Thursday, August 27, 2015

What I did when the Market tanked

Looking at the title, this is obviously a trap to lure people to read things that has nothing to do with the title at all, So don't say I didn't warn you lol

I was away from Singapore during the worst two days in Singapore's stock market history. As the world's stock market went tumbling down, I was sitting on a bed waiting for breakfast to be served. Do you ever have a feeling that the market always crashes when you're not around? It's like there's someone out there who just knew when to screw up the market when you're away on a holiday. Anyway, where did I go? I went Bangkok.

I always go to Fuji restaurant in Bangkok for my Japanese food fix. I'm pleasantly surprised to see them opening up multiple branches. The sashmi there is to die for, especially with the low price. 

This was less than a week since a bomb went off near the Erawan shrine (the four-face buddha), so of course, it's with a little trepidation that I leave the safety of Singapore. This trip was full of incidents that, if I'm more superstitious, I'll have totally abandoned it. Here's a list of problems:

1. The bombing incident at Bangkok, which occurred less than 1 week before the schedule departure. It's like some godly power telling me to abandon the trip.

2. Unable to change, or postpone the trip, because of work and some un-claimable clause from travel insurance

3. During the check in of the flight at Changi airport, it was discovered that my name isn't on the list despite having a printed confirmation slip from Scoot. It was with a lot of phone calls back and fro to some call centre at Philippines that another flight scheduled 4 hours later can be arranged. Half the day is gone by then.

4. After confirmation of the flight, it came to my knowledge that the hotel is not confirmed. So, this is the first time that I'm going overseas without confirmation of a place to stay.

5. Everything is settled once Bangkok is reached. But on our return flight, we realised that the baggage limit is reached. Why? Because the travel agency didn't include include it in, and we ended up having to pay another sum to settle the issue.

6. And the whole trip have to be marred by another flight delay by about 1h 30 min.

I seldom go on holidays, but when I do, I've the luck to experience all the cock ups known to frequent travellers, haha! Still, it was an experience to have it and perhaps some lessons to learn from all these 'mis-adventures' too. It makes me wonder why get any insurance in the first place lol! Thankfully, the insurance that I bought has this ubiquitous SG50 discount, so I'm paying $26 for two.

These glistering little packets of carbs with the golden sweet Thai mangoes,  poured with the slightly salty and warm coconut milk, is such a treat that I ate it everyday while in Bangkok

How is Bangkok like? I've not been there for a long while..perhaps by at least 5 years? I think the Bangkok now is more cosmopolitan. On the basic level, there really isn't anything different from Singapore. There's a lot more tourist, especially middle eastern ones, who are all clad in black with the women entirely covered except for their eyes. They are looked upon by the locals with a little bit of curiosity mixed with caution, especially in light of the nationality and ethnicity of the bomber in the recent incident near Erawan shrine.

This should cost about 60+SGD? Here's a very decent meal for 2 cost about 50+ SGD, including all the sashmi you ever wanted to try in Singapore but is deterred by the pricing. 

The locals are full of shiny examples from K pop celebrities, with their straight Korean brows, whitened skin and dyed curly hairdo. Almost every female I come across, which is about 9 in 10, all fully clad with make up. From the socialites dining in atas places near Central and Paragon area, to the cleaners and servers who work in the food court, almost all the females wore makeup. On more than one occasion, I saw the shopkeepers finding some reflective surfaces near their shop fronts and applying their mascara and lipstick. It seems clear that the South Korean wave had also hit this place, and pretty hard too. This is an interesting phenomenon to observe as an outsider.

One of the most glaring observations, other than the heavily made up female local population, is that there is apparently no people older than say 50 years old in Bangkok. If you see someone around that age in Bangkok, I can bet you my last Thai baht that they are tourist. Food courts (yes, they have that concept too, likely imported from Singapore since I saw Food Republic there as well) are also served by staff and cleaners no older than 40. It makes me think about the kind of people whom we hired back in Singapore. Where did the elderly folks in Bangkok go to? Why are the elderly folks in Singapore still working at their age? Again, the stark contrast in the age of the workers is something to take away from this trip.

I love MBK. It's a blast from the past with all these old tech gadgets. Going there is like going back to the 90s in Sim Lim Square, complete with counters filled with pirated games and DVDs. Look at the macintosh! 

While we are walking around, I wanted to try out some authentic Thai restaurant in the shopping district. After searching for a few hours, we came to the realisation that there is no authentic thai food. I mean, if a tourist comes up to me in Singapore and ask me where to find a restaurant that serves authentic Singaporean food, I'll be hard pressed to say which one. Likely I'll recommend hawker food, but again, what food best represents an authentic Singaporean food experience? This is a difficult question to ask, and a deeply ideological one at that. Our identity is often tied up with food, and perhaps Singapore is just like that - a rojak of different cultures all mixed together, with a spicy but unifying sauce of wanting to do better than the countries we came from.

Bangkok serves a lot more international food than its own food. Any type of cuisine that you crave for, you can probably find them there. But just like Singapore, there's an overwhelming bloom of Japanese and Korean food. Everywhere I go, I see Japanese food culture influence - Harajuku's ice cream crepe, thick pork broth ramen, Sushi bars and omu rice. I don't like Korean fare, and don't care to try any of it but I see Korean hotpot and buffet sprouting every corner. Will it take over their local cuisines? I think yes, eventually, though I hope not. I really love my tom yum and mango rice. Anyway, everyone should try the Japanese food in a proper restaurant there. The prices there are really value for money and we feasted on sashimi like a mad Robinson Crusoe on rampage.

I went there exactly a week after the bombing incident. There's a lot of people filming there. I can see at least 3 groups of filming going on there, with a lot more tourist using their cameras and recorders. Wife said one of the faces got chipped off, but I was too concerned about hurrying through that place to really notice.

On a side note, you can see that security is stepped up tremendously. Every junction and every entrance and exit of shopping malls are fitted with a guard and a metal detector. You have to open your bag every single time you enter. Army and police officers dotted the streets and malls, and the general feeling of safety is there. But for those who had been on guard duty, you know how safe these acts are. You can't check everything but it does bring a certain level of safety psychologically. Maybe that's all that matters. I still went to Erawan shrine, on the strong request of my wife, and prayed that everything goes well in our family and friends. Will go back to return our wishes and make more offerings of flowers and incense again, we promised.

Thursday, August 20, 2015

Aspial 5.25% bond - Good buy or Goodbye?

Aspial, the group that is better known for the brands under the group: Lee Hwa jewellery, Gold heart, Citigems, as well as the pawnshop that litters all over neighborhoods in Singapore like a blue plague - Maxicash. They are offering a retail bond, one of the rare ones in Singapore, at an interest rate of 5.25% per year.

The question on my mind is whether this is a good buy.

Bonds being bonds, are capital guaranteed upon maturity. But the guarantee of a bond is only as good as the solvency of the company issuing the bond. And we really just need it to last 5 yrs until the maturity of the bond in order for the bond investors to get their capital back.

I have such a hard time looking for annual reports at their main website that I have to resort to SGX's site for their financial information. There's even a missing file in their link for the annual report, tsk tsk. Usually I like to take my info first hand from annual reports, so this is quite an exception. Still, I must commend SGX's revamped site. It's quite useful to learn about a company in a very short time.

Here's the chart showing their debts and various ratios relating to debt:

Good or bad?

Their debts are just mounting year after year. But increase in debts is okay if their debts are just a small portion of their assets. Just how much of their total assets consists of debts (both long and short term)? In FY2011, it was 72%. Then progressively in FY2012, it went up to 76%, then FY2013 was 74% and finally FY2014 was 77.5%. So that's about 3/4 of their total assets. Okay, that's still alright, because perhaps that's how their business model is based on. Different industry have different debt levels to run smoothly and I'm certainly not an expert in deciding what the right level of debt is for their business to run. Debt can be a good thing in the right hands.

But can they pay their debts from the income and cashflow generated from their business?

Total revenue is kind of stable, but their net income isn't coming in as well. All their earnings ratio, returns ratio are dropping, as shown below:

Okay, drop in net income is still okay as long as their cash that it brings in is enough to pay upkeep the cash burn. So, do they generate enough cash in their business?

Cash flow from operation is just negative. It seems like most of the cash flow comes from financing, and that part of the cash flow contributes enough to have the net change in cash as positive. Verdict? Debts is their way of financing their business, which isn't generating enough cash flow from their business operations and they have to progressively borrow more to upkeep their cash burn.

This is not a good company to buy, if you ask me. The bonds, however, might be a different matter altogether.

Can they survive for 5 yrs? Likely, as long as they can continue to borrow money. Or if the banks are reluctant to offer them more cashline, they can resort to another one of these retail bonds, likely at higher interest rate in the near future when their cash runs dry. They probably won't die within 5 yrs, and might even enjoy a revival of sorts in their pawnshop business if the economy downturn comes in the near future.

I wouldn't let my parents get any of these though, because there's always a risk of default in bond in this unrated debt that they are offering. It's on a whole different level from the FCL bond that is offered to retail earlier this year at 3.65 %. Since the min bid is $2k, I might get in for a small amount, maybe 2k to 3k, which is only a tiny percentage of my portfolio.

Nothing more, and definitely, no show hand in this bond. Application had started already, and will end on noon Aug 26th, with DBS as the sole bookrunner. Trading of bonds will start on 31st Aug and investors will be paid semi annually on Feb 28th and Aug 28th every year, until 2020. News just came in that Aspial had re-allocated $25 million in bonds offered to the public to its placement to institutions. So now, the public tranche is $25 million, down from $50 million.

Wednesday, August 05, 2015

My personal inflation rate

Lizardo here did a very interesting take on the inflation rate in Singapore. He found that based on the official recent 35 yrs of history (1980 to 2015), the average inflation rate is about 2.22% (or CAGR of 1.97% pa) . A longer period from 1962 to 2015 gives an average inflation rate of 2.75%.

I think the official figures might not mean much to you, because it depends on the price of a basket of goods that may or may not be relevant to you. Hence, the concept of personal inflation rate is much more relevant and customised for individual's taste and consumption patterns. To get a good proxy of my own personal inflation rate, I thought that we can compare how my expenses rose over the years. It's not the best way to calculate it, but it's fairly good approximation.

I had my first track record of my expenses back in 2008. Back then, I wanted to try tracking in detail for 1 month, or at most 2 months. But before long, 8 years had passed and I have a full record of my expenses from 2008 to 2015. Everything is included here, including parent's allowance, mortgage, daily expenses, etc. Here it is:

For 2015, I annualised the expenses plus another x amt to approximate the usually more spending that occurs towards the end of the year

I highlighted 2011 to 2015 because that's the years in which I shifted from living in my parent's house to my own home with my wife. There's a huge jump in my expenses because there are a few financial bombs that exploded over that particular period between 2008 to 2010. There's a wedding (small bomb), there's a COV and renovation of flat, plus a first down payment (big big bomb) and there's a down payment for a second hand car (small bomb). All in all, the expenses are fairly huge but unlikely to occur again.

Thus, from 2008 to 2015, my expenses increases by an average of 6.9%. To remove the one-off cost of getting a flat and renovation, I also looked at the average increase from year 2011 to 2015, and it worked out to be 0.4%. How about CAGR? From 2008 to 2015, my CAGR is 5.71% pa, and from 2011 to 2015, my CAGR is 3.85% pa.

I think for all purposes in planning, I should use an inflation rate of 4% pa until I have more stable data of my expenses. No hurry.

Monday, August 03, 2015

5 ways to avoid emotional capitulation

I know quite a lot of people are sitting on a huge pile of cash, waiting to be deployed into the stock market when the situation presents itself. I'm always very interested in the psychology of investors and how they intend to cope with the volatility of the market. It's really easy to rationalise and say you will cut loss when the counter goes below a certain level and you will buy in when others are fearful. It's even easier to say that when your cash hoard is very high and you have very little skin in the market.

It reminds me of the difference between a chicken and a pig. When you're served breakfast, a chicken is involved while the pig is committed. A chicken will lay an egg and it won't be any more different before and after giving you the egg. On the other hand, a pig will have much more to lose when it gives you the ham.

Are we also like that? When we have huge pile of cash, we can say a lot of rational stuff and quote a lot of Buffett's sayings. That's because we're involved but not yet committed. When you put in a huge percentage of your networth into the stock market, it might be a different story altogether. Things that you thought you should do suddenly becomes so hard because a huge part of your emotional well being is tied to the money you've put into the market i.e. you have skin in the game now. Welcome to real life, committed pigs!

There's a few ways I can think of to mitigate this risk of emotional capitulation:

1. Research and read up really really in depth into the company you're buying. The level of commitment is directly proportional to the homework you've done into it, and not by the amount of articles you've read that is written by a stock market guru. I personally find that the more you know about the company you've bought in, the higher your confidence in buying an unloved counter. If you just follow others, a little spook will get you running and peeing in your pants.

2.  Invest passively into an ETF. Most of the fears comes from losing your money, and that can come from a company going belly up. Buying into ETF will remove that possibility of individual company going bust because an ETF rejuvenates itself by changing the components. It's like a hydra with the ability to regenerate another head when you cut off one of its many heads. That should provide some confidence in the solvency of the companies you've invested, and hence you can really put in a bigger capital when the going gets tough, instead of cashing out and running away.

3. Diversify your investment. Diversification can come in two forms - firstly diversification in terms of companies and industries, and secondly diversification in terms of timing. Unless you know what you're doing, putting 100% of your money into one or two companies can be a strategy to be a millionaire from a billionaire. It can work tremendously well, but it can fail spectacularly as well. For general folks, it might be better to have at least some semblance of diversification across different companies and different sectors. You can take this further by going into different countries, different assets etc. As for diversification in terms of timing, this is another strategy to enter the markets at different intervals instead of one concentrated timing. The underlying principle is that you can't pick the bottom, so dollar cost averaging will likely make your pickings better. If you're a trading god, then forget what I said here because it doesn't apply to you.

4. Just buy and forget. An ostrich approach will work well if you get into blue chips. Looking at all the gyrations of the price will make you want to act, whereas the correct action is simply to do nothing. So stop staring at the counters in your portfolio and get a life! Come back and see once all the smoke and gunpowder smell dissipates, and you might find a dead body or two, together with a handful of gems.

5. This last strategy is controversial. It's just holding a bigger percentage of cash. I know how useless cash is generating for your passive income, but it serves a purpose. It gives you the options to act on the opportunities that may come and this gives hope. From my experience, those who cut loss and run away from the market are those that are over invested either in one or two companies (lack of diversification) or over invested in terms of total networth. Imagine 80% of your networth is in the stock market and when it crashes, leaving only 40% left, you'll start to panic. Having a buffer of cash will help to stabilise the overall volatility of your portfolio and also allows you to keep on getting in on the good deal that comes in.  I seriously doubt I can invest 100% into the market, even in the deepest depth of the market, because that will make me very jittery. It's like telling a frugal man that he has only 1 week to live and he should spend all his money within that week. What if he somehow out live the week? Thus having some cash left over is going to be more calming on the mind, despite his one week dateline to spend.

So, are you going to remain chicken or are you going to be a pig?