The Most Valuable Thing Money Can Buy

Came across another awesome article from My Money & Me about the importance of savings, and benefits of living a minimalist life.

“The most valuable thing money can buy is freedom from having to worry about money.”

I share many beliefs with the author, and I'm glad there is someone who can put across the point so well. If you hadn't notice - In Singapore, you must be a freaking "weirdo" if you have no desire to buy a car. You must be living a miserable life if you do not consume much. You must not have much ambition if you do not want to buy or upgrade to a Condo/big house.

Don't get me wrong. It is not that I do not have desire for such things - it's just that I do not see how they are worth their prices.

We work on a job we hate, so that we can buy a car to more easily get to work?

We spend years of our working life to upgrade to a bigger and better house, but leave the house vacant most of the time because we are at work?

How does that make sense?

If it doesn't, then maybe you are simply making luxurious purchases to prove something. To prove how "successful" you are, or maybe just to fit into society norms.

Do you know if you save just 5% more of your income each month, you can cut your working years by as much as 4-8 years? [See links below]

How much % of your income does a car installment cost you? 20%? You are willing to extend your retirement by 20 years just to own a car?

Remember that when you are purchasing a liability for, say $100K. You are not only losing that $100K. You are losing all the compounded money that could have grown out of that $100K for the REMAINING of your life (40+ years).

To me, their costs are far too high. I will consider them if one day I strike $10M toto and their costs become negligible compare to my networth. Until then, I find such things frivolous.

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"If you are spending 100% (or more) of your income, you will never be prepared to retire, unless someone else is doing the saving for you (wealthy parents, social security, pension fund, etc.). So your work career will be Infinite.

If you are spending 0% of your income (you live for free somehow), and can maintain this after retirement, you can retire right now. So your working career can be Zero.

In between, there are some very interesting considerations. As soon as you start saving and investing your money, it starts earning money all by itself. Then the earnings on those earnings start earning their own money. It can quickly become a runaway exponential snowball of income. As soon as this income is enough to pay for your living expenses, while leaving enough of the gains invested each year to keep up with inflation, you are ready to retire."

Mr Money Mustache 

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"But to some people, wealth is the most important thing in their life, and they are forever endeavouring to accumulate more wealth. Whenever they gain more, it is never enough, and they then plan or plot to gain even more. It is an endless pursuit in self-gratification with no meaningful purpose in life.

Happiness, in whatever form one sees it, becomes more elusive the harder one tries to pursue it.

That’s why my personal aim is much more realistic: All I ask for is calmness and contentment. These at least are partially within my control."

Pursuit of Happiness (Dr Lee Wei Ling)

Quarterly Results Review - 2015Q4

From this year onward, I shall commit to writing brief quarterly results review for several reasons:

1. Regular evaluation ensures the company still have fundamentals and meets my portfolio goals.
2. Keep a long-term record of basic valuation metrics to help future decisions.
3. A deterrence to myself rashly purchasing businesses I do not understand.
4. A good training for increasing my investment aptitude.

I will be using the calendar year to perform this review. (2015Q4 will be reviewing the results from Sep 2015 to Dec 2015)

For this time only, I will use rough figures from the previous year. Subsequently I will use the previous quarter's numbers. For prices, I will just use any value in the period when I was writing the update.

These review will be very brief and only highlight the most important developments for that company. This is so that I have the motivation/time to regularly update them.

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Frasers Centrepoint Trust (FY2015)	DPU in previous vs current: $0.114 -> $0.116 Price in previous vs current: $1.78 -> $1.87 Yield in previous vs current: 6.4% -> 6.2% BV in previous vs current: $1.77 -> $1.91 Woodlands Regional Hub in 2020, Northpoint City in the next 18 months and Downtown Line 3 will bring massive crowd and growth to their top 3 malls. In the short term, DPU may be affected due to asset enhancements (i.e occupancy drop) at Northpoint, their 2nd biggest mall.
Super Group (FY2015)	EPS in previous vs current: $0.0617 ->$0.0424 DPU in previous vs current: $0.031 -> $0.023 Price in previous vs current: $1.73 -> $0.73 Yield in previous vs current: 1.8% -> 3.2% BV in previous vs current: $0.446 -> $0.468 Results continue to disappoint with EPS falling over 30%. Its saving grace lies with its robust operating cash flow, improved margins (mainly from lower material costs) and strong balance sheet. Management and analysts are betting on China growth (which is showing some momentum) and new products innovation.
	EPS (HKD) in previous vs current: $0.6731 -> $0.4376 EPS (SGD) in previous vs current: $0.12 -> $0.08 DPU in previous vs current: $0.07 -> $0.07 Price in previous vs current: $1.0 -> $0.78 Yield in previous vs current: 7% -> 9% BV (HKD) in previous vs current: $0.586 -> $0.532 Quite bad results with payout ratio skyrocketing from 63 to 96%. Management gives a challenging outlook, but still believe in the long-term growth of China toll road industry. They are proposing to adopt scrip dividends to save cash, but dilution will not benefit minority shareholders. If there's no turnaround, they will not be able to sustain 7c dividends next year. I may look to off-load this should the chance arises.
Sembcorp Industries (FY2015)	EPS in previous vs current: $0.443 -> $0.292 DPU in previous vs current: $0.16-> $0.11 Price in previous vs current: $4.8 -> $2.5 Yield in previous vs current: 3.3% -> 4.4% BV in previous vs current: $3.15 -> $3.6 (~$3.0 excl. pref shares) Expected horrible results with Marine provisions dragging down the entire group. Even Utilities, to my dismay, registered lower profits (-19%) if you exclude 1 time divestment. Singapore Utilities are facing immense pressure as well. ROE plunged from 15.2% to 9.4%. Interest cover more than halved from 20.8 to 7.2 times and debt ballooned by $2 billion. Overall it's very very jialat. Only hope is on overseas contribution to step up from 2016 onwards.
M1 (FY2015)	EPS in previous vs current: $0.191 -> $0.191 DPU in previous vs current: $0.189 -> $0.153 Price in previous vs current: $3.51 -> $2.3 Yield in previous vs current: 5.4% -> 6.6% Dividends were slashed to their minimum payout of 80%, but luckily not due to reduced earnings. Company is conserving $ to bid for the new spectrum and "fight" against the 4th Telco. When they come onboard, EPS might fall by 10% as an estimate, consequently resulting in a 6% yield. Painful reminder to myself to evaluate the payout ratio. Note that after looking at Starhub results, M1's does not look as bad.
Capital Commercial Trust (FY2015)	DPU in previous vs current: $0.085 -> $0.086 Price in previous vs current: $1.55 -> $1.3 Yield in previous vs current: 5.5% -> 6.6% BV in previous vs current: $1.73 -> $1.73 No negative or positive surprises. Do not forsee office-supply glut in 2016 to negatively impact DPU. Growth may stagnant but should not fall.
Accordia Golf Trust (9M2015)	DPU in previous vs current: $0.0571 (9M, 100%)  -> $0.0232 (6M, 90%) Price in previous vs current: $0.63 -> $0.56 Yield in previous vs current: 7% -> ~10% (If 100% distribution) BV in previous vs current: $0.87 -> $0.89 After a disastrous 2Q, results were a huge positive surprise with 17% more profits compare to previous year 3Q, mainly due to good weather and strengthening yen. Management also decide to "release" back previous retained 10% distributions back to shareholders. Costs were controlled and visitors/utilization remain stable. Overall great results but what bother me is that the main catalysts aren't exactly recurring or dependable. To take a conservative stance with 90% distributions and a worst case DPU of $0.04, yield is 7.1%, which provides a good buffer.
ST Engineering (FY2015)	EPS in previous vs current: $0.1706 ->$0.1705 DPU in previous vs current: $0.15 -> $0.15 Price in previous vs current: $3.6 -> $2.84 Yield in previous vs current: 4.2% -> 5.3% Given the previous guidance, results were slightly better than expected. They managed to achieve comparable profits despite being dragged down by Marine. Management expects 2016 profits to be comparable.
Straits Times Index (FY2015)	DPU in previous vs current: $0.098 -> $0.102 Price in previous vs current: $3.4 -> $2.6 Yield in previous vs current: 2.9% -> 3.9% Half year dividends increased from 0.048 to 0.051! P/E of 10.54 and P/Cashflow of 9 makes it near historical low. This is the deal of the decade right here.

Letter To Shareholders (1) - Performance Review 2015Q4

We are proud to present the 1st issue of ZZ Holdings Shareholders Letter, a brand new effort to bring regular updates to its shareholders. ZZ Holdings is a private investment holding company aimed at achieving long term financial growth and capital protection for its investors. We achieve this with our unique 3-pillar management strategy - strong cashflow generation, long-term sustainability and fortress balance sheet.

Strong Cashflow Generation

We invest in companies with predictable cash-flow and strong dividends record. A steady cash flow offsets expenses in good times, and sustain the company in bad times without dipping into reserves.

Long Term Sustainability

We invest with a long-term view, avoiding market speculation and short term economic trends. We invest in quality companies that will still be profitable far in the future, and limit our exposure to cyclical industries and unproven startups.

Fortress Balance Sheet

We never overstretch, always maintaining a fortress-like balance sheet to give investors peace of mind and more importantly, capitalize on downswings and opportunities. Our reserves grants us exceptional holding power, ensuring the company can withstand any crisis and emerge stronger.

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Streamlining Operations

In late 2015 and early 2016, the company streamlined its financial accounts by closing OCBC Bonus+ (which pared down its interest significantly) and other legacy savings accounts. CIMB StarSaver was also vacated in favor of the higher interests and no frills FastSaver. Following this, our funds are now parked in CIMB FastSaver and OCBC360, generating risk-free interest of 1% to 1.75%.

The company also applied for its first credit facility, the AMEX, in Nov 2015. AMEX provides a 1.5% true cashback rebate, and we are already reaping its benefits.

Performance Highlights

2015 was a bear market year, with the STI losing over 13% of its value. Comparatively, the company made losses of 12.2%. In light of its 5-year low valuation, we brought into the STI for the first time in 2015Q4 as we believe it represents the most prudent investment at the moment. Going forward, the STI is expected to become the core holding in the company, supplemented by other higher yielding investments.

The board is glad to announce that over $2400 total dividends has been paid out in 2015, our first full year since listing. This is in line with our initial forecast of $200/month in our prospectus.

Outlook

The global economy and market is expected to remain volatile, with possible recession looming in the horizon. The company may also lose its main source of revenue in 2016Q2. Despite the challenging outlook, ZZ Holdings remains committed to actively pursue a replacement that will enhance shareholder value.

Meaningful Lesson From Felix

Came across a post by Felix (a local investor in mid 30s who have achieved financial independence) which I find very meaningful and resonates greatly with me.

Rephrased and share:

"
In today's world with so much social media, we are too pressured to be like others.

Most, if not all, of my friends are trying to do the same thing.

Get a high paying job, get married early, big wedding, fancy honeymoon, tie themselves down with 30 year loan with big car and house, eat restaurant and buy branded.

End up keep complaining they are poor, ask me how they can earn more money, ask me teach them how to "play" stocks and get rich.

I tell them, I'm just an average investor, just that I have a simple lifestyle. Spend little and invest most of my money, let it grow for close to a decade then have today.

Do they follow my advice? Nope. They just brush me off, think I CSB.

"

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How true! This short post completely sums up what I think of the world today and on investing.

Sorry, but we don't know how to "play" stocks.

We are not super talented stock picker like Warren Buffett.

We don't know any way to get rich quick.

We just live a simple lifestyle, invest regularly and let time do its thing.

Revelation From The Bear Market

As of this writing, I have already suffered 5 digits "losses" from my investments in the first bear market of my investing life.

Compare to people I know, I must say I am least emotionally affected. How do I build up this resiliency? 

If I have to guess, it's because what I focus on are largely different from other people.

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1. Focus on Cash Flow

I have always kept my goal of investing in mind - generate enough cash flow to attain financial independence.

A simple analogy: You brought a shop for $10000 that generates $1000 for you every year. 2 months later, others are buying/selling that shop for $5000. Are you going to panic sell your shop? Or are you going to buy more?

When I first make a decision to buy a stock, I am already satisfied with the yield. As long as the company fundamentals are intact/does not cut dividends, I will receive the exact amount each year, regardless of how much that investment is selling for on the market right now.

This is one of the biggest advantage of dividend investing compared to growth investing.

Note: It is a different matter altogether if the company cuts dividends and/or fundamentals are affected. In that case, more evaluation will be needed.

2. Focus on Fundamentals, Not Marco-Economy

I don't know why people are always trying to figure out where interests rate will go, what the Fed will do next, what China government will do next, etc...

Macro-economy -> Country specific economy -> Sector outlook -> Company

All these are "upstream" factors are so far away. We already have difficulty forecasting a company earnings, why are you trying fruitlessly to guess the impact of macro-economic decisions beyond your control?

Just go straight to the source - company earnings, balance sheet, debt profile, economic moat. You will make way better decisions then trying to figure out what the Fed wants to do, how it will affect the market and in turn how it will affect your company.

Have you heard of Singtel subscribers cancelling their mobile plans because of "Yuan devaluation"?

Neither have I.

3. Ignore Real Time Pricing

We are too affected by the "real-time" nature of stock prices because it is updated every second. Comparatively, in property investment, we don't care what the price is until we want to sell it. We don't have access to a real time price tag on our house 24/7. We need an agent to thorough valuation and find buyers, etc...

If you brought a property for $500k last month and today someone knock on your door and offer you $400k for it. Are you going to sell your house? Or are you going to tell that person to f-off?

We should view stocks in the same way. If you have no intention of selling it, why should you care how much others are paying for it at this moment?

4. Stock Prices Are Not Reflective Of True Value

Most people don't realize this, but the stock price is actually set by a VERY small percent of people in the market. For example, Singtel have a total of 16 BILLION shares, and its average volume per day is 25 MILLION. That's less than 1 percent!

In other words (for most companies), the majority of shareholders are not doing anything most of the time.

To put it into perspective: let's say 100 people own an iPhone. 99 of them are happy using it and 1 guy in desperation for cash decides to sell his for $1. That becomes the "price" of that iPhone for that day. Does this imply that the iPhone is worth $1? (Note: Of course, this is an extreme example)

I am sure the answer is no.

A company true value is dictate by how much profits it can make for you, NOT by how much one percent of its shareholders are willing to sell it for at any one time.

5. Ignore the Media and Analysts

If you believe every piece of nonsense they write, you will be in a world of pain. They are the greatest "prata-flippers" in the world and I have seen how fast their target prices and economy outlook can change overnight.

It is okay to read their opinions, forecasts and figures, but always do your own diligence and form your own decision. In 2014 when Keppel fell to $8, every analysts were forecasting $12. It is sitting at $4 now.


6. Ammo Management

If you are losing sleep, you are over-allocated. Diversify, buy solid companies and keep a large war chest.

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Pinning these down makes my thoughts and "acceptance" of this bear market clearer.

From this year onward, I am going to treat my portfolio like an investment company, where I am the CEO. I think it is a great way to enhance my investment acumen and understand each of my business better.

Look forward to my "1st quarterly earning reports" soon!


"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves." -Peter Lynch

Warchest Deployment Plan

As the market continue being battered down, I am getting ready to pounce.

Personally, I don't feel that it will go down to the Great Financial Crisis (GFC) levels of 2008. Historically, the market retracts 10% once a year, 20% every 4 years, 30% every decade and 50% few times a century.

We are heading towards 30% correction, and in my opinion things are quite cheap already. STI are trading at low valuations of 10.5 P/E (historical average 16), something you don't see outside of big crisis.

Still, nothing is for certain and we must thread carefully. We don't want to use up all our ammunition in case the enemy is much stronger than expected. From now on, I will also eliminate all speculative buys (Super, Accordia, Oil & Gas) and focus solely on defensive stocks (i.e Companies that 99.9% will be around and make money for a long long time).

There are dozens of companies I want to pick up:

1. Telcos
Singtel, Starhub and M1 have all retracted to 2011 - 2012 levels, falling by 20 - 30% and giving yields from 5% to 7+%! With the projected 6.9m population, I would just buy all 3 telcos if I could.

Just ask yourself: Do you think your mobile plans will get cheaper or more expensive 10 years from now? Do you think people will use more or less data? I think it is obvious it is a "sure win" business. Just diversify across all of them to avoid any single one of them blowing up, and you will earn no matter how consumers churn from 1 to another.


2. REITs
Many well-managed and good REITs have corrected more than 20% and now giving yields over 7%.

Personally, I have been following Capital Commercial/Mall Trusts and Keppel DC REIT (very resilient) closely. If they drop just a bit more I will really want to pick them up.


3. SGX
A monopoly. Each time anyone buy/sell a stock, this company (only stock exchange in Singapore) makes money. How can this not be a good buy?!

The price has fallen from $8.8 to $6.8, a 20+% correction, with 4.2% yield now. This is despite much better results, higher dividends and a solid zero-debt balance sheet.

Looking to fire a bullet once it stabilizes.


4. ST Engineering
I am already holding a good amount, but current valuation are definitely inexpensive if we look at the historical price. Management have been doing share buybacks for like forever which limits the downside. The caveat is the lower earnings guidance by the management, but this is one company I can feel safe holding forever.

Share has fallen from $3.8 to near $2.8. If it maintains 16 cents dividends per year, that's over 5.5% yield. I will fire a bullet should it inches closer to $2.8. (There's 2 dividends payout coming very soon in April and August)


5. The Banks
All the banks have fallen greatly. DBS from $22 to $15+, OCBC from $11 to below $8. Some have even gone below its NAV!

To me, DBS and OCBC are like the "bluest of the blue chips". DBS is the lifeblood of Singapore and OCBC is the 'world's safest bank'. And they are trading at discount to book value!

IMO, they are some of the safest long-term bets you can make at current valuation.


6. Raffles Medical Group
This is the "least safe" stock on the list, but greatest potential with a wonderful growth story on the back of an aging population.

I always wanted to pick it up, but didn't because I feel it's too expensive. Despite falling 20% to below $4, it's still valued at over 30P/E. Will be keeping a closer watch.

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Offensive Strategy
As much as I want to, I can't afford individual bullets on all 3 banks and Telcos as I won't be able to average down. Buying (and averaging down) one of them exposes me to too much company-specific risk.

After considering, I decided to revert to the most conservative strategy - Straits Times Index. Singtel + 3 Banks + Keppel makes up 50% of the STI. They will form the basis of my portfolio.

The STI basically let me pick up the 3 banks + Singtel which I do not yet have in my portfolio. The main advantage is I can fire bigger and fuller bullets, and most importantly average down without fear. I intend to launch 1 bullet for every 10 to 15 cents drop in the STI - let the war begin!

Defensive Strategy
To prevent any single collapse from doing too much damage, I will not be averaging down on individual companies (despite me really wanting to).

Aside from the STI, I will not allow any single holding to take up more than 20% of my equities base.
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Current Troops Strength

Reserve Units: The defenders of my castle, my emergency funds and warchest. It is earning decent risk free interests and I intend to keep them at max strength. Most importantly, they are what keeps me sleeping peacefully at night, and I do not intend to deploy them unless some catastrophic event happens.

Ally Units: A separate battalion from the main force. There are about 3 company of troops here which I will use solely to whack the STI.

Regular Forces: I have 3 - 4 company at my command. 1 will be used against STI next week, with 1 more as backup. The other 2 shall be reserved for Starhub/ST Engineering/SGX/REIT, depending on how the situation changes.

Rearguard: About 2 company , but I do not know when they will join back to the main force. I look forward to your return!

Reinforcements: This is coming very soon, and will add a good amount of strength to the Regular Forces.



TO WAR!!! (time to boost my passive income gao gao)


"Do not fire until you see the white of their eyes."
- Battle of Bunker Hill, a colonial military command given to troops to hold their fire until the moment when it would have the greatest effect, especially in situations where their ammunition would be limited.

CPF Investment Decisions

Since the start of the year, I have been doing a lot of reading on the CPF system and many opinions on it. While I am still unconvinced about voluntarily contributing to CPF, I have been deliberating on what to do with the monies in CPF-OA.

Personally, I view the CPF as the "last line of defense" in our financial wealth. Hence, we should definitely spend some time to learn about it and manage it.

I have read extensively on 2 mainstream arguments, and their opposing stance can be best-represented by 2 bloggers. I will just summarize their points below:

AK and his CPF-SA
AK advocates transferring monies from OA to SA account while you are young to allow compounding to work its magic. Guess what, he receives more than $8000 a year from SA interest alone!!!

With the kind of interest he's getting, it is more than enough to cover all future minimum sum increases. Basically, his stance is to 'make full use of the government' to help you save for your retirement.

Some research: If say I transfer $20K from OA to SA (an additional 1.5 - 2.5% interest), I will receive an additional $600+ every year. That will result in an additional $20K in about 20 years time, and will definitely go a long way in meeting the minimum sum!

The appealing part of this is while we are young, our contribution percentage to SA is very low.  However, SA pays the highest interest (5% on the first $40,000). If you are willing to give up the flexibility of OA, that extra 2.5% will grow your money much faster. Once it reaches a substantial amount, you no longer need to worry about future minimum sum increases.

Note: A possible "good problem" is that if your SA reaches the minimum sum, you can no longer do voluntarily contribution to reduce tax.

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Keith from Investment Moats
On the other side, Keith highlighted the dangerous of doing such transfers.

Flexibility and Safety - Even though I have no intentions of wiping out my OA for housing, it's still a safety net. What if you lose your job and is unable to service your mortgage? OA gives you that last line of safety.

Political risks - It's 25 years to withdrawal and who knows how the rules may have changed by then. However unlikely, they may increase withdrawal age, reduce SA interest, etc... It's a risk of the unknown that we have to keep in mind.

Opportunity Costs - I am in a huge dilemma because of this. Doing the transfers "locks in" your monies until 55, at a fixed interest of 2.5%. There is the potential cost of delayed financial independence.

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It's a choice between safety and opportunity.

In the end, the deal-breaker for me came down to this: Can I beat the 2.5% "risk free" rate in OA account?

According to the media, over 80% failed to do so. I find that quite unbelievable because the STI provides an average returns of 6% (as of now) over the long term. There's a few possibilities:
- Selective reporting in bear markets.
- Same reason why 90% of traders/hedge funds fail to beat the market, but 2.5% is really not high in my opinion.

All I need to do is to buy the STI, keep calm and collect dividends. This is especially so given the recent 25% correction (dropping from 3500 to 2600) - the yield alone (as of now) is already 3.6%, even if we were to exclude capital appreciation altogether). With that, I should hopefully beat the OA and possibly SA returns.

Even though I've never been through the GFC, I know I am not the kind of person that would panic-sell. I know I am a long-term investor, and I believe in the future of Singapore.

And so, I abandoned my initial plan of doing an OA to SA transfer, and opened an CPFIS account. I think I would re-look into doing a SA transfer in the near future if the market recovers and the investment pays off.

In conclusion, I still look at CPF-SA as a final safety net that I would likely never touch, unless some black swan event happens where STI crashes below 1500. 5% risk free interest rate is very very good good. On the other hand, I also want to adopt AK strategy, give myself a peace of mind and build up this safety net while I am young.