The Next Big Crash - Are You Prepared?

[memphisb]

People always say stocks are better than property as they are liquid and can easily sell when you need the money fast.

True that. But can you guarantee all the stocks that you need to sell to raise the money (be it for medical emergencies, fire sale property good buy etc) are above water??

For players who look to stocks as a place to park their idle funds or worse emergency funds, be really careful about this.

Food for thought.

If you have a huge capital, property investment would be wiser choice.
Retail investors, blue collars have fixed and limited funds.

Considering property investment comes with substantial down payment upfront, it would be more preferable for most of us to invest in stocks with diversified portfolio to get capital gains.

All investments including stocks AND property comes with market and economical risks. Recent government property bubble measures such as the 3 year increased wait time for PRs will definitely have an impact of the seller market at least for the next 3 years with the new PRs.

It is the also the responsibility of the good investor/trader to check if the stock that they are getting are liquid and and future catalyst exist.

Why not you shed some light on why you probably think property investment be more liquid then stocks?

Haha, i actually meant to suggest that they are both equally illiquid (if stocks not managed properly) or liquid (if property not managed properly resulting in forced liquidation)!



Follow up question: if you have 500k sgd, where would you put it? Property or stocks?

Buy property when property downturn as priority.
Stocks can dollar time averaging slowly buy in when time is appropriate.

[felixleong]

stocks can dollar average down
property seems very difficult to do something like dollar average down
seems like this 2 asset classes have very different pros and cons

but for most singaporeans, its not easy to have enough cash to purchase a property
poor man like me can only buy stocks, dun have other choices, so sad

[NTL]

You can geared up on your shares too.

From what I know, you can buy some shares, go to the bank, ask for loan using the shares as collateral, use the loan to buy more shares! Wonder if the bank allows the new shares to be use again (and again.. and again...) as collateral...

Ha! Ha!
i like that.
(and again.. and again...) and again, if only we can. (i think LEE KA SENG and the likes of him can)
Isn't banks take our deposits and do that again and again as loans to the people and institutions? All the banks have to do are to have some "Reserved capitals" (in case there is a run on the banks) as stipulated by MAS's regulations based on International Banking's regulations or practices.
Who says the World is unfair or fair?

I had checked. It is possible.

The bank I checked with mentioned that they can borrow at 50% LTV, min. loan size of $50k. So if start with $1M, I can do the following..

$1M -> $500k -> $250k -> $125k -> $62.5k, total $1.937.5M of shares with $1M principle. Almost 50% leverage.

---

People always say stocks are better than property as they are liquid and can easily sell when you need the money fast.

True that. But can you guarantee all the stocks that you need to sell to raise the money (be it for medical emergencies, fire sale property good buy etc) are above water??

For players who look to stocks as a place to park their idle funds or worse emergency funds, be really careful about this.

Food for thought.

If you have a huge capital, property investment would be wiser choice.
Retail investors, blue collars have fixed and limited funds.

Considering property investment comes with substantial down payment upfront, it would be more preferable for most of us to invest in stocks with diversified portfolio to get capital gains.

All investments including stocks AND property comes with market and economical risks. Recent government property bubble measures such as the 3 year increased wait time for PRs will definitely have an impact of the seller market at least for the next 3 years with the new PRs.

It is the also the responsibility of the good investor/trader to check if the stock that they are getting are liquid and and future catalyst exist.

Why not you shed some light on why you probably think property investment be more liquid then stocks?

Haha, i actually meant to suggest that they are both equally illiquid (if stocks not managed properly) or liquid (if property not managed properly resulting in forced liquidation)!



Follow up question: if you have 500k sgd, where would you put it? Property or stocks?

Ha! Ha!
If i have to answer, of course stocks lah. Not only you can not do much with property with 500K, you can not move your capital around; Can not moves around means "Dead capital". No?

Few years ago, with $500k, can do more. When 2bdrm condo are around $500-600k, can buy 4-5 units. Stay in 1, rent out 5 (including HDB)

Furthermore, no ABSD, SSD and whatever limits. More free play. Now... Cannot anymore....

---

stocks can dollar average down
property seems very difficult to do something like dollar average down
seems like this 2 asset classes have very different pros and cons

but for most singaporeans, its not easy to have enough cash to purchase a property
poor man like me can only buy stocks, dun have other choices, so sad

Looking at the buying frenzy before the last measure, I think there are ALOT of singaporeans with enough cash to purchase property. The Jurong East condo is a sell out even though it is selling at such a high price. Who say no money?

Think now many of these are "have money but cannot buy" due to the measures. So they are looking at overseas properties now. News saying that singaporeans are one of the highest number of investors in UK properties. All these are $$$.

[KopiKat]

You can geared up on your shares too.

From what I know, you can buy some shares, go to the bank, ask for loan using the shares as collateral, use the loan to buy more shares! Wonder if the bank allows the new shares to be use again (and again.. and again...) as collateral...

Ha! Ha!
i like that.
(and again.. and again...) and again, if only we can. (i think LEE KA SENG and the likes of him can)
Isn't banks take our deposits and do that again and again as loans to the people and institutions? All the banks have to do are to have some "Reserved capitals" (in case there is a run on the banks) as stipulated by MAS's regulations based on International Banking's regulations or practices.
Who says the World is unfair or fair?

I had checked. It is possible.

The bank I checked with mentioned that they can borrow at 50% LTV, min. loan size of $50k. So if start with $1M, I can do the following..

$1M -> $500k -> $250k -> $125k -> $62.5k, total $1.937.5M of shares with $1M principle. Almost 50% leverage.

IMO, if you do that, you'd be building a pyramid. It'd be like a pyramid of cards that can come crashing down any time, by just pulling one card.... for eg., if you'd borrowed to the max using 50% LTV, you just need one stock (like one card) to drop in valuation substantially (like CMZ, assuming it's in the bank's list of approved stocks) and the rest of the stocks valuation didn't rise to average out that,.... then you'd need to top up with cash to meet the LTV requirement. If not able to,.....

In a more likely scenario, a 10% drop in valuation ought to be very damaging if you'd built your pyramid just before that...

People I know who are using the above pyramiding, would play safe by not stretching their borrowings to the max ie. maintain some % margin to the 50% level + pyramid not too high. They may also have some other sources of funds that can be used to meet the LTV requirement during emergencies. Not sure if they'll survive a severe crash like '08 when STI was -49%...

So, be very careful before you get too greedy if / when you leverage...

[NTL]

Hi KopiKat,

I know that. Not that I want to do that. Just that from what I had checked, it is possible.

For me, I will not be leveraging on my share holding. I will always trying to maintain at least 20% cash to take advantage of any down market. This amount does not include emergency funds or loan payment for the next 1-2yrs.

In the event if I really need money for any circumstances, very likely I will be liquidating my shares, rather than taking a loan on it.

I am not a risk taker, at least not aggressive.

Thanks for the warning.

[smallcaps]

I kinda think property and stocks work well together. Bascially, property provide cheap and big leverage which can be used for stock purchase. And somemore can use 100% of cpf for the property and it is kind of like a savings plan that is easier to keep to. Stocks on the other hand, earns much higher return than the interests on the home loan. Thus, I think propery and stocks complement each other quite well. If really need more cash can always take loan against life policy, rather than margin against stocks.

[NTL]

Loan from life insurance carry 6-7% interest. Loan from stocks as collateral has a interest of (Sibor?)+spread %.

After some thoughts bout it, cost of borrowing from property to buy shares is not much difference from borrowing from shares to buy shares. However, I believe that borrowing from shares is not affected by the cooling measures and it is interest-only loan, it may be more advantages, if done correctly. Furthermore, it is a loan facility where you can drawdown just the amount you need. When have the money, can always redeem the principle.

Only CPF OA can be use for funding property purchase, and if it is the 2nd property, will need to set aside half the minimum sum, then can utilise the rest for property purchase. With all the CM right now, will need at least a 15% raise in price of investment property before making a profit. If considered the 2.5% interest from CPF, that's make it at least 17%. Is it worth it? I am staying out for sure.

[Dividend Warrior]

Warren Buffett once said.....

"Stay away from leverage. If you're smart you don't need it, and if you're dumb, you got no business using it."

[felixleong]

debt is always good for the banks, since they get to earn interest and fees from it ^^

[Temperament]

debt is always good for the banks, since they get to earn interest and fees from it ^^

You are 100% spot on. For banks Their loans portfolio (debts) are their assets, while their cash (equity to us) are their liability.