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Friday, September 8, 2017

Emotions and Vulnerability in Trading

Every time i end up on TED Talks consciously or subconsciously, i am reminded of this one TED talk that i watched many years ago.

Youtube: The power of vulnerability | BrenĂ© Brown
TED Talk Link - Link

The topic resonated with me so much that i went to buy one of her books on Vulnerability after that.

Image from Amazon

Everyone must have their own stories of feeling unworthy, of feeling shame, of feeling vulnerability. 

Should i confess to her my feelings? Is this the right time to do it?
The company did not call back after the interview. Did i do something wrong?
Should i speak to the sweet looking girl at the end of the bar?

And recently, i saw the similarities of that with trading.

Every time you initiate a new position, you are completely at the mercy of the markets. You have rescinded the control over to some thing else other than yourself. No matter what you do, there is no way to direct the action of the markets.

That is Uncertainty.

It is extremely difficult to embrace that. Some people do it well, perhaps, translating their ability to handle vulnerability from other parts of their lives. Some of us don't deal with it so well. We shun it, we don't like uncertainty. We don't like to feel vulnerable.

But that is exactly how it works.

I did attempt to change myself and try to embrace vulnerability in my life. That was way before i started dabbling with the markets. I liked to think that i made progress but i think i am not quite there yet. Clearly in terms of trading, i am nowhere close.

Fears still grip me and then i see the counter i identified ran. 
Greed still has a hold on me and i chase after a breakout and get stuck.

The next time it happens again, i am going to read this post again.

I'm going to leave you with two quotes from the video.

On what traits the people who embraced vulnerability had.
"willingness to do something where there is no guarantee"

On how and why we numb ourselves to vulnerability.
"we make everything that is uncertain certain"

Keep Learning

Wednesday, September 6, 2017

Rights Issue - Are they Right for You?

I honestly have been extremely lazy to write any post but work has been a bit hectic recently so that's my lousy excuse. A storm is brewing outside and i am cooped up here so why not pen something down?

There has been a series of Rights issuance this year for Singapore REITs versus 2016. Off the top of my head, i can recall Sabana having one earlier this year; Cache and Manulife just announced almost back-to-back, and of course, we have Ascott who does it almost like celebrating birthdays.

Other more established blogs will cover the whole basics of rights issue. No point talking about it here. But something pertinent popped up in conversations with my peers. Some people think that REITs are useful vehicles to use during retirement.

I disagree and i bold the highlight why i think they're not.

Against my disagreement, dividend from REITs are somewhat predictable, extremely regular and acts as a good inward cashflow for retirees. This much i agree.

Now, what do retirees have to deal with if said REIT does a rights issue like now?

You have to cough up large amount of important cash flow to subscribe if you do not wish to be diluted. Are you going to eat bread and drink plain water for 3 weeks because the money you needed for a lifestyle is now forced to be entered into an equity position?

Don't subscribe.

Fine. But then your dividend per unit drops aka you take back less dividend which then negatively affects your cash flow. How now brown cow? Of course, if this reduced dividend is still sufficient for you to get by, this would not affect you.

There are a multitude of ways to prevent this occurrence for sure. My point is, REITs are not as useful as people think they are. The same people often blindly chase after the high yields they offer. There is a reason why bonds are recommended and used for this purpose.

Not to detract from the good instrument of REITs, if you're in the wealth building stage, they make fantastic cash flow vehicles. I personally have 30odd% of my portfolio in REITs.

Throw in a spanner into the works. What if the rights issue is like the one Manulife is doing? For growth and not like what Cache is doing to improve balance sheets?

There is a possibility that even with the increased number of units, the dividend may be maintained or even grow. This is definitely good and even with the dilution, the cash flow for the retiree may maintain. Even better if you managed to subscribe and maintain the yield payout.

So, obviously i did not like the Cache rights issue. They are doing it now because the unit price is very favourable. When you have high unit price, you could raise more funds even with a steep discount for the exercise price. This is why hardly any REIT did rights issue when prices were low in Feb 2016. Sabana did it at a low probably out of a little bit of desperation.

Essentially, rights issue is just a means of fund raising. It is always cheaper to finance through a bank, ie, take on debt vs asking from the public open market. I am not based in the finance industry so people in the know can correct me on that statement.

Cache Results Presentation Slide. (link)

But for Cache, this is no longer that feasible. MAS has a ruling that REITs can only leverage up to 45%.  At 43.6% there is hardly any room to take on more debt. Plus, should the properties drop in valuations, which is very likely in this climate, the ratio might rise to hit the limit soon. Should that happen, a rights issue at that point in time might be extremely damaging to the value of the REIT.

I see this exercise a preemptive move to prevent that from happening. There might be some form of savings in terms of interest to be paid, but DPU will almost definitely fall on top of the negative rental reversions the sector is already facing.

It's just bad for almost everybody until they can grow again.

As a side note, none of the 3 acquisition that Sabana did the rights issue for went through. The management can say anything they want to market the rights issue so that people throw their cash in to fund the company, but end of the day, deals may still be broken.

So, to finish off this post. I am going to start an experiment. This might have been tested before and if any one could point me towards it, it would be great.

The idea came from a friend who asked if you could subscribe for excess rights, and then later sell out the excess shares you have to lock in the gain so that your position is back to the same value as before. Would that be better than not subscribing?

For example.
Pre-rights. Your cost was 50c.
Rights at 40c and you got a bit of excess rights.
Assuming it is a 50% dilution and 1000 excess is granted.
Original position was $5000. New total cost is $9400.
New cost per unit is 44.8c
If you sold back $4400 worth to return to your original exposure value, you actually have a lowered cost and a little bit of extra shares to sort of maintain your yield.

There's a lot of assumptions about price movements in that example so i shall record the findings using Cache and Manulife and see what we get at the end of both the rights exercise.

Cache
18 for 100
Original Price: 88c
Rights Price: 63.2c
TERP: 84.2c

Manulife
41 for 100
Original Price: 96.5c
Rights Price: 69.5c
TERP: 88.6c

Information above obtained directly from announcements made to SGX

I am vested in Manulife REIT and i have friends in Cache who (i'm hoping) can report back on the status of the excess allotments.

Keep Learning.

Thursday, August 10, 2017

Perfect Example Why an Emergency Fund is Recommended

I was a little slow in reading this piece of news.

(Image and Article from Today Online)

The economy is not exactly in a recession. It was probably even gloomier in 2015 while oil prices crashed. Sure, i appreciate that our friends in the marine industry will paint a way different story. My heart goes out to them.

Put yourself in these cabin crew shoes or kebaya. We may all celebrate initially that you can take a long stress free vacation to the next best resort without much considerations. But what happens if you needed your income to pay for simple bills like phone, internet or utilities? Last i heard, these don't come with a no-need-to-pay for 3-months option.

It is voluntary but there are more crew than needed for flights so where are you going to work if there are simply too many? I don't think the company will be that kind to simply add an extra member for the sake of it. They're clearly cutting cost because it is necessary.

It is not even clear if they have an option to moonlight. Uber/Grab driving, HonestBee, Redmart delivery perhaps. Part-time elsewhere, probably not. 

So, if you live paycheck to paycheck, you might want to imagine this happening to you. You did not get fired but still your income ended.

Whatever name you want to call it, make sure you stockpile money along the way so you do not put yourself in hardship when unexpected events beyond your control impacts you.

Grounded.

Tuesday, August 1, 2017

Responsibility

The internet, full of its trolls, memes, too much self-hate, too much self-love, throws up a gem once in a while.

This is a story about four people named EverybodySomebodyAnybody and Nobody. There was an important job to be done and Everybody was sure that Somebody would do it. Anybody could have done it, but Nobody did it. Somebody got angry about that, because it was Everybody's job. Everybody thought Anybody could do it, but Nobody realized that Everybody wouldn't do it. It ended up that Everybody blamed Somebody when Nobody did what Anybody could have done.
- That's Not My Job

Came across this from a forum post. No reason to credit the poster since he or she did not credit the originator, nor was it original.
Dug around a little and found that it's a condensed version of a poem written by Charles Osgood (Wiki). Sharing and remembering to tell myself this.

“The Responsibility Poem”

There was a most important job that needed to be done,
And no reason not to do it, there was absolutely none.
But in vital matters such as this, the thing you have to ask
Is who exactly will it be who’ll carry out the task?
Anybody could have told you that Everybody knew
That this was something Somebody would surely have to do.
Nobody was unwilling; Anybody had the ability.
But Nobody believed that it was their responsibility.
It seemed to be a job that Anybody could have done,
If Anybody thought he was supposed to be the one.
But since Everybody recognized that Anybody could,
Everybody took for granted that Somebody would.
But Nobody told Anybody that we are aware of,
That he would be in charge of seeing it was taken care of.
And Nobody took it on himself to follow through,
And do what Everybody thought that Somebody would do.
When what Everybody needed so did not get done at all,
Everybody was complaining that Somebody dropped the ball.
Anybody then could see it was an awful crying shame,
And Everybody looked around for Somebody to blame.
Somebody should have done the job
And Everybody should have,
But in the end Nobody did
What Anybody could have.

Wednesday, July 26, 2017

The M1 Disconnect

Back in October 2016, i watch this stock fall together with the sector in what was a fairly lackluster year for equities. I thought to myself, it's pretty significant off the highs, i am going to take a pessimistic estimate of its earnings, and then find an entry that will make me feel comfortable.

That entry came and i took up a position in M1. News of fourth Telco were fairly widespread then and coupled with some political uncertainties around the world, were some of the reasons thrown out for its decline.

It was a few days before they announced their results so i did some calculations on whatever latest results they had and took my own estimations of the fall in Earnings and therefore yield. Telcos have had a good run since 2010 together with the population boom and has became a fairly stable and good yielding defensive stock.

Stable in the sense that the price doesn't fluctuate much and the yields are fairly high. Considering that their revenue are pretty steady due to many of us being tied to contracts, it is not unreasonable to call it defensive and describe it that way.

Having said that, i entered expecting that the next 12 months dividend should come up to around 12c.
Now that their 2nd quarter results are out, and i have held it almost to full 12 months, i am pretty disappointed to see that even my estimates were too optimistic. Actual dividend comes up to only 11.1c and you can kind of extrapolate that the rest of the figures are not healthy.

The price has since fell big time after this recent earnings announcement. While i strongly advocate proper money management of cut loss, i am still holding it. I hate to admit it but i think i do still suffer from loss aversion. There are some positive stories that i am still hoping to play out so that is keeping me in.

Maybe not so much a disconnect per se, but more like a lag in bandwidth.

As of this post, the price has not fell enough for me to consider adding more stakes. I did not take a big position (relative to full portfolio) so i have some room to add. Management has since warned that Full Year net profit will be lower than last year and i am going to estimate that the next half year will see a poorer showing in percentage wise than the first half.

Lessons learn here are that i need to consider more factors in my estimation. Clearly the fourth telco is known, and the threat should probably worth more than i gave it credit for.