ISR Capital - Is it real or the new "Mini blumont/Asiaons Capital"?

One company caught my eye today - "ISR Capital"

From 0.6 cents on 11 May 2016, ISR is now at a price of 6.0 cents as of writing, that's a 10 bagger in two days! So what's going on?

ISR Capital

Basically ISR is an investment company which invests in companies that are listed/unlisted and debt securities in such companies. Doesn't that sound like a group of companies which gained infamy on the SGX sometime back in 2013?

Its current book value stands at 0.5 cents. Therefore, it is now trading at 11 times its reported book value. The company has a negative cashflow generation in the latest FY.

Its current CEO is Ms Quah Su Yin and the company was asked by CAD to help in CAD's probe into the penny stock scandal in 2013.

My Take

With such a high book value and an investment holding company where I do not see any hidden value among its balance sheet; I honestly do not know what is going on at SGX. Unless of course, I may have overlooked the many hidden gems hidden among ISR capital's balance sheet.

What do readers think?

How the World is Changing

Read an interesting article on fool.sg. And one of the most though-invoking lines from the article was this: 

"In Buffett’s own words, if there is a good business running, there will always be someone else looking to do it in a better way. Competition will always be trying. And competition may be coming from online or mobile."

The disruption we are seeing in Singapore

Unfortunately for many businesses here, serious competition is now sprouting out especially in the P2P sphere. A quick search on the internet reveals some interesting sites.

http://bakersfirst.sg/about/

A portal for home bakers to consumers directly

https://www.airfrov.com/

Need an interesting overseas trinket that can't be found here or is sold too expensive here?

Apparently, the worldwide-web and the ingenious minds behind them are showing that many business can be done in a better way. Even offline, I have made an interesting observation that "Jenny Bakery" is selling its biscuits (in limited quantities) through Hako's locker display at various locations instead of renting a retail store to sell. Now that is a good way to sell.

Even in the banking industry, Goldman Sachs has moved to compete with other online banks by creating their own online savings account. It shows how the concept of traditional brick and mortar branch is under threat and the emerging trend where people need banking services and such services do not require the presence of a physical branch.

With the proliferation of these sites and their innovative solutions offering better convenience and value, it is trying times especially for retail REIT landlords, to continue demanding positive rental reversions. What do readers think?  

"Financial Stupidity" is enriching DBS

The latest financial results for our local banks are out! And a comparison among their deposit interest rates reveals something interesting.

Fig 1: DBS 1QFY16 results

Fig 2: OCBC 1QFY16 results

Fig 3: UOB 1QFY16 results

Comparing the 3 figures, DBS is paying its customers an average deposit rate of 0.56%, while OCBC is paying a weighted average of 1.14% and UOB 1.15%. DBS is paying only half the rate of OCBC and UOB and has the most deposits among the local banks! What's more, DBS net interest margin is the highest among them. There must be a lot of "stupid money" lying around for this to happen.

For individual savers like us, getting 1+% for our money is easy. Just credit your salary through OCBC 360 account to enjoy a rate of 1.25% or a CIMB Fast saver account for 1%. So why are people settling for 0.56% or less with DBS?

How much is DBS saving?

If DBS were to pay its customers OCBC's rate of 1.14%; based on DBS's current deposit amount of $313 billion, DBS will have to pay out an additional s$1.81 billion annually. That is 39% of its net profit.

To those who park a significant amount of money in a DBS/POSB account, thank you for your contribution towards nation building by contributing to our nation's coffers through the DBS dividends received by Temasek.

However as a financial blogger, I question if that is a smart money management decision.

Buying a life insurance policy

For young working adults, the thought of purchasing a life insurance policy is one of the first things we will be approached in our working life. To help out, here are some things to note on life insurance.

What is life insurance?

Life insurance provides you a payout upon death or total permanent disability (TPD). The policy can vary from a limited period of time (20 year limited plan) to the entire insured's lifetime. There are 4 common policies which falls under the category of life insurance - Term, Whole life, Endowment & Investment Link Policy.

When should we buy?

This is the most common question young working adults will ask. To me, the idea of life insurance is simple: It is to provide for a dependent in times of unfortunate circumstances.

What is a Dependent?

A dependent is someone who rely on you. In financial/insurance context, it refers to an individual who is dependent on your income. Some examples are: a young child who rely on his parents since he can't work, a housewife who is dependent on her spouse income, aged parents who are really reliant on their child's monthly allowance because they do not have other sources of avenues (i.e. CPF Life payouts)

When should we buy?

This is when we should buy a life insurance - ONLY when we have dependents relying on our income. This is because should we be unable to work, it is an economic loss to them. This is basically what life insurance is meant for - to make up for this economic loss.

In addition, I will  not recommend individuals to buy a life insurance policy on their child. This is because should anything happen to a child, there is no economic loss experienced on the household. Remember a life insurance policy is to help dependents tide over an economic loss. Insuring a child's life is worthless unless your child is the one bringing in the dough and is one of the main contributor to the family finances.

Length of Insurance Coverage

Following from what I have written thus far, one can deduce a life insurance policy may not be necessary for your entire lifetime. For many of us, a life insurance insuring to the age of 65 should suffice.

This is because at the age of 65: 1) Your child is likely to have entered the workforce for a few years, found his footing and will not be relying on your for his livelihood, 2) unlikely to have aged parents who are still reliant on your income and 3) in modern day context, your spouse will likely be having CPF life payouts for their expenses.

What the humble "Bak chor mee" can teach us about investing

Let's talk about food! Had a bowl of bak chor mee for lunch at the canteen. Well it costs $3.50; let's be honest, it wasn't the tastiest bak chor mee in my lifetime but it did give me an epiphany which deserves a post.

You see, I have frequented this particular canteen and sometimes I will order the spaghetti bologanise for lunch, which costs $5.50. What struck me was how the time and effort to prepare both dishes are similar - put the noodles in hot water for a few mins, wring it dry, add the sauce (which has been prepared likely from a central kitchen) and its ready. And to me personally, both dishes cooked in this particular canteen provided the same level of satisfaction, "fullness" and the quantity of meat given was roughly the same. So why should I be paying $5.50 for one and $3.50 for the other when they are giving the same utility?

Prejudice

In a CNA interview, Dr Leslie Tay talked about the idea of culinary prejudice and how people tend to put foreign food on a higher stead than local food. How is this related to investing? 

Perhaps local investors have been putting blue chip names at a higher stead and this why the local stock market seems to ascribe a higher valuation (price point) to blue chip companies than their lesser well known counterparts; which means we may find smaller-cap stocks which are selling at a lower P/E or at a higher dividend yield to their well known counterparts of a similar industry. It is true that big names deserve a premium, however it is up to us as investors to question if such a wide price differential be warranted?

What are your thoughts? Have investing in lesser well known but well run companies been worth it?

Start Saving when we are young

Came across an article today by SGYI and in which a reader has commented the difficulty of getting returns of 12% etc etc.. Guess what, I did write on a similar subject on "the powers of compounding" few months back with realistic settings. 

Here is an excerpt:

"Albert Einstein called compound interest "the eight wonder of the world" and rightfully so. Lets consider an example to illustrate it. Two individuals, Ah Huat and John, enters the workforce at 25. Knowing the importance of saving when young, Ah Huat decides to set aside $7000 yearly from age 25 to 35 and does not save further from age 35 to 60; John on the other hand starts to set aside $7000 yearly from age 35 to 60. Both invests in the same investment which yields a 6% return per year. At the age of 60, Ah Huat has amassed $476,782; while John has $438,940. Hence, despite saving for only 10 years as compared to John (25 years), Ah Huat has saved up a larger amount of money thanks to compounding! From this example, it shows how important it is to start saving when young to enjoy this eighth wonder."

Many people are attracted to the dream of financial security and are looking for a way to it.

Start saving when young 

Pretty simple.Getting 5 to 6% returns out there, IMO, is pretty decent and achievable especially if we are bench marking it to SPDR STI ETF's annual returns of 6.28%. (Do note on the volatility of the ETF though). So start saving from young! Yours truly did exactly did and is benefiting from it. 

Secondly, saving $7,000 annually is easy. For all those new to the workforce, instead of signing up for a $200,000 coverage whole life or savings plan from that "sweet-talking eye candy" in a tight fitting skirt (that last phrase is for guys), why not buy a $200,000 term plan instead. The former will set you back about $3650 per year, while the term will set you back errrmmm, $450?. That's a savings of $3200 of course without the investment component. 

Of course, you will want to invest the remainder of the money right, well you can invest it in the STI ETF or REITS, that where 6% returns is achievable but you must be ready for the volatility. Investmentmoats has a few good articles on REITS and ETF. You can read it here and here.

To summarize:

This is Ah Huat

Ah Huat wants to be financially free.

Ah Huat does not believe in internet get rich schemes and on street investment talks.

Ah Huat does his own research, saves from young, saves well and invests wisely (he reads my blog)

Ah Huat is smart.

Be like Ah Huat.

If you are interested on how to save and invest well, here is the link to my first article. At this juncture, I will highlight that investing is risky and one must have appetite to stomach the volatility (that includes passive investing)

Sources

http://www.diyinsurance.com.sg/portal/products/more-comparison-pdf?insurer=Manulife&prod_name=ManuProtect+Life+(1x+SA)&gender=Male&min_age=25

Local Crowdfunding Expansion and Defaults

March has been an eventful month for the P2P industry with high profile loans being issued. While p2p loans are innovative, there is still one risk that remains - default.

Default

March too has seen a few defaults. One of which has been covered by another blog. The company is a travel agency who has a few p2p loans.

http://letscrowdsmarter.com/another-default-s-travel/

Similarly, Moolahsense too has encountered a default on a bullet term loan by one of its issuers. And yours truly too has a late repayment by one of the companies in my p2p portfoilo. 

What can we do?

The only probable way is to research on the company issuing the loan and diversify your portfoilo to minmise your risk. Letscrowdsmarter has  good write ups on beginners tips for p2p loans which you can read here and here.

Basically, what we individuals have to do is research more on each company we intend to invest in, know the risk and diversify. This will take time like in stock researching

What the industry can do? Trust

The P2P industry here is new locally. And being a new kid in the block, building trust is paramount. Talks with many of my friends, shows not many people are willing to trust such third party sites as wealth building vehicles yet, this is because of the red flags and lack of regulations in these otherwise promising industry. There are few who are only willing to give new comers a chance as the risk borne is high. Hence for such p2p service providers, it is important that they first build up trust among the community that p2p loan is viable, and not a cowboy town despite being in an unregulated industry.

It is indeed nice to read reports of million dollar loan issuance, however if the industry is riddled with defaults and recourse of non payments by issuers, many people will not want to invest due to a lack of trust. Furthermore, P2P loans are not exactly cheap; one has to invest at least a few hundreds or one thousand dollars. Unlike taobao or Qoo10.sg, where you are putting a few dollars at risk, the money quantum in p2p loans are larger. You can laugh off being scammed $3.99 for trying to buy a USB cable online but losing a $1,000 due to default is something you will definitely kpkb and remember for a long time. This demonstrates how and why the public will require a larger degree of trust that these platforms are credible/have done their due diligence before approving these companies.

No doubt, these companies have turned to crowd funding because of the probable fact they are unable to obtain bank loans. But P2P platforms should be aware that as pioneers of this industry; unless they are only planning to be profitable for the next 12 months, rapidly expanding without due consideration to the type of loans issued will result in the erosion of the public's trust in p2p loans.

Trust is important to building the foundations of any business. While it is tempting companies are now knocking on the door for crowd funding loan, compromising on the aspect of service delivery for profits is a recipe for disaster.