Rights Issue w SC bank

I've no experience with other brokerage houses in regards to rights issue, but so far Standard Chartered has offered a pleasant (though not perfect) experience.

You can check out this blog post for the pros and cons of SC in relation to rights issue.

After reading up on KPO's blog post and other posts, I've come to realize some interesting aspects of a rights issue.

Hack #1: Sell your rights and apply for excess rights

Procedure:

Sell your rights on the market - Get free cash

You apply (call SCB Hotline) for excess rights and request for NO odd lots given to you. (yay to no commission fee)

Cross your fingers and hope you get the ballot.

Note

Selling of rights in the open market will incur commission fees.

Application of excess rights constitutes to exercising them as well, provided you have sufficient cash balance.

Hack #2: Buy rights to lower commission on new investment

Procedure:

Buy rights on the market - Incurring a (% commission) of the cheap rights (compared to the stock)

You (call SCB Hotline) to exercise the rights bought. (yay to no commission fee)

Check out KPO's blog post to understand how he did it.

Note

Buying of rights in the open market will incur commission fees.

This Hack is more applicable for priority banking customer of SCB as there is no minimum fee imposed on them.

Can still be applicable if you intend to purchase more than $5000 worth of shares (will incur you more than $10 for SCB). In this case, you can purchase the equivalent number of rights and call SCB to exercise these rights into shares.

iFAST launches stock-brokerage services: Is it the best?

iFast has finally launched the highly-anticipated stock brokerage services today. It has

What are the fees?

The rate of 0.12% is attractive, and best in town.

With a minimum of SGD 10, iFast offers similar rates compared to the pre-funded accounts available in the market. Examples are DBS Vickers Cash Upfront, Maybank KE Trade Prefunded Account and the famed Standard Chartered Online Equities Trading Account.

Lower Minimum fees are available in the market with a few caveats:

• Promotions such as DBS Vickers SGD5 Trade Rebate
• Stand Chart Priority Banking Status: No Minimum fee

iFast works on a custodian basis

Most of these "Pre-funded" accounts manage your stocks via a custodian basis. This means that the stocks purchased will not go into your CDP account, and hence not be under your name. 

To me, it doesn't matter much. Some reasons to dislike custodian will be default risk of the broker, unable to attend AGM.

Unique Point: Allow selling of SG stocks from CDP via its account:

• Can sell existing SG stocks (even IPO) in CDP at the iFast rate

This is a great complement to DBS Vickers Cash Upfront. If we are particular about owning shares in our name (in CDP), there is a way to do this while enjoying cheap rates.

• We can use DBS Cash Upfront to BUY Singapore shares [Cash Upfront: 0.18% min SGD18
  Promotion rate: 0.12%, min SGD10]
• Use iFast to SELL Singapore shares [0.12% min SGD10]
• If the stock is bought and not cleared/ credited into the CDP (T+3), DBS Cash Upfront can be used to sell the holdings.

Conclusion: What to use iFast for?

For BUY orders: iFast rates are sweet (best in town), but stocks are credited into custodian accounts. This is similar to Stand Chart, so the issue to consider will be whether you trust the credit worthiness of iFast. If you do, iFast is the cheapest.

If you want to own stocks in CDP, then look no further than DBS Cash Upfront.

For SELL orders: iFast rates are also unparalleled. Here, iFast triumphs the other prefunded accounts as it is not only able to sell singapore equities in its own account, but also those in CDP.

Breakeven comparisons 
If you happen to be a SC priority, commission fees have no minimum. For iFast to be worthwhile, a trade size of at least $5556 is required to generate at least $10 of fees. 

An inference from poker

It's been a rather rough week, with projects haunting me, job hunt failing, bridge doing badly and relationships souring.

But amid all these, life goes on. The investing arena also suffered similar or worse state compared to me. Stocks has suffered a sell off, namely M1, and US bonds have suffered a selloff due to expectations of impending interest rate hike, leading to increasing yields in the bonds.

But there are always gems in times of despair. Singpost, for example, has shot up, albeit due to Alibaba influence.

Today, I took a break from my bad week and went to crash a party. Poker was the attraction, and I was quickly called for.

At the table, there was a guy with around $30 of chips when we were playing $10 buy ins. Pre flop raises were prevalent. it was impossible to get a chance.

Or at least it appeared to be impossible.

With a bit of luck, and a planned strategy of patience, observation and an appearance of nonchalant, I quickly doubled my chips. This is exactly the traits to exhibit in the stock market.

Be patient. Be greedy when others are fearful. Stick to your plan.

An opportunity in the markets is coming. before playing a game, it's always good to know the rules and the players.

But first, I need to get a job. Building up your salary base and hence capital to invest is more imperative in the beginning years.

Savings Account

The two popular savings accounts are the OCBC 360 and UOB One Account. A lot of blogs have written about it, such as AK and another.

OCBC
Credit Salary - 1.2%
Pay Bills - 0.5%
Spend Card - 0.5%
Base interest - 0.05%

OCBC yields 2.25% (in my case)

In summary, both agree on one thing:

Use OCBC if you have less than $42k.
Use UOB if you have between $42k to $50k.
Above $50k, use UOB and put the remainder into OCBC.

The reason for this allocation is due to UOB's tiered interest structure.

Above $50k, UOB only earns you 0.05%, so its better to put it somewhere else.

Differences
While UOB offers a better return of 2.43% on a $50k balance, it requires more conditions to be fulfilled.

1. Spend $500 on UOB One card
2. Credit Salary or Giro 3 bills

Spending $500 on UOB One card is easier 
Compared to OCBC 365 card, UOB one card has no categories. OCBC 365 also requires a min spend of $600 to earn bonus rebates.

The problem comes with the hassle (or convenience) of giro. In the event that you want to stop the giro, lose a job, or forget/unable to spend $500 on the UOB One card as you lost your card, thats it.

No bonus interest.

What it means for me
First, a savings account serves the following purposes:

1. Contain my war-chest
2. Emergency funds for unemployment (& illness)
3. Big ticket items

All these means it needs to be Liquid.

In the event i am unemployed, there will not be any salary. I may not be able to spend $500 on my card as well.

In this case, OCBC will get me 0.5% if i pay 3 bills online, and UOB will get me nothing.

BUT this is not an issue
I will transfer my holdings to Standard Chartered (if there is a promotion) or CIMB Fast Saver, to earn 1.55% or 1% respectively.

The only concern will be minimum required funds. OCBC requires $3k while UOB requires $500.

Second, since I am allocating most of my funds into stocks, it is unlikely that i will hit $42k in savings. Hence, OCBC seems a better choice for me in my early career.

After deciding on OCBC 360, should i spend on OCBC credit cards?
Realistically, i would have a maximum of $20k in savings.

This raises an interesting observation:
With both OCBC and UOB, i will earn exactly the same amount of interest, if i spend on UOB One card. 

Interest: $350 a year
Card rebate: $200 a year

Total: $550 a year

If i spend on OCBC Credit card, OCBC 360 will give me:

Interest $450 a year
Card rebate: $216 a year ($600 on 3% rebate)

Total: $666 a year

The 0.5% bonus from spending on OCBC cards is $100 per year.

Hence, the effective cash back that OCBC credit card has to give, to break even from UOB $200 rebate, is 1.39% (100/(600*12)). This should be relatively reasonable to meet.

The problem is OCBC 365 card has categories to meet, mostly dining promotions and a minimum spend of $600. On the other hand, UOB one card has no categories and requires just $500 spend.

If I fail to meet the $600 min spend, (say i spent $500) i will get 0.3% cashback which amounts to a pathetic $1.50 per month, $18 per year. In this case, spending on UOB One card is better.

More work has to be done on discovering my spending habits (cash or credit card payment and categories spent on) before i can accurately determine whether to use one card or other cards.

Power of Cashback
If you spend $600 and earn a 3% cash rebate, you receive $18 per month.
If you spend $500 and earn a 3.33% cash rebate, you receive $17 per month

Compare this to a 3% interest (say fixed D), you will need $7,200 to earn similar amounts.

Cashback, if used for spending that you will have to make anyway, is probably more profitable than your interest in savings account. (Plus, its easy. At least some cards, anyway)

Brexit: What it means to me

Finance bloggers all around the globe can't survive without having a post on Brexit. So can't I.

I have been wondering what is the fundamental impact of Brexit on my investments, and the economy. I could only think of one word to summarise it: Trade. But clearly, nothing is so simple.

First, we need to understand why Brexit happened.

1. People had enough of experts opinions (IMF, OECD, Fed)

Basically, people thought leaving EU will be more beneficial. They will be able to stop carrying the debts of the EU.

2. Immigration

The North is represented by angry working class that have issues with immigration. EU allows free movement of people and voters failed to understand that more than half of the immigrants came from outside the EU. Some believe that migration might let terrorist enter, causing more problems than the economic benefits it may bring.

3. Two campaigns for Leave

Two campaigns, one for a more liberal Britain and another for a closed, protected and less global one, appealed to different sets of voters. This helped Leave to garner more votes.

Impact

Britain will be subjected to terms decided by other EU members. We know that Brexit is a catastrophe for EU and they will make sure nobody follows Britain example. This means Britain will not get a good deal.

1. Trade will be affected. 

There will be taxes imposed and financial services may be blocked.

2. Political Fallout

Cameron resigned. Members of Parliament are split between Remain & Exit. Conflicts are bound to occur. London is unhappy about the exit, and wants to "exit" from Britain and go back to the EU. 

The Youths blame the Old for deciding their fate.

And we all know what happened. Pound fell by around 10%, big banks stocks fell, global stocks in the red. 

The Question is: Is it an over-reaction?

If you ask me, I would say, i don't know. I thought the fundamentals should not have changed so drastically, but the market may be trying to price in future potential risk events, such as other "exits" from the EU, and trade barriers issues which will lead to less trade, and a slowing economy. Not to mention political and social concerns that may well lead to economic repercussions. London may cease to become the global financial center, replaced by Frankfurt.
Financial services make up 8% of Britain GDP.
1 out of 7 UK jobs are related to financial services.

Asking around for opinions on the general trend of the market, I found out that the Dow Jones has fell 600 points (3.39%) and that must have spooked many investors. However, looking at Singapore stocks, it hasn't hit Jan/Feb levels, and i am starting to feel an opposite concern. Maybe, the over-reaction has already occurred. Maybe, the downside has all been factored in.

We can already foresee Janet Yellen delaying interest rates for the rest of the year. Given Brexit will take around 2 years to unfold, this may well mean interest rates be delayed for the equivalent period. If the market take this confirmation as a "news", markets are going to go up.

While i cannot foresee the future, i have started to take action.

Brexit is opined by many to be one of the most exciting event and we are certainly lucky to be part of this historic moment. As i am building up my portfolio, i believe this is an opportunity to pick up some wonderful companies with strong fundamentals, at a low cost.

This is why i am fortunate to still be able to use Std Chart to dollar cost average. By setting limit orders on periodic price intervals, i am able to participate in the "falling knife" without risking too many eggs in the basket. This will keep me in the action, and yet be able to sleep at night.

Investment Boot Camp

Today, i'm attending a value investing seminar in NTU, held by the Investment Academy Club and the trainers consist of Paul Chen, Pete, Resh

The focus is on Warren Buffet style of Value Investing.

1. McDonalds (MCD) as Case Study

- Derive revenue from customers that buy food (model: Ask for Upsize)

Stock market, in the short term, is influenced heavily by emotions/ demand & supply

2. How to determine a Good Company? 

- Operating Cashflow
- Pricing power
- Industrial Changes
- Scale-ability
- Debt?

3. Moats

Moats are like the water region surrounding a castle, safeguarding it from dangers.

- What & where are the products and services
- Will it be here for the next 10 years?

- Intangible Assets
        # Brands, Patents
         - Pharmaceutical

- Efficient Scale
        # Industry so small to compete; such as airport
         - SGX
         - ST Engineering (Niche Market)

- Network Effect (Makes the product better)
        # Grab, Uber
        # Credit cards/ Banks

- Switching Costs
        # Adobe software

4. Risk
Important Goods vs Harmful Goods

If you were to invest in a random country...
- Look for beer companies
- Lockheed Martin?
- British American Tobacco

Regulations can affect a company, avoid these companies if possible

Inflation Risk
Pricing power
- McDonalds can increase price easily
- Airlines lack pricing power

Cost Strategy
Diaso/ Value Dollar
Luxury hotels, Ferrari, LV

Case Study: Coach
- Growing company
- Decided to go to outlet stores
- Led to Brand dilution
- Lose customers

Science & Tech
Buffet thinks technology companies change too fast
- Businesses that require developing new products have risk

Case Study
Dow Jones Index: Kodak

Steven Sasson- Introduced digital camera but shut off the idea.

1989 - developed DSLR

Resistance to change killed Kodak

Facebook - Worth investing?
- Sceptical
- Are you confident it will still be around?
- Changed everyone's life: Provides news, advertising, host group chats, company profiles.

Key People Risk
"Invest in a business a fool can run because one day, a fool can run it."

AKLTG - Adam Khoo
If your business has your name on it, it will be discounted at 30% off.

2 most important days of your life
- The day you're born
- The day you find out why

Mechanics
Try out MorningStar for stock information

4 kinds of Companies
Stalwart - Big, reliable, slow growth
Fast Growth
Slow Growth - Dividends
Cyclicals - On cycle

Fast-growing Stalwart: Facebook; Alibaba

Cash is King
- Different to manipulate Cashflow
- If profits consistent but cash from operating is negative..
    # Bad collection policy
    # Fraud

Look at Operating Cashflow

ROE above 15%

Conservative: Low Debt/Equity (Less than 0.5)
- But interest coverage high?
 #Happens when shares are low but debt high, income can cover debt (Banks)

You will never make money if you only buy Good Companies. 
* BUY GOOD COMPANIES AT SENSIBLE PRICES

3 Types of Business
- Growth
 # PE < G

- Dividends
 #Div Yield > 5%
* BUY Good Companies that pay CONSISTENT Dividends

- Asset Play: Buy at a discount (Banks)
 # PB < 0.8

PIEC Analysis - Profit, Inflow, Efficiency, Conservative
EPS consistency
Positive OCF
ROE > 15%
D/E < 0.5

Investment Thesis
1. Good Company
2. Economic Moats
3. PIEC
4. RISK
5. Valuations

Margin of Safety
MOS: Intrinsic/ Current - 1

Standard Chartered Online Trading Issues

SC Charging Minimum Commission
The low cost broker, SC online trading platform, will be imposing a $10 minimum commission from August 2016. This will affect non priority banking customers.

This means that it will be harder for us to dollar cost average. 

Many may switch away to other brokers, but SC is still one of the most attractive option, with Maybank custody account being one of the alternative.

Opting for Cash or Stock Dividends
Recently First Reits offered a choice for stockholders, either get cash or receive stocks.

I chose to receive stocks as the issue price was given at a discount to the prevailing market price. Essentially, I thought I'll save on the commission as well as get a good discount for reinvesting in the stock.

However, the amount of shares I received did not match the cash that I would have received if I hadnt elected for the shares.
This surprised me, as it meant opting for shares made me lost money, instead of earning..

The problem lies with the rounding down policy that SC adopts. For each category of dividends, it was divided by the issue price. This resulted in me having effectively 1 less stock compared to if the entire consolidated sum was used to do this division..

Long story short. I was shortchanged. Opting for Cash dividends (which is the default option), will yield me a higher dividend.

To add oil upon fire, stock dividends may result in odd lots. Odd lots cannot be sold online and will require extra brokerage fees. That translate to more cost and more fees.

Cimb Fast Saver
On a separate note, I've been looking for a good savings account that earns a good interest rate. One friend recommended the CIMB Fast Saver. It earns 1% interest for sums below 60k and has no fall below fees. Only downside is it is a pure internet banking service, and we cannot use ATM to withdraw funds from it. Nonetheless, less than savvy internet users will find transferring the funds using ibanking a piece of cake. The application is also extremely convenient. All online, no need to head down to any outlets, or fax or mail anything.