Monday, August 19, 2019

Letter to Batch 6 of Early Retirement Masterclass students.

We have just concluded Batch 6 of the Early Retirement Masterclass. Now the momentum for the classes is picking up and I have another session in the first week of September. 

In the following letter,  I try to capture the mood of the markets.


Dear Students of Batch 6,

It’s been a great honour and privilege to be able to conduct a 2-Day Early Retirement Workshop for you.

In the world of Finance, the supernatural can take on a life of its own. August is statistically one of the worst months for the local markets and the worst performance of the STI in 2019 also corresponds to the same period as the Month of the Hungry Ghost. This is traditionally an unlucky period of the year for me. During class, I had to nurse a really bad cough on day 1 while my dad had to be readmitted to the hospital on Saturday morning.

I hope that you can see this period of time as a great opportunity to pick up some stocks. The Month of the Hungry Ghost will pass and, at such high market risk premiums relative to bond yields, the markets are quietly signalling to everyone that this may be a time to bargain hunt and wait for an upturn. The STI is also trading at its lowest level since I started the ERM Programme.

Granted, the market cycle is rapidly approaching a trough as there is increasing evidence that quarter to quarter GDP growth will hit a negative number in Q3 2019. This confirms that we are entering  a technical recession.

You are encouraged to at least buy into the passive income portfolio that we have built and lock in 6.2% dividend yields. For those with less capital, you are free to wait for the portfolio to be published in September before you make your move on the STI blue-chips portfolio.

The quality of the class discussion is very high and I note that this batch has been very balanced when making a decision to eliminate the stocks.  I would also note that during Q&A, I learnt quite a bit about renovation loans and it was enlightening to hear from the class that renovations seldom increase the resale of a Singaporean home.

As REITs are still trending upwards, it seem that we may be seeing some downward pressure in dividends for the portfolios we will be building in the future. Our co-created equity portfolio that yields 4.05% can be found in Annex A of this message. Our co-created REITs and business trust portfolio that yields 6.20% can be found in Annex B.

Nevertheless, I look forward to investing $10,000 of my own fees into my margin portfolio with an equity multiplier of 2 into each of the portfolios in Annex A and  Annex B. You will hear details of my execution in about two weeks time.

Finally,  I am dedicated to improving the quality of ERM experience. In a two week’s time, expect to see videos posted on how to perform buy and sell trades on a brokerage account.

Christopher Ng Wai Chung


Unknown said...

Yup usually the best times to invest are when you feel worst. :P

Another confirmation that reno often don't increase value of homes, especially general typical homes. A simple fresh coat of light neutral colour is best bang for buck, followed by bathroom reno if yours are in yucky condition. :)

"equity multiplier of 2" -- isn't that quite high? Likely face margin call if portfolio drops beyond 30%...

Christopher Ng Wai Chung said...

Yes, you are right. You need some balls to withstand a 30% loss at a multiplier of 2.

All my strategies are expected to lose less than 15% a year when a 3-sigma event occurs. They also generate a dividend cash-flow that can used to support a margin call. My students are taught to treat a dip below a margin account ratio of 200% as margin call and reinforce their account with earned income.

Unknown said...

Err I don't understand ... multiplier of 2 is already margin ratio of 200%.

With self-imposed threshold of 200%, that means a single cent of paper loss will be "margin call" already. I.e. every single dollar & cent of paper loss will require actual dollars & cents of topping up. 🤔

Unless the multipliers used for students' portfolios are lower than 2 e.g. 1.3 or 1.4??

Christopher Ng Wai Chung said...

Yes, every month, the best practice is to top up a little bit of money to set the MAR to above 200%. On months when you get a dividend, there is generally no need to do so.

So margin call yourself so that your broker does not need to.

Unknown said...

OK thanks ... looks like many ways to skin the cat! 😃