Cory Diary : Navigating Risks in a Volatile Market - Equity Portfolio

Banking Crisis

After a brief hiatus from my blog, I'm back to writing about my equity portfolio and recent market events. With the collapse of several banks, regulators are enforcing quick resolutions to avoid contingencies. The Federal Reserve has been clear about the risks involved, yet some banks like SVB continue to take risks, leading to poor risk management and the risk of losing Other People's Money (OPM) for the sake of performance.

The Middle Class

In the past, high-risk investments like those seen in Lehman Brothers in 2008 were a major concern. But today, even low-risk treasury investments can lead to failure if investors become complacent. The recent US rate path to fight inflation shows why the Fed is determined to bring down inflation rates, as basic necessities are becoming increasingly unaffordable for the poor. The middle class is also at risk, as a 9% annual inflation rate could result in a loss of $90k in purchasing power for someone with a net worth of $1 million, which could vaporize a lifetime of savings.

The next inflation report theoretically we could see another reduction. See above Inflation rate chart and we can understand why. The previous year on month has a spike. Again is all about meeting expectation.

Equity Portfolio

To balance my largely REIT-focused portfolio, I've had to increase my bank stake despite the rising rates and high PB ratios. I chose DBS Bank as a long-term performer in the STI Index, with sustainable and conservative returns. On the other hand, my experience with Prime REIT has been disappointing, with poor returns despite management's trying to paint a different picture. After learning my lesson with small-sized positions, I decided to clear off my tiny position in the REIT.

I've also been doing some trading with Mapletree Logistics REIT and have now completed my Mapletree collection with a slightly larger stake. While HK's future looks uncertain and US DCs and rates aren't favorable, I still have sizable positions in Mapletree Pan Asia Commercial Trust and Mapletree Industrial Trust, as they are better off than many others.

Overall, with the recent banking crisis and inflation risks, it's important to stay vigilant and invest wisely in a balanced portfolio to avoid losing hard-earned savings.

Cory

2023-03-25

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Cory Diary : US Sept Inflation Rate

Market enters a terrible week again. Even though is far from Mar'20 flash crash, seeing the correction this week is still a reminder to us how market can tame us all.

US Inflation is closely watched that drives the market. Inflation rate for September 2022: 8.2%. CPI up by 0.4%. If we look at below chart, the drop is just 0.1% so still quite elevated.

What is not obvious is how to interpret the chart. Decided to look for another chart and draw up my analysis as below. The key highlight is the Rate of Inflation and YoY comparison.

My Home Work. Make sense ?

Expecting Oct'22 Inflation report to be much lower than 8.2% however Expectation is still the key on how much is enough. Since expectation is lower, we could see a continuous market run up prior to the report due to higher spike in Oct'21 and rate down trend prior to Oct'22'.

10th Nov will be exciting to watch. If the market react as expected before the result, I would take some off the table as mitigation. Hope I make sense so far.

What is the downside ? The last serious drawdown is in Mar 2020. If we use Ascendas as a reference,

there is about another 40 pts to go to hit that bottom. That's after more than 28% drop from all time high in 2020 excluding dividends. Assuming DPU not significantly impacted and with serious correction already happened that will be a solid entry point. Personally I don't think it will happen as explained on inflation projection but we should never say never as is just projection coupled with market reactions can varies.

Is possible to see 5%-6% inflation range by year end and don't get me wrong that we are happy with it. Even if this range happened, it could last a few more months before we can do another lower estimate assuming no significant macro events reason being the comparison year 2021 months on YOY basis is relatively low.

Cory

2022-1015

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Cory Diary : Returns Report on YTD '22 Inflation Theme

Tracker

To start it off doing Annual YTD is kind of short term tracking. Is trying to be nimble for opportunity and not an intention to make change on long term strategy unless we have details otherwise. For example the plan is Dividend Investing with Reits as the Core. However within Reits we have different segments and countries which we may need to juggle or mitigate short term.

Even on allocation itself between Reits, Non-Reits, Growth etc the allocation may need to be re-balance and adjusted over time against wider portfolio such as Bond and CPF including cash. Nothing is permanent in the sense opportunity and situations may arise that we need to act on. Ignoring them is a Strategy of Environment Changing our Portfolio Size therefore I rather be the Change agent.

XIRR YTD Cory -1% , STI Index YTD +2.8%

Performance

As above Chart, the gap of Cory Performance YTD has been closing up. Cory YTD -1% whereas STI Index YTD is at 2.8%. We still have 5 months to go and the world is still on unchartered territory. How the Supply Constrains, Recession, Inflation and War will shape the world by year end is still up in the air. Things could turn drastically down to Boom. 

If we look holistically, the strategy in current format is to fight inflation. Renewing to higher SSB, even going to higher yield bond that has dropped ironically, and expanding into stocks that have pricing power. However Recession is a different ball game altogether with significant hardship on those retrenched. Hopefully we will avoid that.

Inflation

So why is inflation so horrifying ? If I read it correct is the compounding effect. Taking from Worlddata for United States.

During the observation period from 1960 to 2021, the average inflation rate was 3.8% per year. Overall, the price increase was 829.57 %. An item that cost 100 Dollar in 1960 was so charged 929.57 Dollar in the beginning of 2022.

For June 2022, the year-on-year inflation rate was 9.1%.

This includes in particular energy (+41.6%) and food (+12.2%).

Singapore is better for the same period at 324%. On top of that governments are better informed and managed as the world advances economically. If we take the 1st half and 2nd half of the 60 years period, the data is 161% and 57.3% respectively. The later 30 years have been well managed.

To put this in context of the compounded inflation for Singapore,

1961 - 2022 : 324%

1961 - 1991 : 161%

1992 - 2022 : 57.3%

Using 1992-2022 period of 30 years, Purchasing Power reduced by 57.3%. An average of slightly less than 3%, this could be a good number to use in our annual inflation computation guide. 30 years also likely cover a large segment of people retired period.

Cory

2022-0730

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Cory Diary : What I have been doing lately ( ... calculating my way to FI )

Specifically Retirement Financial Calculation. Another term will be Financial Independent Capability Analysis. And end goal intent is to without a regular job. There are two key opposing forces which could well determine future well-being. Namely, Portfolio Growth ( taking dividends into consideration ) and Core Inflation.

The key variable Core Inflation Rate is not within our control as they are driven by government and marco conditions. Surprisingly, per Trading Economics we are on multi-year lows which current stands at 1%. There's a gradual reducing trend from high of more than 4% in Year 1990s.

As stated in their website, in Singapore, the core inflation rate tracks changes in prices that consumers pay for a basket of goods excluding changes in the price of cars and accommodation, which are influenced more by government policies. This aren't ke-long statistic as in if we look at other countries inflation, there is a similar trend or low level of figures except for those that mismanaged their economies where Argentina rank no. 1 which in my opinion meet the hyperinflation mode definition.

Is kind of relieve despite the ever lowering interest rates as this goes against common sense logics on why is this happening. Firstly, Housing/Utilities, Food and Transport continue to be major expenses. And therefore this is closely watched by governments. This could also means that a lot of this money is not used to chase after this goods disproportionately and that is a good thing.

So where did the money goes ? Saving, Investment, .... and probably more financial literate population to manage expenses.

For retirement household, the percentage is quite different. See picture below.

For one to retire young with kids, the first chart maybe more applicable. A situation where we still tap fully to life engagements. Expenses will be high and where we have dependents especially for sandwiched class. Even if we have no plan to fully retire, we know where we are financially.

To protect what we have from inflation, we need to grow our portfolio, tap it for expenses and even protect the golden duck by putting most of the money in a diversified manner in companies that mitigate regulatory and hyperinflation situation which later scenario is not likely but not impossible to hit semi-hyperinflation range.

Cory

2021-0917

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Cory Diary : Hyper Inflation Thoughts

Hyper-Inflation is when prices of goods rocketed so high that our saving in the banks has it's purchasing purchasing power deteriorate exponentially. A cup of coffee costing $1.20 today may cost $5 tomorrow. And probably $100 by end of the week. As you can see, basically our saving got burnt through like toilet paper literally.

So for folks out there who's complaining about inflation that a cup of Kopi that only cost $0.40 more than 20 years ago, compounded across 20 years is actually only 5.6%. This is not really a big deal considering this is small price item relative to our salary even though it may not enjoy same amount of rise in percentage. So we see nothing yet on what Hyper-Inflation can really do to our cost of living But it can happen if our country is mismanaged.

One of my kiasi theoretical thought is what-if we have a Hyper-Inflation or something that is large enough which are of concern. To clarify I aren't anticipating one but at the same time we can't guaranteed it won't happen in our lifetime. Say we decided to migrate to a less developed country where the financial management may not be as robust.

In the olden days probably from recent major wars to more than thousand of years ago, people will probably keep physical gold. In modern time, physical Gold is still quite relevant but I feel that we have much better option today than in the past to have too much gold or silver in our home.

First thing I would ensure is to have a property under my name. Basically it will just hedge through the increasing cost and I will still have a roof over my head with no escalating rental worries. The interesting thought process will be what happen to our housing loan while Hyper-Inflation do it's work ? Right, if you think as cunning as me, our payments to the bank will be drastically reduced in purchasing power term so it works wonder to have loan.

However, if the contract allows the banks to adjust the payment rate terms, we could also be receiving revision of interest rates at exponential level too ! Regardless the Gov will step in too to ensure the banking system remains sound. What this mean is the banks will still Win. This could mean the outstanding loan will be re-stated and we may be even larger hole after.

Secondly I would do better is to ensure I have stocks. This do well when inflation is moderate but in Hyper-Inflation scenario, any loans could also put the companies in big trouble as the loan could also be re-stated destroying shareholder values. So just with this two cases, if we are expose to country specific risk, then we will do well with diversification.

If we try to deduce and stay ahead in the game, don't face the Hyper-Inflation at all. Is not a game we can afford to play. If we have to go through it. No loans. Have foreign bank account and currency exchange and remit process tried. Maybe this will work ?

Cory

2020-0913

Cory Diary : Trillions Dollars Printing - So What ?

Have we ever wonder why we don't see Zimbabwe 2.0 happening in America after Trillions Dollars printing ? Is another few Trillions going to matter ?

I think all below factors and which reinforce each other.

• Demand and Supply
• Export / Import - Trade
• Goods and Services
• Property and Financial Investments
• Saving and CPI Index
• Trade, Military and Infrastructure investments
• Confidence

Using myself as an example. I still earn my keep, invest my money, pay my loans, continue to save, do my banking and shop in super markets. All this are happening all over the country.

If I feel money is going to be worth much much less tomorrow, where there aren't much goods in the super market, people doing bank runs, hardly any economic activities, companies are emptying out, then I worry .....

What should I hold on ? Property, Gold, USD ?, Shares ? , .... 

For now, even if we add another 100k or another Million into my asset, my spending pattern not going to change much. Is either saved or put into work. So how to drive hyperinflation ?

Cory

2020-0817

Cory Diary : Increasing my active investment for Passive Dividends

The Goal

The Covid-19 throws a spanner on increasing Portfolio to $1.3M quickly from 1.2M as in we need to be careful in our investment injection by $100k which is part of Warchest. So why this amount ?

.

Here's the link because of the compounding effect @1.3M per my lifestyle. (contingent to yield 5.3% able to maintain @ 1% growth). However if the stock price keeps increasing but business fundamental weaken or not enough improvement, the yield will be lowered. To compensate it, higher cash inject will be needed or expenses reset as we age. Hope I don't lose you by now !

Let me explain again using Reit term. if the stock price increase by 1% (Growth), and we have corresponding reduction in yield say -1% (DPU in cents maintain), it kind of neutralize the compounding effect. This is not good as we lose that year of compounding. So DPU has to increase accordingly to maintain the yield. If is not which could be, and to bring the portfolio backup,  we need to increase our investment through injection or we spend less to support the injection. Get it ?

Of-course we can increase our yield by investing in riskier asset to maintain it but this is not sustainable long term and will mean Portfolio keeps getting RISKIER over time .... . And that is Dangerous which some people may make, like me on what I feel right now  ? LOL

Therefore, come to think of it, is not so easy as the calculation is a simplified model. To mitigate it therefore using above example, if 1% growth of 1.3M that is equal to $13k has to come out of Real growth. When there is no DPU growth, we need to inject in this amount of $13k or spend less to support it roughly.

This is why advocating dividend re-investing is important or injection from saving if you have a job as changing stock aren't easy for same quality. But the key is capital gain has it's price to fulfill for dividend investing.

Something new today.

Cheers

Cory

2020-0726

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Cory Diary : Managing Risk and Goal update 2018-0819

Every investment has risk. In a theoretical situation if we lose a portion of our money into a few risky bonds or shares, we just need one to fail and there are good chance we will retard our financial freedom by years. If we could lose a large portion, then it maybe better not to do anything as this could severely impact our financial situation. Why ?

Currently Singapore Saving Bond is about 2.4% long term guaranteed for 100k limit, Bank deposits range 1% and CPF about 2.6% - 5% for now with specific restriction and benefit applies. Depending on investment size, combination of it may apply. But I could see that for relatively safe returns are about 3% for retirement size fund. This return is not enough for retirement and could only supplement in my opinion. Why ?

For a million dollar investment size that's about $30k annually or about $2.5k monthly excluding inflation. This may not fit my lifestyle as I feel there is no point in surviving on basic or bare minimum. And for a family, this may not be ideal as this could reduce options in what we can do with life. 

So I decided to come out with 3 scenarios below and conclude what I need. Do note that while doing this exercise, 0.5% difference matters.

Scenario #1: $1M capital, Expense $2,500, 3% returns, 2% Inflation and Capital draw down

Allowance of $2,500 with 2% increment annually. At Age 48, this method will last me for 42 years. And my capital used up at  89 year of age. Is a draw down in investment capital. The problem with this is that I could survive beyond 89. Secondly, I still have to ensure 3% annual return on average. And will not be enough for a family. Neither is there enough buffer for investment fluctuation nor better lifestyle.

Scenario #2: $1M capital, Expense $4,000, 6.8% returns, 2.5% Inflation and Capital draw down

Allowance of $4,000 with 2.5% increment annually. At Age 48, this method will last me beyond 100 after with some bonus years to go. I have increase the expense by 0.5% for buffer. The problem with this is the ability to achieve 6.8% return on average with 100% confidence. Even then, the income is average for a small family. Is alright if the kids are grown up though.

Scenario #3: $1,350k capital, Expense $5,000, 5.2% returns, 2.5% Inflation and Capital draw down

Increased allowance of $5,000 with 2.5% increment annually. At Age 48, this method will last me till 98. I am happy with this variables.  More room for flexibility in income and expense variations. To be clear this scenario is retirement without saving needed.

Cory Analysis

To draw this further, I could ask for 1% growth in underlying portfolio.This will retard investment capital reduction. Now, for $1.35M investment size, returns can be lowered to 5.2%. The next question will be what investments will allow me to support the draw down and to secure $5K monthly expense ? One thing for sure, I do not need to take too high risk to achieve financial freedom but how to protect my investment to obtain desires.

Once the above Portfolio is achieved, every month salary is technically bonus to my financial freedom. Goal has become clearer. Obviously, real world do not work in straight forward manner so is good to have buffers and lengthen our retirement age.

Cheers

Cory

20180819

Cory Diary : Financial Literacy

I have a group of ex-secondary school classmates which by chance get to meet again since last year. Since then we have been active in chat group. After more than 30 years, they all look more or less the same. Not sure about others, but there has been attrition, re-join and mia individuals. Surely there will be difference in opinions, a little offline gossips and past grudges.

There were quite a few who are dead against institutions aka government in the chat group. So whatever PAP do, there is motives. Mistrusts ran high. One of them use to be my close buddy.  Lost touch with him as we go on separate way after our "O" levels. In those days there aren't smartphone. Let me describe his life now from my perception that I have formed.  We were one of the pioneer batch of normal stream education. As I could remember, his family appears to be below average as they have problem paying utility bills some time. We often go for mini-hike in the afternoon after school. And would comb the forest hill on our way home. It is as close to nature as we could get in developing Singapore. There were a lot of adventures. He went on to technical institutes whereas I am fortunate enough to excel in my study and manage to get a place in a Junior College.

My impression is that he do not have good jobs for past decades and he has in-depth frustration with the government. And in recent time probably for 5 years found a stable job that he is good at. A manager and has some work across the causeway. His salary about S$4k appears to be below average considerating his level of technical soundness and knowledge. There were some considerable stress and sometimes appear to need to work till late into the night. Married and has a son who just finished his primary with average score. He owned a car and stays in HDB.

Here's his financial status I think. In his late 40s, he do not have much saving. And probably about 5k to 10k in stocks the most at any one time. Mindset for him is that this are "vice trade". He would also like to take out as much money out from CPF as soon as regulation allowed as he do not trust them at all. And the money will be use for his son education. Singapore Saving Bond is just another outlet for the government to tune up their national Ponzi scheme. Inflation grumbling is always from water hikes to hawker meals. Every time where is a bad news by Temesek or GLC investments, they will point out that the funds are losing nation money which could have reserved to help the poor and needy. There is a believe tax is too high locally.

With such mindset, there is no way I could advise him to even go for safe investment like SSB which technically safer than saving account or fixed deposits. How nice if he could sell his SSB allocation which I would gladly take up to increase my limit. At least there is some use for him. I think we finally agree to disagree. At late 40s, trying to change each other mindset is next to impossible. He is still a good friend that I cherish over political divide. I view myself nationalistic and wish to keep the game going with the right formula to succeed.  I wish him well.


Cory
20180714

Cory Diary : Inflation and Currency

There are 2 things to watch that can manipulate what we think about how much asset we actually have with time.

Inflation

The typical one is the lack of understanding of Purchasing Power. The typical normal is I have $100,000 today and as long we lose no money in scam, investment, spending etc, 10 years later and is still $100,000, mentally people will be ok. And that will be a big mistake in the current world. In the past 10 years, for the same property, price has doubled. This excludes the possible rental income we can extract from it less interests.

The important question to ask is that where is the middle ground of this extremes ? Is zero the right answer in order not to lose real money ? Let put this way. If "inflation" is 3% annually, after 10 years, $100,000 will have to grow to $134,400. What this mean is $134,400 is the break even of not losing money. And if we do nothing, that is 34% loss. That's huge.

Currency

The world is connected and supply chain is efficient. In the ideal world, an iphone price in Singapore vs one in US assuming everything the same, after currency rate, should be about the same. But then interesting we often hear about Mac Donald Burger index when we translate the same burger in USD term, can be vastly different between countries. Why ? 

There are few few reasons I could think of. First is property space efficiency. In Singapore, the Malls are highly developed. The rental psf on average is costlier relative to less developed countries. The other is Singapore employee cost is much higher despite large foreign workers intake. However this allows more locals to move to higher value jobs aka higher salary. Singapore being a city state also means that most of the raw materials are imported which will command a higher cost structure on average. Imagine when Singapore dollar depreciates against the dollar. The cost will just escalate. The good way about it is to be in better value job that can command higher earning power.

Ideally we need continuously higher salary to maintain the same level of living cost. While this can compensate,  our saving in the bank couldn't since they aren't a function of salary increase. So many people needs to keep working and longer to keep up with inflation as saving in the bank is not working at all. The rich knows that and need to make their wealth work hard. The most average will be able to get by with good job and prudence. The poor will be in the rat race immersing themselves in conspiracy theory and negativity. Hard Truth ?

I wrote this to remind myself not to slip into one of no return.

Cory

20180609

Cory Diary : Dividend Play and Timing

Let's take a REIT Stock which gives 7% dividends annually at current $1 tag. Assuming there is no major "calamity", that's 7 cents annually. Interests up few points during the year, how much is REIT impacted ?

1. Borrowing are secured across few years to decade contract. Some on annual basis. Some on fixed rate. Some Reits hedge their borrowing too.

2. Increase in borrowing cost can be passed down to tenants. In Retail is about 3 years contract. And typically contract renewal are staggers across the periods.

3. Some Reits have internal mechanism where rent escalation is tag to inflation and revenue

4. Rising rates mean the Market is able to absorb the increase to prevent bubble. Is not to kill the goose but to ensure longer road of growths.

Based on above, any dip in well managed Reits, are good entry points. Stock price fluctuation will be mitigated by the dividends. So what we have is likely upsides. Every year we leave too much cash in the bank, the cost are a lot more and is a loss in relative term to inflation.. A gap of 5% between interest and dividends for $100K is $5K. How many Ks we have in our Banks ?


Cory
20170411

Cory Diary : Is all about Inflation, Stupid !

According to mom ( http://stats.mom.gov.sg/ ) the gross monthly income from work is as follow.

Gross Monthly Income From Work

 Median Gross Monthly Income From Work (Including Employer CPF Contributions) of Full-Time Employed Residents

Mid-Year	2006	2007	​2008	2009	2010	2011	2012	2013	2014​	2015
Levels ($)	2,449	2,543	2,897	2,927	3,000	3,249	3,480	3,705	3,770	3,949

 The average annual increment compounding % probably roughly about 5.4%.

Going to another website on Singapore CPI, the chart as below. Roughly 2.7%. Thanks to the tapering off in 2015-2016 due mainly I believe to the property curb and low oil price. It would have hit 4%.

What this means for saver is we are able to save half of our annual increment. Perfect !
But wait .... let's look closer on CPI basket.

Notice something ? Housing and utilities constitutes only 26.3%. Didn't some guru say ~ 35% of our income for housing ? Or Property curb on 60% of our gross income ? So why CPI did not match them. Is CPI meant more toward people who live in average HDB value ?

If the Median income is $3949 that's about $1000 allocated for housing and that has to include interests and principal down payment. Some may argue is not right since property is yours.

Fine ! Let's use rental instead of property purchase. A 4 room HDB easily fetch $2500 monthly for a family. Sorry ladies, wife has to go to work and we are still more than $500 short in allocation.

Cory
20160317