Tag: t_creditRisk5

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different fear@bad investment: divStocks^rEstate^gold

Posted on by tiger40490

During my due diligence before an investment purchase, we worry about the consequence of a regrettable, unprofitable buy.  The original title of this blogpost is “fear@bad investment”. My worries are quite concrete, not abstract or theoretical. The worries are different for each asset class.

— Asset: gold .. trough risk is my only worry i.e. long trough
🙁 DYOC is negative. adding salt to the wound.
— Asset: HY/PE .. credit risk is my only worry, i.e. capital loss
— Asset: overseas rEstate .. country risk is my main worry including policy risk, legal risk, national economy risk, currency risk,,
Trough risk is secondary.
— Asset: SG rental property.. trough risk is my main worry, but the DYOC is a good compensation for this risk.
There’s also some non-negligible country risk because the resale demand is largely foreign hot money, and rental demand is primarily foreigners.

— Asset: divStocks [including funds] .. trough risk is my only worry, but lower than SG condos
— Asset: regular mufu .. trough risk is the main worry, based on decades of experience since 1997
🙁 expense ratio adds salt to the would, though dividend from the underlying stocks can sometimes come to the rescue
——-
Unexpectedly, after many years of heavy investments into mufu, rEstate, stocks.. now I’m more comfortable with the fears and worries. In contrast, I now worry more about PIP, parenting, FOLB,

Why the mellowness, peace .. against those financial risks? I can pinpoint a few factors

  • career longevity
  • cpfLife
  • brbr, Fuller Wealth

credit risk overshadow` %%NNIA #cushions #div

Posted on by tiger40490

k_cpf_life ,,,,, k_FLI2

As mentioned in other bloposts, seeking 100% reliability is futile, disappointing, doomed ,, similar to seeking perfect a life partner.

  1. — ranked by my confidence in the perceived dependability
  2. [S] CPF-Life and other insurance products, but over longer horizon, inflation risk is higher
  3. FLI2
  4. investment-grade bonds
  5. [S] HDB rental income — I know the market, the location, currency
  6. The dividend aristocrats have maintained DYOC for decades. See the Zeng discussion
  7. BGC rental — currency risk, asset-country risk. Luckily, it features mature country and mature location. Thank God I have NCT and Aleris to help me.
  8. PeakRetail — CapitalLand, currency, asset-country risk
  9. BridgeRetail — similar
  10. MIH — grade-A office has lower rental yield than shops; less mature location
  11. What about China rental income? Low yield.
  12. [S=thanks to Singapore government]

— fake NNIA paid from principal .. Fundamentally, I feel that part of my NNIA (GRR) is paying out from principal, similar to some high-yield mufu. In comparison, CpfLife, BGC, FLI2,,, are sturdier

— credit risk

I think even an A+ bond has a non-zero risk of default. In contrast, a junk bond has a higher default risk than investment-grade bonds, but still below 2.5% probability. My Ritz junk bond did default.

My PeakRetail presumably has a higher credit rating than BridgeRetail. Flatiron’s credit “perception” is mostly due to Ascott.

Energy12 presumably has a low credit rating.

My HY/PE (MajesticVillage and AsiaProperty Partnership) has junk bond credit risk.

The dividend aristocrats (see my blogpost) have maintained DYOC for decades. No credit risk per-se.

In my ffree projection, it’s dangerously naive to treat GRR as guaranteed like cpf-Life. We need to factor in the credit risk and market risk.

— “cushions” (not ‘protections’) against credit risk #open question

  • dev-till-70: health and in-demand tech skills
  • diversify the passive income streams
  • CPF-Life as bedrock
  • HDB rental
  • BGC rental

energy12^other alt investments

Posted on by tiger40490

Tax — Assuming 100k invested. 49k distribution received over 7 years without paying any tax. $120k received as principal + payout. There’s a $69k total gain, taxed at around 15% after the payout.

Eenergy-12 Cambodia shops AsiaProp HighYield-bond
liquidity Least liquid. 5-7Y after “close[1]” or longer any time but long lead time 2Y
amount USD 5k USD 200k SGD 10k
dividend “guaranteed” 6% (7% pretax) 7% and 5.5% 14%->19% semi-annually
.. from? existing oil output rent unknown
upside 40% participation. Long-term strategic investment with  potential of windfall. zero
downside indefinite delay property devalue; hard to sell
underlying asset oil field shop equity holdings in start-up
backer deal maker developer tiny investment firm
diversify: correlation with properties+stocks excellent good good
… geographically 1-5 3 5 #excellent 0 #poor
risk: key personnel high low high

[1] could be May 2019 or earlier

According to Chip, typical amount is 50-100k per investor. I choose to believe him. I feel his investors are generally more optimistic and risk-taking than me.

Many David Lerner staff invested in the same program.

 

BGC=diversify from Cambodia

Posted on by tiger40490

Q: do you regret the BGC investment and rather buy a 4th shop in Cambodia?

A dangerous thought. Such an idea ignores tail risk. In a bad scenario, over-concentration hurts, and diversification has a chance to save the day.

Before buying a property, many prudent investors envision all the negative scenarios, as part of due diligence, but we change once we become an owner. As a human nature, owners tend to focus on the happy scenario – the rental guarantee, stable currency.. Don’t fall into that trap. Always allocate enough energy and focus to scenario planning.

There are

  • macro risks,
  • credit risk of Oxley
  • market risks,
  • rental risks

##guaranteed-return products: poor return^liquidity^credit

Posted on by tiger40490

In these products, the risk is basically credit risk i.e. default risk.

(Some of these products come with an embedded option that retail investor grants to the issuer, to give issuer the option to stop paying the guaranteed return — callable bond.)

To compare this risk, I have to assign some numbers. My own rating “system” is exclusively based on brand awareness, influenced by product marketing. I basically disregard all other factors such as

  • – credit history, on-time payment record
  • – longevity of the business
  • – leverage ratio of the business
  • – how they generate enough profit to meet this requirement

Now let’s look at the products:

  • government bonds — lowest risk.
  • bank deposits — risk is negligible
  • insurance products — risk is comparable to banks. lock-in period is much longer.
  • —– For the above debtors, I basically acknowledge but disregard the risk.
  • Lesser known regional banks and insurers, in developing countries — if they offer much higher return I would be suspicious.
  • property developers — I basically accept the higher risk.
  • unknown entities — very high risk, but I embrace the risk.

Jill’s HY/PE #aka private equity

Posted on by tiger40490

This is like a private HY bond without secondary market. My rationale on this investment:

  1. Good: low exposure/commitment, so my absolute risk is limited
  2. Good: contractual payout date and amount, with penalty on delays — sign of confidence, cf my properties and FSM
  3. Good: 2Y only. Excellent liquidity. Comparable to the average exit time frame on FSM
  4. Good: hedge against property and stock markets.
    1. diversification. Low correlation with stock markets
  5. Good: absolute return is very high against theoretically zero price uncertainty.
  6. Good: half-yearly payout, better than all my previous investments.
  7. ——- other advantages not ranked ——-
  8. Good: Based in Singapore cf my overseas properties
  9. Good: passive income, cf FSM
  10. Good: apparently many big investors are taking the same risk with this small company
  11. Good: return doesn’t come with an embedded option like many banks products do

What’s the implied probability of default? Assuming exactly two outcomes : either a 33% or -19% return. Assuming I’m willing to accept 7% return [1] over 2Y. The probability is 50/50.

[1] I was willing to accept 4% return with very poor liquidity, so 3.5% over 2Y is acceptable

Based on these advantages, I’m willing to risk my 10k. What are the risks?

  • risk: small, bold company, with some track record
  • risk: this small shop is borrowing my money at 15% interest!
  • risk: the contract is backed not by a big name, though a big name usually comes with poor liquidity, embedded option or much lower return.