Tuesday, June 30, 2015

[SGX Portfolio] Bye OUE Comm REIT

OUE Comm REIT was one of my first few purchases that I made back in August 2014.


I made the investment based largely that it was trading 24% below its NAV. Although it has been a sturdy soldier in my army so far, today I decided to let go of it at a price of $0.815, which is 10c above my initial position.

With the 10c capital gain and 2 dividend distributions of 24.2c and 28.4c respectively, I'm walking away with a gain of 62.6c which is a total return of 7.7%. Taking into account transaction costs, I get 7.2% returns over the past 11 months, which is decent, but still lower than my portfolio IRR.

One of the things that irks me is that fact that OUE Comm REIT only has 2 properties under its name. They are now planning to acquire One Raffles Place and are raising money to do so. They are raising money through debt, CPPU and rights. I quite like that the CPPU is at at 15% premium to the TERP. It looks like a good deal for current equity investors actually.

As much as I'd like to say that I'm part-owner of such a landmark building like One Raffles Place that defines the Singapore skyline, I'm trying to de-risk my portfolio to more comfortable levels. While OUE Comm REIT has really been a steady investment so far, I feel that I am going to be able to find much more attractive investments in the near future and I'd rather hold cash until such opportunities arise.

With Singapore's CPI at -0.4% and Core Inflation at 0.1%, the "inflation monster" is not scary to me. I'm perfectly fine holding wads and wads of cash. I don't really see a need to take unattractive risks currently and the opportunity cost of cash is not painful at all.

To quote Jeremy Grantham from GMO, "You don't get rewarded for taking risk; you get rewarded for buying cheap assets. And if the assets you bought got pushed up in price simply because they were risky, then you are not going to be rewarded for taking a risk; you are going to be punished for it."

Nostramoney: Greece


Nostramoney thinks that Greece will vote "No" and leave the Euro.

Game plan if Greece leaves? Let go of risky assets, build up cash position and get all my real estate homework done.

I don't think it's going to be a crash, but more like a really slow unravel and gradual realization.

Monday, June 29, 2015

Grexit, now Prexit?

I try to refrain as much as possible from talking about news I read from Zerohedge, but honestly, the mainstream media outlets are so severely lacking and incompetent in highlighting the most pertinent news. I guess as media companies, they push to the front page whatever the crowd wants to read, not what the crowd needs to know.

This looming Puerto Rico default - Prexit - is news to me. For those who don't know what Puerto Rico is famous for, that's okay. Puerto Rico has the 3rd most number of Miss Universe winners, after USA and Venezuela. Pictured below is the perfect example of why. Apparently they are also famous for beaches, but seriously now, who cares about that?


Now, Miss Universes aside, Puerto Rico is facing a debt problem. As succinctly summarized by governor Alejandro García Padilla, "The debt is not payable. There is no other option. I would love to have an easier option. This is not politics, this is math."

I just freaking love that last statement.

This is not politics, this is math.

No amount of politicking is going to suddenly make money appear, send all the problems away and make everything all rainbows and sunshine for everyone. The problem isn't politics, it's f***ing basic mathematics.

On a fundamental level, we understand how this works on individuals like ourselves. More outgoing (expenses) than incoming (revenue) and you're screwed. This can be applied to companies as well, which is why I personally like to avoid debt-riddled and loss-making companies. However, it seems like this train of thought completely stalls when it comes to thinking about countries. Countries with debts are good? Or is this a question that has never even been asked before?

I've mentioned before that all countries are just kicking the can down the road and rolling the problem into a bigger one and handing this ticking nuclear bomb to their successors. So respect to Mr. García Padilla since he has balls to publicly state that any deals "would only postpone Puerto Rico's inevitable reckoning" and to say "I am not kicking the can".

If I was Greek or Puerto Rican, I would not be buying stocks and bonds "on the dip". I would be focusing on protecting my wealth, which could include offshoring wealth and accumulating hard assets.

Unlike some hapless Greeks right now, I rather have a useless barbaric gold bar under my mattress than reading imaginary numbers on my ibanking screen that supposedly exist, but cannot be withdrawn.

What's the point of having money if you can't access it or use it? It's as good as having nothing.

Global Stocks Doing Well?

With so many stock market indices hovering near all-time highs, you would think that everything is fine and dandy - "breaking out into the next bull market", right?

I personally don't think so, but what do I know?

Only what the good people from Gavekal has dug out, which is that surprisingly 42% of MSCI stocks are down over 10%, while 15% of MSCI stocks are already in a bear market (20% down).



What happens next is anyone's best guess. I'm just stating the facts here.

And remember, these charts are all "pre-Grexit".

Sunday, June 28, 2015

Good Money: Paper or Gold?

Incrementum AG came out with their latest 2015 report.



Last year, I did post up their 2014 report as well. I think for any precious metals investor, this is a compelling read to remind us why we invest in precious metals - it is because of their intrinsic nature of being money.

I think many people are confused about what is money. Hopefully this video can clear things up.


Good money has 7 properties:

  1. Unit of account - there is a standard of a basic unit
  2. Fungible - each unit is worth another unit
  3. Durable - it doesn't disappear or degrade
  4. Divisible - it can be broken down into smaller pieces (five $2 notes = one $10 note, or 1000g = 1kg)
  5. Portable - it can be carried around easily
  6. Medium of exchange - it is accepted and recognized as valuable
  7. Store of value - it retains it value

If you understand monetary history, you would also know that in the past Gold and Silver was considered money. Which is why almost all video games use Gold as their in-game currency. It is just something that we all know and recognize as valuable.

What makes gold valuable? This shiny yellow rock? I think it is the fact that Gold is rare. How rare is gold? If you took all the gold that ever was mined in the entire span of human history and melted it down into a solid cube, it would measure slightly more than 20m on each side.

That's all the gold. ever mined. in the entire human history.

Annual gold production produces a cube less than 5m. Yes, the size of your living room. That's the current annual gold production of the entire world, coming from all the mines around the world, in China, America, Canada, Africa all combined - makes enough gold to fit in your living room and that's about it.

The reason why this is very important is because it is universally accepted that gold cannot be conjured up from thin air. If you want more gold, you have to get it from someone that already owns it. You can't just "make" more of it. Of course, you could mine it, but that's why we have arbitragers in the market.

The fact that supply is unable to expand or contract at will is essentially the biggest and mort important feature of the precious metals when compared to fiat paper currency.

In the past, paper currency were merely deposit slips of actual gold or silver in a bank. Carrying around pieces of paper instead of gold bars made transactions easier because it was more portable. Precious metals are portable, they just are not as portable as paper. People respected the paper and accepted it as payment not because they love paper, but because they knew that with this piece of paper, they can walk into a bank and exchange it for gold and silver.

Even in our own history, our forefathers in Singapore used Mexican Silver dollars or Indian Silver rupees for trade. However, the global financial system within the last century managed to break away from this very important step - being able to exchange paper claims for actual precious metals. The whole story why requires a lesson on history that probably starts around WWII and ends with Nixon, but ain't nobody got time for that.

All you need to know is that 100 years ago, coins were made from Silver and you could walk into a bank with notes and walk out with Gold. Today you can't do that at any bank. You can only go to a precious metals dealer, and you aren't exchanging your paper claims for precious metals, you are buying it after whatever price they are willing to sell it to you at.

The oldest currency that is still in circulation and can be used as legal tender today are notes in the US from 1862 (I think). A bevvy of other currencies and their old versions, mostly from the early 19th century, are still in circulation and accepted in a few countries, but needless to say that it is not considered an everyday occurrence to get back change in coins or notes that were produced more than 50 years ago. The point here is that the current longest running legal tender currency is less than 200 years old. Considering the first coins were minted in Lydia 2600 years ago, we have a huge gap where countless upon countless of currencies were created, widely circulated and used, and then died.

If nothing I've said have convinced you that owning SOME gold and silver is not a ridiculous proposition, then perhaps this might change your mind. The failure rate for paper currency is 99%. The 1% represents currencies still in use today. If you exclude that, all currencies so far have a perfect 100% death rate. Why? Because you can always print more pieces of paper than you have precious metals in the bank, and they always do that.

And it looks like they are doing it again...


If you do the math of 5^3 (annual production) divided by 20^3 (total gold stock), you're going to be very pleasantly surprised that all my math and figures supplied here checks out: you get 1.56% pa.

If everyone is just printing more and more pieces of paper, does it not almost entirely explain why asset prices are increasing? More money in the same system with a fixed number of assets... equals to more expensive assets! However, are people "richer" per se?

Now, in a world where all countries are printing money as fast as they can while being up to their necks in debt (of course in that same printed currency, since more printed currency leads to inflation which means repaying back debt with "cheaper" inflated money, yay!), would it not be prudent for people to try and control all the available risks that they are exposed to?

Unfortunately, just like Greece and Europe, and like the USA and their debt ceiling, and like Japan and their kamikaze economy, this is not an "if" problem, this is a "when" problem.

As long as the whole world learns the art of kicking the can down the road from the great ol' US of A, everything everywhere will be fine. However, the minute this charade ends, what do you think will happen?

Just like catching a plane, I think that it is better than be an hour early than even just 1 second too late.

Especially with all these "Greek" news, I honestly think that it is a pretty decent time now to consider the opportunity to use precious metals to both protect your wealth as well as profit from it as an investment. 

With Gold at $1175 and Silver under $16, I think that Mr. Market is trying to tempt me to accumulate more of the good stuff! Give me one more big nasty washout spike lower and I'm going to back up the truck and clear our BullionStar's inventory on hand!

Saturday, June 27, 2015

Property Thoughts June 2015

This piece from AK got me thinking about property again. AK highlights the oncoming supply of units as well as the forecast of increased vacancy rates. As usual, I think his thoughts are very balanced and he errs to the side of caution by citing the Rule of 15. I personally think that the Rule of 15 is not very possible in Singapore since the Singapore real estate market is really a very rare one, especially when compared to other cities in the world. However, I think it is always more conservative to build your model with these kinds of margins of safety, so that's a good thing.

I read this piece by BNP Paribas about the Singapore property market recent as well. I personally don't really like reading secondary information (ie, not source data), but sometimes I am intrigued by certain topics and I don't have the time to look at the source data and come up with my own conclusions. I felt that it is very close to my take of the property market, with similar reasons such as the government policies and supply. I really like their analysis of price-to-income.

I think the 2 biggest factors is housing supply and also rental demand.

(Source: AK, URA)

As AK has pointed out, lots of supply will be coming on into the market. Ceteris paribus, a supply increase reduces prices, no brainer here. Of course now we need to look at demand.


Personally, I think the only source of rental demand is for foreigners. I couldn't name you 3 Singaporeans I know that rent a place if my life depended on it. So, foreigners make up the rental demand, yet the "populist" view held by most Singaporeans is that there should be less foreigners. I don't get it - you want to rent out your place, but you don't want renters in your country? That blatant and absurd hypocrisy aside, BNP shows how foreigner population at least correlates to property prices.


So, increase supply from new houses entering the market and reduced demand from foreigners. Add 1 + 1 and you should get 2. Vacancy rates seem like a good proxy for property prices since it incorporates both supply and demand.

Nostramoney made a prediction of a property price correction in Q4 2015 to H1 2016 and I would be rather happy if that does materialize. I am intending to look for a place so that I can move out and start my own independent adult life soon. Nothing fancy, probably a resale 1 room leasehold private property. 

This is of course assuming that property prices plunge low enough that my downpayment can cover 20% of the property price. However, unlike most people that have a lot of pride and believe in paying for everything themselves, I am willing to ask my parents for a loan (not a gift) to make up for the shortfall if I can't make the downpayment amount.

This could be simply in the form of a normal home loan but from my parents, where my parents become my "second shadow bank", charging me an interest in line with the market, but of course without a mortgage banker taking a piece out of our pie.

Alternatively, I was inspired by LP and his bonds for his parents, I could raise money for myself by offering something similar to my parents and maybe my siblings if they are interested. I think this would be more attractive to them actually. It would also feel less like a loan to them, and more like an investment.

Both of these ways would artificially increases the amount of leverage I am using, which is risky.

Friday, June 26, 2015

China Farmers Stock Skills Tested Today


China stocks are sliding, with the Shanghai exchange down 7.4% today alone.

Shanghai is down 19% in 2 weeks, 1% point away from being officially labelled a "bear market".

Ex-farmers turned stock speculators all around China monitoring their stocks on TV via teletext in the village CC be like:


Question: What do you do now?

A) Man up. Leverage up. Double down. BTFD YOU NOOB.


B) Lie down. Try not to cry. Cry a lot.


C) Be smug about not being involved in China stocks and then realize that China is still up 105% y-o-y


D) Write a pointless post about it and stick it on the internet


I'm going with option D guys. What about you?

Thursday, June 25, 2015

Fixed Deposit Just Matured... Now What?

6 months ago, I took part in the DBS fixed deposit promotion that offers 1.5% for a 6 month tenure.


In a few days time, that fixed deposit will mature and I will have back a respectable heap of cash that will be sitting around waiting to do nothing. So what should I do with it?

Almost exactly a year ago, I was saying that one of my goals was to open up another bank account for my excess cash, and it would probably be with CIMB. Of course, it was not until recently that I had the delightful problem of having too much cash, so opening another bank account was not a priority for me.

CIMB does have a lot of options when it comes to cash management.

Just a basic cash savings account has an interest rate of 0.5% pa!
If you top-up your cash savings account by just $100 every month, the whole balance enjoys 0.8% pa!

One of the things that I really like about CIMB is that they have plenty of fixed deposit choices.

A while ago, I came across their 18 month step-up fixed deposit which had an EIR of 1.39%, which is a rate that honestly nothing that awesome. The flexibility to withdraw before the 18 month tenure is up without any penalty and getting to keep the interest accrued so far is something very nice.

Now, they are having a plain fixed deposit promotion that gives 1.5% for a 12 month tenure for amounts of $25,000.

While that might sound enticing to some, I think that they have a product that is even better.

Their step-up deposits!


The current version of the 12-month Step-up fixed deposit has an EIR of 1.40%.
The current version of the 18-month Step-up fixed deposit has an EIR of 1.66%.

While the interest rate is only SLIGHTLY less than a plain vanilla fixed deposit, the flexibility to cut short my fixed deposit is worth that 0.10% in reduced returns to me. What's even better? The minimum amount is only $10,000 instead of $25,000!

To add icing to the cake, CIMB is now having a promotion for their savings account! For new bank customers that open an account online with a minimum of $5,000, they will get $20 NTUC vouchers!

Personally, CIMB is ticking all the right boxes to win me over as a customer:

  1. Promotion ($20 NTUC voucher) to open an account with them
  2. A product (savings account) that is good on its own even without any promotions
  3. Attractive rates (0.5%) and easy requirements ($100 monthly top up) to get the higher rate (0.8%)
  4. Innovative fixed deposit products (step-up) with attractive rates (1.4% for 12 months)

I plan to fund my CIMB account with $5,000 to qualify for the NTUC voucher. I will set-up an automatic $100 monthly transfer from my OCBC account to my CIMB account to make sure that I get the 0.8% interest instead of the 0.5% interest. I will work towards saving up even more cash, and hopefully in 6 months time when I can drop my account balance from $5,000 to the minimum amount ($1,000), I would have accumulated some extra cash to start a $10,000 step-up fixed deposit!

Perhaps I will register online later tonight or over the weekend.

It seems like my plans of putting cash into the SSB might not happen at all! Maybe I will just put in $500 itno the SSB so that I understand the whole process and also know how I might be able to incorporate the product holistically into my investment strategy.

By the way, I'm totally not paid at all to write about CIMB. But I think my write-up is pretty convincing. They should totally pay me a commission or at least write me a thank you letter if their deposits jump! Haha!

4 Things about Crowd Lending

AK recently talked about this in his post titled "To make 20% per annum, we could lose our capital".
Richard Ng from Invest Openly also gave an open review of MoolahSense which is a crowd lending platform.

Now it is my turn to share my thoughts about this topic.

First and foremost, it is important to understand why crowd lending exists in the first place. From what I understand, crowd lending exists because there is a natural market for it.

Some businesses need loans and they are (1) either no able to obtain a loan from the bank or (2) the cost of the loan is too expensive.

Then there are lenders who do not want to "lend" the bank money for fixed deposit kind of interest rates. Some of these lenders are more aggressive and do not mind to take risks to get higher returns. Risk of course being the loss of capital.

The idea of crowd lending exists because it brings together lenders who are willing to lend money out to businesses to collect a higher return (with risks involved) with businesses who want to get loans at a cheaper cost of financing.

Secondly, the deal is not actually "too good to be true". Whether it is on purpose or not, MoolahSense amortizes its loans which allows them to display the amortized rate. I'm not going to teach finance here, but basically the amortized number is a lot higher than a straight-up, plain vanilla bond.

Take for example, the current MoolahSense campaign for Leap Networks. They "rate" being offered is 20%. However, the 20% is the amortized rate. If it was a plain vanilla bond, the actual return or YTM is 11.61%. Wow, big difference right? You can check this yourself using an amortization calculator.

I'm not saying that companies like MoolahSense and CapitalMatch are shady companies for shrugging off "guarantees" of returns. Equity investors don't blame SGX if their equity investment turns bad, why should we hold debt marketplace makers to a different standard?

The risk of losing your money investing in debt is real, just like how you can lose your money investing in equity. To think expect otherwise is really just being ignorant of the investment.

Thirdly, you must understand that you are investing in debt, not equity.

Most investors by default are only used to and have more experience in equity investing and not debt investing, other than the current FCL retail bond offering which have now turned everyone into bond gurus. The main difference is that equity investors like to focus on "returns on capital (equity)". The 3 letter acronym ROE gets thrown all over the place. Equity investors like to focus on future earnings and growth and other things, which can be less meaningful to the debt investor.

However, crowd-lending, as its name clearly suggests, is investing in debt. Most debt investors focus on "return of capital". Herein lies the huge disparity between debt and equity investors. The more confident that a debt investor is certain that he will get back his capital, the lower rate he is willing to tolerate.

One must understand that he does not participate in any of the upside of the company should it do well. Evaluating a debt investment requires looking at a different set of things compared to an equity investment.

Fourthly, you must understand the risks of investing in debt.

The biggest risk is that you might get back absolutely nothing. Of course, you need to weigh the probability of that happening and decide for yourself if it is worth it to take such risks.

All asset classes have pros and cons and are different from each other. These differences allows certain strategies to work better on some asset classes compared to others.

I did consider to invest in the Seoul Yummy campaign that MoolahSense was doing a while ago, but in the end I decided not to. I am not invested in any of these crowd lending campaigns, but I honestly would consider whatever they have to offer. Like all deals, there are good deals and bad deals.

Tuesday, June 23, 2015

GMGH's Lobang of the Year: Free House

All day, everyday, all I hear is people (especially Singaporeans, which is ironic since we get access to cheaper HDBs) complaining that HOUSING IS SO EXPENSIVE. That's not to say that I disagree.

I watch HGTV. I've seen the huge American houses that sell for under SGD $400,000. I'm not ignorant to the fact that housing in Singapore really is expensive. Of course, we also live in a safe society where maniacs don't randomly shoot up people and the police don't kill citizens, but hey, how do you compare apples to oranges?

So anyway, to all those people that bitch and moan about how everything in Singapore is expensive and that you want to migrate, I have good news for you! I found an epic lobang! Guess what it is? Okay, of course the title gave it away. I've found free houses!

(You might notice that this is dated in 2014. This is because it is the English version. You are more than welcome to read and translate the updated Italian version yourself if you don't trust me)


The municipal of Gangi, on the island of Sicily, which is in Italy, is giving away free houses! (Full NY Times report here)

Of course, there are some catches, but they are rather simple:

  1. Be an EU citizen
  2. Fix the house to be livable within 3 years
  3. It's yours to live or rent out

The biggest hurdle is of course becoming an EU citizen. You should drop Roy Ngerng an email for some tips since I am not the expert on migrating away, ha ha.

The houses being "given away" are not in quite the condition you would expect, which is one of the reasons why they are being given it away. In Singapore where land is expensive and so is housing, it is not common to see housing turn to shit. Here are the 2 month old listings of the free houses they have to offer.

Another reason for this project by the comune is that the population of Gangi is declining and they see this as a two-pronged approach that helps increase the population as well as offer jobs to locals (through the construction and renovation sector).

I've been to Sicily before and I ate horse meat there too, but unfortunately I've never even heard of Gangi, let alone pass by it through my journeys around the world.

Mondello beach

 Downtown Catania

 Via Plebiscito for some horsey horsey and birra

Coast along Taormina

Sicily is a beautiful island and although I've never been to Greece before, I sometimes felt like I was in Greece. It feels a bit like Malta too, being hot, dry and an island. Italy has great food, beautiful beaches and an amazing history as well as culture.

Gangi might not be in the best location ever - it is an hour drive away to the nearest beach. It is 2 hours to either Palermo or Catania, both of which are the major cities on Sicily.

But hey, free stuff, how to complain right?

After you renovate your free house all nice and spiffy, don't forget to send me an invite to visit, okay? Who else so nice give you such lobang?

Professional Benchwarmer

Can someone explain to me why the Greece stock market is up 8% on no-deal? I don't understand this market. Nothing makes sense to me anymore, which is good for me because I would probably lose my shirt trying to guess what is happening in this casino here. This market would rip apart someone like me.


Anyway, my current view happens to be very close to Saxobank's Steen Jakobsen and I'm still sitting pretty with plenty of cash.

Some people tell me that I'm dumb to be out of the market for "no reason". But I really don't feel like I'm missing out much.

YTD, the STI is down almost 1%.
YTD, the SPY is up only 2%.

"Opportunity cost" of being on the "sidelines"?

Doesn't really seem like there is a lot of "cost" to me.

My main reason for being out is that the upside of stocks looks paltry at best, while the downside seems more probably and painful.

I view bonds somewhat similar as well, and this fund company seems to think so as well.

I'm not saying that this or that is going to crash because, who knows right? I'm just saying that I rather not bet my shirt over chump change.

TCW's Jerry Cudzil had this to say,
"Whether it happens tomorrow or in six months, 
do you want look silly before the market sells off or after?"
I'm perfectly fine looking like an idiot. My net worth is still increasing every month and that's all that matters to me.

Monday, June 22, 2015

Mapletree Logistics Down 10%, Cheap Enough to Buy?


Mapletree Logistics Trust (MLT) is down 11.5% from its recent high of 1.26 in April 2015.

If you measure from it's 2013 high in May when all the REITs were going ballistic, the drawdown is about 17%.

With the recent correction in MLT, do I think that it is a good buy?

Fundamentally, I think it is all right. It's properties are quite diversified and looks good to me. However, valuations perhaps is not so ideal.

 
Historically, its average premium is about 5%, which is the expected premium of industrial type buildings, although logistics seems to be a subset of industrials in this case.

It now has a P/NAV premium of 10% which I do not particularly like. Yield is a decent 6.6%. 

The "premium" is off it's crazy levels of 20-30%, which I find is a good thing. During the 2013 REITs run-up, the premium hit 50% intra-quarter which is just absurd.

Looking at the small picture, this 10% correction looks to be a decent level for accumulation. However, when looking at the big picture, this move is nothing. During the GFC, the share price of MLT dropped 65%, which makes this 10% drop look very paltry.

I like the company, but I don't like the price. I continue to watch it, but it is unlikely I will make any moves soon.

Some might think that I am being too greedy with my margin of safety, but hey, to each their own, yeah?

Sunday, June 21, 2015

Doing nothing is actually doing something

I've been crazy busy this week with work and other things, hence the lack of posts! I know I usually try to post once a day, but I really do feel that the markets and getting more and more... meh. I've not much content to make snide commentary on these days, so I'm working on other topic ideas that are more general. I've got 74 draft articles now and it's hard to decide which ones I should finish!

Anyway, it's been a while since I wrote a post regarding my thoughts on the current state of the markets and what I have been up to, so maybe now is a good time to think about things.

The US market looks insane to me. Valuations are crazy. Stock prices are going up because of massive share buybacks fueled by cheap debt caused by a paradoxical fed policy of having low interest rates but inflation. It's all nonsense to me. Upside looks capped and bleak, while downside looks deep and plentiful. There is absolutely nothing to be excited about unless you dare to play short.

In Singapore, the stock market seems to have stalled a bit. I've always been in the camp that the STI has been fairly valued, so how much of a "correction" or "crash" we get, I don't know. We're just collateral damage to whatever happens to the bigger stock exchanges elsewhere.

Bond yields have been flying all over the place as of late, and though I think we take another plunge down in yields as a "risk-off" trade, it's not a trade that I would have high conviction and want to be in. To me, going long bonds now is like trying to pick up pennies in front of a steamroller. The benefits aren't worth the risk. If yields rise quickly, it might be a good time to lock in some money for the short-term though, like 1-2 years. Maybe I'll put some cash into some SSBs that I can redeem anytime.

I'm quite contrarian with my view of the USD. Many people are expecting that the USD is taking a breather before it continues pushing up, but I think the rally is over and done and we see a weakening USD. Why? Historical reference, but hey, who knows, maybe this time is really quite different. With that train of thought, I also think that we see a lot of commodities bottoming out.

Gold and Silver both look ready to start a bull market, especially after both of them have surpassed most previous bear markets in terms of depth and duration. Sentiment is still horrible and I am thinking of loading up on a bit more physicals as my net worth has increased since the last time I bought precious metals.

Basically, I don't have a very pretty view of things. Over the next year I think basically everything turns to shit.

Given that I have such a view, what am I doing?

Well, I've been stepping away from the markets. That doesn't mean that I'm out of the market. It just means that I am not being so aggressive and I am channeling more of my funds into cash rather than other sorts of assets. I'm just busying myself with work and juicing up my savings. All my savings would help me buy a small place and move out when the time is right. Of course, this is if my thesis of "everything turns to shit" really does happen and property prices crash. My mental attention has been channeled towards finish reading many of my books, as well as to get some of my things on my "to-do list" done. I've actually been really busy learning a new language.

Maybe Greece exits the Euro, crashes Europe, causes collateral damage to the US, followed by a global fallout and then we have a nice big generational opportunity to accumulate depressed assets. Now, that would be ideal for me.

I was just reading how any investor who isn't retiring soon should always hope for the biggest and nastiest financial crisis ever, since it is in the accumulator's favour to buy assets when they are cheap. I agree, and I am patiently waiting for the nasty to come.

The question is not "if" it comes, it is "when" it comes. And hopefully I will be ready and waiting.

Wednesday, June 17, 2015

Why buying index can be bad

I saw a post by Lancelot Yoo on Why buying index is good, so I decided to explore the counter argument.

First, I will address the benefits that he listed:

  1. Well diversified portfolio
  2. Low management fees
  3. Easy to understand
  4. Safer than aggressive stock picking / trading

The 2 index funds that he was talking about are the index funds on the SGX that track the STI. One is run by State Street and is commonly known as the SPDR and the other is run by Nikko AM. Although both the ETFs are similar, I do not think that they are. The biggest difference is liquidity

Well diversified portfolio? Maybe.

This depends on your definition of a "well diversified portfolio". 

The index is very heavily skewed to certain sectors. Is the goal of a "well diversified portfolio" to have an accurate representation of the Singapore stock market, or to limit and reduce the risks by keeping sector weights to a maximum? Financials make up a whooping 51.15% of the index. "well diversified"? I don't think so. "accurate representation" is the better word.


Related to the heavy skew to certain sectors, is also the heavy skew to companies with bigger market cap. The top 4 constituents make up 42% of the index and the top 10 makes up 68% of the index. This means that the index is actively making a bet that the biggest companies are going to get relatively bigger than the smaller companies, hence the out-sized bets on them.

Compare this to an equal-weighted portfolio. In an equal-weighted portfolio, the weights would be a mere 13% for the top 4 and 33% for the top 10. An equal weighted portfolio can actually reduces unsystematic risks that comes from each company and enhance returns by inadvertently having a skew towards smaller cap and value.

Low management fees? Depends who you are comparing with.

For both index funds and individual securities, they have to be bought on the SGX though a broker. There's no way around it, so the minimum cost would be 0.18% of the transaction as commission.

For individual securities, that's where all the costs end, until you sell it. Still, selling an index ETF would also incur the same changes, so there's no difference.

However, index ETFs have expense fees, since rebalancing and managing the index is not free. This takes a bite of 0.30% (from the SPDR) or 0.42% (from Nikko AM) out of your portfolio.

Of course, compared to unit trusts which charge usually around 1.5% as their annual expense ratio, index ETFs are cheaper. After you add in the sales charge (which varies but realistically is about 3% if you are NOT buying from a discount broker), the fees really do take a huge bite of your portfolio. However, you aren't getting the same product. Unit trust managers have a different approach, and they can outperform (though, most would underperform) the index.

What has the lowest management fees? Individual securities. They have $0.

Easy to understand? Says who?

I don't really think so. Most people cannot even wrap their heads around the concept of a unit trust, which I think is much simpler than an ETF.

Aren't individual stocks even easier to understand? Followed by unit trusts? And then ETFs?

Anyway, this is a moot point. How does being easy to understand help much? Easier does not mean better.

Safer than aggressive stock picking / trading? Really?

Safer in what sense? Higher total returns? A guaranteed surrender value?

Diversification is a double-edged sword that not only reduces your downside risks from individual companies turning sour, but also caps your upside risks from an individual company turning in Apple.

There are many index ETFs to choose from, and you can also "pick" the wrong ones, just like how you can pick a wrong company.

As a listed form of security on the SGX, index ETFs can still be traded aggressively. Yes, the product can be bought and held, but it is also possible to trade with it. In this case, the "tradability" of the ETF has nothing to do with the product, but with the investor / trader instead.

Also, the constituents are actually PICKED for you using some sort of qualitative measure already. Yeah, you aren't stock picking. You are outsourcing your stock picking to... SPH, SGX and FTSE. And guess who is in the STI?

Somewhat related to the above point on market capitalization weight, an index fund does not allow you to avoid companies that you don't like, or at least reduce your exposure to them. You either take it, or leave it. This can mean that your investing dollars are going into "riskier" companies and sectors that might be overvalued, instead of "safer" ones that might be temporarily depressed. There is no ability to micro manage your allocation within the ETF.

Summary

ETFs are great products for people who understand the product, who realize that they are still making an active decision to follow one index compared to another, and really don't care about how the index is constructed, maintained or the companies that make up its constituents. It's for people who really wants a hands-off way of investing and would be satisfied with returns less than the market (because of fees). Basically, people that don't give a shit about what going on in the market. Many investors like to classify themselves as such, but meh, I think most are just lying to themselves that they are being "model students". I know I am not. I'm too free and too itchy to be a hands-off investor.

Now, don't get me wrong. As much as I point out the problems of ETFs, individual securities and unit trusts have their own sets of drawbacks and shortcomings too. This is the same for all products. However, to tout ETFs as a holy grail because of "diversification" is way too simplistic.


There is no one path to get to Rome. Firstly, no one ever starts at the same location, with the same resources and in the same circumstance. Then everyone has different preferences, tolerance and skills. And finally, we all have different destinations, or "Romes". Following people only brings you to their destination, that is, if you can even keep up.

Monday, June 15, 2015

SAF Group Term Life Insurance Rebate

Since I reinstated my SAF Group Term Life (GTL) insurance plan after I started working, this has been the first full year that I've been covered by them, and therefore eligible to receive the cash rebate that they give back every year!

As a recap, I am insured with the SAF GTL underwritten by Aviva for $200k and it costs $25.60 monthly or $307.20 annually.

Now, here is the letter of my rebate:


As you can see, the rebate is $40.47.

That reduces my basic term life insurance cost from $307.20 to just $266.73 a year. That is a reduction of 13%!

I have actually been waiting for the cash rebate to come out so that I can calculate the real cost of my term insurance.

As a recap, I also have 2 of the SAF-Aviva riders, which is Living Care (50k) and Living Care Plus (50k). They cost $5 and $1.50 a month respectively.

This bring my total insurance cost of covering death / TPD / CI and early CI to $28.73 a month.

Now that I know this, I can finally start doing my math and see if I should switch insurer (the SAF GTL and their riders are annual pay-as-you-go plans, which means you are not locked in) because of costs or benefits.

With the launch of the comparefirst website, I think it is much easier for consumers like me who are more financially savvy to manage their own insurance needs cheaply, clearly and without the need of an agent.

I am thinking of doing a post to show how I compare this plan with what is on comparefirst. For now though, I am happy with my insurance with Aviva.

Perhaps I won't even switch insurance, but just add on insurance instead. I think that diversifying insurance isn't too bad of an idea if it convenient to your situation.

I strongly believe that "buying term and invest the rest" is the correct way for me, but that's just my personal stubborn view on insurance. Do I think endowments are sucky? Do I think that whole life insurance is sucky? Yes and yes. But to each their own.

Sunday, June 14, 2015

Equal Pay for Equal Work?

Hey guys!

It's that time of the year again when I piss a lot of people off by pointing out societies double standards! As some might know, I really really dislike double standards.

I am looking forward to the same old "you just wait one day then you know" and "you know nothing" comments.


Oh well, screw that. What's the point of being on the fringe if I can't rile up the "mainstream"?

--------------------------------------------------------------------------------------------------------------------

So I saw this in the newspaper today...


Look at the red box which I highlighted.

I'm not going to talk about gender equality or whatever, but I'm just going to point out some logic here.

If a woman should bring home the same amount of money as a man doing the same job, does that also mean that...

A foreign worker should bring home the same amount of money as a local for doing the same job?

Equal pay for equal work, right?

If a bus driver is from China, should he get the some salary as a Singaporean?
If a nurse is Fillipino, should she get the some salary as a Singaporean?

Equal pay for equal work, right?

Of course, the counter-argument is that the "quality" of foreigners are sub-standard to locals. The most common example is how a degree of the University of XXX foreign country is cheaper, easier to obtain and just overall inferior to a Singaporean degree holder. (The irony being that it is common censuses to Singaporeans that attended overseas universities that the specific university that they attended just is the same caliber as the local ones, and is nothing like the inferior "foreign universities" that foreigners graduate from)

Then again, the counter-argument to that counter-argument is that employers are not so easily fooled. They know that a degree from Havard is not the same as one from the University of GMGH.

Which is right, which is wrong?

I don't know.

But if you think men and women should get the same pay for the same type of work, then by that logic you must also think that foreigners and locals should get the same pay for the same type of work.

Equal pay for equal work, right?

In case you miss the double standard here, our society is all for

"equal pay for equal work" *terms & conditions apply.

Which is right, which is wrong?

I don't know.

I'm just saying.

Now, at this point, I would like to end my post. Some people after reading this post, or even parts of it, might feel very obliged to share with me their expert opinions about my idiocy and their higher intelligence. Sure, say whatever you want, but you better observe my house rules.

Friday, June 12, 2015

It's not "IF", it's "WHEN"

As usual, I was reading ZeroHedge and I stumbled across this article about Gold.

It reminded me of a recent conversation that I had going on with my friend.

He asked me all sort of good questions.

What is debt? 
Borrowing from your own future.

Why is there so much debt? 
People tend to value the present more than the future

How is it possible that so much debt is created?
People with excess money don't mind to lend it to earn interest

How can debt be paid back?
People dial back on their current consumption or increase their incomes

What happens when people can't pay it back?
They default and become bankrupt

Are countries the same as people when it comes to debt?
Yes, except that they could also print money, ie. force out inflation

Why don't countries just print more money then?
That's exactly what they are doing

Wouldn't that solve all the problems?
Have you heard of Zimbabwe?

I also found this interesting infographic to help visualize and put in perspective to people about how much gold there is in the entire world. 


I'm not saying that gold is a great investment. Gold is a commodity, it is a precious metal. It is a non-productive asset. It just is, and will always just be as is.

But, that's the appealing thing about it. It is there, and it will always be there.

IPO sure Huat Ah?

With the performance of Singapore O&G's recent IPO, I think many retail investors are getting swooned by the allure of IPOs.


From an IPO price of $0.25, IPO investors would be up almost 200% at today's closing price!

So easy to make money right? Why work damit, just be a Chinese farmer / stock trader!

Well, look at the post-IPO performance of these 2 stocks...


Pacific Radiance started trading in November 2013 and it's IPO price was $0.90. It went up to a high of $1.51 in late 2014, but prices have been one a 1 way road down since then. Today's close of $0.54 is a 40% loss of IPO investors.

POSH, a related company, started trading in early 2014 and it's IPO price was $1.15. The highest it went to was $1.165 a few days later, and it has just sank like a... ship since then. At today's closing price of $0.445, this represents a whopping 61% loss for IPO investors.

Of course, many will be quick to point out that the industry that Pacific Radiance and POSH suddenly turned sour, so the macro factors are affecting the company. That's probably a large factor for its poor price performance. However, couldn't that happen to any stock, IPO or not?

Just because a stock is going for IPO doesn't mean that it will be awesome like O&G. Macro factors and valuations still matter, regardless who is the CEO and what products the company sells. Too many people fall in love with the narrative and buy stocks with both hands and both feet.

I think the best way to think about an IPO is from the perspective of the existing shareholders of the company. All I think about is how the original shareholders are passing on the bag to the new IPO shareholders. If it's such a great stock, why would they be selling their stake? The use of the IPO money should be extremely compelling, rather than a "meh" business idea. That's just my opinion anyway.

Thursday, June 11, 2015

Do All The Little Things Add Up? 2015

Over the weekend, I gathered up all my little piggy banks and loose change and decided to go and magically transform them into something more useful!

If you didn't know, The Singapore Mint actually has coin deposit machines that will accept all your coins and then credit you with the money electronically!

(Source: Clementionline)

They used to have a coin deposit machine at their retail branch at Orchard Central, but I guess it wasn't very popular so they decided to put the machine to better use by having it rotate around at different CC's. Here is the schedule for the rest of the year if you are interested!

Since the Orchard Central branch did not have a machine anymore, my previous ritual of going there to cash in my coins was unfortunately broken. However, I managed to convince a friend last year to save up her coins as well, so we decided to go to one of the CCs together and cash in our coins!

Guess how much money I got from saving up coins?

$398.01!

Wow, that's not too bad right? I deposited a total of $409.65 worth of coins, but the fees for processing all the coins amounted to $11.64, so my net balance was $398.01.

If I am not wrong, OCBC has no coin deposit facilities. DBS/POSB do have coin deposit facilities, but their fees are ridiculous at $0.012/piece. The mint fees was only $0.00325, which is so much cheaper! I did have a ton of old 1c coins and lots of 5c coins, which is why my fees are pretty high in relationship to the total amount I deposited. Previously, the first 1000 pieces was free to process!

Putting my loose change into a small piggy bank every day after I return back to my desk from lunch, or once I reach back home from going out has been a really good habit for me.

Firstly, since I no longer carry coins around with me, my wallet is very, very, very thin and that makes it very comfortable and enjoyable for me to carry around. The joys of having a simple, thin and discreet wallet cannot be explained, only experienced and enjoyed.

Secondly, buying things is so much easier for me now. It is either by card or by a note. There is no fumbling around try to find exact change to minimize the number of coins I keep. I let all my coins run wild in my pocket until I reach home. I don't stress out if I buy something for $1.10 and I have to use a $2 note.

Thirdly, I am never spending money just to "get rid of change". Since I know that the coins saved will come back into my bank balance for future use, I never think of coins as being too small to be worth anything.

Lastly, it's really quite a sizable amount of money that I managed to squirrel away. I think I could probably buy 100 shares of SembCorp Ind with that money I managed to salvage, haha!

This is one of the few habits that I quite like that I adopted. Forming good habits make sure that you are always subconsciously doing the right thing for you, all the time. By the time I retire from working, I wonder how much "pocket change" money I would have managed to save.

Thousands?

Probably!

Wednesday, June 10, 2015

Why Work? Chinese Farmer makes 4000% in 5 years!

"They say money does not grow on trees, but these farmers from a rural village in China are learning that it does grow in the stock market."

"It's a lot easier to make money from stocks than from farmwork"

"Hundreds here are buying into the Shanghai market for the first time"

"The villagers started PLOUGHING their savings into stocks after one heard about the market craze from another town."



What's the worst that could happen?

Dammit, why am I even working? I should just go be a farmer in China.

Tuesday, June 9, 2015

Wherefore Art Thou, Romeo? (Silverlake Axis)


I was never good at literature. I tried reading Jane Austen once to try and be all literate and learned, but it was the worst book that I never read in my life. I couldn't finish the book even if there was a $100 reward at the last page. That's a $100 I don't mind forfeiting so that I can live my life without that horrible experience.

Don't get me wrong, I love reading. 1984 is pretty much my favourite book ever. I think as a reader, I like the story plot a lot better than flowery writing. That's just my personal preference though.

Anyway, somewhat related to things that I am just horrible at is growth investing.

I personally rather not buy promises that may or may not be kept. I like to take things at face value and imagine armageddon, rather than fairies and unicorns. What if this "growth" never materializes? I guess that is probably the biggest risk I see in growth investing. I'm just not hard-wired for it, but if you are, by all means go ahead. You have 1 less competitor out there.

Now, recently I've been watching Silverlake Axis accelerate downwards to the floor. At this rate they are heading to zero by October. That's not really very likely, but hey, I'm just stating the facts here. It dropped 50c in 2 months. In 4 more months at this pace, there ain't going to be anything left. Over-reaction? Let's see.


Honestly, before today I never even knew what Silverlake Axis did. All I saw was a graph going up and up and a ridiculously high PE. My mind just goes numb when I hear about companies like that. But with the massive drop in price over the past 2 months, I guess it has sufficiently piqued my interest in it.

EotS has a very good post on the business of the company itself, while B has a nice supplement addressing the issues raised by the blogger. I like reading other people's take on something. When you compare it to your own view, you can challenge the best of your defences with the best of their attacks, and vice versa. It makes your final conclusion a lot stronger.

I do agree that their moat seems legit and their balance sheet is something to be envious about. They also have really disgusting margins. But alas, their valuations is a bit off-putting for someone like me.

I see Silverlake Axis as a company that is really similar to Sarine Tech. Sarine tech is a really fast growing company with disgusting margins as well. Earnings has doubled in the past 5 years! But is it a value company? Well EV/EBITDA is 21, so not really to me.

In my simple pleb mind, value investing is buying something cheaper than what it is worth today, whereas growth investing is buying something with the expectation that it will eventually be worth more in the future.

I would not consider Silverlake Axis a target for a value investor. Is it cheaper than it was? Yes. Is it cheap, objectively? I would say no.

However, I do see how things could turn out really well for Silverlake Axis. Perhaps the Malaysian Ringgit starts to appreciate (we are at a 9 year high compared to them). Perhaps all their future plans and growth all fall into place and even surprise to the upside. They have started buying back shares too, so would that give the stock more bids and a price floor?

As a business, Silverlake Axis looks great to me. At these valuations, I wouldn't say that I'm not interested, but I would say that it would not be a comfortable buy for me. I'm still on the fence for this one.

However, I am trying to slowly diversify my strategy and also not only look for bargain bin stocks, but also into more quality stocks. And as with most good things in life, you've got to pay for it. I'm quite on the fence regarding this, so maybe I'll shake my lucky 8 ball later to find out if I should take up a position. Not many fundamentally pretty counters like this drop 33% unless they were really crazily valued in the first place.

So, just like Romeo and Juliet, this is how I feel with quite a lot of companies. They look so beautiful and great to me, but there is just something holding me back, keeping us from being together. It just seems like it's a forbidden relationship that was just never meant to be.

Does Romeo get Juliet in the end?

Monday, June 8, 2015

Invest In What You Know? (1) Ascendas REIT

Today, I had the opportunity to visit a building that is part of Ascendas REIT's portfolio.


The building was called Techlink and it was in the Kaki Bukit area. When I reached the building, I didn't even know it was owned by A-REIT until I saw the bright green (teal?) sign on the building.

Aha, a famous name! This building should be great!

Well, not really actually. I mean, the building was nice and clean. Architecturally you can't fault it. It looks like every other commercial building in that area. However, what got me was that the units on the ground floor were completely vacant. Aren't the ground floor units the "best" ones?

I remember sitting in a friend's car and we were driving somewhere. Beside the expressway somewhere in the west, I spotted a building with the similar A-REIT green sign on it. If I'm not wrong, I saw signage advertising that there is space available. It looked like there was a lot of space available to me, but what do I know?

So I went online to check their latest investors' presentation. I think my hunch was quite right. They have a portfolio occupancy rate of 87.7%. The current most hated industrial REIT, Sabana REIT, has an occupancy of 90.6% and is spitting out a yield of 8.4%. Mapletree Industrial has an occupancy of 90.2% and yields of 6.8%. I know that I'm not comparing apples to apples, but I'm just saying, that's all.


Ascendas REIT is one of the biggest REITs in Singapore by market capitalization if I'm not wrong. At it's current price, it's pumping out about 6% yields, making it the lowest yielding industrial REIT. Their P/NAV ratio is selling at a 16% premium over book value. It's not an insanely expensive valuation, but its valuation is on the high side for the industrial REIT subsector.

When I have lunch at the coffeeshop in my area, it is very common for me to see fliers for some industrial space. If I am not wrong, they are all strata-titled and in tight, condensed, but spiffy looking buildings. Of course, those kind of buildings attract SMEs while REITs attract bigger companies which are more "stable", but you still have to remember that 99% of enterprises in Singapore are SMEs. I can imagine why an SME would prefer a strata-titled unit, since you would get all the benefits of being an owner instead of a renter.

While at the REIT Symposium 2015, one of the more interesting observations I heard was about the general decline of strata-titled shopping centres. All the reasons why REITs are generally better choices (I can think of a few reasons why a REIT shopping mall is not always the best choice for a business) are logical and observable in real life. However, industrial space? I'm not so sure that the "REIT bonus" here can be easily justified and seen as easily as compared to retail spaces.

I am not vested in Ascendas REIT, but as a trust, it looks good enough to me. However, as an investment, I would rather wait for a more attractive offer to become a shareholder. Right now at this price? Not interested.

Saturday, June 6, 2015

Why I Only Invest in Dividend Companies

I read this interesting post by Giraffe Value Investing, and that finally tipped me over and prompted me to write this post. This has been something I've been wanting to verbalize for a long time, but I guess it's better late than never. It's a bit messy because I have ideas jumping from place to place and it doesn't really fit into a nice clean structure, but oh so be it.

There are lots of studies and research comparing dividend stocks to companies that don't pay dividends. However, as objective as these things probably are, it's so easy to tweak around certain things, especially timeframes to cheerlead a particular position. I leave it up to you to decide for yourself what you believe in.

On a micro level, I believe that the typical public listed company is meant to operate a business that generates profits, with the goal to enrich it's shareholders. Screw all that sustainable, ethical PR marketing crap. No, the company did not exist to the make the world a better place. It's all about the money. Long live capitalism! The managers of a company has only a few options of what they can do with their excess cash (after capex for maintenance and growth).

1) Pay out a dividend
2) Pay off debt
3) Buy back shares
4) Do nothing about it

That's what a manager can do. However, regardless of what the managers do, shareholders can only be enriched in 2 ways - capital gains or dividend yield.

Enriching shareholders through dividend gains is pretty straight forward. The company has cash from the profits it made while conducting business. It doesn't need all the cash to maintain its operation and capex, so it returns the excess to shareholders. Shareholders immediately realize a return from the dividend. Dividends are straight forward, immediate returns that are locked up.

Enriching shareholders through capital gains is a bit more tricky, because the company technically cannot do much about its share price because it is not something entirely within their control. It can improve the business fundamentals to make it a more attractive and sustainable business, such as increasing earnings, reducing debt and securing moats, but at the end of the day, the share price is still dependent on market participants. Even if the company engages in share buybacks, they just become one of the many many many market participants splashing the stock price all over the place every other day.

Sure, the market SHOULD be rational and price everything efficiently, but surprise, it doesn't. (case in point, Saizen vs J-REITs)

Now, I think that a company that doesn't know what to do with their excess cash should not be fooling around with my money. You need money to maintain operations? Take it. You need money to grow the business through capex? Take it. Anything else, please give me back my money and I will allocate it myself, thank you very much.

A dividend policy forces a company's management to focus on sustainable profits and avoid excessive risk-taking. Take too much risk at the expense of profits, then BAM, whoever is responsible gets their head chopped off. This penalty system makes sure that cash isn't flowing into some pet project of one of the management or into stupid projects. With a clear dividend policy (and corresponding rewards), management is accountable and understand what their KPI is. It keeps both managers and owners on the same page and reduces agency issues.

Personally, I don't like the idea of selling away shares as the only option to realize gains through "cashing out all the accumulated dividends at your selected time". If the business is a good business, I still want to own it. Even if its a bad business, maybe I want to hold onto it for sentimental reasons. If it's making too much money and doesn't know what to do with it, dammit, give it back to me to invest in other opportunities rather than sit on a huge cash hoard for no good reason.

Psychologically as an investor, dividends along the way helps to keep you motivated to be invested in the stock. Something about having a random cookie every once in a while just feels nice.

Other than psychologically helping to keep you invested, dividends paid out are also locked-in, realized gains that cannot be "lost" back to the market. If all your returns were so far in unrealized capital gains, that could disappear if share price drops. Dividends that is paid out and sitting in your bank account does not disappear. It is a way of casually and consistently de-risking the amount of capital that you have at risk in the market.

Most importantly though, the main flaw of "capital gains" investing strongly assumes that one is not only willing to sell their securities, but is also skilled enough to know when to sell and how much to sell. As I've mentioned before, I think most investors as a whole (including myself) are just downright horrible when it comes to selling. Buying is no problem. Buy whatever stock you want, whenever you want, people that observe just shut up and smoke a cigar. Sell something, especially a stock that they also have in their portfolio, then boom, all the FBI-level interrogations and mind-control comes out convincing you why you should not sell the stock - and be just like them.

On the practical front, having a portfolio that pays out dividends allows you to better fine-tune the allocation of the payout money. Instead of only being restricted to "reinvest" into the source company, you are able to browse through your own portfolio and selectively deploy your paid out dividends into more attractive companies. Maybe a company you own is suffering from a bad quarter and an emotional sell off. Buy into it. Maybe a company you own is surging on speculative news. Don't reinvest into it. Having dividends allow you that luxury of fine-tuning your allocation, which basically means allowing you to buy low, sell high.

In a bigger picture, dividends paid out can also be chosen not to be even re-invested at all. Let's say the market has been in a massive bull run and stocks feel over-valued to you. You don't feel like getting off the train early, but you also don't want to enter at these valuations. You just sit tight with cash in hand and you can build up a warchest while waiting for a correction. When (not if, because it always comes) it comes, you will have the cash to pick up attractively priced stocks.

When a bear market comes, it is entirely within reason and possibility that a company cuts or reduces its dividend. If the company is facing issues that is an industry problem or even a more general economic problem, why shouldn't it be able to decide to be more conservative with its cash? Dividends aren't conjured up from the air. Paying out cash in tight times leaves the company in a riskier position. A good management looks at the big picture and in the long term, and that might mean a short term sacrifice in dividends for that year or few. Personally, I don't think it is a sin, but it seems to me that many people write off stocks like that. Not only do I not mind, I freaking love it. Less competition for those stocks.

Don't get me wrong, I'm not saying to only pick companies based on dividend yields. There's a hundred different metrics to use, why limit yourself to one? Picking companies based solely on dividend yields is probably a recipe for disaster and I wouldn't be surprised if what you get is mostly right-pocket-to-left-pocket-investing.

I don't even care about dividend growth. I don't need my dividend to grow. It would be nice if it did. But for some investments, I am perfectly happy with a stagnant dividend if stock price can remain relatively stable as well. Decent positive total returns is what I want. A good example of this would be mature REITs. They are almost considered bond proxies because of their stable income and market value.

So does preference to dividend stocks generically "depend on strategy"? Unfortunately for the people looking for the secret answer to get rich quick, my answer would be that "it depends".

To say that one style of investing is better than another is very narrow minded. To quote a previous post:

There are many ways to invest, just like there are many ways to get to Rome. The path that everyone takes to get there may be different. Some may have taken longer. Some may have spent more money. But if the final goal is getting to Rome and they got there, does it really matter? Many may have taken the path that you preach and extoll, but will all your followers reach Rome?
The path might be the same, but each traveller is different, so the journey may be different as well.

It is my personal preference to invest in dividend paying companies because it suits my personality and investing style. I believe that with all the knowledge I have learnt so far, combined with the skills and tools that I have, taking the path of dividend paying stocks is one of my better methods that suits me.

Tall guys don't compete in weight lifting. Short guys don't do triple jump. Skinny guys don't do the shot put. Fat guys don't do marathons.

Just because my shoes looks nice on me, that doesn't mean you should go out and buy them to wear. Get what I mean?