LifeStyle Fund

Recently, I was thinking about the prospect of investing in companies which offers products or services that I frequently use. The basic idea is to cover all my expenses incurred from the company with their annual dividends distributed to me. I will do an experiement on this by using my lifestyle as an example.

Spendings

Transport
I usually travel to work by train and occasionally taxi and these transport services are provided by SBS, ComfortDelGro and SMRT. I spend roughly $60 dollars each month on train transport and an average of $10 on cab transport. This adds up to a total amount of $720 and $120 on train and cab respectively each year.

SMRT - $720
ComfortDelgro - $120

I am aware that SMRT offers cab service too but for better illustration purposes, I will assume all cabs that I have taken are from ComfortDelgro.

Apparel
Assuming I always patronize GAP and other fashion boutiques operated by FJBenjamin to buy my new year clothings. I spend roughly $300 each year on apparel.

FJBenj - $300

Telecommunication
My current handphone line is subscribed under Singtel. My handphone bill adds up to an average of 40 plus dollars each month which sums up to $420 each year.

Singtel - $420

Cable TV
Both my cable TV and internet connection is offered by StarHub. The total bill adds up to 100 plus dollars each month which sums up to $1200 each year.

StarHub - $1200

Brokerage
I make approximately 20 trades a year and the commission charges incurred are paid to SGX and my brokerage company. A trade usually cost me $30 and sums up to $360 each year and to simply things, I will just assume SGX receives the full amount.

SGX - $360

Publication
Newspapers which I usually bought are Business Times and Newpaper and both of them are published by SPH. They cost me approximately $20 each month which sums up to $360 each year.

SPH - $360

Oil
I do drive occasionally and usually I will replenish my patrol in SPC. I dont drive frequently so in this case, I will just give an estimate figure.

SPC - $500

Mailing
I do send and receive mails frequently and as far as I know, SingPost is the only company which offers local courier services. Well I'm not too sure about the charges and the number of letters I have mailed out every year so again, I will just give an esimate again.

Singpost - $200

Food
I do buy breads quite frequently from BreadTalk and occasionally, I will also patronize a restaurant named Ding Tai Fung which is also operated by them. On an average, I spend around $20 each month on them which sums up to $240 each year.

I also buy drinks like soyabean and etc manufactured by F&N and spend an average of $500 each year.

BreadTalk - $240
F&N - $500

In total, my daily neccesities cost me $4920 annually.. So how can I adjust this portfolio accordingly to neturalise my expenses from dividends distributed by each company? To test out this theory, I will use the company's current stock price and last year's dividend payout for the calculation..

SMRT
Current Price : $1.720
Divdend paid out last year : 0.072500 per share owned

Money Spent on SMRT : $720
No of shares required to neutralise the expenses incurred : 9000 (9 Lots)

Total amount required to purchase the shares : $15 480

ComfortDelgro
Current Price : $1.940
Dividend paid out last year : 0.061250 per share owned

Money Spent on Comfort : $120
No of shares required to neutralise the expenses incurred : 2000 (2 Lots)

Total amount required to purchase the shares : $3880

FJBenjamin
Current Price : $0.860
Dividend paid out last year : 0.025000 per share owned

Money Spent on FJBen : $300
No of shares required to neutralise the expenses incurred : 12000 (12 Lots)

Total amount required to purchase the shares : $10 320

Singtel
Current Price : $3.980
Dividend paid out last year : 0.110000 per share owned

Money Spent on Singtel : $420
No of shares required to neutralise the expenses incurred : 4000 (4 Lots)

Total amount required to purchase the shares : $15 920

STARHUB
Current Price : $3.080
Dividend paid out last year : 0.115000 per share owned

Money Spent on StarHub : $1200
No of shares required to neutralise the expenses incurred : 11000 (11 Lots)

Total amount required to purchase the shares : $33 880

SGX
Current Price : $14.900
Dividend paid out last year : 0.360000 per share owned

Money Spent on SGX : $360
No of shares required to neutralise the expenses incurred : 1000 (1 Lot)

Total amount required to purchase the shares : 14 900

SPH
Current Price : $4.50
Dividend paid out last year : 0.160000 per share owned

Money Spent on SPH : $360
No of shares required to neutralise the expense incurred : 3000 (3 Lots)

Total amount required to purchase the shares : $13 500

SPC
Current Price : $8.850
Dividend paid out last year : 0.200000 per share owned

Money Spent on SPC :$500
No of shares required to neutralise the expense incurred : 3000 (3 Lots)

Total amount required to purchase the shares : $26 550

SingPost
Current Price : $1.220
Dividend paid out last year : $0.062500 per share owned

Money Spent on SingPost :200
No of shares required to neutralise the expense incurred : 4000 (4 Lots)

Total amount required to purchase the shares : $4880

BreadTalk
Current Price : $0.585
Dividend paid out last year : 0.004200 per share owned

Money Spent on BreadTalk : $240
No of shares required to neutralise the expense incurred : 57000 (57 Lots)

Total amount required to purchase the shares : $33 345

F&N
Current Price : $5.750
Dividend paid out last year : 0.280000 per share owned

Money Spent on F&N : $500
No of shares required to neutralise the expense incurred : 2000 (2 Lots)

Total amount required to purchase the shares : $11 500

WOOT! It addds up to an astronomical amount . ha .. The total sum is $184 155.. But don't be alarmed by this because both the current price and dividends used in the above example are not accurate. Because prior to purchasing any shares of the above, I will use fundamental analysis to determine my entry price although there might be a chance that the 'intrinsic' value conincides with the market value and secondly, the current price is taken into account of future expected dividends hence using past dividends together with current price would not be accurate. You must be wondering, if one is to have so much cash, why would the person be concerned with such meager expenses? In my opinion, theortically, you have nothing much to lose since in the event of bad recessions, majority of things stated above will still be used by most people and most probably you will still be earning dividends during the period. Assuming you buy them at the market peak and the market crashes right after that, there's nothing to worry about as most of the companies stated have good financial health to see them through bad times and if there are excess cash, one might consider cost averaging it. This is at a experimental stage, I will need to do further research to judge the feasibility but I'm sure the total amount derived from using fundamental analysis will be much lesser than this figure.

The 3 most timeless investing principles

I happen to chance upon an interesting article in Investopedia summarizing Benjamin Graham’s approach towards investing who is also widely known as the father of value investing. His ideas and methods on investing are documented in his books, “Security Analysis” and “The Intelligent Investor”. These texts are not any easy reads and required some fundamental knowledge in order to grasp the concepts inside the book. I have finished reading “The Intelligent Investor” and struggle throughout the read because I do not understand most of the terms that were mentioned in the book so I will usually check the definition in Investopedia. My perseverance and efforts paid off as I have managed to learn a lot out from it and it also shaped my beliefs towards investing. I will give it a shot summarizing the article which I found in Investopedia.

Principle No 1: Margin of Safety
Basically, margin of safety is the principle of buying a security at a significant discount to its intrinsic value which is thought to not only provides high-return opportunities but also to minimize the risk of an investment. Graham also looks out for stocks where the book value is higher than the market cap. This means he is effectively buying the business for nothing.

One thing to take note is that company may mark up their asset values by using various accounting methods and this might mislead investors in believing the company is undervalued.

Principle No 2 : Expecting volatility and profit from it
Graham illustrates the market’s volatility with the analogy of Mr Market, the imaginary business partner of each and every investor. Basically Mr market will offer investors a price quote at which he would either buy an investor or sell his share of the business. He will tend to quote a high price when the prospect of the business is overly hyped and quote a low price when the prospect is unpromising.

The lesson here is that we should form our own judgment based on a sound and rationale examination of facts and not letting the market to affect our views and worse, leading us to a investment decision. The market will inevitably fluctuate over time, sometime wildly but instead of fearing it, we can use it to our advantage to make bargains in the market or sell out when your holding becomes overvalue.

Here are two strategies that Graham suggested to migtate the negative effects of market volatility .

1 . Dollar Cost Averaging
It can be achieved by buying equal dollars of amounts at regular intervals.

2.Investing in Stocks and Bonds
Graham recommended allocating one portfolio evenly between stocks and bonds as a way to preserve capital in market downturns.

Principle No 3 : Know what kind of investor you are
Graham advised that investors know their investment selves. To illustrate this, he categorized investors into 2 groups, active investors and passive investors. You only have two real choices : The first is to make a serious commitment in time and energy to become a good investor who equates the quality and amount of hands-on research with the expected return. Second, if you have nether the time nor the inclination to do quality research, then investing in an index will be a better alternative.

Both Graham and Buffett said that getting an average return from an index is more of an accomplishment than it might seem. The fallacy that many people buy into is that if it’s easy to get an average return with little or no work (index) than perhaps a little more work should yield a higher return but reality is that most people who try this end up doing much worse than average.

You can read the full article here.

Appendix
Investopedia

Comparison between fundamental analysis and technical analysis

In the investing circle, people are always mentioning about fundamental analysis and technical analysis so what do they actually mean. In the broadest term, fundamental analysis involves looking at any datas except trading patterns of the stock itself while technical analysis focuses mainly on the trading and price history of the stock.

Investors using fundamental analysis usually believe that by purchasing the company’s stock, they will own a proportional share in the business. As a consequence, it is important to assess the company’s financial in terms of per share in order to calculate the how much the proportional share of the business is actually worth. Investors taking this approach usually like to find deals where they only need to pay half a dollar for a company worth 1 dollar.

Investors using technical analysis take a completely different approach. They do not care about the value of a company and what they are mainly interested are the price movements in the market. They believe that all information about a stock are already accounted for in the stock price so there is no incentive in analyzing a company’s fundamental.

Both these 2 methods have their pro and cons. By using fundamental analysis, you can have an idea of the company’s financial health, profitability and growth and at least you can be assured that the company that you are invested in has good potential and stable but one of the complications is that the underlying principles of fundamental are based on a huge numbers of factors and they get getting increasingly volatile and harder to predict over time. By using technical analysis, you can gain an insight of the overall state of the market, attractiveness and state of a specific security as compared to other securities.

I am currently exploring the possibility of creating a system which combines both fundamental analysis (heavier weightage) and technical analysis because I do believe that one can only find bargains from fundamental analysis whereas charts can give you an insight of the market mood. A rough idea of the new system which I have in mind:
1.) Derive the current price trend from charts
2.) If it’s a downtrend, search for factors which possibly causes this
3.) Do a complete fundamental analysis on the company and judge whether if the factors will affect the company for long or short term

Appendix
1. Investopedia
2. Motley Fool

Market thoughts

It's boring and unchallenging at work today where I am tasked to do testing on an application and its so repetitive that I almost dozed off ! In order to get it done fast, I forgoe lunch but well, my efforts are futile as I have yet to complete my work at the end of the day.. So to distract myself from the boring work, I was thinking of ways to optimise my investing strategy and was wondering if it's possible to incoporate methods from 2 lengends, George Soros and Warren Buffett... Theortically speaking, it is not possible as their investing beliefs are poles apart but in today's world of uncertainty, trading on a fundamental approach may be the prefered choice..

They do share some similar beliefs like :
1: Never Overdiversify
2: Taking a contraian approach
3: Risk is just a matter of perception....

George Soros is famously known as the man who broke the bank of england where he earned nearly a billion from that trade.. Even though most forex traders knows the pound currency is depreciating at that time but no one is as confident as Soros to place such an astronomical amount on it. Simiarly, during the great depression, a stock named Wall forgo(Spelling?) worth much less than it's intrinsic value and this is no secret but yet no one is confident to invest in it.. So conclusion, don't let the market affect your judgement and just do whatever you deem correct as long as you are comfortable...

So a question, is trend your friend or foe? Is there any possibility to perceive it differently accordingly to situations? As far as I believe, I still think fundamental analysis is a better way to screen stocks so trend might not be my friend but that is only applicable if a in depth analysis is done on the company. That is because, they are so many ways to beautify their financal statments nowadays and it is relatively easy to conceal the actual numbers and you might be kept in the hide of their actual profitability.

Currently, I have 90% of my funds invested in the stock market and the remaining 10% served as an opportunity fund where they are invested in a money management fund. BasicallyI just want to minimise the 10% from inflation risk (we have been warned that we will be seeing an increasing of inflation in the upcoming years) . I may still lose out from the inflation but I will be compensated from some intangible benefits like the chance of investing in companies when an good opportunity arises.

Well, that's all for today as there are not much time remaining for the night . It's only 2 hours away from my sleep time and there is barely sufficient time for me to revise for my CFA exam...

Melynn