Shares buyback good or bad ?

I have seen quite a lot of post that focuses on dividend alone. A lot of US companies do not give out a large percentage of dividend due to the tax law. Thus most of these companies are being shunned away from dividend hunters.

So how then do we determine the shares buyback to be good or bad?

The answer is not very straight forward - I think it should depend on a few factors.

1) Has the company allocated enough CAPEX to widen it defensive moat?

2) Can the capital be used to allocate into some other areas to create a higher return instead of from the shares buyback?

3) Is the buyback below its intrinsic value?

4) Are the buyback using FCF or by taking up more debts for the buyback ?


If the above conditions are met I think a share buyback is good for shareholders in the long run.
shareholders derive their return from capital appreciation and dividend return forming the total return component.

over a 5+ years period, Apple has destroyed  1.73 billion shares. or 26.6% of the initial shares count.
As such in an efficient market. The share price should have increased by 20+ percent over the same period assuming the cashflow produce are the same. If we take the peak price of about 90 dollars in the year 2012  the price is close to double.

Apple current dividend yield is about 1+% before tax. should the buyback continue at a similar pace from the past the total return from buyback and dividend should be in the range of 6-7%

However the above is not so straight forward as the market is very dynamic, constant analyzing the business fundamentals and the financial statement is a must to monitor the stock going forward.

*note I have holdings in the above stock mentioned and the view above should not be taken as a buy call for Apple shares.

Disclaimer

1) This Blog is intended only for the use of personal portfolio tracking and sharing of ideas. All the investment advice or stocks picks shared shall be view as only my personal opinion only. I do not warren the truth or accuracy of the information shared and likewise all investment activities made should be consulted by your personal financial advisor as I do not have an understanding on your investment objective nor your investment Risk appetite as such I shall not be liable for any of your losses whatsoever howsoever should you decide to invest in any investment ideas or stocks discussed in this blog.

Leveraging good or bad ?

Leveraging - is it good or bad ?

In singapore, it is widely accepted that to leverage to buy property is a good move as it is an asset. However when i introduce this concept to buy stocks it is usually being label as dangerous or risky.

Well, personally i think there is no right or wrong answer to the question. one must know which phase in life one is in. One must also consider the phases of the credit cycle at the point of leverage.

Usually in a rising interest rate environment - it is good to deleverage. During easing time it is logical to leverage within your own limit.

Things to consider during leveraging in any assets classes.

1) Cost of funds or interest expense
2) where are we in a credit cycle. (starring of easing or starting of tightening)
3) Forecasted ROI of the assets that will be vested.


1) the appreciation of assets would come in 2 forms Capital appreciation and cash flow return.
The 2 components would form a total return in a given time frame.  Below an example of one of my past allocation on the stocks listed in UK, and ADR in US to calculate total return.

For non financial assets - eg properties.

Gross yield is top line, net yield is bottom line. 

Example to purchase a 1 million condo inclusive of stamp duty and legal expenses

cash flow out (-1m)

Rental income +3k per month. 

gross yields is 36k/1m or 3.6 percent per month.  (gross yield)

Net yield is to minus the maintenance fee, depreciation if the property is not freehold or 999, agent fee, property tax, income tax on rental income and transition period to find new tenants and replacement of furniture etc...

So the net yield would be lower than the gross yield... usually 1-1.5% (Use higher figure if you are kiasee type like me. If the deal is no good just walk away.....) 

Wait, we can leverage assuming with the new ruling - you only need to put a down payment of 25%

Finance 75% .. (ideally the logic make sense, however, the hurdle rate is around 2+% currently so if you manages to get a net rental yield of say 3.5% and your COF is 2.5% multiply that by 3 you will get a total yield of 3% higher. 

when we used leverage to finance our stocks or housing or cars etc.... it would be good to calculate the interest servicing ratio or interest coverage ratio. 

If one were to borrow money to speed up the process of acquiring something. Always remember there will always be a cost to it. It is hard to justify right or wrong or which formula is best for you. But throughout my life, my debt to equity level has never been more than 100%. ideally one should be working towards the 30% debt to equity ratio. 

Debt to equity of 100% means that - for every 1 dollar you have in capital you should only borrow max 1 dollar. The borrowing includes your car loan housing loan and any loan outstanding. you can borrow more if the interest expenses are cheap. During the QE period, interest rates are very low when your hurdle rates are low, everyone seems to be very smart. you just need to make 2% annual return on a 1% interest expenses to be above water.

I think we are entering a period of interest rate normalization period it is harder to invest as the COF is higher.  

Warren Buffett mention before "Interest rates are to asset prices what gravity is to the apple. When there are low-interest rates, there is a very low gravitational pull on asset prices."

  

Disclaimer

1) This Blog is intended only for the use of personal portfolio tracking and sharing of ideas. All the investment advice or stocks picks shared shall be view as only my personal opinion only. I do not warren the truth or accuracy of the information shared and likewise all investment activities made should be consulted by your personal financial advisor as I do not have an understanding on your investment objective nor your investment Risk appetite as such I shall not be liable for any of your losses whatsoever howsoever should you decide to invest in any investment ideas or stocks discussed in this blog.

Why invest ? - inflation , capital preservation or what ?

Inflation - Most of the time, my clients would be asking me why should one invest? Well, there is a lot of reason but most of the time I would tell them investing would be more for hedging against inflation.

Inflation - what figure do we take?
Most of the time a CPI should be ideal if you are just living day to day. It should give us a long term average of about 2.5% to 3% in Singapore.  However, having the kiasu mentality build within me I would like to introduce another index.

The LGI - 6% 

5.3% average increase (Chanel)

Luxury Goods index
https://www.ft.com/content/dbb9319a-fc85-11e8-ac00-57a2a826423e

(Mind you the Daytona inflation rate is even higher)

So which figure should we take?

Well, it really depends on you? what you hope to achieve in life, what you really want to have in life.

If your target is to live a simple life for retirement, u need to have a return of  about 5% to 6% as 2.5% is the average inflation eg : if your expenses is 30k a year it would likely cost you 31k next year so you need to have assets to generate that 1k extra next year to hedge against it.

there are some financial assets SGS SSB etc. which are mean for capital preservation or CPF -OA, SA etc ... these assets are more for capital preservation instead of Wealth accumulation.

I was once joking with my friends - I was telling them if you ever wanted to get yourself a luxury timepiece or a Luxury bag if all you are doing is just putting money into an FD account. you should most prob just go and buy it the next day as the inflation is way higher than the return you are getting from the interest accrued from it.

So the no risk options are actually the riskier options - you are sure to lose purchasing power. Assuming there is no deflation.


What causes inflation? I think the main reason why there is inflation is that as the income level of individuals increases, goods would increase in value as well especially the wants. The needs should not see a massive increase in prices as regardless of how rich you are you would still eat 3 meals a day (for most peoples). However, the wants are the factors that drive up inflation.


What I did ? - I always had a high hurdle rate of more than 6%. Normally my hurdle rates would be set at 10%

The ability to reallocate the cash flow that is being generated by the financial assets or assets channel to him into other assets that meet his hurdle rates would greatly enhance one wealth accumulation phase.

Rule of 72 - if one is able to generate a 10% return annually the net worth will double every 7.2 years.

so a 2 million port will hit 100M in 41 years.

at 12% it will take 34.5 years.

at 14% it will take 29.86 years.

Disclaimer

1) This Blog is intended only for the use of personal portfolio tracking and sharing of ideas. All the investment advice or stocks picks shared shall be view as only my personal opinion only. I do not warren the truth or accuracy of the information shared and likewise all investment activities made should be consulted by your personal financial advisor as I do not have an understanding on your investment objective nor your investment Risk appetite as such I shall not be liable for any of your losses whatsoever howsoever should you decide to invest in any investment ideas or stocks discussed in this blog.

Portfolio 2019 Feb

Investment style - Valuegrowth investment.
Portfolio concentration - not more than 20 stocks at any point.
Portfolio focus - Developed market Global
I have been investing globally now, I am only heavily invested into our local banks for Singapore stocks, most of the blog that is available in Singapore are mostly REITs focus or dividend focus.
My portfolio has a blended yield of close to 4% at today valuation.

YTD return about 5.3%
Let's see how it would perform in next month.

Disclaimer

1) This Blog is intended only for the use of personal portfolio tracking and sharing of ideal. All the investment advice or stocks picks shared shall be view as only my personal opinion only. I do not warren the truth or accuracy of the information shared and likewise all investment should be consulted by your personal financial advisor as I do not have an understanding on your investment objective nor your investment Risk appetite as such I shall not be liable for any of your losses whatsoever howsoever should you decide to invest in any things discussed in this blog. 

Armageddon 2008

2008 - I started my stockbroking career at the worst possible time, I got the license in the mid of 2008. Very soon within 6 months of me joining the industry, my portfolio has evaporated from 350k peak to a low of 70-80k. Most of the stocks I was holding was trading at a very low PE of 3-4X multiple.

Mentor to the rescue - I meet my mentor and my friend in the broking firm I was working in, during 2008.  I could still remember that vicom was below 1 dollar then. I told him to look at some of the stocks that I was holding and asked him to take a look at them as the valuation was very low.

He noticed one thing in common with them all of them are listed from China - all of my stocks purchased than was S-chips they were purchased due to the low valuation. Some of them were even net cash companies. (however, we all know what happened next which I do not wish to illustrate further).

Lesson learned - If the market priced it cheaply it is often cheap for a reason, mispricing would not be there for a long time.

I decided to switch to companies that give solid dividends during the crisis and i had to cut the losses of the shares that I purchased as I was in very early, during the bull market I managed to lose only a small portion of my net worth after all I think the amount of my money put in increases by 3 fold within 2 years if you all have vested into the S-chip than u know what I mean .


I was very lucky then to have met my mentor and also to have switched out to stocks that give out great dividend than Suntec REITs was giving out a 15% yield then. ( i could still remember when Suntec REITs managed to refinance their debts to a lower rate (HSBC) I was confident that the dividend income would hold. I maxed margin then, 3.5 x leverage with income coming in to shore up my credit even more. Margin finance was at 4% to 6% than. Again I was very lucky as I am managing a small portfolio of close to 100k to 200k than with saving at 8 to 10k a month I was not married then and I had very minimum commitment. So the market recovered and my portfolio increases to the pre-crisis level of close to 350k at end 2009.

the recovery was fast and furious and deleveraging was done in 2010. My portfolio has been deleveraged to level at 30% debt to equity level max. Currently my debt level was even lower at
only 15%. debts to assets level.

Looking back i was really lucky - 1) to have switched out to dividend stocks and also to have income coming in to cushion off my debt level fast. (they was no chance to answer margin call we simply let the house sell us out however when the income came in again the subsequent month the leveraged was by a factor of 2.5X again) .

Disclaimer

1) This Blog is intended only for the use of personally portfolio tracking and sharing of ideal. All the investment advice or stocks picks shared shall be view as only my personal opinion only. I do not warren the truth or accuracy of the information shared and likewise all investment should be consulted by your personal financial advisor as i do not have an understanding on your investment objective nor your investment Risk appetite as such i shall not be liability for any of your losses whatsoever howsoever should you decide to invest in any things discussed in this blog. 

Happy New Year 2019 My investment journey

It has come to a point in my life where I would like to share my knowledge to like-minded people in Singapore.

I hoped my Blog can help people to understand more about investment. 

Who am I  ? - I am in my late 30's this year, I started investing at the age 23 years old I had 14 years of investing experience as of this year and I am still learning.
Investing is an activity whereby the longer you invest in it the better you will become after failing in the mistakes that we had made in the past.

Peter Lynch mentioned that a "guru"  should be able to get 7 out of 10 of his investment right all the time. I am not a guru like Peter Lynch as such I don't think I would be able to be right more than half of the time. However, time is on my side I would love to get to close to where a "guru" would be able to achieve with the power of time.

Me in my 20s - I came from a very humble background, my family taught me to be thrifty and to save the money from my monthly job after graduating from a local poly. like most other Singaporeans, after serving my NS I began looking for a job. I had accumulated about 30k at the point I started working. The accumulation came mostly from working part-time when I was 14 years old  (fast food restaurant). I could still remember the pack of Marlboro (Philip Morris) cost me $2.40 then only to be inflated to close to 7 dollars for a 10 stick pack now. (yeah I know no more 10 stick pack).  Then the turning point came while I was studying for an external uni course my dad passed away while I was 25 years old I had no choice but to cease the program as we do not want to spend a big portion of it on the school fees. The funeral and hospital bills itself wiped away some of my saving. After which I reckon that by saving it was very hard for me to be well to do.

I am very fortunate that during that time Google was available to me - So I google around to understand how people got rich. Then I came across Mr. Buffet, after doing some research I think the only way to financial freedom is to invest in other people successful business at a reasonable price or to start a business of myself.

Investing in businesses - to leverage on mispricing concept to be given by the market.

I feel that it was not hard to buy stocks and so the journey began. I am very lucky to start investing in a very easy year from 2005 to early 2008 it would be hard not to make money. I invested in companies like China sky, Hongguo, fiber chem, China Hongxing etc all the S -chip. By combining with margin plus saving from my salary I was able to achieve a portfolio of close to 350k at the peak of the cycle.

In 2008 - my ex-boss asked me to head a division in southeast Asia, I declined the offer as we were unable to settle for the remuneration package. knowing that I would not go far if I stay in the company I decided to do a career switched.

In Mid 2008 - I got my trading rep license and had been a Remisier ever since.  In my current job, it gives me a view of how peoples react to emotions and fears. I got more than a thousand clients now. We always heard "to buy when others are fearful", that is easy to say but hard to practice in reality. A handful of my clients did that but most does not.  Most of the clients are fearful when others are fearful. Not only that they might cause you to be fearful when they are fearful. haha ... Investing is simple but not easy.


The greatest fear of my life........ to be continued....

Disclaimer

1) This Blog is intended only for the use of personally portfolio tracking and sharing of ideal. All the investment advice or stocks picks shared shall be view as only my personal opinion only. I do not warren the truth or accuracy of the information shared and likewise all investment should be consulted by your personal financial advisor as i do not have an understanding on your investment objective nor your investment Risk appetite as such i shall not be liability for any of your losses whatsoever howsoever should you decide to invest in any things discussed in this blog.