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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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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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GOLD Member!

GoldmemberOne of my favorite villain in the movie Austin Powers is Goldmember. The funny thing is that this character shows what most people are doing right now!  An overwhelming obsession with gold when the value of the US dollar is in the decline. Didn’t anyone learn from the movie that it was his obsession with gold that made him an evil villain in the first place?

So now to the key question: Should you invest in Gold right now?  The experts, financial analysts, bankers, and even the newspapers are saying that it’s the hottest thing since hot dogs!  Everyone (from your pet gold fish to your granny) should jump in and buy some! Before you do so, pause and think for a moment.

Here is a useful chart to begin our discussion:

30 year historic gold price

  1. In Jan 1974, gold price was approximately USD 100.
  2. Assuming inflation of 6% per year, 36 years later in 2010, gold price should be about 8 times the price in 1974. That works out to be about USD 800.
  3. The year is now 2008. So that means that by simple estimation, the price of gold should be close to USD 800 without any significant change in demand.
  4. Gold price in the market is currently at approximately USD 930.

So it is a risk to get into gold at the current price. So why are people paying higher prices now?  Is there a supply shortage?  Is it possible that Goldmember (the villain) is taking over all of the world’s gold for his evil love for gold showers, and thereby crippling Indian weddings (who needs gold dowry) and Chinese gold teeth markets?  Or perhaps folks are just driven by pure speculation and fear of the falling value of the US dollar.  Whatever the reason, the reality is that there will always be a limited supply of gold.  When there is more demand than supply, prices will rise.  So why is everyone placing more value in gold than money?

Perhaps we should now realise that money is just pieces of paper with some long dead guy’s face printed on it.  So whenever any government wants more money, it has the authority and ability to bring out its mega photocopier and print lots more!  Now where is the value backing paper money?  Some currencies have a micro-small footnote that says “blah blah blah government promises to pay bearer”.  While other currencies even go to the extent of omitting this statement altogether.  So the value of money is actually the value of the government’s promise to pay.  But to pay what is the question even I have no answers to.

Having said that, so gold should be best investments, right?  The problem is that there are no business fundamentals to back up the price of gold except global supply and demand.  So unless you are an expert world economist with the IQ of Einstein and incredible insights, I have no clue what is the true supply and demand!

So if you still insist on betting your wealth on gold at this price, limit your exposure to only 10% of your investment portfolio.  However, if you have several gold teeth, rush to your nearest pawn shop to ask for valuation of your gold fortunes!

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