Thoughts on the income strategy (Selling Options)

This will probably be a short post.

I am still sorting out my thoughts (on various topics). Selling Options being one of them.

New income strategy

Selling Naked Put Options

Late last month (Aug 21), I wrote a post about how to use Tiger Brokers to sell put options.

Step by step guide to selling Put Options using Tiger Brokers (Desktop version) (read here)

I think it is a good way for dividend income investors like myself to add on this to be part of my income strategy (potentially). I have been experimenting with it, but the trial period is not long. As there wasn’t much I can do in such a short period of time.

My thought at the moment is how to incorporate this to be part of my ‘off the mind, can sleep well at night’ income strategy.

For me selling put options is like an extended version of buying stocks using the Limit Order option rather Market Order option. In my case, occasionally during market corrections, I typically like to set my buy price for the day using the limit order in the morning, and hope that prices through the day drop to that level so that my orders are filled. In a way, it is like ‘low-balling’ and hoping for ‘bargains’ on a daily basis, although typically the next day, prices will drop even lower… hahahaha

So now with selling put options, I can do this ‘Limit Order” trade for extended periods / much longer durations of a week to months, while getting paid premiums.

The thing about selling put options (and call options), unlike traditional dividend income investing, is that one does not need to have the cash on hand first to receive the (profit) premium immediately once the trade is done (Perhaps up to what the margins allows). Instant gratification perhaps? Herein lies the tricky (or dangerous) part, what is preventing me from over committing myself… I can literally sell many put options, without necessarily having the cash available to exercise (and buy) the shares if the stock prices drop to the strike prices’ level (which technically is not a bad thing if that is the stock I am aiming for).

Yup, in other words, how to ensure I don’t get too caught up with greed, and take on more than I can manage.

Michael Douglas High Quality GIF

I view options as a complementary means to add on to the dividend income stream.

My intention is not for it to overtake (my dividend income) or be a major part of the passive income stream. Nevertheless, it has the potential to.

Typically one requires years to have a big enough war-chest to build up a sizable dividend stock portfolio to get reasonable dividend income. For options trading, with no need for initial cash outlay to get the same (or more) income, one can simply enter into more option trades.

Currently, with the volatility with the Chinese Tech stocks, I have selectively sold a few put options for stocks which I currently own (eg. Pinduoduo and Alibaba) and do intend to own more of. My personal take is that current prices present value long term, and if prices drop further it is even better (to buy more). For Alibaba (9988.hk) I have sold a put option with a longer expiration duration (eg. 1 month), while for Pinduoduo (PDD), I have sold a few options with shorter expiration periods (eg, 10 days).

Selling Covered Call Options

I will probably try this out, provided I have the stocks on hand to sell (if the stock price eventually reach the strike price).

Kelvin did a good explanation on the Wheel Strategy (watch here)

Others might call it the Strangle strategy.

Short Strangle (Sell Strangle) Option Trading Strategy Explained (read here)

Basically for the same underlying equity, I sell both a covered call option and a put option. So technically I can collect premiums from both the options (thereby increasing my income), but I will have to hope that the stock trades within the range of the strike prices of the call option and the put option. If the stock price drops to the strike price of the put option (before the expiration date), I will have to buy 100 shares (or 500 shares in the case of HK listed stocks) at that price. If the stock price rises to the strike price of the call option (before the expiration date), I will have to sell the stocks (100 shares or 500 shares in the case of HK listed stocks) at that price.

Technically, it is ‘safe’ if I do have the stocks on hand, by selling covered call options. The worst case scenario is that I have to sell the stocks at the strike price, and the stock price continues trending upwards, and I miss out on the gains. On the other hand, most people do not advocate selling naked call options, and neither do I (eg. if one does not have the required stocks on hand to sell if the stock price does it hit and go beyond the strike price).

My only slight aversion to this strategy (of selling covered call options) as a long term investor (and collector of stocks), is that I am capping the upside of the stocks I have on hand. Sure I can always buy back (if prices drop below what I have sold it at), but well, kind of a hassle, esp. for volatile Chinese tech stocks, and it might take a long time for it to happen (if it happens).

Unlike selling put options, there is actually a more defined ‘limit’ to how much I can do. Since I can only do it with those stocks that I am actually vested in.

Finding that balance (between Stocks and Options)

Typically, I would do regular monthly DCA (Dollar cost averaging) stock investing when I receive my salary.

Depending on the market situations, I normally add on to the current positions in my stock portfolio. Normally I will do that early in the month when I receive my salary.

For this month, I held off buying stocks…. but eventually did purchase some, when it is near the options’ expiration dates.

I reckon I needed more cash reserves if I am selling put options.

In addition, I have to remind myself that I am still in the process of building up my stock portfolio, and especially the dividend income machine (must not forget the Sg listed and HK listed dividend counters). Currently, to me, HK listed counters actually offer value from a long term perspective and Sg counters have been going strong. I have also added to my position in Alibaba (9988.hk) at the current low stock price.. even though I have sold Alibaba put options at even (much) lower strike prices (yeah, sort of a low ball price).

In the long term, it is still important to have a solid stock portfolio (built up over many years).. be it growth or dividend counters. Over the long term, the eventual cost yield of a portfolio consisting of strong dividend growth stocks would be hard to beat.

Trial and error

I guess, with any investment, it takes time to hone our own risk tolerance (from getting our feet wet to testing the parameters).

Even if we do elevate investing on our list of priorities, the time we have to devote to investments is likely to be extremely limited. Or, the fact may be that we just don’t want to devote much time to our investments…..

Certain categories of investments are specifically designed to operate as income producers.

In the book, The Smart Investor’s Money Machine by Bill Kraft, one such strategy to generating regular income is selling options.

There are income investors who are solely trading options (or their investments are mainly into options). Eg. the major part of their passive income is from trading options.

I can see the cost / time benefit in doing options. Technically, converting volatile growth stocks into income plays.

Well There It Is Jurassic Park GIF

If done correctly the annual/monthly yield may even surpass traditional dividend stocks.

However, the main difficulty probably lies in finding that proverbial psychological sweet spot whereby it becomes passive enough, and the income stream more or less stabilised so that we can spend less time monitoring the stock market (and not be overly fearful of any volatility or being too greedy). Eg. I probably have to accept lesser premium while choosing a much lower strike price (for put options) or higher strike price (for call options), with a shorter duration to the expiration date (a week to a month max).

Yes in other words, coming to terms with the lower risk exposure and the less than possible premium. Ultimately, different people have different risk tolerance, what works for others may not work for me.

Selling options as mentioned earlier has the potential to increase my income exponentially and even overtake my dividend income. However, if I over commit and built a ‘house of cards’ by taking on too much options than what I have on hand eg. the cash reserve (put options) or vested stocks (call options), there will be a day when this ‘house’ collapse, and when stock prices move against my planned strike prices.

At the end of the day, I might just feel that selling options as an income strategy is not for me, or I may just be a very inactive seller of options (super small time) if I don’t think the risk reward is worth it, considering the fact that leverage is involved. I probably can’t rest well at night if I have more than 2 options at anytime, preferably just 1 or none (within the comfortable limit of my cash reserves). So I don’t see it as a major contributor (or game changer) to the income strategy.

My personal take at the moment is that the traditional buying and holding and building up a dividend portfolio is still my preferred option. At the very least, in times of distress, the pain is not amplified (and that allows me to think more rationally).


StocksCafe

FYI I find StocksCafe useful for the tracking of my own portfolio, and especially like to use it to track my portfolio stock dividend / bond interest payouts (projected and due). You can use my referral code: apenquotes. Just click here. Upon signing up using the referral code, you will get to enjoy being a Friend of StocksCafe and test out all features for free for two months!

Please follow me at StocksCafe, via my StocksCafe profile page.

Tiger Brokers

For the Singapore market, Tiger Brokers currently waive the minimum fee and only charge a 0.08% trading fee. This drastically reduces your cost as the minimum fee from other brokers (ranging from SGD 8 such as FSMOne and SCB, to SGD 25 for local brokerages) does add up and can eat into your returns.

Tiger Broker Referral Code:: GPE59H

Sign up here.

Use the above referral code to enjoy the below benefits (Campaign Period: 1 Sept 2021 – 30 Sept 2021)

FSMOne.com

Typically I use FSMOne.com to invest in funds & ETFs (including money market funds).

If you do not have an account, you can sign up here. Please use my FSMOne referral code: P0031127, when you sign up.

Shopee

I have been using Shopee for a while and think you will like it as much as I do.

Get $10.00 off your first purchase using my code DARREB52.
Download Shopee now and enjoy hot deals at the best prices! Click here.

Happy shopping!


Do like my post if you have enjoyed it!! Click the star below.

Do subscribe to my Patreon page.

Posted in Hong Kong Shares, Investing methodology, Options | Leave a comment

Retire early with a child… beyond the math.

I read Kyith’s post below and felt that it is a well written piece. Much like his style of breaking down the numbers to show us that financially it can be done.

Can You Retire Early if You have a Child? (read here)

Personally, being a father of two kids, and having have older colleagues with children (or acquaintances at work with kids themselves)… I guess as with most topics personal finance related, it simply goes beyond the numbers.

There is the ‘personal’ before the ‘finance’.

Please let me share my ‘2 cents worth of’ thought.

Hmmm… how to describe it?

It is like learning to drive. We have the theory test and the practical test, then actual driving on the roads. In theory / practical test…. everything seems logical, and people go by the rules, but ask any long time drivers (or taxi drivers), actual driving is nothing like that (esp. during rush hour traffic).

It is like investing in the stock market, when we think about market crashes, we think about how we would need to face our family at home when we think about the “losses”, rather than the factual aspects or fundamentals of the companies we are invested in. How to tell our spouse and kids that the kids’ varsity fees went up in smoke, or the planned year end vacation is going to be cancelled. It goes down to be very core of how we feel and our psychology.

Investing is more akin to an Art than a Science. A good book on this is “The Psychology of Money: Timeless lessons on wealth, greed, and happiness” by Morgan Housel.

Like how my director (in her late 50s with two school going kids) actually said to me…”In terms of figures, yes we can retire (actually by my own estimates, way beyond for her case), but it is not easy when we have kids.” Her husband is also a director in another company. They lived simply and has more than enough (money wise).

Like any doting parent, she wants the best for her kids.

Put it in another way: She is not talking about the numbers in their bank accounts or the value of their investment assets.

Having a child in essence is a risky investment from a pure financial point of view, because at the end of the day, we do not know if we would have any returns. Who can guarantee that your/my child can be financially stable after they complete their tertiary education (if they do make it there in the first place), and even if they are financially stable, they are not obliged to give us allowance. In some cases, parents continue giving financial aids to their children long after they reached adulthood.

Personally, if I am looking for a retirement plan, I think investment properties, bonds, dividend stocks or annuity work better.

Sorry, your kids are not your retirement plan (read here)

There is actually a section in the book “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko, where they talked about Economic Outpatient Care provided by parents for their children (Chapter 5).

When we talk about our children, emotions cloud our judgement. When we think about how to bring up another human being….. for lack of a better word, it’s complicated (…. I even have problems dealing with myself). A child is not a lifeless object/asset like a car or house, which we can discard and buy new ones. We watch our children grow from hapless infants to full grown adults. With the increase in life expectancy, many will be around to see their children grow old.

Heck, some people even get emotional when they talk about their prized cars, apartments, collectables, watches, etc…..

We can ignore our cars for years, and they will still ‘love’ us back. A quick visit to the workshop and your car will be purring like a kitten and with a quick polish, shiny like new. Ignore our kids for a month… see what happens.

Remember Veruca Salt in Charlie And The Chocolate Factory?… Thinking of her sends me the chills.

It is simpler when kids are young, when we do not know their capabilities out there in the real cold hard world. If we have more than 1 young kid, when planning our will then, we can tell ourselves that we will be fair and spilt our wealth equally among our kids. However, often (as stated in the book), once they grow up… some parents would end up passing most of their wealth to the kid(s) ‘who need them more’ – in Thomas and William’s words: “Economic Outpatient Care (EOC)” or parental subsidies.

However, is that really the right choice?

Parents feel a strong need to provide kids (weakened by years of supports) with more EOC. Even after the children are all grown up.

However, it is like enforcing the strong rather than the weak. Those who lack financial discipline get most or more of the wealth / financial supports.

I guess not all things are black and white, or rational… humans have their irrational sides. It is harder when the thinking is entrenched from young.

Hypothetically, think of this example- imagine yourself walking up to a good class bungalow, and some kid (boy or girl) is standing behind the gate. Ask him whose house this house belongs to? In his mind, it is HIS house. In some way, that is not wrong (it is his family’s house) but more correctly, it is his parents’ house. As a kid gets older, society tends to expect him to fend for himself and get his own place. However, a person’s mentality (from young) is hard to change.

Or let’s view it from another angle: After many years, this same kid (who happens to be the only child) grew up and is now seated beside his dad who is now old and dying. Lying on his death bed, his dad told him, for the first time, that the bungalow and all the family assets will be donated to some charity. How would this kid (now an adult) feel about that? Would he resent his dad for giving away what is ‘rightfully’ his to some total strangers? In one night, in his mind, his net worth probably went from 7 or 8 figures to zero. Why is there resentment?

richie rich GIF

Having said that growing up in a wealthy family does not necessarily make someone a financial failure.

Thomas tells a story of a lady called Sarah (in a section called “Cinderella Sarah”). She is the child who thinks independently and in her case ‘defiant” from her father’s perspective.

Richard Ng Says His Wealthy Father Had 4 Wives And Smoked Opium With Bruce Lee’s Dad (read here)

As parents, we can give our child the best education, but to instill courage and the resilience to overcome failure is a different ball-game. Which I think is more important.

Money can’t buy that.

Some kids are born with the resilient character, some need more push and upbringing. Some may never ever acquire it (fact of life)… and parents (often those busy with work throughout their life) may end up blaming themselves for it. A product of their upbringing perhaps (or lack of it)? Kids don’t choose their parents, likewise, can we as parents foresee or choose our own children’s characters?

With money, it is not impossible to get the best tutors and the best tertiary education. Parents with money can ‘helicopter in’ and delegate the task to others. However, to make it in the real world, it takes more than that.

Yes, successful parents can ‘pull strings’ in the business or corporate world, ask their business partners / top management colleagues to lend a helping hand to their children’s businesses or careers.. but in the long term.. is this going to be beneficial?

How many times have we heard of stories of parents spending big bucks to give their child the best overseas Ivy League education, only for the child to forsake the degree / education / career path. Some still require EOC after that.

Richard Low Took 3 Loans & Borrowed Money From Friends So His Daughter Could Study In The US (read here)

revenge of the sith GIF by Star Wars

Parents with investment properties may think that it is only right to pass on their properties to their kids. However, have they considered how their kids would think / feel once they live in such environments? If these kids are not financially capable and disciplined…being surrounded by people who actually have the income / ability to live the lifestyle there, how much dependency would this lead to?

Yes technically the kid is (with a stroke of the pen) a multi-millionaire (asset rich). The freehold condo itself is worth that. However, he /she may not have the high cash flow (income) to afford the ‘lifestyle’.

The wisdom of passing wealth and properties to the children (read here)

To quote the above article: “When I was pregnant with our first child, I was curious to know how PAW (Prodigious Accumulator of Wealth) parents avoid the fate of producing UAW (Under Accumulators of Wealth) children.

I looked for the answer in Thomas Stanley’s 1996 book The Millionaire Next Door: The Surprising Secrets of America’s Wealthy. I was convinced to create a “self-imposed environment of scarcity” – by adopting a thrifty lifestyle and living well below one’s means.

The practice is not for everyone, especially in a society that encourages higher consumption with higher income. It only works for people who truly enjoy a simple life and place non-monetary things over material possessions.”

Would this lead to a further lifestyle trap?

joneses BC By George | Media & Culture Cartoon | TOONPOOL

To keep up with the Joneses?

With a high end condo, ‘naturally’ (as what the mass media tells us) one would need a top notch TV with quality sound/entertainment system.

A TV / entertainment system like that looks out of place in a spartan living room. Let’s not forget the quality and easy on the eye ID renovation (with marble flooring, quartz finishing, German branded kitchen equipment & cabinetry.. right off the cover page of the recent ID magazine.. hey your neighbours have them too right?… and since you have done up the living room and kitchen, why not the toilets?… they need to go with the whole theme right?).

With the neighbours sending their kids to independent/international schools, would you want your kids to go to some neighbourhood schools? How would your kids feel if they see the neighbours’ kids with the latest iPhones or iPads? And your kids rushed to tell you that the neighbours just came back from a 2 week Europe vacation (Oh…Daddy / Mummy, we would love that too..). How can you deprive them of the trip?… Come to think of it, didn’t the neighbours just went to Disneyland California a few months ago?

Would you want to be seen in a second hand 8 year old Mitsubishi Attrage in the condo car-park while your neighbour who is a Senior VP at JP Morgan drives the latest model / top end brand new Audi?

Rinse and repeat, next week, next month, next year, the same thoughts, conversations and requests.

Jewel: Parking Tips | Highway

And if you (and your spouse) do not have the income to afford these, who can you turn to?

Personally for me, I am aware of enough examples of adult children receiving EOC from their aging parents (some are my relatives, some are people whom I known from work). Some of these adult children are even parents themselves (and they are jobless, relying on financial help from their parents). Parents in their 60s, 70s, 80s still working, while their 20s, 30s, 40s, 50s year old sons / daughters are not. Why is that even news worthy or surprising?

Yes, it is important to know the numbers on what we need to be able to retire. Don’t be a burden (to them). However, we must not forget to instill the resilience in our children for them to make it out there on their own.

Imagine, while you are enjoying your FIRE at the beach with a cocktail in one hand, your handphone on the table next to you rang. It is your grown up son (or daughter) on the line. He tells you about how he is struggling to pay off his debts and making ends meet, and having less than enough to live the life he ought to be living. From his tone you can sense sadness and desperation. Yes, the numbers work (for you), you can FIRE. However, at this moment, does the cocktail in your hand still taste as good as before?

Time flies… but in some obscure corner of your mind, you can still feel and remember the times you spent with your child (in happier times).. Yes, how fast time flies and how big he has grown… but to you, your child will always be your child (whether they are in their teens, 20s, 30s, 40s…). When he sees you, he will always call you daddy/mummy.

In addition, you/I might think this way, but our spouse (or our own parents / parents-in-law) may think otherwise. Lots of variables which are not within our control. My belief is that the only person who I can truly control is myself (even this.. with the many mental biases which I myself may not even be aware of… it is hard to say).

For some, parenting is a full time job or rather lifetime job… Literally. It ends when they are at their death beds.


StocksCafe

FYI I find StocksCafe useful for the tracking of my own portfolio, and especially like to use it to track my portfolio stock dividend / bond interest payouts (projected and due). You can use my referral code: apenquotes. Just click here. Upon signing up using the referral code, you will get to enjoy being a Friend of StocksCafe and test out all features for free for two months!

Please follow me at StocksCafe, via my StocksCafe profile page.

Tiger Brokers

For the Singapore market, Tiger Brokers currently waive the minimum fee and only charge a 0.08% trading fee. This drastically reduces your cost as the minimum fee from other brokers (ranging from SGD 8 such as FSMOne and SCB, to SGD 25 for local brokerages) does add up and can eat into your returns.

Tiger Broker Referral Code:: GPE59H

Sign up here.

Use the above referral code to enjoy the below benefits (Campaign Period: 1 Sept 2021 – 30 Sept 2021)

FSMOne.com

Typically I use FSMOne.com to invest in funds & ETFs (including money market funds).

If you do not have an account, you can sign up here. Please use my FSMOne referral code: P0031127, when you sign up.

Shopee

I have been using Shopee for a while and think you will like it as much as I do.

Get $10.00 off your first purchase using my code DARREB52.
Download Shopee now and enjoy hot deals at the best prices! Click here.

Happy shopping!


Do like my post if you have enjoyed it!! Click the star below.

Do subscribe to my Patreon page.

Posted in Personal Finance | Leave a comment

Step by step guide to selling Put Options using Tiger Brokers (Desktop version)

There are a number of strategies in generating incomes via various instruments. These incomes can be one time off payout or be in the form of regular (yearly/monthly) payouts eg income streams.

Many people like to hold on to a portfolio of REITs, property stocks, banks/financial related stocks, consumer staple stocks, utility stocks, ETFs, and bonds so as to receive passive dividend income. Me included.

For others, they might purchase investment properties for rental income.

Other less risky sources would be via the CPF accounts. Simple strategies like transferring money from your Ordinary Account to Special Account will increase the interest yield. Or for those reaching 55 years old, they can consider using the CPF SA Shielding hack (see below) – investing your CPF-SA account monies prior to it being transferred to your CPF Retirement Account.

Implementation of CPF SA Shielding Hack using FSMOne.com (read here)

I have been reading about the concept of selling put options by Brian in his blog posts (see below).

My Thought Process On Writing a Put Option – With Actual Case Study On Citibank (NYSE: C) (read here)

You Can Still Trade GameStop (NYSE: GME) Safely, Yield Great Returns And Come Out A Winner (read here)

I see selling put options as one of the many strategies in generating passive income (albeit with a time limit attached to it and no upfront investment cash needed).

By the way, I am still relatively new to this strategy of selling put options. So feel free to leave your comments below the post, if my statements are incorrect in anyway.

I am just sharing what I know.

How to Sell Put Options to Benefit in Any Market (read here)

In the above article by investopedia.com, it mentioned the following:

Selling (also called writing) a put option allows an investor to potentially own the underlying security at a future date and at a much more favorable price. In other words, the sale of put options allows market players to gain bullish exposure, with the added benefit of potentially owning the underlying security at a future date and at a price below the current market price.

KEY TAKEAWAYS

1) Selling (also called writing) a put option allows an investor to potentially own the underlying security at a future date and at a much more favorable price.

2) Selling puts generates immediate portfolio income to the seller; puts keep the premium if the sold put is not exercised by the counterparty and it expires out-of-the-money.

3) An investor who sells put options in securities that they want to own anyway will increase their chances of being profitable.

4) Note that the writer of a put option will lose money on the trade if the price of the underlying drops prior to expiration and if the option finished in-the-money.

There are various technical strategies and thought processes as to when and why one should sell put options. However, this post is not about that. The intention is just to give a simple step by step guide on how to do it via Tiger Brokers.

Nevertheless, for me personally, as stated by investopedia.com above, I see selling put options as a way to generate immediate passive income (eg. I would receive income the moment I sell a put option), while allowing me to purchase the stocks at a future date at a much favourable price.

Holding a stock which pays dividend and selling a put option are both generally bullish strategies. In a way, we typically hope that the stock prices of the underlying equities trend up while we receive passive income.

There are however caveats to the above thinking for selling put options.

Firstly, maybe unlike some people when it comes to choosing which put options to sell, I tend to aim for those of stocks which I do intend to own / buy (in the future) at a lower price. So in the event that the stock price of the stock does go below the strike price and I do end up owning the stocks (at that lower price), I would not mind.

Some may aim for stocks with higher volatility so as to get better selling price (profits), without thinking about whether they actually want to own the stock in the first place. In other words, getting more profit in a shorter period of time. Well, there are various reasons why some stocks are more volatile than others….. but anyway, fundamentally that is not my starting point.

Next, when we sell a put option, there is a period when it eventually expires out-of-the-money, if the stock price did not go below the strike price during that period.

Many things can happen during this period (which can range from a few days to years).

For example, if we are to encounter another crash like what we saw in March 2020, many stocks will tank. It will then be likely that the price of the underlying equities of the put option drops below the strike price prior to expiration and the option finished in-the-money (we end up owning the stocks and the stock prices continue to trend down). Frankly, in such scenario I probably would not mind owning the stocks provided that the fundamentals and earning potential of the underlying company is intact, good and growing. Since I already intend to own them earlier (when they were at a higher price).

Nevertheless, I would not go too crazy into selling too many put options (more than I can possibility cover). Otherwise, in the event of a massive crash, I would have many urgent calls to buy the stocks when their stock prices drop below my strike prices. If you are like me, just starting out and testing the water with selling options, I would suggest to not go too ‘crazy’ and take on more than you can reasonably handle at the beginning. Yes some might see it as ‘free money’ since there is no upfront investment money needed, and we get an upfront premium when we sell, but well, market crashes & corrections do happen, we just don’t know when.

Finance GIF - Finance Stock Market Sell GIFs

On the other hand, if there are emerging news that points to the permanent deterioration of the fundamentals of the underlying companies (eg Chinese regulatory crackdown on the after-school education companies) or scandals discovered, etc… then I probably would not want to own the stocks of the company no matter how low the stock prices are.

None of us have a crystal ball… The future is unpredictable. Nobody can really predict the short term price movements. In a way, we are dealing with odds. So as with most passive income strategies, this strategy (of selling put options) is not without its own risks.

Let’s use an example.
For example, as we all know, in recent months, there have been a lot of news about the Chinese regulatory crackdown on Chinese Tech stocks. Hence, there have been relatively more volatility in their stock prices. Many of them have taken a beating to say the least.

In such a situation, I might want to take a look at my list of Chinese Tech / Growth stocks in my portfolio. After all, growth stocks in general, have more volatile stock prices than old economy stocks (well, there will always be exceptions). There might be growth stocks which I already own and do not mind owning more of them (average down), provided fundamentals remain solid. That could be one starting point.

After analysing (technical or fundamental) the Alibaba stock (9988.HK), I think that I would not mind owning more Alibaba stocks provided it drop to a lower price or alternatively if the stock price does not reach my ideal target (lower) price, I can still in the process earn some income. So in a way, it is a win-win situation (well at the point of time when considering – things might change, we never know).

At the point of writing, the stock price of Alibaba (9988.HK) is HKD 164.10. Let’s assume, if the stock price goes down to HKD 140, I would not mind buying the stock.

Having said that, that is just the starting point, if I have the time to search for good growth stocks to own (and sell put options), I would not just limit my picks to the existing stocks I have in my portfolio.

Below is the step by step guide to selling put options using Tiger Brokers.

Step 1

You will first need a Tiger Brokers trading account. If you do not have a Tiger Brokers trading account yet, and intend to sign up for one, please use my referral code (below) to do so, so as to enjoy the below mentioned benefits.

Tiger Broker Referral Code:: GPE59H

Sign up here.

Use the above referral code to enjoy the below benefits (Campaign Period: 9 Aug 2021 16:00:00 – 1 Sept 2021 12:00:00 (SGT))

I go into Tiger Brokers. I search for Alibaba (9988.HK) in the below tab (red arrow).

Step 2

Then I bookmark the stock (click on the star symbol).

Step 3

Next I will click on Alibaba on the left column, then click on Options in the centre top portion.

It will bring us to the below screen. Let me do some explanation / elaboration on what we see in the table.

Here we see the Call Option on the left and Put Option on the right (highlighted in red dash lines). And at the top (red arrow), we have the expiry date of the options.
Within the Put Option box, we see the Strike prices (which is basically the price that we choose hoping that the stock price does not go below it).

We can choose various expiry dates / durations (by clicking the yellow arrow box), some durations are as short as a few days, and while other durations stretch for many months or years. See below.

Before we continue, I would suggest you click on Settings (red arrow) and adjust the visible columns to the following. See below.

The Bid price is the price people wanting to buy, and the Ask price is the price for people like us queuing to sell (obviously the higher the price the better).

In the example below, we see that for the Strike price of HKD 140, the Bid price is HKD 0.250 (with 3 offers to buy at that price eg. x3) and the Ask price is HKD 0.350 (with 10 offers to sell at that price eg. x10).

Volume shows how many options were traded. The more popular the option is, the higher the volume.

Imp Vol (Implied Volatility) is how volatile the stock is. The higher the Imp Vol, the more expensive the options will be.

Delta is the ratio that compares the change in the price of an asset, usually marketable securities, to the corresponding change in the price of its derivative. For example, if a stock option has a delta value of 0.65, this means that if the underlying stock increases in price by $1 per share, the option on it will rise by $0.65 per share, all else being equal.

You will also notice in the Call Options rows, some have dark green background while others are in black background. In the Put Options rows, some have dark red background while others are in black background. Why is that so? See below.

Coloured background = In the money (ITM).

Black background = Out of the money (OTM).

In the Money vs. Out of the Money: What’s the Difference? (read here)

An OTM option is one that has a strike price that the underlying security has yet to reach, meaning the option has no intrinsic value.

For me intending to sell put options, I would be interested in rows which are in black background (OTM) eg. upon reaching the expiry date it would be worthless, so that I would not be required to buy the stocks.

Step 4

I will choose the duration to be 30 to 45 days to expiry. See below. The longer the duration, the more unknowns I face.

Step 5

I will then choose the HKD 140 strike price put options and click the red sell button (Note: It is not the buy button).

Step 6

I then choose the number of lots I want to sell.

Typically 1 lot of option / contract = 100 shares. However, in the case of Hong Kong listed stocks, I understand (correct me if I am wrong) that it is 1 lot of option = 500 shares (using Tiger Brokers). Hence, if the stock price goes below HKD 140, I would need to pay HKD 140 x 500 = HKD 70,000 (or around SGD 12,172.50).

I can see how many shares of the Alibaba stocks I would need to buy by looking at the Max Loss and Max Profit figures. In the example above, Max Profit is HKD 1,290, Max loss is HKD 68,710, with the sell price of the option at HKD 2.58.

Max Profit is thus 500 (no. of shares for one lot) x HKD 2.58 (sell price).

If we add up the Max Profit and Max Loss, the amount is HKD 70,000 (HKD 1,290 + 6,8710), which is equal to 500 shares of 9988.HK at HKD 140 stock price.

Upon selling 1 lot of put option, I will receive HKD 1,290 or approximately SGD 223 (Max Profit), before the fees / commissions.

I can also choose to sell via Limit Order or Market Order (same as how I would buy stocks). Using the Limit Order, I can choose a higher selling price and hope that it gets filled within the day (if I choose the Time-in-Force as ‘Day’). It might never get matched/filled. Or I can just choose Market Order to sell at the (lower) bid price immediately.

Once I click the Sell button and type in my password. I can see my filled orders in the Order section below. Alternatively, I can go to Position, to see my Put Option holdings (Note: Under the position column, I will see a negative figure). See below.

Step 7

3 Possible scenarios:

Scenario 1: In the money.

If the stock price of Alibaba goes below HKD 140 before the expiry date, I will be required to buy 500 shares of the Alibaba stock.

So be sure to have sufficient liquidity (cash or margin) in your Tiger Brokers account to pay for the stocks.

Scenario 2: Out of the money.

If the stock price of Alibaba remains above HKD 140 for the duration until the expiry date, I will not be required to buy 500 shares of the Alibaba stock at HKD 140., and can just let the options expire. I get to keep the initial profit of HKD 1,290 (before commission and fees).
By the way, I was told the commission and fees is not really low.

Scenario 3: Alternatively, if I feel that the stock price which is dropping is reaching the strike price of my put options, I can choose to close out my position before the expiry date.

Go to “Position:, select the Put option, right click and choose “Close”, and buy back the number of lots. I can see the amount I need to pay. This amount may or may be lower than the premium I received earlier (I reckon it is dependent on the number of days left to expiry, current stock price then, volume and implied volatility, etc).

In gist

As mentioned earlier, if you are like me just starting out with selling options. Take it one step at a time, and not sell more than you can stomach (in the scenario of In the Money). It is easy to get carried away since no upfront investment cash is required and we get premium upfront.

This strategy is also not an entirely passive one. One has to monitor the stock price.

If you have the time, the below book has a good section on selling put options (page 197 onwards).

Ultimately, options can provide leverage. This means an option buyer can pay a relatively small premium for market exposure in relation to the contract value (usually 100 shares of the underlying stock). An investor can see large percentage gains from comparatively small, favorable percentage moves in the underlying product.

Leverage also has downside implications. If the underlying stock price does not rise or fall as anticipated during the lifetime of the option, leverage could magnify the investment’s percentage loss.

Netflix Sam Dean GIF by Daybreak

Oh yes, one more point, market corrections are like an annual thingy.

“On average, there’s been a market correction every year since 1900. When I first heard this, I was floored. Just think about it: if you’re 50 years old today and have a life expectancy of 85, you can expect to live through another 35 corrections. To put it another way, you’ll experience the same number of corrections as birthdays.

Why does this matter? Because it shows you that corrections are just a routine part of owning stocks. Instead of living in fear of corrections, accept them as regular occurrences. Historically, the average correction has sent the market down 13.5% and lasted 54 days — less than two months.” Tony Robbins (Opinion: Tony Robbins on stock market corrections: Get used to them- read here)

You might be interested in the below post too:

Implementation of CPF SA Shielding Hack using FSMOne.com (read here)


StocksCafe

FYI I find StocksCafe useful for the tracking of my own portfolio, and especially like to use it to track my portfolio stock dividend / bond interest payouts (projected and due). You can use my referral code: apenquotes. Just click here. Upon signing up using the referral code, you will get to enjoy being a Friend of StocksCafe and test out all features for free for two months!

Please follow me at StocksCafe, via my StocksCafe profile page.

FSMOne.com

Typically I use FSMOne.com to invest in funds & ETFs (including money market funds).

If you do not have an account, you can sign up here. Pleaee use my FSMOne referral code: P0031127, when you sign up.

Shopee

I have been using Shopee for a while and think you will like it as much as I do.

Get $10.00 off your first purchase using my code DARREB52.
Download Shopee now and enjoy hot deals at the best prices! Click here.

Happy shopping!

Do like my post if you have enjoyed it!! Click the star below.

Do subscribe to my Patreon page.

Posted in Hong Kong Shares, Investing methodology, Options, US Stocks | 3 Comments

Thoughts on my portfolio (Aug 21)

There comes a point when I stopped tracking the stock prices of the stocks in my portfolio. Nevertheless, since the world is so connected, and news spread instantaneously, I can almost feel the volatility daily.

Probably the biggest impact to my portfolio these days comes from the below news.

China Tech Rout Deepens as New Regulations Mulled; Alibaba Dives (read here)

Chinese Tech Stock Selloff Deepens (read here)

Although I am still bullish when it comes to the Chinese Tech stock sell-off, news emerging do make me ponder.

SEC Warns US Investors About Risks Of Buying Chinese Stocks As Crackdown In Beijing Continues (read here)

To quote the above article: “The reason is that under Chinese law, foreign ownership in certain (most) Chinese industries is prohibited. As a result, it is illegal for Chinese companies like JD.com and Alibaba to have any non-Chinese shareholders……

So, a structure was developed to circumvent Chinese law: the VIE (Variable Interest Entity). This is a structure that has been around for decades, first popularized here in the US by Enron to obfuscate assets and liabilities on its balance sheet (there is the first alarm bell…).

The VIE structure achieves the dual purpose of giving Chinese companies access to Western capital, whilst simultaneously allowing Western investors access to Chinese stocks. It does so by effectively saying two different things to each side: the VIE says to the Chinese regulator that the company in question is wholly owned by Chinese nationals, while the same VIE simultaneously tells the Western shareholders that they legitimately own that Chinese company.”

So there have been questions as to what we, foreign retail investors are actually investing in when we buy shares of Chinese companies listed in the US stock markets. Are we (the retail investors) actually owning small fractions of these growth companies?

In fact, it also raises the question as to what we are actually investing in when we invest in the shares of the Chinese companies listed in the Hong Kong stock market (or Singapore stock market, etc), since “foreign ownership in certain (most) Chinese industries is prohibited.

To quote the below article: “As China reasserts control over its powerful private enterprises, US and Hong Kong investors in Chinese stocks need to be aware of a rarely discussed risk that has the potential to jeopardise their holdings: the fact that they do not technically own the companies.”

Legally ambiguous ‘VIE’ structure means foreign investors don’t technically own overseas-listed Chinese stocks – and that could spell disaster (read here)

To quote the below article: “Overseas-listed Chinese companies, from Alibaba (BABA US) to Tencent (700 HK), Didi (DIDI US), and New Oriental EDU+0.6% (EDU US), are almost all proxy vehicles for Mainland businesses, established in Caymans, BVI, Seychelles, Bermuda, and elsewhere. A revocation of the rights of Variable Interest Entities (VIEs) would instantly destroy these companies and with them, China’s internet and tech sectors.”

Will The VIE Structure Die? What Hong Kong And Alibaba Have In Common (read here)

Listing PRC Companies in Hong Kong Using VIE Structures (read here)

The above question (what we are actually investing in) is so fundamental to me as an investor, that sad to say, I don’t even think about it. I paid good money, of course I expect to own something, and what’s more with many tech stocks I don’t even get dividend payouts. Imagine if Alibaba the stock turns out to be a scam (or any other Chinese tech stocks).. the worldwide impact would be huge.

Reminds me of the CLOB saga (read here).

I found the below extract from the latest Alibaba annual report, I reckon the key words in the passage below would be “great uncertainties”. And generally investors do not like uncertainties (much less great uncertainties).

As I watched the once multi-bagger stock in my portfolio (at one time a two-bagger in my portfolio) dropped to the recent lows, and at the point of writing this post, reaching a negative unrealised loss of approx. 30%, it reminds me again how quickly tides can change in the stock market. The stock is the US listed Pinduoduo (PDD).

This Is Fine Life Rn GIF - This Is Fine Life Rn Life Right Now GIFs

The other Chinese tech stock which I have in my portfolio is Alibaba (9988.HK), listed on the Hong Kong exchange. It is also underwater (at around -25%).

US listed tech stocks (like PDD) have another set of worries, beside the fact that Chinese regulators are reining in many of its biggest technology companies. Under a law passed under the Trump administration in December, Chinese companies may face delisting if they refuse to hand over financial information to American regulators. (read here)

I am sure if they are delisted in the US markets, their HK listed entities will feel the heat too (in terms of share prices).

Again there are the bulls and the bears pertaining to the above-mentioned law and potential delisting.

Charlie Munger for one, seems unperturbed by the above news. Earlier this year (2021), the Daily Journal which counts the billionaire investor Charlie Munger as its chairman and portfolio manager, acquired 165,320 shares in Chinese e-commerce and tech giant Alibaba Group (NYSE:BABA). According to the company’s latest 13F filing, this holding made up 17.6% of the equity portfolio at the end of June 2021. It was worth $37.5 million.

Has Charlie Munger Made a Mistake With Alibaba? (read here)

To quote the above article: “This raises a question mark over all VIEs, including Alibaba. If Chinese regulators take the ban further and extend it to All New York-listed businesses, it’s unclear what, if anything, would remain for shareholders. Are regulators just making their presence known, or will they really begin to limit foreign direct listings? While access to foreign capital can help companies get off the ground, it can later come back to bite a country if foreign investors reap the majority of the benefits from their business growth, so it is currently unclear which option would be more beneficial in the eyes of Chinese regulators.

Has Munger made a mistake?

Considering the above, I think it’s reasonable to ask if Munger has made a mistake with Alibaba. The company’s fortunes, at least from the perspective of a shareholder in the U.S. listing, are unlikely to be affected by this disruption.”

No doubt it is just a small amount when we take it in consideration to the overall net wealth of Charlie Munger, but still, I am rather surprised by his move. In addition, we all know how low key Charlie is when it comes to his investing moves, he rarely shares his thoughts behind the trades.

On the other end of the spectrum, there is a the often read (recent) news of Ark ETF’s Cathie Wood dumping Chinese stocks last month (July 21), as Beijing’s clampdown wiped out about US$1 trillion in onshore, Hong Kong and US markets.

Ark ETF’s Cathie Wood keeps ‘open mind’ on China shares after dumping them in July sell-off (read here)

Cathie Wood’s ARK Invest Didn’t Dump All Chinese Stocks. Here’s What It Still Owns. (read here)

While I am still very much a bull when it comes to the sell-off in Chinese stocks and see this as an opportunity to purchase more, I have to add that my current Chinese tech stocks holding occupies only a small percentage of my overall stock and bond portfolio.

In fact, Alibaba (9988) and Pinduoduo (PDD) account for only 1.54% and 0.88% of my total stock and bond holdings. I reckon this percentage would have been higher in better times (even though I have added to my holdings after their stock prices have gone south further).

I do know that no matter how bullish I am, I could still be wrong. I have been wrong, and will be wrong (again) at some point.

Put it in another way, my thinking would be very different if majority of my net worth is invested in Chinese Tech stocks or any of the Chinese Tech ETF (iShares Hang Seng TECH ETF, Lion-OCBC Securities Hang Seng TECH ETF, or KraneShares CSI China Internet ETF, etc). My risk tolerance would be much lesser. There are always factors beyond my control no matter how much conviction I have in Chinese Tech stocks. No doubt, fundamentally the growth of many of these Chinese Tech companies are still spectacular. However, adding more investment money does not change the narratives.

The stock market is in the words of John Maynard Keynes, a Keynesian beauty contest. The effects of sentiments is amplified many times. People looking over others’ shoulders guessing what their next moves will be and acting onto it before others do. Predicting moves is meaningless. Moreover, this Chinese regulatory intervention would probably take much longer… My take is probably just accept this ‘amplification’ or over-reaction, not sure how long it will last. From time to time, take advantage of it (hopefully it lasts longer, as I only do monthly DCA).

I lumped these 2 Chinese tech stocks (Alibaba and Pinduoduo) under my Story Fund portfolio. The other stocks in the Story Fund consist of Alphabet, MasterCard and The Trade Desk. So in a way, the unrealised losses in the Chinese Tech stocks are mitigated by the unrealized gains in the US listed Tech stocks. In fact Alphabet is a two bagger in my portfolio.

Still overall, the Chinese regulatory actions on Chinese Techs, the private education industry and the property sector has an adverse effect on many of the HK listed stocks in my portfolio. I would say overall, it is a mixed bag, as most of the stocks in my Hong Kong dividend portfolio are REITs, property counters, bank stocks and consumer staples stocks. Overall, if we look at the indices, the HSI and STI have generally lagged behind the S&P500 and Nasdaq.

I believe that it is important to having a diversified portfolio.

So in general, not one single stock occupy more than 15% of the total value of my portfolio. See below chart for the percentage breakdown of the different segments of my portfolio. Nevertheless, my portfolio is more skewed towards dividend income stocks.

On a macro level, the dismal performance in the HK portfolio is mitigated by the better performance in the Sg portfolio.

One interesting occurrence that actually happened in my portfolio, is that the ‘elephants’ turned out to be the better performers this time round… “Elephants do fly”.

With the local banks restoring back their dividend payouts, and Singapore slowly re-opening and overseas travel slowly being made possible (via vaccinated travel lanes), some of the better performing stocks for now are in the local listed companies. And of course the US listed growth companies.

Among the better performers in my portfolio, would be Alphabet, DBS and ParkwayLife Reit.

Most importantly, despite the ups and downs of the stocks prices, my dividend income machine has continued to trend upwards despite me not adding much to it. After all, my recent DCA buys are in Chinese Tech stocks which don’t really contribute much in terms of dividend.

The recent August 21 dividend record shows that it has surpassed the amount paid in August last year. BTW the Sept to Dec 21 amount would change (and likely increase) as more companies announce their dividend payouts in the coming months.

The overall projected dividend payout for year 2021 is on track to surpass the dividend amount received in 2020. Hope this trend continues in 2022.

For the Sept 21 DCA, I look forward to increasing my holdings in more dividend income stocks.


StocksCafe

FYI I find StocksCafe useful for the tracking of my own portfolio, and especially like to use it to track my portfolio stock dividend / bond interest payouts (projected and due). You can use my referral code: apenquotes. Just click here. Upon signing up using the referral code, you will get to enjoy being a Friend of StocksCafe and test out all features for free for two months!

Please follow me at StocksCafe, via my StocksCafe profile page.

Tiger Brokers

For the Singapore market, Tiger Brokers currently waive the minimum fee and only charge a 0.08% trading fee. This drastically reduces your cost as the minimum fee from other brokers (ranging from SGD 8 such as FSMOne and SCB, to SGD 25 for local brokerages) does add up and can eat into your returns.

Tiger Broker Referral Code:: GPE59H

Sign up here.

Use the above referral code to enjoy the below benefits (Campaign Period: 9 Aug 2021 16:00:00 – 1 Sept 2021 12:00:00 (SGT))

FSMOne.com

Typically I use FSMOne.com to invest in funds & ETFs (including money market funds).

If you do not have an account, you can sign up here. Pleaee use my FSMOne referral code: P0031127, when you sign up.

Shopee

I have been using Shopee for a while and think you will like it as much as I do.

Get $10.00 off your first purchase using my code DARREB52.
Download Shopee now and enjoy hot deals at the best prices! Click here.

Happy shopping!


Do like my post if you have enjoyed it!! Click the star below.

Do subscribe to my Patreon page.

Posted in Portfolio | Leave a comment

Is the Singapore Private Education Sector “hijacked by capital”? So what if it is?

Since late last week, there was an interesting development in Chinese stocks, and for Singapore retail investors invested in listed Chinese private education companies, it was hell.

China stocks tumble in ‘panic selling’ amid education crackdown (read here)

To quote the above article: “Chinese regulators on Saturday published reforms that will fundamentally alter the business model of private firms teaching the school curriculum, as Beijing aims to overhaul a sector it says has been “hijacked by capital. The new regulations ban firms that teach school curriculums from making profits, raising capital or going public. Friday was already a bloodbath for the sector in both Hong Kong and the US, after a leaked document circulated on social media.”

I do know much about the Chinese education system, much less the salary of professors or private educators there. However, a brief search online revealed that the average monthly salary of professors in a top university like Tsinghua is 15,155 yuan (approx. SGD 3,165). However, the article also added that this salary situation is only a small part of the professor’s income, not the bulk.  So yeah, it is hard to gauge. Many professors hold multiple positions. And by publishing papers in journals, professors will receive bonuses of varying amounts.

Tsinghua professors’ “average salary table” has flowed out, everyone does not believe it, and many people feel a little surprised (read here)

Of course on the other end of the spectrum, we have articles about the high income of private tutors. They can earn nearly US$50,000 (S$67,980) a month.

China’s ‘celebrity’ tutors earn fortunes online (read here)

If one has the right credentials, knowledgeable, and able to leverage on the online platforms to reach masses of students, and further-more if he/she is popular with the students (possess a charisma) – able to reach celebrity tutor status… this is possible (with lots of hard work). In addition, many Chinese families have only one child, hence the attention and focus is only on that child.

Chinese students go gaga – over online tutors (read here)

If the tutor has the grit and determination and good business acumen (eg. a true blue entrepreneur), and go further to list his/her company, the sky would likely be the limit. Although the odds is really low (in becoming a billionaire). Possible but low.

Chinese tutor billionaires no longer so following government curbs (read here)

Of course this is nothing new in Singapore (and for many developed Asian nations like South Korea and Japan). What is different perhaps is the harsh and drastic actions by regulators in China or perhaps the scale and proliferation of this sector (given the huge population of China). It is after all a $100bn private education industry.

As I said, I am not familiar with the situation in China and is basing on what I have read online (taking it with a pinch of salt).

Which brings me to the question: What about the Singapore private education industry? Having went through the public education system in Singapore myself, and watching my own son going through it now (as well as hearing from my colleagues and friends with school going kids), I am sure the pressure cooker / ‘kiasu’ education system is alive and well in our small city-state.

I do have friends who work as MOE teachers, and many view their jobs as a ‘callings’ eg. to serve a nobler cause other than for monetary benefits. Similar to a doctor’s profession.

Before I go further, I do acknowledge that a good salary is just one aspect (albeit an important one) that makes people stay on in their job. There are other non-quantitative aspects (like the company culture, time flexibility, benefits, opportunities for self progression, etc). To just look at the salary aspect is a bias point of view.

Again, I searched online looking for the salary scale of teachers and university professors/lecturers, together with news about our very own superstar tutor.

Teaching / Education Average Salaries in Singapore 2021 (read here)

University Teacher Average Salary in Singapore 2021 (read here)

Nevertheless, if we compare that to the average salary and the Median Gross Monthly Income from work in Singapore , I think their civil servant’s pay is not exactly low (relatively speaking). Well, we all choose our own “poison”, so to speak.

As of January 2021, the average salary in Singapore is $5,877 per month, inclusive of the employer’s CPF contribution. In Singapore, the Median Gross Monthly Income from work, inclusive of CPF contributions of full-time employed residents is at $4,534 (based on the year 2020)

Base on the websites listed above, even at the low end, the lowest average monthly salary of a teacher is around $4,300, while the lowest average monthly salary of a university teacher is $5,930.

Beyond the question of mid year and end of the year bonus and AWS, there are addition factors to consider when thinking about a MOE Teacher’s salary. MOE Teachers Are Automatically Enrolled In The CONNECT Plan (read here). Under the CONNECT Plan, MOE sets aside a sum of money ($2,400 to $8,320) each year for eligible teachers. This would be paid out at key points (every 3 to 5 years) in a teacher’s teaching career. In theory, a teacher who has a PGDE would be receiving $168,800 in CONNECT payouts if he or she stays in teaching service for 30 years, on top of his or her regular salary and annual bonuses.

Similarly for University professors. I read that Entry level – Assistant Professor at NUS, in addition to their salary, get to stay in a nice apartment (condominium) at Kent Vale across NUS Kent Ridge campus that can be kept for 7 years (read here).

Still, all these perks, even if we convert them to cash and add to their monthly salary, the overall monthly income would pale in comparison to the Singapore superstar tutors’ monthly income, who can earn at least $1 million per year.

According to the below article (dated May 23, 2016), there are at least 10 such private tutors, according to educators in the growing tuition industry. They are part of a tuition industry worth more than a billion dollars annually, nearly double the $650 million households here spent on tuition in 2004.

Super tutors who earn at least $1m a year (read here)

In the table above, I also added the high end salary of a university professor according to the post I saw in Quora (see below), which is about $270,875 per year (or about $22,572 per month). Yeah, the post is a bit dated (4 years ago).

I am sure it is no easy path reaching the S$1m a year mark…. but question is, if so, is the Singapore Private Education Sector “hijacked by capital”?

Where do we actually draw the line?

how to have the talk with parents

Where there is demand, there will be supply I reckon. Who or what is to ‘blame’? The tutor, the parents, the students, the system…?

If Singapore regulators implement the same harsh actions, what would the Crazy Rich Asians / Tiger parents in our city-state say or do? Can this be effectively eradicated anyway?

My feel is that such regulatory interventions (fast and drastic), like the panda, great wall, and the forbidden city… is unlikely to happen in Singapore.

To quote the below article: “The temptation is to view the market in a similar way to major peers like the US, but Beijing often moves more quickly and decisively because it lacks checks and balances, said an executive at one of the world’s biggest private equity firms who has backed at least one US-listed Chinese education company. He asked not to be identified given the sensitivity of the subject. Another private equity investor who focuses on Asia called the crackdown a wake-up call for investors who have overlooked Chinese regulatory risks in recent years.”

China crackdown rocks investors: ‘Everybody’s in the crosshairs’ (read here)


StocksCafe

FYI I find StocksCafe useful for the tracking of my own portfolio, and especially like to use it to track my portfolio stock dividend / bond interest payouts (projected and due). You can use my referral code: apenquotes. Just click here. Upon signing up using the referral code, you will get to enjoy being a Friend of StocksCafe and test out all features for free for two months!

Please follow me at StocksCafe, via my StocksCafe profile page.

Tiger Brokers

For the Singapore market, Tiger Brokers currently waive the minimum fee and only charge a 0.08% trading fee. This drastically reduces your cost as the minimum fee from other brokers (ranging from SGD 8 such as FSMOne and SCB, to SGD 25 for local brokerages) does add up and can eat into your returns.

Tiger Broker Referral Code:: GPE59H

Sign up here.

Use the above referral code to enjoy the below benefits (Campaign Period: 1 July 2021 12:00:00 – 9 Aug 2021 12:00:00  (Singapore Time)

FSMOne.com

Typically I use FSMOne.com to invest in funds & ETFs (including money market funds).

If you do not have an account, you can sign up here. Pleaee use my FSMOne referral code: P0031127, when you sign up.

Shopee

I have been using Shopee for a while and think you will like it as much as I do.

Get $10.00 off your first purchase using my code DARREB52.
Download Shopee now and enjoy hot deals at the best prices! Click here.

Happy shopping!


Do like my post if you have enjoyed it!! Click the star below.

Do subscribe to my Patreon page.

Posted in Hong Kong Shares, Personal Finance | Leave a comment

Thoughts on my DCA investment for Aug 2021

My habit in investing is to do monthly dollar-cost averaging (DCA) into my stock portfolio.

Typically I get my monthly salary at the end of the month, so while others are excited about shopping for the latest clothes or gadgets, I would start thinking about which stock to buy for the coming month.

I would first think about adding to the holdings in my current portfolio. My current portfolio consists of Singapore centric dividend stocks, Hong Kong centric dividend stocks and US / HK listed growth stocks.

In the past few months, my focus has been on Chinese (HK listed) tech stocks. Eg. Alibaba and Pinduoduo, while further adding on The Trade Desk. I have also added a bit in recovery dividend stocks like Straco.

The price weakness in Chinese Tech stocks are evident starting with Alibaba late last year. What I did not expect until today is the length of it and the extend of the Chinese regulatory crackdown. And the continued (and further) weakness in Chinese Tech stock prices.

Coincidentally, for the Singapore Market, the year started well, with the STI rising from around 2860 points in Jan 21 to 3220 points in late April / early May 21. Subsequently it was kind of ranged bound, and with the rise in COVID-19 cases and reversion back to Phase 3 Heightened Alert, there was a couple of days of price weaknesses.

Having added to the Chinese Tech stocks in my portfolio, my initial intention is to slowly focus more on Singapore dividend stocks, to continue the upward trajectory in the projected annual dividend income.

However, the volatility in HK listed stocks and in particular Chinese Tech stocks (such as Pinduoduo and Alibaba in my portfolio) made me think twice.

Hong Kong stocks sink by most in 14 months as tech sell-off deepens after China unleashes new measures against Tencent, private education firms (read here)

I can foresee that the drag on Chinese Tech stocks will be long drawn, but like the re-opening of the world economies (including Singapore’s), I foresee better days ahead. Singapore is still on track to reopen, although it will be a bumpy ride (which is evident from the volatile stock prices as well). For my own Singapore portfolio, it is like taking 2 steps forward, and 3 steps back. Remind me of Cha Cha dance steps.

S’pore to review Covid-19 curbs early next month (read here)

Chacha GIF | Gfycat

I treat both the drops in Singapore dividend stock prices & Chinese tech stock prices as opportunities.

As for the China’s crackdown on private education companies, I am surprised by the harsh and swift actions by the Chinese authorities. Chinese regulators on Saturday (24 July 21) published reforms that will fundamentally alter the business model of private firms teaching the school curriculum. As stated in the news, the regulators aim to reform a sector which it says has been “hijacked by capital.” 

The private education sector is a lucrative business, even in Singapore. However, the scale and competition in China would be much higher. I can just imagine the amount of anxiety parents and their children have, going through the stressful education system there, and with the private education sector exploiting it. Ultimately giving rise to superstar / celebrity tutors who earn fortunes (eg. US 50k a month).

Being brought up in the pressure cooker education system in Singapore, this is probably one sector which I would not invest in. For a lack of a better word… I can empathise with the students.

So yes, while my Singapore portfolio does the Cha-Cha, and my HK tech stocks (Story Fund) doing the Olympic dives, I see opportunities.

diving swimming GIF

For this coming DCA, from a long term perspective, I would be interested to add a bit more to my Singapore dividend portfolio and Story Fund (specifically the Chinese tech stocks). Due to the limited funds available to invest, if I am to choose between the two, I would choose the latter.


StocksCafe

FYI I find StocksCafe useful for the tracking of my own portfolio, and especially like to use it to track my portfolio stock dividend / bond interest payouts (projected and due). You can use my referral code: apenquotes. Just click here. Upon signing up using the referral code, you will get to enjoy being a Friend of StocksCafe and test out all features for free for two months!

Please follow me at StocksCafe, via my StocksCafe profile page.

Tiger Brokers

For the Singapore market, Tiger Brokers currently waive the minimum fee and only charge a 0.08% trading fee. This drastically reduces your cost as the minimum fee from other brokers (ranging from SGD 8 such as FSMOne and SCB, to SGD 25 for local brokerages) does add up and can eat into your returns.

Tiger Broker Referral Code:: GPE59H

Sign up here.

Use the above referral code to enjoy the below benefits (Campaign Period: 1 July 2021 12:00:00 – 9 Aug 2021 12:00:00  (Singapore Time)

FSMOne.com

Typically I use FSMOne.com to invest in funds & ETFs (including money market funds).

If you do not have an account, you can sign up here. Pleaee use my FSMOne referral code: P0031127, when you sign up.

Shopee

I have been using Shopee for a while and think you will like it as much as I do.

Get $10.00 off your first purchase using my code DARREB52.
Download Shopee now and enjoy hot deals at the best prices! Click here.

Happy shopping!


Do like my post if you have enjoyed it!! Click the star below.

Do subscribe to my Patreon page.

Posted in Portfolio | Leave a comment

The dichotomy of the pandemic induced way of life vs the stock markets

Whether we like it or not, the pandemic has in many ways affected our lives.

Perhaps I am by nature optimistic. Although it sometimes works against me, I often like to look at the bright sides of things. Likewise, even during this pandemic.

Well since I have to live with it (for the time being), why not make the best of it.

This post is going to be an easy read. Something light.

Work

I have very much come to terms with the WFH (Work from home) routine.

IN FOCUS: Thinking out of the cubicle – what lies ahead for hybrid working? (read here)

For this year, in particular, my wife began to spend more time at home working (the nature of her job sort of changed although she is still in the same organisation). So literally, from a daily perspective, my ‘colleague’ so to speak, which I see most often is my wife. She works from a desk in one of the bedrooms, while I work from a desk in another bedroom.

A big part of my job requires me to attend in person (physical) meetings. So most days I would be out of the house, but still, after the meetings, I would return to my ‘desk’ at home.

I also have to attend online meetings (which I could do outside – wherever there is WIFI) or at home. And my superior can always call me at any time. The one downside is that I often do not know my colleagues’ schedules and it is hard to coordinate work (esp. when teamwork is required).

person using macbook pro on table

Nevertheless, in general, in my opinion, the construction industry has not recovered from the pandemic, and the pace of work sort of slowed down.

So when we are allowed to dine out (eg. during Phase 3 Heightened Alert), my wife and I will go downstairs to have lunch. Or when we can’t dine out (like now in Phase 2 Heightened Alert), we just have our alone time having meals at home. Even then, due to work, we may not be able to have lunch together. Well, that’s lunch with my ‘colleague’ so to speak. We will sometimes talk about what’s happening at work and about our kids.

Our kids are at the in-laws’ place (which is nearby). And we will go there for dinner daily. These days, I get to spend more time having dinner with my family. Before the pandemic, due to the tight work schedule, I may not had this luxury.

Exercise

There are a few slight changes that I noticed for myself.

I typically like to swim, like once a week, at the nearby public pool. However, recently due to the Phase 3 Heightened Alert, it is getting harder to book the evening slots I want. Consequently, I picked up another form of exercise – cycling.

We bought a bicycle for my son, but after a few months, he seems to lose interest (in cycling). In a way, the bicycle will become a white elephant if nobody uses it (my wife does not know how to cycle). So occasionally if I have some spare time (it does not occur often), I will just spend a short while cycling .. to get out of the house so to speak.

If I managed to leave the house early (and have more time for a longer trip), I will cycle further. Typically, as I am not a confident cyclist, I will cycle on the PCN paths (Park Connector Network). I live in the west, and using the PCN I can cycle to Clark Quay, The Float @ Marina Bay …etc. The furthest I went was to Tanjong Rhu (once). The route I take has fewer road crossings, as the PCN routes there take the form of underpass tunnels below the roads.

Marina Bay Sands, Singapore

Come to think of it, since early 2020 till now, I fell ill less often. I was only sick (and on MC) once.

Family

As mentioned earlier, the pace of work slowed. Most of the free time that I had, I typically spend with my family (wife + 2 kids).

I spend more time with the family (my wife and 2 kids). It could be just going for walks during the weekends or a trip to the shopping malls (reduced drastically during Phase 3 Heightened Alert).

I guess as a father, there is always this ‘guilt’ of not being there for my kids, especially when they are young.

Frankly, some people might rant about being stuck at home… but I like to think of it as a rare opportunity to spend time with my kids (even though the pandemic has been around for close to 18 months, and since the start of the Singapore Circuit Breaker on 7 April 20, it has been more than a year). Although my wife complains that I spend too much time blogging hahahaha.

For the elder kid, I can be around for him to ask questions about school works, or to just enjoy a Netflix movie together. For younger gal, it could just be bringing her down to the playground or cycle, or playing card games/board games/puzzles/art & crafts…

In other words… Just being there mentally and physically (more often).

If I am to compare the amount of ‘guilt’ (of not being around) I had in 2019 to the amount I have in 2021… I would say the level of ‘guilt’ in 2021 is much lesser. Although I still think I can (and should) do better as a dad.

During the recent durian season, I bought some durians and enjoyed them with my parents.

selective focus photography of Star Wars Stormtropper, R2-D2, and Darth Vader toys

Stock Markets

After the fast and sudden drop, and quick rebound in the early part of 2020, the Singapore Stock market in 2021, in my opinion, seems a bit range bound. The recent reversion back to Phase 3 Heightened Alert, only adds to the volatility.

For my own Singapore portfolio, there are days of small capital gains, but was soon negated by a few days of big losses (eg. when the reversion back to Phase 3 was announced).

In short, performance-wise, my stock portfolio in 2021 was not as great as in the latter part of 2020.

Within my dividend portfolio (Singapore & Hong Kong-listed stocks), many are ‘recovery’ stocks. Consequently, the raging delta variant virus in Asia and the spike in COVID-19 cases recently (plus the Chinese authorities crack-down on tech companies & after-school education institutions) led to more volatile markets and this volatility is evident in my stock portfolio.

black haired man making face

Thoughts on my portfolio (read here)

Nevertheless, the dividend has been slowly building up and 2021’s total dividend income should exceed the 2020’s total dividend income.

In gist

Perhaps it is like the saying, of having the cake and eat it too. eg. to have or do two good things at the same time that are impossible to have or do at the same time.

I guess for some aspect of my life, it is easy to quantify. For instance, when it comes to work, we have deadlines, we have yearly review of performance, the amount of salary we earn. Or even the performance of my stock portfolio.

For other aspects of my life, be it my health (amount of exercise), the time I spend bonding with my family, it is much harder to put a number to it. However, I do believe that in 2020 and 2021, these have changed for the better.

Having said that, I reckon the wants and needs for someone in their 40s, differ from those in their 30s, 20s, etc. Also for someone with a family, it might differ from those who are single.

Nevertheless, for me, I try to make the best of the situation.


StocksCafe

FYI I find StocksCafe useful for the tracking of my own portfolio, and especially like to use it to track my portfolio stock dividend / bond interest payouts (projected and due). You can use my referral code: apenquotes. Just click here. Upon signing up using the referral code, you will get to enjoy being a Friend of StocksCafe and test out all features for free for two months!

Please follow me at StocksCafe, via my StocksCafe profile page.

Tiger Brokers

For the Singapore market, Tiger Brokers currently waive the minimum fee and only charge a 0.08% trading fee. This drastically reduces your cost as the minimum fee from other brokers (ranging from SGD 8 such as FSMOne and SCB, to SGD 25 for local brokerages) does add up and can eat into your returns.

Tiger Broker Referral Code:: GPE59H

Sign up here.

Use the above referral code to enjoy the below benefits (Campaign Period: 1 July 2021 12:00:00 – 9 Aug 2021 12:00:00  (Singapore Time)

FSMOne.com

Typically I use FSMOne.com to invest in funds & ETFs (including money market funds).

If you do not have an account, you can sign up here. Pleaee use my FSMOne referral code: P0031127, when you sign up.

Shopee

I have been using Shopee for a while and think you will like it as much as I do.

Get $10.00 off your first purchase using my code DARREB52.
Download Shopee now and enjoy hot deals at the best prices! Click here.

Happy shopping!


Do like my post if you have enjoyed it!! Click the star below.

Do subscribe to my Patreon page.

Posted in Personal Finance | Leave a comment

Worst COVID-19 pandemic hit S-REITs and where are they now?

The COVID-19 pandemic in many ways is unprecedented and without a doubt, it has a pronounced effect on the stock market. It has halted the longest-lasting equity bull market.

For REITs, it has also challenged the long-held notion among investors that REITs are safe investment vehicles as they are mandated to pay out at least 90% of their taxable income as dividends to achieve tax transparency.

In May 2020, as all of the retail REITs have provided rental reliefs for the tenants. 4 of the retail REITs consequently cut their Distribution Per Unit (DPU) by 49% to 78%.

5 Retail REITs Cut Dividends By 20% To 78% (read here)

In 2020, for the first time, S-REITs dropped 367.98 points which translates to a huge 37.91% collapse as the FSTE REIT Index crashed from 970.62 on 19 Feb 20 (Wed) to 602.64 on 23 March 20 (Mon), over a period of just 22 market days. This ferocious sell-down was the worst ever in S-REIT history. It broke the previous record on Oct 2008 during the midst of the Global Financial Crisis, where 34.67% in value was wiped off in a single month. Yes, the speed and the depth of the sell-off in 2020 was indeed unprecedented.

Singapore Stock Market and S-REIT Crashed! (read here)

In fact, S-REITs’ 37.91% fall on 23 March 20 is the 2nd largest fall in S-REITs’ 19 years history since the S-REIT market started in 2002. On 17 July 2002, Singapore’s first REIT made its debut. CapitaMall Trust was over four times oversubscribed with SGD 1 billion worth of investment demand, and successfully listed.

For the smart and nibble retail investor, every crisis will present opportunities, depending on how he or she positions his/her portfolio.

Never let a good crisis go to waste”. Winston Churchill 

Worst Hit REITs

Both the hospitality and retail REITs were literally at the epicenter of the pandemic-induced market crisis. The COVID-19 pandemic has led both sectors into uncharted operating territories from mid-March and till today, we are still in the midst of it.

Tourism and the aviation sectors came to a halt, hotels and retail malls were closed. With the global travel restrictions and border closures amid the pandemic, hospitality is arguably the REIT sector to bear the worst of the pandemic.

Indeed, in the Singapore market, hospitality REITs borne the brunt of the sell-off.

All 6 hospitality REITs listed on the SGX (see below) were in the top 9 worst performing REITs in the 1Q2020 list. The worst-hit being Eagle Hospitality Trust which was subsequently suspended on 24 March 2020, and its entities filed for Chapter 11 bankruptcy in the US on Jan 21.

The loss in market prices ranges from 40.60% to 74.86%. This is with reference to their prices in end of 2019. That is a lot of ‘loss’ in a few months.

Hospitality Sector (Slow recovery)

For the hospitality sector, things are still a long way from the 2019 figures (in the US), but are improving in 2021 (as compared to 2020).

Source: Video: U.S. performance results for June 2021 (https://str.com/data-insights-blog/video-us-performance-results-june-2021)

To quote this article: “Real Capital Analytics, a research firm, classified $146bn in commercial real estate assets as being in distress — or soon to be — by the fourth quarter last year. Two-thirds of that was accounted for by retail and hotels. The distressed debt pile bulged in the second quarter last year, but has since accumulated more gradually.”

Where are they now?

How nations are learning to ‘let it go’ and live with Covid (read here)

Eighteen months after the coronavirus first emerged, governments in Asia, Europe, and the Americas are encouraging people to return to their daily rhythms and transition to a new normal in which subways, offices, restaurants, and airports are once again full. Increasingly, the mantra is the same: We have to learn to live with the virus.

For me, I am coming to terms with the WFH (Work from home) arrangement and spending more time with my family. Although I do miss dining out and our weekend trips to the malls (not as often these days).

In Singapore, the city-state has reverted to Phase 2 (Heightened Alert) as restrictions tighten amid a rise in COVID-19 cases in recent days. Dining-in at food and beverage (F&B) outlets will once again be banned for four weeks from July 22, while social gatherings will be limited to no more than two persons, down from five currently.

Nevertheless, as more Singaporeans get fully vaccinated, COVID-19- related curbs will begin to be eased further next month and lift private consumption. Both these factors should encourage businesses – local and foreign – to boost investments and hiring and further power economic growth in the process.

Singapore’s strategy is to move from COVID-19 pandemic to the endemic.

Moving from Covid-19 pandemic to endemic: Singapore’s strategy and how it can unfold (read here)

Anecdotal evidence suggests that while there are ample opportunities in some industries, such as the financial and information, and communications technology sectors, job prospects remain dim in others, such as hospitality.

The stock market is always forward-looking and for the worst-hit S-REITs, their prices have recovered from the lows of March 2020 (see table below, the blue shaded column). All except for Lippo Malls Indonesia Retail Trust.

However, none of the REITs’ prices have recovered to or exceed the price levels at the end of 2019 (see table below, the orange shaded column). Prices shown are as per 23 July 21 prices, at the point of writing this post.

You can check out their stock price charts further down the post.

To many, these are the ‘re-opening / recovery’ plays. As to how risky… I shall leave it to your interpretation.

In a post-pandemic world where normalcy eventually returns, we can possibly expect hospitality and retail REITs to recover as pent-up demand for travel and leisure return. However, we are not there yet.

Ultimately, how good (or bad) a REIT is, is dependent on the property assets it holds. In addition, in the current pandemic, with the rise in vacancies rates and a projected drop in asset values, more than ever, investors are increasingly looking at their balance sheets and financial metrics such as gearing ratio and interest coverage.

The gearing ratio, also known as leverage, is the ratio of a REIT’s debt against total assets. In Singapore, S-Reits have a leverage limit of 50 percent, imposed by the Monetary Authority of Singapore (MAS). This limit was increased from 45 percent in April 2020, to provide S-Reits with greater flexibility to manage their capital structure amid the challenging environment from the Covid-19 pandemic.

MAS will defer to 1 January 2022 the implementation of a new minimum interest coverage ratio (ICR) requirement. In its public consultation in 2019, MAS had proposed to require S-REITs to have a minimum ICR of 2.5 times before they are allowed to increase their leverage to beyond the prevailing 45% limit (up to 50%). The implementation of the ICR requirement will now be deferred as S-REITs’ ICRs are likely to come under pressure in the near term due to the negative impact of the COVID-19 pandemic on their earnings and cash-flows. 

Looking at the table above, the gearing ratios of ARA US Hospitality Trust, Lippo Mall Indo Retail Trust, Far East Hospitality Trust, and ESR REIT are among the highest.

In addition, most of the REITs interest coverage ratio is below 2.5 times, except for Lendlease Global Commercial Reit.

Nevertheless, these figures/ratios are ‘backward looking’ base on past data. And as in all crises, the better and stronger REITs would make use of it to emerge stronger.

1) EAGLE HOSPITALITY TRUST

Probably the worst hit for investors who are unlikely to recover their investment.

EHT is a stapled group comprising EH-Reit and the dormant Eagle Hospitality Business Trust. Its stapled securities have been suspended since March 24, 2020, after EH-Reit defaulted on a loan of US$341 million (S$452 million).

On 20 Jan 21, 27 of its entities filed for Chapter 11 bankruptcy in the United States to provide the “necessary protection for the benefit of all stakeholders”.

Eagle Hospitality Trust entities file for bankruptcy protection in the US (read here)

EH-Reit stapled security holders unlikely to see compensation from sales proceeds: trustee (Rea here)

How a Singaporean REIT’s mighty US hotel investment sunk (read here)

2) ARA US HOSPITALITY TRUST

In Feb 2021, ARA US Hospitality Trust posted a net property loss of US$3 million and no distributable income for the second half ended Dec 31, 2020, after considering fixed costs.

This came as the Covid-19 pandemic “adversely impacted” the stapled group’s portfolio performance, with a significant drop in hotel occupancies and temporary hotel closures resulting in significant declines in revenue.

ARA H-Trust had previously projected a net property income of US$31.1 million, a distributable income of US$21.1 million, and distribution per stapled security of 3.72 US cents in its initial public offering (IPO) forecast.

ARA H-Trust posts US$3m net property loss for H2; no distributable income (read here)

3) CDL HOSPITALITY TRUST 

CDL Hospitality Trusts (CDLHT) on Thursday posted a 1 percent rise in net property income (NPI) in Q1 2021 ended March 31 2021 to S$19.8 million, from S$19.6 million a year ago.

Gross revenue was marginally higher at S$34 million in the first quarter of 2021, increasing by 2.8 percent year on year (yoy) from the same period last year. The muted increase was attributed to the continued effect of travel restrictions and lockdowns on the hospitality industry.

CDLHT posts 1% rise in Q1 NPI amid tentative recovery in hospitality industry (read here)

4) LIPPO MALL INDO RETAIL TRUST

The distribution per unit (DPU) for Lippo Malls Indonesia Retail Trust (LMIRT) for its first quarter ended March 31 fell 33.3 percent to 0.08 Singapore cent from 0.12 Singapore cents in the year-ago quarter.

Gross revenue similarly fell 32.8 percent year on year from S$64.93 million in Q1 FY20 to S$43.61 million in Q1 FY21. Meanwhile, gross rental income (GRI) fell 27.6 percent year on year to S$26.48 million; net property income (NPI) fell 35.2 percent year on year to S$25.78 million.

In a bourse filing on Tuesday, LMIRT’s manager said that the decrease in GRI was mainly the result of discounts given to tenants as a result of Covid-19. Q1 FY21’s figures also included relief adjustments given to selected key tenants, including both related and non-related party tenants, to support their business recovery.

Additionally, the decrease also came from the loss in income of about S$3 million from Binjai Supermall in North Sumatra and Pejaten Village in Jakarta, which were divested in Q3 2020.

LMIRT Q1 DPU falls 33% year on year to 0.08 Singapore cent (read here)

5) FAR EAST HOSPITALITY TRUST

Far East Hospitality Trust’s (Far East H-Trust) distribution per stapled security (DPS) fell 30.7 percent to 1.38 Singapore cents for the half year ended Dec 31, 2020 compared to 1.99 cents for the year-ago period.

Gross revenue for the half-year period was S$39 million, 34.8 percent lower than a year ago at S$59.8 million. The manager attributed the fall in revenue to lower rentals in its hotel arm, as well as rental rebates and lower occupancy for its offices. 

Net property income eased 38 per cent to S$33.6 million for H2 2020 compared to S$54.1 million for H2 2019.

Total distributable income for the half year dipped 29.5 percent year on year to S$27.5 million from S$38.9 million the previous year.

Far East Hospitality Trust DPS drops 30.7% to 1.38 S cents for H2 (read here)

Oxley Hill Properties disposes of 166.4 million units of Far East Hospitality Trust (read here)

6) FRASERS HOSPITALITY TRUST

Uncertainties due to the pandemic hit Frasers Hospitality Trust’s (FHT’s) net property income, which declined by 40.9% to $26.7m in the first half of 2021, ending in March 31.

Its gross revenue and likewise fell by 36.2% for the first half of the year.

As a failsafe to mitigate more risks brought about by COVID-19, FHT has retained S$5.2 million or 60.0% of income available for distribution (DI) to conserve cash.

Frasers Hospitality Trust net property income falls by 40.9% (read here)

7) LENDLEASE GLOBAL COMMERCIAL REIT

On 7 June 21, Lendlease Global Commercial Reit has proposed to raise its stake in Jem mall to up to 31.8 percent for a purchase consideration of between S$204.1 million and S$337.3 million.

On a proforma basis, assuming the acquisition was effective at the end of the first half of fiscal 2021, it would have boosted the Reit’s DPU by 3 percent to 2.41 Singapore cents, from 2.34 cents. If the proposed deal was completed on Dec 31, 2020, net asset value per unit would have slid to 0.84 Singapore cents from 0.85 cents.

8) ESR REIT

ESR-REIT on 23 July 21, reported its distribution per unit (DPU) rose 14.3 per cent to 1.554 Singapore cents for the half year ended June 30, 2021, from 1.359 cents in the year-ago period.

Gross revenue for the industrial properties real estate investment trust was up 5.4 per cent to S$119.8 million, from S$113.8 million a year ago.

The Reit’s manager attributed the revenue improvement to the absence of provisions for Covid-19 rental rebates as well as lower property expenses.

Net property income grew 8.4 per cent on the year to S$87 million for the half-year, from S$80.2 million.

ESR-Reit H1 DPU up 14% to 1.554 Singapore cents (read here)

9) ASCOTT RESIDENCE TRUST

The Ascott has secured over 8,300 units across more than 30 properties in the first seven months of 2021, marking a 40 percent growth compared with the same period a year ago.

With the latest figures in unit growth, the wholly-owned lodging business unit of CapitaLand has achieved its fourth consecutive year of record unit growth despite the Covid-19 pandemic and delivered about 20 percent compound annual growth rate since 2017.

Fee income for the company is expected to increase as the planned units turn operational. Some $20 million to $25 million in fees is expected to be earned for every 10,000 stabilized serviced residence units.

Additionally, Ascott signed more than 2,900 units across 12 properties in China across cities such as Hefei, Ningbo, Shanghai, Shenyang, Shenzhen, Wuhan and Xian.

Ascott will also continue expanding its global portfolio with its first signing in Senegal, together with new developments in Australia, Cambodia, France, Indonesia, Malaysia and Morocco that are slated to open between next year and 2027.

CapitaLand’s Ascott sees over 40% unit growth, boosted by record signings in Vietnam (read here)

In Gist

I am currently vested in Ascott Residence Trust and hence may be biased. However, I can see that among this list, some of the better capitalized REITs (eg with lower gearing ratios), such as Lendlease Global Commercial Reit and Ascott Residence Trust have started to make use of this crisis as an opportunity to expand their portfolio.

In addition, we are starting to see some green shoots (growth) for REITs such as ESR REIT and CDL Hospitality Trusts.

Ultimately as investors and as REIT managers, crises are an inherent part of the markets and businesses. What is perhaps more important is how we handle each situation and pivot forward. Some will be destroyed while others will emerge stronger.

Having said that, for some of these REITs, they are already exhibiting weakness in their share prices before the sell-down in early 2020. Their DPUs have been dipping before the crisis. Eg. CDL Hospitality Trusts, Lippo Malls Indonesia Retail Trust, and Far East Hospitality Trust.

For these REITs, the crisis only hasten their dismal performance. For me, I would avoid them like the plague.

CDL Hospitality Trusts’ historical growth of distribution per stapled security (see below):

Lippo Malls Indonesia Retail Trust’s DPU (see below). Even though Lippo Malls Indonesia Retail Trust’s gross revenue and NPI have grown over the past five years, its DPU has not kept up. Its DPU has fallen from 3.10 Singapore cents in 2015 to 2.23 Singapore cents in 2019.

Far East Hospitality Trust’s distribution per stapled security in FY 2019 was already lower than the distribution per stapled security in FY 2018 (see below).

The point is that a lousy cheap stock is just as risky as a lousy expensive stock if it goes down. If you’d invested $ 1,000 in a $ 43 stock or a $ 3 stock and each fell to zero, you’d have lost exactly the same amount. No matter where you buy in, the ultimate downside of picking the wrong stock is always the identical 100 percent.

Sometimes it’s always darkest before the dawn, but then again, other times it’s always darkest before pitch black.” Peter Lynch

StocksCafe

FYI I find StocksCafe useful for the tracking of my own portfolio, and especially like to use it to track my portfolio stock dividend / bond interest payouts (projected and due). You can use my referral code: apenquotes. Just click here. Upon signing up using the referral code, you will get to enjoy being a Friend of StocksCafe and test out all features for free for two months!

Please follow me at StocksCafe, via my StocksCafe profile page.

Tiger Brokers

For the Singapore market, Tiger Brokers currently waive the minimum fee and only charge a 0.08% trading fee. This drastically reduces your cost as the minimum fee from other brokers (ranging from SGD 8 such as FSMOne and SCB, to SGD 25 for local brokerages) does add up and can eat into your returns.

Tiger Broker Referral Code:: GPE59H

Sign up here.

Use the above referral code to enjoy the below benefits (Campaign Period: 1 July 2021 12:00:00 – 9 Aug 2021 12:00:00  (Singapore Time)

FSMOne.com

Typically I use FSMOne.com to invest in funds & ETFs (including money market funds).

If you do not have an account, you can sign up here. Pleaee use my FSMOne referral code: P0031127, when you sign up.

Shopee

I have been using Shopee for a while and think you will like it as much as I do.

Get $10.00 off your first purchase using my code DARREB52.
Download Shopee now and enjoy hot deals at the best prices! Click here.

Happy shopping!


Do like my post if you have enjoyed it!! Click the star below.

Do subscribe to my Patreon page.

Posted in REITS | 2 Comments

My Story Fund Stock Portfolio

My portfolio is more skewed towards dividend stocks. I guess it is because I enjoy the process of slowly building up a stream of passive dividend income. Over time it gives me great satisfaction in seeing the cost yield + dividend income + portfolio size slowing building up.

However, having said that, I feel that I would be missing out if I just focus on dividend income stocks (typically mature slow-growing companies). If there is anything that the pandemic has taught me, it is that the world is constantly changing, and new technologies and businesses are ever-evolving.

Hence, I would also occasionally add some capital into my Story Fund portfolio. Basically a basket of stocks which does not necessarily gives me dividend income, but which I feel has more growth potential. Not all are fast growing companies. Some I would consider as mature mega tech companies, while others have businesses which are affected by the pandemic or regulatory policies.

The downside to adding growth stocks is that it will lower the overall yield of the portfolio.

So far the 3 yr TWR (Total-weighted Returns) of this Story Fund portfolio has been above the S&P500 ETF. See below.

The key metric I look at when reviewing the growth stocks is revenue growth. Yes, balance sheet, income statement, valuations are important, but the over-riding metrics will still be revenue growth and the growth narratives.

My small Story Fund portfolio now has 5 stocks. See below.

See below for their recent quarter revenue performance.

1) Pinduoduo Inc. (PDD)

Pinduoduo Inc., through its subsidiaries, operates an e-commerce platform in China. It operates Pinduoduo, a mobile platform that offers a range of products.

It has a market cap of USD149.39B.

Its 3 year CAGR for revenue is an impressive 189.63%!

ANNUAL TOTAL REVENUE CHART

For the 4th Quarter 2020, its total revenues in the quarter showed an increase of 146% from the same quarter of 2019.

2) Alphabet Inc. (GOOG)

Alphabet Inc. provides online advertising services, and offers performance and brand advertising services. It operates through Google Services, Google Cloud, and Other Bets segments.

This is a mega tech (Market Cap of USD 1.7T). Nevertheless, its growth is still good. See below for the annual revenue chart. The 5 year CAGR of the total revenue, gross profit and EBITDA averages around 19.5%, 16% and 17.5%.

ANNUAL TOTAL REVENUE CHART

For the 1st quarter 2021, its total revenue jumped nearly 46 percent from the same period last year.

Digital advertising is one of the strongest secular growth trends today, and Google is one of the primary beneficiaries of this transformational shift towards digital ads due to its monopolistic dominance in the “Search” and “Ads” markets across the globe, combined with ownership of great assets such as YouTube.

However, the US Mega techs – Facebook, Apple, Alphabet, and Amazon.com all face state and federal regulatory, legislative, and legal issues in the U.S. and around the world. In spite of this, in the long term, I believe Alphabet stock will be a long term holding.

And seriously… it’s Google!

3) Alibaba Group Holding Limited (9988.HK)

Alibaba Group Holding Limited, through its subsidiaries, provides online and mobile commerce businesses in China and internationally. It operates through four segments: Core Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation Initiatives and Others. 

Another mega tech (Market Cap of USD 603.407B), and likewise, its growth is amazing (for its size). See below for the annual revenue chart. The 5 year CAGR of the total revenue, gross profit averages around 50% and 33%.

ANNUAL TOTAL REVENUE CHART

For the quarter ended March 31, 2021, its total Excluding the consolidation of Sun Art, the revenue would have grown 40% year-over-year.

The stock price of this e-commerce titan is down over 30% from peak levels, having been walloped by regulatory investigations in the U.S. and China. Nevertheless, I see this as an opportunity (similar to Charlie Munger).

4) The Trade Desk, Inc. (TTD)

It is a recent addition to my portfolio.

The Trade Desk, Inc. operates as a technology company in the United States and internationally. The company operates a self-service cloud-based platform that allows buyers to create, manage, and optimize data-driven digital advertising campaigns in various ad formats and channels, including display, video, audio, in-app, native and social, and on various devices, such as computers, mobile devices, and connected TV. 

It has a market cap of USD36.482B. Another fast growth company.  The 5 year CAGR of the total revenue, gross profit and EBITDA averages around 49%, 49% and 33%.

ANNUAL TOTAL REVENUE CHART

For the 1st Quarter 2021, its total revenues in the quarter showed an increase of 37% from the same quarter of 2020.

I personally like the business model of TTD. I like to think of as blending a business of selling advertisement with a trading platform – literally combining two very lucrative businesses together. In addition with the shift towards apps, mobile devices and connected TV, I do believe it is huge potential moving forward, while the greater adoption of connected TV especially.

TradeDesk operates a self-service cloud-based advertising platform where ad buyers can manage, create and optimize data-driven digital advertising campaigns across different advertising formats and channels.

TTD generates revenues by charging its clients a platform fee that is based on a percentage of the client’s total advertising spend. The company also earns revenues through providing data and other valued-added services (VAS) and platform features.

5) Mastercard Incorporated (MA)

Mastercard Incorporated, a technology company, provides transaction processing and other payment-related products and services in the United States and internationally.

Compared to the others, its growth is not as stellar and in 2020 / 2021, its growth has been impacted by the pandemic induced lockdowns (and the numbers show).

The coronavirus hit the company hard last year. Businesses cut spending and consumers spent more time at home, causing point-of-sale transaction volume to fall 4.4% worldwide in 2020.

Even worse, the reduction in international travel led to a sharp decline in cross-border payments. That’s particularly noteworthy because cross-border fees accounted for 22% of Mastercard’s gross revenue in 2019. Collectively, pandemic-driven headwinds caused Mastercard’s top line to drop 9% last year.

However, consumer spending is set to surge now that the pandemic appears to be ending and life is normalizing. I foresee better days ahead. In fact, I also consider it as an ‘re-opening / recovery’ play.

It has a market cap of USD 371.672B. The 5 year CAGR of the total revenue, gross profit and EBITDA averages around only 11%, 11% and 10%.

ANNUAL TOTAL REVENUE CHART

For the 1st Quarter 2021, its total revenues in the quarter showed an increase of 4% from the same quarter of 2020.

In gist

The stock performance of these stocks are more volatile compared to my dividend income stocks. Nevertheless, I do believe in the long run, it would be worth the while to also have some of my assets in growth stocks.


StocksCafe

FYI I find StocksCafe useful for the tracking of my own portfolio, and especially like to use it to track my portfolio stock dividend / bond interest payouts (projected and due). You can use my referral code: apenquotes. Just click here. Upon signing up using the referral code, you will get to enjoy being a Friend of StocksCafe and test out all features for free for two months!

Please follow me at StocksCafe, via my StocksCafe profile page.

Tiger Brokers

For the Singapore market, Tiger Brokers currently waive the minimum fee and only charge a 0.08% trading fee. This drastically reduces your cost as the minimum fee from other brokers (ranging from SGD 8 such as FSMOne and SCB, to SGD 25 for local brokerages) does add up and can eat into your returns.

Tiger Broker Referral Code:: GPE59H

Sign up here.

Use the above referral code to enjoy the below benefits (Campaign Period: 1 July 2021 12:00:00 – 9 Aug 2021 12:00:00  (Singapore Time)).

FSMOne.com

Typically I use FSMOne.com to invest in funds & ETFs (including money market funds).

If you do not have an account, you can sign up here. Please use my FSMOne referral code: P0031127, when you sign up.

Shopee

I have been using Shopee for a while and think you will like it as much as I do.

Get $10.00 off your first purchase using my code DARREB52.
Download Shopee now and enjoy hot deals at the best prices! Click here.

Happy shopping!


Do like my post if you have enjoyed it!! Click the star below.

Do subscribe to my Patreon page.

Posted in Portfolio | Leave a comment

Singapore millionaires: Figures in perspective

Number of millionaires in Singapore to surge 62% by 2025 to 437,000: Report (read here)

To quote the above article: “Singapore may have 437,000 millionaires by 2025 compared with 270,000 in 2020, according to the bank’s 2021 Global Wealth Report.

Yup, 270,000 millionaires in Singapore in 2020. So what does this mean? Well, very little in fact, if you ask me; if we just look at this number alone. However, please hold on to this number in your mind first. Let’s think about this number in relation to some other facts and figures.

Oh yes, one more thing, these are USD millionaires (not SGD millionaires), if we go by the definition in the Global wealth report 2021. At the time of writing this post, USD 1 million is equal to SGD 1.34 million.

You can find the The Global wealth report 2021 published by the Credit Suisse Research Institute here.

Roughly 1% of adults in the world are (USD) dollar millionaires. The percentage of USD millionaires in Singapore has been steadily increasing over the years, reaching 5.5% in 2020. If you are one of them, yes you are part of the 1%.

Definition of a millionaire

According to the report, they mentioned that their estimates of the numbers of USD millionaires are sometimes much higher than those given in other wealth reports.
They believed their estimates are more accurate because they derive from the application of standard statistical techniques to solid data from reliable sources.

One reason why other wealth reports report lower numbers is that they cover only “investable assets,” which disregard owner-occupied homes. Credit Suisse Research Institute used a comprehensive definition of net worth that encompasses both financial assets and non-financial assets together with debts (but not “human capital”). In other words, they included the assets such as the owner-occupied homes.

Second, as stated, their estimates are firmly founded on the household balance sheets produced by national statistical agencies. They aim to provide a comprehensive coverage of the assets that people would recognize as part of their personal wealth: dwellings, land, savings, investments, etc. But they also generally cover the market value of pension funds assembled for the purpose of paying current and future pensions to those enrolled in occupational pension schemes. In the Singapore context, I am assuming the cash value of CPF accounts would be included as well.

Personally I think that is fair. It is the whole definition of net worth, as how most people would define it. Although I typically exclude the value of the property I am staying in (with my wife and family) from my net worth tabulations and projections as it is not a cash generating asset in my opinion (unless we rent it out or sell it).

Well from another point of view, not everyone owns a property anyway, so yeah… Whether it generates income or not, we did use a portion of our wealth to purchase it (which would otherwise be in the form of assets like cash, CPF, etc).

By the way, in 2019, 1.24 million resident households, or 90.4 per cent, owned their homes. Ownership has remained high with more than 9 in 10 resident households owning their homes since 2012.

Japan, Korea, Singapore and Taiwan (Chinese Taipei) – Millionaire statistics

Since 2010, wealth per adult grew at 3.9% p.a. in Singapore, 5.1% in Taiwan (Chinese Taipei) and 5.5% in Korea. However, over the same period, wealth per adult has declined in Japan by 0.6% p.a., partly due to exchange rate depreciation, without which wealth per adult would have risen at an annual average rate of 1.8%.

Financial assets account for over half of personal wealth in Japan, Singapore and Taiwan (Chinese Taipei), ranging from 58.5% of gross assets in Singapore at the end of 2020 to
68.7% in Taiwan (Chinese Taipei).

During 2020, net worth per adult rose in Japan, Korea, Singapore and Taiwan (Chinese Taipei) by 7.1% on average. This breaks down into a 9.8% gain in financial assets per adult, a 4.0% rise in non-financial assets, and a 4.5% increase in debt.

One worrying trend is wealth inequality in Singapore. Wealth inequality is relatively low in
Japan, Korea and Taiwan (Chinese Taipei), with 2020 wealth Gini coefficients of 64.4, 67.6, and 70.8 in these countries, respectively. Singapore is different. Its wealth Gini, at 78.3, is much higher than in the other three countries, as is the wealth share of the top 1%, which was 33.9% at the end of 2020. In a small country like Singapore, higher wealth inequality can result from an unrepresentative cluster of very high net-worth individuals.

S’pore has 207,000 millionaires in 2019, but over 700,000 have less than S$13,500 to their name (read here)

Singapore millionaires: Figures in perspective

The above is a comparison of Singapore millionaire figures in relation to other countries’ figures, like Japan, Korea and Taiwan. As mentioned earlier, the report stated that Singapore may have 437,000 millionaires by 2025 compared with 270,000 in 2020.

Also as mentioned earlier, these figures by themselves mean very little.

Let’s think about these numbers in relation to the population of Singapore.

Singapore population (click here)

The total population of Singapore in 2020 is 5.69 million. Of which 4.04 millions are Residents (3.52 million citizens and 0.52 million permanent residents). 1.64 million are non-residents.

Typically, the growth of the population is around 1.2 to 1.3%, although in recent years there are slower growths of 0.1% (2017), 0.5% (2018) and negative growth of 0.3% (in 2020).

In this website, the population of Singapore is expected to grow to 6.12 million in 2025 (See below).

Technically, the (projected) annual percentage growth rate of USD millionaires in Singapore is much higher than the population growth (see below).

As mentioned earlier, the total population of Singapore in 2020 is 5.69 million and there are 270,000 millionaires in Singapore, in 2020. That will be 1 in 21 people (is a USD millionaire) in Singapore, in 2020.

The total population of Singapore is projected to grow to 6.12 million in 2025 and Singapore is projected to have 437,000 millionaires by 2025. That will 1 out of 14 people (is a USD millionaire) in Singapore, in 2025.

Now, I do not have the breakdown of the age profile of total population in Singapore. However, within the population trend report, there is a breakdown of the age profile of resident population (citizens and PRs) in Singapore, in 2020.

There are in total, 4,044,210 residents.

a) 2,996,233 of them are aged 25 and above or approx. 74% of the resident population.

b) 2,709,236 of them are aged 30 and above or approx. 67% of the resident population.

c) 2,411,438 of them are aged 35 and above or approx. 60% of the resident population.

d) 2,111,923 of them are aged 40 and above or approx. 52% of the resident population.

Assuming that the age profile of non-residents is similar to that of the resident population in 2025 (highly unlikely but let’s just assume so), then base on the projected total population in Singapore in 2025 (eg. 6.12 million) and the respective assumed percentage as per above, we arrive at the below figures:

a) 4,528,800 of the total population in Singapore will be aged 25 and above, in 2025 (74% of the projected total population).

b) 4,100,400 of the total population in Singapore will be aged 30 and above, in 2025 (67% of the projected total population).

c) 3,672,000 of the total population in Singapore will be aged 35 and above, in 2025 (60% of the projected total population).

d) 3,182,400 of the total population in Singapore will be aged 40 and above, in 2025 (52% of the projected total population).

Now let’s again assume that majority (if not all) of these (projected) 437,000 USD millionaires in 2025 are in the below stated min age, then the proportion of total residents to millionaire will be as per below. Basically I am excluding majority of the people who are still schooling / not working, or just started working, etc, in (a). Yes, I know , there are technically people who automatically a millionaire once they are born (inheritance, etc).

a) If these millionaires are only among people aged 25 and above, then that will around 1 out of 10 people in this age group (is a USD millionaire) in Singapore, in 2025.

b) If these millionaires are only among people aged 30 and above, then that will around 1 out of 9 people in this age group (is a USD millionaire) in Singapore, in 2025.

c) If these millionaires are only among people aged 35 and above, then that will around 1 out of 8 people in this age group (is a USD millionaire) in Singapore, in 2025.

d) If these millionaires are only among people aged 40 and above, then that will around 1 out of 7 people in this age group (is a USD millionaire) in Singapore, in 2025.

Singapore banks unable to cope with surge in new millionaires (read here)

Final thoughts

Is there a point in setting a personal financial milestone? (read here)

For some, having USD 1 million (SGD 1.34 million) is just the first step.

Well according to Knight Frank’s 2021 Global Wealth Report, you’ll need to have a net wealth that exceeds US$2.9 (S$3.85) Million to be considered the wealthiest 1 per cent in Singapore.

S$3.85 Million of Net Wealth is Needed to Join The Top 1% in Singapore: But Will it Make You Happy? (read here)

Singapore may be land scarce, but lacking in rich people it is not. Just don’t go too crazy.

Crazy Rich Asians: The Real Lives of Singapore’s Elite (read here)


StocksCafe

FYI I find StocksCafe useful for the tracking of my own portfolio, and especially like to use it to track my portfolio stock dividend / bond interest payouts (projected and due). You can use my referral code: apenquotes. Just click here. Upon signing up using the referral code, you will get to enjoy being a Friend of StocksCafe and test out all features for free for two months!

Please follow me at StocksCafe, via my StocksCafe profile page.

Tiger Brokers

For the Singapore market, Tiger Brokers currently waive the minimum fee and only charge a 0.08% trading fee. This drastically reduces your cost as the minimum fee from other brokers (ranging from SGD 8 such as FSMOne and SCB, to SGD 25 for local brokerages) does add up and can eat into your returns.

Tiger Broker Referral Code:: GPE59H

Sign up here.

Use the above referral code to enjoy the below benefits (Campaign Period: 14 April 2021, 09:44 – 16 July 2021, 23:59).

FSMOne.com

Typically I use FSMOne.com to invest in funds & ETFs (including money market funds).

If you do not have an account, you can sign up here. Please use my FSMOne referral code: P0031127, when you sign up.

Shopee

I have been using Shopee for a while and think you will like it as much as I do.

Get $10.00 off your first purchase using my code DARREB52.
Download Shopee now and enjoy hot deals at the best prices! Click here.

Happy shopping!


Do like my post if you have enjoyed it!! Click the star below.

Do subscribe to my Patreon page.

Posted in Investing methodology | 1 Comment