SGX wants you to start small and end up rich. Me too.

Here's an article from one of SGX top honco on how you can start small and end up rich. It's as though he was ghost writing for me as I hold the same view too.

--- A Straits Times Article (25 Jan 2014) ---

INVESTING can take time and effort. Many people I meet in my role at SGX tell me that they are daunted by the market knowledge and attention to detail demanded by the investing process, and fear the risk of loss.

Many believe only retirees or the wealthy have the luxury of time needed to watch the market and time their investments accordingly. Inevitably and unfortunately, for many of these people, the easiest course of action remains inaction.

Investing doesn't have to be like this. While it is true that stock investing may have intimidated many retail investors in the past, barriers to entry have been lowered in many ways over the last few decades.

These days, it's possible to get started with as little as $100 per month in start-up capital and still access an impressive range of investment vehicles.

Start small, start early

So what can you do with just $100 per month? The case for investing can be explained by the process of accumulation and compounding: you can build a considerably higher investment portfolio because on top of your accumulated capital, your investment returns are reinvested and multiplied over time.

This is especially so if you start investing at a younger age. Over time, small but regular investments in the stock market can definitely add up to a much bigger nest egg.

To see how this principle works, let's take a look at the Straits Times Index (STI), the benchmark index for the Singapore stock market, which tracks the performance of the top 30 listed companies.

Most months of the year, a STI company distributes a dividend. If a dividend payment is reinvested, then that reinvestment will later receive a dividend, which can again be reinvested and so on, creating a compounding effect over time.

If you had invested $100 month in the STI for 240 months (or 20 years), your total original capital investment would have grown from $24,000 to $52,409 by the end of 2013, including capital appreciation and $15,188 in dividends received.

If you further re-invested the dividends into the portfolio along the way, your total portfolio would have been worth even more at $56,031 a total return of 133 per cent, or more than doubling your initial investment.

And to achieve over half a million dollars in investments, you would therefore need to start with $1,000 a month.

Practising safe investing

It's possible to reap the benefits of progressive investing without taking on too much risk.

A number of methods are available, including regular shares savings (RSS) plans, which are automated investment schemes that adopt the "dollar cost averaging" method.

These plans let you invest a fixed dollar amount every month instead of committing to buy a fixed number of shares.

If share prices go up, fewer shares will be purchased, and if share prices go down, more shares will be purchased. This means investors can build portfolios in a more cost-effective manner.

For example, more units in the STI would have been bought in the month of August 2013 when the STI ended at 3,028 than in the April when the STI ended at 3,368.

Currently, local banks POSB and OCBC offer their equivalents of RSS plans.

For as little as $100 per month, you can contribute to plans that allow you to invest directly in Exchange Traded Funds (ETFs) that mirror the market performance of the STI.

Alternatively, you can also use the plan to purchase shares in "blue chip" companies that have traditionally been out of reach due to high minimum capital required.

Good things come in small packages

One of the changes investors in Singapore will see this year is the reduction in the minimum board lot size from 1,000 to 100 shares.

For investors with lower disposable capital, this will make blue chip and high-yield investment stocks much more accessible.

It will also enable investors to build more diversified and balanced portfolios with the same amount of capital.

Personally, I hope it encourages young adults to consider investing in blue chip companies and ETFs earlier.

By combining the dollar cost averaging and dividend reinvestment methods, you can achieve meaningful growth and returns on your investments without requiring large sums of initial capital.

In short, starting small now can help you end big.

The writer is head of retail investors at Singapore Exchange.

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Playmates are hawt!

Playmates are hot. No, I am not talking about those girls from the Playboy magazines. Get your mind out of the gutter. I am referring to Playmates Toys (869 HK). 

869 HK is developer of toys. It does the creation, the marketing, the distribution etc, of toys. Think of it like a Mattel or a Hasbro. On a smaller scale and without the household names such as Barbie and Hotwheels. It however, partners with brand owners to help monetize their brands through toys - e.g. Family guy, Michael Jackson, etc.

Now why is it hot...

869 HK actually looks terrible on 1st inspection. It was loss making in 2008. Again in 2009. And again and again until 2012, when it finally turn profitable. 

And with that turn, it turned into a multi-bagger. A 5x return on your $ to be precise. That's hot.

The turnaround in 2012 came from the launch of the TMNT toys which they develop, market and distribute. TMNT is essentially Teenage Mutant Ninja Turtles. Heroes in a hard shell! 

I love TMNT as a kid. And after a revamp in 2012, TMNT is apparently popular with kids in this generation too. And from what I can find online, that still remains the case in 2013. Thanks to the successful relaunch of TMNT, the related toys saw huge demand. TMNT toys were the #1 selling action figure in 2012. And it appears that it is still the case in 2013 if you go by some top 10 lists of things kids want for Christmas.

The heroes in the hard shells cannot be under estimated and the same can be said of the profits that 869 HK is making off the cartoon franchise. It is quite clear that 2013 profits for the company will be significantly higher than 2012. And the company has already issued a positive profit alert to that extent.

Looking ahead...

Going forward, if 869 HK can distribute the products to more territories beyond the core US and Europe markets and to the extent it can create more line extensions and products around the TMNT franchise, it can potentially grow profits further. If pricing can be increased, all the better, though it is not clear if it is possible in a very competitive toy retailing market.

It's main market is the US in which it derives 60% of its total sales. And if you are a believer of the US recovery, this company will surely benefit from increased consumer spending.

Oh and did I mention that the TMNT movie will be out in Aug 2014 and directed by the same director of Transformer. And guess who's starring - Megan Fox! Who knows what that will do for the toy sales.

The company is in a net cash position and require very little incremental capital to grow. So potentially, we could see the company issue a dividend for the year ending 2013. 

Now hold your horses turtles...

Now, this is all very exciting. But a few questions remains:

1) What happens when TMNT starts to lose favour with the kids? As it is, the company is booming because of TMNT. Its other products are not all that great. So there is a single-product risk here.

2) Given the popularity of TMNT and the fact that the content belongs to the content company (Nickelodeon in this case), will we see them ask for higher royalties and which could potentially mean lower profits for 869 HK?

3) Structurally, do kids still like toys? Are toys getting substituted by iPads and the like? Interactive games is all the rage, from what I see. Can traditional toys, which 869 HK produce, still be in demand? Can 869 HK revamp itself to cater to the interactive market?

4) What is the right price to pay for this? The company has no meaningful historical valuations as reference since it has been loss-making for the longest time. Its peers like Hasbro and Mattel are trading at P/E ratios +/- 20x. But are those data points relevant? After all, they are much larger players with their own library of brands.

Conclusion...

Clearly, there are many things to be excited about and many more to worry about. I think it is generally hard to get this right. But it is still a very interesting company nonetheless.

Let me know what you think. Speak to me here.

P.S. This article was written 2 weeks ago. Recent developments and price action has proven how difficult it is to make $ on this stock. Difficulty = insane. But at some price, it will provide a sufficiently attractive margin of error, IMO.

Disclaimer: the analysis is overly simplified. Please do your own research before reaching a decision. Caveat emptor

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The ONE formula that works in unit trust investing

On this page, you won't find 5 reasons why investing in unit trusts is a bad idea. Neither would you find 3 reasons why you should. What you have here is a framework to think about unit trusts and references to resources that will be helpful.

My experience tells me most people know what unit trusts are. But for those who need to pick up the basics, please scroll to the bottom and you can find relevant links there.

Let's get started...

If you are reading this, it is most likely that you are clueless about investing. But imagine this. Imagine you are a boss (think of your boss) and you will like to hire a minion to do the work for you. 

But then remember, you are ignorant about investing. How then do you distinguish between someone who talks a good talk and someone who can deliver? Quite simply, you just choose a person who has already delivered the goods!

So for those who choose to be consciously ignorant, then you have to write the rules of the game in your favour. And the parameters that favour you are as follow: 

i) Choose only fund managers with a long track record and 

ii) who has demonstrated that they have achieved higher returns than the stock market across time, 

iii) and after subtracting fees, you achieve returns better than the average stock market return (i.e. 6% p.a +/-)

Stick with the tried and tested...

There are 3 key parts here - i) track record, ii) performance across time, iii) fees.

We are concerned not with short term performance but performance across time, since short term performance could be temporary. Info on the track record can easily be found in the fund factsheet, on fundsupermart.com or on citywire.com. 

Just make sure that the fund manager was the same person who ran the fund for the past # of years in which the track record was generated. If you are not sure, just email the contact person. If you can't get the answer, then just avoid it. I don't have the figures but the universe of funds with the track record of 5 - 10 years of outperformance and achieved by the same fund manager who is still there is incredibly small. So, limited work you have to do there.

Separately, we are concerned about fees. The only way to minimize fees is to avoid over-trading (i.e. buying and selling the unit trusts) and with time, the drag from the one-off fees (sales/redemption charges) will diminish. There is still the on-going cost which you can't run away from. Think of it like the salary for that Harvard MBA minion you just hired. 

Keep it simple...

Frankly, that's all you need. You may be told that you should diversify into different asset classes, different geographies, styles, etc. But if you are consciously ignorant, then what makes you think you can make a conscious well-thought through decision on which investing style is better or which geography is better? And if you can't, then the best you can do is find someone who has proven to be good, put your $ with him, and ignore the investing trends/flavours of the day.

There is a cost to ignorance and it is quite evident here in the world of investing. If you don't want to pay for the Ferrari that your Harvard MBA minion is driving, then you have to learn how to do it yourself. Only with knowledge, can you protect yourself and minimize costs. But without knowledge, the best anyone can do is outsource. And the formula is simple - find someone good and stick with him/her.  

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Here's a comprehensive read on unit trusts - download here

Let me broadly summarize the essentials of the above document. 

- Most SG unit trusts are open-ended funds and they tend to trade at their net asset value. Net asset value (NAV) is essential the value of all assets in the fund, less all liabilities. 

- There are one-off costs and ongoing costs. 

- One off costs include sales charge (upon purchase) and redemption charge (upon sale) and are usually 1.5 - 5%. Typically, a consumer is only charged either a sale or redemption charge but not both. This cost is typically priced into the product already, so you won't really 'see' it but it is there (see pg 12 -14 of the document)

- Ongoing costs include mangement fee (typically 0.5 - 2% of NAV) and trustee fee (0.1 - 0.15% of NAV)

- Capital protected funds do not guarantee that you receive 100% of your capital back; only capital guaranteed funds do

Here's a glossary of terms that you might need - go here

Fare increase come already!

Fare increase come already! Within expectations but on the higher end of expectation range. Bad for commuters like me and great for shareholders. Note that next yr also got fare increase, it will seem. Seow liaoz!

[disclaimer: this is a first cut impression; maybe I will come to a different conclusion after I read the detailed annoucement]

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--- A Straits Times Article (17 Jan 2014) --

The Public Transport Council (PTC) has approved a fare increase of 3.2 per cent on train and bus fares from April 6 this year.

Adult card fares for buses and trains will go up by 4 to 6 cents per journey. Senior citizens will pay 2 to 3 cents more per journey, while students pay 2 cents more.

Cash fares for train and adult bus rides will go up by 20 cents per trip, while senior citizen and student concessionary cash fares for bus rides will increase by 10 cents per trip.

Public transport fares were last adjusted in October 2011. The 2012 exercise was suspended to allow a Fare Review Mechanism Committee to come up with a new fare formula, which includes an energy component to reflect rising costs as well as more fare subsidies.

This latest round of exercise combines the 2013 exercise with that for 2012.

At a press conference on Thursday, PTC chairman Gerard Ee said the adjustment takes into account the 2012 fare cap of 4.5 per cent, and the 2013 fare cap of 2.1 per cent.

“Clearly, 6.6 per cent in one go is very high, and so, to minimise the impact on commuters, it was obvious to us that we should just do part of the increase this year, and roll-over the rest,” said Mr Ee. 

Hence, the balance of 3.4 per cent will be rolled over to the 2014 exercise.

He stressed that affordability was a key priority for the council, and the 3.2 per cent increase is “significantly lower than the expected average national wage increase for 2013”.

The national wage increase is likely to be close to 5 per cent, he said.

But he also said the council’s mandate was to “strike a balance between affordability of public transport fares and the sustainability of the public transport operators”.

Why dividends may be bad for health

We all like the prospects of receiving $, which is why stocks that offer a dividend has such an allure to it. But it doesn't always make sense to buy a stock just for the dividend. You will see that later. For now, let me go back to basics 101.

 

Where do dividends come from

Dividends can be paid out from 1) earnings stream and/or 2) assets.

 

To pay more dividends per share, the company can

i) Increase profit,

ii) raise payout ratio (i.e. % of earnings that gets paid out),

iii) pay out of cash on hand,

iv) borrow to pay out to shareholders,

v) reduce share base by repurchasing shares

 

Note that per share is what investors should be interested in. Speak to me here if you don't know why.

 

The dividend yield is simplistically the dividend per share divided by the share price. It essentially shows how much you are paying for that stream of dividend.

 

Why getting a lot of dividends is good

A bird in hand is better than two in the bush. Getting a dividend helps lock in some potential returns. On average, it has been proven that dividends is a significant contributor to total returns for investors.

 

It provides a return while investors wait for good thing to happen. It allows for patience, which is an investor's greatest asset.

 

Why getting a lot of dividends is not always a good deal

Lower growth. There is a trade off between growth and dividends. The more the company pays out, the less it retains to grow the coy. That means potentially lower growth. And we want growth because higher earnings often means higher dividends too! By getting more now, you may actually end up getting less in total over the long term.

 

The dividend may not be sustainable. If the company is paying out too much of its earnings or borrowing to pay out dividends, there is a risk that the company is under-investing in its business or spending beyond their means (like how it is bad to borrow from loansharks to spend). In such instance, the dividends may not be sustainable.

 

The same can be said for companies whose future profitability is in question - e.g. manufacturers of tape recorders - and consequently whose dividends cannot be maintained at current levels.

 

It is important to monitor the cashflows to make sure there is enough cash coming in to pay cash to you.

 

How much should you pay for dividends

No rules..There's no hard and fast rule here. It depends on the specific industry the company is in and the specific company itself. Broadly speaking, you can price it on an absolute basis, or on a relative basis against peers or against historical valuations. If you don't understand this terms, speak to me here.

 

Except the rule of total returns...The only rule is that you should not overpay for dividends alone. You must factor in the prospects for growth or lack of. You need to measure the prospects of capital gain or loss against the dividend yield you are receiving. Look from the perspective of total return. [total return = dividend + capital gains]

 

The ideal company

Put simplistically, the ideal company is one which

i) pays a decent dividend yield,

ii) do so at a manageable payout ratio to balance paying a dividend and growth,

iii) has demonstrated this by increasing dividends across time

iv) can sustain the dividends going forward

v) and provide prospects for capital gains as well

 

Where can you find a dividend winner

i) Read this blog (subscribe to it via the box on the top right hand side),

ii) Join my course,

iii) Read the papers/magazines (Straits Times/Business Times/Edge)

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Why you should not save for your kids

You should not save for your kids. You will be doing them a disservice. A huge one in fact. 

See, the biggest asset that your kid has is youth. Or simply put, TIME. Why are you not using that to your kid's advantage?

What can we do with time?

We all understand that with time, the magic of compounding will grow $1 into much much more. For instance, if you could put a $1,000 in the bank account at a deposit rate of 7% p.a., your $ will double in 10 years time. And double again in anther 10 years. Simply put, it will grow by 4x when your kid is 20 years old.

In short, the faster we can compound the $ we set aside for our kid - your kid - the more he or she will have at age 20.

Now, we will all love to get a 7% bank deposit rate. But no bank is offering that. 1% is what they are giving you. "Take it or leave it", is what they will tell you.

Imagine...the potential of time

But imagine that you can achieve that in the stock market. And you really don't have to imagine it. Because that is a fact which is backed by endless academic papers. 

Fact: The stock market offers the highest returns amongst all asset class, across time. 

And time is what your kid has. In abundance. Out of the springtime of youth, your kid will have an abundance of wealth. Your kid will have a headstart over its peers, in the race towards financial freedom. If you invest.

And shouldn't you give your kid a headstart in life? 

Give your kid a headstart - $ and education

You may give your kid a headstart by giving your kid all the $$$ in 20 years time. 

Or you could simply apply it to your kid's education. University fees are expensive now and they will probably be more expensive 20 years down the road. By investing now, you can afford to pay for that pricey college education later. 

Else, your kid may end up having to take on a loan to pay for school. And to be in debt even before earning a single cent. That sucks. 

So do yourself a favour. Do your kid a favour.

Invest today for your tomorrow; for your kid's tomorrow. Learn how to do it in our free preview class here.

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Potential fare increase may be announced on Thursday

Will we see a fare increase? Will ComfortDelgro & SMRT move up because of this? Akan Datang

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A Straits Times Article (14 Jan 2013)

Going up? In December, transport operators SBS Transit and SMRT applied to the Public Transport Council to raise bus and rail fares this year. - FILE PHOTO

[SINGAPORE] The Public Transport Council (PTC) will release its decision on fare adjustments for public transport this Thursday, said Minister for Transport Lui Tuck Yew in a Facebook post yesterday.

"I told (PTC chairman Gerard Ee) that the government was ready with our package for the low-income workers and persons with disabilities and that we would like to announce this together on Thursday. These two concession schemes will be fully funded by the government," wrote Mr Lui, stressing that the schemes would make transport fares much more affordable for both groups.

In December, transport operators SBS Transit (SBST) and SMRT applied to the PTC to raise bus and rail fares this year, with SBST - Singapore's biggest bus operator - citing cost pressures.

In his Facebook post, Mr Lui also said that the discount under the scheme for low-income workers would lower their fares to around the same levels as 10-15 years ago, depending on the journey. Meanwhile, the discount for those with disabilities will be "even more significant".

Mr Lui also highlighted that public transport vouchers would be made available throughout the year to help other groups who may also require assistance.

In November last year, the PTC said that it would continue to work towards striking a balance between keeping fares affordable and ensuring that the public transport system remains financially sustainable.