Magic of Compounding

The power of compounding is an often talked about topic and has been a frequently cited element to investing. This to the extent of it being touted as the 8th Wonder of the World by Albert Einstein.

Although I have heard and known about this 'power' for quite some time and have always applied it religiously to how I dealt with my portfolio, the importance of it did resurface strongly again recently. I recently did a review and asked myself how much I was looking to have at certain ages and at retirement. As I grow older and hopefully more mature, materialistic pleasures start to take more of a backseat and financial freedom is becoming more and more of a priority. This of course is aligned to my main dream which is to be able to transit to a Full Time Investor some day and have passive income support my necessities.

I recently also re-visited the Rule of 72, whereby you are able to calculate approximately when your investment will double by dividing 72 by the rate of return. So for eg. if the rate of return is 6%, 72/6=12, you will take around 12 years to double your investment. This is a very real and powerful effect of compounding, which in all honesty is pure mathematics (a sum grows to a larger sum, which grows to an even larger sum when compounded). Thus, reinvesting your stock dividends is an integral part of adding 'fuel' to the compounding effect.

Therefore, the importance of any succesful investing strategy is to invest in quality companies, stay invested over the long term, dollar cost average when markets are panicky and most importantly reinvest dividends over time. It is a long journey, but one that is full of rewards when applied with discipline and a long term perspective.

*As we speak, the dividends for my OCBC Bank holdings will be reinvested at the end of the month, woohoo! It simply can't get any more enjoyable than this.

Signing Off
Transitioning Stock Investor

Mapletree Commercial Trust - Added REIT Exposure

Hi All,

It's been a week since I last posted. Along the course of the week I add 1,500 shares of Mapletree Commercial Trust. The current dividend yield of this stock is slightly above 6% and this addition brings my total holdings of Mapletree Commercial Trust (MCT) to 3,583 with an average weighted cost of S$1.38. The odd shares in my holdings is due to me participating in the Dividend Reinvestment Plan (DRIP) and this part of the portfolio is used to to enhance the overall yield and allow the compounding effect of reinvested dividends to be fully exploited.

The balance sheet of MCT remains strong and their liability management remains solid as well, with LT liabilities being managed very efficiently. Their crown jewel asset Vivocity has also just completed its enhancement works and has continued to attract large crowds on a daily basis. Although there are some concerns of potential rising interest rates, the current high yield and efficient capital management of the company help to mitigate those concerns. The share price which is trading at almost its 52 week low does help make the addition more attractive as well.

Moving forward I will be continually looking to enhance the yield component of my overall portfolio and probably focussing on slightly more defensive sectors. Stay tuned!

Signing Off
Transitioning Stock Investor

Thoughts on the Market, Fed has Spoken, Portfolio Positioning

And the Fed has spoken. As what I suspected (and I believe most of us did too) the Fed held unto raising rates. They cited a recovering US economy but also raised concerns on the broader economy especially China and other Emerging Markets. Was there something in the data that the Fed picked up on in which many of us may not have realised? The answer is still unclear but it was spooky enough to have sent the Dow Jones Industrial Average down 200 plus points yesterday evening.

So now we ask, where do we go from here to the end of the year and to 2016? I feel that the Fed most probably should raise rates a little towards the end of the year, and at 25 basis points for a start. Interest rates need to be normalised to around 2-3% and they cannot stay at zero infinitely.

What does the current scenario look like for stocks then? It does look like a pretty tricky course ahead for equities moving ahead as we approach the end of easy money. The US which was the biggest contributor to easy money is headed to pull money out of the market. China has also still been slowing down. Thus, we increasingly need to be extremely selective about our investments so as to mitigate all the risks that we face in the next couple of years.
Thus, I think it may be useful for some of us to think through our portfolios via the following factors:

1. Quality Portfolio
- Firstly, it is important and I cannot emphasise this enough that we MUST have companies that are of quality in our portfolio. This will give us simple confidence to add unto positions when prices drop due to temporary market movements. It is simply not the time to dabble with companies with a questionable background or potential concerns surrounding them in terms of management or integrity. I have recently seen some companies in the news being involved in concerns regarding their accounting practices, background and now is simply not the time to muck around with such businesses and hoping for a turnaround of some sorts.
- One good example of a company with a solid management team is Singtel. They have continued to demonstrate a willingness to change with the times, diversify their businesses regionally and most importantly having a robust financial management team.

2. Economic Environment
- With interest rates potentially increasing, economies slowing down, oil prices at their current prices, aging populations, it is really important to position your portfolio broadly in line with those themes. For eg. I have REITs in the portfolio but am not looking to add much positions due to potential rising rates and the impact it would have on REITs (due to them needing to refinance their debt heavily and potentially at higher interest costs).
- On the other hand I have added my holdings to OCBC Bank as they would benefit from higher NIMs (Net Interest Margins) with higher interest rates. In the local context we have started to see both SOR and SIBOR rates shoot up recently.

3. Earnings and Cashflow
- Lastly, the companies we own need to be having strong and hopefully growing top-line and bottom-line earnings that then churn out good cashflows over time. The current market price does not really matter that much. What matters more to me is the historical revenue and margin numbers of the business and also what I project them to be like in future. As can be seen, alot of the 'assumptions' rely heavily on both Points 1 & 2 above.
- I don't have a crystal ball and I won't say that I can predict the future. However, businesses like ComfortDelGro and Raffles Medical are two great examples of companies that have grown their numbers well over time. Well, whether their current prices are worth investing from a valuation perspective I can't really comment. In my previous post I did comment though that I am on the sidelines for both companies due to their relatively high valuations and that viewpoint I feel still remains intact. We shall see, but again glad to have build positions in both companies over time.

I would really love to hear from you how your portfolio is currently constructed? Has it stood up to the recent tests? And are you looking to build on it moving forward? Looking forward to your comments!

Signing Off
Transitioning Stock Investor

Portfolio Update - Increased holdings in: OCBC Bank

Ok after monitoring the markets pretty closely, yesterday 400 shares of OCBC Bank were added at a price of $8.95. This brings my overall holdings of OCBC at 3,438 with an average cost of $9.94. This was from my previous position of 3,038 with an average cost of $10.07. Looking forward to the future dividend bounty from this position as my annual expected dividends for next year based on current yields should be around S$1,200.

I may be adding another small position later in the month so do watch this space. Markets have rallied slightly today due to the Fed talks over these 2 days. Let's watch closely on the rhetoric from the Fed on where rates are headed and all hands on deck.

Shall take a couple of days break as I have fallen ill due to the haze surrounding Singapore...catch you guys during this weekend. Stay safe and keep your masks on!

Signing Off
Transitioning Stock Investor

Building Passive Income - Layer by Layer

Almost all of us who are in our working years are working in a full-time job or generating income from other sources be it from a business or investment. 

One of the key to financial freedom is to allocate as much as possible your monthly income from an 'active' source whereby work is required to generate the income to a 'passive' source whereby income streams in regardless of whether work has been put in or not. I remember reading a book many years ago at Starbucks in Central Mall. I can't remember the title of the book but what I do remember is that it stated that there effectively are just 3 main passive sources one can derive their income from.

The first is via a business or royalties, the second is through property via rental income and the third is from dividends/coupon payments from investments. I decided some time back that I probably would not be venturing into a business anytime soon. As for property, I have neither the knowhow or appetite for leverage to partake aggresively in that. Investments particular into stocks was a natural choice for me.

Therefore I made up my mind around 1.5 years ago to allocate around 50% of my monthly income to stocks and to consistently build the portfolio over time. Through a slow and steady process, the percentage of 'passive income' versus 'active income' would grow. Using my current progress as a check, I currently have only 2% of my annual income made up of passive sources. There is a long way to go but it is indeed an extremely exciting journey, one which makes me excited to head to work everyday to generate the salary to build further amounts of passive income in future. I'll be 35 next year and I hope to be able to have a better scorecard by the end of next year, let's see!

How has your progress to build passive income been coming along? Do share with me!

Signing off

Transitioning Stock Investor

Post General Elections 2015 + Portfolio Update. Do have a read!

And so, the people of Singapore have spoken. In what was a rather surprising result, the tailwind shifted to the sails of the PAP party's ship. The electoral results were pretty conclusive which resulted in a much better performance of the governing party. The picture below shows the soon-to-be party coverage of Singapore. I won't state too much comments with regards to the electoral result as this would not be the appropriate forum. However what I will say is that I do hope to see a more balanced parliamentary coverage in future elections. This should only benefit a first-world country like Singapore truly is, or is trying to become.

As shared previously, I would be sharing a brief update of my portfolio progress. As can be seen in the Bloomberg screenshot shared below, the portfolio is still deep in red territory. However, what is positive is that we have shifted somewhat from the steepest declines seen in mid-August when overall losses were in the double digit % terms.

Stock Portfolio as of 12 Sept 2015

Moving ahead, I will be holding unto the direction of my portfolio steadily. The course has not changed and in the months ahead, I most probably will be adding unto select positions. It is highly probable that I will be adding positions in either Jardine Matheson (JMH) or Singtel. The main emphasis for me is to identify companies that either have large existing moats (JMH) that are trading at temporary lower prices or those that are able to use technological innovations to improve both the efficiency and diversity of their businesses (Singtel). In other words, businesses that are able to grow and sustain either their top-line growth or profit margins.

There are certain components of the portfolio that I have a keen eye on in terms of looking out for potential headwinds. This would be the REITs segment (with rising rates and increased penetration of online shopping) and Sembcorp Ind. (weak oil prices). I do not expect to be adding unto those positions at the moment given the uncertain macro risks they still face.

Lastly, there are the quality stocks which I own but with still lofty valuations. These would be the likes of Raffles Medical and ComfortDelgro. They remain great businesses but I remain hesitant to build those positions until the prices make more sense from a valuation perspective.

Dividends for the portfolio remain strong and by the end of 2015, a total of $2,500 worth of dividends will have been paid (based on the current positionings). I'm really glad as this presents a small step in my journey to investing full time and building a solid and sustainable passive income stream.

Will look to write some detailed analyses on both Jardine and Singtel in days to come. In the meanwhile have a wonderful Sat. and a good post election day ahead! As usual, back to my books and more reading on financial statement analysis :)

Signing Off

Transitioning Stock Investor

Jardine Matheson - Missed the boat

As I was monitoring the share prices of the stocks in my portfolio, I was cognizant of the fact that the price of Jardine kept on falling. 

I was monitoring this very closely and was calculating the cost I had to pay in SGD. As we know USD has strengthened a fair bit against SGD and in USD terms it had went up 3.7% since I bought my first lot a few months ago at USD 57.10.

I decided to bite the bullet and placed a queue order at USD 46.50 when the market price was around USD 46.70. The price went back up and closed at around USD 48 today. Oh well, missed the boat on averaging down on this counter but let's see how it pans out next week.

Based on the data I have analysed from Bloomberg for this company and relying heavily on one metric which is purely the relative price of the company vs its historical mean, the price should be around the range of USD 58 instead. I shall not bore you with my further analysis of the other ratios and analysis of the market ecosystem of its related companies (which span across Indonesia, China, HK, SG etc) but I am fairly confident of the future potential of this company to revert to its mean 'value'. Shall therefore keep a close eye next week when markets reopen.

Signing off

Transitioning Stock Investor

Closer look at Singtel

As I hold unto my breath and small cache of investable funds, I am busily planning the next strategic move for my portfolio.

Singtel was not on my immediate radar as the price did not initially drop as much as it did in recent weeks. However, the price has fallen to around S$3.69 which makes it a pretty good level below my average cost of $3.97 for this counter. Additionally, the dividend yield has now picked up to a decent yield of around 3.7%p.a.

I still favour its major share of the Singapore telco market and the fact that most of its financial ratios (especially solvency related ones) remain one of the more robust vs its telco peers in the Singapore market. What I also find encouraging is its diverse spread of businesses and not being over reliant in individual countries like China or India. Most of us still are heavily reliant on their services and I see increased value in adding on positions in this company given the overall challenging environment ahead whereby telcos should still remain relatively unscathed.

Again, nothing overly fanciful. Just adding unto quality positions as and when opportunities arise.

Singtel Holdings Update:
# Current Holdings: 3,000 shares. Looking to add 1,000 more in Sept. To be updated.

What do you feel about Singtel at its current price? Glad to hear more from you!

Signing Off
Transitioning Stock Investor

Interesting Dilemma: Sharing my Thoughts

Good Saturday morning folks!

It's election fever here in Singapore as we are in the midst of our elections to vote for the next party to be in parliament. My vote is still undecided as a myriad of topics emerge for both deliberations and considerations. Usually in the past, there is an 'election effect' that we would see for Singapore stocks. However, with the current overall market volatility this effect has been completely dilluted.

Nonetheless, I remain steadfast in having strong belief in our local companies. More so of the ones that I have invested in. In recent weeks I have been faced with a dilemma.

- Do I average down only on some of my heavily beaten down positions?: OCBC Bank (11% down), Jardine Matheson (11% down) & Sembcorp (17% down).

- Or do I maintain allocation discipline and add evenly across all names?: Currently I have 8 names in the portfolio which has not changed for the last 6 months: OCBC Bank, Sembcorp Industries, Jardine Matheson Holdings, CapitalandMall Trust, Mapletree Commercial Trust, Singtel, ComfortDelgro and Raffles Medical.

- Or do I add positions to the ones that have continued to hold up well?: Comfortdelgro and Raffles Medical, both positions are the top performers in my portfolio.

As I type this and with limited resources at any one point, I'm still pondering on the next step to take. However and I say this with immense pride, I am glad that I rejected the urge to panic sell or to re-consolidate certain positions indiscrimately. With proper planning and selective stock picking, it became apparently clear and more so during the recent market madness that the companies which I have chosen are solid names that I would want to add even more when markets rotate.
So I'm glad my decision moving forward is skewed towards where to ADD rather than where to SELL as there is no impairment I see at all to any of the 8 businesses that I have stakes in. Nonetheless and on the flip-side, in a bullish market if any of the positions have risen to levels that I feel are prime for trimming, the appropriate rebalancing will be done. This was done a couple of times on both the Comfortdelgro and Raffles Medical positions earlier this year (for those of you who have been following my blog you may have read those earlier posts).

So remember, to empower your portfolio you need to have faith in the companies you put your hard earned money in. Not blind faith I have to reiterate, but faith stemming from hard work and research in the companies you own.

If you are new to investing and would like to construct a portfolio for a start, you may wish to follow my selections and get updated via this blog. However, please do not take this as buy-sell recommendations but they are suggestions on how to construct a proper stock portfolio. This will hopefully set you on the course to a better financial future and less reliance on your active work income.

Ending off with sharing some of my dividend updates for Sept below:

*Dividend Update for Sept
- Scrip reinvestment elected: OCBC Bank $360
- Scrip reinvestment elected: Jardine Matheson US$38

Signing Off and Have a Great Weekend
Transitioning Stock Investor

Milestone - 10,000 pageviews. Thank You

Dear Readers

I woke up this morning and had a pleasant surprise. The pageviews for this blog has crossed the 10,000 mark. I thank you very much for the support and constructive comments and feedback which you have provided.

I continue to want to keep this page ad-free as my sole purpose is to help the cause of improving investing education and sharing also my journey to full-time investing and hoping that it may inspire others to do the same. 

The recent market gyrations has not been an easy one to navigate. However, I strong believe that as long as our paradigm is right, our focus is strong and conviction is thorough, we will be able to emerge even stronger and more robust from not only this market environment but any crisis that we may encounter. This also presents an opportune time to revaluate our portfolios and think deep and hard about whether they are as robust as we would like them to be. It also digs deeper into our investing gut and gives us a chance to enhance our investing maturity.

With this I sign off for today. Thank you once again and do keep those comments coming in, I also hope that you continue to find my future blogposts useful, helpful and most importantly a mindful call to action! Take care my friends.

Signing Off,

Transitioning Stock Investor