Wednesday, August 31, 2011

INV101 Buy or stockpile when the chance arises.

It has been a volatile month in August. Stock prices experienced wild roller coaster rides once again. Now, it has stablised at pre-US credit downgrade level. There will be bound to be some winners and some losers, but the overall winners are value investors.

Value investors took the opportunities at low prices and stockpile more shares of the companies that we have invested in. The returns on investment are high, compared to the banks' interest rates. Even a 5% gain in share price is reasonable. However, it is not the short term profit that we are looking at. We are looking at their long term value.

Even before the August wild ride, value investors have our personal valuation of companies. We have the money, that we continue to save each day. All we need is to wait for a very good chance to strike.

After the announcement of US credit downgrade, markets were switched to panic selling mode. Short term investors and speculations were busy selling their shares. Prices were depressed by about 15%. This percentage was actually the discount to value investors. We see it as buying valuable shares at a 15% discount.

In the world of investment, patience is the master key to making money. When times are good, we should continue to save more money from our salary and when noises create havoc in the stock market, we will strike with the money ready in hand. This is the way investment should be done.

Welcome to the investment world.


Monday, August 22, 2011

INV101 Dividend Yields

Many potential investors actually do not know how to calculate dividend yield. Some people just follow what is given by the analysts in all those research reports. In actual fact, dividend yield should be calculated according to the purchase price of shares that you bought with.

Take SPH for example. In 2010, SPH was trading between $3.43 to $4.07. The dividends given out was $0.27 in total. Hence, the dividend yield should be ranged from 6.63% to 7.87%. Dividend yield should be given as a range instead of a fixed number. At today's closing price of $3.63, the dividend yield is 7.44% Therefore, it is important to buy the shares at the right price so that we can get the highest yield possible. If you have bought the shares at beginning 2009 at $2.30, your dividend yield for 2010 should be calculated as 11.7%.

Let us find out how much returns will we get if we were to buy SPH shares in January 2009 at the price of $2.30. In December 2009, the total dividend for the year 2009 was $0.25 (yield - 10.9%). In December 2010, the total dividend for the year 2010 was $0.27 (yield - 11.7%). In May 2011, the dividend was $0.07. The total dividend earned for SPH shares, until now, is $0.59. That is already 25.7% earned, with respect to what you paid for in 2009. Using the closing price of $3.63 today, our shares would have earned another $1.33, a 57.8% increase in value.

If we were to sell the shares today at $3.63, the total earnings, including dividends, is $1.92. That is an investment returns of 83.5% for two years of investing. The growth for $2.30 is calculated to be 35.5% per annum compounded for 2 years.

If we had invested $4,600 in SPH in January 2009, the current value of the invested capital would have become $8,440 today. Not a bad investment, right? Of course, we are not going to sell such a wonderful company. Now that the market is in panic selling mode, maybe we should consider to save more money to stockpile SPH's shares?

Have fun investing, cheers!

Tuesday, August 16, 2011

INV101 Element of fear in investment

Every investment carries risks. How much risk appetite does an investot have? There are different answers.

The recent downgrade of U.S. credit rating had caused roller coaster rides to the stock prices around the world. Singapore stock market was affected as well.

Kindly answer this question:
How do you feel when the stock market went down due to the downgrading news?
a.  Scared. Afraid that I will lose every single cent invested.
b.  Give up on investment straight away.
c.  Just sit back and relax. Wait and see.
d.  Very happy. Time to open the warchest and strike at will.

An investor does not worry about noises that cause the stock market to plunge. An investor is indeed happy to see the chance to buy more of the companies' shares. Anyone who chooses a or b is actually a speculator. Choice c will not get you anywhere either.

Since we already have our personal valuation of the companies, then strike when the iron is hot. Stockpile! It does not matter if you stockpile 1000 shares or 100,000 shares, as long as you stockpile.

The opportunity to stockpile may have come and gone last week. If you have missed it, then wait for the next chance. If you have bought some shares last week, you have done a great job.

Happy investing.


Thursday, August 4, 2011

U.S. Market dropped 5% and what does it mean?

U.S. Market dropped nearly 5% last night, causing Asian markets, including Singapore, in a huge sell off.

All I can say is, "Speculators worry, Investors rejoice!"

Real investors do not worry about the big drop in the market. We invest in the companys' businesses and not the emotion of Mr. Market.

Mr. Market represents the general public's, mainly speculators', fear or greed. This is where we apply this famous quote, "Be greedy when others are fearful."

For those who does not own any shares, it's a good time to own some quality stocks. For those who already have some wonderful companies', it's a good time to stockpile. However, we should not time our purchases. We can never predict Mr Market's mood. Once the share price drops by 10 to 20% below your personal valuation of the stocks, buy them. If it has not happened, then wait further.

A value investor, like myself, waits for good opportunities to buy more shares. We do not time our purchases nor do we sell in panic. As long as we know the value of the companies we invested in, we will know when to buy or sell the shares.

Disclaimer: This post is just my personal view. All investments contain risks. Readers are advised to exercise their own discretion when investing.

Tuesday, August 2, 2011

A tale from 2 properties.

For the past two weeks, I have been to two different property launches.
Skyline Residences and Thomson Grand.

I shall give a brief description of the two properties here.

Skyline Residences is a freehold project at Telok Blangah area.
Telok Blangah MRT Station (opening in October) is just 200m away. That's only a 2-3 minutes walk to the MRT station.
It has 24 storeys. Their 4th storey is already the height of 10th storey of nearby HDB flats.
Average price of a two bedroom unit = $1.6 million
Average size of a 2 bedroom unit = 829 sqft.

Thomson Grand is a 99-year leasehold project located opposite Pierce reservoir and Singapore Island Country Club. There are no MRT line currently but may have Sin Ming Station nearby under Thomson Line.
It has 20 storeys will all 33 cluster homes sold.
Average price of a two bedroom unit = $1.5 million
Average size of a 2 bedroom unit = 947 sqft.

Both projects have TOP set in 2015.

At the current price, both will not give you any good rental yield. A two bedroom unit is Telok Blangah area should fetch only about $3500 while a two bedroom unit in Thomson area should fetch about $2800. Who knows what will happen in 2015?

Which one is a better choice? Share your thoughts here.

Happy investing.