Hutchison Whampoa purchased

Having looked at my current cash and near cash positions and the expected cash flows between now and retirement in mid-2013, I have concluded that I will have too much of our retirement invested in cash or near cash.

Cash and short term bonds have their place in a portfolio in that they provide a buffer for meeting expenses and a war chest for opportunities, but they currently produce negative real returns.

With our mortgages costing an averaged of around 1% p.a. (tax deductible), paying off the some of our mortgage debt was not an attractive alternative so I have opted to add some more shares in Hutchison Whampoa to the portfolio. The yield of around 2.5% is not particularly attractive in absolute terms, but it is secure and  is certainly better than cash or short term bonds so long as I am prepared to ride out any fluctuations in the price of the shares.

I paid HKD 80.75 for the additional shares.

I will be looking for some more stable dividend shares when I get back from holiday in the New Year.

New camera purchased

Having finally conceded that the Canon EOS 5D that has served me so well for over seven years has reached the end of its useful life I went out and purchased the EOS5D iii as its replacement. I did give serious consideration to the Nikon D800, but decided that it wasn't worth replacing a flash and my lenses to make the switch.

I'm still playing around with it but already notice the improved low light capability. The video function may get a bit of use as well - better quality than videos taken with an iPhone but heavier to hand hold for long periods of time.

Silver purchased

Silver dropped below USD 30.00 per oz overnight. Hoping that this is largely due to a combination of year end position squaring and US investors taking profits before tax rates go up next year, I added a few more ounces to the portfolio.

I paid HKD232.8 per oz (equivalent to USD 30.03).

Paladin purchased

I have spent some time looking at long term forecasts for uranium supply and demand. The conclusions of the reports I read suggest that demand is likely to exceed supply in the not too distant future. While long range forecasting is often an exercise in looking stupid, given that uranium has taken a beating in recent times, I decided to purchase some shares in Paladin (ASX: PDN). Based on today's fundamentals, PDN is not something I would normally look at (I prefer companies that actually make money now), but if the forecasts are correct (or enough people believe them to be correct), then the shares could go for a nice run.

This is all pretty speculative, so I have kept the investment small - basically the dividends that have accumulated from my other Australian shares over the last couple of years.

I paid AUD1.03 per share.

Some new Hong Kong blogs

Hong Kong focused personal finance and investment blogs are few and far between so it was good to see two new additions:

• The Investment Portfolio from Aspiring Investor
• My Investment Portfolio from Bean Counter

I have added them to my blog roll and look forward to following their progress.

No more bank consent letters

For a long time it has been my practice to obtain the consent of the bank holding the mortgage over a property whenever I lease the property out. Sometimes (not always) tenants will ask for a written confirmation from the bank and I have always been happy to obtain it (although it usually takes about two weeks which means it sometimes arrives after the tenancy has commenced).

Today I received a call from one of the banks and was informed that they are now charging HKD1,000 to issue approval letters. My response was that I would not be paying that charge and, going forward, would not be seeking bank consent for any new tenancies. The bank officer confirmed that he would cancel the request and that the bank did not require me to obtain bank consents for new leases.

This is fine from my perspective but it means that if any future tenant wants a bank consent letter, the tenant will have to pay the charge. I will not be.

A small day trade badly executed

I'm not much of a day trader, but on Friday I noticed the high turnover of Radford Capital (HK:901) and did a bit of digging. With its NAV at over HK$0.10 per share and the share price at around HK$0.045 per share I decided to put in an order at HK$0.045.

The order was partly filled before the share price ran away. Given the rate at which the company has lost money over the last few years and having had a look at the larger investments disclosed in its most recent report to shareholders, this was not a company that I wished to hold long term so I did not increase my limit order even though I could have filled it at HK$0.047 (or thereabouts).

I sold yesterday at HK$0.058 making enough money to take Mrs Traineeinvestor out for a modest dinner with a decent bottle of wine. If I had filled the order completely and held for one more day, it would have been a very nice Christmas present indeed.

Sinolink Holdings Limited pruchased

Yesterday I purchased a few more Sinolink Holdings (HK:1168). Notwithstanding the recent price rise, the shares remain at a substantial discount to both bock value and net cash (as at the last interim report). I paid HK$0.70 for the additional shares and my average cost is now HK$0.653 (including transaction costs).

Asset allocation?

Aspiring Investor asked me about my asset allocation. It's a good question given that the asset allocation process has been shown to be a material factor in portfolio returns.

For better or for worse, I do not follow a traditional asset allocation model such as (X% in stocks, Y% in bonds or the well debated permanent portfolio.

Prefer cash flow producing risk assets: I am primarily a value investor with a tolerance for market volatility and a belief that continued inflation is more likely than deflation over the longer term. To that end, I prefer to have most of my savings invested in risk assets (real estate and stocks) that produce cash flows (rents and dividends) that have at least the potential to increase over time to more or less compensate for the effects of inflation. Relying on cash flows to pay our living expenses also reduces our need to time the sale of assets to maintain our lifestyle.

Currency matching: Further, I would prefer to have a significant part of those cash flows denominated in the same currencies as our expenses: mostly HKD and NZD with others depending on where we go for holidays. As a result, most of our assets are either Hong Kong property or securities listed on the Hong Kong Stock Exchange.

Cash reserves: Cash flows can get disrupted. Dividends can get cut. Properties can remain vacant (which is a real pain as outgoings like rates and mortgage payments don't stop). History tells us that such disruptions are more likely to occur at times when asset prices are low. I don't want to be forced to sell assets at unfavourable prices - especially after I have retired and no longer have employment income to fall back on. Accordingly, I intend to maintain at least two years worth of living expenses in cash or short term bonds that I can draw on if needed.

Some diversification: Lastly, I also recognise that having the biggest part of our assets weighted towards HK/China is a risk factor in itself. With this in mind, we are allocating some more of our savings to investments which are either (i) outside HK/China and (ii) in different asset classes. As an example, I recently unsuccessfully bid on another property in New Zealand, we have some exposure to gold and silver, we have invested in some ETFs which invest outside HK/China and allocated a small amount of money with Walton. Since I do not want to work for another five years or more, the allocation to these non-core assets is, of necessity, quite small

Estate planning: As a final point, we have avoided accumulating significant assets in countries which impose estate duties. Our investments in the US and the UK are limited as a result. Hong Kong and New Zealand do not impose estate duty.

Summary: In summary:

(i) mostly Hong Kong real estate and listed securities held for cash flow to fund daily living expenses;
(ii) a material allocation to New Zealand real estate and listed securities held for cash flow to cover daily living expenses while in New Zealand;
(iii) smaller allocations to other assets including ETFs, gold, wine and other investments to provide a degree of diversification; and
(iv) at least two years worth of expenses in cash or near cash to cover any disruptions to cash flow (and a willingness to hold considerably more in cash/near cash if suitable investments cannot be identified).

Sinolink Holdings purchased

I have added some more shares to my position in Sinolink Holdings (HK:1168). As noted previously, this is simply and investment in a company whose shares are trading at below the asset backing (in fact, below net cash backing) shown in the most recent interim report.

I have paid up to HK$0.69 per share and my average price is now HK$0.636.

And yes, I am kicking myself for not loading up when the shares were around HK$0.60.

New lease signed

The tenant for one of my properties elected not to renew the lease when the term expired in November. In some ways, this was something of an important first test of how the rental market was holding up in the face of the government's cooling measures (primarily directed at sale and purchase transactions) and the redundancies which have hit the financial sector quite heavily this year. It didn't help that a brand new building in very close proximity had recently come on the market providing a good supply of brand new units with which I had to compete.

In the end, two similar offers came in at about the same time and I was able to sign a new provisional agreement at the same rent as the previous tenant was paying. The vacancy period is five weeks (which is about average) and after five years since the last substantive redecoration, the cosmetic tidy up work was about what I expected - some repainting, minor repairs etc.

Seven pay days to go

With only seven pay days to go, I'd like to report that a feeling of anticipation is building. It's not and I can't figure out why? Possibly being extremely busy at work has something do to with it (and the work is actually quite interesting) - but that will not get me to change my mind.

I have decided to cancel my term life policy when it comes up for renewal in January. By definition, if there is enough money to support myself and my family then there is enough money to support the family without me being around. That there is no estate duty in Hong Kong is obviously helpful. The annual premium is not a huge expense, but it's still a nice saving that can be applied elsewhere. One consequence is that I will need to revise my will to achieve the desired testamentary distributions.

No other major pre-retirement issues or developments to report.