Thursday, November 9, 2017

True Story - Selling is Harder than Buying

Couple of weeks ago,  Lady, You Can Be Free blogged about her struggles with selling Starhub. LYCBF mentioned that she could have done better with the art of selling. That is something that i can empathize with because i have a similar story. It is definitely no where near her absolute amounts so that might have make my emotions a bit easier to handle.

Screen from Yahoo Finance. Annotations mine.

The Buying
Back in September 2013, i bought Singpost at $1.26. Main reason was for the stable dividends that their cash flow could sustain. The rest of the numbers look okay too, including net cash position, growing businesses and that bit of eCommerce exposure. 4 years ago, eCommerce was growing massively which i felt could counter the weak domestic mail segment.

At that time, i just started dipping my toes into the markets and that position was about 25% of the capital then with 0 cash position in the portfolio. Definitely the newbie mistake of I can do anything thought.

Everything was stable and expected for a couple of quarters until 2nd quarter of 2014. Suddenly, price took a steep climb. I recall back then thinking that it was just sentiments and i should lock some profits when i could. Few days into that spike, i sold half my stake at $1.495 only to see a trading halt a week later. That's when Jack Ma's Alibaba took a stake.

I remember i was full of myself thinking that i was in before Jack Ma. How dumb. Because, the share price went up to almost $2 in October. That is a 40% gain that half of my stake missed out on. I felt so much regret in making that sell decision and that is the greed devil whispering into my left ear. The right ear was trying to console myself that i still have a stake that is now $2.

Piling on to that eCommerce story, i was convinced that Singpost is no longer just a stable company. It actually has a growth story especially with Alibaba backing them up. The voice in the head became - let's just hold on to this permanently. Anyway, the dividends are still coming, my cost is low so i have ample time to disembark this ship with a profit regardless.

It seems like nothing could go wrong and share price marked a high of $2.16 in January 2015.

Then, the oil crisis kicked in and the share price corrected together with the market. It was only until early Nov 2015 with the quarterly results coming in that i first spotted red flags. The company was struggling to grow the revenue despite rapidly rising cost. The net cash buffer dropped big time and i remember looking at it a bit concerned. To be fair, it was still net cash at this point. But the market did not like it as much and sent it way down.

Dividends are still maintained so i held on but i felt really bad for all the profits that i "returned" to the market.

CEO Resigns
Out of the blue, the CEO quits citing new endeavors. After a series of acquisitions, it felt to me like this company is next to get the typical CEO treatment. Two weeks later, we get announcements about corporate governance issues. Putting two together, it seems the new endeavor of his includes escaping a sinking boat.

That pulled share price way down to $1.335. Looks like back to square one for me.

And then the results came in Feb 2016. Everything was growing as they say in the slides but BAM! Net debt. Obviously the cost of driving all those growth is getting to them which derived less performance than they saw.

However, the share price rose for the next quarter, probably in-line with a recovering market. It rose to $1.60 and on hindsight, this is probably my last chance to escape, especially with that damning report coming from the corporate governance scandal.

I waited another quarter for the next results and it came out bad. eCommerce segment underperformed and underlying net profit actually fell.

I finally sold in July 2016. At the same price i did in May 2014. $1.495. Grand total of 2 years wasted there.

I made 2 selling decisions in this trade. One was probably too early. The other was probably too late.

I probably should have waited a bit more on the first sell because the momentum is to the upside. If others buy on rumors and sell on news, i probably could wait until at least the real news comes out before making that decision. Also, at $2, it is definitely not a price i would buy Singpost even with the kind of growth story. If it is not a price i would consider buying, i should seriously consider selling.

On the other hand, on the break of the corporate governance news and especially with the CEO resignation. The flags are waving in my face. To have a cash company going to debt, with an ongoing scandal, with people questioning about overpaying for acquisitions in May 2016, i think it is clear as day to bail. I could have also sold at the low too assuming i sell on the news, but if it recovered with weak fundamentals, i ought to have considered dumping at a price maybe slightly upwards of $1.50 which i had ample opportunities to.

It is painful to watch an opportunity go by and not participating in it. But it is equally or more painful to give back all the profits that you could have gotten back to the market. I definitely could have done better here.

Have an exit strategy to protect your profits.

Tuesday, November 7, 2017

STI ETF is Diversification - Think Again

Everyone is touting how the equity markets is so good this here, even in sunny Singapore. The Straits Times Index (STI) is up about 17% year-to-date (YTD) and it's almost harder to lose money than to make money.

But hang on. Look at these headlines.

CNBC, Oct 11: GLOBAL MARKETS-Asia stocks near decade-high on global equity surge, dollar sags
MarketWatch, Oct 16: Nikkei continues to surge to two-decade high, leading Asian market gains
The Standard, Oct 16: Hang Seng climbs 0.8pc to near decade high

The list goes on.
Jakarta Index: 6050 (High Jan 2015, 5450)
Korean KOSPI: 2549 (High Apr 2011, 2142)

But poor old STI is at 3381 when the high set in Oct 2007 was 3805.

Sure the components had changed between that time and now. But since it is market capitalization weighted, why hasn't it recovered since then? I did not even talk about the US markets which is definitely going to set new highs even if a monkey was in administration. As much as the man claimed credit, i don't think it was majority his actions or planned actions or inaction whatsoever. I digress.

Does it mean the Singapore Exchange did not have bright sparks? Not exactly.

Let's take a look at the IT or electronics sector, especially the amazing Venture Corp results just published. The average returns for the top 10 capitalized stocks in that sector is a grand total of 100.3%.

Image taken from SGX Newsletter.

Yes, that's right. The average company there doubled their price. How is that for +17%?

Unfortunately, the damn STI does not even have a single electronics company out of that list of 10. I originally thought Venture, because of it's high share price at around SGD10 early this year, would be in. I was pointed out that Venture is not in, and it's probably because of the market cap not making the Top30 at the time of decision.

As of today, Venture will make the next review so if the prices, and for the bottom dude currently (poor Hutchinson Port), does not deviate from here much, it will be added in next. The corollary thought for some must be that Venture is going in, so the index will be forced to buy it soon and therefore there is some upside to it. By the time you see this post though, it might already be too late.

I will end this post with the Top 10 holdings of STI ETF which mirrors the actual index. You decide for yourself if you have proper diversification there.

Snips from SPDR STI ETF Factsheet (as of Sep 2017)

Next time somebody sells you STI ETF because 30 = diversification. Ask them about what's inside. Their heart and the fund, both.

Friday, October 27, 2017

Follow Up on Manulife REIT Rights Issue

Looks like it is pretty tough to get Excess Rights for Manulife REIT. I applied for 2000 excess, but only received a mere 200.

Anyway, here are the numbers. All prices in USD.

Price before annoucement: 96c
Average Price on Day after (4th Sep): 93c (approximate)
Buying 10000 shares on Day After: 10000 x 0.93 = 9300 USD
Rights Entitled: 4100
Excess Awarded: 200
Total New Units: 4100 + 200 = 4300
Cost per Unit: 69.5c USD
Rights Cost: 2988.50 (ATM fees excluded)
Cost Total: 9300 + 2988.50 = 12,288.50 USD

Average Price on First Day of Trading (26th Oct): 91c (approximate)
# of shares to sell back to 9300 cost: 2988.50 / 0.91 = 3285 ~ 3300 (rounded up to avoid odd lots)
Total Shares left:  10000 + 4300 - 3300 = 11000

Now, the dividend numbers are a little more complicated due to the distribution for the acquisition done in June. Regardless, i will use the previous distribution at face value.

Using latest Dividend numbers
Dividend per unit (DPU): 3.2c
Total Received on 10000 shares: 320 USD
Original yield (annualized): 320 x 2 / 9300 = 6.9%

Diluted Dividend (assuming no increase in income): 3.2 / 1.41 = 2.27c
Total with 11000 shares: 11000 * 2.27c = 249.65 USD
New yield (annualized): 249.65 x 2 / (12,288.50 - (3300 x 0.91)) = 5.4%

Obviously, the income in this case is going to rise as the rights issue was done to acquire another property. Rough calculations gave me a 0.80c contribution by the new property after rights issue.

Adding that in, and doing the last set of calculations.
(2.27 + 0.8) x 2 / (12,288.50 - (3300 x 0.91)) = 7.3%

I am honestly surprised by this result. I checked my 0.8c estimate a couple of times but the only portion that might be overstated is the Rent Free Reimbursements.

If this is the case, i might be trimming down some of my stake. Anyway, i have the yield that i need.

Did i make a mistake in the calculations somewhere?

Tuesday, October 17, 2017

Follow Up on Cache Rights Issue

2 posts ago, i set out to investigate if subscribing for excess rights, and subsequently, maintaining your cost, would result in a maintained or slightly lower yield.

So i had friends who participated and got around double the entitled rights. One had, 1062 entitled, applied 2000 in total, and got full 2000. The other had 1422 entitled applied 7000 in total, and got 2900. So i am assuming that getting 2000 shares in excess is common. This is very bad as data points but i work with what i have.

Here's the maths.

Price before annoucement: 88c
Average Price on Day after (5th Sep): 86.5c (High + Low, divide by 2)
Buying 10000 shares on Day After: 10000 x 0.865 = 8650 SGD
Rights Entitled: 1800
Excess Awarded: 2000
Total New Units: 1800 + 2000 = 3800
Cost per Unit: 63.2c
Rights Cost: 2401.60 (ATM fees excluded)
Cost Total: 8650 + 2401.60 = 11,051.60 SGD

Average Price on First Day of Trading (10th Oct): 84c (High + Low, divide by 2)
# of shares to sell back to 8650 cost: 2401.60 / 0.84 = 2859 ~ 2900 (rounded up to avoid odd lots)
Total Shares left:  10000 + 3800 - 2900 = 10900

Using latest 2Q Dividend numbers
Dividend per unit (DPU): 1.8c
Total Received on 10000 shares: 180 SGD
Original yield (annualized): 180 x 4 / 8650 = 8.3%

Diluted Dividend (assuming no increase in income): 1.8 / 1.18 = 1.525c
Total with 10900 shares: 10900 * 1.525c = 166.22 SGD
New yield (annualized): 166.22 x 4 / (11,051.60 - (2900 x 0.84)) = 7.7%

There you have it. At the same cost, there is a slight decrease in yield. Definitely better than the initial dilution.

Obviously i excluded the cost of the transactions which will impact the numbers a little bit.
Also, the whole price movement cannot be predicted. There are plenty of examples where the price did not recover like it did here between announcement date and trading date. This recovery is broad based because STI went up and even the FTSE ST REIT Index went up.

That aside, you could have gotten Cache at a cheaper price from the 2nd day after the announcement was made. So you might luck out a bit more there as well. Again, this cannot be predicted. And most importantly, the amount of excess cannot be predicted. You may not get much excess for you to make it even worthwhile to consider this move.

Final point, you may see a slightly higher DPU in the coming quarters than the one i calculated as there would be cost savings due to the paying down of debt and that might go in favor of maintaining the yield.

Like all good scientific, data-based studies, here's a conclusion. Maintaining or slightly lower yield is possible. But my personal take is this, there are far too many factors that can screw with you to even make this viable.

Wednesday, October 11, 2017

All You Need is a Nudge

One month on from the previous post.

This time my excuse is that shift work has begun for me and it threw my personal schedule a little out of whack. News came out today that Richard Thaler was awarded the Nobel Prize in Economics for his work on Behavioural Economics. I don't think i have read his books but i certainly have read a couple on Behavioural Finance.

Thaler in his works, argued that people should not be forced to do things with bans or laws. Instead, small interventions, or nudges, that make the right choice easier are the best way to go.

I think this theme is rather similar to the notions delivered in Malcolm Gladwell's Tipping Point. My memory is vague but i recall a story within Tipping Point that talks about how adding a map on to a pamphlet resulted in marked increase in attendees for an event. Here, Thaler thinks that making automatic enrollment into retirement should be the default choice rather than opt-ins and that without help, most people would never retire. This auto-enrollment is also used in our HOTA act.

I fully agree with him on this point. Our version of 401(k) would be CPF. Due to our mental accounting, if we didn't have compulsory contribution in CPF, many people will struggle with retirement.

The rest of that bloomberg article has a couple more gems including auto-escalation - a notion to gradually increase a nudge rather than a forceful change.  Another that stood out for me was investing too much into your company's stock is risky. It might come across as confirmation bias where i read only those points that agree with me. But i do appreciate that there could be people who worked for Apple, Amazon or Google. I guess, if you think the company you are working for will become half as big as those 3, you could invest in your company as much as you want.

This is not a post to idol-worship him. In the CNA article, they list 3 areas of work that Thaler did and i am going to throw some suggestions out here to nudge some readers to overcome these behaviours.

Limited Rationality
Nudge yourself to not think in buckets. See money as a tool and where it came from does not matter. A windfall is the same as a salary. Where to use the tool depends on where in your life needs it most.
This tool can be used now or in the future, can be used to buy experiences for immediate pleasure, or pay off debts to ease stress, or even saved for delayed gratification. This might be tough for people who are used to envelope budgeting to do. But budgeting should just be a guide for you to watch your spending and not overdo it. I don't practice envelope budgeting myself, but i do have separate accounts for savings and spending.

Social Preferences
Nudge yourself to not inflate lifestyle when you get a pay raise. You just got a pay raise, and you feel like you could afford to go luxury just a bit more. Not denying a one-off treat here, but who you are is not determined by the kind of lifestyle you lead. You may now be mingling with people who only dine at posh restaurants because they can afford to, but you don't have to forsake the kopitiam just because now you are part of the clique and have a fatter pay check. My expenses has hardly increased since the day i started working. What changed was that my savings rate increased.

This is a tough one. Yet, it says self. Nudge yourself to say no to just one bad temptation or bad choice for a start. Don't pay for that self-control. Exercise what is within you for self-control. It takes a lot of willpower and if you believe that willpower is finite, it's good that you also know that it can be strengthened. I don't believe willpower is finite but going with that train of thought, cut desserts on weekdays and only allow yourself to have a cake on weekends might be a way to strengthen self-control. You don't have to cut it out completely unless you are hugely motivated to lose extra weight.

There you go. Start nudging yourself to make slightly better decisions than you did yesterday. Now, i am off to nudge myself to pen down more of my thoughts on this blog.