November 2022 Portfolio Update and 2022 Dividends

Portfolio allocation as of Nov '22.

• SG Shares: CDG, DBS, SGX, Valuetronics

• SG Reits: Syfe Reit+

• US Growth: BABA, INMD, PYPL, SHOP, TDOC, UPST

Not much to update this month. Apart from adding a few hundred dollars to my Syfe Reit+ position, I did not make any additions to the portfolio. I did try to increase my position in Valuetronics at below $0.50, but was unsuccessful. Perhaps better luck in December. 

I think it is ironic that there’s strong interest in the markets only when the market is doing well. Take crypto as an example. I’m not a crypto advocate, but a year ago, literally everyone was talking about crypto; showing off their gains and encouraging others to invest. But today it is very much radio silence from these folks. I’ll be upfront to say that I too got convinced, and lost a manageable amount in Luna and FTX.

Humans are wired to follow the crowd and it often feels uneasy to go against it. One way I try to overcome this would be to remind myself to invest consistently and that given my time horizon, markets should go up in the long run. I have a friend that likes to announce in our group chat whenever there’s a “new YTD low for S&P500”, or that it is a “bad time to invest in the market”. I make an effort to invest a small amount whenever I hear stuff like these. So far, it has worked out well for me.

2022 Dividends collected

I still recall one of my early conversations on dividends – I was 19 at that time, as an NSF, speaking to a guy in his 30s who was doing his reservist. I shared that I invested ~$2k in SingTel, which yielded ~5%, or $100 annually. This person could not understand why I would risk $2k of capital to earn a measly $100. My response was that investing would beat leaving the cash in the bank, with near zero interest rates on savings accounts. He was unconvinced, but this also marked my foray into dividend investing. 

Fast forward to today, I've joined the workforce, with an average savings rate of ~80%. I have consistently invested nearly all my excess cash, with a preference for diversified ETFs and dividend-paying stocks. In 2022, I have received ~$2.9k in dividends, and the current run rate for 2023 stands at ~$3.6k (that is, assuming I don't invest a single dollar more). By end 2023, my target would be to generate ~$6k of dividends, which works out to $500/month.

For some context, the $300/month which I receive currently, works out to:

(i) 75 plates of $4 chicken rice, or

(ii) 10 instances of $30 restaurant meals, or 

(iii) 20 journeys of $15 taxi rides. 

For the record, these are only for illustrative purposes, and I don't do any of these at those frequencies… but every dollar of dividends goes a long way.

I think of FIRE not in terms of a "FIRE number", but rather, a "FIRE cashflow". Cashflow is king, and as long as my passive income can cover my expenses, work becomes optional. Broadly, these are the milestones for the journey. Numbers are in 2022 purchasing power and will be inflation-adjusted along the way:

1k/month, Lean FIRE: Covers my monthly expenses with some buffer. Employed full-time.

2k to 3k/month, Barista FIRE: Potentially able to scale back from full-time employment, and supplement passive income via part-time work or side hustles.

4k/month, Full FIRE: Theoretically, I don't need to work at this point. But I would still want to work, purely out of interest or passion. (Too many ideas to list) 

The magic of compounding dividends is probably the 8th wonder of the world. Read more about Why Dividends Matter to me in my previous post.

Random musings on FIRE and life 

The art of doing nothing

Earlier this year, I had to take a week of leave due to company policy. I didn’t have plans for that week. It was simply meant to be a break. A common question that I received was “you’re not travelling?”. I found it weird having to justify that I’m simply taking leave to have a break from work. Don’t get me wrong – I enjoy travelling, but I don’t see it as a necessity. 

Thus, when I get this question, I usually tell acquaintances that I’m taking leave to “do nothing”. In reality, I think “simplicity” would be a positive way to describe how I spent the week, while “mundane” may be another adjective that carries a negative connotation. 

A typical day of my week on leave would start with waking up around 10 am, and then throughout the day, doing a light workout, going for a walk in the park in the late afternoon (before the after-work crowd arrives), practicing a language on Duolingo, and reading a book or some personal finance content. Evenings were mostly for catching up with friends over dinner. All in all, a pretty good mix of me-time and social activities, in my view. Simple or mundane, this is fulfilling enough for me. 

One of the “finsta” accounts I follow, @centsofindependence, recently shared about a day in her Barista FIRE life – which involved waking up naturally in the morning, having breakfast with her partner at 11am, spending some time on managing her personal finances and chilling at a bistro in the afternoon while posting some updates to her Instagram page. They also host friends for dinner once or twice at their place during the week. This is a great example of the post-FIRE life that I envision.

I guess to some people, these may constitute “doing nothing” … but who’s to judge what’s right or wrong?

An easy life or a hard life?

I don’t see any issues with wanting an easy life. In fact, I would posit that most people innately want an easy life. But from society’s standpoint, people have been conditioned to think that yearning for an easy life isn’t politically correct, thus most people wouldn’t openly claim that they want to have it easy.

Now, let me add in the caveat that this does not mean shying away from all challenges. To me, looking for an easy life means focusing on things such as the effort-to-reward ratio, looking for “easy wins”, and basically, living the way that makes me comfortable, instead of blindly following society’s definition of what’s “ambitious” or not (which very often, involves judging a person’s “success” in monetary terms).

I’m a competitive person, or I should say, selectively competitive. That means playing to my strengths. Focusing my efforts on things that I’m good at, and are likely to payoff well. If I know that I will breeze through Business School, rather than say, Quantum Physics, then I’d pursue a Business degree for sure. Easy A’s for me. Also, for example, given that I know doing well in competitive sports such as swimming depends on one’s genetics as much as hard work, and hard work alone won’t make me a great swimmer, then I won’t even bother pursuing competitive swimming in school. But I would still swim as a hobby.

A friend had a good piece of advice: if she could make money the easy way or the hard way, she’d choose the easy way, always. Very smart.

Conversely, “hustle culture” perpetuates a mentality which glorifies working long hours, sacrificing sleep, always wanting more and seeing hardship as a badge of honour. Not the type of life I want.

I think quotes such as “Don’t ask for an easy life, ask for a challenging life, and for the strength to overcome these challenges” are complete nonsense. If we could choose to be born as an heir to a billion-dollar fortune, who wouldn’t? Let’s be real here. 

“Hardship” shouldn’t be a competition where we compare who is “having it worse”. This type of race-to-the-bottom perspective benefits nobody. We all have our fair share of challenges. Please don’t romanticise adversity. 

At this point, you might scoff and say… c’mon, being able to live in Singapore is already fortunate enough. Of course, I recognise the positives we have here – relative wealth, a stable government, good infrastructure and a decent education system. On one hand, the rising property prices could be seen as a testament to our success, but at the same time widens the gulf between the haves and have nots. 

On balance, I think it would be naive to claim that youths today “have it easy”. Sure, every generation has its fair share of challenges. But at present, with young couples increasingly feeling like they’re being priced out of the housing market, COE prices near the 100k mark, rising inflation, job market uncertainties and geopolitical tensions, the future looks challenging indeed. 

Therefore, one of the main aims I have would be to make my life as “easy” as possible, that is, to live life on easy mode. And this is aligned with my goal of achieving FIRE – to have the safety net, the freedom and options to pursue what I love, and being in control. I believe there will come a point where money, while still important, no longer becomes a priority in life. 

And as a secondary “purpose”, to continue writing about financial literacy and help as many people as possible to achieve the same. 

To end off my thoughts on this section, a phrase often use would be that “life is already tough enough, think of ways to make life better, not worse”.

A contrasting example

I’ve been writing too much about FIRE, obviously because I’m biased here. Now, let me share a contrasting example where FIRE just does not make sense.

A friend works as a software engineer in a tech startup. They earn roughly twice the salary of an average fresh grad. Their company has a “work from anywhere” policy, which basically means that you could spend a month working by the beach in Bali, a month working from home in Singapore, and then maybe another month working from a hostel in Tallin, Estonia, alongside fellow digital nomads. They enjoy fantastic work life balance, and get additional perks such as food and gym memberships. Crucially, they enjoy what they do and get to work on meaningful and impactful stuff. 

When I shared that my goal was to retire early, they mentioned that they don’t think they’ll ever want to retire. Why would this person ever want to stop working? Heck, if I was in that position, FIRE would be the last thing on my mind as well. There is simply no need for FIRE in this situation. By the way, this person is also an astute investor, and will likely hit Financial Independence pretty quickly (even before me). They just don’t have to, or want to Retire Early. A totally valid point of view. 

But the key question here would be – how many people do you know that are in this privileged position of being well-compensated, have great flexibility and enjoy the work they do? And taking a step back, are there even enough of these types of jobs to go around, for everyone who aspires to live this life?

I can give you my answer: this is the only person I know with all these perks, and these types of jobs are few and far between. And more often than not, they require specific skills such as coding knowledge, which not everyone is cut out for.

Therefore, I choose to create my own freedom. Onwards and upwards.

October 2022 Portfolio Update

Portfolio allocation as of Oct '22.

• SG Shares: CDG, DBS, SGX, Valuetronics
• SG Reits: Syfe Reit+
• US Growth: BABA, INMD, PYPL, SHOP, TDOC, UPST

While reconciling last month's numbers with this month's, I realised a small mistake. My QUAL allocation for Sep ‘22 should be 8.5%, while IQLT should be 8.7%. Thus the allocations for the rest of the Sep ‘22 numbers are slightly inflated as the QUAL and IQLT numbers should’ve been higher.

In October, I continued investing aggressively and deployed a few months worth of salary. It was the highest monthly inflow for my portfolio YTD. I bought 2800HK at 15.5 HKD (avg. 22 HKD) and HSTech ETF at $0.59 (avg. $0.82) to lower my average costs for them. It may feel scary to invest in China right now, but as I don't check stock prices daily and have an extremely long time horizon, these somewhat mitigate that fear. 

For my SG positions, I bought CDG at $1.25 and averaged down on Valuetronics at $0.50 (avg. $0.54). Briefly, my reasons for investing in them are: CDG as a Covid recovery play (prefer this to SATS due to SATS' acquisition mess), operating an essential service with about 80% of its revenue from public transport (contrary to popular belief, not taxis). CDG's cash position is roughly 1/3 of its market cap and netting this off, I'm paying ~0.7x book value for the firm. Reasonably low debt (23% D/E). Operating metrics have mostly recovered to pre-Covid levels whereas the stock remains 40% lower. 

Valuetronics is mainly a deep value play with cash of ~$0.37/share vs the current share price of $0.50. Management has been aggressively buying back shares since mid-2022 and has repurchased around 4% of o/s shares. The existing buyback mandate allows up to 10% of shares to be repurchased. I may do more detailed posts on these two companies if time permits.

My portfolio allocation has shifted to become rather SG-centric this month, and that's mainly because of the strong USD and I'm unwilling to buy USD at the moment. GOOGL and ADBE remain my top targets, along with some 2021 tech darlings which have fallen to levels where you can evaluate them based on P/B ratios and look at their net cash positions vs burn rates. 

That's all for this month's update, may opportunities be abound for the final two months of 2022! For my monthly portfolio summary, please follow my Instagram Page @alpacainvestments

Random musings on the Financial Independence journey

The Financial Independence, Retire Early movement is a controversial one for sure, and I've written extensively on my thoughts on this in a few blog posts. The following paragraphs won't be a rehash of my reasons for wanting to "Retire Early", but rather, to emphasise on the "Financial Independence" aspect, which I believe is more pertinent than ever, in times like these.

Since the beginning of this year, we have seen layoffs, particularly in the tech sector, as the economy is being weaned off cheap credit. In the past month, high profile layoffs among top tech firms including Amazon, Meta and Twitter have dominated the headlines. Tens of thousands of people affected. These numbers are not merely statistics - these are real people with families to feed, with bills to pay. 

And as I've written in my previous posts, these layoffs often happen for reasons beyond our control. The deteriorating economy is beyond our control. Or a billionaire could buy over the company that you work for, and decide to sack more than half the employees. That's beyond your control as well. You could be the hardest worker in the team, the first to come in and last to leave everyday, but if the CEO decides to shut down your business unit due to "strategic reasons", you're gone as well. The point here is that very few people are truly indispensable. Like it or not, that's the reality of capitalism. The earlier you realise and accept this, the better. No one else would act in your best interests except yourself. 

Therefore, focus on the things that we can control. Live below your means. Have an emergency fund set aside for contingencies. Invest prudently and consistently. Build up streams of passive income that can one day replace income from your day job. 

To me, "living below your means" does not mean only buying second hand stuff or only buying groceries that are close to expiry dates just to get a discount. It means not dropping your first bonus on a Rolex. It means not overleveraging yourself to buy an expensive property. It means only buying a car out of necessity and not for "lifestyle" reasons.  

I know that there are "FIRE advocates" out there, who preach an extreme version of frugality to achieve FIRE. Scrimping on meals or having cup noodles everyday just to save that extra dollar. I completely disagree with that perspective. Frugality should not be to the point of deprivation. What's the meaning of life, if one is to suffer in the present, simply for a goal that's decades away?  

Expenses are only one side of the equation. Equally as important would be earning power. I've reproduced a comment I made on another forum below, on a post regarding FIRE:

"Think a huge factor is earning power. A fresh grad earning the median income of 4k and spends 1k, will save 3k per month. Another fresh grad at the 75th percentile earning 6k, could spend 2k (double) and yet will save 4k per month. What’s clear here is that the 75th percentile person will have both a higher quality of life (spending double) and also reaching FIRE faster (saving/investing 33% more). In the end it’s about how we balance delayed gratification but yet not to the point of deprivation."

Aim to be Financially Independent; whether you choose to Retire Early or not, that's up to you!

Why do I choose Dividend Investing

This post is in response to a comment I received, saying that "dividends don't matter, because your total return (capital appreciation + dividends) would be the same, if the company did not pay a dividend but instead re-invested the cash". In theory, I must say, that is indeed true. But the key assumption here would be that the company is able to re-invest the excess cash at the same rate of return. However, I still prefer to invest for dividends, and in this post I will outline my reasons for my preference of dividend investing. I have been investing for dividends since 2015 and will continue to do so. 

As many of my long-time readers would know, I am pursuing FIRE, which is to become financially independent and retire early. Thus, for someone in my mid-20s, in some ways, I tend to think like a retiree. My reasons for choosing dividend investing is written with this in mind. 

In a traditional retirement portfolio, the aim would be to sell a portion of your stocks/bonds each year to fund your expenses. But what happens in a year when both stocks and bonds get decimated, like in 2022? By the way, 2022 is the worst year in a 100 years for the 60/40 (60% in stocks, and 40% in bonds) portfolio, as per Bank of America's research. 

Assuming the market tanks by 50%, a retiree who depended on selling assets to generate cashflows would have to sell twice the number of stocks/bonds to get the same amount of cash. Let's say a retiree has just retired with $1 million in 2022, allocating 60% to stocks and 40% to bonds. Following the traditional 4% drawdown rule, the retiree would want to receive $40k a year in cashflows, generated from selling a portion of their portfolio each year. In a year like 2022, the retiree would have to sell a greater number of stocks/bonds to generate the same $40k, which would deplete their portfolio permanently.

In contrast, someone with a dividend portfolio paying out 3-4% would be less affected. While dividends may be reduced during recessions, capital remains intact and there would be no need to sell during market lows. If one simply buys dividend paying ETFs, the stream of dividends are relatively predictable.

Many people began investing during the last few years, in a period of unprecedented outperformance of Growth vs Value. Understandably, most would gravitate towards Growth stocks to chase higher returns. But let me highlight that in March 2000, during the dotcom bubble, the Nasdaq peaked above 5,000 before the crash, and it took more than 13 years before it surpassed that peak in late 2014. 13 years of being underwater. Imagine if one had bought at the peak, one would have taken more than 13 years to recoup their capital. In contrast, a dividend investor would continue to receive dividends during those 13 years, somewhat softening the pain of capital losses. Now, if we believe that Growth stocks peaked in 2021 and that higher rates will continue to hammer Growth, we could very well have to wait another decade to before we see the Nasdaq at 15k again. Dividend cushion your portfolio and returns in volatile times like this.

Another reason for going for dividend paying companies would be if you believe you can re-invest the dividends at a higher rate than the company. Some companies are asset heavy with low ROEs, but are stable dividend payers (REITs, utilities and infrastructure). In this case, it would make sense for an investor to receive the dividends, and re-invest them to seek higher returns. 

Lastly, dividends tend to increase over time. Look at the dividend history of an index like the S&P500 or even our local STI. As companies grow, they also grow their dividends. This is why I prefer dividend paying companies over fixed income instruments, where the coupons are generally fixed.

A hypothetical Dividend Portfolio

Assuming I had $1.5 million SGD today, how would I create a dividend portfolio?

My aim would be to generate $50k SGD in cashflows annually (a 3.33% yield, very conservative in today's market), which is around the median income of Singaporeans. The instruments I would consider adding into my dividend portfolio would be, in no particular order:

SCHD - Schwab US Dividend Equity ETF, 2.47% yield, net of withholding tax
VEA - Vanguard FTSE Developed Markets ETF, 2.8% yield, net of withholding tax
2800HK - Tracker Fund of Hong Kong, 3.68% yield
STI ETF - Straits Times Index, 3.72% yield
S-Reit ETF - Any one of the S-Reit ETFs, ~6% yield
Singapore Savings Bond / T-Bill - 3.21% yield for Oct 2022 

I believe allocating my cash into all 6 instrument above would give me good exposure to a wide range of stocks across regions and sectors, which are well diversified. Even in a recession when dividends are expected to be cut, I believe having a diversified portfolio would mitigate the overall impact. 

Thus, in my view, if one is able to generate $40k to $50k annually with reasonable certainty, then whether the underlying portfolio rises to $2 million, or falls to $1 million, one should be indifferent. What matters is the consistency of cash flows, regardless of the market cycle.

As to how to reach that $1 million, $1.5 million or even $2 million... that's what my journey is about. Follow me on my journey to financial independence - I post monthly portfolio updates on @alpacainvestments on Instagram.   

September 2022 Portfolio Update and Further Thoughts on FIRE

Portfolio allocation as of Sep '22

SG Shares: DBS, SGX, Valuetronics

SG Reits: Syfe Reit+

US Growth: BABA, INMD, PYPL, SHOP, TDOC, UPST

Last month I began my post saying that “it was a good month to deploy capital”. This month was even better. I continued my DCA of QUAL and IQLT. Added a little to my Syfe REIT+ portfolio too. Markets are volatile, but with a significant portion of my portfolio in ETFs (62% in Sep vs 58% in Aug), and with a time horizon of forever, I am buckling up for the ride and staying invested. I look at stocks prices daily but I only compute my net worth monthly, because my holdings are spread across various brokers. The market volatility doesn’t really bother me – up or down, I continue adding to my ETF positions. Looking to add to my HS Tech and STI ETF holdings in the near future.

For US equities, I sold off PINS and TTD. These were the only two positions in the green and that means the rest of my US Growth holdings are in deep red… talk about loss aversion. The rationale for this is to raise cash for a position in GOOG. With the upcoming recession, advertising spending is likely to fall and I want to buy the best-in-class; Alphabet is the market leading behemoth in this space. I also have sights on ADBE – the Figma acquisition at 20bn seems like a steep price to pay at 50x ARR, but ADBE’s subsequent fall of ~25% since has effectively wiped out more than double that 20bn of value. One might conclude that you’re getting Figma for “free” by buying ADBE now.   

For my SG positions, I still have CDG, ThaiBev and FLCT on my radar. The focus is on building a robust dividend portfolio. SATS is also interesting with the sharp decline after they announced a huge acquisition. Large M&A transactions are usually negative as the acquirer tends to overpay and the post-merger integration is usually messy. But I’ve written extensively about SATS and understand the company well, and I believe that there would be a price which prices in all the negatives.

My tip for navigating the bear market - decide on a comfortable entry price, set your orders, and forget about it. Pursue other hobbies and don't check stock prices daily. Think long term. It will get better with time.

On REITs

My only REIT position is with Syfe REIT+. Generally, I think REITs still have room to fall given that yield spreads have compressed due to the risk-free rate going up. 

The following is adapted from a comment I made on the InvestingNote forum in response to a post on REITs:

“Think the biggest risk now is refinancing. REITs report their DPU “sensitivity” to rates, but this is only a snapshot at this point in time, which completely ignores the impact of refinancing. Any debt that’s going to be refinanced this year, 2023 or even 2024 is going to be refinanced at easily 4%+ or even 5% or 6%. This exceeds the NPI yields (cap rates) of most SG retail/office assets and results in a negative spread versus the cap rates. For example, if your NPI yield is 4%, and you borrow at 6% from the bank, it simply means that your financing cost exceeds your net rental. Thus the shortfall will have to come from equity holders’ returns.

I don’t hold any individual REIT positions. But what I’d do is to look at the debt maturity profiles of each REIT – in this context only knowing the weighted average debt maturity isn’t enough, we need to know specifically how much matures each year, especially 2022/23/24. A REIT that has a weighted average debt maturity of 5 years could mean 50% is due in 2022 and 50% in 2032, which still means the REIT is screwed, because 50% will be refinanced at sky high rates this year, and will be locked in for the next few years, bringing down DPU. Another REIT with the same 5 year weighted average debt maturity but has 10% of its loans maturing in each of the next 10 years is probably better positioned to weather higher rates. The exact loan maturity profile matters here.

The pain will come as all the cheap debt gets refinanced. Add in the fact that yield spreads have narrowed drastically, plus DPU declining over the near term. In a year’s time the average retiree may do better with a 100% SSB/T-Bill portfolio instead of REITs. Risk free for that matter.”

Further thoughts on FIRE

Further to my last post on “What does FIRE mean to me”, I came across some comments on other platforms which can be broadly classified as “pro-work” and/or “anti-FIRE”. If you are anti-FIRE, I would politely advise you to close this page now, because you won't like it, and in the following paragraphs there won’t be any discussion regarding the markets or on investing. The intention of my post isn’t to convince those on the other side of the fence (the anti-FIRE folks), but rather, for those on the fence to decide for themselves if they believe in pursuing FIRE. And more importantly, to serve as a voice of reassurance for the pro-FIRE folks who potentially have to face a barrage of criticisms from the pro-work camp, simply because we like to cruise through life and take it easy!

Two common arguments that anti-FIRE folks make are that 1) a job gives you an identity; without it you’ll be “aimless” and “lost”, and 2) a 9-5 job gives you “structure” and keeps you “disciplined”.

Let’s address both points. 

A job being your identity

I wrote about this before in my previous post, but let me summarise that here, with additional thoughts after.

1. My job is not my identity

2. My identity is made up of personality. My hobbies. My interests. My talents. The experiences I’ve lived through. My relationships with people. The lives I’ve impacted

3. I am intrinsically motivated by the above; not titles, not awards

4. I would suggest watching Sebastian Vettel’s video announcing his retirement from F1. A brilliant speech his on how his identity is more than just his job.

5. “Find a job you love, and you’ll never feel like you’re working”. Let’s be realistic. The hard truth is that there won’t be enough dream jobs for everyone. The majority of people are simply working to pay the bills. 

Let’s use my perspective as an example. I see myself as an investor. An allocator of capital. Analysing things, making inferences and projections. Seeking out the best ideas. This forms part of my identity, for sure. But I think what’s detrimental would be making your job your identity. That is, my identity is not tied to, hypothetically, being an investor at XYZ hedge fund / private equity / venture capital firm. To me, there is no difference whether I’m working for an investment firm or investing my own capital. I am an investor, first and foremost. It doesn’t matter where.

Of course, I can recognise the benefits of making your job your identity. It keeps you motivated. It keeps you going when times are tough. It gives you a sense of “purpose” to get up and go to work every morning. But doing this is a double edged sword. In good times you thrive. However, there there will inevitably come a time when, often beyond your control, some restructuring, reorganization or retrenchment happens. Or simply because you hit retirement age. That’s when you get crushed. You feel lost. You lose purpose.

Thus, even after one has achieved financial independence, I believe that having an identity is important. That can be the identity of being a good parent, a good spouse, a good son/daughter, a good sibling or even a good pet owner – spending time and effort with your loved ones and those that truly matter. Ultimately, it is our experiences and relationships that gives life meaning. 

You lose “structure” without a job

I find this reason even more laughable than the first. FIRE folks are mostly goal oriented, disciplined, intelligent people… or else... they won’t even be able to achieve FIRE. We simply don’t like things like workplace politics, deadlines or being told what to do. I think having discipline and creating your own structure comes from within. You have to be intrinsically motivated. 

Again, let’s use my perspective as an example. During the Covid lockdowns I was still in university. With so much time on hand, I did a wide variety of things. I started learning Spanish and French on Duolingo. I found an old digital keyboard and self-learnt how to play a simple song with both hands. I read many books. I attended many virtual AGMs and quarterly presentations. I spent time researching on stocks. I set aside two hours a day for some simple home workouts. In the evenings, I had virtual karaoke sessions and played other “lockdown” games with my friends.

And just like that, the few months went by in a flash. Of course, I recognise that I was privileged to be a student at that time, without having to worry about finances. But my point is that pursuing your passions and having a growth mindset doesn’t exclusively apply to having a job. I didn’t have a boss instructing me on what to do each day. I didn’t have formal responsibilities to keep me occupied. Yet, I was able to pursue a wide range of hobbies that I will continue to do so when I achieve FIRE. I had “structure”. I had “discipline”. And I didn't need a job to instill that.

The bottom line for me when addressing the two points above is that the “benefits” of having a job, espoused by the anti-FIRE folks, are in fact simply “positive traits”. You can basically replace the word “job” with any other scenario that would bring out the same “positive traits” of “purpose”, “identity”, “structure” and “discipline”. FIRE folks understand that. In addition to the countless benefits of achieving FIRE, such as freedom, pursuing your passions, being in control and having a safety net.

Closing thoughts

The idea of FIRE seems to be this radical concept that the average person believes is unrealistic, unattainable, unthinkable or all three combined. And so most of the comments online have these perspectives. Take my opinion with a pinch of salt as well.

At this point, perhaps I should borrow the term “mediocre” from one of our dear leaders (although in that context, the threshold for mediocre was way higher). In the following paragraphs I will use mediocre interchangeably with average.

The mediocre person is easily swayed by the opinions of other mediocre people on how life should be lived. The mediocre person is afraid of falling short of society’s yardstick of success, and tries to project an image of “success”, often through material possessions.

But to achieve FIRE, more often than not, you cannot be average. While it may be possible to be average and retire in your 50s, in this context I’m referring to people who aspire to or have retired in their 30s and 40s.

To retire in your 30s and 40s,

You must earn more than the average person.

You must be more frugal than the average person.

You must be more financially literate than the average person.

You must invest more aggressively than the average person. (Aggressively here is in the context of asset allocation, i.e higher allocation into equities, and not necessarily in “riskier” stocks within the equity bucket).

You must be more disciplined than the average person.

And lastly, as a catch all, you must not think and act like the average person.

If some of the points above describe you, then you could achieve FIRE. And if all the points above describe you, I can say with a high degree of certainty that you would achieve FIRE. If you want to. If you’ve built up a multi-million dollar portfolio and still want to continue working, by all means do. But you know you can walk away, anytime.

The average person won’t be likely to achieve FIRE. So, I don’t get why should there be concern of how the average person would “laze around”, “lose purpose” or “lose structure” if they were to achieve FIRE. Apart from winning the lottery or getting a huge inheritance, odds are that the average person would have to work till retirement age. That is the reality. 

Now, if you’ve read till this point and you firmly believe that you’re above average, do consider the fact that in a survey asking if drivers thought that they were “above average”, 90% responded that they thought so (from the book “Thinking Fast and Slow”, I believe). Food for thought.

August 2022 Portfolio Update

Portfolio allocation as of Aug '22.

SG Shares: DBS, SGX, Valuetronics

SG Reits: Syfe Reit+

US Growth: BABA, INMD, PINS, PYPL, SHOP, TDOC, TTD, UPST

Well, how quickly things change in a month. In my last update I wrote about feeling frustration as the market went up. I got what I wished for in Aug, with markets turning south again. It was a good month to deploy capital. I increased my position in 2800HK (avg. 23.25HKD), added to my Syfe Reit+ portfolio, and bought more units of IQLT (avg. $32.3). 

2800HK is an ETF tracking the Hang Seng Index. It currently offers a ~3% yield and provides exposure to a good balance of financials and tech stocks. The Chinese economy is going through a rough patch right now, and the HSI is trading below Covid lows. Unless there's a complete implosion of the Chinese economy, it certainly looks cheap to me, and I'm being paid 3% annually to wait for a recovery. IQLT comprises of a broad range of companies in developed markets screened by "Quality" factors, with a significant exposure to Europe. With the Russian invasion of Ukraine, Europe is facing the consequences, especially in energy prices which will eat into profit margins. The relative valuation of European stocks against the S&P500 is at the lowest since the GFC, and I'm betting that screening for "Quality" stocks would somewhat mitigate the impact of margin compression. 

Closer to home, I'm looking to add a few SG dividend names to my portfolio. ComfortDelGro looks interesting as a recovery play, given that it's still trading at Covid lows, while fundamentals have largely recovered to pre-Covid numbers. Selling pressure due to it being removed from the STI Index may pose an opportunity. ThaiBev is another company that I've been following for some time; Re-opening tailwind, strong FCF, gradually de-leveraging and at a reasonable valuation.

That's all for this month's update!

What does FIRE mean to me?

 

The past few months has seen increased coverage of the Financial Independence, Retire Early (“FIRE”) movement in Singapore. This post pens down my thoughts on why I’m pursuing FIRE. The draft was written over the past month, whenever certain thoughts cross my mind, so pardon me if the post appears incoherent at times. Maybe reading this on a Friday evening won’t feel that bad, since it’s the end of the work week; I’d suggest reading this again on Monday morning for a good juxtaposition.

To be honest, I’m pleasantly surprised that the media covered the FIRE movement so frequently. Anyway, here are the articles I’ve come across. The first one would be Honey Money’s goal of 1M35 (1M65 is no longer in vogue). It’s an ambitious goal, yet entirely achievable. To me, retirement shouldn’t be defined by an age – it should be defined by reaching a certain net worth.

The most comprehensive one would be this one by CNA that interviewed many individuals who either have achieved some form of FIRE or are actively working towards it. It features @centsofindependence a Singaporean lady in her 40s who achieved Barista FIRE and now only works for a few hours each week. A true inspiration. Since I’m obviously not influential enough for CNA to interview me… I’ve only got this platform to share my thoughts!

Another opinion piece on CNA attempted to paint a “balanced” view that we have to manage delayed gratification with “living in the present” and enjoying life, which I completely agree with. But my main gripe is that the author appears to hold a warped view of FIRE aspirants being extreme misers, practicing an extreme form of frugality that is unthinkable to the average person.

Seriously, few people would think of eating cup noodles and plain bread everyday as a viable way to achieve FIRE. Most people I know aspiring to reach FIRE still live fulfilling lives. It’s about striking a balance. It’s about mitigating lifestyle inflation or going down the slippery slope comparing yourself to others, and thinking that material indulgences would make you feel better.

To be clear, FIRE is a divisive topic. Especially in Singapore where “hard work” (regardless of actual productivity) is valued above all else. Thus, it should come as no surprise that the recent posts in the media have stirred strong opinions on both sides. I believe in pursuing FIRE, but I do not hold hard feelings against those who think otherwise. I think people should be given the free will to decide for themselves – and take responsibility for their own decisions.

This post outlines my reasons for pursuing FIRE. This post would focus mainly on my “why”. The “how” is covered in my monthly Instagram updates, as well as the occasional blog post (read: Seeking FIRE – The Route to Financial Freedom). But for the benefit of new readers, if I were to summarise the “how” into a one-liner, it would be to live frugally (>50% savings rate), invest nearly all your excess cash, and consistently buy a bunch of dividend-paying ETFs, no matter what. Investing should be simple. Investing should be easy. And we don’t have to overcomplicate that.

Now that we’ve set the context for this post, here are the reasons why I believe pursuing FIRE is a worthy cause.

FIRE means Freedom

Society places an overemphasis on “productivity”. Go to school, get a job, and be a cog in this giant machine known as the capitalistic system. But why should it be this way? I think all of us have an innate desire for freedom, to be set free from the shackles of the corporate world.

Don’t you miss the carefree days as a student? When I get asked the question of whether I prefer to be a student or to work, it is clear to me that the life of a student is superior, by far. Work is simply a means to an end – earn a salary, accumulate cash flow generating assets, and gradually replace your active income with passive income.

Currently, you’re exchanging your time for money. At some point, don’t forget to exchange your money for time. The latter is exactly what FIRE is about – when your passive income replaces your active income, you’re literally buying your own ticket to freedom.

Feel like doing nothing this week? Then simply do nothing! Spend your days in the library reading a book you love. Go to the driving range on a weekday afternoon when it isn’t crowded. Maybe laze your afternoons away at a beach club, getting that tan. Sit at a café while sipping tea and people-watching. It basically means doing whatever you want, whenever you want. As long as it’s legal, of course.

FIRE means you Have Options

In my view, the cliché “Money can’t buy happiness”, should read something like “Money may not buy happiness, but it sure does make many things easier”. In the case of FIRE, having a portfolio generating passive income buys you options. I once came across an Instagram post that mentioned “A lot of things that require courage, can be achieved with money too”. Quitting a job without another one lined up? Money helps. Cancelling your wedding at the last minute without regard for the sunk costs? Money helps. Moving to a new country to start afresh? Money helps.

Having options give you the bargaining power to walk away when necessary. Unreasonable expectations from your manager? Quit. Overwhelmed by your workload? Quit. Your company suddenly mandates 5 days a week in office for no good reason? Quit. Underappreciated and underpaid? Quit. And take as much time as you need to find a new role that suits you. Or perhaps never work again.

That’s the power of having f- you money. One of my favorite scenes from Billions (S1E1) was Axelrod’s “what’s the point of having f- you money, if you never say f- you?”

FIRE means truly being able to Do What You Love

“Hustle culture” has created a warped perspective of hobbies. People that subscribe to this mentality become overly fixated on finding “side hustles” and trying to monetise any hobby of theirs. Love photography? Why not be a freelance photographer and start charging for shoots? Love video editing? Why not be a freelance video editor and find opportunities on Fiverr?

Attaining financial freedom (or at least Barista FIRE) removes all these shackles of viewing things through a financial standpoint. Work becomes optional. You’re working because you want to, not because you have to. In the case of Barista FIRE, you’re working only to fund your discretionary expenses. You have greater autonomy to pick what you love, with little regard for what’s financially viable. If you’ve achieved FIRE, then you don’t really care whether what you’re doing pays well or not.

I think two key questions to ask yourself are “Would you work at your current role for free?” and “If you won the lottery of $10 million, would you still stay in your current role?”. You have your answer.

Personally, I would do many things for free. I love writing. But writing this blog gives me near zero financial gain (I used to run AdSense which pays a few dollars per month). Another thing I’d do for free would be a career advisor / interview coach. I think I’d do fairly well as one. Extremely ironic given the strong anti-work rhetoric here, I know. But I do decently well at interviews. And I’m always focused on the pay-to-effort ratio, which I think should be the basis for evaluating any potential opportunities.

In short, FIRE gives you the liberty to pursue you’re the things you love, without the financial pressure. Perhaps being a Personal Trainer that takes just one client a day. Or volunteering frequently to help the underprivileged. Or travelling the world while picking up different languages. Whatever you want, without the financial pressure.

FIRE means Being in Control

Let’s face it – many things in life are beyond our control. You could be the most hardworking person on the team, but if your boss doesn’t like you, then too bad, you probably won’t be rewarded fairly for the effort you put in. That’s beyond your control. You could be the most competent team member, but passed up on promotion because someone else is a better bootlicker or ass kisser. That’s beyond your control. You could be the best interview candidate, but did not get the job due to nepotism. Again, that’s beyond your control.

FIRE means putting that power back into your hands. The ability to dictate the life you want to live, instead of being beholden to someone else. Not having someone else determine your destiny. It means having the ability to say no. Saying no to unreasonable work deadlines. Saying no, instead of feeling like you have to drink “one more glass” because your boss asked you to.

FIRE means having a safety net

Recession – the scary word that’s in many conversations these days. Every week we hear of a different tech company laying off employees. Job security cannot be taken for granted these days.  

In Singapore, it is easy to be caught up in the chase for material possessions. Wanting to project a certain ideal image of “success”. Consequently, lifestyle inflation creeps in. Hefty mortgage payments for your multi-million-dollar condo where you only use the facilities twice a year. Loans for that Mercedes that you bought to impress your relatives once a year during CNY. Overextending your finances and overleveraging. And what happens when you lose your job? You’re screwed.

FIRE means the exact opposite. It means valuing frugality. It means being wary of lifestyle inflation. It means valuing freedom over material wealth. It means providing yourself with a safety net that insulates you from the economic cycle.

And what good does this bring? With this safety net, you can take as much career risk as you like. Pivot to a different industry without worrying about whether it’ll work out. Or do a post-grad degree simply because you love learning. Or give a shot at entrepreneurship, knowing well that there are little consequences even if you fail.

We all love a good rags to riches story of how someone started with nothing, yet built a successful business. Jack Ma’s story of being rejected from the KFC job; waiting outside a hotel to practice English comes to mind. But statistically, entrepreneurs who come from wealth are more likely to succeed. FIRE gives you that safety net.

My Job is not My Identity

I don’t need a job to provide me with “purpose” or “meaning”. I think these are just abstract concepts to keep people on the hedonic treadmill. I don’t need a job for my identity. I don’t need to say “I work at a Bulge Bracket Investment Bank” or “I work at a Tier 1 Consulting firm” or “I am an SWE at FAANG” to feel that I’ve “made it”.

My identity is made up of personality. My hobbies. My interests. My talents. The experiences I’ve lived through. My relationships with people. The lives I’ve impacted (including you, reading this now). 

I love the outdoors. I love various sports. I love learning new languages. I love watching documentaries. I love reading and writing. These are what matters most to me. I am intrinsically motivated by these; not titles, not awards, not money. Money is very important, but it is simply a tool, a means to an end.

A valid question to ask here would be – why can’t the above be complementary to a full-time job? You can still enjoy your hobbies while being employed. Sure, fair point. But I think the response to that would be why do we see employment as the status quo? The concept of the 9 to 5 work day only became mainstream during the industrial revolution – a schedule for labourers to work in factories.  

I envision FIRE to be a time when I have too many hobbies to pursue, but too little time. Not fearing retirement as a phase where you’ll be “too bored”.

Some people make their jobs their entire personality. They can’t stop talking about work. About the “important” things that they’re working on.

If you need your boss to give you a pat on the back and say “Well Done!” to feel appreciated, or if winning that annual company award for “Going above and beyond” gives you a dopamine boost, or if you need to write a lengthy LinkedIn post about how you “worked hard over the past year to complete this deal” to feel accomplished, then you are vulnerable. Because… all these can be taken away from you in an instant. Often through no fault of yours. Restructurings, layoffs, bankruptcies are part and parcel of capitalism.

I would suggest watching Sebastian Vettel’s video announcing his retirement from F1. A brilliant speech his on how his identity is more than just his job.

You’ve probably heard the quote “find a job you love, and you’ll never feel like you’re working”. But let’s be realistic here. The hard truth is that there won’t be enough dream jobs for everyone. The majority of people are simply working to pay the bills.

What if you love your job?

At this point of the article, all those who love their job would have likely closed the webpage. Why aim to retire early if you truly enjoy your work? But if you love your job and somehow you’re still reading, here are my thoughts.

If you love what you do, work with a great leader, have good work life balance / flexibility, get compensated fairly and have great colleagues, then great, I am truly happy for you. But in this dynamic world, anything can change instantly. Your great leader and colleagues may leave. Team morale drops. Workload increases. Budget cuts. Or some inevitable restructurings happen as mentioned earlier.

Based on anecdotal evidence from friends I speak to frequently (n≈20), maybe about a quarter absolutely detest what they do. They work in a shit job, get paid peanuts, or both. About half are neutral. Some just go with the flow and hold the view that employment is simply a means to earn a living and pay the bills. Some may still hate their job, but they could be paid extremely well that compensates for that. The classic long hours, pressure cooker environment, but well compensated. Some are genuinely lost and think that working till you’re 65 is the “standard” way of living. Only perhaps a privileged few have found something they truly love. And I’m happy for them.

A friend loved her job. Her role gave her the option of flexible work for the past two years. She was doing well at her role. But out of the blue, her firm decided to recall everyone back to office 5 days a week, simply because they could. Yet, her role involves frequent interactions outside the office, so it makes little sense for the team to work from office the rest of the time. She has caregiver responsibilities for her elderly parents and the previous flexible arrangements worked perfectly for her. She has tried to put in a request for hybrid work but was rebuffed. Stories like these happen all too often.   

The bottom line is, you’ll never know when you need your safety net. FIRE is that safety net.

All in all, FIRE to me means freedom. It means pursuing what I love. It means having options. It means being in control. It means acting in my best interests. It means being authentic. And I think that’s beautiful.

June 2022 Portfolio Update

 

Summary of transactions for June 2022

Continued to DCA into QUAL (avg. $121) and IQLT (avg. $33). Sold MCT as I was against the merger with MNACT. Proceeds from the sale remain in cash as I am slightly bearish on Reits – further explained below.

Portfolio allocation as of June 2022

SG Shares: DBS, SGX, Valuetronics

SG Reits: Syfe Reit+

US Growth: BABA, INMD, PINS, PYPL, SHOP, TDOC, TTD, UPST

On Inflation and Recession fears

I think it is key to understand that these two issues can be self-fulfilling.

Demand-side inflation is driven by expected inflation, that is, if you expect prices to be higher in a year’s time, then you would be more likely to spend now (on non-perishables), before prices are higher in the future. Which in turn results in actual inflation if everyone thinks and acts the same way.

Concurrently, if employees expect inflation to be high, then they are more likely to ask for a pay raise, which increases the cost of production for companies. Companies, especially those with pricing power, would then mark up the prices of goods and services, in order to pass on some of the costs to consumers. Which potentially results in a wage-price spiral.

Taken together, if you ask the average person on the street now, expectations of inflation are high, and there is the danger that these expectations results in continued levels of elevated inflation.

Recessions can also potentially be self-fulfilling.

If households and businesses expect a recession to occur in the near future, then the likely response would be to reign in spending now. This is already ongoing, with many companies taking the chance to trim their workforce, and the US Consumer Sentiment falling sharply in June. In a circular economy, one person’s spending is another person’s income, and there would be knock on effects when households and business reduce expenditure. This reduction in spending and demand can result in an actual recession down the road.

View on Reits

Real estate is often touted as an inflation hedge as rents and asset values tend to rise in tandem with inflation. I generally agree with this view, but I see three potential headwinds for Reits in the near term:

1) With the 10Y Singapore Savings Bonds yielding 3%, Reits yielding 5-6% may no longer be as attractive. Prices may have to fall further to maintain a sufficient yield spread, to compensate investors for the additional risk of holding Reits. I am generally bearish on Reits with high price to book values, as I believe that Reits ultimately represent holdings in physical real estate, thus it makes little sense to pay a huge premium over their appraised values (high P/B ratios) simply for more “liquidity” or “diversification”.

2) For Reits with a relatively low proportion of fixed rate debt, the rising cost of borrowing would hit them hard. While the majority of Reits have fixed or hedged the bulk of their borrowing costs to somewhat mitigate the impact of rising rates, there would be a direct impact on future acquisitions and refinancing. If we look at the property level, especially in the Singapore office/retail sector, rates rising beyond 3% would mean that financing of most SG Office assets would not be feasible. For example, if a Grade A office asset is valued at a cap rate of ~3% (NPI yield of 3%), then it would make little sense to finance part of the acquisition with debt as it would be a net negative on cash flows.

3) The effect of this is harder to quantify, but a favoured strategy for some Reit investors would be to purchase Reits on margin. When margin rates were at 1-2%, it made sense take leverage and purchase Reits that were yielding 5-6% and profit from the spread. With rising interest rates, it makes this strategy less lucrative, and leveraged investors would potentially have to deleverage.

That’s all for this month’s update – for my monthly portfolio summary, please follow my Instagram Page @alpacainvestments

Why I am against the Mapletree Commercial Trust Merger

Why I am against the Mapletree Commercial Trust merger

Make your vote count

First off, it appears that many unitholders somehow hold the defeatist mentality that voting is futile (sounds familiar?), because this is likely a done deal. But this cannot be further from reality. The Sponsor (which holds 32.61% of units) will have to abstain from voting on the merger, thus the outcome of this will be decided by both institutional and retail investor alike – yes, people like you and me. For Resolutions 1, 2 and 3, only a simple majority (>50%) is required to pass the resolutions, so it is really up in the air and could go either way. Therefore, remember to fill up your voting forms (that you should have received by mail) and vote for what you want! I love direct democracy!

Increased leverage, increased risk

MCT’s current leverage stands at ~33%, which is very safe and reasonable in my view. If the merger goes through, leverage rises up to 39.2%. This potentially increases risk especially going into a rising interest rate environment. MCT unitholders would have to weigh this sizeable increase in leverage against the pro forma benefits of the increased DPU and NAV. Personally, I don’t think this is worth it. I rather MCT stays with lower leverage at the moment.

Growth abroad – is this really necessary?

One of the reasons cited for the merger is that there are more opportunities for growth abroad. While this statement itself is valid, MCT shareholders would have to question whether there are indeed greener pastures overseas. Sticking to a Singapore mandate has its benefits, with best in class assets such as MBC I & II and VivoCity. Singapore has largely been a safe haven for capital amid the pandemic and Singapore real estate is a preferred choice for many of the wealthy. In my view, SG real estate will continue to do well.

Most importantly, MCT has been growing its DPU and NAV steadily over the years, even without overseas exposure. One would have to be aware of potential issues with overseas properties – MNACT’s Festival Walk was damaged by protestors a few years back, and China’s zero covid policy is also a headwind for MNACT’s China based assets.

Huge potential of the Greater Southern Waterfront

MCT is well poised to benefit from the development of the GSW over the next decade – tens of thousands of private condos and HDBs will be developed, and MCT currently has the best in class assets in the area. MBC, mTower and Vivo are all well positioned right beside MRT stations with great connectivity. I cannot imagine Vivo becoming any more crowded than it already is, but that looks like the reality in the future. 

Additionally, the Sponsor still owns more properties along the GSW that MCT can acquire in the future. If MCT does not merge with MNACT, MCT can focus on growth in Singapore with its ample debt headroom, if necessary.

In conclusion, I am against the merger. Don’t get me wrong, MNACT is still a good stock as Quarz Capital had rightly pointed out. But I rather MCT and MNACT be kept separate, as they cater to different profiles of investors – MCT for those seeking stability in Singapore, while MNACT caters to those seeking growth in foreign markets and are willing to potentially take on greater risk. I would rather investors have the choice to invest in either, and not merge them into one.

Remember to make your vote count, and let’s make history!

March 2022 Portfolio Update

Portfolio allocation as of Mar '21.

SG Shares: DBS, SGX, Valuetronics

SG Reits: MCT, Lion-Phillip S-Reit ETF

US Growth: BABA, INMD, PINS, PYPL, SHOP, TDOC, TTD, UPST

Crypto: BTC, ETH, FTM, LINK, SOL

New positions were initiated through February and March. Most of the new US Growth positions were purchased in February. In March, mainly added to HSI and HST ETF positions and a bit of IQLT (2.4% of portfolio, not labelled in chart). There's considerable fear among market participants when it comes China exposure, as evident from Stashaway's reduction in KWEB holdings right before the rebound in Chinses Tech. Personally, I am still comfortable with keeping my exposure to about 20% of portfolio, and have continued to DCA into HSI/HST. 

There's a quote from Ben Graham, that "An Intelligent Investor is one who realises that the stock becomes riskier, not less as their price rises; and less risky, not more, as their prices fall." A caveat I would add is that I believe this should apply more to broad market indices, rather than individual stocks. For example, investors who held Enron or Lehman stock would have found little comfort in this quote; as the stock prices fell drastically at first, then eventually their entire holdings were wiped out. However, I think the quote makes complete sense when applied to ETFs - buying SPY at $420 in March '22 is indeed less risky than buying SPY at $479 in Dec '21 - even if it may not have felt that way. Simply because $420 is lower than $479. Thus, even with the regulatory overhang, I continue to DCA into HSI/HST. For HST, I have bought the Lion-OCBC HST ETF at $1.25, $0.99, $0.92 and most recently at $0.65 a few days before the reversal, with an average price of $0.90. Currently still underwater but I'm indifferent to the short term price fluctuations.

Looking ahead, the macro outlook is rather uncertain with war, inflation and rate hikes contributing to the pessimism. An interesting read I came across was a note by Credit Suisse's Zoltan Pozsar, on the potential longer term implications for the US Dollar as a result of the Russia-Ukraine war. If you're keen to read it, you can search it up on LinkedIn as there are people sharing the actual report. 

Lastly, I'm pleasantly surprised to learn that I'll have a small bonus paid out in April. It's not much but it does give me more dry powder, as I often feel that there are opportunities abound, but capital is the constraint.

Note: Please follow my Instagram page @alpacainvestments for monthly portfolio updates.