Musing - Lowering yield on income stocks?

Recently I came across these terms reading this article by STE's Stocks Investing Journey.

As someone who is most comfortable with income investing, it struck a chord with me. And when someone thinks of income investing, S-REITs naturally comes to mind.

At the present I feel the reputable S-REITs in general are too richly valued for my liking. Even if I were to have the extra resources to put into the market, I simply cannot see myself wanting to add positions at this price barring exceptional circumstances.

(And this is also why Lendlease Global REIT IPO-ed at such a timely period - I hope I manage to jip a tiny bit. Looking forward to the IPO ballot.)

It has never occurred to me what I will do if these stocks being more richly valued and hence compressed yield of 2-3% becomes the new norm in Singapore market, nor do I have much ideas how to properly tackle such a scenario moving forward.

(AFAIK 2-3% with continual growth in dividend payout is common for investment in US Market - correct me if I'm wrong).

If the conventional way of determining asset value based on fundamentals becomes obsolete, then how does one decide a good entry point instead of resigning to Dollar Cost Averaging or looking for alternatives?

It also begs the question in my mind:

Have we been spoilt silly by the yield from selected stocks in Singapore market?

I came to the conclusion that while it's fine to be most comfortable with a specific investment strategy, one must be prepared to be adept at other strategies as well. I still got ways to becoming a good investor.

We must adapt and overcome.

Status Quo Bias in investing?

Recently I had done some reflections about my investing journey, which you can find under the Reflections tab on my blog. It prompted me to think about the influence of Status Quo bias in our investing journey.

First of all, what is Status Quo Bias?

From Wikipedia,

Status quo bias is an emotional bias; a preference for the current state of affairs. The current baseline (or status quo) is taken as a reference point, and any change from that baseline is perceived as a loss. Status quo bias should be distinguished from a rational preference for the status quo ante, as when the current state of affairs is objectively superior to the available alternatives, or when imperfect information is a significant problem. A large body of evidence, however, shows that status quo bias frequently affects human decision-making

So how could Status Quo Bias limit or influence your returns?

- Continuing to hold a stock you are vested in when you have an option to cash out and reinvest the returns elsewhere.
- Continuing with a similar strategy you are more familiar with in scenarios when you are certain you can make more money investing into other areas
- Holding onto loss-making investments instead of cutting loss.

Status Quo in my investment journey thus far

I feel I myself am guilty of this to some extent. One example would be demonstrated here, where I had opportunity to sell Capitamall Trust at a high and reinvest but gave it a miss. I felt comfortable holding onto it for continued distribution. 

Having said that, there are moments where it could be a better option to maintain status quo. For example, I continued to hold onto Alliance Minerals when it dropped to a low of 0.21. A part of that has got to do with my entry price, with the remainder being my confidence that the future is bright for the company in spite of the ex-CEO saga for various reasons (bright outlook for Lithium, strong management on Tawana's end, secured dealings with Burwill).

A successful trader with similar outlook as I do towards Alliance Minerals may be able to maximise his gains by exiting on a high and re-entry at the low, but alas I have yet to develop the confidence, competency and consistency to do this, so the next best option in my opinion is to hold. :P

So what's the difference between the two scenario painted above?

That's right, negative and positive practice of status quo respectively, with the positive practice being a more rational decision. 

In closing,
- It's perfectly normal to have status quo bias, but overcoming status quo bias to make better decisions is one way improve your returns in investing and to develop yourself as a successful investor.
- Maintaining the status quo should be validated by solid reasoning. It is, to some extent, also part of a discipline to be more logical and to further isolate emotions in investing.

Origins - How I started my venture into the stock market

Many people started their investment journey in many of their very own unique way. Some developed it from interest in business, some got into it from reading about how people struck it rich through the stock market, or developed a curiosity for it from their peers.

But what about my story? Curious about it? My blog has touched a little in About Myself and my first Reflection article, but never have I covered it in a consolidated article. I feel by sharing this personal account, it might also give some new investors an idea how they could start it off before dropping their hard-earned monies into the market for real.



An interest in secondary source of income
It all started from developing an interest in secondary sources of income back in 2009/2010 while I was serving NS. The seed is sown when I bought and read Adam Khoo's Secrets of Self Made Millionaire. While not my main goal, that was perhaps my very first exposure to investment as I learnt of some basic terms used such as "blue-chip". However, it stopped there and went to hibernate - life went on. I focused on my university education and later on, my work. It was not until mid-July 2015 when thoughts of stock market hit me out of the blue and made me recall this. And then I started getting absorbed into learning more about the stock market.

Learning about investing in stocks
For a good few weeks I was intensely educating myself of the many different terms used in stocks. I immersed myself in websites such as Investopedia, The Motley Fool, Morningstar etc during my break time and off-office hours. I learnt about terms such as Fundamental Analysis, PB Ratio, PE Ratio, Dividends etc. This was also a period of contemplating what my style of investing would be. Being someone inclined to developing a steady stream of secondary income - yep that's right - I felt I leaned towards income investing in spite of such style being touted more suitable for retirees.

I had the option to begin through Dollar Cost Averaging (DCA) via OCBC's Blue Chip Investment Plan. Eventually, I concluded such investment scheme did not appeal to me:

• I had not saw the point in not having the flexibility to control price the exact moment I intend to buy or sell.
•  The commission fee for lump sum investing is more economical.

Next it was thoughts about what would my target be if I did income investing. "How much am I willing to fork out to get $6000 annually?" "I guess probably 5% yield sounds reasonable." This later evolved to 6%+ as I thought it seemed expensive to invest 6-digit for $6000 annual passive income.

Shortly after, reading about the success stories of traders, short term trading also piqued my interest, being a potential secondary source of income as well.

The pushing point for me to decide on set up my brokerage account finally came about when the market suddenly took a nosedive on 24 Aug 2015 owing to the yuan devaluation fear.

I thought to myself "why are you guys panicking over the yuan devaluation when it does not affect the underlying health of the business?"

And then true enough, stocks largely rebounded the next day.

"I can definitely make money off such opportunities", I thought. Aside from yet having to develop a suitable mindset to take on investing, that also contributed to deviating my interest from investing and venture into trading.



Itchy Hands
Fancying short-term trading out, I had pushed the idea of long-term investing aside for the time being and begun trying it out. At the start, I got kopi-money on my very first trade. Alas it was short-lived.

I then come across an analyst report on Global Logistic Properties (GLP), mentioning about the Target Price being a good deal higher than its trading price and them issuing a "Buy" Call. The ignorant me did not know the dynamics of the market and the suitable use of analyst calls and then blindly bought into it. I saw it go up a few cents and thought to myself, "Oh yes I'm making money out of this!"

Boy I could not be more wrong as the price soon collapsed.

Panicking, I went out of the counter after taking a few hundred in loss, but silly me then went back in at a lower price thinking it will rebound. I rolled up about $1500 in losses from the counter alone. It was unfortunate

Going forward from then, I continued to try out trading in various counters, many unheard of, and I soon accumulated overall loss of $2800. I could not sleep comfortably for a few nights after taking all those cumulative loss and I discarded the thoughts of making it through becoming a short term trader.

It was the price I paid to develop my ability to stomach fear and panic, and set my threshold for paper losses I am willing to bear for counters I take a long position on.

My first step as a stock market investor - for real
I could not sleep comofrtably after those cumulative loss and I discarded the thoughts of making it through becoming a short term trader. It was then I concluded income investing is probably the way to go and I would recoup my loss via dividends. I bought 5000 units of Capitamall Trust at 1.875 each, seeing how it was slightly under-priced to my eyes. It was 80% income investing and 20% value investing, really. This paid off (unintentional pun) as it helped me somewhat with growing my savings until I finally sold it for my upcoming home.

Fast Forward to the present
While my portfolio since last year have had a major capital appreciation element added by means of investing in Alliance Minerals, and recently liquidating my positions in Capitamall and just today, Cache Logistic Trust (I will bring this up in my upcoming portfolio update again) even now I am still more of a income investor at heart. Nevertheless I saw a point in developing myself in different style of investing and had a desire to grow my funds at a higher rate so that I may accelerate my plan for income investing.

What about my capital losses? I actually reduced my loss significantly with a series of good trades in 2016. While I still sit on a net realised loss from capital differences, my dividend and distribution has gotten me positive realised gains.

Thanks for reading!

Reflections - What if I had started my investment journey earlier (Age 21/22)?

Yo folks, hope you have enjoyed the Lunar New Year!

At times, I look back at decisions I have made or things I have done and wondered how would things be different if I had done otherwise. I enjoy thinking about things that might have happened in a parallel universe. Reflections are wonderful sources of learning and on occasion, fun to think about. Among one of those things is investing.

I recall, back in 2009-2010 at the age of 21/22 (while I was still doing my Full-Time National Service), I was getting to know more about developing secondary sources of incomes, having thoughts such as opening up an e-store or doing surveys, and achieving financial freedom (having the commitment or knowledge to take my steps towards it was another story. Oops.). It was then when I came across and purchased Adam Khoo's Secrets of Self-Made Millionaires. I suppose that was the very first time I just started to know a little about investing in stocks (e.g. I learnt about blue chips). However, the idea was forgotten as spontaneously as it came. (Again, oops) :P.

At least I gained knowledge in other things that would deeply contribute to this day, such as the concept of expense management and other vehicles for developing secondary sources of income. It is also because of this book that I also managed to influence my friend, whose family was in the lower-income group and unfortunately, not financially educated, to kick-start his financial education so as to bring him and his family out of the hole.

Looking back, in some sense, I have actually indeed done investing back then - I invested in myself by purchasing that book, learning about secondary sources of income and expense management.

In terms of investing in stocks however, I wondered what would have happened if that was the path I had taken instead.

The Pros

• Global Financial Crisis had just occurred recently - I may had been able to take advantage of the drastic dip in stock prices to pick up.
• This might have motivated me to save up properly during my NS years to enter the market back then. I did not really have the discipline to save back then.

The Cons

• I would probably not have the maturity and diligence to properly educate myself in investing in stocks.
• I would probably also lack the financial muscle to pick up stocks either.
• I was not educated regarding the stock market so probably will still make big costly blunders that would cause me not to sleep soundly at night.

  If I could travel back in time, I would want to coach my past self on investing in the stock market and becoming more mature.

What would you have done if you could travel back in time where there was an opportunity for you to start learning about investing in the stock market earlier? How would it have changed your status today?

ShareInvestor presents: Investing Strategies for REITs and Business Trusts with Business Outlook 2018

Just thought I'll share this for those who may be interested: there is an upcoming event by ShareInvestor, you may find more details in the pdf by clicking here for full event details.

Date: 10 March 2018
Time: 9am - 12.30pm
Cost (early bird)* : $8 (ShareInvestor member) / $12 (non-member)
Cost: $15 (ShareInvestor member) / $18 (non-member)

There's some cool freebies thrown in as well, so could be worth the time.

* Early bird offers ends at 2nd March 2018.

I'll be going to this myself. :D