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Let's look for treasure!

Let's look for treasure!

I happen to recall an episode on an adult cartoon about 2 foul characters known as “Terrence & Philip”.  But this is not a post about their cartoon, but rather to borrow a phrase from them that depicts their favorite game where one of them says “Let’s look for treasure!”.  Most often, this game was played in the oddest of places.

 

As I was browsing the stock market to hunt for bargains (did I mention that the stock market is now like a Great Singapore Sale?), I happened to notice the developments of M1.  Here is a brief take on the situation to help you decide if it is a true hidden treasure.

 

According to M1’s CEO Neil Montefiore in statement recently on its 3rd quarter results for 2008, there are some tidbits of information that he mentioned that are of particular interest to me as a share owner of the company:

  1. The stock expects a single digit % drop in net profit earnings for 2008
  2. M1 aims to pay 80% of net profits out as dividends

So what do these information tell me?  If all else remains constant, we can expect:

  1. Net profit to be at S$154.17 million assuming a 10% drop in profits (yes, I am a pessimist!)
  2. Expected dividends can be S$123.34 million
  3. Current outstanding shares in market – 893.88 million shares
  4. Dividend per share is then S$0.137 per share
  5. Dividend payout of 7.4% against a valuation share price of S$1.85, or
  6. Dividend payout of 8.5% against the current share price of S$1.61

Compared to the interest rates of what is available out there, is this a hidden treasure or what?

P.s.  Take note that the current price of M1 is at S$1.61 at the time of writing.

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This is a stock market weekend newsflash valid as of 13th October 2008.  Well, at least the research was done over the weekend anyways!

 

As most would know by now, the stock markets are going crazy!  The entire financial market is filled with panic and fear.  While everyone around you loose their heads and whines about their paper loses, keep your cool. It is times like these where bargains exists!

 

Under normal sane market conditions, the stocks would be priced rationally. When emotions like fear take charge, rational thinking goes right out of the window. It also means crazy prices will appear!  Compounded by the fact that the US markets will be closed for their weekends, it is quite usual to feel more gloom on Mondays in Singapore due to lack of direction of how stocks should price themselves.

 

This is a short entry hence I will not go into the details of how I derived at my calculations save the following ideal buying prices for me:

  • Singpost at $0.75
  • Mobile One at $1.84

 

I have factored a 30% discount from fair value as buffer and also studied some of the companies’ fundamental financials.  This is key to valuating any stock.  No hearsay involved. If you are seriously keen on how I derived the pricing to confirm your studies, drop me a comment on this blog.

 

Some of the stock price is already very near my target buy price, so I will be watching the market closely. I may be labelled as crazy, but let history be the judge of me! Have fun picking bargains!

 

Ps. If you happen to read the Straits Times over last weekend on their recommended bargain stocks and their supposed buy price, you may wonder how they picked this basket of stocks.  I did some checks on them and found them lacking in fundamentals and appalled at some of the recommendations (eg. SPH).  ou be the judge of that…just don’t loose your shirts (or dresses) along the way.

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Money, Money, Money!

Money, Money, Money!

How is it possible that I can be so confident (some say silly) to afford giving away interest rates of 4% per annum to my parents when I pool funds together for investing in stocks?  Are there some uber secret techniques that I am using?  Or am I just plain crazy?  If it is true, then show me how to make MONEY, MONEY, MONEY!

Most folks do not realize the true returns and sources of revenues that a good stock is able to generate for you that does not require you breaking a sweat!  Here is the breakdown:

1. Capital Returns – Also refers to gain in share price.  This annual return is anywhere between 2% to 12% of purchase price in the Singapore markets.  Normally, the average benchmark for capital returns should be the same as the annual economy growth of Singapore.

2. Dividends – The average blue chip dividend should beat the average 2% fixed deposit interest rates of banks.  Else, most folks would rather put their money in banks than invest in companies.  Hence the annual return is approximately 2% to 7% of purchase price in Singapore.

3. Rental revenues– Most people did not know that they can rent out the shares they own.  However, the problem with this scheme offered by the Central Depository of Singapore (CDP) is that you need to hold at least 50,000 shares to participate.  However, the returns are very decent should anyone wants to borrow your shares.  It is currently priced at 4% of the prevailing price of your stock. So assuming that you manage to rent out your shares for only 3 months in an entire year, you could get about about 1% income.

So in a nutshell, if you stock is performing badly due to the market circumstance (and no fault of its own), you should be able to get at least 4% returns annually.  In a best case scenario where you could also rent out your stocks, you are possibly looking at returns of up to 20% per annum!

So if you pay out 4% interests to your parents in an average performing investment market, and assuming you are making 10% returns, you can effectively increase your returns by almost 6% using other people’s money!  This gives you a net return of 16% (if you include your own portion).

In the event that things do turn for the worse, and you do not make capital returns, the dividends and rental incomes can cushion the fall.  Hence this mindset of investing can allow you to take risks with good potential returns, but with controlled downside.

Hence, it is beginning to sound very true that money makes even more money!  Hence I do recommend kick-starting your efforts to raise capital to begin investment!

For those who are born after the ABBA hit song – “Money, Money, Money”, here is the video clip to inspire you…less the gambling Monaco part.

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This post has no education value as I would classify this as a marketing tip.  Do note that the following information makes lots of assumptions that the reader is already well aware of the terminologies of the stock market.  If you are a beginner, skip this and come back again when I have covered them in my education series.

 

Anyways, I have promised that whatever stocks I am currently investing, I will share them with my readers.  As such, here is one such entry.  My current research revolved around the Straits Times Index Exchange Tracked Fund (or STI ETF for short).  This fund actually tracks the Straits Times Index.  Hence it is actually a fund that buys the blue chip shares in the Singapore Stock Exchange that closely maps the component stocks of the STI.  These component stocks represents over 60% of the total Singapore Stock Exchange value!  Hence, does it surprise you that you can actually own portfolio of blue chip shares at approximately S$3,000!?  Moreover, the fund trades like a stock, and even gives out dividend like a stock. 

 

So besides the benefits I listed abover, why should I be looking at this right now?  Historically, the STI had a conservative trend of funneling towards a range of about 12 to 15 PE ratio for the past 8 years according to sources like Fundsupermart.  If that is the case, that means that if the STI, admist all the gloom and doom, is still hovering at 12 PE ratio, it is worth a second look, yes?  So that’s what I did.

 

As of now, I am looking at the STI at approximately 2,899 on 7th July 2008.  The STI ETF is priced at S$3.01 (which is quite close to the STI).  At this level, the PE ratio is approximately 12.9.  It is hence on a lower end of the PE ratio funnel.  It is likely that the price may go lower, but remains to be seen.  It is an attractive buy, and I would personally invest a small portion of my portfolio to the STI ETF at this point just to capture the current reasonable pricing.  So if the price goes significantlyl lower, I am not too exposed, and can take the opportunity to invest a little more as it becomes a rather significant bargain.  But it the price turns for the better, I have the higher priced stock to be happy with.

 

So as with my stand in all writings, I only write about stocks that I am willing to invest with my own money.  Hence today I happily invested in some STI ETF shares.  However, do take note, investment is never a get rich quick scheme.  Rather, it is a method to invest in the long term where you get to pick (and buy) stocks at a reasonable or bargain price.  Afterwhich, we can sit back, relax, and wait for the marketing to become sane again.

 

Lastly, for privacy issues, I can only say I bought the STI ETF at S$3.01 per share, but I will not disclose how many shares I bought.  That part is up to you to decide.  The point is that I am putting my money where my mouth is. 

 

Have fun, invest wisely and grow rich!

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There are comments that after so many articles, this blog seems to be stuck at the foundations and basics stages.  So when will the juicy bits like hot stock tips begin?  Or perhaps secret insights into how to amass stupendous wealth through sleek investments? Can you stop talking about savings for investment, and get started already?

 

As my favorite phrase goes, “Patience young Jedi“.  The foundation building of any great investor is the most critical stage of any investment education.  Imagine building an inverted pyramid. While it may still stand upright, any slight rumble will cause the entire structure to collapse.  Hence the bigger and wider the base foundation, the more stable your wealth can be built upon it.

 

Do or do not, there is no try…

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Ego Takes Over

I am quite happy to announce that I have officially bought the URL http://www.ryanbuffetlim.com!  My ego has finally taken over my better senses not to spend money on fueling my ego.  Alas, I lost the battle of wills and succumb to the advertisement that keeps flashing on my blog to ask me to take the URL before anyone else does!

On hindsight, it may be a good idea just in case I do eventually get an avalanche of readers…

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Introductions

There is an old chinese saying that goes “All incredible journeys begins with a first step”.  It took me long enough to customise the blog to suit my needs.  Now it is time to begin writing.  There is much to cover, but there is little time.  Join me as I explore the exciting journey into investments….mostly at my expense!

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