Sunday, 25 October 2015

Creating a retail bond portfolio

The opening up of the retail bond market is very good news for investors like you and I. Bonds are basically debt securities which a company promises to pay you a regular interest for borrowing money from you. 

Hopefully more blue chip corporates will start tapping into this segment and not just targeting the high networth private banking market. 

The Perennial bonds was a case in point where a 3-year bond offering a yield of 4.65% were over subscribed by 4x with strong demand from retail investors! 

A James Bond Portfolio

I know of a lady lawyer friend who is extremely risk averse but over the last decade, she has built up a portfolio of bonds worth more than $2 million. 

I nicknamed her "bond gal"  (without her knowledge or approval). She uses her bonus and savings to purchase bonds in a disciplined manner, resulting in the fact that she has now managed to build up a sizable asset base. 

Of course you can argue that she has a high pay to start with that allows her to build up the portfolio as each bond outlay is at least $250,000 but nevertheless, I admire her perseverance to do that.

Creating passive income from retail bonds portfolio?

Most bonds pay coupons twice a year and repay the principal at maturity. 

Let's assume there is a decent bond issuance every month and it pays a 4.5% interest and you invest $10,000 each time. Over a 12 month period, you have created a $120,000 bond portfolio that pays coupon every single month from the second year onwards.  

Monthly Interest received = $120,000 x 4.5% divide by 12 = $450

Now you repeat that process over a long period of time and you will create a bond portfolio that will take care of your needs.

Whether you like bonds or not depends on where you are in your life cycle?

Different people go through life cycles at different points in time. I do admit that I never like bonds when I was much younger. 

People who have been following my blog know i have a high risk appetite. I invest in unlisted pre-IPO companies and punt IPO stocks. I invest or trade in stocks and shares but when someone mention bonds, I will usually sweep it aside as saying the yield is too low. 

As a side note - One of my unlisted companies is going to be listed soon... Fingers crossed... Not sure how it will perform post IPO as I am under moratorium. I will blog this story another time. 

The opening up of the retail bond market changed my view as I no longer need to set aside a princely outlay each time. I can decide the quantum that I want to invest from $2,000 onwards. 

As bonds has lower volatility (it should theoretically) and lower risk of loss (given it pays its principal back at maturity), it will be more suitable for risk averse investors and this comes with age ^_^

How the rich play the bonds game?

I didn't really want to blog much on this but if you think they are happy with the yield, it's not true. 

The rich will take leverage (through the private bank) on the rated bonds for up to 80% of the value and earned a levered return from their bonds investment. 

As such, a rated bond instead of yielding 3% may yield up to 6-8% via leverage. 

Happy retail bonding

I hope the retail market deepens. MAS has been trying to open up the retail market and perhaps we can even see a Temasek retail bond soon?

However, don't expect a high interest payout from a AAA-rated bonds. The higher the credit rating, the lower the interest but at least it opens up more options for smallish investors :)

My bond investment criteria

I am not going to kid you to say it is without risk. Let's take an example of Ezra bonds trading below its par value now. If it can refinance its bonds or repay them at maturity, then no issue. The unrealized loss is temporal. If it can't repay its debt, then the company will be in default and that will spell trouble for all investors alike. 

That is why some equity investors track the credit ratings of a company very closely. If the credit rating is bad, it means the bonds will go below par as there is a fear of default. Consequently, the share price will plunge as well. 

Let's run through some simple criteria I had for bond investing. 

• Yield of at least 3%
• Short tenure of less than 5 years
• Stable business with predictable cash flows or foreseeable revenue
• Decent balance sheet that is not overly geared

My investment target - A $2 million portfolio when I retire 

My target is to create a bond and stock portfolio of at least $2m over the next 10 years yielding at least 5% per year. It will be funded via cash or from my SRS portfolio. 

Not sure if I can achieve but at least I need to start somewhere :)  I want to retire while I am still alive and kicking!

I have kick started that goal with a placement tranche on Perenial Bonds. 

You should create your own goals too and work towards them too!

Happy bonding

SRS Portfolio - 30 Sep 2015

It has been a while since i last updated on my portfolio and one reason is that DBS stopped sending me the monthly SRS statements without notifying me! I was "gong gong" waiting for it to come into my mail box. The other reason is that i am consumed by a mega project that is taking away all my time and attention on my own retirement accounts. This project will not end for many more months...

Anyway, I will do a quick recap on the dividends that i received from July to Sep.

My wife's SRS account received a dividend of $534 in August. During this quarter, the accounts sold Semb Corp but re-invested into UOB. The share price of UOB has since rebounded to $20.40 and the portfolio is currently up 7%. I am contemplating buying some retail bonds from the open market with the remaining cash.

My own SRS received dividend of $500 from UMS in July. UMS pays dividends on a quarterly basis but i have not 'used' the dividends received to date of $2,000 to lower the cost. I bought Capitamall and sold Starbust in Sep but have since been "idle". 

I have a cash balance of $88,559. I hope to deploy those idle cash soon! 

I will keep this blog post short as i am writing another post on creating a bond portfolio! Happy SRSing.

Sunday, 30 August 2015

A bloodshed August

August turned out to be a month of "turmoil" for my SRS and IPO accounts and the month for paying school fees to Mr. Market. 

Let's start with my SRS account and the transactions. 


I have been wanting to sell Starburst, especially so after its Q2 results were released, where it had another quarter of declining profits.

I left a standing order to sell at 40c or better before I travelled for a weeklong assignment in different time zone. The only thing positive from the trip was that I took the A380 that has the SG50 flag ^_^

Alas, the trade was never done due to low liquidity even though i shifted my sell order down a few times. It kept "meandering" down slowly and closed below 30c. Urrgh...

I took a very painful decision to cut loss on this position and moved on. Sigh. 

There are so many lessons to be learnt from this investment:

• the initial investment thesis was flawed. It wasn't a fundamentally strong stock and it wasn't for recurring passive income either.  The company's founders probably cashed in when its earnings peaked last year - lesson learnt. Need to do more due diligence on management and fundamentals. Stick to companies with proven management that shows increasing profitability. 

• I should have cut loss early when Q1 seriously underperformed. Under normal circumstances, I would have cut loss when a key support gives way. I deviate from my usual discipline and now have to pay a price for it. *Ouch :( - lesson learnt. Be disciplined in risk management. Don't let the losses ballooned beyond control. 

• The liquidity of the stock is pretty bad. This creates a wide bid-ask spread whenever a crisis happens. Probably the small cap nature of the stock doesn't help. - lesson learnt. Stick to bigger cap or stocks with better liquidity. 

Capitamall Trust

The REITs have fallen to a level which I felt attractive and has priced in a rate increase. I shortlisted 4 REITs which are trading either at book or below book value and have a stable yield of more than 5% on last Thursday before market opens. I am happy to hold on those REITs for passive income in any case should prices stabilize. 

All gapped up above my order price on opening and I ended only buying 10,000 shares of Capitmall Trust at 1.905 :(

Let's see if I can find any more interesting stocks to add in September. 

I also bought 1,000 shares of UOB for wifey's SRS account at 19.27. This is a beta play. I am betting on a short term rebound in STI. 

Thoughts for SRS

The loss on Starburst is a painful one. It is all about the lack of discipline, wrong choice of stock and being complacent and I paid the price

Another thought that went through my mind was whether a pure equity portfolio is a right one. If I allocate a % to bonds, will it meet my objective of creating passive income from my portfolio with less volatility?

Should I change the strategy and style? 

The losses from Sembcorp and Starburst made me rethink my strategy on whether I should be a more active and responsive investor and whether I should allocate part of the portfolio to less volatile instruments like corporate bonds. 

However, unless the bond market develops further, there will be a lack of choices for bonds. 

I have no answers to my own questions above but it is a path that I need to spend more time pondering. 


I also lost a sum of money on the IPO of CMC Infocomm. I had previously told my broker that I don't like the fundamentals and don't want the placement shares. He assured me that the stock is well received and has the support of shareholders and against my own better judgment, I took the shares. 

Well, the rest is history. The stock tanked against a bearish backdrop and once again, the lack of liquidity resulted in a wide bid ask spread. 

Frankly, I am happy to live and die by the market. If I made a wrong decision, I am fine to "live with the consequences". I am also happy that I didn't let my position affect my IPO ratings. :) 

What i am more "upset" with is the subsequent reluctance to let me cut loss or sell. Although it may have been out of good intentions, they turned out to be disastrous and contributed to the August bloodshed. 

Ok that is all for a Sunday posting. Enough of my ramblings and time to stay focus. 

Good luck to your own pursuit of financial freedom. :)

Saturday, 1 August 2015

Sembcorp - What could I have done better?

I cut loss on my wife's SRS position in Sembcorp on Wednesday when the $3.80 support gave way.

It is always good to do a recap on my investments to see what went right and what went wrong.

Let's do it on the pictorial view. Easier for everyone.

I bought the position in March with a stipulated cut loss around ~$4 thereabouts. The post is here.

A few mistakes made that i can usually avoid for trading but can't seemed to be able to avoid it for a longer term holding position.
  1. Letting a profit of 9% turned into a loss. In trading - i would be moving my stops up pretty closely and it will take me out automatically.
  2. I never cut loss when it broke $4. Again, violating my own stipulated principles ^_^
  3. Finally did it at when $3.80 gives way realizing a loss of around ~15%
Anyway this is my style of investing. I will gladly admit my mistakes and moved on. Let me see how i can further improved on my SRS investments.

The drop in oil continued to have an adverse impact on sentiments and fundamentals on O&G stocks.

Waiting for the crash to come?

Image result for waiting for durians to drop

On a related note - I injected $12,750 into my own SRS account in July. I am done with the SRS contribution for this year.

Many stocks on SGX are on a cheap sale now and on a strong downtrend. The cash of ~$115k will come in useful when the crash comes. 

Happy SRSing

Sunday, 26 July 2015

Keppel DC REIT

Keppel DC REIT announced a decent set of maiden results that exceeded its forecast. Announcement is here.

I like the low leverage of 26.4% and there is much headway to take on debt should the need arises. It also has a long lease period of 7.2 years.

The detailed results is below.

I also like the fact that they purchase properties from Macquarie Telecom and build in annual rental escalations in the agreements.
This will allow for future upside growth to the DPU

I think the outlook remains healthy as cloud computing and data demand continue to grow healthily.

My portfolio of 15,000 shares in wife's SRS account will yield about $534 and be paid on 28 August.

Happy SRSing

Friday, 17 July 2015

SRS Portfolio - 30 June 2015

No action in June

The SRS portfolio continue to see no action in June. 

The statements are below and the portfolio is showing some unrealized losses. 

The only income received is the interest. I need to "buck" up on this account and start to add some positions when the opportunity arises. 

Investment Strategy

As a reminder to myself, I am supposed to add only long term positions. It should comprise of dividend stocks or REITs. The minimum yield should be at least 3% for stocks and at least 5% for REITs! 

Happy SRSing.

Saturday, 27 June 2015

SRS Portfolio - 31 May 2015

Apologies for not posting for a while. Had been very busy closing a transaction while trying to get a holiday in between. 

May received dividend income from two companies. $275 from Semb Corp and $1,500 from UMS Holdings. I really like the dividend from UMS, need to find more such stocks and add to my passive income portfolio regularly. 

I haven't had the time to monitor or add new positions. Will try to do some serious thinking once i have the luxury of time. Fingers crossed but hopefully will have some down time soon!

My portfolio statements enclosed. The biggest unrealized loss comes from Starburst Holdings. I will hold it for one a while more and see if financial performances improve. 

Happy SRSing

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