Tuesday, April 30, 2013

Limited financial review for April, 2013

Due to the death of my computer and the failure of the backup drive, I am not able to do the usual monthly review this month. Depending on how much can be recovered over the next few weeks, I may have to reconstruct all my spreadsheets. :-(

Some comments:

1. savings rate was high with high income. Our holiday expenses had been budgeted for so would not have had an impact on net worth (only cash);

2. all properties remained fully occupied. However, cash flow was slightly negative this month due to a combination of (i) cutting the rent on a unit in a building which is getting a substantial refurbishment (ii) paying one of the installments for that refurbishment and (iii) some minor repair bills for another unit. I expect to be back to positive cash flow in May. I will also start to receive a slightly higher rental on a unit where the tenant has just signed a new lease;

3. my equities probably declined during the month. I am not able to quantify by how much. During the month, I purchased shares in Hutchison (HK:13), Chorus (NZX: CNU) and Challenger Financial (ASX: CGF) and sold my shares in Sino Oil & Gas (HK: 702);

4. my remaining commodities declined sharply (but they are a small part of our net worth). I sold my units in Lean Hongs (LSE: HOGS) and Nickel (LSE: NICK) as well as my position in platinum and increased my position in silver;

5. currency movements were marginally unfavourable with the AUD in particular weakening against the USD;

6. I am not able to calculate the number of months of net cash (including near cash such as short term bonds) on hand but it would have fallen due to the new investments (in particular HWL which was a large investment).

Overall, I would have expected my net worth to have fallen slightly during the month.

Other matters:

7. we are temporarily carrying double medical insurance. My policy will end when I retire, so we have taken out a different policy through Mrs Traineeinvestor's employer and will cancel my policy this month;

8. one property became debt free with the last mortgage payment being made today. I have cancelled the fire insurance for that unit to save a bit more money;

9. with my retirement date fixed at 30 September, I have exactly five months (and six paydays remaining).

Monday, April 29, 2013

Lease renewal

With property prices having fallen somewhat on very light volume and at least some people predicting much bigger declines to come, my attention has been on the leasing market. As a long term property investor, it is far more important to me to maintain occupancy than to extract the maximum fair market rent.

With that objective in mind, I have just agreed to renew a lease at an increased rental of 4.8%. Based on recent comparables (not many in this building), I had assesses the market rent as being slightly higher and would have represented a rental increase of 7.1%. However, if the tenant had not signed up for a new lease, I would have been faced with a vacancy of uncertain duration, at least some redecoration costs as well as agency commission. Settling for a little less than market rent to keep the tenant for another two years was unquestionably the right thing to do.

Friday, April 19, 2013

Things that really suck

My laptop has failed after the computer was dropped. Having failed to fix the problem myself, I called in an expert and have been told that the hard drive is physically damaged and it will take a few weeks to find out whether all, some or none of the documents, photos etc can be recovered.

Back up? Yes I have an external drive on which everything backs up automatically once a week. At least it was supposed to - when I went to check, I found that the last weekly back up was done in early January. So I could be looking at a loss of four and a half months worth of financial records, photos, progress on my novel and other data.

Cutting the rent during renovation work

I have previously posted about the levy for refurbishment of one of the buildings in which I own a flat. It turns out that the work is very extensive (which I should have expected from the size of the levy) and will including putting opaque plastic covers on all the windows for a few weeks, scaffolding over the entire building for a few months, retiling the exterior and removal of the air conditioning units for a while. The entire project is expected to take about six months.

Quite frankly, I couldn't blame the tenant if he wanted to move out. And he did consider it. And I would have agreed to early termination if he'd asked for it. It would have been unconscionable to hold a tenant to a lease in these circumstances. Given that it would be impossible to rent the flat to a new tenant while all this was going on and I would have to repaint the interior (and probably do a few other things) before a new tenant would move in, I offered to cut his rent by one third while all this was going on. He was happy to agree to that arrangement - a "win" for both parties. The tenant has a lower rent to compensate for the inconvenience and I will have at least some rental income instead of a vacancy and a redecoration bill.

Hutchison Whampoa purchased

This morning I added some more shares in Hutchison Whampoa (HK:13) to the portfolio. Hutchison is one of Hong Kong's most established conglomerates with some very strong business franchises and an increasingly globally diversified portfolio. While the shares are not priced at bargain levels, the price (possibly affected by the port strike) is attractive and I have confidence that, at some point, the shares will trade higher. In other words, the risk of permanent loss of capital is low.

The investment was a substantial one and, combined with my existing holdings, makes HWL one of my biggest individual shareholdings.

I paid HK$ 79.60 for the additional shares.

Wednesday, April 17, 2013

Silver purchased

Another update from yesterday.

I used the proceeds from the sale of platinum to add to my position in silver. I paid HK$176.6 per oz (about USD22.64).

Platinum sold - loss taken

Yesterday I sold my paper platinum. The investment was originally acquired at HKD12,868 per oz in January on the theory that a combination of supply disruption and economic recovery would give prices a lift. Neither event has happened so I decided to move on.

I sold at HK$ 10,694 per oz for a loss of 17%.

As an aside, recent posts would suggest that I am losing a lot of money on my investments. While it is true that I have had several losing investments, fortunately most of the losers have been smaller investments and they are greatly outnumbered by the more successful ones. As a whole, my non-property investments are will above cost.

Paladin sold - loss taken

Yesterday I sold my small shareholding in Paladin (ASX:PDN). Given that the company is expected to continue to make losses at current uranium price levels and the (IMHO) likelihood of increased supplies of oil/gas from unconventional sources allowing politicians to delay decisions to use more nuclear power, I have lost confidence in my original investment thesis.

Add in the fact that the shares were trading at 20% below my purchase price and I decided it was better to cut my losses.

I received AUD0.80 per share.

Friday, April 12, 2013

Cleaning house (financially)

Over the last few months I have been making an effort to clean up my finances. In many cases I am dealing with things that should have been dealt with a very long time ago. In all cases, the procrastination has ended up costing me money - not just the loss on the investments or expense concerned but the opportunity cost of not having the money available to invest in other things.

House keeping so far:

1. I have cancelled my term life insurance policy which reduces my annual expenses by the amount of the premium. If I have enough money to support the family in retirement, by definition there is enough to support the family without me;

2. I have closed an old investment account in New Zealand. Not much money, but it will pay for a couple of nice dinners with my parents on our next visit. Also, one less institution cluttering up my mail box with statements;

3. I have sold four "too small" investments: Sino Oil & Gas, Shenzhen Express, HOGS and NICK. The first two started out at the minimum threshold but fell below it (in Sino Oil's case, well below). All were sold at losses;

4. I have cancelled a fire insurance policy which I hope is no longer required.

House keeping still outstanding:

5. I have two small speculative positions remaining: platinum (notional not an ETP so no contango issue) and Paladin (ASX: PDN) which is essentially a play on uranium. I am currently holding a small loss on both of them. I have no problem with making a few small speculative investments but have learnt that taking losses early and not having too many going at once is probably a better strategy than my recent practice of just ignoring the losses and hoping things will improve. In any case, I need to decide what to do with these;

6. I have two other investments which are now in the "too small" category. Tontine Wines HKSE: 389) and a single carpark space in Auckland. I have not decided what to do with either of these yet;

7. I need to update my will;

8. I need to update the list of accounts etc for Mrs Traineeinvestor should anything happen to me;

9. I would like to sell a few of the (cheap) paintings in our home so we can refresh with new ones;

10. Mrs Traineeinvestor has some investments of her own which we should discuss.

Loss making investments:

As I was writing this, I noted that I have said on all of the recently realised losses that individually none of them is large. However, collectively, the losses are material. This really reinforces the need to limit the number of speculative investments and to manage them better. Given that I will soon cease to earn an income from employment, this discipline is now more important than previously.

I also took a look at my other investments - happily only three are currently trading at below cost: China VTM (HK: 893), Xtep (HK: 1368) and Vietnam Tracker (HK: 3087). China VTM will more or less break even if the proposed general offer eventually goes through. Xtep is generally rated a sell by brokers but is still well cashed up, generating positive cash flow and paying a good dividend. Vietnam Tracker is exposure to a counrty with excellent demographics and a lot of catching up to do in terms of evolving into a developed economy.

Everything else is currently profitable (although BHP and Sinolink are at about break even), so the non-property investments as a whole have done very well but that does not excuse a failure to deal with my mistakes promptly.

HOGS and NICK sold - loss taken and lesson learned

Today I finally sold my small experimental positions in two LSE listed exchange traded products - Lean Hogs (LSE: HOGS) and Nickel (LSE: NICK).

I ended up taking a loss of 55% on these investments. I'm taking away three important lessons from this experience:

1. I must take the time to learn more about how things work before investing. In this case, more money was lost from the contango (roll over of futures contracts embedded in the products) than movements in the commodity prices or currency;

2. take my losses earlier. I should have sold these much sooner - like a year or two sooner. Unfortunately, I appear to be too unwilling to admit that I have made a mistake for my own good;

3. while I should normally only invest a meaningful amount of money in anything (and I have a floor), having one or two small speculations running is fine, so long as I do not have too many going at once and I remember to cut my losses early.

As with a couple of other very poor investments, I am grateful that only a small amount of money was at stake here.

Thursday, April 11, 2013

Bitcoins - today's tulip bulbs

There has been plenty written about the Bitcoin craze. Quite frankly, anyone who thinks Bitcoins are a genuine substitute for currencies needs counselling. Consider that:

1. it is not known who creates/issues Bitcoins - do you really want to trust your wealth to what amounts to an anonymous stranger somewhere in cyberspace?

2. Bitcoins are not the only so-called virtual currency. What's to stop more being created?

3. while it is stated that there are limits on the number of Bitcoins that can be created, how can holders be assured that the announced limits will be respected (or are being respected now for that matter)?

4. Bitcoins exist in the hacker-populated world of the Internet. What happens if hackers make another successful attempt at the system?

Bitcoins are only worth what someone else will pay for them. No different from any other real or virtual goods. Like tulip bulbs, cowie shells, Beanie Babies, McSnoopies and a host of other fads, they are worth what people will pay for them and nothing more. Unlike a genuine currency they do not have a universal exchange value and are not widely accepted (not even close).

Sure, fiat currencies have serious issues - most significantly they fail the long term store of value test due to excessive printing by governments and central banks - but Bitcoins suffer from the same issues as fiat currencies and a whole lot of additional issues.

Sino Oil & Gas sold

Another investment that started out small and got smaller. A lot smaller. I have finally done something which I should have done a long time ago and taken the loss on Sino Oil & Gas (HK:702). If an announcement that the chairman has increased his shareholding (again) can't spark a rally, I don't know what will. Well past time to move on.

I sold at HK$0.151 for a net loss of 63%.

I'm just thankful that it was a small investment to begin with.

NZD and Chorus purchased

We currently have most of our investment eggs invested in Hong Kong/China. In an effort to get a little more diversification into the portfolio, I purchased some NZD on Monday (@ 6.5786) and have opened a position in Chorus (NZX: CNU).

CNU is largely the fixed line business from the demerged Telecom Corporation. CNU's share price has been hammered over concerns regarding a review of its pricing by the Commerce Commission and expectations of delays and cost overruns for its UFB project. Should either or both of these concerns be overstated, then the shares should get a lift. In the meantime, the expectation is that the current dividend will continue to be paid for at least 2013 and 2014 and (probably) 2015 which gives a degree of protection.

I paid NZD2.68 per share.

Wednesday, April 10, 2013

Portfolio adjustment

This afternoon I sold my shares in Shenzhen Express (HK:548) and invested most of the proceeds in some additional shares in Anhui Express (HK:995) which has been a better performing company. This was largely an exercise in reducing the number of companies I need to monitor. Shenzhen Express was one of my "too small" investments that I should have sold some time ago.

I sold the shares in Shenzhen Express at HKD2.92 (for a net loss of 15%) and paid HKD4.20 for the shares in Anhui Express.

Is fire insurance really necessary?

For many buildings the question does not arise at all - the cost of fire insurance for an apartment is included in the monthly management fees and you have to pay it. However, some buildings do not have block insurance and it is up to the individual owners to arrange their own fire insurance if they wish. If the property is mortgaged, the bank will insist on coverage at least equal to the amount of the outstanding insurance policy (and will steer you in the direction of their own insurance company).

One of my properties has no block insurance so the bank required me to take out a fire insurance policy equal to the amount of the mortgage loan. With the last mortgage payment falling due at the end of this month, I have been debating whether or not to continue to pay for fire insurance going forward.

The amount is not large but it is still an expense that I do not believe confers any real value. The possibility of a fire sufficiently large to damage my flat in an adequately maintained building is, in my view, remote. Accordingly, I have cancelled the policy.

Monday, April 08, 2013

Challenger Financial purchased

This morning I added a few more shares in Challenger Financial (ASX:CGF) to the portfolio. The company looks relatively undervalued on fundamentals, is buying back shares and may be a beneficiary of changes to Australia's superannuation regime. There have also been some recent broker upgrades.

I paid AUD3.97 for the additional shares.

Monthly Review - March 2013

March was a month where all my investments fell in value and the fall was greater than my (low) net savings from my job and the positive cash flow from the properties. Marginally favourable currency movements did not come close to bridging the deficit. The result was a modest decline in net worth.

Here are the details:

1. my Hong Kong equity portfolio fell. There were no new investments this month. I hold shares in CMR which is currently suspended following an attack by a short seller alleging fraud. I have increased the provision for loss from last traded price from an arbitrary one third to an equally arbitrary one half when the suspension is lifted. There were no new investments in March;

2. my AU/NZ equities fell sharply. I added some shares in Challenger Financial (ASX: CGF) to the portfolio;

3.my ETFs fell in line with the local markets;

4. my commodities fell sharply, with silver the biggest loser;

5. all of my properties were occupied with all tenants paying on time. had three major bills in March - one repair job which is semi-structural and two levies for building refurbishment. One of the building refurbishments is likely to see the tenant move out and a lengthy vacancy;

6. currency movements were slightly positive, with both the NZD and the AUD rising slightly against the HKD/USD;

7. my position in bonds remains small;

8. there were no open derivative contracts at month end;

9. savings were low with low income and high expenses due to the cost of a family holiday;

10. There were no transfers to Mrs Traineeinvestor  this month.

My cash position rose with more money coming in than going out due to new investments. I currently hold 55.7 months of expenses in HKD cash or equivalents. This is above my target floor of 24 months.

For the month, my net worth fell by 1.57%. The year to date increase is 6.33%. My retirement date has been fixed for 30 September for reasons that have nothing to do with finance - financially, I am past the point where I can afford to retire.

Note: due to travelling, the March 2013 review uses a cut off date of 5 April, 2013 instead of the usual last business day of the month.