Serious Disappointment - Vard Holding

I have been holding on to the shares of Vard Holding for a while. This company used to be called STX OSV before Fincantieri bought a major stake in it and renamed it to Vard Holding. Vard is in the business of ship building and it has not been making money in the last few years. Despite this, investors like myself still believe in the company and we continue to hold on to this belief even now.

Since 2013, Fincantieri has attempted several times to delist the company but in vain. It attempted again last month. This time, some of the actions that they have taken are quite questionable and this has prompted some shareholders to raise concern to SGX. For example, there is some concern regarding the independence of an individual in providing independent advice on the exit offer. Some minority shareholders also received their circular on the exit offer late.

Last Monday afternoon, I have attended the EGM to give my little support so that we are able to get that 10% vote to stop the delisting. Despite this, most of the minority shareholders like myself know that the chance of this happening is very low because of reasons beyond our control. Fincantieri has already gotten 83% of the total outstanding shares and I believe most of the remaining shares lie in the CPF or SRS nominee accounts. The general feeling is that the offer is not fair but there is little we can do about it. To cut the story short, the delisting proposal was approved eventually because we did not have enough minority sharesholders to get the 10% that we needed.

I do not blame Fincantieri for whatever they have to do to get what they want. What I do not understand is the position that SGX has chosen to take in this saga. For the concerns raised by the minority sharesholders, SGX has simply taken the replies from the company as good. I am not sure whether this is right but I would not blame anybody if he feels that his interest has not been looked after by the exchange.

Judging by the declining retail trading volume, I believe a lot of the retail investors are moving out of Singapore market because of reasons such as the lack of confidence with the exchange in looking after their interest. When there is no retail participation, companies will not be attracted to list their shares in this exchange. Those that are listed may even choose to delist. With fewer
company listing, retail participation will drop even further. As you can see, this has gone into a downward spiral effect. SGX will need to do more if Singapore wants to be a global financial hub. First and foremost, they will need to restore the confidence of the minority shareholders.

Anyway, serious disappointment!!!

Update on 11th May

SGX has finally spoken. This is one rare occasion that SGX has chosen to stand on the side of the minority investors. It was reported in the news that SGX has ordered Vard to hold new EGM. Is this a good news? I am not sure. But, it has clearly stated that some of the numbers in the delisting circular were erroneous and this inaccuracy may have resulted in wrong decision on the part of minority investors. Anyway, we shall see.

Update on 27th July

Sigh!! The new EGM took place on 24th July but the result was still the same. What do we expect? Minority shareholders are always at the losing end especially when we are talking about SGX. Anyway, if you are a minority shareholder, my advice is to be very careful when buying stocks in this exchange. Unless a proper governance is put in place to protect the interests of the minority shareholders, the confidence of retail investors will continue to be low.

Certificate of Entitlement (COE) - When to avoid paying too much for COE?

When you want to buy a car in Singapore, you need to purchase a certificate of entitlement that allows you to hold on to that car for 10 years. This is a fixed quota determined by the Government to control the car population. So, in a way, the supply is inelastic but demand is ever growing due to population growth. Going by the demand-supply theory, we have a price-setter situation because the price is set by the Government. Nevertheless, if we dwell deeper, there are other factors affecting the price of COE as well. So, how to avoid paying too much for COE? This is the question that this article attempts to answer.

Data Preparation
In order to understand the factors affecting COE premium, I have taken a set of data from www.data.gov.sg and this contains COE results from 2010 to 2017. I have also gotten data for CPI, GDP, STI (Straits Times Index) and Resident Population from Department of Statistics and other reliable sources. For resident population, I have extracted only those who are 20 years old and above (kind of easy to figure out that anybody lower cannot really own a car). It took me a couple of days to pack all these together. Anyway, let's move on to the more exciting part. I have used Python with Matplotlib for the charts and sklearn machine learning package for this analysis. And, I only focus on Category A COE for this example.

Data Analysis
The above matrix chart looks cool right. Forget it! For the layman, it will be tough to understand the results. Well, if nobody understands what you have produced, it will be simply crap. So, I will attempt to put it into something that everybody understands.

a) Current COE premium is low (S$36k last week) but is it low enough?

Let's focus on the COE premium first. It seems that we have a 'normal' distribution for the COE premium (hello guys, this is statistics 101 - normal distribution, so don't ask me what is this normal thingy). The average Category A COE seems to be around the region of $55k. The current COE of $36k seems to be lower than the 25 percentile. Is this the best time to buy a car now? I am not sure. Buy it at your own risk. Don't blame me if you lose money.

b) COE premium is affected by the quota, so are the bids received

Next, we focus on the impact of the quota on COE premium. It is so obvious that the COE quota will affect the outcome of COE premium. Even my mum knows about it. But, let's try to figure out when you have to fork out sky-high price for a COE. See chart below. When the quota is less than 500, you will get to see sky-high premium. But, when quota goes beyond 1000, it will move closer to the 'norm' of S$55k. Of course, if you are the lucky few, you will be able to get one below $20k.

But, wait, I am seeing something interesting. There seems to be a correlation between quota and bids received for COE bidding. For most car buyers, we know that the car dealers will place the bids for you. And, how do they know the number of bids to place? Isn't it interesting? Somehow, all the car dealers will collectively submit less bids when the quota is low and more bids when quota is high. I will not attempt to interpret this because it is not right and fair to do it when I am not in this line. But, if any of the readers out there knows the reason, please let me know.

c) Is COE affected by CPI, Population, GDP and Stock prices?

The conventional wisdom is that COE premium will go up when market feels good. For example, when share prices go up, market will feel good and consumers will buy cars or change cars. It seems logical.  But, which factor (CPI, STI, etc) is more important than the others? And, what to look out for to avoid paying too much for COE?

When I compare STI with COE Premium, the relationship is not that obvious. It seems that COE will be mostly below S$50k when SIT falls below 3000. But, when STI goes above 3000, COE premium can go either way. But, one thing for sure, most of the expensive COE premiums ($70k and above) happen when STI is above 3000. So, buy car when STI is below 3000 if you do not want to overpay for the COE. Ha..ha.. I am not sure because STI is above 3200 now but COE is at $36k. Anyway, the facts are showing. Generally, STI, CPI and GDP are related to the health of the economy. So, they will have some impact on COE premium in one way or another.

Using RandomForest, I have done some importance ranking of the factors in the data set. It is kind of difficult to explain to you what this forest is about. Just think of this as a decision tree type of predictive machine learning logic that helps you to predict results. As a by-product, it also has this feature to rank the importance of the various factors that help in the prediction. As a reader, this is what you are looking for. COE quota ranks the most important. Next, comes CPI. The rest are GDP and STI.

Factors	Importance
Quota	42%
CPI	40%
GDP	4.90%
STI	4.70%
Bid Received	4.10%
Month	1.60%
Population	0.17%

Summary

So, in summary, many factors other than COE quota affect the COE premium. Generally, avoid COE when COE quota is low and the economy (STI, CPI, GDP) is doing good. Since you have taken the patience to read this long article, I would like to share some of my thoughts. COE quota is cyclical and it is much easier to forecast than the other factors. There is a low quota period and a high quota period. The last high quota period happened in 2007-2009. Going by the 10 year cycle, we are right now in the high quota period. If not for Uber and Grab, the effect of high COE quota would have already been very apparent. Nevertheless, we should see lower COE premium going forward before we are hit with the lower quota period again post 2018. The harder bit of the predictive model is to forecast the STI.  CPI is controlled and so we should not see too much fluctation. As for GDP, it should not deviate too much from our natural growth rate. So, the key deciding factors will be COE quota and STI. Watch these closely.

Lastly, buying a car is a big commitment. My analysis could be wrong. So, be careful and do it at your own risk. Do not blame me if you lose money.

Singapore Savings Bonds

Since the Singapore Savings Bond was launched late last year, the take-up rate has been low. I still do not understand the reasons for such a low take-up rate. It could be due to reasons such as Singapore investors are expecting interest rate to move up a lot more in the coming future or they are able to find investment products with higher return elsewhere. Well, my opinion is that you should take a serious look at this product.

SSB(Singapore Savings Bond in short) is a risk free product that is fully backed by our Government of Singapore. Nothing can be safer than this in this country. It is kind of AAA*** in my own credit rating standard. It has both the features of a 10 year bond as well as an inflation-linked bond. You can hold it to maturity if you like. In circumstances where the interest rate were to go up drastically (if it ever happens), you can redeem the bond at no cost and make use of the redeemed amount to reinvest in the prevailing series with higher interest rate at that point in time. I really cannot find another product that can give you the best of all worlds.

Of course, the argument is that its return is so low (at 2.19% for now). But, you have to remember that this is risk free. If you put your money in the bank, you still have to worry that the bank may close down. And, yes, banks do close down and a lot of banks have closed down since 2008. The chance of banks closing down is always much higher than the chance that our government collapsing and defaulting on the bonds. If you really think our government is going to collapse in the coming month (just a hypothetical example), you can redeem the bond this month without penalty. Try doing that to your fixed deposit in the bank and you will see how much you have to pay to the bank for early redemption.

As for the possibility of our interest rate hitting the roof any time soon, I really have serious doubt about this. You should refer to my blog on 11th Feb, 2014. Interest rate can stay low in Singapore even if Federal reserves were to raise interest rates. We have simply too much cash in the system.

In summary, if you are looking for a risk free and capital guaranteed investment with stable return, look no further. Nothing can beat Singapore Savings bond.

Rising interest rate may not be a bad thing for the economy

The market has been talking and speculating about a rise in the interest rate since last year. There is a lot of fear about this and a lot of people are predicting doomsdays scenario on this. Personally, I think there is a lot of misunderstanding on the impact of rising interest rates on the economy. My blog for today is to show you why rising interest rate is not necessary a bad thing for the economy and you. There are a lot of reasons for this but I will just focus on two of them. Firstly, interest rate is a tool to keep inflation manageable. Secondly, rising interest rate that is well managed, will not affect business or consumer sentiment. Ok, let’s move on to the first point.

Interest Rate is a tool to keep inflation manageable

In an inflationary environment where the economy is booming, there is simply too much money chasing after too few goods. Things will get more and more expensive every day and the value of your dollar will drop dramatically. It hurts savers and lenders. For example, in an inflationary environment, a loaf of bread that costs you $1 today may go up in price to $3 tomorrow. Everything in your savings accounts and CPF will be devalued. To prevent this from happening, the central bank will raise interest rate to cool the economy. Higher interest rate will increase the borrowing cost and this will reduce the demand for goods and services. It will eventually stabilize the economy and make growth more sustainable. Hence, rising interest rates is necessary to keep inflation at bay.

Well managed interest rate policy will not affect business or consumer sentiment

Before today’s close to zero interest rate environment, most of us will remember that we could get about 2%-3% p.a. for a normal fixed deposit. It is only from 2008/09 onwards that interest rate has dropped close to zero. This is neither the norm nor a new norm. The interest rate has dropped to zero because Federal Reserve in US has to do it to rescue the economy from the Great Recession then. If we look at the 12 month FD interest rate for the past 20 years in Singapore (all the way back to 1994), it has always ranged from 1% to 4%. And, we still have some of the best growth in GDP during those years. For example, in year 2000, GDP grew close to 9% and 12m FD rate was close to 2.5-3% p.a. To say that an increase in interest rate will crash the economy is seriously over exaggerated. In fact, a well managed increase in interest rate will not necessarily affect the business or the consumer sentiment.

All said, I hope this blog will alleviate the fear regarding the impact of rising interest rate on the economy. In months to come, when the interest rates goes up, do remember that it is not a bad thing after all.

 

CPF Review Wish List - Inflation Indexed bonds

There is an ongoing debate on CPF and its minimum sum scheme in supporting the retirement needs of our local residents. Today, the return on our CPF OA is pegged to a weightage of 80% of the average of 12-month fixed deposit rate and 20% of the average savings rate published by major local banks. As you know, fixed deposit rates and savings rates are very low now, and the computed pegged rate will probably give you a return of less than 0.5% per annum on CPF OA. This is really worrying because the latest CPI rate is close to 2% and we will get -1.5% (yes, negative 1.5%) for our CPF OA on real return basis if not for the legislated minimum of 2.5% per annum return on our CPF account. Nevertheless, CPI is expected to hit between 2% and 3% this year, and this will leave us with close to 0% real return on our CPF OA even with 2.5% per annum. I believe it is time to look at something that Monetary Authority of Singapore has mooted a couple of years back – inflation indexed bonds.

Imagine you buy an inflation indexed bond with real return of 3%. If there is no inflation, the return will stay at 3%. If inflation rate goes up to 2%, then the actual return will be adjusted accordingly to 5% to account for the 2% inflation rate. In a way, your investment is protected from inflation risk and you will get 3% for your investment. And, if CPF OA can be invested in inflation indexed bonds, this will help, in a great way, to alleviate the worries that we have today regarding whether our CPF is enough for our retirement. We are assured of a positive real return on our CPF saving over the years.

I really like this idea although I believe the implementation of such scheme will not be easy. There will be concerns like the credit ratings of these investments, risk-free or not risk free and others. However, at the end of the day, inflation will eat away our savings if we do not do anything about it. We definitely need more innovative ideas to protect our CPF savings.

2014 World Cup

Finally, the 2014 World Cup is coming to an end. On next Monday morning, the final will be between Argentina and Germany. Interestingly, some punters will start to look at some of the most unusual animals during this period for guidance and prediction on the World Cup winner. I still remembered the Octopus that picked the wrong team in the 2010 final. I wondered what had happened to it after that game. I bet it had not predicted its own bleak future correctly then. This year, we have other animals like the Oracle turtle that has picked Argentina to be the winner and the Nelly the elephant that backs Germany to be the winner. Wonder whose future will be at stake this time?

Recently, I have read an article about whether it makes more sense to invest like Germany where you will have high volatility and high return or to invest like Argentina where you will probably have low volatility and low return. Well, Germany has beat Brazil 7-1 before reaching the final. Argentina is a relatively less exciting team and it has so far managed to beat the opponents by only a single goal before reaching semi-finals. In a way, Argentina looks boring while Germany looks vibrant and energetic.

Warren Buffett and George Soros have said this before. Good investing should be boring.  Good investment should be the ones that are able to give you good and stable return over the years. The wise saying is that the dullest of businesses can make the best investment. Look for those companies with good franchise and strong management. If you are able to find one such company to invest in, stay with them. Ignore the noises and volatility of the market. You can fall into a deep sleep for the next 10 years and you can rest assured that these companies will still be around and profitable after waking up from your sleep.

I have also come across the following quote in some investment seminar and I think you may find it useful - “You will not die if you have no class, but you will certainly fail if you have no substance”. And, that’s Argentina. One single goal is enough to wipe out your opponent. Why need more? I hope Argentina wins the World Cup this year, perhaps by a single goal.

Coca Cola Index - Open Happiness

Whenever I am down and weary, I always remember to drink a can of coke. Somehow, it helps to lighten my mood and keeps me going.  I know, I know. They will dissolve your bones and slowly melt you away. Just kidding. Of course, there are some side effects to doing anything. And, you have to worry about this and about that in life. You have to worry about it everyday but not today. It is Coke day today !! So, I drank up and relaxed.

Anyway, when I was about to empty my last drop, some funny idea came to my mind. Whenever I go overseas, I will always try my best to get a can of coke just to see whether it tastes the same. Well, so far, Coca Cola has been able to maintain its standard. But, what about its price? Uhmm...does the law of one price work for Coke? As usual, I work out some statistics to show that it does not work - just like the Big Mac index. Just for info, law of one price states that the price of a particular product will eventually be the same when exchange rate is taken into consideration. If one product costs more in country A than B, people will buy this product from country A and eventually the price will be the same because the currency for country A will appreciate. Yes, you are right, this is just hypothetical and it may take many years for it to happen or it will never happen.

Let's look at the Coca Cola index below.

Coca Cola			SGD
	Local Currency	Exchange Rate
Singapore	$0.68		$0.68
Malaysia	RM1.49	2.57	$0.58
US	US$0.83	1.25	$0.66
China	CNY 2.90	4.98	$0.58
UK	68p	2.13	$1.45

The price of a can of 330ml Coca Cola cost almost the same in countries like Singapore and United States of America. They are relatively cheaper in Malaysia and China. But, look at UK. Wow, it is more than double the price of the other countries. Maybe cough syrup costs more in UK (serious - Coca Cola started off as a cough syrup. And, why can't they make modern day cough syrup as tasty as Coke?). Well, before law of one price works (if it really can), I better enjoy my Coca Cola happiness now.

Fraser Hospitality REIT vs Transformers

There was an article on the Fraser Hospitality REIT this morning. Interestingly, the yield reported is about 7%. If you compare the 7% REIT return versus the return that you are getting from the bank for your saving account, I bet you will be overwhelmed by the spread that you will be getting from this REIT. However, do take note that the gearing ratio of this REIT is close to 40%. Well, I have not read the prospectus. So, I cannot comment much about this REIT. But, I really think you have to be careful about some of the accounting that goes into deriving the dividend yield. Take the following for example.

Scenario	Gearing	Equity	Debt	Asset	Dividend	Dividend  per share	Price	Dividend  Yield
A	20%	$100	$20	$120	$5	$0.05	$1	5.00%
B	50%	$80	$40	$120	$5	$0.06	$1	6.25%

Assuming there is a REIT (Scenario A) with gearing ratio of 20% and dividend of $5, the dividend yield will be 5% for a share price of $1. In layman term, it means I borrow $20 from the bank and I get $100 from you to buy a building of $120. I get $5 as rental income which will be paid to you yearly for the $100 that I get from you.

However, under Scenario B, if I increase the gearing ratio (i.e. amount of debt from bank) to 50%, I can basically push up the dividend yield by reducing the amount that I get from you. Now, the dividend yield is 6.25%. The above is a very simplistic example with the assumption of interest expense for debt borrowing = $0. This is, of course, not ok because more debt means more interest payment. In the current ultra-low interest rate environment, it can only mean one thing in the near future - interest rate goes up and interest payment goes up. This will eat into your dividend return. Hence, it is very important not to judge a REIT just by its dividend yield.

I will probably spend my time watching Transformers 4 - Age of Extinction this weekend rather than looking into the details of this REIT. I think it will be more exciting. Anyway, always remember - "There’s more to them than meets the eye."

Is CapitaMall Trust retail bond worth a look?

When CapitaMall Trust launches its retail bond today at 3.08%, I start to wonder whether it is worth a look given that we all know interest rate will likely move up after 2015. Frankly, I am not too worried about its credit risk because of its strong issuer credit rating of 'A2' and this is a Temasek related companies. The business is sound and the management is equally strong. So, the chance of defaulting is low and you will likely get your coupon payment till maturity. The major risk that I see at the moment will be the macroeconomic environment, specifically interest rate risk. US Federal Reserve has only indicated that they will keep the federal fund rate near zero into 2015. So, the question is how much can the federal fund rate go up after that and how is it going to affect our interest rate?

The above chart is a comparison of the US Federal Fund Rate and SGD 12 month Bank Deposit Rate from 1983 to 2013. In Singapore, investors view retail bond like long term deposit. Most investors hold the bonds to maturity and there is hardly any liquidity after the bond is listed.  The maximum tenor readily available for retail fixed deposit is about 36 months. I have used 12 month deposit rate as a proxy for comparison.

As you can see, our interest rate moves very closely to US Federal Fund Rate except for the period between 2005 and 2008. In 2002, we were hit by SARS crisis and our 12 month bank deposit rate has stayed consistently below 2% since then. Between 2005 to 2007, US Federal Reserve had increased the interest rate aggressively to keep inflation under control. That explains the divergence during that period. Now, both federal fund rate and the SGD 12 month deposit rate stay close to zero. Unless there is a drastic spike in inflationary pressure in US, we are unlikely to see Fed moving the interest rate to 3% or 4% within a short to medium time frame. Even if they were to do it, I am also not sure whether we will follow suit. We should always take note that exchange rate is the main tool that MAS is using to control inflation. The last time that our 12 month SG deposit rate went above 4% was more than 15 years ago in 1998. In a way, the chance of our deposit rate staying low for the next few years is still high. 

However, no matter how small, an increase in interest rate will definitely affect the bond prices (you must always take note that bond price moves inversely to interest rate). In Singapore, the trading volume for retail bond is very low. With low trading volume, you may have difficulty in selling the bond. Unless you are able to hold the bond till maturity, you may face capital loss. Therefore, if you have excess fund that you will not use for many years and you do not mind parking money in an investment that gives low but relatively stable return, this may be an option. 

Of course, there may be more bond issues for retail investors in the near future. A short while ago, there was some news article about Temasek looking into issuing bonds for retail. So, there will always be such investment products coming your way. Do your sum and make your decision wisely.

Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Update on inflation

I have written a few articles a couple of years ago on the inflationary environment at that point in time and the main reasons behind this. 

Now, I am quite happy to say that this inflationary pressure has slowly come under control by several measures put in place by our government. For example, the escalating housing prices have virtually come to a stop by policies targetting at both supply and demand. This is commendable.

Though difficult, these policies are very important and necessary to maintain sustainable growth of our economy. And, we should not forget that we are still a savers' nation and high inflation will eat away our saving and cpf.

Well done.

Merry Christmas and Happy New Year

It has been a long time since I last updated this blog. Almost 10 months since the last posting in February 2013.

In Jan 2013, I had shared with you the Greed and Fear Index and I had warned about caution going forward. Interestingly, STI rallied for a short period of time before coming down since middle of the year. It has stayed within a range for half a year now. Last week, we have QE tapering but S&P continues to move up. Obviously, money is flowing back to US and it is clearly shown in SGD/USD exchange rate. 

Today, for Christmas, I would like to share with you the latest Greed and Fear Index.  Although this is benchmarked against S&P, you do have to take note that Singapore economy is really very small and open, and any crisis in US or the major economies will hit us. If you have exercised caution in 2013, please continue to do so. Risk and return is not in our favour.

Merry Christmas and Happy New Year!

SMRT

SMRT has seen its profit dropped 31.2% in Q3 and issued warning that it will not see good results in the coming quarters. This is a big concern because the problem comes from higher cost of operation that is still rising. Recently, I received a brochure from SMRT on sleeper replacement works. To most laymen, we really do not care what is a sleeper as long as the train service is working fine. If you may excuse me, I think some of these expenses are unnecessary and I am quite sorry to say that I still do not know what is a sleeper after reading that brochure. Unlike a government organization, SMRT is a public listed company and hence it must ensure that cost of operation be controlled and unnecessary expenses be removed.

To be fair to SMRT, it has been trying its best to improve on its services and reduce train disruptions. However, this is coming at the expense of lower profit due to more frequenct maintenance and more train trips. The inflationary pressure from higher staff cost and the government control on the public transport fare hike have not helped it either. With less profit and therefore less money and less resources to spare, will it be able to continue to invest in more trains and improve on its operations?

As a public listed entity, one of its key missions is to earn a certain level of return for its shareholders. It has been able to do it quite well in the past years (about 4%). With escalating cost and inability to bring in more revenue, the sustainablity of its dividend payout policy is questionable. However, as highlighted in my previous blogs, this is one of the few companies that we can afford to fall into a deep sleep for many years and be confident that it will still be around when we wake up. Personally, I feel that the problem it is facing right now may be short term. If it is able to execute its plan well, it will be out of the woods sooner or later.

Being a small country, MRT lines have already become the backbone of our transport system. In a way, most of the people cannot live without MRT. And, frankly, I have no question of its long term survival.

Be careful

It has a long time since I last wrote about anything. Time flies. It still amazes me that Greece is still in the European Union after a year. That's strong political will. And, it can carry far. Anyway, I was looking at the fear and greed indices today when I realized that we are now at the top end of the greed index (around 120). Bull market has started sometime back and the stock indices are still trending up. If you have read my previous posting, the last time we hit above 100 is around 2007. Given the unusually low interest rate environment, this trend may persist for months or more than a year. But, if you are a value investor, you will know that the risk and return is no longer that fantastic anymore. In fact, I will advise more care when investing these days.

Market Turmoil

For the past month, we saw some of the most volatile market in the history of mankind. I have promised a friend that I will post the latest greed and fear index on my blog. Here, they are:

As you can see, we are first approaching the levels that we saw in the last crisis. Are we there yet? Yes, we are close but my gut feel is that we are still a short distance away. Let's face it. Greece should be a gone case. The recent events are all pointing to the eventual default of Greece's debts. What the EU is doing now is to ring fence the rest of the EU members and their banks from the fallout of this default. That's my opinion. Let's see whether it will come true in a couple of months' time.

Looking at the USD vs SGD chart, my feel is that it is not a place you want to be in the long run. But, in the near term, USD looks pretty impressive to me. I guess Greece's eventual default could be the reason why USD will trend up in the near future. Nevertheless, please always bear in mind that the USD is scarifiable. It is not even a sacred cow in the first place. If the economy is really bad, I bet QE3 or QE4 will start coming in. Who cares about whether we will experience high inflation in the future when we may not even have a future to talk about in times of severe recession or depression.

Now, I would very much like to bring your attention to a famous quote called the black swan event. A black swan event is something that is really out of the norm and you will only get to know it in hindsight. Is Greece the black swan event for this crisis? Or, is it the only one? During 2008/2009, the subprime crisis was the key black swan event that brought down so many banks and companies. Bad sovereign debt is the root cause of the current crisis. What will it bring down? It is hard to predict what will happen next. Even your risk management department will not be able to give you the answer because most of their risk models are more likely to be based on possible scenarios. People do not give respect to events that they think will never happen. And, yes, you are right. I am saying that you are wasting your time in managing your risk using such models. Black swan events are the ones that will really kill your companies. So, be prepared for it.

Ok, let's look at the current situation in broad perspective. Even though market is really bad, there are still good companies around. Of course, you can buy their shares but the question is at what price. If the company is worth a lot more than what you are going to pay for, then it is a steal. If you have read my blogs, my advice is that you should always invest in companies that you can sleep well with. Give it 2 years or maybe 1 year, all these will be over. Even if the crisis were to drag on for 10 years, so what. These companies will still be around to provide the services and products that you need. Crisis or no crisis, all of us will still need to eat, call our loved ones, drive or take train to work, etc. Life still goes on.

So, stay focus.

Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

SOR and SIBOR Follow-Up

In my last blog, I mentioned about the potential for SIBOR and SOR to tick upwards. True enough. If you check the SIBOR and SOR today, they have gone up since then. There is nothing so surprising about it. USD is creeping up against SGD. Now, SOR is moving exactly in the opposite direction to what it did a month ago.

Although SIBOR should be quite stable given the US Federal Chairman's commitment to keep interest rate at ultra low for the time being, it may be a different story for SOR. Normally, SIBOR and SOR should track each other closely. The volatility in the stock markets is creating a mad rush to liquidity i.e. US dollars. Similar to 2008/2009 crisis, cash is always king in times of chaos. And, of course, when you have to keep cash, you would like to keep one that can be moved around easily. With potentially weak local growth forecast, SGD is expected to depreciate or appreciate less against USD. As a component in the derivation of SOR is based on expected USD/SGD exchange rate, the weakening SGD is pushing SOR upwards.

In a way, the near future outlook of SOR will very much depend on outcome of the European crisis as well as the strength of Singapore economy.

SOR and SIBOR

SOR (Singapore Swap Offered Rate) dropped to an unprecedented negative rate on 11 Aug. Normally, SOR tracks the SIBOR (Singapore Interbank rate) very closely. Nevertheless, right after US Federal Reserve committed to keep US interest rate at record low level for the next 2 years, more USD came flooding into Singapore. Investors are swapping USD for SGD at a negative rate because we are still AAA rated and they expect SGD to appreciate further. This caused SOR to deviate from SIBOR and drop below zero. How long can this continue on?

Given our open and small economy, Singapore central bank can only make use of exchange rate as the only effective monetary policy. They have no or little control over the domestic interest rate. The SGD has gone up for quite a lot over the last 2 years. This is already hurting our manufacturing sector. Soon, the strong currency may even affect the tourism sector. Though a strong SGD may keep inflationary pressure at bay, it will not have any overwhelming effect on our CPI or inflation rate if property prices and COE keep going up. Instead, the new housing policies should have dampening effects on the escalating home prices. If not, I think the negative sentiment in the stock market should do the job.

Going forward, a few things may cause volatility in SIBOR and SOR. If banks are failing because of the European debt crisis and this creates a liquidity squeeze, SIBOR and SOR should fluctuate upwards just like what they did during the last crisis in 2008/2009. The outlook of the USD/SGD exchange rate will also dictate the direction of the SIBOR and SOR in the coming future. Anyway, the rates are already close to zero or below zero. How low can it go? Common sense tells me that it can hardly go down any further.


Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Interesting irrationality

Stock market plunges after the downgrade of US debt credit rating. In a way, the downgrade is telling the world that US is one step closer to defaulting its debt. So, the global stock markets start to panic. Everybody starts to sell shares - it does not matter the intrinsic values of the companies involved. Just sell. Next, they start to buy more US debts - never mind whether it will default or not. Just buy. Does this sound crazy? Yes, this is what is happening today. The downgrade of US debt is encouraging more people to buy more US debts. The yield on US Treasuries actually drops - meaning more people are chasing after US Treasuries.

In an irrational market, nothing makes sense. So, you may want to do yourself a favor by ignoring what is happening now. This cannot go on forever. Eventually, markets will still have to come to their senses.

Extraordinary times call for extraordinary courage

What a mess! That's what I can say. Middle East is on fire. Europe is sinking. US is still trying to stay alive. That pretty much leaves Asia Pacific the only place on Earth still breathing and kicking. Anyway, Dow plunged 400 over points last Thursday. Yesterday, S&P just downgraded the credit rating of US. Everywhere, we have nothing but fear. Fear index is now back to 30s level, indicating great anxiety and fear.

Mr. Market may trend down in the coming days. Or, it may not. Nobody has the crystal ball to tell you what is going to happen in the future. Mr. Market is always irrational. During good times, he will pay exorbitant prices for the shares that you hold. During bear market, he will do otherwise. So, please don't panic. If you have read my previous blogs, you will understand the meaning of risk management as well as investing in companies with good fundamentals. As long as you have done your homework, it will be alright. Even if you were to wake up after a deep sleep over a period of 10 years, these companies will still be around. And, they will still pay you good dividends in good or bad times. In the meantime, the share price of these companies could fall to rock bottom or shoot to the sky because of market crisis. So, stay cool and look beyond tomorrow.

Now, let's look at the Fear Index and Greed Index.

In the Greed Index above, complacency seems to have hit bottom during the 2008/2009 World Financial Crisis. After that, it hits a few more crisis along the way. Although it is trending up, we would not say that there is too much complacency in the market today. Since 2008/2009, many companies are holding cash and banks have been building up their capital. So, they will be more ready to deal with the crisis today. Will this crisis be as bad as or worse than the one in 2008/2009? My opinion is that the probability is low.

What about fear? In the chart above, fear has reached its ultimate level in 2008/2009. At that time, the financial market was almost dead. Since then, I don't think many people expect the market to return to the level before 2008/2009 crisis. When there is little expectation, there will be less hope and so less fear. I think it will take more to push fear level to go past the level last seen in 2008/2009. If that happens, uh? I really do not know how to describe this.

Now, lets look at the world economy today and analyse these crisis one at a time.

MENA
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Indeed, it is having geopolitical crisis and this may affect the stability of oil price. However, as explained in my earlier blog in Feb 2011, even if that happens, we will still get the oil that we require because the oil producers will need to export oil to support their economies. In fact, the worry is more on whether the supply will exceed demand in the very near future. And, this is very true because whenever there is a crisis affecting world economic growth, the oil price will drop due to falling demand.

Japanese Tsunami
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Look at my blog in March 2011. When everybody thought we were going to be overcome by nuclear holocaust, market dropped like a rock. Soon after that, market rebounded. In fact, I think Japan will be seeing positive GDP growth in near term with all the reconstruction work needed to restore the country back to normalcy.

European Debt Crisis
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Look at my blog in May 2010. If you have read the papers, I think you may have come across articles that suggest the collapse of the European Monetary Union. Seriously, the collapse of Euro will have major impact to the world economy. Compared to the two crisis above, this will be huge.

US Debt Crisis
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The credit rating of US has been downgraded. Personally, I think this is expected. We should not be too surprised about it. In fact, I think some central banks and banks have been doing scenario analysis to forecast the impact if this were to happen. Now, they just have to roll out their contingency plans. Seriously, there is very little that the rest of the world can do. US dollar will still remain the defacto reserve currency of the world. Even if you want to buy gold as reserve, there is so little to go around. In the meantime, the musical chair will still have to go on.

What about Singapore?
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Being an open economy with export twice the size of GDP, we will be hit. Look at my blog last month. Personally, I foresee a technical recession in the coming months. Whether it will turn worse depends on the situation in Europe, US and China. Nevertheless, the bright side is that it will probably put a stop to the runaway inflationary prices.

That's all, folks.


Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Inflation

I have a shock today. It was reported in the Straits Times that our authority has raised the inflation forecast upwards due to unexpected higher housing and car prices. Don't get me wrong. I am not surprised by the revision in the inflation outlook at all. In fact, I have been talking about it since last year.

What really shocked me is that our authority should feel anything unexpected of this. Unless you live outside of Singapore all these while, there is no way that you will not notice the runaway COE prices. For the benefit of readers who are not living in Singapore, COE is a piece of paper called Certificate of Entitlement and you need one to drive a motor vehicle in this country. The total car price will include the cost of this piece of paper, import car price and other taxes. COE prices have increased from $18,502 in January 2010 to $56,002 in the latest July's bidding. Since prices have been rising ever since and the number of COE is fully controlled by the government, why are they so surprised about higher car prices? This is really puzzling.

In addition, property prices have been rising since two years back. In Singapore, private property prices have all along been supported by the public housing prices. Since public housing prices have been rising, the private property prices and rental prices will definitely go up in tandem. So, what is so unexpected of this?

Really unbelievable. In fact, I won't be surprised if CPI were to hit 6% soon.

Market Cycle

For the past one to two month, the market has been traumatized by events like Greece debt issue, US debt celling problem, etc. As expected, we are still facing inflationary pressure in Singapore. Income is going up. Property prices still continue to rise. If you have read my earlier blogs, these are not unexpected. Fundamentally, our economy is still doing well, so all these are happening.

But, I think we have to be mindful that all are not so rosy now as compared to last year. In the study of Dow theory, one of the basic tenets is that the stock market averages must confirm each other. Basically, the health of the stock market cannot be confirmed ok if the transport stocks are not doing fine. In the good old days, being a powerful industrial country, factories in US will ship their goods to other places using railway. So, if the railway business is doing fine, it means that there are more goods to be shipped and so factories must be producing more and so for. I am not sure how much of this is still relevant today. Nevertheless, it makes sense to say that the world economy cannot be doing fine if shipping business is not prospering because of the lack of consumer demand.

Since the beginning of this year, the price of shipping stocks like NOL has fallen by close to 30%. Freight rates have been falling since then and the shipping sector is having a very bleak outlook. Part of the reason could be due to over supply of shipping capacity. But, more importantly, the lack of demand is forcing the shippers to lower their rates. The austerity measures in the European countries are discouraging their people to spend less. Similarly, the unemployment problem in US still prevails and so consumer demand is lacking. With factories producing lesser, demand for commodity will drop. Everything is inter-related to one another. In a way, the real economy is not doing well and it will affect the stock market, commodity market and etc.

Stock market is normally a leading indicator of the true economy. When it is falling, it means that a lot of people are expecting the real economy will worsen in near future. I suppose all these are part and parcel of the market cycle.

By the way, for those who are interested in property market, you may want to read the following blog at your leisure. Personally, I feel that it provides very good insights about our local property market. And, of course, when the information comes from our Minister who can decide the fate of the local property market, it makes reading this blog even more important.

http://mndsingapore.wordpress.com/


Just for your reading.

International Coin fair 2011

I have just visited the International Coin fair at Suntec City this afternoon. This is a 3 day event from 6 May to 8 May. Details of this fair can be found in this website:

http://www.sgcoinfair.com/

Below are some photos taken during the event. I am actually quite surprised to find so many coin collectors in Singapore. Some of them are professional collectors and they know exactly what to look out for.

They even have display of printing plates. Amazing!

Below are some heavy silver bars on display.

All in all, they have so many notes and coins that I have not seen before. Some of them are semi-numismatic; meaning they have no real collector value. So, you have to be careful with what you buy or collect. Nevertheless, there are some real good finds such as the one below.

Hopefully, they have more of such event in the future.

For a friend: Insurance

Recently, insurance has become a big topic for the election. Do I believe in insurance? Of course, I do. Let me ask all of you (if you are reading this blog) whether you bring an umbrella with you to work every day. I think some or most of you do. Why? Does it mean that you know it is going to rain soon? Of course not. Nobody has the crystal ball to know what will happen the next hour or the next day. What we don't know, we should fear. So, we bring an umbrella because we can use it when it rains. We do not want to be drenched in the rain. It is that simple. This is similar to what insurance is all about. This is risk management.

Health is the most important thing in your life. Sadly, things do happen. You never know what is going to happen to your health the next moment. So, when you are in the pink of health, try to remember to get a medical insurance. Unless you are very rich, you will need all the help that you can get when you are really sick. Insurance companies are not charities and they need to make a profit to survive. So, when your health deteroriates and you need help most, you can never get coverage from any of them. This is a fact of life. With the escalating cost of health care today, you will be in big financial problem if something serious happens to your health.

I am not an insurance agent, so I do not know what you should buy and how much you should be covered. But, I have seen enough to know that this is important. You may also read my earlier blogs regarding this topic in your leisure.

To my friend, I really hope that you get well soon. And, don't worry too much about work because we will be there to help. This is the little bit that we can do.

Best wishes.

Minimum Wage

The election has really caught my attention. Here and there, we have speeches with references to driver and co-driver. It goes something like this. If Singapore were to be a bus and all of us are sitting on this bus, would you like to have this bus driven by just one driver? Or would you like to have a co-driver as well just in case the driver goes astray because of some reasons? To an average Singaporean like most of us, I think we are more concerned in knowing whether we can reach the destination safe and sound.

Let's talk about minimum wage today. In the demand and supply economic model, the setting of minimum wage will likely lead to oversupply of workers and lower demand of labor, resulting in higher unemployment. In layman term, if you are legally entitled to a minimum salary of $X but your boss feels that you are too expensive, they will not employ you and move their offices to other countries where people are paid lower than you. So, you will be unemployed because your boss cannot pay you any lesser than $X. This theory says that minimum wage will lead to companies employing less people or moving their operations out of the country completely.

This is a basic theoretical model. In real life, it is not so simple. It depends a lot on many factors including the nature of the industries, the general economy, etc. For example, if our IRs need to employ more people for their casinos but they are subjected to a minimum wage regulation, do you think they will abort the casinos and move out of this country? Not likely at all. They can probably build another casino elsewhere but they are not likely to find another country like Singapore. Generally, they will take into consideration other factors such as wealth factor of the population, the political environment, education level of the population, support systems, infrastructure, etc.

Minimum wage has its pros and cons. With higher wage rate, people will have more money and they will spend money. There will be higher standard of living and so on. But, for people working in industries where their competitive advantage is to remain as low cost as possible, the minimum wage will likely result in higher unemployment. Anyway, even without minimum wage now, factories are already moving out of this country.

Below is a link for reference to the minimum wage rate of the various countries.

http://en.wikipedia.org/wiki/List_of_minimum_wages_by_country

Enjoy reading.

Property and Property!!

Mapletree Commercial Trust has finally decided to launch its public offering at 88cents. In listing a public offering, any company will try to maximize their gain (i.e. sell the share at the best possible price) without affecting market interest (i.e. market demand). However, as there are so many REITS in the market and many of them are trading at higher yields and greater discount to their NAVs, my opinion is that there may be limited upside to the price after listing.

Let's talk about something else today. The election is finally here. And, one of the hot topics is, of course, the property prices especially for HDB flats. In a way, the new HDB flat prices depend very much on the market value of resale HDB prices. So, higher resale HDB prices will likely lead to higher new HDB prices. But, to support higher resale HDB prices, there are other important factors such as income of the population. Let's take a look at the median income of resident household and resale HDB price index for the past 10 years.



Over the period from 2000 to 2006, the median household income was relatively flat. Similarly, the HDB resale price index fluctuated within a narrow range. From 2006 onwards, the HDB resale price index started to climb higher. Income went up too. So, unless income goes up, it is unlikely that this uptrend in HDB reale price index is sustainable.

In tandem with the strong economic growth, household income should continue to rise further. And, so will HDB resale price index. How long can this last? I think it's anybody's guess.

Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Hyflux Preference Share

There are quite a number of preference shares listed in Singapore stock exchange. Most of these are related to our local banks that need to shore up their capital to meet the tougher capital requirements under Basel III. The recent Hyflux preference share at 6% is a pleasant surprise. I thought that it would have been cheaper for Hyflux to raise capital through debts in this low interest environment.

Anyway, 6% cummulative preference share with step up to 8% feature in 2018 is very attractive. Nevertheless, all investments come with certain risks and it is very important to read and understand the risks associated with this preference share as presented in the prospectus. In addition, when investing in a preference share, we should also consider the following factors:

1) The sustainability of the issuer's dividend policy and its ability to pay dividends in the future.

At the moment, Hyflux's dividend policy is targetted at a payout ratio of 15%. It has been paying dividends since 2004 and the payout ratio is currently more than 30%. With interest cover ratio of 7 times and S$222 million in cash, there is no reason to believe that this dividend policy will not continue in the near future. Furthermore, with its existing projects in the pipeline including the water purchase agreement with PUB, there is no reason to doubt the sustainabiliity of this dividend policy. Finally, given that preference share holders will be paid dividends before ordinary share holders, the preference share holders should be able to receive the regular dividends if there are no surprises. The cumulative nature of this issue makes the deal even more attractive. If for some reason that its business were to be affected and no dividend could be distributed for certain years, the preference shareholders will still be able to receive the dividend accumulated over the years when the company decides to pay dividend at a later year.


2) Market interest rate

Nevertheless, preference shares are sensitive to market interest rate. In times of rising interest rates, preference shares tend to lose value. As our interest rate is now at rock bottom, there is almost 100% chance that we will see higher interest rate in the coming future.


3) Market liquidity

And, if you look at the volume of most preference shares traded over the Singapore stock exchange, you will realize that they are not very liquid. When you need to sell the preference shares for cash, there is a risk that you may have to sell at an unfavorable price.


That's all, folks. Happy investing.



Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

SGD Exchange Rate

Since my last posting on Gold Silver ratio on 23 March (barely 3 weeks ago), the ratio has moved from 39 to 36 today. On 23 March, Silver was trading at USD 37. Now, it is close to USD 41 and this is around 10% gain in 3 weeks. Crazy but impressive.

Today, I would like to discuss about USD/SGD exchange rate and inflation in Singapore. As I have mentioned in my previous blogs, inflation is something that I am more worried of as compared to the other crisis. Recently, the authority has announced that CPI went up by 5% in Feb 2011. Correspondingly, USD/SGD exchange rate has dropped to 1.257 these few days. This is something that we have been expecting given that our regulator MAS is more inclined to make use of exchange rate policy as a tool to control inflation.



In the chart above, we can clearly see that the USD/SGD exchange rate tends to depreciate as inflation rate in Singapore goes up. This is evident in the 90s as well as these two years. It shows how MAS controls the inflationary pressure in Singapore with a managed exchange rate policy. Then, the next question that we should ask ourselves will be why is our inflation rate going up?



In the chart above, we compare the real GDP growth in Singapore against its inflation rate. Given our open economy, Singapore's real GDP growth tends to overshoot when we start to recover right after a major economic crisis. Take 1998 Asian Crisis for example. Our real GDP growth ran all the way up to 9.1% after that major crisis. Similarly, we are seeing the same effect now (one year or so after Subprime crisis). When our GDP starts to overshoot, unemployment rate will drop and more people will start buying cars and houses.



Let's take a look at the contributing factors to the increase in the consumer price index for Feb 2011. The major contributors are Transport and Housing. Given that COE (Certificate of Entitlement) forms a major part of the car price, I do not think that a low USD/SGD exchange rate will help very much in alleviating the inflationary pain in this area. Nevertheless, a low USD/SGD exchange rate will help to control the price of petrol in Singapore. As for housing, please take note that CPI only takes into consideration the cost of accomodation (i.e. cost of rental) and not housing price. The escalating housing prices have caused rental cost to go up correspondingly. All in all, inflationary pressures have built up in this country over these two years. To respond to this, our SGD has also appreciated over these two years as well.

Our last question will now be how low can the USD/SGD exchange rate go and how long will it last? Frankly, I do not think the depreciating USD/SGD exchange rate will last long. A lower USD has its side effects to Singapore's economy. It has become more expensive for tourists to visit Singapore and this will hurt our tourism and service industries. And, for your info, this industry includes our Integrated Resorts and Casinos as well. In addition, an appreciating SGD will hurt our manufacturing industry and this sector forms 30% of our GDP. Lastly, in US, QE II is coming to an end and this will bring an end to cheap money soon. If you look at the charts again, you will see that GDP growth will normalize after an initial period of high growth. This goes the same for inflation rate. When inflationary pressure stops rising, it will mean that it does not make compelling reason to maintain a high exchange rate for SGD anymore. And, this day may come sooner than you know. Just my 5 cents worth.



Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Interesting article on Gold and Silver Coins

I just saw this interesting article from CNN Money

http://money.cnn.com/2011/03/29/news/economy/utah_gold_currency/

Imagine you are the shop owner who happens to receive a thousand dollar worth of gold coin (with face value of $20) from a customer for a few pack of snacks worth $5 dollars. Will you return another gold coin with face value of $15? Of course, this won't happen. In fact, if gold or silver coins are recognized as currency around the world, the likely result is that the market value of these coins will go up somehow to reflect the general acceptance of these precious metal as alternative to the fiat money (i.e. our paper currency).

Anyway, in Singapore, the commemorative gold and silver coins are legal tender too and they are valued at the price shown on the coins. But, these are considered as investment and taxes e.g. GST will be levied on them. And, try not to use it to purchase your daily groceries. I do not think the supermarkets will even accept these coins from you.

Gold and Silver

Gold has been making news recently. It has set new highs repeatedly over the past many years. And, it is a hedge against inflation and deflation. So and so blah blah blah. The above is simply sales talk. To me, gold is a precious metal that is very scarce. Because of its scarcity, it commands a high store of value as compared to the other metals or precious stones. In gist, this is all about storage of value. When government prints more paper money, supply exceeds demand. When supply exceeds demand, the value drops. When paper money drops in value, people prefer to hold what they earn in other forms such as gold, silver etc. When demand for gold exceeds supply (and this is easily achievable since the entire reserve of gold on Planet Earth is only about the size of one or two swimming pools), the price of gold will fly. If you want to read more interesting articles about gold, please refer to my past postings.

As for silver, this is a second class citizen to gold. However, silver has more industrial usage as compared to gold. Silver can also tarnish and we lose silver to the environment through time. So, silver can run out too. However, as we have more reserve and supply of silver, the value of silver is about 30 to 40 times lesser than gold. Some months ago, this gold to silver ratio was about 60 to 70 times. However, it has narrowed to 39 times as of today. It could even hit lower than 30 like what it did in late 1970s. To invest in Silver, there are many ways. You can either get a Silver certificate or purchase a Silver ETF (only available in the US market at the moment) or open an UOB Silver saving account.

However, please take note that the prices of precious metals are very volatile. It can drop 5% or more on a single day. So, in a way, it is a very risky investment. Be very careful with your money.

Happy Investing.



Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.

Dividend Stocks

I love dividend stocks. They are shares of companies who pay good return every year. If the company is safe and stable, it is as good as putting your money in a bank. When investing in dividend stocks, I also look at the following factors:

1) Management of the company and the business of the company
2) Sustainability of its business
3) How much am I paying for the stock i.e. P/E ratio?
4) What is the value of the company that I am paying for i.e. book value?
5) What is the profit margin and sustainability of the dividend policy?
6) What is the growth prospect of the company and whether the dividend can increase over the years?

The best deal is to invest in a company that can last a lifetime (or at least your lifetime). Most importantly, its dividend policy must be well estabilished. Not only it will pay you dividend over your lifetime, the dividend should increase over the years to cover the opportunity cost of investing that money in the company.

In Singapore, we have several good companies like Singtel and SMRT that belong to this category. Even if one were to fall asleep for 10 to 20 years, he can be pretty sure that these companies will still be around when he wakes up. These companies have good management and their dividend payments are sustainable. They may not have fantastic growth prospects but their returns are still respectable. Normally, these are mature companies that choose to pay out their profit as dividends instead of invest in some less rewarding projects. And, do be careful of companies that pay very high dividend because of some extraordinary gains e.g. one-off sales of investment. This type of dividend payout is not sustainable and the company may not be able to repeat the same dividend payment in the future.

At today's price, the dividend yield of some of the dividend stocks can range from 4% to 6%. As the current crisis deepens, their prices become more attractive and their dividend yield increases correspondly. Good stock, good price and good return - what more can we ask for?

Happy Investing.



Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.