Monday, July 25, 2011

INV101 Why must we reinvest the dividends?

When we invest our savings by buying company shares, we are looking for two types of companies. The first is one that will give us good dividend yield and rate, and the second is one that is in the growth stage. I will only touch on the former, as the second type is more complicated and riskier.

Let us go back on why we want to invest our savings instead of the leaving them in fixed deposits or savings account. Like I said in previous post, when we have decided to buy company shares, we are looking at double digit growth in our savings. Here's how.

1. Look for a company that gives consistently high dividend rates, at least 6%.
2. Buy the company's shares, at least $10,000 worth.
3. Upon receiving dividends, buy more of the company's shares.

I will just use Cerebos as an example here.
Janice bought 10,000 Cerebos shares at $1.20 per share. She had invested $12,000 in December 2002.
She received dividend of $0.129 x 10,000 = $1,290 in March 2003. Then she bought an additional 1,000 shares at $1.26 per share and own 11,000 shares. She continued to do this until now.

For the past 9 years, her initial investment of $12,000 has reached $119,500. Her initial investment has grown at a rate of 29.1% per year, compounded for the past 9 years. This is illustrated in the table below.


Year
Number of shares
Dividend
Buy number of shares
Price
Remaining
Cash
Value
2003
10,000
$1,290
1000
$1.26

$13,890
2004
11,000
$1,760
1000
$1.70

$20,460
2005
12,000
$3,000
1000
$2.00
$1,000
$27,000
2006
13,000
$3,500
2000
$2.20

$32,100
2007
15,000
$3,750
1000
$2.40
$1,350
$39,750
2008
16,000
$4,000
2000
$2.68

$46,880
2009
18,000
$4,500
2000
$2.24

$44,820
2010
20,000
$5,000
1000
$3.50
$1,500
$76,500
2011
21,000
$6,720

$5.30
$8,200
$119,500












Rate of Growth
29.1%












If she were to hold on to the dividends instead of reinvesting, her initial $12,000 has grown to only $74,278. That is only a rate of 22.5% per year compounded for the past 9 years.

Year
Number of shares
Dividend
Buy number of shares
Price
Remaining
Cash
Value
2003
10,000
$1,290
0
$1.26
$1,290
$13,890
2004
10,000
$1,600
0
$1.70
$2,890
$19,890
2005
10,000
$2,500
0
$2.00
$5,390
$25,390
2006
10,000
$2,688
0
$2.20
$8,078
$30,078
2007
10,000
$2,500
0
$2.40
$10,578
$34,578
2008
10,000
$2,500
0
$2.68
$13,078
$39,878
2009
10,000
$2,500
0
$2.24
$15,578
$37,978
2010
10,000
$2,500
0
$3.50
$18,078
$53,078
2011
10,000
$3,200

$5.30
$21,278
$74,278












Rate of Growth
22.5%

You can see from the two tables above that a 6.6% difference is actually $45,000 difference in 9 years. A 29.1% per year compound interest is much more than the 5% to 9% that your fund manager can promise you. It is always good to spend some time to do research on the companies that you are interested to invest in and rake in the good returns that nobody can promise you. 

Why let the fund managers take a cut from your earnings when you can earn 20% more yourself?

Happy investing and cheers.

Disclaimer: This post serves as a reference for potential investors. All investments involve risks. Readers are advised to exercise their own discretion when investing.

Thursday, July 21, 2011

INV101 Investing in the stock market

The highest rate of return on savings is to manage the investment on your own. It's no doubt that some people find it tiring and troublesome to do the research and to keep up with the share prices everyday. As investors, we do our own research on the companies that are of interest to us. However, we do no keep up with the share prices everyday. That is what speculators do.

There are many ways to grow our savings.
1. Leave the money in the savings account.
2. Leave the money in fixed deposit account.
3. Leave the money with fund managers.
4. Leave the money in our own hands.

The interest rate of the first two options are way below our intended rate of return. Both choices give only up to 1% per annum interest. This is far from beating the inflation in Singapore (currently at 4.5%). Leaving your money with the fund managers can only beat the inflation by a small percentage margin. Even if the fund managers are able to give you a returns of 7%, it beats the inflation by 2% only. On top of this, the fund managers actually earn part of your returns as management fee.

To maximise the growth, investors should manage their own money. Looking for companies that give returns of 10% and above is not impossible. I have a few companies that has given me more than 10% returns compounded for the past few years. The dividends received were reinvested to buy more shares of the wonderful companies. In this way, then were we able to grow our savings at double digit rates.

Take some time off to think about it. Do you want your savings to grow at least 10% per year compounded for the next 20 years or do you just want to grow your savings at the same rate as inflation? The choice is yours.

Cheers and happy investing.

Monday, July 18, 2011

Reply from the unprofessional agent

Finally, after 10 long days, I received a reply from Savills' executive director for residential sales. She has attached the agent's reply to her, and would like us to take a look. This is the whole picture. Ms Jodia, a colleague of Mr Thomas Lee, is the exclusive agent for selling the unit. Hence, on 2 July, Mr Thomas Lee was just there to help her as she was not free to be there. So this is Jodia's reply.

1. The owner strictly allows only 1 weekday and 1 weekend viewing. We have seen the unit on 2 July (Saturday) hence we cannot view on 3 July (Sunday). It's fine with us. Hence, we arranged to view on 9 July, which they agreed upon.

2. The agents decided to present a final offer to the owner on Wednesday 6 July, while we looking forward to view on Saturday. We were not informed of their intention to present their offer to the owner. She claimed that they need to work in the best interests of the seller, to close the deal in case they missed the buyer who make the offer." I feel that is not for the best interests of the seller, but to the best interests of themselves.

Now here are my doubts.

1. The asking price in Property Guru was $1.45 million. When we went to view the unit, Mr Thomas Lee said $1.5 million. Why is there such a huge difference?

2. Did the owner know that there are other interested buyers, like myself, that has shown interest and can make a higher offer?

3. Why didn't the agents call to ask if we can have any higher offer, before closing the deal hastily? I think the owner will not reject any offer up to $100,000 above his asking price.

Anyway, we cannot do anything here as the option to purchase has been issued. On our part, we can only continue to look for another house. This is the problem with having unprofessional housing agents.

Do you have the same experience? Share it here.

Monday, July 11, 2011

A lesson learnt from recent incident...

I went to see a 4 bedroom, 1722 sqft top floor unit at Hillview area on 2 July 2011. My wife and myself like the place very much, so we intend to bring her parents along to take a look. We had wanted to view again on the very next day, which is a Sunday. The agent, Mr Thomas Lee from Savills, said that only 1 weekend viewing is allowed. Therefore, we arranged for a second viewing on Saturday 9 July 2011, which he said "OK".

Out of the sudden, one Thursday evening (7 July 2011), the agent just called my agent to say that the deal is closed. That is, he has issued the Option to Purchase form as one buyer has match the seller's asking price. As a seller's agent, knowing that there are more than one interested party, shouldn't he ask if we can offer a higher price?

I felt like I was robbed of a chance to even offer at a higher price than the owner's asking price.

How do you find the agent, Mr Thomas Lee, of his professionalism here?

Wednesday, July 6, 2011

Forget about Singapore property for now?

The rising prices of Singapore properties has casued people to panic BUY without considering the consequences. When the interest rates go up, people who have taken a loan from the bank will feel the pinch. A $1million loan currently needs only about $2,800 monthly repayment. This is due to the interest rate of close to 1% per year. What if the interest rate goes up to 2% in the next 2 years? The monthly repayment can go as high as $4,000 with the same amount of loan. If the interest rate goes up to 3%, I don't know how the investors are going to cope with the repayment. Where are the current property investors going to get the money to pay for the housing loan? They will have no choice but to sell their property.

So do we just forget about investing in Singapore property for now?

No, we don't. Instead, we will keep looking around for undervalued properties. There are bound to have some properties that have good value and selling below valuation price. At the same time, keep ourselves informed of the property trend through the URA website and news while we wait for the property prices to fall.

It is not going to be easy to look for such properties at this time. There will be weeks that you will not be able to find a single unit to view. But it's ok. We are not rushng to own one anyway.

Cheers and Happy Investing.