Wednesday, 30 April 2014

Security Selection

In one of the first few posts of this blog, I highlighted the superiority of "Asset Allocation" compared to "Market Timing" and "Security Selection".

The reason against Security Selection is that most of us, myself included aren't half as good as Warren Buffet, who has a flair for analysing businesses. However, during the start of this year, I began investing in specific companies again, as I believe I have found a group of people who can analyse companies with reasonable success and accuracy.

My first encounter with this group/company was around 2011 where I attended one of their preview talks with a friend. As both of us were still studying back then, we did not have much capital to enter into their programme. Fast forward to 3 years later in early 2014, we happen to meet this group in another investment talk by chance, and they were talking about the same strategies they told us back then. The advantage we have of course, is that we were able to verify if those companies they identified 3 years back did well today. The answer is a definite yes. So during this talk, we decided to invest in additional companies mentioned by them, justified both by quantitative and qualitative reasons.

In April, both my friend and I finally decided to enter into their programme to learn their methods of analysing companies. Personally, the methods used can be found generally in Value Investing books/websites. However, the more important reason is to have access to the list of companies they themselves are evaluating, from which I can make my own decisions based on their analysis. Most of us simply to not have the time to do to filter quality companies ourselves.

As of now, I have stopped my monthly contribution to unit trusts to accumulate my opportunity fund. Will "sell in May and go away" situation arise this year? Seriously... no one knows.

Wednesday, 9 April 2014

How long should you take to repay your CPF housing loan

I chanced upon an interesting article in one of the blogs I follow, ASSI. The argument is that you should take your time to repay your housing loan.

The example used is a $100,000 HDB loan. Say you have $100,000 in your CPF account, should you pay the full $100,000 loan in one shot or take 10 years to repay it fully?

Take 10 years to pay (amortization)
The monthly repayment will be $947.25. Assuming your monthly CPF OA contribution is this amount for the next 10 years., your CPF will not have any net loan deduction for this 10 year period. The ending CPF balance at the end of 10 years is $126,877.

The total interest paid is $13,670

Empty your CPF account and pay the full loan amount of $100,000
You decided to save on the interest payment of $13,670 and pay the full amount upfront. The blogger argument against this method is that although you save $13,760 in interest payment, you would forgo the $28,008 that you would have accumulated if you pay the loan over 10 years.

Well, I found out the last point is not entirely true. Even after you have emptied your CPF account. You CPF ending balance is $126,638, which is almost the same if you have not paid one lump sum in the beginning. Details of the calculation is shown in this spreadsheet.

Sunday, 6 April 2014

OCBC 360 savings account

I couldn't believe it when I saw the advertisement for this savings account offered OCBC. You get 3.05% interest p.a. on up to $50k of the amount in your savings account.

For those who wonder if 3.05% is high, consider the following,

  1. Matches close to the average inflation rate in Singapore. It's no longer valid to say that your savings get eroded away due to inflation by leaving it in the bank.
  2. Higher than all the time deposits' interest that I know of, has no lock-in period and requires a minimum balance of just $3000 (the fall below fee is even waived for the first year).
  3. Interest is close to the dividend yield of the STI index.
  4. Matches some of the high grade corporate bonds. A recent example is Capitamall Trust bond which was 2.8 times oversubscribed, has a 3.08% coupon payment, and maturity period of 7 years.
  5. The interest rate is risk-free, as the first $50k deposit is guaranteed by the Singapore Deposit insurance Corporation (SDIC).
The requirements to get the 3.05% interest rate are

  1. Credit at least $2000 of your salary monthly
  2. Spend $400 on OCBC cards monthly
  3. Pay any 3 bills online monthly
If you meet the above 3 requirements, it's a no brainier to open this account immediately. I wonder how long such a good deal will last.