Tuesday, December 31, 2013

Sg bonds listed in SGX

This is the last of the 3 part series detailing all the fixed income listed in SGX. For those who just came in to read about this article, a little background of why I'm doing this. I'm trying to plan out my parent's retirement fund. They gave me 50k not too long ago and I guaranteed a 2% pa, capital guaranteed LP bond to them, so I'm fulfilling my part of the bargain by doing the necessary background research in order to make their money work harder for them. Since I'm already put in the time and effort, I might as well share it with others.

Here's the first 2 part of the series:

1. Retail bonds listed in SGX
2. Preference shares listed in SGX

First of all, about the terms bills and bonds. Bills refer to short debts (< 1 yr maturity )issued by the government while bonds are longer debts (>1 yr maturity). In my post, I'll treat all the debts issued by SG govt as bonds, to make it simpler.

Here's the chart that I've compiled:

Click to enlarge. I might be wrong, so do your due diligence.

A few comments:

1. You'll notice that the yield are not fantastic, ranging from a coupon yield of anything between 0.25% to 4% pa. The yield, if you bought it at near current price, is worse off. Almost all the bonds are traded above par, so you'll get lower than the coupon yield listed on the name of the bond. This range from near 0% to 3.1% max. Usually for fixed income, the yield is inversely proportional to the perceived risk of the underlying issuing the debt. Since SG govt is quite unlikely to default, don't expect their yield to be like those in the Eurozone. You'll also notice that in general, the longer the maturity date, the higher the yield too. This is because the longer the period that you're holding the bond, you're exposed to more circumstances possibly leading to the bond being defaulted, hence you should be compensated for taking that greater risk.

2. We all know that in the near future with US stopping or reducing their printing, the interest rate environment would not be the same as it is now. It'll probably rise up, and that's a near certainty. Just how much and when. If you hold a bond till maturity, you don't have to worry about the rise of interest rate and the fall in price. Whatever yield you get is calculated at the extreme right of the chart above, because I've included the gains/loss due to the difference in par values and the market price of the bond. That being said, you'll notice that shorter maturity bonds are less sensitive to interest rate risk. So, if you're looking to put some money while waiting for the market to crash, for example, you might want to put into shorter term bonds. This way, you can still switch between asset class towards equity when the need and circumstance arises.

3. How safe are these instruments? If you treat fixed deposits as the ultimate safest, then sg bonds will rank right after it as the second safest. The difference in risk between the safest and the second safest is probably just a tiny gap, because even banks invest the money that you deposited with them in the fixed deposit accounts with Sg bonds, possibly along with other high grade bonds.

4. I would really like you to consider looking at those bonds between number 8 and 10. A typical fixed deposit with local financial institutions will be around 1.25% (possibly less) pa. If you lengthen your investment horizon to 5 yrs, you'll get around 1.6% pa by buying bond number 10. Increase a little more to 6.7 years, you'll get around 2% pa by buying bond number 9. I know it's nothing to shout about, but for those who have stashed aside a sum of money for wedding or for some major event happening in the near future (like within 6 years), then this is not such a bad place to park your money. With this short horizon, it's silly to put it into the stock market. You might lose the cost of a wedding banquet because you want to earn the interest to buy a rose!

This is not the only way to get sg bonds. The other way is to bid for it. I've never done it before, but I've seen such an option in internet banking. You can also get it through fundsupermart but there are fees involved.

Monday, December 30, 2013

Preference shares listed in sgx

Preference shares are quite similar to bonds. Unlike bonds, preference shares might not be able to pay out dividends in certain years, but that usually means that the ordinary shares holders won't get their dividends too. If bond issuers are unable to pay out coupons, they will be in default and that's very serious because it means that a lot of debtors will also be howling for their blood.

Click for a bigger pic. Check the data yourself, I might be wrong.

I've written extensively about the basics of preference shares so I'm not going to repeat. Here's a backlog of articles if you want to find out more:

1. Preference shares Part I
2. Preference shares Part II
3. Preference shares Part III  
4. Preference shares Part IV  
5. Hyflux preference shares Part 1, 2, 3                                        

I will highlight a few keypoints though:

1. Unlike bonds, preference shares often have a optional redemption date. That means if the issuer wants to redeem back the preference shares, they can only do so on or after that date. If they didn't redeem it on that day, or if they don't have a optional redemption date, that means the preference shares will run perpetually. This is very different from a bond because bonds must expire on its maturity date. No ifs and buts. There is a very real possibility of having your money stuck inside here if the issuer choose not to redeem back at par, though you can choose to trade it off on the secondary market like normal stocks.

2. Some preference shares are convertible. For example, Citydev NCCPS has this convertibility option where each preference shares held can be converted to 0.136 CDL 'mother share' + $0.64 cash. While waiting for that event to occur, you'll be compensated with 3.9% pa coupon yield. Most preference shares are not convertible, and neither do they hold any voting rights.

3. Newer preference shares are smarter. They have different coupon rates before and after the optional redemption date. For example, OCC 5.1% NCPS 100, which replaces a recently expired one, has an optional redemption date of 20th Sept 2018. Before this date, the bond will pay out 5.1% pa coupon yield. After this date, if they choose not to redeem back the preference shares, they will give out 2.5% + 3 months SOR. The payment schedule will also be different. Before the optional redemption date, it's paid out semi-annually on Mar and Sept. After, it's Mar, Jun, Sep and Dec.

4. There's this cumulative and non-cumulative part too that needs highlighting. Cumulative means that if in a particular year, the preference shares didn't pay out any coupons, this missed payments will be accumulated and paid out in full in the next year, together with next year's payment. If they miss payments for 10 years, and they decided to pay out on the 11th year, they will have to pay a total of 11 years of payment altogether on the 11th year. Hyflux preference shares is a cumulative one, while all the banks offered are non-cumulative in nature. Whether it's cumulative or not speaks less about the safety of the preference shares and more about the perceived riskiness of the underlying company. More had to be done by a riskier company to entice the market to bite their offered preference shares. Hyflux is the only cumulative preference shares among the lot listed in SGX.

5. Whatever applies to bonds generally applies to preference shares too. Preference shares is like a hybrid between stocks and bonds. The upside of preference shares are capped, but so is the downside. In between, you'll be getting a higher dividends than ordinary shares to compensate you so there's really nothing to complain about. Just don't get into preferences shares to participate in capital gains.

So, here lies the ultimate question: between bonds and preference shares, which is better? In my opinion, bonds are better. The thing about bonds is that you want to invest into something, get paid yearly without caring much about the ups and downs of the price, and upon maturity, give you back the entire capital invested. You just need to worry about whether the company issuing the bond can survive that period that you invested in their bonds. Worry and fuss-free, you can almost treat it like a high class fixed deposit, with a fixed interest rate and capital guarantee upon maturity. For preference shares, there's always this problem about whether you can liquidate them when you need the money, since it can theoretically run forever.

If you have a far investment horizon, had set aside a sum of money that you won't need until you retire, then bonds or preference shares wouldn't matter anymore. The best is still to buy below par value, so that a capital gain is locked in upon redemption. If not, the earlier you buy, the better. Just look at it this way: if you have a preference shares that pays out 4.5% pa and the price is 109 now, you just need 2 years to break even. So the first 2 years are the 'riskier' period of this investment. After that, anything more is your bonus and according to bro8888, your pillow gets stuffed with more and more feathers.

Friday, December 27, 2013

Retail bonds listed in SGX

I'm sharing this summary of the retail bonds that are listed in sgx for those who are in the same boat as me - trying to piece up a portfolio of fixed income instruments for your own or your parent's portfolio. Those who do not know about bonds, I can share a bit here.

Click to enlarge. I might be wrong, so do your due diligence

Crash course on bonds:

1. There's a par value for every bond. In the case of all the retail bonds listed in sgx, they all have a bond value of $1. This is important because a bond will be redeemed by the issuer at the par value, not matter what market price you bought it at. For instance, if you bought a bond at market price of $1.05. Upon redemption, the issuer will only pay you back $1.00. This means that there is a confirmed loss of $0.05 and there's no doubts about it. Conversely, if you buy a bond below par, say $0.990. Upon redemption, you'll get a capital gain of $0.010, on top of whatever interest you got between the time you bought and redemption.

2. A bond holder will be paid coupons (it's something like dividends). Most will pay out semi-annually (that's twice a year). So for instance, SIA 2.15%b150930 has a coupon yield of 2.15%, they will pay out 1.075% (2.15/2 = 1.075) on every end of Mar and end of Sept.

3. The coupon yield (the % that is found on the name of the bond) might not be the actual yield that you're getting, especially when you didn't buy it at par value. I prefer to calculate the actual amount of coupon payment that I will receive until redemption, then added to the capital gain/loss from the difference between the par value and the market price of the bond you had bought the bond at, then divided by the number of years to hold the bond till maturity, in order to get the % returns pa.

So, my total % returns per year = (Total coupon payments till redemption + difference in purchase price and par) / number of years till maturity

For example, LTA n4.17%160510 10k gives out interest per year at 4.17%. The maturity date can be seen from the name of the bond, given in YYMMDD. In this case, it's 10th May 2016. From now till that maturity date, there's still 2.4 years left. Since they issue the interest on end April and Oct, I would have missed the payments for 2013 already. From now until maturity, I'll have received a total of 5 payments. Hence, the total coupon payout is 4.17/2 x 5 = $0.10425. Assuming I bought the bond at market price of $1.065, I'll have lost $0.065 once the bond is redeemed (the par value is $1.000). So, my total returns is found by adding the total coupon payout plus the capital loss upon redemption, which is 0.10425 - 0.065 = $0.039. The % returns per year = (0.039/1.065) x 100 / 2.4 = 1.55%

(Side note: I don't like to use the easier YTM or yield to maturity, because it assumes that the coupon payments are re-invested at the same rate as the current yield of the bond. Easier said than done. Anyway, I'm not re-investing the coupon, so I shall use my own common sense way of find the % returns, thank you very much.)

4. You don't really have to hold out the bond to maturity. You can sell it anytime you want by trading it off, but you'll be subjected to the buy/sell bid at the point you want to sell. Liquidity might be an issue for these instruments since they are not traded frequently. If interest rate is going to go up in the next few years, you might see the price of the bond being lower than the price you bought in. If you hold the bond till maturity, you don't really have to worry about the price of the bond in between, since you already 'locked' the capital gain/loss. I guess this worry and fuss free thing about bond is the best deal about this class of instrument. You just have to worry about whether the company can keep up with the payments. As long as it don't go bust, you're safe.

5. Bond is safer than stocks in general, but whatever guarantee is only as safe as the underlying company that issues the bond. Bear that in mind. Usually a high risk company will put up a higher bond in order for the market to 'bite'. That's why those very steady business and established companies will issue bonds with lower interest rates.

(Thanks to Lee Chin Wai who posted a comment below, I've realised I've missed out on a lot of small fine details regarding the early optional redemption of the bonds. I've made amendments in the chart posted above)

Thursday, December 26, 2013

Issues to think about for portfolio allocation

With other people's money comes great responsibility.

Well, over the last couple of days, I was doing intensive research on the various preference shares, corporate bonds and sg bonds. I decided that I'll just put those funds in fixed income instead of equities so that things are a lot more predictable. I'll have predictability in cash flow and more stability in portfolio value. I'm always thinking that I'm the one who's guaranteeing the money, so I better play it safer. It's always a compromise between yield and risk of loss of capital, so I'll have to balance it to seek the returns that I want.

First of all, after doing a table of all the instruments that I'm looking at, I did a spreadsheet to see how different portfolio allocation can affect the overall yield, the actual cash flow and also the possible gains/losses if there's early redemption (this is really just for preference shares, and most, if not all, are trading above par values). After playing around with the numbers, I have a few sets of portfolio allocations. I initially wanted to settle for one at 5% portfolio yield, but decided not to, because a big part of it will be put in a rather high risk bond (Olam's, if you must know). Before I typed out this article, I really had the intention to follow this portfolio's plan. But I guess I chickened out in the end, so I settled for a more modest portfolio yield of 4%. Still, the 4% per year is still way higher than the 2% that I guaranteed for my parents, so I'll be covered. No point coveting an extra 1%, which is just $500 per year!

Secondly, I have to think about how much to give to my parents. The terms of LP bonds are listed here, and I'll have to hit at least 2%. It'll be good to have a bonus of 0.5% to 1% given to them too. Even giving them 1% more per year, I should have a healthy buffer of cash to pay out in case shit hits the fan on my portfolio. Being able to earn 4% yet guaranteeing only 2% will be my safety margin, but this must not be achieved on potentially higher risk instruments.

Thirdly, I have to stress test the portfolio. I made an important assumption that all the underlying of the bonds, sg bonds or preference shares are not going-concern. If they are, then I won't be able to save it anymore. Therefore, to make this assumption true, I must be rather vigilant at looking at the underlying company for the instrument concerned. 80% of it is to be invested in banks/sg bonds, so I think it should be a pretty good assumption. I'll share more about my portfolio allocation when I'm ready to reveal. I make a 10%, 15% and 20% drop in prices and see if my remaining cash flow that I didn't pay out (after paying out 2% min) is enough to hold it afloat. I figured that I should be able to take a hit of around 10 to 15% losses if suddenly my parents want to liquidate the portfolio and withdraw their principal when the market is not doing well.

With that said and done, I'll just have to wait for the funds to flow into my trading account. After the initial fishing for the best price in the market, I'll just sit and wait for the cash flow. I really don't want to worry too much about this portfolio, nor do too much work for this as it's supposed to be a low fuss portfolio.

Monday, December 23, 2013

LP bonds are oversubscribed!

La Papillion is now officially a fund manager.

I don't know whether this is a good development or not...I'd like to see it as a positive one. Before you start thinking I've joined some fancy company as a employee, nah, I'm not. I've simply the fund manager of my parent's retirement money. This follows my post a week earlier regarding an assignment that my mum tasked me to do. Following some readers comments that I should issue my own LP bond with a fixed rate and a term, I've decided to do it because I think I should confidently be able to beat the fixed deposit rates offered now (around 0.25% to 1.25% pa) and yet also be able to provide them security by guaranteeing that the capital that they had trusted with me will be returned as and when they require. Seems like I've built a certain trust level with my parents because ultimately, the security of the bond is as safe as the issuer - which is me.

The terms of the bond are as follows:

1. Fixed guaranteed yearly interest of 2.0% pa, paid out per year on 1st Jan.

2. No fixed duration, which means it's perpetual until redemption by parents, or liquidation of funds by issuer (i.e. me). Before either can happen, there will need to be at least a 6 months notification to the affected party.

3. Non-guaranteed bonus per year, ranging anything from 0.5% pa to 2.0% pa. This is in addition to the fixed guaranteed yearly interest of 2.0% pa.

4. Capital guaranteed by me after a minimum period of 5 years. If they take out the capital before 5 years, any losses will be born by them. If they take out the capital after 5 years, I'll take the losses if any.

You thought a fund manager will be like this...nah, it's not fun but lots of hardwork

I've 50k at hand here sitting around for a week already, with possibility of another 40k to 100k coming in next year. Wow...I didn't know that they will be sold so easily after presenting to them the different options. However, I didn't do anything for a week so that I can approach this issue with a calm mind. First of all, I didn't know they had squirred quite a sum of money for retirement. This is probably good news for me because it means that I've got 3 layers of defense for any emergency medical fees - insurance under H&S, their retirement money, me and my brother's money. This makes the whole financial burden a lot easier to shoulder. Secondly, I can only guaranteed 50k at this point in time. If they wish to put in a total of 150k, I don't think I can guarantee that kind of sum. Hence, I suggested to them that they evaluate my performance first. If it's satisfactory and most importantly, that I'm confident that I can guarantee both the returns and the safe return of their money, then I'll take it. This is better for them and for myself.

In the coming days, I'll be thinking hard on my portfolio allocation. How much of the money should be allocated to bonds, fixed deposit/cash equivalents, equities etc. If anything, this 50k is even more important than my own 50k because I can lose my own money but I can't lose theirs. 

Now, if only bankers would think like that, we'll have a lot more trust in them.

Monday, December 16, 2013

Where to invest your mum's 50k

Interesting assignment that my mum gave me this morning.

She wanted to put in 50k for her savings to get more returns instead of the usual savings. I think she got this lump sum after her previous fixed deposits expired. She wanted me to look into some instruments where she can get better returns but she don't want to put it into the stock market for fear of eroding her capital. I also won't recommend that she put it into the stock market when I cannot guarantee her capital won't be lost in the process.

Here's what I found out:

1. Firstly, most fixed deposit rates suck. The three local banks are so full of money that they don't even pretend to like more additional funds. Certainly, that's the idea I had when I saw the returns on their timed deposits. The rates are not worth mentioning - better than savings accounts of course, but not much better. Usually foreign banks are more generous, so I looked into that direction but came out disappointed.

2. Certain banks/financial institutions have a special fixed deposits for senior citizens aged above 55 year old. I looked into Hong Leong finance. They have a 1.21% pa for a period of 24 months for people with some bird's nest thrown in as well. That's a notch better than most DBS/POSB, which gave about 0.55% for the same time period. People's bank? Bah. Maybank is not too bad either. For a period of 24 months, you get to have 1.25% pa, slightly better than HL finance and way better than any of the 3 local banks.

I'm still not satisfied though. So I looked into money market funds from POEMS. In it's heyday, it's giving 2% pa which is really a good deal. But that's the time when interest rates overall are high too. Anyway, it's now less than 0.5% pa. For people considering putting in less than 50k in a period of less than 2 years, that still beats fixed deposit rates in most banks considering that the money market fund is so liquid and safe. But no, money market fund isn't going to do for me.

Next, I looked at SG bonds/bills. As safe as the solvency of this government, if you hold the instrument to maturity, you'll be able to get back the capital. The interest, in the form of coupons, are usually given twice a year. I looked at the fundsupermart platform, which charges 0.1% custodian per annum on the coupon payments and also 0.1% for initial processing fees. That's okay, considering how they make life easier for me. I worked out on their calculator for this NX11100X, with a coupon of 2.225% and maturity on 1st June 2021, which is about 7.47 years to maturity.

What I'm concerned is how much I'll get over how much I paid for the instrument, on an annual basis. Based on the estimated amount that I've to pay ($49,829.40), I'll get $1,057.50 per year, spread over two payments (each $528.75) on 1st June and 1st Dec per year until maturity. At the end of 7.47 years on 2021, I'll get back $47,000. My only concern is that the yield will be 2.122% (1,057.5 / 49,829.4 = 2.122%) ; I'll leave the rest of the jargon to academics.

That's a lot better than the fixed deposits that my mum wanted initially, giving a returns of about 70% better and not significantly more risk. In fact, the fixed deposits will also be invested directly into high grade bonds and bills like the one that I'm looking at, so effectively I'm just cutting the middle layer of fees by going semi-direct (direct will be to bid straight from MAS).

Then there's the problem of getting bonds in a low interest rate environment, knowing that the tapering of funds injected into the system will probably slow down or stop in the near future. I reasoned it out that it doesn't matter because any drop in price of the bond when the interest rate increases is of not concern to a investor holding the bond to maturity. Just don't sell it before maturity.

I suggest doing this in stages:

1. First 20k to put into the sg bonds to get a yield of 2.122% pa

2. The remaining 30k to put into 12 or 24 mths fixed deposit with Maybank at 0.95% pa or 1.25% pa respectively

3. After the fixed deposit matures, look at the interest rate environment and decide whether to put in the funds into fixed deposit again or sg bonds. When the interest rate increases, we might be able to get more from either fixed deposit or from the sg bonds.

I'll meet up with my parents and tell them about my plan. Ultimately it's up to them. Knowing them, they will instinctively flock to fixed deposits but I'll have to try to convince them that it's worth taking that extra tiny risk to get almost 70% more returns.

Sunday, December 15, 2013

Far from the madding crowd

When we’re in a social context, we tend to look at each other’s good points, totally ignore the bad, and lament how far behind our peers we had fallen to. Some occasions, you might be far better than others but there are always others better than you. That's how the game is to be played and that’s also the reason why I don’t like social occasions – those meet-your-primary-school-mates or meet-your-secondary-school-mates gathering. I think it’s human to be jealous and envious of other people’s success. I’m certainly not immune to that. It’s present in everyone in different degrees.

Since I’m usually quiet and listen more often than talk about my own life, I usually end up nodding to their account of how their work lives sucks or what good things had happened in their lives. Some of them are teachers, so they talk about how bad the politics are like in school, and how the quality of the teaching goes from bad to worse. Nod, nod. Some are from the financial industry and they talk about how big a deal they are cutting and the sacrifices from days of work and over-time needed to achieve it. Nod, nod.

For those who have children, depending on the stage of growth, they might talk about things ranging from milk powder and diapers, maid and mother-in-law issues to enrichment classes and exam results. It’s like whoa, suddenly everyone had a different thing to do in life and I’m like left behind. I’m still a tutor since 10 years ago and my career don’t seem to progress like they do. I don’t have a name card or a fancy title to boast, nor horrible colleagues out to politically sabotage me. I don’t have unyielding KPIs to achieve, company dinners at luxurious hotels to attend, or year-end bonuses to fight for. Over-time? Yeah, I do but not to the extent that I have to go home at 2 am, taking a cab that is to be reimbursed by the company. There’s nothing as interesting or dramatic as those who I meet, so perhaps it’s understandable that they are not so keen to listen to the story of my life. Maybe it’s just that I’m mixing with the wrong crowd or perhaps it's the right crowd but with a different frequency now. Regardless, it’s the same feeling after meeting them - a feeling that you had been left out of a normal life. It’s weird because even though a normal life can be sucky, you still want it because you’re not part of something bigger if you don’t have it. It's irrational, yes, but emotions are seldom rational.

On stronger days, I can deflect it away with ease. But it's those days when my will is weak that I start to have self-doubts regarding the choices I've made so far. Are they all leading me towards a lifetime of irreparable doom? It’s a strange mix of despair thrown in with jealousy, mixed with a dash of envy and a generous handful of bitter anomie. It’s hard to know whether on any particular day, whether I am strong willed or not, until it’s stress tested. In other words, I won’t know until it’s too late. It’ll take me several days to a week to regain my balance. These days, I think about why I should even do this. It’s 1 week of my life, over-thinking about my past choices and feeling like the lowliest pond scum in the universe. I do all that to what end, I wonder.

Hence these days, I’ll likely decline all such invitations to get together for old time’s sake, to reminisce about the past and share the feeling of nostalgia. Let’s be realistic – our lives shared a common path long time ago and it had long deviated from each other. The past will always be more romantic and rose tinted in our memories than it really is in real life and we can never be that close again.  Perhaps, things that are buried should just stay buried. At least the happy moments are also buried in your memories and you leave each other’s company with a sweet lingering taste long after the sweetness had been replaced with sourness and bitterness.

Friday, December 06, 2013

Thoughts about STI part 3

After looking at Drizzt's blog regarding the yearly percentage returns from Dow Jones here, I wanted to have a look to see how our very own STI would look like if the same information is sliced up and presented.


The raw data of ^STI is taken directly from Yahoo! Finance site here. The adjusted closing price is used and according to the same site, it refers to the closing price for each day adjusted for splits and dividends.

Calculation of yearly returns:

I take the adjusted closing price of the last market day of each year, divided by that of the first market day of each year, then subtracted by 1 and multiplied by 100%. Each calculation is rounded to 0 decimal places. Dividends are also not included in the returns, so are the costs of ownership and brokerage.

For example,

Adjusted closing price for 2012 (31st Dec) is 3167.08
Adjusted closing price for 2012 (3rd Jan) is 2688.36

[(3167.08 / 2688.36) - 1]*100% = 18% (0 decimal places)

Since 2013 is not yet over, I use the latest adjusted closing price for 5th Dec 2013 to estimate the yearly returns. Unless something drastically happens, I think it should be a fairly good estimate.


Here, this is how it looks like for our STI:

Yearly returns of STI from 1988 - 2013. Click to see a bigger version.


1. It's interesting to note that there's a general bias towards gains throughout the (short) history of STI. 15 out of the 26 years recorded (58%) are gains, while the rest of the 11 years (42%) are losses.

2. 1 out of every 2 years (50%), there'll be a double digit gains. If you look back at Drizzt's blog, it's about the same for DJ (49%). On the other hand, 27% of the time, there'll be a double digit losses for STI, compared to 22% chance of double digit losses for DJ. As mentioned in point 1, there's an inherent bias in the index towards gains.

3. For STI, 15% of the time, there's more than 30% gains. To give an illustration as to what a feel of 30% is, consider for a moment that for a base of 3000, a 30% gains will be 900 points added, so that's quite a massive increment yearly. On the other hand, about 8% of the time there'll be a more than 30% losses. To compare with DJ, it's 6% of the years having more than 30% gains, and 5% of the years having more than 30% losses.

4. The median returns is 6.6% and the average returns is 8.8% (it has, however a standard deviation of 29.1% - which means it's as volatile as a boat out in the sea on a typhoon).

5. For those years that posted a yearly gain, the median gain is 24.6% while the average gain is 27.8% (with standard deviation of 21.3%). For those years that posted a yearly loss, the median loss is 14.4% while the average loss is 17.9% (with standard deviation of 12.4%). It's funny to see that the losses are more consistent that than the gains.


Does it mean that we should scramble and go get STI index straight away? Well, yes and no. Do take note that while the results here suggests that it's more likely to have gains in STI every year, implying that you'll gain more likely than you lose if you hold STI, the results are based on a yearly returns. This means that you'll have to buy at the start of the year and sell at the end to mimic this result, assuming that the past is any indication of the future. If you hold STI over a period longer than 1 year, your returns will vary significantly from the results shown here.

Let's pretend that you have $100 in year 0. After you lose 30% of it in year 1 and lose 30% of it in year 2, you still lose 9%. In other words, timing and the holding period matters a lot. I blogged about this years ago here and here that if your average holding period is 14 years, then you're safe from having negative returns (there's some assumptions in this conclusion too). Any shorter period of holding may result in a negative returns or it may not. It depends on your entrance price and exit price. In other words- timing.

I guess the take away is that if you want to do dumb-idiot-proof averaging (I'm not against it, btw. In fact, I'm quite for it if you don't want to care a hoot yet want to have a reasonable returns for your money), then you better choose a stock that is inherently bias towards safety. And what safer stock is there then index because of all the gains-bias and survivor-ship bias? Since the underlying is already there, you just need to worry about the cost. Find the lowest cost of holding index and you can just carry on your life with other more interesting stuff compared to finance and investing.

Thursday, December 05, 2013

Finding the lemonade out of the lemons

Maintaining a household is not cheap.

After about 2.5 yrs of wear and tear through usage and plain old 'depreciation', things start to break up a little for my home. Initially when well informed friends told me that I need to set up a fund to pay for such eventualities, I brushed them off saying that there's no need for such things and I can live with the wear and tear. I bravely and foolishly thought that it's just cosmetics (I can live with that). Nope, things can wear off to such an extent that they don't work anymore.

Here's my list of breakdowns in the last 2-3 months:

1. Home's air con

For my air con at home, it's quite important to have it to work properly because I switch it on whenever I hold lessons at home. My wife also can't live without it so she'll complain that it's so hot and all. Initially the problem is that the air con didn't seem to blow out cold air, so I thought that it needed servicing. However, the problem didn't go away so I've to sent a team to inspect and find out what's wrong. It needed a change in the motor so I've no choice but to order the parts and have it fixed.

Cost: $140 for servicing + $306 for changing of motor
Total : $446

The lemonade out of the lemon: The problem got to the point where before I switched the air con on, I'll do a little rain dance and talk to the compressor, coaxing it to work and not give up on me. Occasionally it'll try but most of the time it'll splutter and die. I'm super thankful that it did work even though it's ill. For the times that it didn't work, I'll just tell my wife that Mr Air con is having a bad day and he's not cooperative. It's quite fun personifying the air con as being temperamental. Oh no, it's not spoilt - it has character.

Mine's something like this, also from Daikin.

2. Car's air con

For my car's air con, the compressor is making a hell lot of noise when it's stationary. I was told that the symptoms will become worse as time progresses until eventually it'll not blow out cold air at all. I thought I'll get it fix the next time I go for my bi-annual servicing, and it'll probably cost maybe 1k? Ouch.

Cost: currently none, but estimated to be 1k

The lemonade out of the lemon: I discovered the joy of winding down the windows and enjoying the breeze whenever I drive! It's so addictive that we do it all the time except when we're stuck in a jam (which isn't that often) and when we enter an basement car park. Doing this is not only good for improving one's mood when driving, but it also saves a lot of fuel. I guesstimate it saves another 20 - 30% on fuel consumption. Instead of pumping fuel every 7 days, now it can drag to 9 or 10 days before needing a refuel.

I should get a car like that. But then, I forgot we're in Singapore lol

3. Kitchen tap leaking

My kitchen tap keeps dripping water. Not only is the noise irritating, but it's a real waste of water. On average, it can fill a 600 ml water bottle overnight. I wanted to find a plumber to do it but didn't really have any good contacts, so I keep procrastinating the repair. Eventually I got so fed up that I looked up you tube to see if I can fix it myself. I wanted to be self reliance instead of asking someone to fix everything in modern life.

Cost: none

The lemonade out of the lemon: Again, I personify the leaking tap as a old cranky person who is having a flu. Instead of being angry at the problem, I see it as a person needing help. Oh, how re-framing the problem helps so much! I remembered that I was at the kitchen sink trying to figure out what's wrong with the cranky tap. Somehow I realised that by turning off the tap gently, the problem can be reduced drastically. Counting the time between drips, it can change from 1s (very very fast drips) to 8s (tolerably slow drips) just by turning the tap gently! I don't know the reason why but it works that way. Because of this episode of dripping taps, I started putting a water bottle to catch all the runaway water to reuse. This act also started off a series of actions that makes me water to conserve water. I started to become more conscious of how much water we use and see what ways we can recycle them. To update, this leaking tap problem solved itself one day. As sudden as it came, as sudden as it went. Today, it no longer drips at all. Perhaps the lesson from this episode had been learnt. Or perhaps the tap recovered from his flu.

LOL! Lemonade taps

4. Windows at balcony dripping water

Whenever there is a super heavy rain with the wind blowing from a certain direction, my balcony will have water gushing out from the gaps between the frame and the window. It is so bad that I can collect a medium sized pail of water when it happens. My neighbor directly below my unit also complains that his ceiling is bloated with water retention so the town council stepped in and tried to solve the problem. The problem is attributed to some external wall and they are sending contractors to rectify it (at no cost to me, thankfully). But I suspect the inspector made an observational error. I didn't tell him at that time because I wasn't sure...so I think even after the repairs had been done, we'll still be in the same situation. We'll take one step at a time.

Cost: Tens of dollars (see below)

The lemonade out of the lemon: I tried to make some repairs to bridge the gap between the window frame and the window itself by getting some silicon sealant from DIY shops. It worked, but it wasn't an elegant solution, so I redid it again. This time, I bought foam tapes from Daiso. It should work now because since I installed it like 2 months ago, there's no more water gushing out. Then again, this problem only comes when it rains a certain degree of intensity and the wind comes from a certain angle, so I wasn't sure if my newest solution is a success or it simply hadn't been tested. We'll see. But this desire to be as self reliant as possible makes me want to learn how to solve my leaking tap issues. In modern life, we forgot how to live and we always solve problems by outsourcing to specialist. We should try to capture that can-do spirit as much as possible again.

This is something like the contraption I use to catch those gushing water

In summary, I think I was pretty methodical in solving my those little problems that crop up in my household. Scientific even. Re-framing a problems helps to put it in a different light. Try it! Always look on the bright side of lie :)

Tuesday, December 03, 2013

3 Things to be grateful for

Since this month is December, a great holiday for students and a more laid back month for those working, I thought I should do a post to reflect upon the things that I'm grateful for in my life. I think in life, we focus a lot on the things that we do not have and not so much on the things that we had. It's a good time to put things in their right perspective. I don't know who said this, but I'm pretty sure it goes something like this: If you can't have what you love, then love what you have.

3 Things in life that I'm grateful for:

1. Good health

When we're healthy and everything is fine, we tend to take good health for granted. We do silly things that abuse our body, thinking that when we're older, good health is still a given. No it's not. When you're in your mid thirties, you feel your body slowly down and that's completely natural. You don't have as much energy as you would when you are in your twenties. You can't stay up all night and go to work the next day and not suffer the consequences. I'm thankful for my relatively good health so far.

2. Loving and supportive wife

I'm in a job where the pay is not fixed and certain months I'm basically eating grass. If not for the strong family support that I have, I might not last that long. During my winter months, she's been paying her share of her expenses and more, so that it's easier on me. For her support, I'm eternally grateful and thankful.

3. Cats

Ah, these godly beings who lie around in plain sight while minions like us work and slave around them. I believe that cats are here for a purpose - to teach us how simple a good life can be. While most are not as enthusiastic as how dogs show their love, they do so in their purrfectly tender and soft way. There's this cute little cat who lives at a carpark near my home and I always see her around. She recognises us and will scamper towards us when we call her out. I'm grateful for these little gestures shown by cats that teaches us how little we need to be happy. In the presence of cats, we're just sniveling, sycophantic minons. Happy, nevertheless.

I made a few posts like this in the past too. It's interesting to read about the things that I was grateful for at the time of writing, haha