Discipline to keep one's emotions at bay

Currently, my percentage of cash comprises 35% of my portfolio with 65% fully invested in equities. At present, my portfolio in terms of paper profits is still yielding a positive return even after the market sell down. ( I have not included the dividends i have received over time.) Having said that, i did consider liquidating some of my equities when the 50 EMA crossed the 200EMA from above but alas, i am not disciplined. I find difficulty in selling some of my equities after a sell down. It is emotional for me and i think i need to improve on this.

Having said that, another factor why im not selling is because my companies are still fundamentally strong and yielding at least 6% -7%dividends based on my buy price. When i include the lending fees which i receive when i let people short my shares through SGX, my returns are slightly more. I am not emotional when my shares drop 50% in value because of market risk . I dont mind as i will buy more but i get emotional when the companies i buy go fundamentally weaker resulting in share price decrease. I hate that.Really hate that.Furthermore, i dont know if QE3 will be annouced. If announced, equities could have a rally in the short to medium term.

This 35% cash that i have will be there to take advantage of any property correction or massive share price correction. Jackson hole speech is upon us. I hope that Ben Bernake doesnt do a QE3. I hate it when he said that interest rates will remain low till 2013 I hate it when governments impose short selling bans. I love it when Gold price goes up because i think its a bubble. I hate it when Moody's and Fitch dont downgrade US debt. Its not the time to get emotional...

AAAAAArrrghh, I am frustrated and i need inner peace. God please help.

About the Japan Crisis and What to do?

Firstly, i pray that the Japanese disaster will end immediately and that the nuclear situation be kept well under control and a heavy rain cloud will just suddenly appear over the reactors and pour out godzillion tons of water at the fuel rods. My heartfelt condolences!

There has been rife talk about the next time bomb which is the Japan Sovereign debt. Let's begin the bad news.Japan's public debt is reaching 225% of GDP. Japan needs to spend more to rebuilt which will result in even more debt. Japan's aging population will result in less tax revenues which will increase the debt. S&P has recently cut Japan's sovereign debt rating for the first time since 2002.Moody says it might follow suit. If these bad news is not enough to send a chill up your spine, why not some pictures to add to the gloom....

From the picture, it can be seen that government revenue is on a downtrend while government expenditure is on the uptrend, together with the rising trend of the government debt. Oh Gosh! Well if that is still not enough, why not throw in some videos featuring Chief Economists from Whos who in the banking world to rub salt in the wound. Here it is, you unbelieving soul!

Is that enough to create some sort of fear? Are you breaking out in cold sweat now? Have you pee-ed in you pants yet! Not me. Maybe cos im a spinelss creep, so definitely no chills up my spine yet.
BULL SHIT
And I Shall repeat Bull Shit.

but but but....who is going to buy JGB bonds anymore to lend to the japanese government if the japanese population gets too old and their savings are depleted when they are not able to earn. (Some background:Most of the government debt is financed by her own citizens.I think its 80%, not sure. The japanese government is basically selling more JGB bonds to finance the interest on the debt, So its a vicious cycle, where the government borrows more to pay off previous debt and the debt can only get larger at a faster rate.).

Honestly, this response makes sense if  we are talking about an individual person borrowing from cashlines,cashplus,citibank readicredit, HSBC personal loans to pay off existing loans which have high interest rates. The party will end soon eventually when all resources are depleted. A person cannot borrow forever.This also applies to companies.

However, the situation is different for a government. A government is able to borrow infinitely just by printing more cash. So what if the japanese citizens one day start to lend less to the Japanese government by buying less JGB bonds. SO WHAT! The government can simply order The Bank of Japan to buy the bonds up by printing money and that has been unravelling recently when the BOJ has been printing trillions of YEN. ( Similar to the US FED). This gloom doom crap about a Japan Sovereign debt is really hyped up in my opinion.Bring it on..make it 100000000000000000% of GDP instead of the 200% of GDP.Somemore zeros.....yeah, make it 100000000000000000000000000000000000000000000000% of GDP. It doesn't matter.

OK, having said the above. One consequence is this. Hyperinflation will result if governments just wantonly print money. SO for the individual investor, i feel the topmost concern now is to look for good investments that will beat the headline inflation. Therefore FIRE AWAY....BUY BUY BUY!Being fearful now because of the Japanese Sovereign Timebomb is plain stupid.It might be good for Japan too since it has been plagued by deflation for too long. Now what to buy....hmmmmm

*The above is my own opinions. I have been known to be wrong many times. But it has not been known if i have been correct more times or wrong more times......i wont tell.

Why property is no longer an excellent Investment-Part 2 ( Continued)

This post is a continuation of part 1. Please read the link first. Based on the parameters and the given scenario ( Price stagnates, no capital appreciation) , below is the layout of the spreadsheet.

Sold within 1 year of purchase

By the end of the 1st month, if the property is sold, the percentage loss is 42.85%. When this loss is annualised, the percentage loss is 514% per annum.
By the end of the 12th month, if the property is sold, the percentage loss is 37.80%. When this loss is annualised, the percentage loss is 254.34% per annum.
The above is due to the horrific 16% stamp duty.

Sold after 1 year of purchase but within 2 years

By the end of the 24th month, if the property is sold, the percentage loss is 22.73%. When this loss is annualised, the percentage loss is 11.36% per annum. The above is due to the horrific 12% stamp duty.

Sold after 2 year of purchase but within 3 years

By the end of the 36th month, if the property is sold, the percentage loss is 7.58%. When this loss is annualised, the percentage loss is 2.53% per annum. The above is due to the horrific 8% stamp duty.

Sold after 3 years of purchase but within 4 years

By the end of the 48th month, if the property is sold, the percentage gain is 7.64%. When this loss is annualised, the percentage gain is 1.91% per annum. The above is due to the horrific 4% stamp duty.

Sold after 4 years of purchase but within 5 years

By the end of the 60th month, if the property is sold, the percentage gain is 22.94%. When this loss is annualised, the percentage gain is 4.59% per annum. There is no longer any seller stamp duty.

From the 6th years onwards, i will hide some columns and leave only the End of month, Percentage gain and Annualised percentage gain columns.

As can be seen, if one has holding power to wait, there is still some meat left but seriously the reward is greater than the horrific risk of capital depreciation, excess supply resulting in lower rents, increase in mortgage rates Do remember that this model is assuming the house is constantly being rented out and that commission for renting out the house has not been included. Repairs, renovations have also not been included.

Why property is no longer an excellent investment (Part 1-to be continued)

Been debating with a friend on whether property is a good investment for ages!The problem with this debate is both of us just throw out qualitative statements about the good and bad of it. I gave up. Took out a spreadsheet and did a property calculator. Let this spreadsheet be the end of such meaningless debate. I have inputted the new rules implemented this January 2011. The following parameters are what have been placed into the model. I would like to add that this model serves as the best case scenario for residential private property investment. Therefore, one would very likely get less than the returns stated.

Parameters based on government rules
- 40% downpayment is needed.
This is because we are looking at property as an investment and very likely this investor has an outstanding home loan already.
- Seller stamp duty (SSD) of 16%, 12%, 8%,4% in the 1st,2nd,3rd and 4th year respectively if property is bought and sold within these years. No SSD if sold after 4th year.
- Buyer stamp duty(BSD) of 1% on first $180000, 2% on next $180000 and 3% on remaining property price.
-Property agent commission of 2% paid by seller
-Property tax of 10% of annual property value

Assumptions ( I would really appreciate it if you would tell me if i had made any unrealistic assumptions...i am open to constructive criticism. Remember this is a model)
- Net rental yield of 3.5%. This is calculated by taking the monthly rent minus maintenance minus monthly property tax divided by property price Monthly property tax is derived from the annual property tax divided by 12 months. ( i feel i might be quite optimistic about the yield already given the way i calculate it)
- Mortgage is fixed at 2% per annum. (Very good already)
- Loan tenure is 30 years
- Property is rented out 100%.(best case scenario)
- Rent amount is constant. ( best case scenario)
- Buyer legal fees is $2500 ( Is this fair?)
-Seller legal fees is $2000 ( Is this fair?)

What i have not included (because it varies greatly from individual to individual)
- i have not included the property agent's commission for renting out the property
- i have not included the renovation or repairs or furniture cost
- i have not included home insurance

The Horror Story
Mr Dick Albaross, who has a hearing problem, has $380,000 to invest. He eats fish every meal and likes to go to the wet market to buy silver pomfret from Auntie Chuck Hubert. In the wet market, he hears Auntie Chuck Hubert chant " buy pomfret", "buy pomfret". Being hard of hearing, he thought she meant " buy property" , buy "property". Since Auntie Chuck Hubert sounded so earnest, she could be right!!! Hmm, should i buy a property.....Dick pondered.

Scenario 1 (Property price stays stagnant)

( This post will be continued to show the annualised percentage gain for the different years when the property is sold......Gotta go gambling now....).

The happy problem of excess cash

With not much value left to be found in the stock markets and possible risks including stagflation(inflation coupled with anaemic economic growth in developed countries), increase in oil prices or food prices hurting corporate profitability (thereby reducing general stock market upside due to an already large profit base reported), very possible continued increase in interest rates to stem inflation, the wild card in middle eastern unrest and the general optimistic mood of " uncle and aunties" ...its wise to store up some cash for a possible correction. The stock market could possibly go higher due to ample liquidity, yet it also serves to heighten the danger of a reverse of liquidity back to developed nations.....risks is greater than reward.

Given the above backdrop, i am at my wits end to place this excess cash i have. I did explore Traded Endowment Policies (TEPs) but at 4%-8% per annum returns with a possible 10% loss of capital, having to fork out cash monthly to serve these policies and having to face the volatility of exchange rates as these policies are priced in pounds, i feel i can definitely do better than that in other things. Having said that, i think it is a good place to park your money if you are one who don't know what to do with your money and need some enforced money discipline. Way better than investment-linked insurance policies or certain whole-life plans or endowment policies. Residential property investment is a no go definitely. The risks are higher than the rewards. Any meaningful upside will be capped by the government(election year, remember!) as residential property is still a public good. The above average supply of HDB flats being doled out and TOP-ing in 2013-2015 and also of private residentials, means rental rates will fall. Coupled with higher interest rates, there will be lesser meat. Its more likely to go slightly downhill or stagnate. It is ONLY suitable for those with strong holding power to realize the meat..PERIOD. Other forms of property like commercial and industrial is out of my sphere of knowledge but i would hazard a guess that the recent "popular" mentioning of commercial and industrial as a good investment means that it isn't anymore or at best, not much meat left. Anyway, its best left to experts.

It could be a good time to clear certain debts.Will update. Meantime, Happy Chinese New Year!