Den of The Lion Investor

Yesterday, I was at a presentation by Deutsche Bank on one of their funds, the Liquid Private Equity Fund. This fund is a sub-fund of DB Platinum IV.

Private equity simply means the co-ownership of unlisted companies. This funding can take place at various stages of the lifecycle of the company. Typically, such an investment has a high minimum amount, long lock up period and high risks.

There are three main approaches for private equity funding:

1. Venture Capital (young and unproven startups)
2. Buyout (purchase or takeover of established companies)
3. Mezzanine Financing (Investing in subordinated debt of privately owned companies)

The DB Platinum IV Liquid Private Equity Fund does not invest in private equity directly. Rather, it invests in stocks of listed companies that invests in private equity. The portfolio is selected by Vescore Solutions AG, which acts as the Asset Allocator for the fund.

The fund’s benchmark is the LPX Composite Total Return Index, which is currently one of the broadest private equity index. The fund has managed to outperform the benchmark by 5.65% since the inception on 8th March 2006.

Since the fund consists mostly of listed companies, the performance will have a positive correlation with the world equity market. The advantages of investing in the Liquid Private Equity Fund are:

1. High liquidity and no lockup
2. Regional diversification
3. Diversification among the three private equity investment approaches

I suppose if you were to invest directly into a listed private equity company, you would already have some form of diversification. The fund has around 40 stocks so it provides an even greater level of diversification.

DB Platinum IV Liquid Private Equity Fund is currently available only to accredited investors.

(An accredited investor is an individual who has total net personal assets exceeding S$2 million or has an income in the preceding 12 months of not less than S$300,000. Sometimes, the ability to acquire securities of not less than S$200,000 in a single transaction can also be considered.)

Following the China Earthquake that rocked the southwestern part of the country, we find a series of announcements from a few SGX listed companies that have business operations in China. Most of them were a reassurance to investors that their businesses were not affected.

Here’s a short summary (as of today):

Oceanus Group Limited

No effect.

CapitalRetailChinaTrust (CRCT)

None of their malls were affected and they are operating as normal.

Memstar Technology

No casualties and visible damage to the new plant under construction at Mianyang. There were some surface damage to the office and dormitory buildings. Construction activities have been put on hold as ordered by the local authorities.

Production capacity of the factory at Guangzhou is operating as normal.

Devotion Energy Group Limited

The Group’s businesses and operations are not affected by the earthquake in Sichuan province, PRC as the Group’s office and factory located at Guangdong province is a distance away from Sichuan province.

Synear Food Holdings Limited

No injuries to staff and material damage to production plant in Chengdu. Plant has been shut as a precaution. Most of their distributors were unhurt and were minimally affected. However, 8 of their distributors in the worst hit areas can’t be contacted due to communication disruptions.

The region contributed less than 1% of revenue for FY2007. Therefore, there should not be any material impact to the current year’s financials.

RMB1 million has been donated to the Red Cross of China.

HI-P International Limited

Small facility in Chengdu not affected. However, it has to be shut down due to power disruption issues. This will have a small impact on operations.

Centraland Limited

It’s two current development projects, Guoling ShanShui and J-Expo, are located nearly 1050 kilometres away from the epicenter of the earthquake. Therefore, the group’s operation are not affected by the earthquake.

China XLX Fertilizer Limited

The Group’s plants and operations in Henan were not affected by the earthquake that occurred in Sichuan yesterday. Henan is located more than 1,000 km away from Sichuan. There is also no impact on their procurement of raw materials. They currently have sufficient coal supplies in stock. They are located close to the coal mines in Shanxi and there were no reports of disruption in the supply lines. There is also no impact on sales as they have no sales to Sichuan province.

Luzhou Bio-Chem Techonology Limited

No damage to the plant in Sichuan and no staff were injured. It has been currently shut down as a precaution.

Asia Power Corporation Limited

The operations of its power plants have not been affected by the earthquake and all of its staff and personnel are safe.

To date, production is still running smoothly at the power plants as all of them are located far away from the epicentre of the earthquake. The Company does not expect any significant damage or disruption to be caused to its operations due to this earthquake.

Sino-Environment Technology Group Limited

No effect on the group’s operations.

Pharmesis International Limited

All operations remain normal.

Interestingly, there has yet to be any announcements by the many other companies with operations in China.

The other day, my friend was sharing with me a very interesting story.

When my friend was younger, he used to collect stamps. Not as a professional stamp collector, but more as a casual hobby - the way kids do. Every stamp he could lay his hands on, he would put them into an album. Sometimes, he would spend some money to buy those special edition stamps.

All in all, he probably spent less than $200 but collected enough stamps to fill a couple of albums.

That was about twenty years ago. As he got older, he stopped adding new stamps to the collection.

Recently, he bought his stamp collection to a professional to be valued. Guess how much his stamps was worth.

$10,000!

The valuer offered to pay him a cool $10k to buy over his entire collection.

I was pretty surprised at the amount he was offered. How I regret throwing away my stamp collection a few years ago.

I wonder how much they would have fetched.

If you have a collection sitting around in your home, it might be a good idea to go and find out how much they are worth.

And perhaps it’s time for me to start collecting stamps again.

Two days ago, I was at Singapore Expo for Steven Molnar’s Real Estate Mastery Course. The event was scheduled to run from 9am to 9pm. Real estate investing is something that I’m inexperienced in, so I had hoped to learn something useful from the course.

The morning part of the course was a bit slow starting. We were taught by Steven about wealth and he also scratched the surface on some financial planning.

Then he gave an overview of different investment options, using “7 commandments” to highlight why property investment is a good option. It wasn’t quite what I came for and at times, I was close to dozing off.

Steven next shared a ten year plan whereby we could make an income of $180k from property every year. The plan works like this:

1. Buy a 300k property with a 100% interest only loan.
2. Pay the interest with your rental income.
3. In 10 years, the price of the property would have doubled.
4. Refinance at 80% to extract $480k from property.
5. Pay off the loan of $300k and you would be left with $180k in cash.
6. If you can repeat this every year for 10 years, you would have cash coming in every year.

The refinancing option allows one to extract cash from the property without having to sell it. This would be good for avoiding the payment of capital tax gains. In Singapore where there is no capital gain tax, we could possibly just sell the property and pocket the entire $300k instead of refinancing it.

In my view, the success of this plan would depend on a few factors:

1. Rentals must be able to cover your interest. Periods of vacancy might be risky if you cannot service the loans.
2. The property must double in price. This might or might not happen. If you buy at a high point, you might be stuck with very little capital appreciate even after 10 years.
3. Banks must be able to lend you as many as ten loans.
4. Getting a 100% loan.

The 10-year plan would probably be too risky for most investors, but trying to do it for one or two properties might be viable.

How is it possible to buy property with no money down? We can’t obtain a 100% loan in Singapore but Steven suggests a few methods:

1. Making use of credit lines for the other 10% that needs to be funded by cash.
2. Making use of vendor finance. This is something that is new to me.
3. Borrow or go into joint ventures.

A few other tips I picked up from Steven include:

1. Always do your own independent valuation.
2. Amateur investors look at price.
3. Useful list of real estate websites (mostly for Australia):
   1. www.realestate.com.au
   2. www.residex.com.au
   3. www.domain.com.au
   4. www.hia.com.au
   5. www.abs.gov.au
   6. www.reia.com.au

The last part of the seminar was on some of the risks of real estate investing.

1. Vacancy
2. Property damage and bad tenants
3. Loss of income
4. Rising interest rates
5. Market collapse

Steven also promoted his 5-day Advanced Real Estate Mastery Course and an upcoming property development project to us. Are they good?

If you recall my earlier post on Steven Molnar, there seemed to be a couple of websites with negative feedback on Steven. Most of it was directed to his association with Henry Kaye.

However, if you look carefully at the posts in this forum, most of the negative posts were made by people who were new users to the forum. It seems that their sole purpose in registering seems only to discredit Steven Molnar. I can’t confirm this though.

Other than one other site, I couldn’t really find much feedback on Steven Molnar or his Advanced Real Estate Mastery Course. That site gave a good review for the course but a negative feedback on Empowernet. You might find them interesting:

• Review on Free Real Estate Course
• Review on 5-day Advanced Real Estate Mastery Course
• Empowernet shine wears off
• Some news from Empowernet
• Undesirable customer service

With regards to the Ecoville project that Steven was promoting, I can’t really comment much on it without more research. If you are considering to invest in it, do check the valuation of the land (among other things) to make sure you are not overpaying for it. Remember what Steven taught us - do your own independent valuation.

Personally, I don’t like the idea of depositing $1k just for the chance to find out more about it.

I would like to end this post with a small bit of advice.

Attending a real estate course does not automatically make you an expert at real estate investing. Nor does it guarantee you wealth. It forms just one part of your preparation. The knowledge you acquire has to be put into practice and continously worked on for your saw to be sharp. This is no shortcut in investing. Great investors always do their homework.

Good luck.

Today, I’m sharing a few points that I got from Brandon Wendell a few months ago when he spoke at the Asia Trader and Investor Conference. Brandon is a former stockbroker, brokerage trader and hedge fund trader.

1. Fundamental Analysis
2. Technical Analysis
3. Execution
   1. Ability to execute at most favourable points
   2. Confident exits
   3. Conditional orders
   4. Automatic executions
   5. Three sided orders
4. Live data feeds
5. Risk management
6. Psychology
7. Trading plan based on your capital, time frame, risk tolerance and trading style

I think most of these terms should be quite straight forward. I will take this opportunity to explain more about conditional and three sided orders.

You will probably be familiar with the basic single order. This is the typical buy or sell order that you perform when you execute a single trade. This is also the only kind of order that most traders use.

There are a few other kinds of orders that help in automating trading and are used by most professional traders:

One Cancels Other

This is a type of order where either one of two orders will be executed. For example, if I already hold 1000 shares of SGX bought previously at $10, I might have two sell orders. One that is triggered at $9 and another at $11. The $9 is the stop loss order while the $11 is the limit order. Once either one of these orders gets filled, the other one will be automatically removed from the system.

If Then

This is a simple conditional order. If the first order is filled, another order will go live. For example, the price of SGX could be currently $10. I put in a “if” buy order of $9.50 and a “then” sell order of $10.50. If the buy order gets filled, the sell order at a price of $10.50 then goes live.

If Then One Cancels Other (Three sided order)

If the first order is filled, another two orders will go live. For example, the price of SGX could be currently $10. I put in a “if” buy order of $9.50 and two sell orders, one at $8.50 and one at $10.50. If the buy order gets filled, the two sell orders will become live. Once either one of the sell order gets filled, the other sell order will be removed.

Trailing Stop

This is a single order that will move in the direction of the order. For example, if SGX is trading at $10 and I have a sell order with a trailing stop of $1, the sell order will have an initial price of $9. If the stock price moves up to $10.50, the sell order will be moved to $9.50. If the price moves further to $12, the sell order will be moved to $11. A trailing stop is useful to ride out your position in the direction of the trend.

The pillars given by Brandon Wendell are very real and practical. There really isn’t any “secret” or “know-how” that can change a person into a master trader overnight. It is the application of all these pillars and real time practice that will gradually hone and improve your trading skills.