Den of The Lion Investor

On the second day of the SMART Expo event, I was deciding whether to attend Masterclass: Structured Warrants Survival Kit by Simon Yung of BNP Paribas or Breaking the Millionaire Code by Thomas Mathew of IPP Financial Advisors.

As I was already familiar with warrants, the last thing I wanted to attend was another beginner class on warrants. From the writeup, it didn’t seemed like it:

• Will the strength of warrants rise to the economic challenges ahead?
• The DIY mini hedge fund long/short term strategy
• How does warrant issuer make money?
• How to identify non performing warrants?

What I was attracted to in Simon’s seminar was the DIY mini hedge fund long/short term strategy.

On the other hand, Thomas Mathew’s topic seemed pretty interesting and new to me.

• F.L.O.W - Financial Lifestyle Organised Well
• My Formula - Financial model
• 2 Millionaire Code - Revealed

After thinking about it, I decided to attend Simon Yung’s warrants masterclass.

Simon started by mentioning about the uncertainties facing the current markets.

• Decline in SIBOR
• US subprime
• Slowing economic growth
• Inflationary pressures
• Weak USD
• Record high oil prices

In a bear market, we could profit from put warrants or make use of it to hedge our position.

DIY Mini Hedge Fund Strategy

Depending on the view you take, there are three strategies you can try.

1) Long term positive view on a stock & Near term downside

Use a long term call warrant and a short term put warrant.

2) Outperform View

This strategy helps to reduce/remove market risk.

If you think that A will outperform B, buy A call, buy B put.

If you think that B will outperform A, buy B call, buy A call.

3) Believe stock price will trade outside a certain range

Buy call and put warrants of the same stock.

Non Performing Warrants

These are the kind of warrants we are told to avoid:

• Deep in the money or out of money
• Short term (less than 1 month)
• High “placeout” (turnover)

Did I learn something new from Simon? I probably did.

But I would have no way of knowing whether the other session by Thomas would be more applicable for me. Personally, I try to avoid warrants as I will have to get two bets right to make money - the direction and the time. This is something which I find difficult.

CPF Changes : Implications for Financial Planning - This was the title of the keynote presentation that was to be delivered by Mr Leong Sze Hian, President of the Society of Financial Service Professionals. With CPF being close to everyone’s mind, it was not surprising that this seminar at the Smart Expo was fully packed.

To everyone’s great disappointment, Sze Hian could not make it for the event and had to get one of his staff to be the replacement speaker.

The presentation material was probably prepared by him as it was filled with many facts and figures, not unlike his regular contributions to the Straits Times forum.

Unfortunately, that also meant the person delivering the presentation had to go in depth to deliver the message intended. With all due respect to the replacement speaker, this was something which she failed to do. This was understandable as being a last minute replacement, she probably didn’t have enough time to prepare.

She finished her presention in half the allocated time and quickly made her exit without taking any questions from the audience. As she run through the slides pretty fast, I couldn’t take down too much notes from them. These are some which I manage to “salvage”:

• The 3 main concerns of Singaporeans are retirement, housing and healthcare. The changes made in the 2007 Budget meant that we get more cash (from our salary) but less in CPF. This does not really address the main problems.
• Members had an average of only $66k in their CPF accounts, with the median even less at $20k.
• Based on half the minimum sum, we will get back $600/month (at 4%) or $720/month (at 5%) for twenty years after our retirement. With the new CPF Life scheme, we will get back $604 (for male) and $570 (for female) for life.
• According to statistics given by the government, the life expectency of someone born in 2006 is 78 for male and 82 for female. But what is the life expectency of someone who is already 50 now?

The last point is something I am very concerned about. Formulating a new policy based on the statistics of someone born today and applying it across the board for people born decades ago. Will it make the latter better or worse off? Only time will tell.

If you are like most average people and are confused by the mind boggling choices of the CPF Life scheme, please do not hesitate to seek advice from someone who is able to understand it well.

If not, you might choose the option that doesn’t meet your needs. Remember, your CPF money is also your hard-earned money.

Another speaker during the SMART Expo that pulled in the crowd was Mr Wong Sui Jau, the general manager from Fundsupermart iFAST Financial Ptd Ltd. Here are some pointers from his presentation as well as his recommended sectors for 2008.

US Economy

In the next 12 months, US will fall into a recession. Consumer sentiment is going to get worse. A large portion of these consumers are still spending on credit and paying mortgages.

High Oil Prices

• Oil prices hit US$110 on 13 March 2008.
• The previous two oil shocks were artificially created and the extent was greater.
• OPEC now only produces 36% of the world’s oil and has less influence over the pricing.
• China and other emerging market growth in economic leading to a higher demand.
• Falling US$ also contributes to the rise in oil prices.

Star Ratings (on a scale of 1-5, 5 being overweight)

• Emerging markets 3.5
• Asia ex-Japan 3.5
• US 2
• Japan 2.5
• Europe 3
• India 2.0
• China 3.0
• Singapore 3.5
• Hong Kong 3.0
• South Korea 3.5
• Taiwan 3.5
• Thailand 4.0
• Malaysia 3.5

Asset Allocation

• Neutral on equites versus fixed income
• Underweight on Japan and US
• Overweight on Thailand (PE at 8.6 and 8.0 for 2008 and 2009) and Singapore (PE at 13)
• For contrarian play, Singapore financial stocks can be considered as they have been beaten down quite badly due to the US subprime crisis even though their fundamentals are quite strong.

Is cash the best alternative for investors?

• High inflation
• Bear markets do not last forever
• Our emotions cause us to buy high and sell low
• Choosing to sell out of markets will only make it harder for investors to re-enter the market later

Tips for handling volatility

• Markets cannot drop 5-10% every day.
• Focus on long term investing
• Diversify

The keynote panel discussion on the first day of the SMART Expo was on the Singapore property market. The title was “Building a Sound Investment Strategy for a Changing Singapore Property Market” and the three panelists were:

• Raymond Chow, CEO & Chairman, Ray Harcourts International Real Estate Group
• Mohamed Ismail Gafoore, CEO, PropNex Realty Pte Ltd
• Alfred Lim, Executive Director, VestAsia Pte Ltd

The facilitator of the panel discussion was Mohamed Ismail, CEO of PropNex and a very dynamic speaker. Property still seemed to be a hot theme as the event was packed with a full house. Here’s a summarised transcript on what they talked about:

With the current changing economy and market sentiment in Singapore, how should buyers react?

Alfred: The fundamentals of Singapore has not changed. But we are not immune to global changes and people have become more defensive. It is best to look for assets that produce yields.

Ismail: Eight months ago, it’s not a buyers market. Sellers call the shots. Now, it’s a buyers market. Sellers are not desperate, but they are more realistic.

Raymond: When good times comes, a lot of owners also become greedy. A lot of good things are happening in Singapore right now. F1, integrated resorts, etc. Unfortunately, we are also affected by US subprime crisis. The speculators are the ones affected. They have to sell cheap.

What’s the emerging opportunity in Singapore for this year?

Ismail: Today, you can still pick up luxury units at 5-8% less than the peak reached less than a year ago. This is especially for units with deferred payment scheme.

Alfred: You can look at fringe location luxury units that are slightly older and are still lagging behind. A lot of these properties have to be absorbed first before we move into the mid-tier market.

Raymond: Two major locations are the Marina Bay area and Sentosa.

Ismail: There’s a limit to the amount of properties in the core area. Moving outside, anything this is central location will benefit. However, do not be so bold as to speculate. You must have the credit ability to finance and look at mid to long term.

What are your views on mass market that are further out?

Alfred: It’s all a function of affordability. If they have good anmenities and transport hub, they should do well. I prefer the fringe area. You also have to differentiate whether a property is for consumption or for investment.

Ismail: If the place is less than 5 minute walk to MRT and you can get there without sweating, it’s a good buy. The mass market will continue to move as there is a difference between the prices of resale market and new developments. However, foreigners will not come in to push the price.

Raymond: One thing you can do is to go to URA center and check out what’s happening in Singapore. Or go to www.ura.gov.sg.

What about landed property?

Raymond: It’s again about demand and supply. There’s a limit of supply. Lifestyle has improved tremendously.

Ismail: If you buy now, you will make money in 8-10 years. Landed property is a scarce commodity in Singapore. The price is very low compared to condominiums. One reason why they have not moved much is because there are not many transactions done. Valuation is actually very simple to do. The valuer will just consider the average prices of recent transactions and the market sentiment.

Overall, I get the impression that the three of them are still pretty bullish about the Singapore property market.

One keynote speaker of the Smart Expo event is Steve McMahon, former Liverpool (and England) player and ESPN football commentor. He is currently the group commerical director of Profitable Group.

I wasn’t exactly sure what Steve could teach us about investments, but decided to attend his talk anyway.

According to Steve McMahon, this was actually the first public speaking engagement, and he found it much more difficult than playing soccer or being a commentator.

There wasn’t any fancy powerpoint slides, and basically Steve shared with us his entire footballing career.

Yesterday was the Merseryside derby game between Liverpool and Everton. Most people probably didn’t know that Steve was a lifelong Everton fan!

Everton was also where he started his career, followed by a short stint at Aston Villa and then finally Liverpool. Subsequently, he went to Manchester City and finished his footballing career as a player-manager at Swindon.

So how can we relate all these to investing?

Throughout his career, Steve very often had to make important decisions. Just like we have to do so when we invest our money. And never once had Steve made the wrong decision.

How do you know you are making the correct decisions?

When you are happy.

When you wake up and you have regrets, then it’s probably not the correct decision.

And always treat people the way you want others to treat you.

Update: Click here to see the entire presentation by Steve McMahon