Tag: t_leverage

leverage≠killer_skill 4investors #Singtel

Posted on by tiger40490

— eg: Singtel .. in Mar 2006 Singtel held cash_balance (i.e. cash equivalent) to about 5month worth of operating expenses. In Mar 2016 that “cushion” was down to 14D of operating expenses. This is a form of financial leverage.

With a strong financial position, Singtel could easily tap capital markets (bonds etc) and bank financing to raise working capital. Therefore the increased leverage may or may not be a concern.

— eg: Lehman .. (based on https://hbr.org/2009/09/lessons-from-lehman) was overleveraged at 30+.
^^^^^^^^^^^^^^^^^^^^^^^^^^
In both cases, the leverage is powerful, enviable, a sign of strength when times are good. Those good times could last decades, so the observers may never notice the hidden weakness/risks.

Individuals can borrow from banks but corporations do that at a fundamentally deeper level — some players in a given market must take on leverage just to compete. My focus is _personal_ (and family) finance.

  • eg: Individual home buyers, car buyers … can avoid leverage. It may look silly, but legit.
  • eg: Individual currency traders can use low leverage like 10, even though it may be unexciting and slow.
  • — Below examples are not about leverage but about risk-taking for higher profit:
  • eg: Individual stock investors can avoid hot stocks, even though many believe “If you bother to trade U.S. stocks but avoid hot stocks, then what’s the point?”
  • eg: Individual stock investors can favor stocks with high dividend but low growth. This style is often sidelined, dismissed, but still a legit style. Many (me too) believe that the hottest growth stocks don’t pay dividends.

In many of these examples, the good times would cast these risk-averse individuals in bad light, as laggards, as /also-rans/, as “missed the show”, but what about in bad times? XR would probably agree with me that “strength would emerge”.

Buffett once quoted his partner saying “there are only three ways a smart person can go broke: liquor, ladies, and leverage.”

In my case, I actually take risky bets with my HY/PE etc but that’s a digression.

##sure-win investment schemes@@

Posted on by tiger40490

I think in every case, some risks are underestimated. Shiller may consider it questionable investor learning.

Sure-win mentality breeds the gambler behavior

eg: Is SP500 ETF a sure-win? Many American investors seem to feel that way.

eg: Is DIVA an arbitrage, sure-win?

eg: Q to H.Luo : Is Singapore condo a sure-win? I think many investors use maximum leverage to invest in Singapore condos. Sure-win due to Ponzi nature. https://tanbinvest.dreamhosters.com/26043/sg-home-buyers-max-out-mtg-quantum/

— Single stocks:
eg: Is Singapore IPO sure-win? This was one of my first “sure-win” bets.
eg: when Singtel shares were offered to the lay public, some probably considered it a sure-win. Utility stock backed by government.
eg: in 2020, my wife picked SIA as a sure-win stock.

ez2hit high return but..Sustainable@@ #luck #w1r3

Posted on by tiger40490

MOETF return is likely lower than Buffett, which is likely no better than sp500
Do I envy those with higher annual returns? Typically we are seeing BTC or growth stock investors.

——

See also

  1. ##hot^beloved asset classes 喜新厌旧
  2. MOETF: lower return than SP500 likely which points to beatIndex^absReturn: choose your goals
  3. j4 MOETF #w1r4

Background: I often feel my MOETF “system” is under fire when lots of fellow investors seem to make higher returns either quickly or over a short few years. Are their returns sustainable?

It’s crazy to use (realized or unrealized) return alone to compare 2 portfolios, ignoring quality of return, fundamentals, crashes, and variouis risks (liquidity risk, credit risk, investor sentiment risk). Buffett’s portfolio probably shows better risk-adjusted return than sp500.

I would say if the investor pockets the realized profit and stand aside with detachment, then she is wiser than most. But such wise investors are rare.

Some investors make “enough” (like USD 2M) and then scale back risk capital level to $100k .. “cash out n quit”.  But such ungreedy investors are rare if under age 60.

— jolt: sustainable if buy-n-forget→ sleep]peace, focus@work. With high growth investments (including BTC), can you sleep in peace?

— jolt: Intern… Learning is an absolutely essential process (takes years) before people can have reason to believe your high return is sustainable.
There are various types of knowledge/experience to learn. Here I tend to think of EE/AA.

If higher return were sustainable without substantial learning and risk analysis, then this would be similar to an arbitrage or a Ponzi scheme.

— jolt: arbitrage or Ponzi/pump-n-dump
Q: deep down, do you really believe your SP500 ETF would show compound return at least 8% a year for the next 40Y, with at most one negative year in any 5Y window? I think many respected publication assume just that.

If you believe it, then to you this represents an arbitrage or Ponzi scheme. You should really borrow money to the max and invest in SP500 ETF.

— jolt: diversification .. A related perception is “To beat the broad SP500 index, you will need higher concentration on growth stocks.” — this perception is very dangerous. Look at Shopee. High-risk-high-return.

Diversify to international stocks .. is a recommendation for U.S. stock investors. However, if you allocate 30% this way, usually it would reduce your portfolio average return.

— eg: hot growth stock investors … even index investors can hit higher return than my div-centric MOETF system.
— eg: personal xp: 1997 commodity trading .. return too high. My agent said 18% a month. Clearly unsustainable.
leveraged trading !
— eg: dot-com boom-n-bust .. https://www.fool.com/investing/best-warren-buffett-quotes.aspx says “I can’t think of another period of time when it was easier to make money in the stock market. ”
— eg: bccy.. I think the believers of growth stocks would also consider cryptocurrencies (Zhang Jun?), even though they recognize the fundamental differences between bitcoin and growth stocks in terms of economic value.
— eg: leverage .. some investors even borrow money to trade stocks. With $100k capital, they get to trade $200k and hit higher returns on capital
— eg: xp of many non-US investors .. newbies tend to lose money in stock-picking outside the U.S. I guess this is worse with growth stocks. In contrast, index investing looks like safer.

signs@gambler: big bets@stocks

Posted on by tiger40490

Speculation/speculator is another word for “gambler”

Get-rich-quick mentality

— timing the (stock) market, as YLZ mentioned.
— reacting to news and sentiment of “retail hot money”
[[ irrational exuberance ]] and my RTS business analyst — “always recovers after down turn”
— short holding period. Day-trading is an extreme example. I like buy-n-hold to collect dividend
— infatuation, esp. in the property market
— gold investors are often gamblers, partly because 1) negative current-income 2) large positions 3) horrible bid/ask spread
In contrast, my colleague Gavin is a buy-n-hold gold investor.

— retail FX and commodity investors are often gamblers, trading news without understanding the fundamentals
I used USD/SGD FX trading for personal currency hedge in mid 2010’s, at a leverage of 1.0. That’s less speculative.

I feel bitcoin is a classic speculative asset.

— keep mortgage unpaid .. One of the most common j4 is to invest in stocks. Basically borrowing bank money to play stocks.
The most experienced stock investor I know, Kun.H, actually paid off his mortgage early !

— Huge enterprises betting big

  • eg: China Aviation Oil
  • eg: Nick Leeson
  • eg: national governments taking a stake in big banks? Not derivatives

— over-sized bets, like one of my young UChicago classmates (probably a rich kid). Many of these kids bet big on FX
I felt bad about my small bets in stocks and mutual funds, but it could be a good thing ! 

The lesser of two evils — I would rather tolerate poor ROTI, rather than betting big amounts.

If you want to build big positions, I feel U.S. ETF is safer.

One of the biggest price to pay is peace of mind…

infatuated rEstate investor #leveraged

Posted on by tiger40490

 

  1. I have invested most of wife’s usd 70k
  2. I have invested about sgd 40k + usd 16k of grandpa’s money
  3. luckily I have not invested any fund from grandma

I probably need more buffer and more contingency reserve now that my reserve is almost depleted. See Need to rebuild OPM reserve#NOT another shop

Many people seem to invest with over-sized optimism, and possibly over-zealousness and over-commitment:

  • Many Bridge/Peak investors choose to buy $X when they only have half that amount on that day, planning to tap into future income… Me too if buying a 4th shop unit.
  • Most property investors take loans, including Youwei. I know a few buyers who avoided loans and I admire them — Yinghui, XiaRong
  • Raymond bought 2 units, more than he could afford
  • Genn took such a huge loan
  • Genn tends to borrow from me
  • some invest the year-end bonus, even in advance

The Overzealous behavior is largely driven by hot money herd instinct, fear of getting left behind, irrational and emotional, very likely to /crash and burn/ (i.e. burn your finger).

— decisive .. rEstate investing involves checklists, and lots of boring, painstaking homework to do, but many buyers have no time for due diligence. They feel they need to be decisive when buying a hot unit. They are pressured by sales pitch like “last 2 units” or “price rising soon”.

— case: MIH .. I resisted the pressure of “last unit at this price level“. I visited showroom on-site and took a few days. I think I returned to Singapore to send the deposit check. Even though I missed a smaller unit, my decision-making was prudent.

borrow cheap2invest #mtg++

Posted on by tiger40490

See also

I decided to create this blogpost as it is a recurring theme.

— case study: In Aug 2022, my wife and I had about 700k against 500k outstanding mortgage. I asked Valerie of DBS where I could deploy the cash instead of PRP. She heard all of my ideas and suggested high-yield SGX stocks, but this is “borrowing money to invest, at floating LIR” of MBR+spread of 0.6 or 1%.

— ## common j4keep`mtg outstanding
Case study — Genn said her pre-tax mtg rate is 8%. Since she can’t generate more than 8% pretax return, she decided to sink all her savings to pay down the mtg…. smart !

Many experts and laymen say a mtg lets you borrow cheap, but cheaper than what, and borrow for what purpose? Do they have a way to generate higher return than the LIR (2.5% or whatever)?

Q: If (like me) they have too much cash sitting idle in the bank, why is it smarter for them to borrow (like 600k at 4%) and pay monthly interest (like 2k/M)?
It’s easy to confuse XX) too much liquid cash in the bank, vs YY) after setting aside sufficient reserve, still too much idle cash

As I observed in Nov 2021, 12M reserve is insufficient. Once I have a really sufficient reserve (like 200k), then I may want to invest the surplus into U.S. stocks. Using this criteria,

  • Without mtg, I have 200k liquid cash. I dare not invest more than 50k into risky assets
  • after taking on mtg, I would end up with 100k more cash (on top of existing 200k, also $160k cpfOA). Then I would feel confident to invest borrowed dollars to the tune of 100k.

Q: DBS mortgage banker Jeradine said when mtg rate is 1%, it is “really not too hard” to earn a basically riskless profit (arbitrage). Where to find low-risk, high liquidity assets to park borrowed dollars?
A: Some bank promotions pay depositors 1%+ but only for 50k
A: LionG_EL (https://secure.fundsupermart.com/fsm/chart-centre-fund/LCP129 ) could beat my mtg rate…

Eynesbury by Resimax

Posted on by tiger40490

— Liquidity .. The remote Australian locations are far from prime locations, and slower [re #1173] to attract buyers esp. affluent foreign buyers.

==== Birmingham deal

Affinity Living Lancaster Wharf

“tiny unit at prime location” … is my ideal. This deal is closer.

— forex risk/opportunity
— rental yield
— income tax … Richard said .. often zero
— local rental agent fee .. 10% of actual rental income
— interest-only mtg

==== Perth deal

— ForwardHazardRate

A common trap — assuming everything will work out as planned

— Better than Eynesbury…

  • lower quantum … but still too high
  • shorter time to get tenants .. but *some* assets elsewhere are currently tenanted and superior.

==== Eynesbury .. Ken Dodds (Resimax partner) presenting Eynesbury project

Resimax is the biggest private (i.e. unlisted) residential developer, but (LZ.Yu) hard to research on them.

Due to quantum, I can only consider the land asset. The promised appreciation potential (albeit safe) is not enough as a compensating factor for the negatives:

  • 👎 For the land asset, liquidity is inferior to a house asset. See below
  • 👎 Rental is zero without a house
  • 👎 FX .. see below
  • ^^^ None of these negatives are address by Patrick’s framework. Some of them are listed in the risk disclosure, but not covered in depth.

LZ.Yu: In many countries, foreigners often face higher taxes + restrictions when buying/selling.

— loc: LZ.Yu asked .. Why is Resimax selling to Singapore investors if the project is easy to sell to locals? I feel the location is obviously not prime, so locals are not keen at all. If a foreigner spends a few months there they would hear locals talk about different towns and understand “not prime”. Perhaps comparable to a new spot in Bayonne or Greenburgh.

Later I told LZ.Yu that overseas investors do often profit from unpopular locations.

Ken himself probably bought at a much lower price like below half.

— leverage .. Given the projected appreciation, many people take on debt but leverage is very likely to jeopardize my ezlife bubble. Leverage weakens my “rail” (or a pillar beneath). Leverage also creates a cross-currency LIR hazard that’s hard to contain.. See %%riskTolerance: which countries feel OK 

Someone (Resimax? GEX) proposed that we take max leverage during land development and again max leverage during construction. This entire scheme is built on shaky foundation i.e. the optimistic assumption that asset appreciation stays on track. What if it dips?

Like PAP gov, I am prudent in my cashflow planning. Among all investors at BGC and Cambodia, I always make the most reliable payments. That’s largely based on ample cash position and zero leverage. I guess many fellow investors become burdened by leverage.

— how to sell land without construction. This is a tricky question.
* without analysis, we can have unfounded positive or negative perceptions.
* with some analysis, we can have unfounded positive or negative perceptions.

Ask Gex/resimax. Basically no open market.

Aaron Lee told me a story of his client buying land in U.K.  There is appreciation on paper, but very hard to liquidate the lot without a house, so the guy was forced to top up when developer demands it.

some investors had no choice but sell back to developer before settlement (i.e. land title transfer).
IFF they are lucky to land on a paper profit, then they lose only the fees (like 50k). Developer would buy back at the original price and sell to someone else at a higher price.
IFF they are lucky to land on a paper profit above 50k, then they can avoid losses in AUD terms.

— How much value does GEX add? Their screening criteria is very different from mine and may not be relevant to me.

If there is a problem mid-way, then hopefully the GEX team can help.

— need to compare this against other opportunities
div stocks
SgCP

I don’t mind up to $10k just to capture the lucrative opportunity…. With MOETF, I enjoy flexibility with quantum.

— fx risk .. Even if I achieve a realized profit in AUD, the final cash out converted to SGD could come to a loss.
I can’t remove this hazard, this stressor and potential storm threatening my ezlife bubble. Xp at BGC?

I progressively bought PHP…

By my standard, I need to have AUD income or 300k AUD asset to support this real estate investment. Not practical.

— outgoing cashflow
in 7 days 6.4k FIRB fees [valid for 4Y]
by early Sep 10% of the 307k price
early 2024 30% of the price (the other 60% on vendor loan, backed by the land asset)
early 2024 46k fees
^^^^ total A$175k, with 60% loan

— rental income tax
can offfset with depreciation, mtg cost

— capital gain tax
can offset with depreciation costs

— country and locality
80% owner-occupied in the region (Victoria or Melbourne or Eynesbury)
1.7% vacancy rate in Melbourne
16% pa growth in home valuation in the “area” but which scope exactly?
^^ projected or historical

Australian population rising…

72% of Australians live in landed housing.. plenty of land.
31% of Australians are renters.