Some updates on the investments made over the last month

I have blogged about my taking positions in China ETF, Noble Group Limited as well as Weiye Holdings. Since my investments, Noble Group and Weiye have dropped in value further, but having determined to take a long term approach, I decided not to check the prices regularly to prevent any impacts on my psychology (also because of a busy schedule). I decided to do a check today and am pleasantly surprised that both stocks prices have risen above my entry point, with Weiye having risen about 10%. Of course, this is against the backdrop of a general rebound in Asian equities, and I did not have the foresight that they are going to be in the green anytime soon; however, I have invested in them from a value perspective and I believe that with time, their prices will revert to their means to reflect their true values.

3rd investment: First Reit

I have decided to invest a small amount of my savings into First REIT at S$1.01 after a sharp drop in its price. Net asset value per unit is S$0.895, so I have overpaid somewhat, but I am comfortable with the yield which is currently at about 7%. My understanding is that this is mainly a healthcare real estate trust, and so should be quite resilient to market developments. In total, I have invested almost half of my savings into stocks so far: China ETF, Noble Group and First REIT.

Noble Group

Noble Group Limited stock price dropped a further 5% after my purchase to reach below 80 cents. Of course, it is not a great feeling to see immediate losses after taking a position in this stock, but then hindsight is 20/20, and I can never tell for certainty when will be the lowest point. I decided to invest in this stock based on my understanding and analysis of the company, and at that point in time I decided to take up a partial ownership of this business. I have reminded myself that I am going for the long-term and price fluctuations, sometimes disconnected from business fundamentals, are decided by market forces which I can never understand.

P.S. There is a small rebound today to 83.5 cents at the time of writing,

Planned obsolescence

I was talking with my brother the other night and he introduced me to the term planned obsolescence, with which I immediately made a mental connection with wage slavery. It is to deliberately introduce elements into the design and engineering of products so that they will go out of function or fashion after a while, and consumers will be forced, either out of necessity or societal pressure, to purchase new products. Think about smartphone, and how it has come to be a necessary tool for some of us. In addition, think about the upgrades and new features that appear every few months. I am using a perfectly functional Nokia Symbian phone, but it now looks so out of place in the midst of highly powered touch phones. Planned obsolescence is a huge obstacle that prevents some of us from ever achieving any degree of financial freedom.

Looking into Weiye Holdings

I was reading news on the Reuters website when I came across the announcement that China is going to spend $277 billion to tackle air pollution problems. Previously, I would have just glanced through the content but now I am beginning to make connections between this piece of news and investment opportunities; I quickly searched through companies listed on the Singapore Exchange with the key words "air pollution control" and arrived at an interesting counter called Weiye Holdings.

The main business of the company is property development in Henan and Hainan provinces of China, but at the same time a sizable portion of its revenue came from clean room equipment and air diffusion products. In addition, the P/E ratio is 2.71 and P/B is 0.2373! The market obviously has grave doubts about the future successes of this company to give it such low evaluations, and indeed the stock price dropped a lot to below 10 Singapore cents in recent years. Since I am still very new towards analyzing the value of companies, and given the volatility of the company's stock price, I choose to take a more prudent approach and not invest into the company. However, given China's huge investments into air pollution control, I am just wondering at the back of my mind if this is indeed a value investment opportunity.

2nd investment: Noble Group

I have highlighted in an earlier post my interest in Noble Group Limited listed on the Singapore Exchange. Noble Group is a global chain manager of agricultural and energy products,  as well metals and minerals. The group seeks to hold assets in resource producing countries and supply to high growth economies. I am cautiously optimistic that commodity and agriculture will perform well in the mid to long term future. At an estimated 2013 P/E ratio of 10.8, P/B ratio of 0.87 and dividend rate of 2.59%, I have decided to take up position in this counter with 15% of my investment fund. This company is considered a blue-chip stock, being a constituent of the Straits Times Index in Singapore. At the same time, I worry that there is a chance that with its poor performance presently, the Group might be taken off the index. If the ETFs divest from this stock as a result, further decrease in price may be possible.

Wage slavery and redeeming my freedom

Wage slavery refers to the condition that my dependence on monthly handouts from my company is "total and immediate." Frankly, sometimes I feel drained by the involuntary manner that I have to carry out my duties and the monotony of work; the modern society and civilization appears to afford personal freedom unmatched by any other period of human history yet I feel burdened and walks with heavy footsteps on my way home after each work day. I begin to accept that I am still a slave, just like those from any other periods in human history, albeit a finely clothed one who is able to afford smartphones, laptops etc but at the end of the day, cannot even enjoy a single prolonged period of time without work. Increasingly, I feel that the modern conveniences are actually trappings to put me in my place and deny me of any possibility to escape from the rat race.

Ever since starting my investment journey weeks ago, I have pondered if, through a combination of savings and steady investments during times when value opportunities present themselves, I am able to redeem my freedom, like the way a slave can redeem himself. Looking at the current dividend rate of 2.56% of my first investment, the iShares China ETF, I calculated that I might perhaps need US$1 million dollars to provide enough dividend income for my present annual expenditure, thereby reducing my "total and immediate" dependence on wages. Of course, if I am able to invest in higher dividend yield stocks, perhaps at 5% dividend rate, then I probably only require half a million dollars of invested capital.

On the other hand, I aim to continue with my simple lifestyle, and reduce unnecessary purchases and personal belongings. Some degree of freedom is achieved when my expenditure almost equals my income from stock dividends, and I can accomplish this by either reducing expenditure or increase invested capital. In any case, I feel pretty excited about the journey ahead and will try to update my experiences in this blog regularly. And finally, I would like to end off this post with a quote from Epictetus, who was born a slave and lived a life of great simplicity:

Wealth consists not in having great possessions, but in having few wants.

Singapore blue-chips

Recently, some banks in Singapore have introduced services that allow purchase of blue-chip stocks listed on the Singapore Exchange for small amounts each month. Examples include the OCBC blue-chip investment plan and the POSB Invest-Saver, both starting at $100 per month. What I am wondering is, if more people end up buying constituent stocks of the Straits Times Index, then inevitably this will push up the prices of blue-chips. Doesn't this make blue-chips less attractive to value investors? With the advent and rapid expansion of ETFs, I am also wondering if a company's mere inclusion in the stock market index will artificially inflate its price, up and above the price from a value perspective.

An interesting and cautionary tale about an investor's ups and downs in the stock market.

Looking at commodity play

I have been studying Noble Group Limited, a Singapore listed commodities company which price is near 3-year lows, and at approx. 0.9 price per book. However, the current P/E ratio (ttm) is quite high at 19.4 due to weak commodities prices; in particular, the revenue from agricultural sector has taken hit. Again, I am unable to predict if the agricultural bulls are correct, but recently metals have been given some support with China's recovery. If the world's population is consuming more, why aren't sugars, coffee, tea etc rising in price? Again I am unable to see through the complexities, and it will be greatly appreciated if any informed investors out there can leave a comment or two here of their views. I will continue to monitor this stock, but will not hasten to take up position since the current P/E ratio is rather high. I will keep a look-out for the commodities market, and then if conditions are favorable, may invest about 10% of my capital into this stock.

Update on China ETF

My investments in China ETF has gained about 4% since my taking up position on August 7 this year. Due to the limited capital that I have invested into this counter, together with brokerage expenses, the gains from my first foray into investments has only been a few hundred dollars so far, and again I have to caution myself that there is probably an element of luck in this small profit since I did not research into this ETF extensively before my purchase, other than the fact that Chinese stocks appears to have taken a beating recently and margin for error is lower than last year. In the meantime, I shall continue to monitor the market and find opportunities to take up value positions with the remaining (approx. 70%) of my savings; this is on top of the money set aside for 6 months of my expenditures, so that I do not have to liquidate my positions for bread and butter issues. I am going in for the long term, and  the 6-months fund should provide a measure of mental stability and serve me well in times of market turmoils.

Understanding the basics

From my reading of The Intelligent Investor, one interesting indicator for security analysis is the price per earnings ratio (P/E), which to my preliminary understanding is the price per share divided by the net income of the company per share. I went to check up on the statistics of my recently acquired iShares China ETF and found out that the average P/E ratio for the basket of holdings is 13.71, suggesting to me that in about 14 years time, if all things go as well as now, the companies which I bought into would have earned back the money per share that I paid for.

I am not sure if this means the ETF is overvalued or undervalued, and in any case the lesson learned here is that I should probably research into the shares before I make any attempt to purchase them, which I did not do for this time. Another observation is that the annual management fee is 0.74%; regardless of the returns, I should be prepared to lose this percentage every year. Looks like making investments is a far more arduous and complicated journey than I originally thought. I should probably gain more knowledge before committing my next buy.

A great time to take a dip

Before, investors have to pay brokerages hundreds of dollars to trade securities, burdened with paper work and having to hold stock certificates as proof of ownership in the company. Now, with advances in technology, I could log in online and invest in any parts of the world that permits my involvement at instantaneous speed and price quotes, for a small fee, and with my holdings updated electronically. For my case, one moment I decided to invest some of my money in China and in the next, I am already claiming ownership in a group of some of the most prominent companies there. I cannot help but feel that the convenience and liquidity of modern trading platforms gives me a great time to take the dip into the investment pool. 

Of course, at the same time, I have to guard myself against over-trading that the convenience affords me; I am aiming to be an investor, not a speculator. 

China stabilizing

China's growth may have bottomed out, which development supports my recent purchase of  FTSE/Xinhua China 25 Index.

Educating myself

I have been reading the book The Intelligent Investor as a start for my investment education. I do not understand a lot of the terms but found the following paragraph interesting: "The exact opposite is true with value investing. If you buy a dollar bill for 60 cents. it's riskier than if you buy a dollar bill for 40 cents, but the expectation of reward is greater in the latter case. The greater the potential for reward in the value portfolio, the less risk there is." (page 547,The Superinvestors of Graham-and-Doddsville by Warren E. Buffett). So it seems that the risk reward trade-off has a new interpretation here in the school of value investing; lower risks may accompany great rewards at the same time!

First dip into the markets

First of all, thank you for reading this very first blog post on my foray into the world of investments. It was with a lot of apprehension that I decided to put my savings into the stock market; I am a late 20s guy who was brought up in an environment of limited means, and the only financial education I have gotten so far were those from my parents who emphasized hard work and watching the bank account balance grow. They have never made any investments and feared anything that might erode savings and capital. Having worked for a couple of years and witnessed the lives of my older colleagues, I realized that to tie oneself with only salary for survival is in fact quite risky and a downright dangerous thing to do, and stashing away money will not help in an inflationary environment. I decided that perhaps it is time for me to learn about the big world of investments, and that doing nothing will be at least as imprudent as taking some risks with the (however limited) capital that I have.

My first investment is in iShares FTSE/Xinhua China 25 Index (ETF) (NYSEARCA:FXI). Since I know close to zero about analyzing individual stocks, the next best option is to buy ETFs that allows me ownership in a basket of shares. The Dow Jones Industrial Average has rallied about 19% in 2013 so far, so I am not sure if the stocks are too expensive to buy; at least the margin for error is greater than when the year started. On the other hand, Chinese stocks have not done so well, and investors such as Jim Rogers appear to think that I can make a prudent purchase now, so that is what I did. Furthermore, there seems to be a dividend of 2-3% annually, which is more than what I am now receiving in my money market account. Hopefully it will pan out well. I am going in for the long term with about 30% of my savings for this buy.