Financial Review - October 2013

October was a good month for my investments. Net worth increased. High income produced excellent savings* and the principal component of my mortgage repayments combined with solid gains on my equities and commodities more than offset a small adverse movement in FX rates.

Here are the details:

1. my Hong Kong equity portfolio appreciated. During the month, I purchased shares in Ping An (HK:2318) and added slightly to my shareholdings in Cosco Pacific (HK:1199) and K Wah (HK:173) through dividend reinvestment elections. I hold shares in CMR which is currently suspended following an attack by a short seller alleging fraud. I am currently assuming a 100% loss on this position;

2. my AU/NZ equities appreciated slightly;

3.my equity  ETFs increased in line with the local markets. There were no new purchases;

4. my commodities rose. Silver is my only position;

5. all of my properties were occupied with all tenants paying on time. There were only minor repair bills this month. Unfortunately, two buildings have received notices for a mandatory window inspection - I am hoping that I will not have to replace any windows. One property is now debt free;

6. currency movements were negative, with gains in the AUD being less significant than the fall in the NZD;

7. my position in bonds remains small. Some RMB bonds matured and I purchased some units in the iShares RMB Bond fund (HK:3139 and HK:83139);

8.I have no open derivative positions;

9. savings were high with high income and moderate expenses;

10. there was no transfer to Mrs Traineeinvestor this month.

My cash position rose due in spite of the new investment in Ping An. I currently hold 56.5 months of expenses in HKD cash or equivalents. The IShares RMB Bond fund is included a a cash equivalent. This is above my target floor of 24 months.

For the one month period, my net worth rose by 2.06%. The year to date increase is 13.54%. This means that my mark-to-market investments have appreciated this year.

* I retired on 30 September, 2013. Pay for September hit the bank account at the beginning of October.

Ping An purchased

This morning I added Ping An (HK:2318) to the portfolio.

Ping An is one of China's larger insurance companies. The company offers exposure to the growing insurance industry in the PRC and could be viewed as an investment in China's growing middle class consumer. While the historical fundamentals are not very exciting (trailing PE of 18.9 and Yield of 0.9 percent), I expect those numbers to improve as the company continues to grow.

I paid HK$59.30 per share.

Lease renewed

I have just renewed the lease on one of my properties. As this was the highest rental stream in the portfolio it was a relief to sign the tenant up for another two years (with break clause) at a rent that was only (approximately) two percent below the old rent. While the new rent is (probably) a little below the current market, I am still much better off having the unbroken cash flow from a lower rent than getting a higher rent after a short vacancy and incurring all the usual costs involved in renting to a new tenant.

While it is inevitable that there will be vacancies from time to time, starting my retirement with full occupancy on the Hong Kong properties (and having one mortgage free) is a nice.

IShares RMB Bond Fund purchased

Last week bean counter at My Investment Blog posted about the iShares RMB Bond fund (HK:3139) as a relatively new ETF offering. It sounded interesting so I went and had a look. With more cash sitting in the bank earning next to zero, finding a place where I can invest some of it and at least try to mitigate the effects of inflation without taking undue levels of risk is always welcome.

The iShares RMB Bond Fund meets enough of my criteria to justify investment - it will offer a yield higher than bank deposits (which is not difficult) and is relatively safe from default risk (diversified holdings of bonds).

The uncertainties or negatives are:

1. I am not sure what the yield will be as (i) I could not work out how much of the interest earned on the underlying bonds will be subject to PRC witholding taxes) and (ii) it is inevitable that there will be some defaults in the portfolio at some stage;

2. the underlying bonds are denominated in RMB so I am taking FX risk (or achieving FX diversification) which may affect both the yield and the capital value of my investment in HKD;

3. the underlying bonds would lose value if interest rates were to rise. Given that the average duration is around 3 years, I am not overly concerned about this risk; and

4.the fund is small and illiquid.

Given the short duration of the underlying investments, I will include my units in this ETF as part of my cash/near cash calculation.

I paid HKD43.60-43.70 for my units.

Sinolink Holdings - partial sale

This morning I sold some of my shares in Sinolink Holdings (HK:1168) at HK$0.71. These were essentially the same parcel of shares I purchased for HK$0.66 back in August. Net of transaction costs, I made a profit of 7.1%.

I still believe that the company is undervalued (selling at less than cash backing alone with the properties on top of that) and I continue to hold the bulk of my investment in this company.

Tesco puchased

I had a small amount of money sitting in a dormant brokerage account in the UK. Having finally got around to activating the account, I purchased some shares in Tesco (LN:TSCO) last week. The shares have been disappointing but with the UK economy showing signs of recovery, the loss making US operations being disposed of and the move to a JV vehicle in China, I am hopeful that the worst is now behind this company (possibly Europe will continue to disappoint). Even if it takes time to return to growth, the dividend yield of around 4% means that I am being paid while I wait.

I paid GBP3.56 per share.

Early retirement - already getting into the swing of things

Okay, so I am only four days into my retirement but it already feels like a different life. On Friday, I put my daughters on their school bus and, instead of then catching the bus into the office, I went for a short run on the Hong Kong trail and had an uninterrupted day dealing with a few tasks that have been languishing in the in tray for years, working on my MFA assignment and having an afternoon nap. I managed to get more research and writing done today than I did in an entire week while I was working. Not exciting but absolutely pressure free. I'm still notionally part time so I checked the Blackberry ... just once.

Last pay cheque received

Yesterday I received my final monthly pay cheque*. It feels a little strange to know that I will no longer receive employment income for the first time since I commenced my career back in January 1990.

The good news is that I am signing off with our household net worth at an all time high, even with property values updated to reflect lower bank valuations and with what is probably an over provision for future tax obligations.

The bad news is that I have made a list of things that need to be done for one reason or another (lots of yellow post-it notes and mental notes consolidated into a list. So far I have thirty-two items ranging from sending old laptops for recycling to converting some ASX listed shares from broker sponsored to issuer sponsored to doing something with a small amount of money sitting in a dormant broker account to updating my will to ..... it's a long list. Add in the MFA and a few other things and I am actually much busier that I expected. Hopefully things will settle down.

* There will be a further adjustment payment in late January or early February of uncertain amount once the firm's full year results are known. It is also possible that I may receive very small token payment for any consultancy work I do between now and the end of 2014.

And done - I am now retired

I officially retired on 30 September, 2013.

Although I have been looking forward  to this moment for several years, I still feel a little bit apprehensive about the prospect of funding our family for a retirement that I hope will last more than forty years with no income from employment. I know that the numbers make sense, but no amount of financial planning can protect me from every possible negative event, so I spent a bit of time looking at the contingency plans.

1. Off balance sheet assets

We have a few assets which do not appear in the balance sheet for one reason or another:

(i). wine in bond in the UK: this was excluded on the basis that I was more likely to drink it than sell it. As the collection has grown and some of the cases are now too expensive to drink (at least for me);

(ii). gold coins/silver bars: I am not a fan of gold but recognise the metal's long history of being an asset of last resort. Initially the value was too small to bother with but every now and then I buy a little bit  of physical bullion and put it in the safe deposit box;

(iii). life insurance policy: many years ago (before I had even started working) my parents took out a whole of life insurance policy in my name. While whole of life policies are (like anything insurance related) a very bad investment, by the time I had educated myself on the evils of such policies, it had reached the point where it was better to keep it than surrender the policy. It matures in 2021. The amount is not large;

(iv). money in a joint bank account: this is used to collect rent and pay expenses on a property in our joint names. Initially there was very little in the account (in fact I often had to top it up whenever we had a vacancy) but as rents have risen and interest rates have fallen, cash has built up (and continues to do so). It is currently earmarked to pay for redecoration of our home as and when we get around to that;

(v). painting: I purchased one painting which is leased for a modest return. Eventually I hope to sell this but it is an uncertain proposition so I have not included this in the balance sheet.

Collectively, these five items would pay for at least a year's worth of living expenses (at worst case valuations) and could pay for up to 18 months worth of expenses.

2. Sources of funds

We have two main options - downsize our home or take out a reverse mortgage. The former is prohibitively expensive in Hong Kong due to the HKSAR government's war against home buyers and investors and (as far as I am aware), reverse mortgages are not currently available.

3. Reduce expenses

There is plenty of fat in the budget which could be trimmed if needed. We can cut back on holidays and a few other areas without feeling any pain.

At some point, my daughters will be off the payroll. Given that they are still very young, I have ignored this when crunching retirement numbers.

4. Get a job

If I have to I will (and I will still do a few hours a week for a year or so just to keep myself current), but even with all the bad things the market has thrown at me over the last few years, the portfolio has still done its thing. All that being said, if I need to get a job, I should look for one as soon as the possible need becomes apparent and not wait .until things get difficult

It helps that Mrs Traineeinvestor wishes to continue with her part time job although my financial model only assumes she continues working until the end of 2014.

All in all, I have a high degree of confidence in the private portfolio's ability to support us for 40+ years.

Financial Review - September 2013

September was an excellent month for my investments. Net worth increased meaningfully. High income produced excellent savings and the principal component of my mortgage repayments combined with solid gains on my equities and appreciation of the AUD and NZD more than offset the decline in my commodities.

Here are the details:

1. my Hong Kong equity portfolio appreciated. During the month, I purchased I opened a substantial position in Swire Pacific (HK:19) and added a few more shares in Henderson Land (HK:12) through the dividend reinvestment. I hold shares in CMR which is currently suspended following an attack by a short seller alleging fraud. I am currently assuming a 100% loss on this position;

2. my AU/NZ equities appreciated slightly. This gain is understated as some companies went ex dividend during the month but I have yet to receive the dividends;

3.my ETFs increased in line with the local markets. There were no new purchases;

4. my commodities fell. Silver is my only position;

5. all of my properties were occupied with all tenants paying on time. There were only minor repair bills this month. Unfortunately, two buildings have received notices for a mandatory window inspection - I am hoping that I will not have to replace any windows. One property is now debt free;

6. currency movements were positive, with gains in both the NZD and the AUD;

7. my position in bonds remains small;

8.I have no open derivative positions;

9. savings were high with high income and moderate expenses;

10. there was a small transfer to Mrs Traineeinvestor this month.

My cash position fell due to the new investment in Swire Pacific. I currently hold 54.92 months of expenses in HKD cash or equivalents. This is above my target floor of 24 months.

For the one month period, my net worth rose by 4.00%. The year to date increase is 11.25%. This means that my mark-to-market investments have appreciated this year.

I retired on 30 September, 2013 (separate post to follow).