[Building Blocks]: Understanding your FIRST step to financial freedom!

Hi all!! It’s been a while since I did a [Building Blocks] post. Haha if you were an avid reader of my blog, you will realise that I have been posting quite a bit in [Eye Candy], the segment where I do some analysis on stocks I am researching. Yup I have been rather busy digging through the stock market for gems that I could put my money into. As you can see from the title of the blog post, today I will be trying to help you understand your FIRST step to financial freedom. This FIRST step is essential as it lays a foundation for you to work your money. In other words, in order to INVEST your money you need to embark on this FIRST step.

So what is this FIRST step that is soooo important??

The answer is: SAVING!!

SAVING image

All of you might go “Duh” but how many of us are actually able to really save up your salary or money? We often have the goal to save up this amount but most of the time we give in to certain pleasures and decide to spend almost all our salary away. I know this because I myself is guilty as charged haha!

When I entered the army, its the first time whereby I was drawing a constant stream of income (unlike those adhoc jobs I did last time). With sudden inflow of money every month, I did not have a concrete saving plan and hence my expenses were very high at the start. In some months, I may be broke without the month coming to an end. I also know of friends who are like that too! I only started taking charge of my savings when I started investing as I  realise how meagre my savings are.

So I started reading up and created a system to force me to save, but before that let’s look at

1) The importance of saving

Saving is an important first step to your financial freedom because without savings, you will not be able to use that money to work for you. Imagine yourself spending every dime of your monthly salary, how will you be able to put any money into investing in stocks, property and so on. So if we ourselves do not understand the importance of saving it’s hard for us to grasp the power of investing and compounding!

2) Saving can be automatic!

Yes it can be. Nowadays with the advent of technology, most of us definitely have an ibanking account with any of the banks in Singapore. And it’s super easy to automate the entire process of saving. Let me show you how.

First, you will first need to set up 2 bank accounts

Bank accounts pic

Yes, create 2 separate bank accounts, one for purely savings, the other for expenses only.

Secondly, credit your salary into your savings account. After doing that, calculate a rough percentage of your monthly expenses. For me, I save about 75% of my salary and spend the other 25%.

Finally, set up an automatic transfer between the two accounts. Transfer the percentage for your expenses from your savings account to your expenses account.

Automate saving

Yes the end result should look something like the flow chart above.

3) Don’t touch your nest egg for fun!

Yes! You read it right! Don’t touch your nest egg (savings) for fun (entertainment). Put it another way, don’t spend your savings!! For me, I practise that by not bringing out the ATM card that belongs to my savings account. That way I will not be tempted to dip my hands into my savings.

Of course with that said, what if its an emergency and you need the money? If it’s an emergency, then I guess there will be no choice but to tap on your savings. However, if possible try to reduce your expenses in the subsequent months to repay the amount you took from your savings.

One point to note is that you should always ensure you plan a right amount to be set for your expenses. I tried to save 90% of my salary before, but it’s just too tight on me and I tend to keep tapping onto my savings because I ran out of money. So plan the amount carefully so that it does not give you ANY temptations to tap into your savings!!

In conclusion,

you might say that as a young person, saving is very insignificant to you since you probably can only save a few hundred a month. But take that few hundred and multiply it by 12 or 24 months you are looking at a few thousands already. Think BIG! And that’s not all, use your nest egg to work for you through INVESTING! Slowly but surely, this small amount will grow and compound.

saving final image.jpg

I really like the picture above. In the very first picture I showed you a hand dropping coins into a jar which signifies saving. And with your savings, it forms the soil and fertiliser to grow your money just like the above picture. Savings is a cliche topic and whatever I shared above may be shared by many others too. But, what I think is most important to you is TAKING ACTION to really start your saving plan because saving is the FIRST step to your financial freedom!

** Haha side note before I end. I have been toying with the idea of helping people who are keen to get into investing. I am still working out how should I deliver it. So do stay tuned for more update on this! ūüôā **

 

[My Story]: My Investing Strategy

Hi all, apologies for not posting for a while now. Peak period of outfields week in week out made me procrastinate for quite a bit haha. I realised it’s been about 1 year since I started investing. A lot had happen and I am thankful for the many lessons I have learnt over the course of the year. All that happened, made me stronger and allow me to continuously revise my own investing strategy. Today, I shall share about my own investing strategy. How I identify potential investment targets, what I use to time my entry into a stock and when to sell.

1) Investment Objectives

Previously, I shared the importance to know your own investment objectives before being able to craft out your own investment plan.

my-investment-objective

Your own investment strategies are the actions you are going to take in your investment plan. Just a recap, for now my investment objective remains to grow my capital. From a measly sum of $300 at the very start of my investment journey, I am targeting to grow it to at least $10k before I enter the university. (Of course along the way, I added more money into my investment.) As of now I have about $6k vested in the stock market and sitting on a 20% realised return so far. Below is my investment strategy I am using to reach my objectives.

2) How I pick my investment targets

Personally, I like to look for companies with low Price to Earnings (PE) ratio with huge growth catalysts ahead. Companies that are of such qualities fill up about 60% of my portfolio. The reason why I adore such a company is because it is both undervalued and have ample of growth characteristics. (Killing 2 birds with 1 stone!)

Of course, sometimes it’s hard to find such a company. But all you need is that 1 or 2 opportunities to give you astronomical gains. Examples are companies like AEM which was previously PE of 8-9 (undervalued) and had a innovative product (growth). When the market comes to realise the company’s potential, the share price will readjust upwards.

After finding that few value-growth companies, I like to diversify across themes. By that, I like to research their growth areas and see if it fits any major trends happening in the world or in Singapore. For instance, now the One Belt One Road is quite a big thing, companies (construction, railway builder etc) that are undervalued and have operations in this area will potentially stand to gain from the growth opportunities available. Here’s another example, I may want to look at a more defensive theme. Companies that are undervalued and are in the industry that provides services to consumers, governments etc are all plausible candidates.

Of course, after shortlisting the few that make the cut. Checking their fundamentals is next and even better if there has been insider buying. (Here’s how I evaluate a fundamentally sound company)

3) Timing my entry

After all that filtering process, you should probably be left with a list of less than 4 companies. Timing my entry to buy into the stock is next. How should I buy at the correct timing. For me, some technical indicators and the chart have helped me quite a bit.

I like to enter my first position after a period of consolidation (where the price have been around the same level for a few weeks) and with low volume.

AT chart

I use the weekly chart for a better long term view since I usually hold my position for a few months at least. The red rectangle is the period of consolidation where prices close in very tight range. And if you look at the blue circle, the volume is below average for those few weeks. This represents a rather good opportunity to enter. I like to see consolidation period as a spring board to propel you upwards. But, how do we tell if price will go up after consolidation and not down?

AT chart1.png

I use the MACD indicator to see if there’s a possible uptrend coming. (I am not going to go too in depth into indicators) When the blue line cross the red line as shown in the circles, it is a possible indication of an uptrend. For me, I only use indicators as an additional reference after I spot a consolidation zone.

4) When to sell?

Haha to be honest, this question always baffles me. I myself am also not a good seller. There are a few times a stock raced upwards after I sold away all my position. Sometimes, I get to emotionally attached to a stock and tend to sell too late. Hence, this portion is something I am constantly still learning. However I do have a few ground rules to follow.

  1. Sell when the undervalued stocks become overvalued.
  2. Sell at your stop loss.
  3. Sell when the business is no longer attractive or fundamentally sound.

I don’t really use technical indicators to predict when to sell, because I believe that as long as the business’s value and growth aspects remain intact, a downtrend should be temporary.

In conclusion,

planning your own investment strategies to achieve your own objectives is important.  You need to know what stocks you are looking into, when to enter and when to sell. Only then will it translate into gains in your portfolio. Hopefully for those who started investing, you will be empowered to write out your own investment strategies after reading my own strategies. Writing it out is really effective, as it makes sure you do not get flustered when anything happens in the market.

[Building Blocks]: Dissecting the Annual Report (Part 2)

Hi all, today I will be continuing with Part 2 of Dissecting the Annual Report. In part 1, I shared about some ways to dissect the annual report in order to find the information that you need. For those who missed it, you can read Part 1 here. Today, I will be going more in depth into the financial statements portion of the annual report. The financial statements in the annual report is an important piece of document that shed light on how the company is doing and challenges that the company may face.

financial-statement-post-pic

The financial statements in the annual report always consist of 1) the Balance Sheet, 2) the Income Statement, 3) the Cash Flow statement and 4) the Statement of Equity. We will focus on the first 3 as the statement of equity is used less frequently.

My Strategy

Whenever I look into the financial statements of any company, I do it for 2 reasons. It’s either to identify if the company is fundamentally sound to invest or to evaluate the financial health of a company after every earnings report season that I am already vested in.

When deciding if a company is fundamentally sound, I would look for stability of earnings, debts level and their cash flow which I wrote about here. After, confirming that the company is a fundamentally sound company, I will scrutinise their financial statements further for any abnormal figures. This can come in the form sudden increase when compared to previous year’s figures or extremely high figures. As for companies that I am already vested, I always try to look out for abnormal figures when compared to the previous year.

By doing so, I am able to detect any drastic change that may happen to a company. This is because any abnormal figures usually have a huge impact on the company. For instance, when the company suddenly register a 50% decrease in Cash & Cash Equivalents in their balance sheet, you must find out what did the company spent the money on. Is it for expansion or paying down debts? Will this affect their operations etc etc. Hence it is important to always find out about abnormal figures that may puzzle you when you read their financial statements.

Alright, with that aside, we shall dive deeper into the financial statements. I will share with you the important things to look at and some basic calculations you can make to better understand the financial health of the company.

1) Income Statement

Let’s start with the income statement. The income statement is basically a summary of profit and loss for the company. It documents the revenue and expenses for the specific accounting period.

aem-3q-result

The above is an example of the income statement of a company.

Things to know:

  • Revenue – a gauge of the amount of sales (look for stable or increasing revenue)
  • Gross Profit ¬†– this is obtained after¬†subtracting costs of goods from their revenue.
  • Gross Profit Margin – this is obtained from dividing the gross profit by the revenue (High GPM shows that the company have some form of competitive advantage over their rivals)
  • Operating Expenses – which consists of all expenditures that are not directly associated with the production of the good or services. Expenses like R&D costs, depreciation, amortization etc (Companies with durable competitive advantage have consistent operating expenses)
  • Earnings Per Share — EPS is based on net profit attributable to shareholders after deducting any provision for preference dividends and then divided by total shares outstanding. (An increasing or consistent EPS is always preferred)

 

The income statement is important in telling me if the company’s business have a form of moat around it and also if the company have been able to keep costs low.

 

2) Balance Sheet

The balance sheet documents the assets, liabilities and the shareholders’ equity of a business at a particular point of time.

aem-balance-sheet

Things to note in a balance sheet:

  1. total assets = total liabilities + total equity
  2. Current assets refer to assets that can be liquidated into cash within a year
  3. Current liabilities refer to the money to be paid in less than a year
  4. Non-current assets refer to assets that takes more than a year to be converted to cash. For eg, property, factory buildings etc
  5. Non-current liabilities refer to the money payable after 1 year.
  6. Shareholders’ equity refer to the net worth of the company
  7. Current Ratio calculates the company’s abilities to meet their short term obligations. (Current Ratio = Current assets divided by Current Liabilities)

 

Important values:

  • Cash & Cash Equivalents > Total Debts – I always try to ensure that the company have enough cash on hand to pay off their total debts. An over-leveraged company is a troublesome company.
  • Current Ratio > 1.5

 

For me, the balance sheet is important in telling me if the company will have a problem of paying their dues.

3) Cash Flow Statement

The cash flow statement records the cash inflow and outflow of a business. The cash flow statement shows how changes in the balance sheet and the income statement affects the cash and cash equivalents.

aem-cash-flow

It consists of 3 parts. 1) Cash flow from Operating Activities which records the net cash into or out of the business from their main operations. 2) Cash flow from investing activities which records the cash movement from the company’s investment. For instance, purchase or sale of a property, subsidiary etc. 3) Cash flow from financing activities records the cash movement of financing activities in the company.

Cash Flow from Operating Activities

A positive cash flow from operating activities means that cash is flowing into the company from their business. This means that net of all the expenses, the company is receiving cash from the products they sell. This is important as you want a company to take in cash from the products they sell. A company with consistent negative cash flow from operating activities is burning through cash fast and may need to take on debt in the future to finance their expenses. Hence, we would want a company to have positive cash flow from operating activities.

Cash Flow from Investing Activities

Purchase of assets, company investing their money in the market etc. These are all counted as cash outflow from investing activities. Sale of an asset etc will be register as an inflow. This section can tell you if the company is spending money to expand their current infrastructure or expanding capacity through higher capital expenditures.

Cash Flow from Financing Activities

Financing activities include payment of dividends to shareholders, paying off debts, money used in share buyback etc. In this section, you will be able to find out what the cash is used for in their financial activities. For instance, a negative cash flow from financing activities can mean that the company is paying off its debt. A positive cash flow from financing activities could mean that the company is raising money through selling new shares in the market etc.

The sum of all three sections above will give the net change in cash and cash equivalents which will be added to the amount of cash they have at the beginning of the year. By understanding the functions of the different sections of the cash flow statement we can better understand what the company is doing with their cash.

Disclaimer

Not all companies’ financial statements follow to the template I describe above. A lot of them have to be evaluated in the context of their business. For instance, although I emphasised a lot on positive cash flow from operating activities,.property developers would register most of their cash flow in the investing portion than operating activities when they sell a completed property project. Hence, the financial statement should be read in context with the industry the company is in.

In conclusion,

the financial statement is a powerful tool to better understand a company. In fact, I am also still in the process of further deepening my understanding of the financial statements. The management may coat investors with nice¬†narratives about the brilliance of the company but you can always cross check what the company is saying with their financial statements to gauge their reliability. Understanding the financial statements will definitely level up your investing many folds! ūüôā

 

[Eye Candy]: Nordic Group riding on O&G recovery?

Nordic Group have long been in my eye candy list for some time now. Not only does it have a good fundamentals, it has been able to withstand the chaos in the O&G sector while posing earnings growth during this period of time. A company that can withstand headwinds in the industry are certainly poised to do well when the sector recovers.

nordic-group-limited

Nordic Group is a global systems integration solutions provider serving mainly the marine, offshore and oil & gas industries. Their business segments include 1) system integration, 2) maintenance, repair, overhaul and trading, 3) precision engineering, 4) scaffolding services 5) Insulation services. Most of their businesses are in the O&G sector but they also do serve the aerospace and medical industries. (But to a small portion)

Fundamentals

1) Strong earnings record

As I mentioned earlier, Nordic have managed to grow their earnings rather significantly over the past few years. Even when many O&G companies (their customers) are cutting budget and hence spending, this company have punched above its weight. Here’s a snapshot of its financial highlights.

nordic financial highlights.png

Various indicators of earnings are all pointing upwards, which shows the strong earnings momentum the company has. Also 2016 being the year where O&G sector faced many unpredictable headwinds, like falling oil prices. Nordic have still managed to grow its revenue.

nordic-q4-result

Despite challenges, revenue for FY 2016 increase 2%, profit net of tax increased 21%. If Nordic can weather the storm in the industry, it should present a good growth opportunity when eventually the industry recovers and O&G companies start to spend again.

2) Strong balance sheet and cash flow

Current ratio of 1.74, with cash and cash equivalents covering its debts. Nordic have also been registering positive cash flow from operations for the past few years.

Fundamentals.png

3) Insider ownership

nordic-insider

All 3 executive directors of the company are part of the 20 largest shareholders in their own company. Furthermore, company have been doing regular share buybacks. Latest one being at $0.24 a share.

Catalysts

Going forward there are a few catalysts that could propel the stock further.

1) More contract wins and possible acquisitions

With oil prices stabilising around $50 per barrel, compared to the atrocious $30 per barrel at the start of 2016. A recovering 0&G sector can be beneficial for Nordic as more of their customers start spending more to upgrade or improve their facilities. This should lead to more contract wins for Nordic given the strong reputation it has in the industry. With Nordic low debt, they could also possibly look to acquire companies in similar industry to boost their source of revenue, just like the acquisition of Austin Energy in 2015.

2) Going into pharmaceutical industry

In the AR of 2015, the Chairman also mentioned going into the pharmaceutical industry. This should open up new form of revenue stream and allow Nordic to grow their business out of the O&G sector.

austin-energy

Technical

Based on the chart, this gem have already been discovered by many investors.

Nordic chart.png

Clear and nice uptrend. Currently, Nordic have reach upper channel line and I am hoping the pull back will hit the support at $0.270. This will present a rather lucrative price to enter given the upside potential.

In conclusion,

this is a rather straight forward company to analyse. Strong fundamentals and possible tailwinds to promote growth should the O&G sector improves. $0.270 will be a great price to enter!

 

[Building Blocks]: Dissecting the Annual Report (Part 1)

Buying and selling stocks are easy, but the amount of research one puts into determines your profitability. One such place to find out more about a company current performance and future plans is through their annual reports. The sage of Omaha, Warren Buffett revealed that his success in investing comes from reading hundreds and hundreds of annual reports every year. If annual reports are this important, how do we go about understanding it and finding the information that we need. Today in part 1, I shall share a bit on how I dissect the annual report into digestible parts. In part 2, I will attempt to muster what little accounting knowledge I have to share with you how to look for specific measurements that indicates the health of the company through their financial statements.

warren-buffett-on-annual-report_finaacle.jpg

In my sharing, I will use the FY 2015 Annual Report of AEM Holdings. You can download it here to follow along as I dissect the annual report.

1) Where to find a company’s Annual Report?

Any public listed company will have to file their annual report with the stock exchange. This report can be found either from the website of the stock exchange it is listed on or in the investor relations segment in the company’s website. Here’s an example of where you can find the annual reports for AEM Holdings.

2) What to do with the 100+ pages monster?!

Yup, a company annual report tends to be 100 over pages long! (At least in the case of SG companies) Don’t worry, not every part of the annual report is equally important. Locating the parts that give you what you need is more essential.

annual-report-content-page

This is a typical contents page of a company’s annual report. It is almost a standard format of annual reports which is comparable to many other companies’.

3) What information is important to me?

When analysing a company’s annual report there are always some standard information that is important to a shareholder. This can range from their financial performance to who exactly is running the company. Below are some information which I always look out for when I read a company’s annual report.

  1. Present company’s performance
  2. Company’s outlook and future catalysts
  3. Management’s information

4) Where to find these information?

Present company’s performance

We want to understand how the company is doing for the past financial year and most importantly their financial statements for the FY. This information can usually be found in 1) The Chairman’s and CEO’s statement, 2) Business and Financial Review (some company may name it differently but it is basically just a summary of financial figures for the FY), 3) The full financial statement in corporate information

aem chairman statement 1.png

Here’s a snippet of the present performance by the Chairman. You can likewise find the same from the CEO in the next page.

Business review AEM.png

Under the business and financial review, the company tends to show a quick summary of financial performance for the FY. They can come in the form of informative illustrations comparing their performance over the past few FYs. I tend to read this part with a pinch of salt. This is because the company may tend to cherry-picked “nicer” numbers to put here to impress shareholders. A in depth analysis into their full financial statement in the corporate information segment is needed to determine the reliability¬†of their performance.

If you are lost. You can find the above information from page 36, 40 and 37 respectively. A financial statement usually includes the Balance Sheet, Income Statement and Cash Flow statement. I will touch on these in part 2, but just know that these 3 pages are one of the most important part of any Annual Report. You will also notice one whole bulk of information which occupies majority of the annual report in Notes to Financial Statement. Basically this part give additional pointers to how each segment in the financial statement were derived.

Company’s outlook and future catalysts

You can usually find a company’s future plans and outlook from the Chairman’s and CEO statements. This is usually found at the last few paragraphs of their statements. They will address challenges and the strategies going forward. Any upcoming plans are also explained here.

aem-chairman-statement-2

During the FY 2016, you can stay tune to their announcements as they may announce some information about whatever plans they were set out to do in FY 2015. This can supplement your information about the company’s outlook and plans.

Management’s information

It is always important for me to know who are the people that are running the company. To find this information, you can look them up in the portion Board of Directors.

aem-board

They usually include a short write up about the achievements of the person and his previous experiences.

Knowing how much the management is earning is also important. This is because we want to ensure that the management have their interests aligned to ours’ and are not overpaying themselves. You can find out details about remuneration in Corporate Governance on page 23 of the annual report.

aem-remuneration

In a board of any company, it is made up of the Chairman, CEO, the independent directors and some other position depending on the company. The independent directors are just people who are not related to the company but sitting in the board. This ensures that the Board do not do things that are beneficial to themselves only and in turn harming the shareholders. It is a common sight to have independent directors in any listed company. You should pay close attention to the payslip of the Chairman and CEO. Make sure they do not give themselves too high a pay.

One simple way to see if the Chairman and CEO have interests aligned to the shareholders is to see if they hold the company’s shares. You can find that either from the variable bonus component in the remuneration package above or from page 92, Information on Shareholdings.

aem-shareholdings

The CEO is one of the top 20 shareholders of the company’s shares. If the insiders of the company have rather large stakes in the company they should act in the interests of the shareholders.

In conclusion,

these are usually the information that I look for when I read into any companies’ annual report. By categorising the annual report into 3 key areas, we can effectively understand the company. In the next part, I will mainly talk about how to break down the financial statement in the annual report to¬†help you understand some accounting jargon. Ohh and on the side note, if you have been a regular reader of this site, please do subscribe so I know roughly how many active readers I have and you can also comment below if there are any queries. Hahaha! Thank you! ūüôā

 

[Building Blocks]: 4 principles of a fundamentally sound company

Hi all, as promised I would like to share with you some of the criteria I have before I decide that the company is fundamentally sound and worth investing. These 4 simple principles can be applied irregardless of what style of investing you pursue. (Growth, value, income etc) Investing in a fundamentally sound company reduces your exposure to the risk that the company may fail. These principles also act as red flags when a company with good track records flouted any of these principles. Adhering in these 4 basic principles should put you in good stead when investing directly on the stock market.

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Without further ado, here are 4 principles I always apply when evaluating a company.

1) Earnings Record

A fundamentally sound company should have a stable or growing earnings record. If the company can show stable or growing earnings over the past few years, it is likely that the company’s product or service are well sought after and there is some form of economic moat around them.

The 2 most important components to determine the strength of their earnings are:

  1. Revenue
  2. Net Profit

** Revenue – (Cost of Sales + Expenses incurred) = Net Profit

Revenue reflects the amount of sales that the company have done for the products/services it provides. It is often referred to as the company’s top line. On the other hand, net¬†profit shows the earnings after subtracting the costs involved in manufacturing the products or providing the service and the various expenses incurred. Net¬†profit is often referred to as the company’s bottom line. Hence, when someone say a company has achieved top line growth, it is referring to increase in revenue and likewise for net¬†profit.

aem 3q result.png

Companies with stable or growing revenue shows that their sales are increasing. Improving net profit also shows that the company have been able to manage their costs and preventing it from exceeding its revenue. Thus, these are good sign of a company that will be stable compared to a company with fluctuating revenues and net profit.

2) Low Debt

This goes without saying. Company that takes on huge debt are often at higher risk of failing. Imagine being chased by debtors for payment while trying to do business. Earnings will definitely be affected as earnings may have to be used to pay off debt. These are definitely not a good sign for a company. A classic example would be Noble Group which I shared before in [My Story] component.

Of course low debts are healthy as they aid a company to grow its business. So what’s a healthy amount of debt? I have 2 ways to evaluate if a company have over-leverage.

  1. Cash and Cash Equivalents > ST Debt + LT Debt
  2. Current Ratio > 1.5

This works in such a way that if both rules 1 & 2 don’t hold, you are probably looking at an over-leveraged company. The best case scenario would be that rule 1 holds which most of the time¬†means rule 2 will hold.

3) Positive Cash Flow from Operations

Cash flow is important for a good company as some companies can have very strong earnings but those earnings may not be recognised in cash. If a company consistently register a negative cash flow from operations, it should set off some red flags. This is because most of the company’s debt and expenses are paid for in cash, if their earnings do not bring in cash this might be a problem in the future.

Take the case of Yuuzoo Corporation.

yuuzoo

Strong growth in revenue and net profit recorded. Indeed very impressive.

yuuzoo3

However, look at net cash from operating activities. It has been negative for 2 years. It is okay if the company at times record negative cash flow from operations as they may have use the money to pursue expansion etc. But if it has been happening for a few years, it is definitely not a good sign of things to come.

4) Insider Ownership

Insider ownership is often a good sign to tell whether the company’s management believes in the company. This will show whether the company’s management put their money where their mouth is. A good level of insider ownership should give you the confidence that the company is good because the interests of the management is at stake as well.

Hence events like management buying or selling their own company’s shares could be a pre-indicator of their outlook on the company.

shareholder-info-for-dutech

This is extracted from the annual report of Dutech Holdings. Dr Johnny Liu Jia Yan who is the Chairman and CEO owns about 42.76% of the shares. Hence this should reassure shareholders that he will act in the interest of the shareholders.

Bonus

If you can find a company that satisfies most of the above, at least 3 out of 4 and you realise that the company are buying back their own shares (share buyback) or the management have been buying more shares of the company. (Insider ownership) This could mean that something big is brewing within the company and it is likely an excellent opportunity to invest in the company.

Some of you may ask how should I go about finding these information regarding the company I am investing. Firstly you should always check out the investor relations segment in their website which should contain information regarding the company. Alternatively, you can head to SGX website to find them. You can find out about every companies announcement with regards to their financials, insider transactions, annual reports etc here.

In conclusion,

these are 4 principles that I look for in a fundamentally sound company. It may not be fool-proof as many factors can affect a company. But these principles should allow you to sieve out the better companies in the entire stock market which should provide a relatively safe and lower risk investment should you decide to enter the stock market directly.

[My Story]: Investment takeaways from my first few trades

Hello everyone, it’s been a while since my last post. Sorry about that, haha was busy trying to learn coding. Haha I have to say that the activation energy to learn something completely new is super high! Going back to today’s post, I will be talking more about the first few trades that I did after my “Noble” failure. (Haha you can read more about it here) If you think that my next few trades should be much better, you may be wrong. I decided to try to trade in a few different stocks to understand how it works. Some work against me, while some earned me a pretty good return. So here goes…

image3
Closed Trade

The picture above was taken from my Stock Portfolio page from last year . Haha just look at the sea of red! Each closed trade in red are definitely scars I will bound to remember in years to come for experimenting in different types of stocks . Of course, I did draw some meaningful lessons from it, allowing me to update my list of things to NOT DO when choosing certain stocks. I will be sharing with you those lessons today.

1) Never look for stocks that are too “penny”!

Penny stocks are those that probably only cost a few cents sometimes not even 1 cent on the SGX. Different stock exchanges around the world have different meaning for penny stocks. For instance in the US, penny stocks are normally less than $1-2. Penny stocks are even more dubious if their fundamentals are not good. No strong record of earnings , questionable management etc. Also, penny stocks tend to be played by professional traders. They may buy up a lot of shares, since it is cheap and thus create a sign that the stock is trending up. Retail investors may get into the stock and when the pros sell the stocks, these retail investors tend to get trapped with a higher price paid for the penny stock. Hence, the risk for penny stocks are definitely high!

As for me, the 2 stocks that I bought into which were penny status were Cedar Strategic (530.SI) and GCCP Resources (41T). One cost me $0.004 and $0.06 per share respectively. Cedar Strategic had a troubled management in the past, and the new management came in ,divest away its loss making businesses and went into property development in China. The sales of the property seems to be going well and to be honest I was a little greedy, here’s why. If I bought $400 into Cedar, an increase of 0.001 will earn me a $100 profit. Of course that didn’t turn out well haha, the stock was so illiquid that the price of the stock can be the same for a few weeks. After a while I thought it was a bad investment on my part and decided to sell it away for 0.003. See what happened here? By selling away at 0.003, I incurred a $100 loss + a commission expenses of $43!

This taught me that:

  1. Penny stocks are usually businesses that may not have sound fundamentals.
  2. Penny stocks are usually illiquid and most of the time we have to sell lower due to low demand for the stock.
  3. Just as penny stocks have huge potential to double your money, it can also lose your money in double quick time.

2) For beginners, don’t buy into mining companies.

Mining companies are normally bad investment for beginners as they usually carry huge debt and have little or no profits. This is due to the nature of business. Mining companies borrow huge capital to buy equipment for mining. Furthermore, there are a lot of uncertainties in the mining industries.

  • There ore mined may be low quality and of no commercial value.
  • The mining company may not be profitable before their debts are due.
  • The profitability of mining companies are heavily dependent on the prices of the commodity they mine.

All these mean that the volatility in the mining industry is very high. For me I bought into CNMC Goldmine (5TP), Alliance Mineral (40F) and GCCP (41T).  All are pure mining stocks while GCCP is also a penny stock as mentioned earlier. But I would like to talk more about CNMC.

cnmc-goldmine

CNMC Goldmine mines for gold in Malaysia. The good thing about this company is that they have become operational and are actually mining gold from the ground. The company also benefitted from higher gold price. So I bought into this company at 0.425, it eventually rose to a high 0.50 cents mainly due to better production and increase in gold price. However, key events like the rates hike in the US eventually cause it to drop to a low of 0.40. Also, recently CNMC announce that the quality of gold ores they mined are of lower quality hence it affected their earnings too. I didn’t sell when it hit its high but sold only when the bad things start to hit the company and eventually I sold for a loss. Hence it was a painful lesson for me about the mining industry.

From this we can see the difficult industry the mining companies are operating in. Thus, in my opinion, for beginners it is best to avoid this industry altogether unless the company present a very promising growth catalyst in the near future.

These are the 2 lessons that I draw from the next few trades that I did after Noble. Although, it is not a rosy picture, I definitely learn a lot from it. Hope you guys get some insights from my humble sharing.

[My Story]: My Investment Objectives

Hello! Hoped everyone had a great New Year Day holiday. As mentioned in my previous post, today I will be sharing with you about my own investment objectives and my reasons for it.

My Investment Objective.png

I have done up a simple diagram of my own investment objectives. I prefer splitting my investment objectives in period of 5 years so I can have a holistic view on how my investment style changes with the years.

In 5 Years:

Why: As some of you may know, I did not start out with a huge upfront capital in investing. The average size of my trade is only a few hundred dollars per transaction. The multiplier effect of investment increases when more shares are bought. Hence, I decided to dedicate my first 5 years of investing to aggressively growing my capital. Since, I am in the army and will be in the university during this period, my tolerance for risk is much higher.

How: I will do so by looking into growth and value stocks which have higher potential for price per share appreciation. I will try to lock in at least 20% gain in price before selling the shares completely. Hence my holding period is not very long term. With that, it is also important to protect my down side. When I started investing, I did not actively pursue a stop loss and caused a great deal of problems for me. With such high risk pursuit of capital growth, having strict stop loss is important to protect your downside risk.

Characteristics:  

  • Look for growth and value stocks
  • Sell when stocks appreciated at least 20% in price¬†
  • Strict stop loss to prevent down side risk

In 10 Years:

Why: After the 5th Year mark, I should be out in the working world and making a regular income. Although I would still be young, its important to start saving for retirement. Hence, the percentage of my portfolio changes with an extra element of preserving my capital. Overall, I am still growing my capital but less aggressively compared to 5 years ago.

How: Likewise, I will continue to look for growth and value stocks to fulfill my investment objective. The added component would be to source for income producing assets, like blue chips, bonds, fixed deposit to preserve my capital.

Characteristics:

  • Look for growth, value and income stocks
  • For growth and value, same rule of selling when price appreciate at least 20%
  • Same strict stop loss for growth and value stocks
  • For income stocks, look for blue chips that pay regular dividends. Preferably reinvest those dividends.¬†

In 15 Years:

Why: After the 10th year mark, I would be in my 30s with much more responsibilities. Most of us would also get a HDB in our 30s. This will incur more expenses and hence it is more wise to be less risky and protect more of your capital. Hence, preserving capital becomes more than half of my portfolio.

How: Pursuit for growth and value stocks become less important. Looking for stable income producing asset becomes paramount.

Characteristics: 

  • Look for more income producing assets
  • Same rules applies for growth and value stocks

In conclusion,

its important to know how your investment journey will span out. Having a investment plan with clear investment objectives should help you make accurate investment decisions. When I first started out, I did not have such a plan, I plunged myself into different trades like a headless chicken and incurred heavy losses. Do not make the same mistake I did haha. Of course, life is not smooth sailing like you want it to be. Things change and crisis may emerge, thus it’s important to always review your investment plan and objectives yearly and tweak them accordingly. For those who may have yet to have an investment plan, feel free to try out my method of planning and let me know if its helpful. Here’s to a great 2017 for all of us!

[Building Blocks]: Knowing your investment objectives

In my previous post, I talked about the styles of investing that majority of investors subscribe to. In it, I also mentioned that knowing one’s investment objective is key to understanding oneself before plunging into the investment world. To be more specific, by investment objectives I mean what do you hope to get out of your investments. Is it short term gains or long term income investment? Most of us should be working towards long term income gains. Thus, knowing what you want to achieve out of your investment will guide you along when you are making your investment decisions.

How to determine your investment objectives?

There are really no hard and fast rules to go about this. However, I would like to present some guiding questions which may help you go about crafting your own investment objectives. These investment objectives should be the main overarching lighthouse that guide your investment decisions.

1) What’s your risk appetite?

Are you someone who can sleep well at night if say your stock took a 10 percent plunge during the trading day? Or are you the type that worry even if the stock were to fall slightly. These questions are important because investing shouldn’t stress you out too much and compromises your health. You should look for something you are comfortable with and invest in it. Typically, a younger investor would be more risk adverse because they know that their investment time frame is longer than someone in their 50s or 60s.

2) What’s the proportion of your savings you are using for investment?

If you are putting up 90% of your savings to investment then it is important to diversify your portfolio with safer stocks because a large portion of your savings are inside it. I am not saying that its wrong to use 90% of your savings to invest. Just that if you are putting such a large proportion it pays to be a bit safer with it. By answering this question, it should help you decide how to distribute your money in different investments of different risks.

3) Are you short term or long term?

Are you someone who gets excited over small price increase and are eager to sell it to realise the gains or someone who is very patient and wouldn’t mind to wait for 10 years to realise the gains? This is important because it will determine what kind of stocks you will tend to choose. Those who are short term tend to trade on price action, are quick to take the profit off the table and then plunge into another trade. ¬†Someone who is short term takes on more risk than someone who goes for the long term since there have been more bull markets than bear markets in the long run.

 

By answering some of these guiding questions it should give you a better understanding about the type of investor you are and what is at stake. Only when you know the type of investor you are can you go on to set a relevant investment objective and subsequently your style of investing to achieve your objective.

For me personally, I plan my investment objectives in 5 , 10, and 15 years so I get a holistic view of how my investing objective and style will change eventually. For instance, in 5 years, I am looking for more short term gains to quickly multiply my capital before I switch more towards looking for dividend paying stocks for the long run. I will share more about my investment objectives in the next post. That’s all for today! Have a great Christmas ahead! ūüôā