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.
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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
Yup usually the best times to invest are when you feel worst. :P
ReplyDeleteAnother 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%...
Yes, you are right. You need some balls to withstand a 30% loss at a multiplier of 2.
ReplyDeleteAll 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.
Err I don't understand ... multiplier of 2 is already margin ratio of 200%.
ReplyDeleteWith 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??
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.
ReplyDeleteSo margin call yourself so that your broker does not need to.
OK thanks ... looks like many ways to skin the cat! 😃
ReplyDelete