Monday, 19 February 2018

3 Ways to Invest Your Infant's Ang Pow Money

This is my first CNY spent as a father, with my daughter born just 2 mths ago. It is certainly a happy CNY celebration this year, carrying a cute baby around meeting all the relatives.

As i received ang pow on her behalf, I am already thinking how to invest this sum of money. Knowing that she has a super long investing runway ahead, investing her money even before she turns one would give her a good head start in this journey, leveraging the power of compound interest. 'Time in the market' is a safer bet than 'timing int the market' in this case.

*This article talks about the investment pillar of the wealth management equation - chasing for higher returns. Ideally the protection pillar - insurance, should have been taken care of as the top priority. Always make sure the downside risk is well covered, before starting on investing for returns.

How would you invest your kids' angpow?

Parents of our generation armed with better education and wealth management knowledge should strive to put their kids' funds to best use, for exactly the reasons stated above. I sometimes do an envisioning exercise and imagine if my parents were able to do this for me, and what difference it would have made to my wealth situation at the beginning of my working life. The amount may not be huge, but it certainly provides a good springboard and give the kid a good start.

Nonetheless, every generation has their own constraints and some things that can be done now were not available back then. We should make the best of resources on-hand and do the best for the next generation.

So what are some ways to invest kids' ang pow money?

Child Development Account
Every new born will open a Child Development Account (CDA) with either POSB, OCBC or UOB. Under the Baby Bonus Scheme, government will provide a First Step Grant of $3k into the CDA. Subsequently, funds put into the CDA by parents will be matched by government dollar to dollar, up to a cap of $3k. And this account can be used to pay for childcare centre, medical and immunisation cost, pharmacies etc.

So in essence, parents could get a maximum of $9k in CDA, with a contribution of just $3k. Looking at just the dollar-to-dollar matching, the 'investment returns' is 100%. But taken in totality, the final fund size is 3 times the amount put in.

Yes this is technically not investing per se. But it is the lowest-hanging fruit with zero risk. In one fell swoop funds will double in size. Not too bad a deal right?

However, the limit is of course, the low amount of $3k. This is the reasons we need to move on to investment.

Regular Investment Plan
One can also consider investing regularly via banks or brokerage firms' regular investment plan. This method allows one to buy into a variety of Singapore blue chip stocks or exchange traded funds regularly at a fixed amount, via automated GIRO deduction, regardless of share price. Making use of Dollar Cost Averaging, one would buy larger quantity when price is low, smaller quantity when price is high to spread even the average cost price.

Phillip Capital offers this solution in the form of Shares Builder Plan. Investors get to choose from 28 counters - a mixture of blue chips, REITs and ETFs. One can start from as little as $100 per month, and dividends will be re-invested automatically. It can be opened in the online trading system for existing clients with POEMS trading account. Investment instructions can be amended online too.

Other financial institutions that offer Regular Investment Plan include OCBC, Maybank and POSB.

Active Share Investing
The last method would be investing into shares on behalf of your child, as per how one would do it normally for myself. This would require more effort than the other 2 ways, but could potentially reap higher returns. Naturally the risks would be highest too.

What Would I Do?
As I have not maxed out the CDA dollar-for-dollar matching, I will first allocate funds to be transferred into that first.

Thereafter, being a remisier myself, I would take the active share investing approach. I am confident that this would give me the greatest returns over long run, investing into sound companies with strong fundamentals and growth prospect. It would be not much different from managing my portfolio. And when she turns 21 year-old, I would then transfer the shares to her CDP as part of her legal assets. By then I believe the amount would be substantial, and it could be my 21 year-old birthday gift to her.

For parents who are less adept at direct share investing, he could pick Regular Investment Plan, which entails less analysis and monitoring. However, do note that DCA and regular investing does not mean zero effort or 'park money there and ignore', which always lead to disastrous investment returns, even when its blue chip stocks (just look at SPH, Comfort or Starhub in past few years). One would at least need to know company's annual earnings, and its future growth direction, because there is no guarantee that current good companies will remain good forever.

Lastly, happy Chinese New Year to all!

Tuesday, 13 February 2018

Thoughts on market plunge and what should one do

Recent market drop has been stomach churning. If you are a relatively new investor who entered the market past 2 years when it was smooth sailing, it is only natural to be terrified by the wild swing.

In this article I share some opinions on why such drop is to be expected and offer some ways to stay afloat in such market conditions.

1 - Have a right perspective for this market drop
Majority of investors' fears were stoked by scary news headline such as 'Dow plunges 1,175 - worst point decline in history', 'Dow and S&P 500 now officially in correction'.

CNN Money headline on 5th Feb

But the fact is that US markets had one of the strongest bull run in history that lasted for 9 years since 2008 GFC. Plus, past 2 years' rise had been particularly relentless, from 16,000 to around 26,600, a 66% rise.

Even taking into account the last week's drop, Dow Jones is still up by 51% in past 2 years. So the magnitude of recent pull back is actually quite benign.

2 - Understand that market gyration is the norm
One can't expect stock market to rise in a straight line indefinitely, which means a consistent net buying volume (amount of purchase exceed amount sold), day-in-day-out non stop. It does not make sense. Surely one day buyers are going to dry up and when there is no buying, market will drop.

I read from some research (apologise that I really couldnt find the source so cant quote here) that on average, market will drop 10% once in around 18 mths, 20% once in 3-4 years, 50% several times in a century.

So being aware of these means that one should not be too surprised when recent drop took place. It's really as common as the sudden afternoon downpour despite a sunny morning in our local weather.

3 - Hasty investment decision usually turns out bad
When market drop so steep within such a short time, some could be lured into thinking that it is just a knee jerk reaction and market will spring back up as fast as it plunge. Some investors attempt to catch the rebound and earn some quick profits.

But often decisions made hastily could turn out bad. This happened last week when US staged a v-shape rebound to close 500 plus points up. Next day, investors poured in to buy the dip, but the morning market rise soon tapered off in the afternoon.

In summary such move is a difficult one especially during sharp market gyration like this.

4 - Good idea to sell all now to buy back later?
Some clients were so frightened by the fall that they wanted to sell everything and buy back later. My response to them was 'Do you know for sure that market will drop further? Even if it drops further would you really be able to buy back? And if market stop falling and rise back up how would you feel?'

Such move is rarely a good idea. Guessing market bottom and top is challenging enough in normal market conditions, leave alone during such high volatility.

*As of writing market is now up 42 points and up above 3,400. Be brutally honest with yourself. Would you be able to make a decisive action to buy now, or would you hesitate and tell yourself to observe first?

Actually many people just can't stomach the paper loss and large swing in portfolio value. Which brings me to my next point.

5 - Your mindset during this period matters a whole lot
Equities investing, besides the due diligence of selecting good company, is very often a psychological matter. For the core companies that you identified with good value and intend to hold for long, buy with an implicit knowledge that it will be worth much more in future to bring you great wealth, not with the expectation to earn xx amount of capital gain within 2 weeks. 

I suspect it is the latter mindset that many investors entered the market with. With high expectation of earning quick bucks, they are not able to accept losses.

There are hell lot of a difference between them. Buying with implicit knowledge that it will be more valuable in future, you will be more at peace with price swing. You will not be hasty to earn and take profit, and consequently less perturbed when price does not rise as per you expected. But if one buy with high hope to earn within a specific time frame, its the exact opposite. And that leads to emotional instability that causes bad decision-making.

6 - Importance of risk management and a sound investment mindset
I hope this episode can really drill the importance of risk management and mindset/psychology into one's investing DNA.

When market is good, its easy to make money. Just 2 clicks to buy and sell. Even if price drops after we purchase, it will rise back. But all it takes is just one larger-than-usual market movement like this to undo all your profits.

Similar to our life, we buy insurance to hedge against major risks such as death, disability, critical illness. Investing should have insurance too - manage your risk, watch the downside well, be aware that market WILL DROP BIG once in a while and always be prepared.

What should an investor do now?
In all honesty no one can tell you exactly what to do with your portfolio and shares. In order to do that he has to know full details about your investments: portfolio size, allocation, risk preference, rationale of buying etc.

However there are still principles that we can adopt.

Firstly, ensure that your overall personal finance and cash flow management still intact - there is regular savings going into your investment account. Then you can buy cheaply when market offers you an even better price than now.

Go back to your investment plan. By investment plan I mean the tactical moves you would make under various scenario of price movements. Example how much more to buy at a particular lower level price, where is the stop loss, where to take profit, should you re-balance etc.

If you are the pure fundamental investor that look at only company's performance, simple. Are the companies still strong fundamentally? If yes, keep. If not, consider selling.

If you are still upset by the paper loss, consider reducing the size of that position. Sell partial, or fully, till you can sleep soundly at night. Being mentally disturbed by your portfolio is a big no no in investment.

Thursday, 1 February 2018

6 Things I Learned from Jumbo Group AGM

*Disclaimer: I own Jumbo shares. This is not a buy or sell call.

The next company in my AGM series is Jumbo Group - the restaurant chain synonymous with chili crab.

My favourite is still Black Pepper Crab. But Chili Crab is not bad too.. What about you?
 As usual, AGM started with CEO Mr Ang Kiam Meng giving a presentation on business overview, expansion developments and upcoming plans, followed by CFO presenting on company's figures. Presentation slides can be found here.

AGM Held in Grand Ballroom of Chui Huay Lim Club. 

From Left: CFO, CEO Mr Ang, Chairman and Company Secretary conducting AGM
China Holds the Key to Jumbo's Future Success
The group has had great success with their expansion in China since 2013, opening 5 restaurants in 4 years. While there are franchise deals in Taiwan and Vietnam, China will be the key area of focus - so crucial that management formed one expansion team solely for China, while another team looks into the other markets.

It is not difficult to see why. Jumbo has tasted success with its expansion in Shanghai and Beijing thus far and they are ready to replicate the success model in other cities. China is vast and many of their cities are a worthwhile market on its own with population few times larger than Singapore's.

So, instead of spreading wide, management has chosen to stay targeted. Shanghai, Beijing, Guangzhou and Shenzhen - the 4 first-tier cities -, has been identified as focus areas given their size and consumers' spending power. So we will see many outlets clustered around few key cities, to reap economies of scale and improve operation efficiency.

Mr Ang also shared that they are on track for China's expansion plans as final phase discussions are underway for 3 more outlets to open by end of 2018.

As for other cities, the group will consider if the market shows good potential and there are strong local franchisers. If prospect is bright, management will also consider Joint Venture (JV) to operate their outlets.

Other Market Expansion Remains On Track
Taiwan's first franchise outlet is performing well, attaining positive Net Profit After Tax in second month of operations. There is also potential to franchise Ng Ah Siok Bak Kut Teh in Taiwan.

Jumbo is also working towards opening their first outlet in Thailand by year-end.

As for Hong Kong, management is having some issues with the Chinese name of restaurant '珍宝‘, as the name has already been used.

Unique Branding in China
Jumbo is synonymous with Chili Crab. The group is staying true to this unique identity overseas. In China, they have positioned themselves as, I quote Mr Ang, 'Big Crab Specialist' that sells Sri Lanka Mud Crab, Alaskan King Crab etc, distinct from the small hairy crab favoured by Shanghai locals. Mr Ang shared that someone asked why not consider selling hairy crab during season in Shanghai to cater to locals' taste. His response was no as the group should preserve its distinct branding.

However, consumer taste can be fickle and the Chinese are enterprising. Local versions of Chili Crab conjured up by local copycats have appeared.

Management shared that so far these have not impacted its results. The group is aware of competition and would continue leveraging its brand as a premium Singapore seafood restaurant selling big crabs to further its growth.

Consistency of Crab Supply Quality A Key Risk
Management shared that quality and quantity of crab supply is affected by its living environment. Global warming and other climate issue such as El Nino does not help too. While Jumbo has good relationships with its crab suppliers that provide sufficient quantity, management is keeping a close watch on this front.

One investor asked if Jumbo considered expanding upstream to acquire crab farms to secure its own supplies. Mr Ang answered that this is certainly an option, but see no immediate need for such a move at this moment as their crab supply is safe.

Jpot and Ng Ah Siok Face Stiff Competition
Not all is rosy with Jumbo's F&B brands in particular JPot and Ng Ah Sio. According to Management, Singapore has witnessed a 1.5 times increase in number of Bak Kut Teh outlets among the top 5 brands in recent years  (think Old Street BKT, Song Fa BKT etc.).  As a result, some of Ng Ah Siok outlets are losing money. Management shared it could be a location issue and they are looking at re-locating these outlets to non-central areas for cheaper rent.

Similarly for JPot - its facing competition from Imperial Treasure, Paradise, Hai Di Lao etc that offers premium a-la-carte hotpot. The JPot outlet at Parkway Parade has been closed due to loss.

Management is now reviewing its product offering, to scale down the non-earning brands so as to maintain profitability.

Other Growth Areas
The Group has identified Catering and Events as a growth area. There is scope for expansion in the local catering market for consumers and corporate events. However, Jumbo has resource constraints, basically insufficient manpower for the catering business, which has to shut down completely during the CNY period when seafood restaurants face overwhelming sales. So this is an area that can be ramped up moving forward.

My Take
CEO Mr Ang seems to know the industry well, and articulated clear strategy for company growth plans and solutions to address key issues. He repeatedly stressed that profitability will not be compromised at the expense of corporate expansion drive, and the group is being very selective about local franchisee. They want to work with committed and competent partner to ensure the success of business.

Jumbo is a growth stock no doubt. It is in my portfolio for growth purpose - to boost investment returns through big price rise.

But I am also aware of the pitfalls of growth stocks - growth not materialising and falling short of expectation, resulting in 'double whammy of earnings disappointment'. Hence the proper way to deal with this is to truly understand the company's business, closely monitor its performance, and be prepared for larger price swing which is commonly associated with high growth companies.

This is my high conviction growth counter this year. And I am looking to add more at lower price.

On a lighter note, towards the end of the Q&A session, an investor asked if Mr Ron Sim, founder of Osim who is a Non-Executive Director, would sponsor some Osim U Divine massage chairs in Jumbo outlets, to match up to the service standards of Hai Di Lao Hotpot. Fortunately Chairman came to Mr Sim's rescue by saying that he would consider and personally persuade Mr Sim to do so.

I personally think its not a bad idea. Worth exploring. : )



*Attending company AGMs and summarising key corporate insights is part of my work as a remisier. My clients have first hand info, and have been updated on this as my value-add service to them. 

Should you wish to have me as your remisier for a more profitable investment experience, please drop me an email or fill up the contact form on the right.

3 Ways to Invest Your Infant's Ang Pow Money

This is my first CNY spent as a father, with my daughter born just 2 mths ago. It is certainly a happy CNY celebration this year, carrying a...