After the 2021 new year, I told Tanko about my 2 “high bars” (later becoming acid tests[1]) to pre-qualify[3] an investment asset

• 1) criteria: Does it generate steady nonwork payout rate around 5% as current income? I have a blogpost on 6% being the highest realistic return over long-term, but that’s a Return rate. A Payout rate of 6%/year is harder.
• 2) criteria: Does it show decent prospect of principal preservation over a 10Y horizon, worst case 20Y to recover? This is a personal view and conviction, because most of my chosen assets (except stocks) are actually illiquid , with no real time mark-to-market. In the short term, the liquid value could drop and I would endure.
• .. Resist the temptation of windfall. Maintain a healthy detachment.

Note I spend quite a lot of time clarifying my principles 1) to give my “advisors” a less ambiguous description of my investment principles and 2) to help myself catch my own inconsistencies, irrationality, prejudices, illogical thinking…

[1] After I acquire the asset, I would use my 2 criteria as acid tests. BGC fails AcidTest1
[3] obviously I have other due diligence checks such as currency risk, affordability, concentration risk, liquidity

— [s=my soft spot].. In short, I look for the “killer combo” of steady passive income + confidence for long-term capital protection/preservation … A high bar. Any asset that qualify are rare gems.

This is my irrational soft spot, where I demand neither HIGH income or FULL protection.

— pre-qualified assets
Note — Like my healthy_longevity focus, any useful criteria need to prove its enduring strength and resilience against popular, mainstream herd-mentality. Therefore, it’s important to examine how my criteria disqualify some popular asset classes.

1. CPFLife (not now) investing close to payout age
2. SEA rental properties bought without mortgage
3. [s] A subset of A-list and B/C-list div stocks, with DYOC above 5%. Note most big banks, big oil, big tobacco stocks hit 4%+
4. [s] Energy12 + some (not all) of Jill’s HY/PE
5. — also-rans and disqualified:
6. Most Singapore Reits? no protection of principal. Low hope of steady appreciation. They are more like stocks than real estate.
7. most mutual funds? lower current income than div stocks, and no long-term principal protection
8. U.S. rental properties? Usually not passive
9. China and SG properties? paltry current income
10. BGC? lower income than khm + currency risk as a risk to of principal

— khm rEstate as case study
When I assess the Flatiron vs the Peak#4 opportunities, I realize that among all assets, these commercial rEstate appeal to ME (not sure about other investors). Do I romanticize the 10Y GRR? Possibly, so I caution myself about 1) credit risk 2) market risk 3) what after 10Y

Shop units (offices, hotels..) are the first asset class to meet the above criteria. Now I feel dividend cash-cow stocks are somewhat similar. To understand this asset class, we must compare it to those hot tech stocks:

• dividend stocks are usually less glamorous partly because they don’t show fast or windfall appreciation
• my favorite dividend stocks are usually household names, just as the tech stocks.
• Unlike commercial properties, dividend stocks do fluctuate in valuation. This means buying at low price is more “possible” than in real estates
• credit risk is higher with properties because dividend aristocrats are known to keep paying.