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Posts Tagged ‘Investment’

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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Money No Enough

It was over a nice relaxing coffee session with a good friend of mine that we happen to chance on the topic about investments.  I was rather animated and very excited (probably compounded by the fact I just had a double shot of espresso) about the great variety of bargain stocks currently available.  She sighed and lamented the fact that she was saving for a house and thus had little spare cash to invest.

Raising the Titanic

Raising the Titanic

Somehow I get the feeling that raising capital is a serious barrier to getting into equity investments.  I calmly said it was never “Money No Enough”, but rather “Not Enough Effort”.  My friend then had a look on her face that implied that raising the Titanic was probably a much easier feat than raising capital!  In order to repay my friend for a cup of coffee she so generously paid for me, I decided to share how easy raising capital can be.

Here are some methods to consider:

  1. Personal Savings (0% interest rate) – Take 10% of your current savings to invest.  It should be used rather than allowing it to sit idle in the banks drawing a miserable 0.2% annual interest rate and suffering losses from inflation.  Seriously, most folks can hardly notice a difference with 10% less in their cash savings
  2. Father-Mother Loans (Usually 0% interest rate)– Seriously, most parents never ask their kids for interests on any loans (secured or otherwise).  The only thing is that you need to justify your investments and learn to be prudent.  These are afterall your loved ones hard earned cash.  Did I mention interest free?
  3. Insurance Policy Loans (4% to 8% interest rate)– It is a capital raising tool that is frequently forgotten by most insured people.  Did you know that you can borrow up to 90% of the cash value of your insurance policies?  Hence, if you had a policy that is worth $10k in cash value (or otherwise known as surrender value), you can borrow up to $90k at 4% to 8% interest rate per annum.  The good part is that you are still insured by your policy as you take this loan from your cash value.  Superb!
  4. Credit Card Loans  (Nett 4.5% interest rate) – There are cheap loans on credit cards available that allows borrowers to repay the loan in 24 months.  These loans can amount to 2 times your monthly drawn salary and usually come disguised as “Interest Free Loans”.  Just remember to read the font size 1 terms and conditions to calculate the nett interest rates.
  5. Housing Loans (3% to 6% interest rate) – This is a rather complex, but interesting capital raising tool for people who owns property.  The key is to take a housing loan that is bigger than what you need.  The excess funds will then be available for us pegged at the housing loan rates, which are one of the most attractive interest rates in town.  While this sounds attractive compared to Lines of Credit loans or the complicated Car Loans, the complexity and paperwork is quite prohibitive for me.  Only recommended for home owners with huge properties or numerous properties.

The above is listed in the order of preference with the following criterias:

  1. Low interest rates – the lower the better
  2. Low consequences in the case of default
  3. Long repayment period
  4. Ease of approval

While the list I mentioned is not exhaustive, it should get most people started.

My friend then proceeded to look amazed and asked why would she get herself in debt to invest?  I then explained the reality.  There is good debt and bad bebt.

BAD DEBT

Most folks can easily find money to buy cars that depreciate 30% in value the moment you drive out of the showroom, or fund holiday trips to exotic destinations only to be miserable for months to pay off the hotel bills.  So anything debt that does not generate a positive return of cash to you can be considered bad debt.

GOOD DEBT

Taking a small loan/debt as a form of raising capital for good investments can be considered good debt.  This is because a wise investment can bring additional cash into your pockets and increase your individual net worth.  Hence a prudent investment can generate yearly returns from 10% to 20% from buying these investments!  This is a trick used by the rich.  Borrowing money to make even more money…

The assumption here is that she has the capacity (like a day job) to pay off the loan via installments over a 6 to 24 months period.  Thus she would be taking a loan to invest.  While she is paying off the loan, the investment would immediately start making money for her.  So in a scenario where she makes 12% returns on the investment and she had to pay an average of 6% on interest due to the loan, she would have a nett a respectable income of 6% on her investment.  This is in addition to the fact that she now owns a financial vehicle that will generate more returns in the years to come without having to lift another tiny finger.

Even in the event of the possible loss of value of the initial capital invested in a well chosen stock, the dividend should buffer the fluctuations, and also since you own the stock after 6 to 24 months, you do have long term holding power to wait for the value to rise to acceptable range again.

Stay tuned on what can potentially be a wise and prudent investment…

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