Monthly Review - October

My net worth increased by 3.1% in October.

The year to date increase is 30.6%.

The return on my investments was positive. Spending was low. Income was strong (although down a bit from last month). There were no negatives to report.

Here are the details:

1. my unit trusts appreciated in value during the month. Strong gains in emerging markets dominated the portfolio;

2. my residual share portfolio appreciated;

3. my investment in silver was up;

4. my tenants continued to pay the rent on time and rents continue to be higher than the expense component of the outgoings. The only negative here is the new flat which is now fully renovated but in need of a tenant (which may take a while in view of the fact that the building will be covered with scaffolding as the exterior renovation is undertaken over the next five months);

6. expenses were moderate. There were no large items;

7. my income was high (although less than last month).

The combined effect of the combined effect of the above resulted in a 3.1% increase in net worth at month end.The only investment activities undertaken during the month were regular monthly payments into two small cap investment funds.Looking ahead to November, I will have to finish paying for the fit out cost of the new property. I am contemplating buying a speculative put option on the Hang Seng Index.

Good news and bad...I think

The refurbishment of my last property purchase was finally completed. That's the good news. The bad news is it was three weeks late due to the original batch of flooring being defective and having to be reordered. Although this did not cost me any money, it did result in a three week delay.

The other development is that the owners' committee has decided to refurbish the exterior of the building, including the pipes. (The lobby and common areas were refurbished earlier this year.) A levy is being raised from all the owners to meet the cost. In very rough terms the levy on my unit is about equal to 2% of its value. Based on previous experience, this will add to the value of the building and its appeal to renters (higher rentals and shorter vacancies), so I do not mind paying it. The bad news is that the refurbishment work is likely to take 3-4 months (to be confirmed) and, during that time, it will be hard to locate a tenant. In summary, I will have to put my hand in my pocked for a fairly large cheque, am likely to have difficulty finding a tenant for 3-4 months but will experience an uplift in value and future rent levels.

The making of an asset bubble

The last few months have seen the Hang Seng index rise more than 40 per cent. It reached an all time high above 29,000 points last week. The market surge has been driven by a combination of factors, including expectation of a wave of money from the PRC following relaxation of foreign exchange controls to allow mainland investors to buy Hong Kong shares, high levels of investor confidence and negative interest rates.

In valuation terms, the Hang Seng index is now quite expensive, although not ridiculously so. It is certainly a lot more reasonably priced than the markets on the mainland.

The local property market is also experiencing a less dramatic rise. A combination of low levels of supply (especially on Hong Kong Island and in the luxury sector), negative real interest rates, rising rent levels and high confidence levels (at least in part due to the rise in the stock market) are driving the property market.

Holders of bank deposits in Hong Kong have been faced with negative real interest rates for a number of years (hence my long held aversion to holding any more cash than I absolutely have to). With mortgage interest rates having fallen further (one of my latest HIBOR fixings was at 4.55%) and rents rising, property remains an attractive asset class.

Last week's budget announcement of a small tax cut to be introduced in 2008/9 and a waiver of one quarter's rates is also good news.

Now if only the Hong Kong government would actually do something about the pollution.

Monthly Review - September

This month's update was delayed for one very simple reason. When I first put all the numbers for September into my spreadsheet, the result was an unbelievable 6.1% increase in net worth for the month. In rather blunt terms, I assumed that I had made a mistake and moved a decimal place somewhere. After going through the numbers again, I was delighted to conclude that the original calculation was correct. Here's how it happened:

1. my residual share portfolio was up;

2. my funds were up strongly (they are heavily weighted towards emerging markets);

3. my tenants continued to pay the rent on time and the income from my properties was higher than the expense component of the outgoings (actually, one tenant missed a payment but has now caught up);

4. silver was up strongly;

5. currency movements were strongly in my favour. This was the single biggest contributor to the monthly change;

6. it was a strong month for income and my expenses were at the low end of expectations.

The year to date increase in net worth is a staggering 26.62%. While I appreciate that some the gains this month are very fickle (especially the effect of currency movements), this year's progress towards my retirement goal has been impressive.

Book Review: Affluenza

I purchased this book looking for something interesting to read on a long haul flight. I was severely disappointed.

Oliver James is a psychologist and Affluenza is a long winded rant against materialism, materialistic (i.e. capitalist) values and the "depression, anxiety, addiction and ennui" that results from being infected with the wrong values. The premise of taking a good hard look at the values we base our lives on and the consequences of having such values is a good one - it is an issue which at a personal level I regard as important and very worthy of examination. Unfortunately, I can not recommend Affluenza as a worthwhile contribution to the subject.

My single biggest issue was that the overall tone came across as a snivelling, whining rant against economic development, material possessions and consumption based lifestyles. I have some sympathy and agreement on the latter two points. Even so, it made for rather trying and dull reading.

At a more specific level, I found that time and time again I either disagreed with James' views or found myself wondering about the validity of his research. As examples:

1. his comments on the best ways of raising pre-scho0l children were inconsistent with my own experiences as a parent. Our pre-schoolers have a great time at their pre-school and other classes, showed very little separation anxiety in the first few weeks, none at all after the first month or so and can be observed laughing and playing with other children and the teachers. This experience is not unique;

2. the supposed explanation of the difference between "authentic" and "sincere" was very muddled and unclear. I read the chapter twice and have no idea what he was on about;

3. at the end of the book I had reservations about his methodology. Given the sweeping claims and generalisations made in the book, I was very very surprised to see the very small sample sizes on which James' views were based. Certainly he refers to more comprehensive data sets provided by other researchers, but I had little confidence in the validity of his conclusions as a result.

The final analysis? Yes, there are some screwed up people with some values with which I do not identify and there are a lot of people whose state of happiness is less than ideal in this world. Yes, I have little doubt that money is not a substitute for either genuine values or happiness. No, I did not think much of this book.