To Hold or Sell Apple Inc.

Every buy or sell decision made in the stock market is a deliberate and conscious decision to me. This is because of the numerous factors that are unique to each stocks and also due to many conflicting teachings I had received over years.

Today, I'm particularly conflicted on whether to sell my Apple Inc holdings which I bought at $88.58 27 May 2014. As of now, Apple is trading at $102.25 - representing a gain of 15.4%. The reason I bought Apple was quite clear and it was to bank on the upcoming release of iPhone 6 and also a bet on iWatch release. The primary aim of my buy decision had been achieved but as time goes by I realised Apple had further upside in iPhone 6 sale results and quarterly results. After Apple's quarterly earning was released on 20 October where 39 million iPhones were sold and EPS came in higher at $1.42, all my reasons to hold Apple were fulfilled and stock price rose accordingly.

So is it time to sell now?

That is my dilemma which I hope to sort out here. Instead of asking is it time to sell, I should ask, "are there reasons to hold?" Therefore, I listed a few thoughts on the reasons to hold and also counter-arguments to them.

1. iWatch has been revealed to be be released in 2015 and this will provide impetus for stock price. However, it is a long wait to 2015 where macro market conditions are unknown to us. Furthermore, iWatch may be a miss or that its earning potential is not significant.
2. Apple Pay announced today may be a great integration to iPhone 6, strengthening the ecosystem of the iOS and generating revenue. That said, I think this argument is lacking firstly because of other existing paying system like Google Wallet. Apple Pay is definitely not a new innovation that can push stock price. 
3. Next quarter results should be fantastic. Given that this stellar quarter earnings did not even include iPhone 6 sold in China, next quarter should be impressive now that iPhone 6 is released in China. However, as per point 1, it is a long wait to the next quarterly results and the next 3 months may not guarantee that Apple may rise or maintain its level today. 

As you can see, for every point I had listed, I have some counter-arguments for it and there lies the dilemma. To sell or hold Apple? 

After much consideration, I have decided to keep my Apple stocks so as achieve my mantra of investing  on the stocks rather than trading them. Some people may say that Apple is losing innovation and that  iWatch may not live up to its hype, however to me, it is clear that Apple is still dominant in the smartphone market. I acknowledge that Apple may become Nokia or Blackberry one day. But the day is not today. Apple continues to sell iPhones and maintain an economic moat around its business.

Unless 1) global economy enters recession / stock market turns weak (I believe Apple product will lose its shine in recessions), or 2) when its earnings start to disappoint or 3) Stock price outstrips fundamental value, I'll still probably keep this stock.

Nordic Group (MR7.SI)

Nordic Group is a company that specialises in control system and automation needs for vessels. The company is mainly divided into 3 business segments: Systems Integration, Precision Engineering and Scaffolding Services. (http://www.nordicflowcontrol.com/)

Having a market capitalisation of 38.08M as of 24 September 2014, Nordic is a relatively small company. Although it is a small player in the industry, its does not really have the competitive advantage in the industry. Therefore, the reason to buy is mainly due to its undervalued stock price.

The following is the EPS through the years.

Table of Key Stats

Year	EPS (cents)	NAV (cents)	Dividends (cents)
2009	2.9	-	-
2010	2.3	9.4	0.53
2011	0.4	9.3	0.25
2012	1.1	10.2	0.25
2013	1.5	11.5	0.25

As you can see from the Table, the EPS has been improving for three years straight with the NAV increasing steadily. An additional bonus is the consistent dividends over the years. Based on the closing price of $0.097, P/E = 6.47, NAV = 0.84 and Dividend Yield = 2.58%

The low P/E and NAV ratio are really attractive, although "unpopular" stock usually command these low valuations. With the decent dividend yield, one can hold this counter for the long term and wait for the market to discover its true value. Given the small size of the company, Nordic might even be good for takeover play.

You can try to take advantage of the illiquidity of Nordic to get it on the cheap. At the current situation, Nordic has a Buy queue of $0.097 and a Sell Queue of $0.100. Try to queue low, and wait for sellers to hand the stock to you. If aiming for quick gain, similarly queue early to sell high. On some days, Nordic may have sink or spike sharply. Take those periods to grab cheaply or sell on gain.

Unfortunately, I sold all my Nordic shares recently to fund my exchange trip. Otherwise, I would have kept it for the annual dividend and/or wait for larger spikes to offload them.

Dividends: A Passive Income

Dividends are payment made by a company to its shareholders, usually out of its profits. Dividend policy varies from company to company. For example, some company do not pay dividends regularly. Others, like Singpost, pays dividends every quarter. Hutchison Port Trust pays bi-annually and Straco pays yearly.

People view dividends as an added bonus when they trade stocks. For an investor, dividends may be the make-or-break decision for buying the stock. This is because in the long run, dividends eventually becomes your passive income. One good example is Dividend Warrior, who regularly blogs about his dividend returns and income. In the latest 13 August 2014 post, he had accumulated $10,262 of dividends. These dividends are based on a capital of $222,560. That is my idol right there!

Usually when I tries to preach about the importance of investing for passive income, the usual response is that the capital is too low to start. However, I beg to differ. Everyone must start at some point and when better to start than now? For young investors, the most precious asset you own is TIME! Given that your capital returns an interest of 5% per annum and that you reinvest your interests, $1000 will become $2000 in 14.4 years. Make your money work as early as possible! In addition, SGX will cut lot size from 1000 shares to 100 shares by 19 January 2015. Currently, you can only buy stocks in blocks of 1000 shares, or 1 lot. By next year, you can purchase stocks in blocks of 100 shares. This means that blue chips like DBS or Keppel Corp will be more affordable to the public.

The gains to be made from investments are from either capital gains from rising share price or dividends. Although capital gains are usually gained in a shorter period of time and thus more satisfying, a smart investor will realise that dividends pay well in the long term. Everyone looks forward to retirement eventually and living expenses after retirement generally comes from CPF. But what if you manage to build a sizeable portfolio by the time you retire? Instead of putting your cash into a saving accounts which yields less than 1%, put it into dividend-yielding stocks like REITs and Trusts. These two types of stocks usually yield at least 5% dividend a year. In addition to CPF withdrawal, dividend payment can really add to the comfort of your retirement. For me, investment is really about building a portfolio that can eventually provide enough dividends for financial freedom/retirement. That should also be the objective that other have for investing.

As a result of my love for dividends, I had been slowly buying dividend stocks like Trusts and REITs the past 2 years. Below is my humble dividend records in the last two years of investing:

Do note that Dividend Yield reflects average yield of only dividend-bearing stocks while Portfolio Dividend Yield is the dividend yield based my enlarged portfolio capital.

I've highlighted the benefits of dividends in investing and also briefly covered how time is our most precious asset. Also, I've mentioned about two categories of stocks, REITs and Trusts, which bears comparatively higher dividend yield. Hopefully after this post, you might give investing a good thinking over and start your own investing journey!

Straco: Art of Pricing Stock Price

When looking for stocks to invest in, there should be a fixed tangible strategy in place. In that way, it is really  investing and not just a game of luck and chance (aka gambling). For me, I use the methodology set out in the book written by Mary Buffet (check out my reading list post). To scout for stocks, the company must have:
1) a competitive economic moat, and
2) a steadily increasing EPS.

Competitive economic moat refers to the high entry barrier that a certain business may possess. For example, setting up a bakery is easier than setting up a smartphone company. A bakery may need bakers, baking equipment, retail space and cashiers. A smartphone company needs the patents and technology, supply chains, distribution lines.. not to mention the manpower! Between these two types of companies, which do you think is easier to set up? Companies with high economic moat mean that their businesses are not easily threatened and margins may be higher. Choosing to invest in these companies ensures your investment has high level of security against business failure.

Mary Buffet also stated that Warren Buffet liked companies with increasing EPS over the years. The companies he mentioned in the book include Coca-Cola, Johnson & Johnson and Kraft Food. It signals the strength of management and business. Furthermore, the intrinsic value of stock can be calculated from the EPS growth.

In my case study, I'll use Straco priced on 18 Aug '13 as an example. The closing price was $0.775.
Straco (S85.SI) is listed on the Mainboard of Singapore Exchange. The company owns and manages a number of tourist attractions in China. These include Shanghai Ocean Aquarium, Underwater World Xiamen and cable car services at Xi'an. It had also ventured into entertainment business with startup of Straco Creation Private Limited.

The EPS of Straco over the years are as follows:

Year Earnings per share (cents) 2005 0.34 2006 0.39 2007 0.71 2008 0.89 2009 1.02 2010 2.15 2011 1.91 2012 2.31 2013 4.01

From the EPS, you can see that Straco has a steadily increasing EPS over the years, barring the drop between 2010 and 2012. This may be the sort of business you want to be interested in. Though Straco certainly isn't the sole player of tourism in China, it is the first few and enjoys the first-mover advantage. Furthermore, China is increasingly into domestic tourism which is positive for the company.

Once you determine that the business model and EPS growth is satisfactory, you can proceed on to estimate the intrinsic value of the company. The steps are shown below.

First Step (Finding CAGR):

Between 2005 and 2013, in which 8 years have elapsed, the EPS of the company has grown from 0.34 cents to 4.01 cents. Using a CAGR Calculator found here, find the CAGR of the EPS. 

Input the data accordingly:

Beginning value: 0.34 (starting EPS)

Ending value: 4.01 (ending EPS)

Number of periods: 8 years (years elapsed)

If done correctly, you will yield a CAGR of 36.13% per year. 

Second Step (Finding the Future EPS):

Once you have establish how fast the EPS is growing, you can estimate the EPS the company will earn in the future. First, you must determine the time frame for the stock investment. For me, I am more interested in the middle term time frame (~ 5 Years). 

With the time frame decided, proceed to calculate the future value of EPS with Future Value Calculator. 

Input the data accordingly:

Interest Rate Per Time Period: 36.13 (this value is the CAGR obtained earlier)

Number of Time Periods: 5 (your desired time frame here)

Present Value: 4.01 (latest EPS of the company)

If done correctly, you will yield a result of 18.75. This is the estimated EPS of the company in 5 years' time. 

Third Step (Establishing the Future Stock Price):

The EPS of the company is estimated to be 18.75 cents ($0.1875). Now, how do we translate this piece of information into stock price? That depends on the price-to-earning ratio (P/E) of the company in 5 years' time. Once again, we have to estimate the P/E of the company. You can do that by studying the historic values of the P/E ratio.  

Being more conservative, I set the model P/E at 8. Normally, P/E is between 10-20.

To get stock price, multiply the EPS with P/E. Therefore, Stock Price = $1.50

Fourth Step (Deal or No Deal?)

The current price of Straco is $0.775 while the predicted value is $1.50 in 5 years. This is an increase of 93% in 5 years. Also take note that the increase is not including dividends! 

Make sure to double check that the calculations have been accurate enough. Take note if there had been one-off gains in EPS and strip it off accordingly. 

When everything is done and the potential return proves to be tempting, the hardest part will be to press the buy button.

Financial Jargon

Ever saw P/E somewhere in stocks discussion forum? Or EPS in the annual reports of companies? P/E and EPS are some of the financial terms you'll find in the world of investing. Before I start my first case study, it is important to know what the terms mean. They help one to decide the intrinsic performance of a company as well as the valuation of the company in the market. Here are some of the more common terms and also what it represents.

P/E (aka Price to Earning Ratio)
The most common metric that you will find. Normally found alongside stock quotes. The number can be found by the equation: P/E =  Stock Price / Earnings
By Earnings, it is meant as Earnings Per Share
P/E ratio helps to value the stock of a company. It is done by comparing the stock price relative to the income generated. For example, if SingPost has a P/E of 26, the buyer is actually paying $26 for every $1 that the company earns. By comparing the P/E ratio of different companies within the same industry, one can find out which companies are "cheaper".
However, P/E is not a clear cut metric to buy stocks. P/E may be higher because the company is expanding fast. P/E may be low because company is in a unpopular industry. P/E will not even exist if the company is loss-making. You can use more ratios introduced further on to determine whether a company is a "good buy".

EPS (aka Earnings Per Share)
The earnings per share made by the company in a financial year. Normal stated in annual reports. Calculated according to the equation: EPS = Net Profit / Total Shares Outstanding
For example, SingPost has a net profit of $128,175,000 and has an outstanding ordinary share of 1,899,921,000. Using the formula, you'll find that the EPS is 6.75 cents as reported in the annual report. Going a step further to find P/E ratio, the stock price of SingPost is currently at $1.765 while EPS is $0.0675.
Dividing stock price by EPS, P/E = 26.14.

P/B (aka Price to Book Ratio)
Book here refers to the Net Asset Value (NAV) of the company. P/B ratio helps one determine whether the stock is priced at a discount or premium to its tangible assets. ( < 1 represents a discount while > 1 represents a premium)
Comparing P/B ratios between companies of similar industries will help determine which one is a good catch. This is especially important because there are different "standard" of P/B in each industry. For example, land developer normally trade at a discount to NAV while technology stocks trades at a premium.

Dividend Yield
When the company chooses to distribute part of its earnings to the shareholders, the money is termed as the dividend. Dividend yield is calculated by the equation: Annual Dividend / Current Stock Price
Dividend distribution is definitely not indicative of a company's strength. Apple Inc, for example, famously did not pay dividend from 1996 to 2012. The stock price was not held back AT ALL.
However, companies that give away dividend is an added bonus as the cash given back is in your pocket. Furthermore, it shows that the company does have the cash and not just "cooking the book".
SGX had once undergone a S-Chip Scandal episode where it involved a number of  China-based companies listed in Singapore. The companies had suddenly gone bankrupt and was later found to be guilty of accounting fraud. Regular dividend distribution acts as a detector to see a company is potentially fraudulent as real hard cash has to be paid out.
                                                                                                                                               
These four financial metrics are the most common metrics I use to filter out a preliminary list of stocks to invest. Google Finance provides a very good platform to filter out a list based on your required criteria. From there, you research deeper on those shortlisted companies and pick the most promising one. This is what "doing your homework" is when it comes to investing.

Brokerages in Singapore

There are a number of brokerages in Singapore. Off my mind, the brokerages include DBS Vickers, Standard Chartered, POEMS, CIMB, iOCBC and Lim & Tan Securities. Each brokerage has it's own pros and cons. Brokerage accounts from banks normally need you to open a savings/current account with them first. The usual factors to be considered are the commissions, ease of use, availability of mobile trading platform, overseas market access and usefulness of research reports.

Personally, I own three trading accounts under DBS Vickers, Standard Chartered and POEMS. The reasons for my trades will determine which account I'll use. For instance, I will use POEMS when I'm travelling because it's mobile platform is easiest to use. Standard Chartered does not have a mobile version and DBS Vickers requires security token for use (not very convenient). When I want to trade small lots, SCB will be used since it does not require a minimum commission. But because SCB holds custody* of the shares bought instead of depositing it into CDP, I will use DBS Vickers for mid-range commissions and for "owning my own stock"

*By holding custody of the stock, SCB acts as the "stock bank" instead of SGX's CDP. The stock is safe unless SCB collapses, which is unlikely given it's solid position. The difference is that AGM and voting rights need to sought from SCB.


 Below is the excel file I've compiled listing the brokerage services I know of. 

Also, this thread on hardwarezone is extremely useful for deciding on which brokerage account to open.
http://forums.hardwarezone.com.sg/stocks-shares-indices-92/how-open-stock-trading-account-singapore-updated-2012-a-3628498.html
They even tell you what to say to the staff for account opening! Wish I had seen this when I was deciding myself too.

Hope this post has given you some info on which brokerage to use. Peace out~~!

Basics of Buying Stocks No One Talks About

Hopefully after reading some of the books I recommended, you will have a better understanding of investments in stocks. While you may acquire some strategies to spot undervalued companies or sort out your investment objectives, you will realise that you still do not know how to buy/sell a stock. Most investment books do not provide "manuals" on how to buy/sell stocks and you will be overwhelmed when you actually open a trading account. Hence, I aim to bridge this knowledge gap. In addition, I will also touch on some confusing trading jargon I faced during initial stages of investing
.

Stock Quote

In a typical stock quote, you will find the following components: Last Done, Change, Buy Vol, Buy, Sell, Sell Vol, Vol. 

Last Done: When you buy a stock, you are buying it from a seller. Hence when a buyer's price matches a seller's price or vice versa, there will be a transfer of ownership (from seller to buyer). Last Done is just the price at which the latest transfer of stock took place at.

Change: It refers to the current price change from the prior day's closing price

Buy: Price where buyers want to buy the stock at

Buy Vol (Volume): The amount (volume) of stock that is queueing at the Buy Price

Sell: Price where sellers want to sell the stock at

Sell Vol:  The volume of stock queueing at the Sell Price

Vol: Volume Done up till the current point

Lot/Share?

1 lot = 1000 shares. In Singapore, stocks are generally traded in lots

Stock/Shares/Equity?

These three terms are often used synonymously. They represent the ownership of the company in question.

  

Trading/Investing?

In certain context, they can be used interchangeably. In others, they are as different as day and night. For example, if you want to tell a friend that you've started to gain interest in buying stocks. You can either say "I'm interested in trading stocks/investing in stocks". 

However, in investment contexts, there is a clear line between trading and investing. Trading is regarded as short term buying and selling of stocks in hope for quick capital gains. The time horizon for trading typically range from seconds to weeks. Trading is mostly focused on capitalising market movement of stock prices. 

Investing, on the other hand, focuses on the fundamental of companies. Objective is to ride on the potential growth of companies, leading to higher share price (see how I'm using stock and share interchangeably). Time frame ranges from months to years.   

Relationship between Brokerage Houses & SGX

Brokerage houses are companies that provide the service to buy and sell stocks on the local exchange, Singapore Exchange (SGX). SGX is just like a marketplace where brokerage houses are stallowners that barter stocks instead of meat.   

When you open a trading account at any local brokerages, they will also open a Central Depository (CDP) account with SGX to deposit any stocks you buy. Therefore, SGX also acts like a stock bank.

You may open a trading account at any of these brokerages: DBS Vickers, CIMB, Phillip Securities, Lim & Tan, UOBKH, Standard Chartered, iOCBC

For the full list of brokerages, go to http://forums.hardwarezone.com.sg/stocks-shares-indices-92/list-brokage-firms-available-singapore-589227.html for more information.


Hopefully, I have answered some of the common beginners' question here. I understand that one may have too many questions when starting out in investing, hence you can always drop a comment. I'll update this post whenever there is a question asked (which I highly doubt so since it's so obscure!)
Peace out~!