What I wrote about Sembcorp Industries then and how it differs now

The last article about SCI was written during May 2015 here

Then, I said that I believed SCI is a solid blue chip. The pipeline for the utilities is superb and I believe it'll rebound from this crisis.

Have I differed?
To say the least, yes. Yes not because SCI fell from $4.20 all to way to $2.50, but because developments happened and news emerged.

Sete Brasil has changed the fundamentals of SMM, a 60% owned subsidiary of SCI.

To be honest, this Sete Brasil thing has changed the fundamentals from May 2015 when I still had much confidence in a near term rebound in SCI/SMM price.

Why I changed my mind?
Firstly, Oil prices fell, and it fell hard. Additionally, the oversupply of oil doesn't seem to be disappearing anytime soon. That's different in May 2015 when people are still expecting OPEC to convene a meeting soon to cut supply. [no supply was cut, more supply was granted!]

Sete Brasil had to have that corruption scandal and face bankruptcy risk. Over 40% of SMM's book order is from Sete Brasil and this changes the fundamental of SMM.

Iran's sanction lifting wasn't announced back then.

Did I sell SCI then?
No. No and I'm not sure if I'm making the right or wrong decision. My decision is to not sell or buy SCI despite the current attractive price.

I'm doubting myself over not selling SMM because my motto has always been to "sell when the business fundamentals change materially". It indeed has, perhaps its the huge loss that's preventing me from realising the loss.

On the other hand, I like the utilities segment of the company. Also, I do not require these money in the short term and so I can afford to wait it out (hoping for a miracle I know).

In any case, should the utilities segment also face a structurally decline in business, I promise myself to sell out this position and serve as a reminder to myself in the future.

*fingers crossed*

Should you really brush off the Oil rout just because you're not invested in the sector?

Oil rout like never before?

Oil prices fell from $100 to sub $30, this I'm sure many know. After all, the Oil industry is known for its cyclical natural; rise and fall of the oil price is part and parcel of the cycle.

However, this time round, are things different?

Why the fall?
Oil prices fell due to 2 key reasons:

1. Over supply of oil
2. Slowing demand from China (the largest demand driver of oil)

China could very well turn their economy around by a stroke of luck or some incredible policy by CCP, but the over supply problem is really tricky.

I last wrote a piece on the falling oil prices here. In it, I mentioned how there seems to be no light at the end of the tunnel in bringing the oil supply back down in the near to mid future. Adding to the article, Saudi has just announced that it will not cut supply in order prop up oil prices.

I'm not invested in the Offshore & Marine industry, that's none of my business right? 
Perhaps that's true when oil fell from $100 to $50.
Yet, oil fell at the way to sub $30, and the rout lasted a tad too long.

I don't get it, cheaper oil boosts the economy right?
When oil gets ridiculously cheap, Oil majors like Shell & Chevron starts slashing projects and CAPEX. In turn, less headcount is required by the majors [read: less jobs]

Then rig builders like Keppel recently announced that they've cut close to 6000 jobs in 2015 to amidst the arduous outlook for their marine industry. [read: retrenchment].

Gearing ratio for these O&M companies starts shooting up, some even may fall into negative cash flow. Debt repayment ability starts becoming a larger and larger problem [read: banks starts having higher NPL, and touch wood, write off debts].

Countries with moderate inflation rates suddenly faces the risks of a deflation, like Singapore.

When more and more people get retrenched, either from the O&M sector or subsequently the Financial sector, the problem will start being more evident. I believe this will become a matter of "when" not "if" should the current oil rout continues and continues slowly, dragging out the pain.

Even the commonly defensive consumer segment like retail may eventually get hit if the situation plays out long enough to damage the economy.

Yet I believe somebody will eventually cry surrender and bring back the equilibrium.
As with any "crisis", things recover. Everyday when I see the market bleeding in red, I get more and more tempted to scoop up bargain chips.

At the same time, I'm wary to enter too soon, knowing that this situation could be a long and painful one. Friday's stock market showed a strong rebound in both the oil prices and share prices. But I'm still wary, because nothing fundamentally has changed: oil supply continues to be sky high, demand continues to be falling (at most stagnant).

Iran hasn't even started flooding the market with their massive oil reserves!

I'm staying patient. I'd rather miss a few cuts and still get the majority of the meat than to hop in too early and get killed by the butcher.

Will my CPF ever be enough when I reach 55?

2014

2015

Inspired by AK, I've decided to take a look at my CPF's interest for 2015 compared to 2014.

Key to note:

• I did not use any CPF sums for investments.
• I am using my CPF to finance my (co-owned, parent's) house currently.
• I transferred a small sum from OA to SA during 2015

Interest for OA and MA increased moderately year on year, but SA's interest exploded by 60%.

With $23k in my SA now, and a constant contribution from now until age 55 (assuming no pay increase or special bonus),

My SA will hit $205k when I am 55 years old.

If I compound the BRS at $80,500 at 3% increase annually, it'll be $165k when I'm 55.

If I compound the FRS at $161,000 at 3% increase annually, it'll be $330k when I'm 55.

Just my SA alone will allow me to achieve the BRS (not including my OA amounts).

And I'm expecting to withdraw at least $40k when I reach 55 years old. Wooaaahh.

So, what about the average Singaporeans? 

If you are a graduate (age 24) earning $3.2k, and buy a house after getting married (zero OA left), can you hit the BRS? Assume there's 1 month bonus and no pay increase.

At age 55, your SA will have $154k versus BRS of $165k.

Remember, this is assuming there is zero pay increase from 24 years old until 55 years old, and that you only get 1 month bonus until 55 years old.

I've also excluded the extra 1% interest in the SA amount for the first $60k. That and the effect of compounding should easily allow you to exceed the BRS at age 55.

I've also assumed you've stretched yourself and max out your OA for housing purposes.

It's not that bad after all

There're so many people misguided and think that CPF is a ponzi scheme. That CPF has a goal post that is ever moving away from commoners like us and we'll never see our money even when we die.

But think about it, is it that hard to achieve that sum? Perhaps so. But is the sum too excessive? If you think setting aside $161k now is too much, then perhaps you'll have to adjust your lifestyle to make sure you can live comfortably with a monthly payout less than $1,200.

Is $1,200 a month enough for you and your retirement needs? If not, then why are we saying that the sums are too high.

It's really not magic. It's math, and there's no running away from it.

If we don't constantly increase our retirement monies now, then be prepared to be gobbled up by inflation and regret when it's too late.

That's what they all SAY!

"XXX is now at 2011 levels. I don't think it'll reach 2008 levels. Can buy now!"

Low can go lower. There were many who said STI 3000 was a super solid support. Well, we're at 2800s now.

Many thought M1 will never go below $3 as it is not the GFC now, well, looked what happened. Mr Market never cared about what we think the support level should be. 

"Those who think the stock market will recover please buy the stock. Those who think there's more to fall, please short. Put the money where your mouth is"

Except, it isn't. Just because I support multi-racial marriage doesn't mean that I'll have to marry a person of another race now to prove my point.

I may wait on the sidelines despite the massive rout because:

1. I've yet to hit my planned levels to deploy my ammunition
2. I may not have enough war chest to deploy now
3. The stocks I'm interested in may not be attractive yet.
4. I may have hit my preferred invested percentage. Some may prefer to be 100% invested while others prefer some buffer in case shit hits the fan and they have more to average down.

Not buying any stock during this period doesn't mean I've to short. There're fifty shades of grey.

"XXX will never fall! Ah gong will definitely rush in a bail out. You think they'll let XXX fall?"

Yup, definitely, the possibility of some support from G may be high, but that doesn't mean that it's a good buy.

Sembcorp Industries may be saved by the G, but at what levels? What if G steps in and aid when the price falls to $1, but what about those who bought SCI at $3-4?

What if they didn't step in to help? There's no 100% assurance they will.

"STI fell 15% during 2015. Now 2016 began with an ugly start. See la, more kudos to the 70% who voted"

I'm sorry. You may want to make friends with Mr Ngeng. If you're having those mindsets, then perhaps the world of investment may be too daunting for you to comprehend.

"I'm buying whatever XXX is having now! They/He made money, I'll never go wrong!"

If you're following buy calls merely by mimicking others, then you may be in for a wild ride; one that may never bring you back safely.

Whatever someone buys may be a great company, but it may not be a great buy now (read: valuation).

You need to always, always do your homework. Following Temasek or any other bloggers may not necessarily be good calls. Your risk appetite is different from the rest, don't just follow blindly.

If you want to follow blindly, then don't blame anyone when the traffic lights turn red and you still follow blindly behind.

What stocks to look for and 2015 report card.

	Name	Portfolio %	Average price ($)	Div Yield on cost
1	Singtel	14.42%	3.70	4.73%
2	M1	14.18%	3.63	5.20%
3	Raffles Medical	9.11%	4.13	1.09%
4	SATS	8.57%	3.11	4.50%
5	Parkway Life	6.45%	2.34	4.83%
6	Sembcorp Industries	6.28%	4.56	3.51%
7	Colex	5.83%	0.321	1.56%
8	StarHub	5.58%	4.05	4.94%
9	Design Studio	5.44%	0.54	12.01%
10	CapitaMall Trust	5.36%	1.95	5.59%
11	Vicom	4.16%	6.04	4.35%
12	Sheng Siong	3.56%	0.68	4.48%
13	UOB	3.18%	23.05	3.90%
14	Perennial Bond	2.68	$1.00	4.65%
15	DBS	2.38%	23.06	3.38%
16	Old Chang Kee	2.32%	0.87	1.73%
17	SIIC Environment	1.34%	0.20	0%


Expected Annual Dividends: $3,407 ($284/month)

Dividend Yield: 4.43%

Actions during Dec 15:

Bought Parkway Life REIT when the price corrected slightly.

• Resilient: Will not be significantly affected by any global recession and the likes
• Gives me a piece of mind when I sleep!!

Others:
The STI fell to 15% during 2015 while my portfolio was down 0.03% (including capital gains and dividends received). January 2016 didn't start off too well, with many of the stocks falling drastically.

That just screams "BUFFET" to me. I'm standing on the sides, looking closely and waiting for my target price before pouncing onto some stocks.

Targets: 

• Singtel - for its resilient nature and stable dividends
• Parkway Life (again) - if prices fall even more
• CMT - I'll look at it if it corrects more. I've to factor in the loss of Funan contribution in 2016.
• DBS - ONLY if it shows sign of bottomming. Yes the valuations of DBS is very enticing now, but low can always become lower. Banks are the most hit when the commodity rout goes too force. Never be too complacent and always have sufficient margin of safety.
• Sheng Siong - It'll have to go lower than the band of $0.82-0.85 for me to scoop more. I love the defensive nature and growth story though.

Past performance is a good guide but never a representation of future performance. So don't say things like "P/B is now as low as 2011, it'll never go lower".