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Tuesday, 29 November 2016

The Changes to this Dynamic World and our Struggles

One of the most interesting Macro aspect of the world today and what lies in it for the future on the fourth industrial revolution. This is something that caught my attention as well as made me ponder for a long while then it started to interests me and on a wider perspective, country and globally that is, a topic that is known to all, unknown to many. Why is that so? We probably look to trends in the world today and we know the problems and issues we face while having no answers to all of this at all.

The first 3 industrial revolution talked about the importance and worries of the labour force as a concept.

1. The first revolution: 1784 invention of the mechanical production and steam power energy.

2. The second revolution: 1870 the invention of mass production and electrical energy

3. The third revolution: 1969 the invention of electronics and IT

4. The fourth revolution: Today? Artificial Intelligence and Big Data? Or something else?

What do they have in common? That is Automation and Connectivity as proclaimed by Nicholas Davis, the world economic forum Head of Society and Innovation.

The first and utmost reaction to structural change is always a fear for job security. Similar to the 1970s, the fear for replacement by computers over current fear over replacement by robots is nothing new but in vary in existence in various forms. Certain Jobs will be lost and many others will also be created so a successful economy is likely to match 4 criteria:

1. Labour market flexibility
2. High skills in the attribute of flexible skills
3. Flexible infrastructure
4. A robust Legal system

The Labour market is one that empowers a lot to substitutes for every country. Whether a particular job results in an inefficiency towards the introduction of technology or a job preservation at the expense of currently inefficiency level, that may ultimately result in the non-existent of jobs in the later part of the revolution which have been the key issues into the third revolution.

Skills factor is an subjective matter. In short, a more skilled worker will thrive and eventually earn more in income than a less skilled worker but that being said does not work all the time in all aspects and in all economies. Teaching, self-learning and flexibility to adapt to work trends is crucial to an every evolving revolution of technology.

An industrial revolution is about changing economics structures. Many of these capital intensive infrastructure has been built, developed and enhanced over the longer term and some of these may deemed obsolete. Brick and mortar shops have been significantly reduced since the introduction of internet which pave ways towards e-commerce which is currently a partial result of a complementary support of smart technology, digital connectivity and a more than efficient network.

As the economy moves towards a more virtual world, "trade" is likely to become in the form of intellectual property rather than a physical product. Legal protection and legal issues will be the main source of contact point to protect, secure and patent a particular idea or product in order to obtain exclusivity over a virtual world in that sense.

Another point to note would be the power of brand, a quality assurance towards a particular brand that could come in the form of a service/quality or even assurance may be able to enhance the brand power. The opposite also holds for brands that faces competition, margins and quality control or even a layered middle-man system can be greatly reduced in the face of the revolution.

Very likely, we would be very used to seeing powerhouses and many others who have the resources to keep the basics before the revolution and tweak them to provide a transition phase of moving into a new economy or as we know it, new world. Developed nations, emerging markets look likely to benefit from such a drastic change and the next generation of technology and age will be something different from the hardworking baby boomers.

Who benefits from the industrial revolution?  Like many other things we do in life, It's never a one size fits all concept but keep on learning because that is the way to stay relevant. Do not stop to innovate and make the necessary changes. Shit happens but being uncomfortable makes us regularly improve and be creative. Imagine a situation when we sit and wait for things to happen, more often than not things doesn't pro-create on its own. Like a volunteer, their small acts of kindness usually leads a long way and we never know what might be in store for us.

So I say, keep the faith and keep on thriving in uncomfortable and uneasy situations.

Tuesday, 22 November 2016

Modi and Rupee (Rs)

There isn't really much trust when it comes to money these days. Or rather, there isn't much to begin with since very very long time ago and it was only made more transparent over time and more discussed about in forums, news and external media. Taxation and the wealthy has made the headlines for many many years now, sprouting a lot of distrust and unfairness in many. India is one country which the disparity between the wealthy and the poor are deemed one of the most obvious and can be depicted as a self made building in the most prestigious neighborhood of a metropolitan city versus slums in a backward village.

Modi, the main guy at the centre of attraction now made drastic move to do away with 500 and 1000 Rs currency notes by the end of 2016. What does that really mean? Briefly, most of us would think that   how is this going to help in fighting corruption in the country? Well I would also think of it exactly the same way as many people out there but as I pondered, I think that there seem to be a certain rational that is going to affect those who have taken money under the table or if not did not abide by the rules.

Looking at how 500 and 1000 Rs notes being taken off the shelf unless they are brought into the financial institutions for tracement and legit purposes. Well if you think about in the sense of criminals and gangs who take part in cash transactions and most of these bills could have been marked and difficult to get rid of. In two months time, whatever that they have made in cash terms which are not bankable by any sense will become useless very soon.

On the wealthy side, I'm kind of certain some kind of safe are built into their personal buildings or underground that houses that kind of money (I'm thinking hollywood/bollywood style) but I think that you get my point over here. True enough, those money might have been used to buy into many other things over the years for the wealthy or even brought offshore and out of their country (Buildings, cars, luxury items, luxury holidays, brought overseas, gold, commodities and many more) but if these are money that cannot be declared, most likely a lot of these might be in case now. Definitely, there will be cash left behind from their ill gotten gains. By declaring, assuming that it is clean enough would mean that the wealthy have to pay taxes now. Whether if there will be a taxation pardon or reduction like what the Indonesians are implementing at this moment still isn't that clear at the moment.

Now I think that Modi do have guts to push and roll this policy out but how effective will be this be, we'll just have to wait and see. Economists will have plenty to say about the effects of the policies but I'm certain that these are reforms done for the greater good of the country. In a way, wiping away some form of corruption and habits. In the world of the politics, it is indeed a dog eat dog so it does pay to not even let anyone get a foot into what may seem like a scandal or bad press.

The CAD, police, internal governance/affairs or as whatever every country calls it requires investigative proceedings and to a certain extent some of those disclosed affairs might be setup as well. I do think that the basics to just discontinue these notes are the most basic form and yet most effective to date. It would most likely clean out a big chunk of what the political government have been trying to stamp out.

Meanwhile, I'm sure that the administrative hassles in which the change in the notes will create other kinds of troubles as well. Now that domestic issues are being sorted out, how about offshore and international issues?

Money has never made man happy, nor will it, there is nothing in its nature to produce happiness. The more of it one has the more one wants. Benjamin Franklin

There is some truth to what Benjamin Franklin says.

Man does not live on bread alone but on every word that comes form the mouth of God. Matthew 4:4

Monday, 21 November 2016

FinTech, BlockChains, BitCoins, Fourth Industrial Revolution

What is really ruling the finance world today? We hear a lot about FinTech funding and block chain technology along with Bitcoin as an alternative way implemented into bank payment systems recently.

It is rather difficult to bring across this concept and idea as it works better in demonstration as compared to talk about it.

What is FinTech? It is mainly disruptive technology that has the capabilities to replace financial services (Can be in the form of cheaper way or a more convenient way) but at the same time more efficient and in a certain way safer too.

Just to get yourselves interested on the concept of block chains, do watch this quick video: BLOCKCHAINS

I really like to see, read and hear about Bitcoins in which they are a small subset of the bigger ecosystem and this is a good introduction to start with: BITCOIN

Such block chains systems should be a secure channel as a third party using bitcoin as part of the transaction which in turn can be redeemed back into the real currency thus creating a market and a natural one in doing so.

The World Economic Forum 2016 early this year in Davos discussed deeply into the trends and how the world is moving into and in summary, it could possibly be the fourth industrial revolution. Revolutions are usually something not easily dealt with because of significant changes that destabilizes and question the status quo but eventually changes pushes through over time but the question about whether it works is unquestionable. The first revolution might bring about a new form of problems coming many centuries into the future (Such as air pollution, breaking the ecosystems, genetics and food production techniques just to name a few)

Source: WEF

Such significant changes brings about many existing issues as well, such as loss of jobs/income, the non-necessary skills required previously and to a certain extent reduce amount of time and effort required to get things done. Eventually, new skills and new jobs will eventually be created thus it is important to stay relevant. No longer are the years of loyalty you pledge to your company and you'll be set for life anymore. Companies are also faced with the same task of returning ROI on every dollar of shareholders' money and that in my opinion is vested interests.

The big subset of block chains in my view is Big Data. That is IOT, Internet of Things combined with many many different concepts to build a computer server that can maintain and sustain all of this. Many of us know this and that is Cloud computing. In time to come, Superhuman computers may be developed into watching over security (AI, Artificial Intelligence) and bringing security into a whole new level. I would believe that Amazon and IBM resources would have the capabilities to bank on such new technology. I do see a lot of the practicality developing into China and a lot of these are going on aggressively but the level of secrecy and confidentiality still plays such a big role as a former communist country. My guess is that China will bring block chains to a whole new level all together and that would be a footprint into the new world technology.

Financial Institutions are not tapping greatly on FinTech to date. Looking back at Nokia, sometimes it makes us think about embracing changes because one step could be just too late for any recovery at all. The Financial services are also part of a new form of Robo-Advisorts (Another form of artificial intelligence) and without a doubt services are going to be transformed into a new level all together.

The change is here and FinTech and Bit coins are also an alternative way of investing. That would add on to the list of asset allocation in the previous posts.

Only Steve Jobs believed in the future of smart phones and tablets before it came here today.

"If at first, the idea is not absurd, then there is no hope for it." - Albert Einstein

Saturday, 19 November 2016

Another one fights the dust

Anyone out there that has been looking at Singapore equities for some time now would know that the Marine, Oil & Gas industry is going through trying times for some time now. Going forward, it is going to be difficult to say what is next for them. It all started with the headline news of Swiber filing for bankruptcy and following which went into judicial management. A couple of days ago, again another offshore marine company known for its rig business and vessel chartering business, Swissco filing for the same interim judicial management and it all happens because they have lost the capability to restructure their bond by their own leading banks.

We know that bad times don't last so are the bankers just out there to fend for themselves only? During good times when the company books are looking great, bonds are being issues to help provide the working capital for these companies. The moment the cash-flow stops, the banks stop lending or restructuring. Quite a tough and sad moment though.

I discussed about bonds/debts a few posts back and talked about public/private financing in the capital markets. What Swiber did was to find some banks to finance their working capital and they would pay off interest to bondholders over a period of time. What the lead banks provided are in turn offered out to retail/institutional/HNWI to take on a portion of the bond. Most of the time, financing is offered in terms of Loanable Value.

Let's use this example: I buy Bond S.Limited on point of purchase for the initial offering at Par Price (100.00) and as a bank I syndicate this capital raising and offer a portion to other parties so as to diversify the risk the bank takes on. When "Sophisticated" investors take on these investments I offer a 60% Loanable value, it just means that for every $1 worth of S.Limited bonds, The bank will be willing to finance you $0.60 and all you need is $0.40 worth of cash and on each reinvestment amount, you get another 60% in loanable term. When S.Limited declares bankrupt, I supposed that this is highly strung and then same bank who finances the bond syndication would deemed these investments as invaluable now and decides to tell you that you can't lend anymore from the $0.60 previously as what they have valued the investment at so you have to make back the full amount in a few days' time. I would think that this is as good as lenders telling the company that they will stop lending. To raise $0.60 from elsewhere isn't really a problem for most people but how about $600,000 or $6,000,000 which I really doubt many of us have that kind of cash waiting around somewhere.

Just to put in down in illustration and mathematics so that it can be easily understood (not really isn't it looking at this complicated piece of calculation table) This is basically a long form of maximizing the full loanable amount and then re-investing them back into the same investments and over again:

Name of SecurityCash for InvestmentLoanable ValueLoan AmountCash UsedBalanced CashValue of Portfolio (Nett of Loans)
S.Limited 6.00% 20251,000,000.00S$60%600,000.00S$400,000.00S$600,000.00S$1,000,000.00S$

Okay, in short form it really is Total Amount / (1-Loanable value) = $1,000,000 / (1-60%) = $2,500,000

So, With $1, the bank can loan you up to $2.50 presumably that you reinvest them into the same bond. Your total investments become $3.50 (Nett of loans, $3.5 - $2.5 = $1) Your nett portfolio value still remains the same but that comes with plenty of risks:

1. You leave no buffer for any mark to market movement
2. You become concentrated into one single asset class and one company
3. Loans means you have to service the interests on a regular basis so with increase in interest rates, that brings your return lesser though you have taken more risks
4. In times of liquidity and crisis, most likely you will not be able to sell your holdings as fast
5. When you hit a margin call, you most likely have to top-up your cash balances as soon as possible or that would become a sell-out eventually at the current price.

On the flip side,

1. You maximize fully what leverage can bring you
2. Your Yield is increased because of the leverage factor
3. Returns will eventually increase with a higher risk taken

Again, it brings us back to basics again. What is your investment profile? That high risk taker with a long horizon? The conservative investor that is skeptical? Don't be surprised though that there are high risk takers who are willing to take the risk. Then again, if you know the risks you are taking then take it with integrity and principles. I've met and known people who can't lose and yet take on aggressive investments but the bad times arrives, they do put the blame and point the finger on others even though they know the risks involved. When it comes to money, humans are not exactly what they are. As the saying goes, tough time don't last but tough guys do.

Rickmers Maritime Trust is another company which has most likely burned out all its resources over the years to come to this stage where their trust company on the listed exchange is no longer required. They are unable to come to a restructuring plan of the note they have issued and unable to pay the interest and any accrued interest up to date. If you look carefully into their cash-flow statements, they are on a negative scale. In layman, they do not have cash retained in their accounts but their distributions are paid out on a regularly basis and for a long long time. There can only be a few reasons to do so:

1. Keep investors happy that they are receiving the dividends
2. Ensure that their stock price on the exchange stays stable
3. Waiting out for the bad cycle to ride through and business to pick up again.

But by doing so:

1. The money paid out have to be taken from somewhere and most of the time it is from a bond and restructured many times most likely
2. Anyone who digs deeper into the company details will know the state of their company
3. The cycle may not ever recover for the company to be relevant anymore

A group of bond holders have issued a letter of demand to the company in terms of payment of interests but a company without cash-flow is as good as broke so that we shall see what might happen next and which other smaller companies might be hit for now.

Sunday, 13 November 2016

The End of Kim Keat Hokkien Mee Man

Just a couple of weeks ago, after reading food highlights from the well known doctor cum foodie Dr Leslie Tay on his older blog posts which I subscribed to, I head down to Blk 92 Toa Payoh Lorong 4 to taste the famous Kim Keat Claypot Hokkien Mee, I received more information from the internet that the uncle has passed away and too much speculation about what has happened to him. It is rather sad to hear that as this man was an ex-convict who turned his life around. Sometimes you like think and life is rather fragile so I ended up taking notes down on an emotional night to think a little more about what I can do going forward so that I can constantly remind myself not to take things for granted.

Though he may be gone but his skills has most likely been passed down to several other chefs which I saw them cooking and preparing for while he was rather busy with something else a few weeks down. The kind of uncertainty and unpredictable things that happens to us is rather unsettling at times and I just find that there is never a "best" time or a "suitable" time to do things. I view that as a form of excuse. Just imagine the uncle is the founder and key person to keep this huge hokkien mee conglomerate going, now that he is gone the whole company is most likely to be in a mess. Business will be affected for sure and his family is bound to suffer some form of stress from trying to sort out his stuff while the transition in passing down the leadership takes place.

The financial world terms this as a key-man insurance. It is like an insurance coverage for a main person in the company who is important to lead the company to succeed in their mission. Usually this is also used as a form of staff retention cum staff benefit and in the form of protection for both his/her family and also for the company. In instances such as this sudden death, the insurance payout is usually quite substantial and it can be used to tide the business in the form of transition, insurance against future earnings and also be used by the company to hire/employ someone who can take over the current role over a period of time.

To relate back to every individual, why are we not as important as any key man? We are important to our family and we are the key man to the family as well. The insurance world covers individuals in against future earnings through disability income when disaster strikes us and makes us unable to work for an income and covers us when death occurs prematurely. I can't really tell how long I will live and neither can I say I will be healthy forever. The probability that something hits us increases as the years goes by so while we are still young never say never and don't take it for granted because once it happens you can never say "I should have" anymore.

Sources: Internet

Enough of the Trump winning factor, enough of Brexit from the European Union. We need to get back to basics and understand what are the little steps we need to take so that 30 years later, we will not live to regret it. At the very least, we get to control how we want to deal with our own finances and planning. Six months from here, our literacy of finance becomes slightly better and one year from here we can say that we begin early. Five years down the road, we would have gathered enough information to make more informed decisions and it would be great to have a view about certain events when things happen.

Wealth Planning is for all ages, all folks who just started young and old, wealthy or not wealthy. As what Thomas Jefferson said "All men are created equal" so all of us have the privileged to be treated the same.

Sources: Internet

Friday, 11 November 2016

Retirement Planning & Starting Early

As the headline goes. START NOW!!! PLAN NOW!!

I've been building my own portfolio around the Singapore investments and like in my previous post about equity investment, no matter how bias the country investment is skewed into will have to keep them into the Singapore equities in any case. I used to like the USD for a few years now but am not quite sure where they are heading to right now. Our Sovereign Wealth Fund would have to keep their asset allocation consistent to manage their fund and when marked back to the SGD as the reference currency. I believe there would always be a certain floor against some large-cap Blue-chip names in some way. That is of course never ever-green, even without any prior relevant experience apparently anyone can also be the US president so it's good to always keep in touch with markets and be interested but even if you are not interested, you still need to do something about it.

In whichever scenario, I'm always looking in the Singapore equities space as there isn't any FX risk and I assume that we are all thinking about retiring into the same land we are all born into.

Yes it is true that the economy is challenging, US is slowly getting better until the recent political drama, the MAS does have follow an interest rate monetary policy, China is affecting all of us. All these are just noises that keeps the market going at different valuation. A sound company will always stay by its fundamentals while a market driven listed prices will always be driven by emotions. An emotion will result in an action that may run regrets into the future while a stable and sound decision will lead you to making the most calculated and assertive decision during difficult times. The mind can indeed be a powerful tool in challenging environments.

The economics of the business cycle works this way (This is one of my favorite diagram by the way) and it will always be in this manner:

That being said Investments are always trend-setting, perhaps it will go lower from here, perhaps higher from here but we'll never know. What I am trying to say is just to start early.

Like most people, we like income so assuming we take on a income relevant strategy:

With just $1000 and a compounding interest of 3%p.a. (income/dividend) will bring you to $1,030.42 at the end of the year. Effectively, that’s 3.04% p.a.

For calculation sake from 35 – 60 years old (Retirement age is 62 by the way) is a good 25 years to go.

At age 60, at $1000 a month of savings that compounds a 3%p.a. return will allow you to reach the goal of $444,588.62 (That’s 300 months of $1000 contribution) and you receive $144,588.62 after saving for $300,000.00

Is that a lot in my opinion? Not really. But the later you start, the tougher the compounding effect. From 60-80 years old, that’s where we really start to want to stop worrying about money, is $444,588.62 enough for retirement (assuming that the average life expectancy is approximately at 80 years old now)

Now assuming that you live until 80 years old, your monthly income that you will receive will now be at $2,456 per month (Assuming that this amount of return still grows at 3% p.a. and inflation stays flat out at 2% p.a.)

Assuming that the "minimum sum" of CPF Life fulfills the minimum sum by 65, you will get an additional $1,200 per month until the end of life.

So, in a nutshell. Is this enough? All of us have different needs and wants so do some maths with reverse engineering and there you go.

I've not factored in inflation by the way and the reason why I excluded the inflation portion is because while we are working, we still have the capability to fight inflation and when we retire in fact when you think deeper into it most likely the inflation effect should diminish by itself. Why do I say that? When I ponder deeper and longer, when we get out from our jobs our income stream stops so naturally a few things will have to go and your lifestyle will change over time and traveling will probably be the main thing most of us will be thinking about. Unless your savings are plentiful enough to make trips worldwide every year, I do think the type of travel will be scaled down and we no longer will be able to make longer walks or trips that are less travelled by then. Eventually, our diet will most likely shrink and our fashion sense would not be of priority by then.

Just had to sidetrack a bit as my thoughts flowed on to what is in our CPF account and that while our CPF system has it flaws, risk free assets growing at 4% p.a. for first SGD 60K (OA and SA) and the balance at standard 2.5% p.a and 6% p.a. when it goes into the RA when we turn 55 years old. I find no investments that gives risk free returns like this on an annual basis and I've not even compounded them yet.

I've not included the value of our homes yet and I think that real estate is rather illiquid (my definition as you can't sell them now and take back whatever returns immediately)

Now then, have you thought about your own retirement then?

Meanwhile find joy and happiness in whatever you are doing because worrying doesn't solve anything.

Thursday, 10 November 2016

The Introduction to Asset Allocation (Part 2 of 2)

Last I talked about asset allocation was 2 days ago and the elections went underway with plenty of distractions. Now all is set and nothing can be changed for the next four years, let's get back to the fundamentals. At first we discussed about Cash and its possibilities followed by Equities and some of the options and lastly about fixed income on Part 1 of the Asset Allocation series.

A quick recap of Part 1:

1. Cash Holdings
2. Fixed Income/Debt
3. Equity/ETF
4. Alternative Investment
5. Private Equity

Today, I'm going to talk about the next two parts of the allocation which is Item 4 and Item 5 and if you briefly remember when I discussed about allocation, I also brought in the idea of investable assets and retail investors. Unless you are an accredited investor in Singapore, most likely you will not have much access to Alternative Investments and Private Equity. In many people opinion, Real Estate is also considered part of their asset allocation. I don't deny that but just that how many people have the luxury to own more than one property which is the place of residence? So, that said I would not cover that in the allocation post but perhaps in other posts that we can have a more in-depth analysis about Singapore markets, trends and the situation going forward.

Keeping Gold is something rather interesting because these days other than physical gold, we have bullion, paper gold and some other funny gold investments which may or may not turn into a scam. But during downtimes and less risky periods, gold performs best and they may be classified into a Commodity class. Commodities are moving on a downtrend for a few years now and that would be the trend but one day that trend will recover over time and another asset class will come down.

Look at this nice little Kueh Lapis model representation which i picked out from the internet almost every year different asset classes tops the chart and at some point, one goes to the bottom and eventually turning up top again over time:

Most alternative investments as the word goes are investments made up places to invest in which is not so easily accessible. One good example will be Hedge Funds but before we start let's find out on investopedia what is the definition of Hedge Funds.

As defined:

What is a "Hedge Fund"
Hedge funds are alternative investments using pooled funds that may use a number of different strategies in order to earn active return, or alpha, for their investors. Hedge funds may be aggressively managed or make use of derivatives and leverage in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark). Because hedge funds may have low correlations with a traditional portfolio of stocks and bonds, allocating an exposure to hedge funds can be a good diversifier.

Source: Internet

In short, just imagine a normal unit trust or technically, Mutual Funds. A hedge fund is like a mutual fund and the differences will be a mutual fund employ limited strategies but mostly to buy and hold assets and subsequently selling them off. In a hedge fund, they can go on the sell side and profit when market falls using several strategies with leverage and derivatives. Of course the risk is higher and and the returns will be potentially forecasted as higher. There were scams and bad stories about hedge funds  during the GFC and even now, the hedge funds doesn't seem to outperform markets anymore. Usually such fund managers are Top traders who have a thing about first moving advantage on the capital markets and unique trading capabilities. They do have a vested interest though, when they do well for you, they take a cut of the profits and usually 15-20% on top of management fees. The top in class "Bridgewater hedge funds by Ray Dallo" are one of the best and limited capacity kind of fund managers at the top end.

Usually, investments of such are limited to privileged high net worth individuals and institutions/corporations who have much more excesses in cash. There are a few lower barrier to entry hedge funds but I'm rather skeptical when they start to raise funds from retail investors. It does make me wonder if they have an issue garnering cash from the institutes or if something is too right with their strategies.

Fret not for the retail investors, there are some interesting alternatives which you may look into but like hedge funds, these valuations are pretty much unknown and you need some person interest or passion to value them and while you do, someone else who doesn't might not see it as pricey as you do. Let's take something common like a watch for example, a Rolex, Panarai or a Hublot. For a watch enthusiast, a limited edition might be something that is worth paying a premium for but getting your hands on one would be the main issue. A watch like Panarai, which retailed a couple of hundred to a thousand USD in its early years when they manufactured tough watches to the US Marines became a collectors and piqued retail interest only after many years. Today, the watch brand has transformed itself one of the top and well known brands globally. Even if the quality and the mechanism isn't the same as what is today or during its yesteryears, watch enthusiast still would get their hands on those vintage and of course the latest models. (The time frame to double or triple your investments will be 20-40 years so that is alternative investments)

As our country become more affluent, most people tend to enjoy life more and here comes the introduction of wine tasting, whiskey tasting and recent years sake tasting. It's really a simple economic strategy of supply and demand and when you have good Mcdonalds Curry Sauce that is limited, eventually the raw materials to make it will increase in price and eventually the cost will be fully and if not partially born by consumers in a way or another. Wine has made it's way into the country for many years now. Most wine companies call it "en premier" which is wine future. Briefly, an investor or a company tried to buy wines that are age at a vintage they defined as young and then subsequently sell them off at retail or in some cases, in a Christie's or Sotheby's auction house.

Of late, art investments came into play here but most of the time it is less known. The art of appreciating ART is not something that I can define in words. After-all, it might be a tool for money laundering. But when you look back to the examples i put forward, it's all the same theory: These are unconventional investments which may lead to value in the future. Like a company stock, the potential may be unlocked one day and its scandals may lead to their self-destruction. It's something like the travel book, The roads less travelled. Majority and consensus will always deny and say no but if majority ruled the world, we would have never seen a GoPro, Facebook, Google and many more.

There are words of caution on alternatives because these are works of passion but if the conviction is high, what's there to lose to put some money into a few of those? When the stock market crashes, I doubt that a watch retail price decreases in value that quick overnight. Name a few that you might think of as an alternative investments if you thought of any.

Private Equity rings a big bell to many people and maybe some of us know it by OH YEAH, Private investments but a little more about private equity is that these investments can be so raw that they are pioneers of the company of if not, the second or third tier of shareholders. Like Alternative Investments, Private equity are not for everyone. Private Equity can be split up into Private (Which means not opened to public investments such as a listed company stock) and equity (Holding a stake in a particular business) So simply, these are private companies that may not be fully valued. These days we frequently hear the word Angel Investors and they are also called Venture Capital (Which is something like a Start-up or a Venture) The Five basic terms in Private Equity comes with:

A. Leveraged Buyout (Provide the fund raising process in order to scale the business that has potential, perhaps change the management of the company and revamp it altogether similar to a takeover process)

B. Growth Capital (Strategy includes expansion or bigger operations of the current state of a company which do not have the capital to scale further)

C. Mezzanine Capital (This is something complicated in the capital markets world and can be compared to a fixed income strategy. Basically, you get more funding and in return, you have to give back investors with a higher fixed coupon over a period of time)

D. Venture Capital (This mostly represent seed investments or start-ups investments)

E. Distressed/Special Situations (Just in case you do not know, there are firms who buys distressed debts and some of these firms re-structure them into profitable debts before selling them off again to another buyer. Sounds complicated really but in fact it's just like an equity, you buy an undervalued company, take over the management and with your networks and experience turn the company around making valuations better than it was when you first bought it and sell it off to someone else who is interested)

Source: Internet

Now this is getting heavier isn't it as it goes by. Even while I'm trying to map out the explanations in the simplest way possible, it does use up a lot of my brain juice. Investments of such comes with much higher risks and because of that, the returns usually commensurate. Unfortunately, there is again no Holy Grail so one can only use discretion to find out about a Fund Manager with track record. Even if you are George Soros, I'm certain you will never be 100% correct all the time. Interesting enough, private equity investments as it started out gained a lot of traction because there wasn't these type of allocations a few decades ago and even if they did exist, these are most likely club deals which are made while the millionaires interacted during a social event or a golf game.

Source: Internet

Naturally, financial institutions saw the gap and introduce this allocation into the services and today we it more of a Fund Format which sometimes I really wonder even if you are wealthy enough which part of the investments are you putting your money into. The kind of questions I would ask would be if this has been flipped and profited for how many times. I find the conflict of interests too strong at this area with financial institutions as they probably also own part of the Private Equity Arm or have substantial assets on them already. As the saying goes, banker always win.

I would like to end off this series by saying that though some of these investments are not what we may be able to look at it at the moment but if this does increase our awareness and finance literacy, I don't see any harm in understanding more about it. After-all my 10 year experience have taught me that many of these so called new investments, new products do re-route on similar concepts and basis. Before you even step foot into these (perhaps in 10/20 years time) to know it and grow that knowledge and experience 1-2 decade into the future do make all our us knowledgeable and better informed eventually. If you don't even start, then there's no excuse to regret it down the road. Learning as I said is a lifetime and knowledge stays with you forever.

“If you don't go after what you want, you'll never have it. If you don't ask, the answer is always no. If you don't step forward, you're always in the same place.”

-Nora Robert

Wednesday, 9 November 2016

The End and the Beginning of a New Era

So, I guess many watched and keep a close look at the presidential voting results in the USA and we have a winner. Though against what I think should have been a landslide victory, I still must respect the voters choice because after all, the winner claims that the elections are rigged. Let see if the first 100 days will be what he promised to be a different president to the people. Indeed, what a commander-in-chief America gets and Obama's works are going down the drain as what the Democrats have been trying to do for a long well. What is interesting enough to note, will he attempt to put Clinton in jail for the emails just to get back at her? I doubt so but this is someone who has an unpredictable mentality and mindset and I guarantee that we will see sniping remarks of him on Obama just for his own ego.

Sources from AP

So, reality sets in, and markets we risk off (meaning, money goes into less risky assets) The JPY and CHF are typical safe havens for money during times when people feel unstable about such as the Global Financial Crisis (GFC) and now DJT (Donald. J. Trump) see what that relates? Well, I'm not saying that the GFC is approaching but rather uncertainty is here. USD is definitely not a currency to hold in the near term and we shall see the event if something like Brexit happens which is a market selloff for 3 days followed by 1 month of market rally and 2 months of market stability. It is indeed surprising for many but definitely not for voting Americans because though tight, the spirit of their elections will be to concede and move on from there.

We see Hang Seng Index, Nikkei, Sensex in the green from a slight rally earlier this morning to end in the red nearing to close. Europe started out on a negative note and US futures index are moving into the same situation going into NY opening later tonight. Asia Futures market are in the green, probably due to some value hunting but how the NY market goes most likely will translate into the Asia market going into tomorrow morning.

Already, now futures are paring losses and that looks rather interesting. One thing that wouldn't change for the next two days would mostly likely be volatility. We can see some movements going both ways again until things settles down and perhaps a new president calming markets.

I believe the slight shocks will eat into the risk off mentality due to the uncertainty and we would see US markets behaving rather on a more defensive note where most people take out some of the money. Perhaps this is an opportunity to look towards US companies during this correction and keep these highly value but discounted companies, keeping in mind the Forex Exchange will also play a part in this.

What is next for America? Unknown and uncertain for sure. Will have have a great wall appearing soon? Will there be a war? What will happen to TPP? What will really benefit the Americans? Will there really be jobs? One thing for sure is that Obamacare is going to be re-written and New Tax policies are going through endless changes. Interesting to know more about the relations with China and Russia going forward but do stay tune because the reality hit TV show of the US Presidential Candidate will be showing live soon Season 2 on all broadcasting channel.

Just a food for thought-Imagine all previous America's President coming together and taking a picture at their yearly convention. It would be really funny and awkward to see all these people coming together. It does sound interesting what might happen but boy these voters do sound like they are angry and they want to do politicians a favor by giving them more work to do other than just internal strife.

Murphy's Law: Anything that can go wrong will go wrong

Tuesday, 8 November 2016

The US Presidential Election 2016

The most exciting date for Americans or should I say, most Americans is drawing to an end. Frankly, my opinions about politics and in this case both candidates are not exactly the ones I could or would vote for for the next American President. Without doubt, we can't deny how the Presidential nominee to the Presidential Candidate be be turned into a reality TV show. The nation isn't one that is to be governed in the manner.

Mr Trump I must say have not failed in amusing me through all the debates, opinions, facts and repetitiveness. Till now, I have not heard a single policy he wishes to bring to the country. On the other hand, the other party is given the Holy Grail even before anything else started. The self-destruction of the opponent is something that doesn't bode well to talk about what is to be done about the many issues the country faces.

I have obtained plenty of amusement and laughter from all these state of events.

If you have 5 minutes and really want to wind down a little, take a look at this 5 minute video from Barack Obama (Long-form Certificate from Hawaii):

I love this man. A natural speaker and he does look sincere. If you still have 50 minutes to spare and enjoy American jokes, this is Obama's last speech at the white house correspondence dinner and still he gave Trump so much air time. It is such a good laugh. click here:

Just 2 more funny gags from Jimmy Fallon. I absolutely love this:

Trump interviews Trump:
Donald calls Hillary:
Obama calls Trump:

Gag First Presidential Debate and this is from Saturday Night Live:

With election results coming up and most likely on Wednesday morning Singapore time, I would be interested to find out who is American's choice. Do anyone think the election results might affect the markets in general? Historically, Presidential Election years have seen much more stability in the United States so I do doubt there will be much movement once the results are final.

Unfortunately, looking at how things can always be unpredictable. If Trump wins, we all have to take some money off the table for a while. You'll never know what a crazy guy can do. Personally, I like stability. I prefer some stance of stability than an opportunity where pervasiveness can occur. After the elections, I do view the US markets to stabilize in December and subsequently interest rates will start to increase and stock market correction.

End of the day, you got to put your money somewhere and staying in too much cash isn't going to get you anywhere. I would talk more about Blockchains and FinTech companies in the longer run. These are overseas companies that we are investing in and not for everyone but these are some of the trends that are picking up in the world today. Look at China, look at Europe and USA and you can see FinTech will be the game changer very soon.

Who will be your choice? Whether it freedom of choice or opinion I always think that we can't always stand on the sidelines. Vote and make a choice! Just like every other choices we make in life, it's never 50-50 in my opinion, there is always a skewed opinion no matter how small the percentage points are. So, I stopped kidding myself and always make a choice whether it's a better of both or worse of both.

“Sometimes you have to choose between a bunch of wrong choices and no right ones. You just have to choose which wrong choices feels the least wrong.” 
― Colleen HooverHopeless

The introduction to Asset Allocation (Part 1 of 2)

The initial posts and first few are going to be basis of my investment blog journey. Like all other things we do in life, we build a strong foundation so knowledge are going to be the foundation of all things. Foundation are extremely boring stuffs but that is what keeps us going for a long long time. In this post, I'm going to discuss about introduction of asset allocation but before that, asset allocation is not really for everyone but it does help in the long run. Eventually, where you would want to put that extra cash into is something that you want to choose from the many options available.

Now, many, most, probably 70% of us are either retail investors or you can say mass affluent and majority of us on this island probably are beginning on our journey to financial freedom. What is financial freedom actually? It just means free yourself from slavery of money. When you know that you no longer require that monthly income you are getting from somewhere and you have no liabilities, I think you can safely say you are out  of the rat race.

Networth = Assets + Liabilities

Simple Mathematics really:


Liabilities = $0
Assets = Cash, investments, gold, mint toy set, jewelry, something that is of value

Networth = Assets (This means positive cash-flow)


Liabiltiies = Mortgage Loans, Personal Loans, Car loans, Loans from family/friends, Credit card
Assets = Cash, investments, gold, mint toy set, jewelry, something that is of value

Networth = Assets - Liabilities (Most people are in negative cash-flow)

Unfortunately and fortunately, most of us fall into the second category. Well, I can't say that it's a bad thing because a fraction of your assets in loans will be quite the healthy thing to do. Over-leveraging is also something not that everyone can do as well. Interesting rates are rising slowing while deposits and yields and decreasing, the margin where you may take a loan to get potentially higher returns will be reduced.

What is asset allocation? In simple layman terms it just means buying and keeping a little bit of everything that you can financially classify into. Buy a DBS stock and a UOB stock does not qualify as a different asset class but separating out your funds into DBS stock and a UOB bond would be the case. The main allocations are known as:

1. Cash
2. Fixed Income/Bonds/Debts
3. Equity/ETFs
4. Alternative Investments
5. Private Equity

What are our locals favorite asset classes to date when we invest? Make a quick guess, that's equity and most of the time pure Singapore equities (Catalist and Main Board listing) and the majority would go into……….Cash! Yes, Cash. Singaporeans favorite hobby is to scout for the highest interest rate/best deal in town and place most of their cash into a fixed deposit and in recent years some slight re-engineering of the fixed deposit came in the form of a bonus account (Credit card with minimum monthly spending, New funds and Salary crediting) I must say, that was indeed something refreshing and from the looks of how OCBC 360 started this and how eager DBS, UOB, POSB and Bank of China followed suit do mean that this actually gets attention to get potentially higher interest from cash holdings.

This is a huge topic and would cover in two simple parts (Cash, Fixed Income and Equity for Part 1 and Alternative investments and Private Equity for Part 2)

I'm going to skip to point three for now as I hear many people say and tell me, especially during their experiences with the stock market when they started investing. Some say short term gains, some say long term holdings. Those who told me they wanted short term gains ended up trading on the Catalist (Penny Stock) and eventually became long term investors and probably holding on till now since we "HOPE" it may always go back or higher. Now those who wanted to keep deep value companies ended up trading the stock for short term gains once the call was right, thinking about having both trading conditions once they get the confidence and boost from making the right decision. Sometimes I even hear some investors saying they can't lose while some just look to blame someone when they lose. Well, I can only say that if you can't accept losses then probably you shouldn't even start in the first place.

Equities are one of the most volatile asset classes in our portfolios. They determine the performance of the portfolios and in good years, easily double digits and in bad years, double digits as well on the other end. Equities move fast as it is a representation of investor's view of the company's situation. In Singapore's SGX context, the market is relatively small and well we were much smaller in the 1990s and it is really kind of difficult to be more exciting while facing HongKong as a financial hub. Now, equities are actually very exciting for investors and also for myself. Buying a small stake into a company literally means that you are a shareholder in the company and you take on the common share (Meaning if the stock goes to $0, the value of your holdings goes to $0)

Equity ETFs (Exchange Traded Funds) are slowly coming into our local play as part of different types of investments. These investments just means that they are made of specific weightage on a basket of equities in certain sectors. They are more passively traded and tries to follow a certain index and the constituents. I.e. some people say that these are low costs and diversified equity sectors. I wouldn't really call it diversified sectors actually because if you look into HK Index ETFs, they are predominantly made up of financial sector so that wouldn't really be diversified isn't it? Of course the nature of the country's index is very dependent on the financial sector in this situation.

The last segment for Part 1 will be debts and it is most referred to as fixed income. Why Debt and Fixed Income? Really confusing though on the terms - Debt just means another syndication of fund raising. Companies does fund raising all the time through the old channels. In the stock market, they raise funds through making available certain portion of the company holdings for private and corporate investors and similarly in the debt market, companies raise funds through wealthier investors and corporates and in return, the companies pays you a fixed form of returns during certain periods (Mostly semi annual or annually) Most of the time the minimum sum for such debt investment can be up to SGD 250K or USD 200K with some exception of USD 2K. Fixed Income assets do come in higher in rank as compared to an Equity counter. In layman terms, if the company files for bankruptcy the liquidation of the assets goes towards debt repayment first and if there are any excess, it will channel back to common shareholders. Interestingly, Fundsupermart has worked with regulators and do have retail tranches of fixed income investment available to retail investors but only in SGD denominated bonds.

I'm not going to confuse things further but there are such things as bond ETFs that is basically more cost effective and a lower barrier to entry but these are denominated in USD. There are new tools to investments and readily available to retail investors known as crowd funding and these are debts as well with high-yield income and more complications which I would take some time in the future to discuss about.

Generally Rule of Thumb on Fixed Income Assets: Interest rates are inversely proportional to Bond Prices. (In simple terms, If the USA Central Bank officially hike the interest rates, Bond prices will come down and vice-versa)

Asset Classes are an important part in building a portfolio but not that easy to grasp. As usual, Keep things Simple and Sweet. More to come and we could run off faster as the days goes by.