifies a lot of the queries. Please do comment on any more doubts and I will try my best to answer them!
Thank you!

Monday, 29 September 2014

A Correction Overdue?

17:33 No comments

Lots of analysts these days are talking about a possible and looming correction that has not occurred over the past 3 years of the bull market.

Historically, a correction occurs almost every 12-18 months. We have not experienced 1 for 3 years and this has lead to many people worrying about a correction and guessing when it will hit.

My view is that a correction will not hit us anytime soon, at least not till December arrives. 3 reasons I have to support this view.

1) We need to know what a correction is and what constitutes it. A correction is a pullback of the stock market (usually 10%-20%), a normal and natural phenomenon. It occurs because the stock market has grown ahead of the economy and hence a pullback occurs to level both of them.

The US economy is currently growing. Though it might not be as good as others have predicted, nevertheless there is still growth - better housing figures, high profits etc. The stock market is also not performing extraordinary well. In fact, the S&P 500 year-to-date recorded a near 7% increase, which while is not fantastic, it has still gone up.

So the economy and stock market this year are both going through a slow and steady upward trend, with no one leading by a lot, which is good news.

2) All 3 major US Indexes (S&P500, DJIA and Nasdaq) are going through several days of reds and several days of greens for the year while reaching new highs. The stock market is going like zic-zac pattern trending upwards instead of an 'only-up' upward trend.

It is way better to see a zic-zac pattern with ups and downs than to see an 'only-up' chart. When there are ups and downs, it means that market participants are pretty balanced on both sides, which helps keeps prices reasonable and ensure that the stock market does not go crazy and run ahead of the economy. It is only when we see an 'only-up' chart where we need to be panicky because that means that everyone is optimistic and no one is on the pessimistic side to keep things balanced - that is usually a reason why corrections occur.

3) It is already priced in by almost everyone, and what is priced in cannot really happen - it technically had already happened. Almost every analyst I hear are talking about a possible and upcoming correction because it is long overdue and must occur. The fact is, there are no such things as "MUST" in the stock market, it is a probability thing and I must say that judging from the current situation, I really do not see a correction coming.

If most analyst says that a correction should be coming soon and they are pretty much prepared for it, I would say that it is already priced in. So while I do not expect the stock market to be up a lot this year, I do think that we probably will not see a correction at least till December - 2 months of market performance to enjoy!

Friday, 26 September 2014

Yahoo! Now Has An Accurate Value Meter

04:30 No comments
With Alibaba (BABA) now listed on the New York Stock Exchange (NYSE), there is now price transparency on the Alibaba stake Yahoo! (YHOO) has on its balance sheet. In the past, the value of Yahoo!'s stake was only via estimates. Now there is a definite value - depending on the price of Alibaba shares in the open market.

With the 2 most valuable assets - Alibaba and Yahoo! Japan (YAHOF) - now openly trading on exchanges, the actual value of them can be tabulated and included into Yahoo!'s share price accurately. This allows for a comparison of Yahoo! between its market price and the value of its underlying assets, and a respective action can be taken by investors or by the management.

Yahoo! sold close to 140 million shares of Alibaba in its listing at $68, total proceeds is around $9.5 billion pre-tax, $6.2 billion after tax. Though there has been some arguing that Yahoo! is able to utilize the cash for a period until the tax are required to be paid during annual filings.

Yahoo! currently owns around 384 million shares of Alibaba after its listing. Based on the closing price of near $89, its stake is worth near $34.2 billion pre-tax. After tax (35%), the stake is worth close to $22.2 billion. The actual value may be higher since it was noted that the shares were likely to be held in Hong Kong which is tax-free if they were sold.

Yahoo!'s 35% (2million plus shares) stake in Yahoo! Japan is mark-to-market valued at close to $8.4 billion pre-tax, close to $5.5 billion after a 35% tax. However, I do expect the tax to be a lot lower because Yahoo! selling out Yahoo! Japan stake in the open market does not sound very likely. Instead I would expect a more of a cash-rich split off or buyout, which has a lower tax implications.

Yahoo! on its latest filings stated that it has $2.7 billion cash and cash equivalent on its balance sheet.
On a conservative estimate, valuing Yahoo!'s core business at 0 and subtracting away the $1.2 billion long-term debt, Yahoo! actual value is $35.4 billion, excluding other upsides like buyback and most importantly tax and the value of Yahoo!'s core business.

Currently valued at $38.7 billion, Yahoo! is quite fairly valued, considering that Yahoo!'s close to $16 billion unrealised tax bill from unsold securities of Alibaba and Yahoo! Japan are very unlikely to be charged fully anytime soon and are allowed to compound tax-free. In fact, I would at most expect Yahoo! to pay only half of its $16billion tax bill in any circumstances.

However, with the current value of $35.4 billion, this can serve as an indicator for investors to know when to invest in the company when it is undervalue and for Yahoo!'s management to perform buyback at price below its asset value, which help improve long-term shareholder value.

Personally, I would consider Yahoo! currently undervalued because of the tax issue where I consider 50% of the tax not going to be paid by Yahoo!, which adds close to $8 billion to the above conservative value of $35.4 billion, making it worth $43.4 billion.

I am currently long Yahoo! and will continue to load more shares when I can when the price reaches level below $40.

PS: I am merely posting my views about this company. I am also not receiving compensation from the above company or any other company. Above are just my 2 cents view of the company's valuation and are by no means any form of recommendation to purchase the stock.

Tuesday, 23 September 2014

Buckle's Coming Big Special Dividend

03:08 No comments

The Buckle's (NYSE:BKE) dividend history shows an alternating special dividend history. Buckle gives its shareholders a special dividend that is 1 year huge and the following year small, followed by a huge special dividend the next year.
(click to enlarge)Buckle
2012's special dividend is a huge $4.70, followed by 2013's smaller $1.42 special dividend. This trend has repeated over the years that Buckle had issued a special dividend. While the exact special dividend amount cannot be accurately predicted, the amount should be the average of the past years of around $2.5 per share.
At the current price of $47.19, the projected special dividend yield is around 5.3%, excluding the $0.22 quarterly dividend and any other potential upsides. Including the quarterly dividend ($2.5 + $0.22), Buckle's next quarter's projected yield is around 5.76%.
I would be interested to add Buckle into my portfolio if it falls to below $45 because the projected dividend yield would be boosted to 6% ($2.72/$45).

PS: I own no shares of the above mentioned company. I am merely posting my views about this company. I am also not receiving compensation from the above company or any other company. Above predicted results are just my estimates and are by no means any form of recommendation to purchase the stock. 

Sunday, 14 September 2014

Investment is Sure Lose?

A lot of people says that investment is risky, is a sure-lose thing, is like putting money in the casino, its a gamble.
Most would hear from parents, grandparents and friends that they or they know of someone who has lost a lot of money in the stock market. Many even went bankrupted.
Here is the interesting part: tell them to give you some real names of people who lost that much money. Most of them will quote your TV drama names.
Actual Fact: TV makes the stock market looks more dangerous than it is.

The danger of the stock market is the same as driving a vehicle on the road. Putting someone who never learned anything about driving behind the wheels definitely makes it a dangerous thing. Just like not knowing anything about investment and randomly putting your money into the stock market, it is equally dangerous.

Recommended Post: Can I use my CPF to pay for my housing after age 55?

To prove that stock market investing is not risky, look at the chart below:

The S&P500 is an index for the US stock market.
From the 1950s to today, it is almost an upward only steady trend.
Have you ever wonder how can anyone ever lose money in such a scenario?
Ironically, people did lose money during this period because they tried to jump in and out, thinking they are Einstein and that they can predict when are the top and bottom.
Apparently, there is a reason why the turtle wins the race.

Recommended Post: Shares Not Risky & Bonds Not Safe?

The world's top and best investor, Warren Buffett's advise for the public regarding stock investments:


So, the next time someone tells you that investment is risky, show them the chart above that it is really hard to lose money in the stock market if you took the turtle route.

Remember to offer your opinions. If you don't put your two cents in, how can you expect to get change?

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Sunday, 7 September 2014

Outliers: The Story Of Success by Malcolm Gladwell (Book Review)

I would like to recommend this book to those that have not read it and are interested in finding the trends that contribute to success stories. Readers should take it with a pinch of salt as these are just general trends and generalizations that may not apply to individuals. However, it still gives a different perspective as to how people become successful which often are due to invisible, and what seems like insignificant factors.

This book consists of 3 different parts: an introduction, a part on opportunity and a part on legacy. The introduction offers a terrific summary into how the book is going to be structured by offering a case study on the Roseto Mystery. The author explained that in order to understand an individual's outcome, one must look beyond the individual. We must look into the effects of how different cultures, social connections or even the history of the town can structure one's mindset as one progresses into the society. I believe this is also the reason why Singaporean parents are frantically enrolling their children into the "prestigious" schools as they feel that this will aid their children in getting an inherent first advantage as they grow older.

Part 1 on opportunity offers insight on how opportunities are presented to the right set of people with the right set of characteristics. With this set of people, few are selected to be the success stories as they took upon the chance and grind towards their goals. While most are of nature such as birth dates, a person's IQ and their parents' demographics, there is an active attribute that we can adopt in order to increase our chances of reaching success. That is the 10,000 hour rule. Most success stories often only occur once the person has accumulated 10,000 hours. While the author did not explain the reason, what he offered is that the brain seems to evolve into another level, reaching a state where it is able to do that one activity with excellence once 10,000 hours of practice is achieved.

Part 2 on legacy shows how distinctive cultures affect our thinking subconsciously, thus contributing to success. This part explains the inherent part within us where we are influenced by our family, friends and co-workers. Some of which can affect the success of which industry we can thrive in. An example given in the book was the Hofstede's dimension where low power-distance-index (PDI) countries thrive better in being a pilot. This is because both pilot and co-pilot have to check and balance each other's flaws and coordinate in times of crisis.

There are numerous examples given in each factor to illustrate the trends that the author discovers. As I have said so in the beginning, it is advised that readers take it with a pinch of salt as it applies to the general society and people without the inherent characteristics can still succeed through determination and hard work.

Note: This is my first book review and I hope I have done it well. While I hope to offer more content on the book, I also wish to balance between offering insight instead of giving full information as stated in the book. I also hope that I have established certain amount of interest on the book such that you will want to read it as well and benefit. Do post your comments and discuss below!

Wednesday, 3 September 2014

Thoughts on predicting share price

I was browsing through investment blogs and for a long time, I have noticed most of them are themed on predicting future share prices. They often use many different methods which can be grouped under technical analysis. The point is that this method is usually used alone.

While this method has its own merits, I often feel that they missed out on a very important fact. Investing in a company means owning the business. This means that some form of fundamental analysis has to be present because you need to understand the company that you are going to invest in. There are several weaknesses to this method, though. One is that the company may doctor its balance sheets to make it attractive to potential investors and secondly, the balance sheet is backwards dating. Hence, it may not be extremely helpful in predicting the future of the company.

Hence, there are some ways which I think is useful in countering the weaknesses of fundamental analysis. First, is to try to predict the forward Price to Earnings ratio (PER), with accuracy. Note: it is with accuracy. What I mean is that you would want to invest in a company that has a higher chance of increasing its earnings in the future. Let's say the PER of company X is now 10. The company is engaging in food and beverage industry in Russia and is not affected by the sanctions issued by the government. This definitely translates to a earnings as now there is higher demand for its products, coupled with lesser competition. If X's share price is now $1 and the earnings increase by 20%, the share price should increase to $1.20, given that the PER remains the same. However, predicting the future is difficult, or else, impossible. The way is to predict with certainty. This is of course provided that the company is stable and sound in terms of its current financial position.

While back dated information suck big time, who else has the current up-to-date information? Well, its the business owners themselves! One way to know if the company is really doing well is to check if there are any insider movements or share buybacks. If a director or key personnel is buying up some shares, this might indicate that he/she has faith in the company, or else he/she would not even risk their own money. Otherwise, the company might think that its share price currently is trading at a discount and it might be a good time to buyback some of its shares to increase its return ratios.

While these methods do have the limitations too, I feel that they are counteract measures against fundamental analysis and should be used concurrently to improve your investment decisions. This post is also of no offense to people who believe technical analysis is accurate. I, too, use technical analysis to time my entry. But this is just my 2-cents, hence, the blog title: "Thoughts on predicting share price". Rather that: "Facts on predicting share price".

Do leave a comment and share your views.

Sunday, 31 August 2014

Term or Whole Life Insurance?

My apologies for the slow blog posts. I had been away for a holiday to Korea for a week. Due to the recent airplane mishaps, I got a single-trip travel insurance, just in case. However, in the market, there is a travel insurance which covers you yearly. It then becomes obvious that the yearly coverage is for those who travel frequently, whereas the single-trip insurance is only for those who do not. While the premiums of travel insurance is not as substantial, it can be used to relate to life insurance, which often costs much more and is considered a major decision (since you most likely would only get it once in your lifetime).

You might be thinking how insurance is related to a more investment-themed blog and where am I posting this. Well, insurance is basically an investment where you transfer unwanted risks to another party for a fee. Hence, if planned and used correctly, it can be important in your portfolio.

Coming back to my topic of life or term insurance and the travel insurance example, most people would then think it is common sense to get whole life insurance to cover themselves for life. That's where common sense failed. Let me explain.

Life insurance is mainly bought for purpose of obtaining a payout upon the death or event of contracting terminal illness of the insured person. In simple terms, it is the monetary value attached to your life. If you think of it this way, the longer you live the lesser the value of your life. This is because as you age, the amount of value that you can bring becomes lesser, as you are less able to work. After retiring at the age of 65, you should have lesser responsibilities. Your children have grown up and are able to feed themselves. Your house mortgage should already be paid. Your expenses should dramatically decrease, similar to your income. Hence, the question is why should you pay the same amount to cover something worth lesser value.

Buying a whole life insurance which covers your entire life does not make economical sense as you are paying more to cover less value in your later life. Besides lining the pockets of your insurer and agent, there is definitely not worth it to get a life insurance, unless you are looking at giving the benefit payout to your children as an inheritance.

Some of you may argue that not everyone retires at age 65. This is understandable, given the rising financial pressures currently. You can still purchase a term insurance which covers you up to the age that you think is a safe estimate of when you can retire. It is not only flexible and costs much less in terms of premium, but it also offers basically the same benefits as the whole life insurance. If accumulated throughout your life, it can be a substantial amount which you definitely can use to smoke more cigars.