Saturday, January 23, 2010

Becoming a landlord in shopping malls?

For those who are more interested in Real Estate, there are many ways to make an investment. One can buy newly launched developments, buy completed projects and rent it out, buy commercial properties or even buy REITs, i.e. be a shareholder of companies like Frasers Centrepoint, CapitaMall Trust, CapitaMall Asia Trust, Suntec Reits, etc.

For the first three options, you need to have lump sum of money, be it cash or CPF, hence it's not for small investors like us. Hence, let's just talk about being shareholders of REITs.

You may ask, "Do we just buy any REITs?"

My answer is simply "NO".

Same as investing in companies, investment in REITs also requires research of their past years results and the distributions that they give every quarter, and of course the returns that you get for your invested capital.

When we look at the yearly distributions that every REIT gives, we can calculate their average. Other than that, we will also know how much dividend an investor can get when in good times and bad. Hence, we will be able to calculate the target price to buy, so as to get maximum returns to our investment.

Remember this, if you buy at a higher price, the percentage returns will be lower and vice versa. Therefore, we need to be clear-minded and know how much returns are we looking at.

Exapmle 1
Jason has $5,000 to invest and he intends to invest in one of the two trusts, ABC trust and XYZ trust. ABC trust's average yearly dividend is $0.25 and it's share price currently is $4.00, while XYZ trust's average yearly dividend is $0.20 and it's share price is $3.00.
By calculating their returns, ABC trust - 6.25% and XYZ trust - 6.67%.
Obviously XYZ trust is a better investment.

Example 2
Jason has $5,000 to invest in MNO trust. Their current price is at $5.00 and it's average yearly dividend is at $0.30. That's 6% return. If Jason has bought MNO trust at $4.50, then the return is 6.67%.

How much returns an investor wants will dictate what price he should buy the share.

Calculating REITs' earnings is the easiest and a stepping stone for those who are really interested in investment.

Have fun calculating and be happy landlord.

Tuesday, January 12, 2010

Popular Holdings Limited

Popular Holdings Limited, is a well-known local bookshop where people buy their books from. There are a lot of things that people does not know about popular.

Do you know that Popular has bookshops in Hong Kong and Malaysia as well? Do you know that Harris Bookshop belongs to Popular? Do you know that Popular owns {Prologue} in ION Orchard too? Do you know that they are also making fast and extensive move into the Greater China market as well? Do you know that they are also into property development, like One Robin, 18 Shelford and 8 Raja?

Popular has a net asset value of about 23 cents and now it's selling only at 17.5 cents, that's a discount of 24%. Popular Holdings Limited has been around for decades, and  every year they make have positive earnings, during both good and bad economy. Popular is a well known brand in Singapore and hence has that durable competitive advantage. Popular made a lost in FY2009 because they have started exploring into property development sector, and project was on the way and sales were not started yet. It is shown in their latest 3Q results, earnings has reached 2.3 cents. At 17.5 cents, they are actually selling at P/E of 7.6 compared to their average P/E of 11.7 for the past 10 years. Share price of Popular should be at 26.5 to 27 cents.

Let's talk about dividend. On average, Popular gives out 38.6% of their earnings out as dividend. Well, dividend yield depends on the price that you pay for your stocks.At current price of 17.5 cents, dividend yield is about 7.26%. Average ROE of Popular is 11.8%. Using this ROE, expected earnings for 2015 is 3.97 cents, which should bring the price up to 46 cents to 46.5 cents.

This company is indeed a good company to buy and hold forever.

Wednesday, January 6, 2010

Learning from Nutrisystem lesson, sold to early.

When I sold Nutrisystem at US$21.74, after which it shoots up to pass US$32. What is the lesson learned here?

After reading Snowball, I realised that, my mistake was what Mr Buffett did when he was 11 years only. He bought 3 shares of Cities Service Preferred for US$115. The stock price went down from US$38.25 to US$27 a share. When the stock recovered to US$40, Warren Buffett sold it for a profit of US$5. But Cities Service quickly soared to $202 a share. This is where Warren learned three lessons. Quote from Snowball, "One lesson was not to overly fixate on what he had paid for a stock. The second was not to rush unthinkingly to grab a small profit. He learned these two lessons by brooding over the US$492 he would have made had he been more patient."

Buffett would never ever forget this mistake. And so do I, on sales of Nutrisystem shares.

"Mr Buffett's third lesson was about investing other people's money. If he made a mistake, it might get somebody upset at him. So he didn't want to have responsibility for anyone else's money unless he was sure he could succeed."

The first two lessons were the relevant lessons for this post. Learn from mistakes and never never make it again.

How much is enough to start investing?

Warren Buffett started to invest when he has accumulated US$115, at the age of 11. He bought 3 shares of Cities Service Preferred.

Well, when should one start investing and how much must one have to start investing?
To me, you just need S$500 and you can start investing. That's the problem with Singapore Stock Exchange. You can only buy in multiples of 1000 shares in more than 90% of the companys listed. The second reason is the high commission rate that we are paying the brokers in Singapore. So, how can we start like buffett who only used US$115 to buy 3 shares? It's impossible unless you are buying US stocks, to own part of the company.

Scenario 1:
Jason has S$500 and he does not know what to buy. If he were to buy a Singapore company, he can only look for those whose price is below S$0.45, as he needs to pay for the high commission that the broker is charging, minimum S$25. This can only happen when there is a crisis like the one in the beginning of 2009. At that time, Metro Holdings was only at S$0.34. Well, if he were to buy 1000 Metro shares then, he would have spent $370, leaving $130, sitting there doing nothing. Today, Metro has rose to S$0.80. If he were to sell now, he will receive S$770, earning a profit of $400. In total, he would have S$900, making 80% returns on $500 invested.

Scenario 2:
Jason has S$500 and he decided to buy shares of a US company, Garnett. It was only US$2 at the same time when Metro was S$0.34. S$500 is only US$$357. Hence, he can only buy US$327 worth of stock. Well, at least he can use all US$326 to buy 163 Gannett share. Today , the share price shoots up to US$16.30. If he were to sell all the 163 shares he has, he would get US$2626, which can be converted to S$$3650. In total, he would have make a return of 630% returns on S$500 invested.

Scenario 3:
Jason has S$500 and he has found that Nutrisystem does not have any debt. He has done homework on the company and feels that he can buy the company at a discount. The price was US$14 at the same time as the above 2 scenarios. Hence, he bought 23 shares of Nutrisystem. Just before the new year, Nutrisystem was above US$32. Jason felt that at US$32, it's P/E ratio was way too high compared to earnings of only US$1. He sold all 23 share and received, US$736, converted to S$$1023. With this amount, he actually makes a return of 105%.

Compare the 3 scenarios and decide for yourself, the path of your investment.

Sunday, January 3, 2010

The companies that I still have confidence in for 2010.

Happy New Year to all readers.

Well, 2009 is certainly a volatility year and looks like economy has been settled down and moving up. So what are the companies that will do well in 2010?

I do not have the answer. But these companies listed below looks good to me.

1. Goldman Sachs (GS)
2. Walt Disney (DIS)
3. Nutrisystem (NTRI)
4. Garnett Inc (GCI)
5. General Electric (GE)
6. OCBC Bank (Singapore)
7. Breadtalk (Singapore)
8. UOL (Singapore)
9. UIC (Singapore)
10. Popular (Singapore)

These 10 companies are my choices for 2010. Of course, there are other companies that are worth looking into.

Have fun. Let's have a bullish year ahead.