Investment Process- The 10% gain

In continuation of the previous post - Investement Process-The seed for investment , i will elaborate on the 10% gain per annum. A 10% gain in stock market is actually nothing fantastic and probably easily achievable by many. However, my aim is to have a gain of 10% per annum with a very small possibility of losing the initial capital. This can be achieved by buying stocks that gives constant high dividend payout.

The following stocks listed are giving out a yield of ~10%:
(1) Cambridge Industrial (REITs)
Current Price: S$0.505
Estimated DPU: S$0.04952
Yield: 9.8%

(2) SP Austnet (Utilities)
Current Price: S$0.98
Estimated Dividend: AUS$0.08 or S$0.096
Yield: 9.8%

(3) Innotek (Tech)
Current Price: $0.525
Estimated Dividend: $0.05
Yield: 9.5%

(4) Pacific Shipping (Trust)
Current Price: US$0.29
Estimated Dividend: US$0.032
Yield: 11%

All the above stocks have historical records of constant dividend payouts.
Cambridge and Pacific Shipping pay out dividends every quarter, SP Austnet pays every half a year and Innotek pays once every year.

In my current portfolio, it comprises of shipping counters like Ezra, Ezion and YangZiJiang as well.
I am slowly exiting these counters and shifting my funds towards the counters mentioned above.
With these dividend-play counters, I am pretty confident that it should provide me with a consistent ~10% yield.
Of course, close monitoring of each of the companies business results is needed as a change in business model/performance will change its yield performance.

Last but not least, I will continue to look out for counters which can give a yearly 10% payout.

Caution: Although the 4 counters mentioned above has yield ~10%, not all of them are "healthy" or has a good business model. I will elaborate more in later posts.

Portfolio- July 2010

My Portfolio for the month of July 2010.

Company	Date Purchased	Purchase Price	Market Price	Gain/Loss
Ezion	07-May-07	$0.570	$0.70	23%
Ezra	20-May-09	$1.280	$2.00	56%
YangZiJiang	14-Jan-10	$1.220	$1.450	19%
Innotek	01-Apr-10	$0.555	$0.515	-7%
Cambridge	14-Jul-10	$0.505	$0.510	1%

Dividend
Cambridge has XD on 23rd July 2010 and is giving out DPU of S$0.01238 for 2nd Quarter.

Investment Process- The seed for investment

In my previous post, I have mentioned The Power of Compounding.
How do we actually create that effect?
There are a couple of things which we need to have:
1st of all, the seed for investment which is the initial sum. Follow by the right investment vehicle to create the gain per annum which i shall focus on in the next post.

The Seed for investment usually starts from savings. Any amount of savings per month is good and needless to say, the more the better.
Disciplined savers are usually those who can "park" a percentage of their income every month once they received their salary.
There are those who needs to be "forced" in order to save. It can be done by signing up a savings plan which deducts a sum of money from the bank account every month on their pay day, like the MSA for POSB.

As for those who has no savings at all, my advise is to start saving now. No matter how small the amount, it makes a difference.

So, if you still feel you cant save any, I would suggest you try this method:
(1) List down all your monthly expenses.

(2) Subtract the monthly expenses from your take home pay.

(3) Set aside this amount of money (into another bank account used for savings) on your payday. In this way, you will force yourself to save. It is probably good to include a little margin in your monthly expenses (if possible) in case some items/bills are under estimated.

(4) If after subtracting the monthly expenses, the balance amount is zero. It is necessary to re-look at your monthly expenses and re-assess each item.

What expenses are considered as a necessity?
(1) Transport expenses:
Includes MRT, Bus and occasional taxis. If you cant save a single cent, you should sell away your car.

(2) Insurance premiums:
Basically, the rule of thumb is about 10% or less of your monthly income. Anything more than that, could be excessive.

(3) Food:
Limit or reduce the number of meals at restaurants.

(4) Income tax payment:
No choice. You cant run away from this.

(5) Allowance for parents:
Have an agreed amount you can give per month.

(6) Bills:
Look out for promotion by Telcos on broadband and mobile plans for example.
Consider subscribing to cheaper plans.

(7) Loans:
Always keep a look out for cheaper interest rates for housing loans for example. The reduced interests rate could help reduce the payout amount.

(8) Entertainment:
Consider a budget to spend every month. Review it all the time and consider reduction in amount if possible.

So, to end the post, here's 2 famous quotes:
"Save a little money each month and at the end of the year you'll be surprised at how little much you have. "
-Ernest Haskins


"Money frees you from doing things you dislike. Since I dislike doing nearly everything, money is handy. "
-Groucho Marx

The Power of Compounding

Anyone who has a car or housing loan will know the huge effects of compound interests applied by banks or finance companies. A big portion of the monthly repayment amount will be used to pay off the interests rather than the principle amount. Eventually, the amount payable in total is so much higher than the initial price tag.
If we were to use this strategy in our investments, the effects on compounding can greatly benefit us.

Here is an example: In 15 years time, starting with an initial sum of S$100K plus compounding gain of 10% per annum (which im targeting), I will have a portfolio of S$417K.
Of course, in this example, there are some assumptions which i have to take.
I did not take into account the fact that i will inject more funds throughout the 15 years and by using a smaller or bigger initial sum, it will change the magnitude of compounding effects.

Initial investment Amount	$100,000
Year 2011	$110,000
Year 2012	$121,000
Year 2013	$133,100
Year 2014	$146,410
Year 2015	$161,051
Year 2016	$177,156
Year 2017	$194,872
Year 2018	$214,359
Year 2019	$235,795
Year 2020	$259,374
Year 2021	$285,312
Year 2022	$313,843
Year 2023	$345,227
Year 2024	$379,750
Year 2025	$417,725

So.... Who wants to be a millionaire?

My 1st post

Seriously, I would never expect myself to create such a blog as i find it is very time consuming just like writing a diary. Except that, a blog is something which im not obligated to update daily. Moreover, with my weakness in writing, i will need to put in extra effort to post.
Anyway, I thought of having a go at it so that i can log down some of my investment thoughts along the way. This shall serve as a platform to remind myself on all investment mistakes and achievements as well. Hopefully, amidst my busy schedule, i will be able to update this blog regularly.