My REITs portfolio delivered another firm quarter in terms of DPU growth year-on-year. Looking forward to the great overseas expansion! Some of my vested REITs are on an acquisition spree in foreign markets such as China, Japan, Germany and Holland. I was expecting rights issue to be used to fund these acquisitions. Unfortunately, only FLT requires me to inject fresh funds. The rest went the private placement route. Due to a lack of opportunities to deploy my investable funds in the market, I applied for the June’s issue of Singapore Savings Bond (SSB). The SSB is a practical place to park some idle cash, especially over a 2-year period.
Progressing well towards my 2018 passive income target of S$22k.....
S$452.04 + S$91.68 (Advance CD)
Dividends Received & Will Be Receiving (1H 2018) = S$12, 018.02
Most of the 'big guns' in the S-REITs universe had reported their results this week. I rank all my 11 vested REITs according to their DPU growth y-o-y below.
DPU Performance y-o-y
Mapletree Greater China Commercial Trust
Keppel DC REIT
+ 4.3% (Adjusted)
Frasers Centrepoint Trust
Frasers Logistics & Industrial Trust
Mapletree Logistics Trust
+ 2% (Adjusted)
Mapletree Industrial Trust
Mapletree Commercial Trust
Overall, still a healthy performance. An interesting observation is that all 4 REITs in the Mapletree 'family' have registered DPU growth year-on-year, with MGCCT being the highest and MCT the lowest. Do you think Mapletree is the overall best REIT manager in the Singapore market? Both FCT and ParkwayLife REIT are proven winners with amazing track records of success in growing their annual DPU as well as NAV too.
Data centres had registered the greatest growth in December 2017 compared to other property sub-sectors. So, I am glad that Mapletree Industrial Trust (MIT) had expanded its mandate to data centres in the USA, which is the largest data centre market in the world!
Last year, MIT has joined with Mapletree Investments to acquire 14 data centres in the US for US$750 million (S$1.02 billion). These data centres sit on freehold land with a portfolio occupancy of 97.4 per cent. The space is leased to 15 tenants from a diverse range of industries such as telecommunications, information technology and financial services, with an average lease to expiry (by gross rental income) of about 6.7 years This acquisition would provide sector as well as geographical diversification. Under the joint venture agreement, MIT will hold a 40% interest while Mapletree Investments will hold 60%.
Judging by recent chatter, a GST hike is on the cards. Consider making these 5 changes to soften the blow when the increase lands. While the date isn’t fixed yet, it looks like Singapore is in for a Goods and Services Tax (GST) increase. Whatever your views are on this, one thing’s for sure: the cost of living is about to go up again, and it’s time to prepare for the inevitable. Get started today with a few simple steps.
1. Rework Your Budget
We don’t know what the actual GST rate will be, but we can make a good guess. At present, Singapore’s GST rate is seven per cent. The GST rate was three per cent when it first started in 1994, and was raised to its current level in 2006. That’s a raise of four per cent in just over a decade. At the same time, we can see that GST in regional counties, such as Vietnam and Australia, is around 10 per cent. As such, it’s probably safe to plan for a GST rate of about 10 per cent, in your budget. While the GST hike probably won’t happen soon (it could be several years in the future), you might want to try to acting as if it’s already here – that will help you to prepare for it. Treat everything as if it’s 10 per cent GST in your budget, and set aside the monies you save this way. Note that the government is also considering applying the GST to online purchases (currently it only applies to purchases with a value of S$400 or more). Don’t count on e-commerce to help you bypass the tax for much longer.
2. Get Big Ticket Items Before the GST Hike Kicks In
If you’re planning for any major purchases that could incur GST, such as a new refrigerator or air-conditioning system, you may want to speed up the buying decision. You’ll want to get these items before the GST kicks in, as the savings will be substantial. An added three per cent GST on a S$5,000 air-conditioning system, for example, would be S$150. Again, you probably have a few years before the GST hikes comes, so there’s no need to rush out and do it tomorrow. But you may want to ramp up your savings, in case you need to hurry and buy it when the GST hike finally lands.
3. Review Your Long-term Financial Plans
The GST hike will cause a general rise in cost of living. Remember it’s not just your personal expenses that will be impacted – businesses have to pay GST as well, and some of them could pay more for costs like supplies and delivery. These are costs that they might pass down to you.
You should revise your desired income after retirement, as well as the amount you need to save for emergencies. Speak to a financial planner for more help on this. A quick and easy way, however, is to try and nudge up your intended post-retirement income (e.g. instead of aiming at S$2,000 a month after retirement, aim to get at least S$2,200 per month. You may also want to review any fixed income assets you possess, such as bonds. Remember that the fixed income (such as bond coupons) won’t change, even if the cost of living rises – they may now be worth less in your portfolio, in the face of climbing taxes. Ensure your financial planner reviews your asset allocation, in light of this.
4. Switch to Smaller “Mom & Pop” Shops
Businesses only have to be registered for GST once they have an annual revenue of S$1 million. This means that some small businesses, such as corner store eateries, won’t be affected by the hike in GST. This helps fledgling businesses to grow, and keeps small, family-operated type stores in business. There are many of these small shops in heartland areas, often scattered around HDB estates. By shopping at a small, family-owned provision store, instead of a chain supermarket, you can save money on GST. At the same time, you’re also helping to keep another Singaporean family afloat. Look around for these businesses, and try to get into the habit of using them for everyday essentials.
5. Check for Ongoing Costs that may be Affected
Take note of any ongoing costs, which may be affected if there’s a GST hike. For example, if you have a cable subscription and a gym subscription, regular payments may rise in accordance with an increased GST. Keep track of them, as automated payments are quite easily forgotten about. You may want to review your need for such services in future. If you’re really only watching a few programmes, or using the gym once or twice a month, consider cancelling your subscriptions in favour of other activities.
Happy New Year, my fellow warriors! 2017 has been a year of the 'rising tide lifts all boats'. If one was vested in banks, REITs, property developers and semi-con companies, his portfolio would have been lifted by this 'rising tide' throughout 2017. All the doom & gloom forecasts made by most analysts at the start of 2017 seemed rather laughable now. I guess it was partly down to luck that I decided to go heavy on banks & REITs in 2017 as I returned to my income investing roots.
Below is a snapshot of my Singapore dividend portfolio's year-on-year performance. (Data extracted from stock.cafe website on 29 Dec 2017)
Market value of portfolio increased 26.5% from S$345k to S$436.5k. This increase came from price appreciation, injection of fresh capital and re-investment of dividends received.
Total annual dividends collected increased 33.6% from S$15.5k to S$20.7k
Outperformed the STI ETF slightly by 2.83%. My 5-year investing returns are significantly better than the STI ETF.
Biggest Lesson From 2017 - Be Disruption-Proof
Comfort DelGro (CDG) traditional cab rental business being disrupted by Uber & Grab. In the old days, conservative investors usually go for solid, boring blue-chips which are considered more recession-proof. Unfortunately, in this new era of tech disruption, being recession-proof is no longer enough. A company needs to be disruption-proof too. Fast eats slow!
In my opinion, the real-estate industry is rather disruption-proof in general. The 'tenant-landlord' business dynamic has been working reasonably well in the capitalistic world over centuries. There would always be people developing properties, people who owned properties and people who pay rental to use these properties.
People rent properties to conduct all sorts of economic activities - selling products, providing services, storing goods etc. There would always be demand for real estate, even when there is disruption. For example, e-commerce is giving traditional brick-and-mortar retail stores intense competition. However, for e-commerce to work, the products have to be stored & sorted in a warehouse/logistics facility before eventually arriving at your doorsteps. Another example, doctors need to perform surgery in a hospital's operating theatre. The ever-increasing elderly population require nursing homes. Both are near-impossible to disrupt with just a smartphone app. So, we need to figure out which real estate sub-sector would be in greater demand in the future. I am placing my bets on the logistics, healthcare and data centre sectors due to the rise of e-commerce, aging population and growing digital economy.
2018 - A Year Of Rate Hikes & Crypto-currencies
Markets are expecting the US Federal Reserve to hike rates thrice in 2018. Naturally, this brought back memories of the frenzied 'Taper Tantrum' period in 2013 when REIT prices tanked. Investors were fearful that rate hikes would lead to higher borrowing costs and eventually hurt distributions of REITs.Contrary to popular belief, a rate hike cycle might not be all negative for REITs. During the previous major rate-hike cycle from June 2004 to June 2006, prices of S-REITs had appreciated strongly.
We are seeing a similar trend in the current rate-hike cycle. Ever since the Federal Reserve raised rate back in December 2016, the ST REIT index had returned +23.6% so far.
The impact of rising rates could be mitigated. Those well-managed REITs have already hedged 75% - 80% of their debts into fixed rates. Furthermore, on average, REITs only have 17%, 18% and 1% of total debt up for refinancing over 2018, 2019 and 2020. In general, branded REITs from the Mapletree, CapitaLand and Frasers CentrePoint 'families' are fairly prepared for the rate-hike cycle.
Three factors are aligned for the 3 local banks to soar to greater heights. Higher interest rates generally lead to higher interest margins for the banks. A buoyant local property market (surging en-bloc deals) and synchronised global recovery bodes well for loan growth. Recovering oil price means lower provisions for O&G loan portfolio. This trifecta should add up to a positive year for the banks!
Now, we move on to the hottest topic in financial markets - crypto-currencies. What's my take on the meteoric rise of Bitcoin, Ripple, Ethereum etc.? Well, I prefer to stay within my 'circle of competence', which is dividend investing. Compounding dividends over long-term would have a powerful effect on overall returns. Unfortunately,as far as I know, crypto-currencies do not distribute cash dividends. One simply aim to buy low, sell high. Or in recent weeks, buy high and hope to sell higher. Being vested in the equity market is already risky enough, I do not need to expose myself to the extreme volatility of crypto-currencies too.
All I know about crypto-currencies is that they are basically a string of algorithms built on blockchain technology. To me, crypto-currencies fall into the category of 'alternative investments;, like fine art, wine, antique cars, precious metals. These investments are definitely far from my 'circle of competence'. Don't get me wrong, I am not against crypto-currencies. People have amassed huge fortunes literally overnight. Good for them! I don't judge how people invest/speculate their money as long as it is within the boundaries of law. Whatever floats your boat.
Projected Dividends & Distributions in 2018 (ranked in descending order):
Last month was the 8th anniversary of my investing journey. A journey packed with ups and downs. I still remember buying CMT, Suntec & Starhub in 2009 as a wide-eyed beginner, like it was just yesterday. Honestly, this portfolio I have built exceeds way beyond my expectations. It seems like yesterday when I just achieved my $200k milestone ( https://www.nextinsight.net/story-archive-...). Interesting to see how my portfolio has evolved over the last 4 years.
‘Badges’ big and small were earned. Euro debt crisis (PIIGS), Grexit turmoil, U.S. debt ceiling crisis, Arab Spring, Japan's earthquake & subsequent Fukushima nuclear accident, Fed QE Taper Tantrums, Hong Kong ‘Umbrella Movement’, Brexit, Fed rate hikes, Trump election victory, China market crash (still remember the circuit-breakers being triggered on consecutive days), O&G crisis.
Nevertheless, I focused on growing my portfolio & dividend income through all these fears and so-called ‘crises’. All the while, taking those analysts’ and experts’ reports with a spoonful of salt. Things are seldom really bad or really good. As long as we keep earning, saving & investing, the compounding effect will reward us over the long-term.
As 2017 comes to an end, I must say this year is set to be one of the best years for my portfolio’s total returns. Unlike 2016, there was no roller-coaster ride (except the occasional colourful war of words between Trump & Kim). My portfolio grew from 3 contributing factors.
1) Sustained rally in the 3 local banks 2) Unexpected recovery of REITs since the lows of December 2016 3) Fresh injection of capital + re-investment of dividends received
As I am heavily vested in S-REITs and banks, my portfolio outperformed the STI slightly with a time-weighted return of +23.4% in 2017. My best-performing stock would be DBS, almost +60% y-o-y total returns. Worst-performing stock would be RMG with a -21.8% y-o-y decline. As I returned to my roots and started re-building my income portfolio, its size grew steadily from $388k in June to $426k now. Collected $20.7k dividends in total, which translates into $1,725 per month.
This article is re-posted here with the approval of a member (Hachiko) from the InvestingNote platform. Finally compiled a list of positive & negative views from as many members as I could. Tried to tidy up the points. Feel free to comment below if you need me to add more points (provided they are reasonable)
POSITIVES: 1) With Lion City Rental (LCR) operations off their hands, hopefully Uber can focus on what it is supposed to do best. Improve their routing and pricing algorithm to compete against Grab. One has the booking apps and big data expertise and one has the fleet management and service expertise. Both can focus on their expertise. Uber on improving the apps and algorithm, fare and integration/development of different booking services. Cdg on fleet management, utilisation and cost efficiency on maintenance and servicing. The collaboration can also establish themselves as a premium operator as Cdg/Uber have a larger and newer fleet compare to Smrt/grab.
2) Potential increased rental revenue from the larger car fleet.
3) With CDG’s decades of taxi rental and fleet management experience, it will manage and rent out the cars properly and profitably. CDG will not burn cash. The acquisition price is below NAV, $40k per car (3-year old car), can you buy a 3-year old car now at $40k in Singapore? Another bonus, reports mentioned the money for the acquisition is paid by internal funds, it will not affect the EPS so dividends will not be cut. Their automotive workshop is empty, so just nice LCR cars can come in for servicing & repairs.
4) CDG acquired the car rental business at a discount instead of premium price. if things don't work out they can sell, scrap or export the cars but they get to use Uber booking app platform and to fight directly with Grab.
NEGATIVES: 1) Judging from the sharp decline of price this entire week, it is possible that insiders already knew about this deal and they are not sanguine about it.
2) CDG itself is already struggling to rent out its taxis. Its fleet has shrunk steadily throughout 2017. The number of drivers applying for new taxis has also fallen off sharply in recent months. LCR has lots of unleased cars too parked at Big Box, Peace Centre, Textile Centre, etc but the sheer volume of cars seen here is telling of their struggle. LCR is loss-making. It is bleeding cash. http://roadtimes.com.sg/2017/05/05/trouble...
So, this makes taking over LCR a bad idea. A bad car rental based company sticking to their dying model, and sinking another large sum of money into another rental based company, which has a similarly sullen reputation from the issues that they give drivers when they are returning their rental vehicles (word on the street). This feels like CDG is throwing more good money into a sinkhole.
3) This deal feels like CDG is paying Uber to use its platform/software. CDG paid their fair proportion of net assets of a loss making company just to participate in the private hire market. Few years ago, Grab approached all taxi companies to collaborate and CDG was the only one who refused to. The other smaller players all joined. CDG could’ve participated using Grab’s Platform without paying for it. Now it’s paying 51% of the net assets of a loss-making company with a lousy partner (Uber).
Grab is so much stronger than Uber, they wisely stayed in South-east Asia where they have competitive local know-how, without stretching themselves thin.In comparison, Uber is a joke. They are fighting wars on so many fronts, many of which are not actually related to operations. (Sexual harassment suits?!)
4) Uber is primarily a tech company. It is not interested and not able to run a car rental management company in the long-term efficiently. So, Uber is more than happy to ‘offload/dump’ its huge fleet of cars to CDG. This is also why Grab was unwilling to completely buyout SMRT taxi.
Unexpected costs can make palliative care for a loved one dauntingly expensive. Take note of these 5 points to avoid getting caught in a financial bind. No matter how long medical science extends our life, we all have to face the reaper. In the final years and months, as our loved ones await the inevitable, the last thing we want is more stress for money reasons. Hence, it’s important to prepare financially for the twilight years of our dependents and family. Here are five key things to note.
Insurance May Not Cover Palliative Care Equipment
Palliative care is, contrary to popular belief, not “care for those who are definitely going to die”. Palliative care can, and often is, coupled with medical treatments that continue trying to prompt recovery. That said, one factor that’s often ignored is the prohibitive cost of palliative care. For example, say the dying person would prefer to be at home (especially if the end could come at any time). This may require the rental of medical equipment, such as oxygen tanks, dialysis machines, or other devices that would usually only be available in a treatment centre or hospital. Some insurance policies, however, only cover the cost of treatment when the patient goes to a centre or hospital. The policy may not cover the rental of medical equipment for palliative care, which might mean you have to pay out of pocket. If you have a loved one who may nearing the end, and they want to spend their final days at home, speak to your financial adviser quickly. If your policy does not cover palliative care at home, you need to know early to plan for the costs.
Hiring a Caregiver May Not be Optional
Many families make the mistake of assuming they can care for the dying. In truth, it’s rarely as straightforward as we imagine. Certain illnesses may mean the loss of coherency, or the ability to communicate. For example, advanced stages of Alzheimer’s may mean your loved one is unable to recognise you, and may often be angry or agitated. This can be difficult to bear with day-in and day-out, over the course of several years (particularly if a sole family member is placed in charge). You also have to acknowledge your own physical limitations, if you’re the main caregiver. It’s difficult to be available around the clock; and if you’re elderly yourself, you may endanger your own health by having to lift or carry the patient. No matter how determined you are to look after the dying by yourself, budget for a caregiver just in case. Seek out agencies that specialise in this, and approach your neighbourhood community services if a private caregiver is beyond your budget (many HDB estates have volunteers from grassroots communities, who can lend a hand).
Medical Costs Most Certainly Will Increase Significantly
Contrary to popular belief, switching to palliative care doesn’t mean medical treatment will be cheaper. For example, patients who are in intense pain may require more expensive painkillers, and patients with multiple health problems may need a whole regimen of drugs on a daily basis. Even if medical costs do fall, they may not drop as much as you assume. You must also be prepared for situations where medical costs increase, during the last few years. For instance, a cancer patient may initially pay a lower cost, by choosing not to have chemotherapy. Later on however, they require more frequent ambulance trips, or longer hospital stays in intensive care. This can be mitigated with the correct whole life insurance policy, or even basic term insurance. Many policies pay out a lump sum for terminal illness, which will more than cover the costs; speak to a financial adviser about complementing MediShield Life with such policies.
Denial Can Break You Financially
This is the greatest hidden danger in end-of-life care. Studies in countries like the United States have shown that, when loved ones come down with incurable conditions or illnesses, denial is the immediate response. No matter how level-headed you usually are, the reality of such a situation can change you. Most families push for aggressive and expensive intervention, in some cases even falling for scams (e.g. fake “miracle cures” that extort tens of thousands of dollars from them). This situation is aggravated if the dying person can’t communicate, and hasn’t declared their intent. For example, if your dying parent is on life support and in a coma, should you make the decision to end their life? Doctors will carry on medical care if the dying person has not signed a Do-Not-Resuscitate (DNR) order, and if the family does not give consent to end treatment. However, every month of medical care could rack up thousands in medical bills, and even insurance benefits will eventually run out. It’s best to discuss such situations early. Families are more likely to overcome their denial, and take steps to end it if the dying patient makes their wishes known.
Bad Credit Can Seriously Hurt You
You’ll often find yourself confronted by unexpected costs, when caring for the dying. From emergency room visits, to flying abroad for experimental treatment, the number of unknowns and variables are staggering. Even the old rule of thumb – saving up six months of your expenses – may not suffice. For example, you may be in situations where you not only need to pay for medical treatment, but you also face permanently reduced income (e.g. you need a job that allows you more hours at home, to provide care). The chances are high that, at some point, you will need a loan from the bank. This is where previously bad behaviour, such as paying your credit cards late, could come back to haunt you. Banks are not obliged to lend you the full two to four times your monthly income for personal loans – especially if they see that you’ve applied for several large loans quite recently. What will convince them to fork out a big loan is if you’ve proven reliable, over the course of many years. There’s nothing more painful than being denied credit for a major operation, which could potentially prolong the life of your loved one. Be responsible with credit, to ensure you can get it when it’s most needed.
From health supplements to single-serve consumables to cable channel packages, here are 7 common ways Singaporeans waste money. We all have impulse purchases, which we make without thinking. If we learn to control these, we would have much more cash to spend on the things that we do care about. The following items aren’t really things that we love; they’re the habitual, money-wasting purchases that we should weed out.
1. Bottled Water
Singapore is currently suffering from a S$134 million bottled water addiction. This is mostly because (1) we don’t like to carry water bottles, and (2) we consider it disgusting to drink from a public tap, especially when most of them are in public toilets. That causes us to end up spending S$1 to S$1.20 for bottled water, which is no different from tap water. But while S$1 may not seem like much, consider that a rising number of Singaporeans buy a bottle of water as often as twice a day. That comes to around S$60 a month, or about S$730 a year. That’s enough to fund a weekend family getaway to a nearby country.
2. Multi-vitamin Supplements
Medical studies have shown that multivitamins (and related vitamin supplements) do virtually nothing for your body. Even worse, some could be dangerous. In the United States, which has largely the same brands of vitamin supplements we do, studies of 54,000 different brands showed that only a third of them had any sort of safety standards. 12 per cent of them (a stunning 6,480 brands) were actually found to be dangerous, potentially increasing the takers’ risk of disease. Many of the claims made by vitamin brands, such as improving concentration or preventing loss of bone density, have been debunked. And as it turns out, you can’t “megaboost” the vitamins in your body by taking pills – once your body has enough of a particular vitamin, it will naturally reject any more; it doesn’t matter how many more pills you take.
3. Cable Channel Packages (Instead of Internet Streaming)
Singaporeans like to buy bundled cable TV channels, just out of laziness. It’s tedious to compare prices and shows, and half the time we have access to channels that we never watch. It’s a total waste of money, especially in an age when we have services like Netflix (just around S$15 per month). Before you buy cable television channels, ask yourself if you’d have problems watching shows on your tablet, phone, laptop, etc. instead. If services like Netflix already have the shows you want, you may be better of skipping the cable channels. (Some thrifty Singaporeans have even gotten rid of TV altogether, reasoning that all their favourite shows are on the Internet anyway).
4. Unnecessarily High Interest Rates
Many Singaporeans are averse to thinking about interest rates, or topics like refinancing. It’s common to hear them insist they “don’t want to deal with that stuff”. It’s a pity, because they waste tremendous amounts of money that way. For example, if you have a S$5,000 credit card debt growing at 26 per cent per annum, there’s a simple way to reduce that interest to just six per cent: You could look for a cheap personal instalment loan at six per cent per annum, borrow S$5,000 on it, and then use the money to pay off your card. Just like that, your debt has gone from 26 per cent per annum to just six per cent. With online banking, all of this can be done in a matter of minutes; but we’re often too lazy, and thus end up paying unnecessarily high interest.
5. Credit Card Fees
Many banks (not all) will give you fee waivers for your credit card, if you just call and request for it. Credit card annual fees range from around S$200 to several hundreds per year – but if you repay your card reliably, and you actively make use of it, many banks may not mind processing a waiver. In fact, some of them even have a specific button for it, on the call centre support system. (Other cards reward you with points or air miles for paying your annual fee. This is often at a superior exchange rate than normal, so you should definitely consider taking advantage of it.) Whether you decide to pay your fees, or to get them waived, there’s no harm in spending a few minutes to make the request. At the end of the year, that S$200+ can go toward funding your Christmas and New Year gifts.
6. Travel Insurance (At the Last Minute)
Travel insurance not only protects you against accidents, it can also covers trip cancellation or postponements. However, you need to have the travel insurance plan in place before such an event. For example, if you buy travel insurance today, and two weeks later your trip is cancelled due to natural disasters, you’ll be able to make a claim. But if you hadn’t bought the insurance yet, your trip would be cancelled, and the money paid for flight tickets and lodging would be a total write-off. Of course, travel insurers love it when you buy at the last minute. You see, when you buy travel insurance exactly as you’re leaving, you pay for protection you don’t use – part of your premium was meant to cover you in the event of a cancelled trip. Hence, the fiscally responsible option here is to buy travel insurance once you’ve decided to go on a trip. Consider buying an annual plan if you go for multiple trips per year.
7. Single-serve Consumables
Do you use a lot of jam or peanut butter? Or how about margarine? If your household makes regular use of these items, stop buying them on an ad hoc basis. In other words, don’t pop into the store to get a few whenever you need them. The prices of small or single-serve packs can be up to 50 per cent higher, when compared to buying in bulk. A good example of this is milk: the difference between 600 milliliters and a full litre can be as high as S$2.50 for some brands. If you just buy the full litre, you’re effectively getting the fourth bottle for free, as opposed to buying the smaller bottle all the time. That’s not forgetting the increased waste your household will be generating.
There are plenty of myths about investing, among which is the comparison between investing and gambling. Here’s why they are nothing like each other. There are plenty of misconceptions about investing, but the most overused comparison is between investing and gambling. This is far from correct, as the comparison finds only one element (risk), and declares the two to be similar. Here’s why proper investing is not like gambling.
The Confusion Between Investing, Speculating, and Gambling
There are two main types of investors in Singapore. There are investors who put their money on an asset for the long term, such as people who buy index funds and hold on for 15 to 20 years. Then there are traders: investors who aim to buy low and sell high, to see a return as quickly as possible. There’s also a third type of “investor”, who is more properly called a speculator. These types put money on small chances, such as funding a start-up, in the hopes that they will see big rewards. Intelligent speculators are aware that they’ll lose money most of the time, but all it takes is one big payoff to make it all worthwhile. Which of these are like gambling? The one that comes closest is speculating, but even then, none of them is truly like gambling. Here’s why:
• Proper investing skews the odds toward you in ways gambling never will
• Gambling is almost always a zero-sum game
• Investing is only like gambling if you treat it as such
Proper Investing Skews the Odds Toward You in Ways Gambling Never Will
A well-understood rule of gambling is that “the house always wins”. The longer you gamble – be it at a jackpot machine or a Poker table – the more you tend to lose to the casino. The odds have been calculated to skew things in their favour. With proper investing – especially long term investing in blue chips or index funds – the opposite is true. There is a historical precedent for stock prices and property prices to rise in the long run: while it may not be true next year, it will almost certainly be true over 15 or 20 years. For example, look at Singapore’s property asset prices since 1976: While this doesn’t completely remove the possibility of a loss, it does mean the odds are skewed in your favour. In a casino, time is on the casino’s side. But when you’re a long term investor, time is on your side instead.
Gambling is Almost Always a Zero-Sum Game
When you gamble, the outcome always involves a winner and a loser. For you to win, the casino – or another player – has to lose. This isn’t always the case when it comes to investing*. Say you invest in a property that’s worth S$1.2 million. By the time you’ve paid it off 25 years later, its value has appreciated to S$1.7 million. The extra S$500,000 isn’t a “loss” to other property investors – you haven’t taken it from them, it’s grown as a result of the overall economy/property market becoming more developed. The same goes for assets like stocks, which grow in value as the company develops. When you gamble however, the winner’s gains always come from the loser. For the casino to win, you have to lose, and vice versa. The problem with zero-sum games is that, in the long run, one player tends to walk away with almost everything, whereas the majority of players will walk away with a loss (observe the typical Poker table, or jackpot session). *Some forms of high-risk trading, such as options trading, may be zero-sum games. But these are not typically available to lay investors.
Investing is Only Like Gambling if You Treat it as Such
There is a way for investing to become gambling, and that’s if you treat it as such. If you decide to buy and sell stocks based on “intuition”, or superstitions (e.g. the stock price matches your car’s license plate), then it indeed becomes a form of gambling. What sets investing apart is that the odds can be in your favour, if you make reasoned decisions. This means properly diversifying your assets, learning to read the fundamentals of a company before buying its stock, and being disciplined enough to follow a system.
But What About Speculating?
Speculating is not like gambling, because it is even less predictable than gambling. When you gamble, the risks are known. For example, if you are playing Blackjack, you know the main risk is going over 21, or that the dealer will have a number higher than you. As such, you can develop systems to deal with those risks: if you draw an 18, you should stand. If you draw a nine, you need to hit, and so forth. When it comes to speculating, the real world introduces so many variables that such systems are hard to develop. The start-up you invest in may turn out to be a scam, the land you bought in Nicaragua may be re-zoned as a garbage dump, and your investments in a developing country may be void as a result of a civil war. You may know some of the probable risks, but there are too many others for you to account for all of them. While expert gamblers can tell you the odds of a round, such as “10 to 1” or “47 per cent”, most speculators honestly don’t know how their investments will turn out. Their “game” is governed by fewer rules, and encompasses too many possibilities. That’s why speculating is only ever done by investors who can afford the losses. A billionaire, for example, might place two per cent of her portfolio in a company that might create the next Facebook, or might go bust in two weeks with nothing to show for it.
When you buy an HDB apartment, do you own your flat, or are you merely leasing it for 99 years?
There has been an ongoing debate the past few weeks, over whether or not Singaporeans “own” their HDB flats. Some of it is due to confusion over terms used in documents (e.g. where the term “tenant” is used instead of “owner”). But it stokes an old worry among Singaporeans, that they don’t “truly own” their flats. Why does this matter? It’s as much psychological as well as practical:
Do Singaporeans Own Their Flats?
HDB has stated, many times, that Singaporeans who buy their flats do own them. However, it would be more accurate to say that HDB has provided a definition of what ownership means, by HDB’s standards. HDB has said that Singaporeans own their flats because they can sell them, rent them out, and do other things that owners would be able to do. However detractors argue that there’s no real ownership, due to the 99-year lease, and the many restrictions that don’t apply to private property. For example, you can rent out a whole private property immediately, whereas you have to wait for the Minimum Occupancy Period (MOP, currently, 5 years) for a HDB flat. There are also neighbourhood and block quotas that have to be considered, when renting out to foreigners. Ultimately, it comes down to a definition debate: do you own something if there’s a lease, and there are restrictions? So while there’s no clear answer there – it’s strictly a matter of perspective – it’s important to look at why the issue of ownership means so much to Singaporeans. After all, if you have a roof over your head, it’s affordable, and it generally appreciates in price, what’s the difference? Well, here’s why it’s a sticking point:
• There’s increasing worry about the 99-year “timebomb”
• There are estate planning issues
• The right to make money off your flat
• Psychological and political factors
1. There’s Increasing Worry About the 99-year “Timebomb”
This is the biggest bone of contention for most Singaporeans. HDB flats have leases that expire after 99 years, after which they are returned to the government. To be fair, this isn’t specific to HDB flats or even Singapore. Many private properties also have 99-year leases (commercial properties typically have 60-year leases), and these types of leases are used in some other countries as well. That said, there’s a worry that when your flat’s lease runs out, you may be too broke to afford a new one. And of course, you may find it hard to sell your flat once there are 30 years or less on the lease (buyers can’t use their CPF to buy it from you). The government has stated, quite clearly, that we can’t always count on the Selective En-Bloc Redevelopment Scheme (SERS). There is a very real possibility that our flats will slip into their last 30 years, be impossible to sell, and then see us booted out to find a new house. To some Singaporeans, that means the S$1,800 to S$3,000+ they pay every month (a typical range for HDB flat loan repayments) is nothing more than rent.
2. There Are Estate Planning Issues
While Singaporeans can, of course, leave their flat to their children/grandchildren, there are many restrictions to consider. For example, the beneficiaries may be forced to sell the flat, if they currently already own private property. In a broad sense, this is because HDB flats are meant to provide housing, not to act as investments. But it remains a sore point among some Singaporeans, who feel they should be able to leave such a legacy, when they’ve spent 25 to 35 years of their lives paying for it. Which leads to…
3. The Right to Make Money Off Your Flat
Ask some Singaporeans, and they’ll tell you true ownership of a property means they can use it how they please – that includes using their flat to make money. If they have to work under stringent restrictions, such as controls on how and who the flat can be sold/rented to, then they aren’t really owners. To be fair, HDB flats are sold at subsidised prices (due to the various housing grants). Many would argue that HDB restrictions are justified, given that the aim is to provide affordable housing, and not an appreciating asset. But then – detractors will argue – don’t call it ownership. It’s (indirectly) a form of renting from the government.
4. Psychological and Political Factors
There’s a great sense of relief in fully owning a house, from which you can’t be kicked out (such as with freehold property). Many people will never feel the comfort of home ownership, unless it happens on those terms – they want a house that will stay in the family for generation unto generation. Politically, this is about denying the government its bragging rights. Currently, Singapore has the second-highest rate of home ownership in the world (above 90%). However, if we were to redefine HDB ownership as a type of leasing scheme from the government, that accomplishment would be a fraud, and have no choice but to be struck off.
Either Way, These Debates Miss the Main Point
Singaporeans certainly have a long conversation ahead, on whether we really own our HDB flats. But this mainly semantic or academic issue needs to give way to a broader one: Singaporeans in possession of older flats may need to start budgeting, especially if they’d be retired when their flat lease runs out. They need to plan without the expectation of SERs, and stockpile enough savings that they can afford another house (even if the flat they are living in goes back to the government without a single cent paid).