Tuesday, May 24, 2016

3 simple steps to start stock investing

I seldom have guest post in my blog. In fact, almost never. But since I'm using Investingnote as my preferred charting platform and Evan who is our guest writer below is from Investingnote, I don't mind sharing this space with him.


In a previous article titled ‘5 reasons why stock investing is so difficult to start’, I’ve mentioned the reasons that often become excuses, serving as inhibitions to the journey of stock investing. Many people have asked me how to address these reasons and the answer is simple: confidence.

However, not many people notice that it is their lack of confidence that affects their first step to investing, as opposed to risk appetite.

These are the 3 simple steps to boost your confidence, which will help you make your first investment.

1.Acquire financial literacy

Financial knowledge and literacy is essential for anyone to start investing. The fundamentals of stock investing are best found in their original state: books. Learn financial terms, explanations, logic and theories traditionally at your own pace. Grab a coffee and start hitting the books like you’re a student again. 

The only drawback? There are many financial books out there that are similar but different. In that case, maybe just textbooks will suffice? 

Alternatively, you can also go for courses conducted by stock educators. Most courses require a fee to attend, but some are free. The SIAS and SGX Academy both provide some basic investing courses for free. You can check them out here www.sias.org.sg or www.sgxacademy.com. Otherwise, there are many organizations and stock educators out in the market that charge a substantial fee for advanced courses. 

Also, start reading business and financial news that often highlight the more important things. For example, what affects the distribution per unit (DPU) for Real Estate Investment Trusts (REITs)? How do companies restructure in recession to sustain equity value? How does economic data like purchasing managers’ index (PMI) and non-farm payroll affect markets and stocks? What stocks are most affected by currency and interest rates?

News will highlight the important things that every investor should know. While saving you a fair amount of time, it also lets you familiarize with the myriad of financial terms and jargons, and keeps you updated on market happenings. 

2.Practise through simulation

Regardless of whether you choose to get the basics via the traditional way of reading books or by attending some courses, the overall learning process is incomplete without practice. What better way to practice other than simulation? 

Simulation boosts your confidence by allowing you to mimic the actions you would take in reality, without having to bear the costs. 

Practising through simulation is also particularly useful to gauge your own investment decisions. If you’ve predicted the stock price to either go up or down, simulate the trade. This way, you can know how accurate your analysis is. 

3.Learn from experts

The last step for your journey in learning how to invest is to learn from professionals or experienced investors themselves. Start attending free talks, seminars and fairs. Invest Carnival, Invest Fairs and private seminars are often held by ShareInvestor, SGX and brokerage firms like PhillipCapital. Attending such talks and seminars given by experts will give you a better idea of the significant things that are relevant to beginners.

If you’re the keen learner who’s always asking questions, try leveraging on the experts found on social networks like Facebook discussion groups or the social trading network InvestingNote. Being within a social network not only allows you to see what experts are thinking when they post, but also includes you as a part of the stock investing community. Never be afraid to ask questions and interact with the experts and the experienced. Learning is at its best when transformed into a two-way interaction. Information becomes communication and it empowers personal learning. Also, keeping up to date with the latest financial news and trending insights will give you that edge which traditional textbooks won’t. 

It becomes a virtual classroom. It’s almost like you’re having a tutor at your fingertips, except that there isn’t only one but many. By tapping on social networks, it will expand your personal network and interaction with experts and the experienced who are otherwise remotely located. 

If you’re lucky, you just might find an expert whose investment style suits you the best and doubles as your mentor. Mentorship is equally as important when it comes to stock investing. 

After you’ve taken these 3 important steps, you will gain more confidence to start investing, and build good investing acumen.

At which step are you currently at now?  

Written by Ethan Ho 
From InvestingNote

The social network exclusively for stock investing, InvestingNote is a free, social network platform designed specifically for crowdsource investment ideas, news and interaction for the stock investing community. Besides having access to stock data, users can upload research reports, utilize technical charts and make stock price targets that will be visible to the entire community. Users can also gain reputation points when they have followers, likes and posts. 


I've been using investingnote for some time and I still think their online charting platform is still the best out there that is not tied to any brokerage. And of course it's free. Personally I'm using the charting services only and not so much about the social trading. But I must say, the community there is actually quite friendly. I'm sure there are people out there who will help you if you genuinely seek their help. Just do yourself a favour and don't just trade on the recommendations there. Trading ideas and talk are free, so do your own due diligence. If you can't make money, at least learn some lessons. 

Thursday, May 19, 2016

How I reduce counterparty risk in my work

I was reading Investment moat's article on recent soilbuild's issuance of writ of summons to Technics Oil & Gas Limited. Soilbuild is seeking to claim back about $2 mil in rent plus an additional $12 mil in deposit for the second year of rent, with interest owed during the period where they didn't pay the rent. Counter party risk is hard to account for, but it's something we need to pay attention to in the real world.

As a private tutor, I have to deal with counter party risk as well. When I was a newbie in my first few years of work, I had issues collecting my fee from students too. One is recommended by a tuition agency, so it's subjected to terms and conditions that I had not read in full. Since it is the first month of tutoring that student, the student had to make payments to me as well as the agency separately. Apparently the agency do not trust the tutors they recommended to collect on their behalf, which is usually the norm. Anyway, the student refuse to pay the agency but he did pay me, but due to the contractual terms that I've signed but not read, they have the right to claim it from me. I continued giving lessons without getting paid since he is doing his O'lvls. On hindsight, that's just stupid. The thing just bounced back and fro and got real ugly, and I do not wish to revisit this again.

To avoid this, I stopped giving lessons the instant I realise something is wrong. Cut loss, so to speak.

The second notable case is for a really really wealthy expat who lives around Orchard area. They just refused to pay me one day, and I'm not sure why. I cut the lessons and hounded them to pay me my deserved pay. They disputed the dates that I've recorded, yet they do not keep track of the dates that I gave lessons for their son. Eventually this ended well and I collected my fees after a few months in full. It could have ended badly too.

These days, I treat counter party risk like these by managing them. I think given time, it's bound to happen again. Thankfully, there's no third case of bad debts anymore after I've done the following:

1. For new students who cold called me, I collect fees in advance of 4 lessons. Fully refundable, should they give me notice of not wanting to continue. Since most students come over to my place for lessons now, I take more risk than them. If I'm going over, I'm more willing to bend and will try collecting fees in advance. If they hesitate, then it'll be 2 lessons in advance. I hate collecting after every lessons, though some parents insist.

2. For new students who are recommended by known others, I'm more lax. They are sort of filtered by existing contacts already, so they are less risky. I will collect 4 lessons in advance as a general rule, but willing to bend to collect the fees after the service is rendered. Usually credit term is for 1 month, and not longer.

3. For those students that have more than one lesson with me, meaning 8 lessons in a typical month, I will collect after every 4 lessons too. This is to reduce the absolute amount of the fees owed. If there is a default on payment for 8 lessons by 1 student, it's equivalent to a default on payment for 4 lessons by 2 students, and that is not good for me.

4. Some cases you just know that there something doesn't feel right. It could be the way the parents interrogate you when they are asking for quotes on the tuition fees. It could be the way the parents make some unreasonable demands when they call. Usually I will reject cases like this when my gut instinct tells me to. It's rare, but on occasions I didn't heed my instincts, the reward just didn't go along with the downside. In other words, it's a troublesome case that is not worth the effort. This kind of discretionary rejection is rare. Most people are nice.

5. I charge higher fees. It sounds weird, but charging higher fees actual reduce counter party risk. Maybe people feel they are dealing with more qualified tutors as opposed to the initial years when I'm charging like about $22/hr.

And these are just the way to manage default on payment of the fees owed. Who says a private tutor is having the easy way out? He has to manage his portfolio of students like how a reit manager would do to manage his tenant mix and occupancy!

Wednesday, May 18, 2016

Hyflux 6% perpetual securities

This morning, I was quite excited to receive news of another retail bond. This time it's from Hyflux. The last they did that was in 2011 and I made a 4 part series on preference shares here. Back then, they are issuing 6% cumulative, non-convertible, non-voting and perpetual preference shares. This time, this issue seems more like perpetual shares than bonds. The difference is not significant though, given that it's a perp, so there is no maturity date even though there is a optional but not obligated redeemable date.

Terms of the security 

The terms of the perps is spelled out very clearly in the announcement here:

1. Public offer of up to 230 million (can go up to 250 million), out of total size of 300 million (can go up to 500 million) if oversubscribed

2. Opens on 18th May, close on 25th May noon

3. Min amount is $2k, thereafter in multiples of $1k.

4. This is the interesting feature about the issue. They are giving 6% pa, paid semi-annually (on 27th May and 27th Nov every yr) for first 4 yrs until and excluding 27th May 2020. From 27th May 2020 (inclusive), it'll not be 6% pa anymore, but will be at reset distribution rate.

Reset distribution rate = 4 yr SOR on the reset date + 4.2% pa, + step up margin of 2% pa

They gave excellent illustration for 3 different scenario after 2020 to 2024, shown below:

5. From 2024 onwards, the distribution will be reset again using the formula shown in point 3, but with a new 4 year SOR rate at the reset date in 2024.

6. Is there guarantee of payment if you're a holder of the security? The prospectus states that "each security confers a right to receive distribution on its outstanding principal amount from the issue date at the applicable distribution rate". The word 'right' doesn't sound right. It offers them a possibility to defer distribution under certain conditions and is no way guaranteed. Reading further from the prospectus, it mentioned that the issuer may elect not to pay a distribution (or to pay a part of) by giving ample notice. They may not elect to defer any distribution if 6 month before the scheduled distribution payment date, one or both of the following occurred:

a. A dividend is paid to its junior obligations. I take junior obligations as the ordinary shares of Hyflux. I may be wrong.

b. If the junior obligation is redeemed, reduced, cancelled or bought back.

This means that if they give out dividends in their junior obligations (I take it as the ordinary shares of Hyflux, which I may be wrong), and/or they did not redeem, cancel or bought back all the junior obligations in a period of 6 months before the distribution payment date, they cannot defer distribution to this security.

Don't ever think they are obligated to pay holders of this security. You have a right to receive but they are not obligated to do so under the stated conditions. But it's not as bad.

They have a feature in this issue that is quite similar to any cumulative pref shares or bond. If they did not pay out any distribution in full or in part, that portion that is not paid out will be placed under arrears of distribution. They will have to pay out the arrears, plus any distribution, by the time they redeem back the securities, or by the next distribution payment date, or before they wind up, whichever comes earlier. If not, they cannot declare or pay dividends to its junior obligations or to redeem, back buy, cancel, reduce it.

I think in simple layman's language, it just means that they must pay out the dividends on the distribution date, unless they are also not giving dividends to hyflux ordinary shares/bond/pref shares holders. That is your sort of guarantee that they will pay out what they should pay out.

7. First redeemable date is on 27th May 2020, which is about 4 years from now, at the par value. They have to redeem all the outstanding amount or none at all. Thereafter, on each distribution payment date, meaning 27th May or 27th Nov after May 2020, they have an option to redeem back too. As mentioned earlier, this is a perp, so there is no fixed maturity date.

Financial strength of Hyflux

Alright, so far that's just the details of the perp. It's quite a complex issue, if you ask me. My initial excitement becomes a lot more muted once I took a look at Hyflux results.

Debts debts debts. Just mountains of them. I think they are rolling about in their notes and preference shares debts, issuing new ones to redeem older issues. Even this current issue is to redeem back the older issued notes. Specifically, 91.66% of the proceeds is to be used for the repayment of the $100 million 3.5% notes done in July 2008 and updated on Jan 2016, and another $175 million 4.8% outstanding perps (this is not the retail 6% one).

I'm too lazy to dig out past 10 yrs of financial statements, so using the last 2 yrs should suffice:

With a ROE of 3.5% in 2015, this isn't a company that I would have invested. But the pref or bonds issued might be a different story. Are they highly leveraged? Below is the ROE for Oxley. They also recently issued a new bond less than a year after their had their first retail one.

Looking at their financial leverage (Assets/equities), Oxley is the more leveraged one, but they are different industry of course. There really isn't a direct comparison for Hyflux. The question is, can they survive for 4 years or more and continue giving dividends to their ordinary shares as well as their bond/perps holders? I'm not confident. Revenue is contract and order based, so a bit lumpy. Even with their leverage, their ROE is not fantastic too. Their free cash flow isn't exactly very stable, and most years are just negative. I suppose they will have to continue borrowing from Peter to pay Paul.

Existing Hyflux 6% CPS

Throughout their listing, the hyflux 6% retail preference shares had never once dipped below its par value of $100. May 2011 to the present time isn't exactly kind to the stock market, so having maintained its share price above par is a great comfort to its holders. It acts as a good place to store their cash - it's a good cash equivalent that pays 6% pa, if you want to see it that way.

Their terms is 6% pa, payable semi annually on 25th April and 25th Oct every year, with first redemption on 25th April 2018. Thereafter, they will step up the rate from 6% to 8% if they don't redeem back.

Based on current price of 102.2, the yield to maturity until first redemption date is about 5.8%. Maybe by then, Hyflux will issue another preference shares, either institutional or retail, to roll over the debt. Considering that their pref shares at this kind of environment is still 6%, I think it'll be cheaper than to pay a higher stepped up rate of 8%. Maybe that's why the price of the pref shares is dropping steadily to par value. We're about 2 yrs shy of that first (optional) redemption date.

Note that the price shot up 3% on the first day, and thereafter within 2 months, shot up to about 7%. Not too shabby for a pref shares with 6% yield.


In summary, weak company but strong pref shares and dividend paying record. But that's all in the past, will it continue in the future? I think so and the gameplan, like Oxley and Perennial, is to continue issuing such bonds in the future. This should be quite a hot issue, I suspect. Actually, anything that is higher than fixed deposit rate is hot in Singapore these days, lol

Good for a stag. I'll expect it to be very hot.

Tuesday, May 17, 2016

Finding meaning in your suffering

Read the 4 paragraphs below and notice how you feel:

You work everyday until you cannot work anymore. Everyday you are suffering but you do not know why.

You work everyday until you cannot work anymore. Everyday you are suffering so that you can earn enough money.

You work everyday until you cannot work anymore. Everyday you are suffering so that you can earn enough money so that your family can have their 3 meals a day and a roof over their heads.

You work everyday until you cannot work anymore. Everyday you are working purposefully to achieve your goals, which is to earn enough money so that your family can have their 3 meals a day and a roof over their heads. Even though you are working hard, your work gives you great satisfaction and achievement. You can working until you can't work anymore because your client and your colleague still finds your contribution valuable.

If you read through the above 4 paragraphs, you'll see that the story behind our suffering is what enables us to live through it. Everyone can take suffering, so long as it has a meaning to it. It is meaningless suffering that is unbearable to all of us. While we cannot avoid suffering, we can always find meaning in it so that we do not suffer in vain.

Think of a soldier who died in a war. If he died in a war that he don't believe in, his death will be meaningless. But if he died to protect his comrades-in-arms, or more abstractedly, to protect his ideals or his way of life, then his suffering will be made meaningful. While the circumstances (that he died) is the same however you want to think of it, the mindset change makes all the difference.

Focus on finding meaning for your sufferings.

I think the same can be said for the journey towards financial freedom. There is certain short term suffering that one must endure, but if you think that life is so unbearable, think of the meaning behind it. If you can't find the meaning in it, maybe you shouldn't be doing it in the first place. I think after you tried a little suffering, you can even get used to it. Try not to drink any sweet carbonated drinks for 1 week. After that, try drinking some with less sugar in it, you'll suddenly find that it's so sweet. You can try it for food too. Try eating bland food for 1 week and then try eating fast food. You'll find that it's so salty now. Same food but different!

All about perspectives and meaning, isn't it? Haha