Tuesday, August 09, 2011

Living with the downside

As mentioned in my previous post, every equity I've purchased so far this year is now trading at below cost, in some cases well below cost. Add in the declines in value in the portfolio I held at the beginning of the year and the cumulative losses on equities far outweigh the net rentals and FX gains. As things currently stand, plans to retire in early 2012 are in jeopardy.

That said, there are some positives:

1. assuming no further investments, by month end I will be sitting on around 30 months of living expenses in cash or near cash. This is the most I have had for a considerable time;

2. interest rates remain low and are likely to remain low for the foreseeable future. The risk of higher interest rates on my floating rate mortgages has been significantly reduced;

3. I am still accumulating and the recent share market falls mean that I will be buying at more attractive prices than earlier 2011 or in 2010. The Hang Seng Index is trading at below 11x current year earnings. While this is not as low as in early 2009, it is well below the historic average;

4. it is better that this happen now when I am still working (although with considerable uncertainty when I come off contract at the end of 2011) than after I retire;

5. the weaker AUD/NZD provides an opportunity to move some money offshore to further diversify my asset base.

Obviously markets can keep falling - we are still well above the early 2009 lows, I could be facing unemployment next year and I could get some vacancies on the properties. A lot of things could continue to go wrong, but at some point the current market rout will become an opportunity. Although this may be evidence that I need therapy, I am more inclined to ignore the overwhelming tide of negativity and view the current market as a buying opportunity than to panic and sell. Famous last words I am sure.


Bill said...

"As things currently stand, plans to retire in early 2012 are in jeopardy. "


You've been in HK quite a while. You must have been through Asian Contagion, SARS, dotcom crash, Lehman collapse so you must have already internalised that at some point(s) your entire portfolio (stocks, dividends, property, rents) is almost certainly going to take a big hit (60+ percent) You must have known this a year ago when you provisionally set the date so why should a decline make any difference?

traineeinvestor said...


Yes, I've been here long enough to have been a reluctant participant in all of those events and before I arrived in Hong Kong, I also experienced the 1987 share market crash and the severe recession that followed it. The biggest difference between today and then is that I now have two young children.

The short answer is that this is that the numbers still add up (I ran FIRECalc last night and went through my own spread sheet) but the margin of safety has more or less disappeared. I'd rather front end load an extra year of working than retire and then have to come back in a few years time.