The Next Big Crash - Are You Prepared?

[Wildreamz]

Dividends seem to still be the key then.. I was thinking along the same lines as felixleong that even if it drops to 30cents, if there is 10% yield, provided the company does not reduce the dividends, it seems to be very good.

Bibi, just to check, there are other companies besides bluechips that give consistent good returns at higher yields right? So does it make more sense to buy these companies? Just for one example, LKH. As long as fundamentals are good, that's the most impt?

Side qn: So how come Warren Buffett focuses more on capital gains than dividends? Is it because USA has tax on dividends so focusing more on growth is better in the long run?

Even if a fundamentally sound company doesn't pay out dividend, if it is generating free cash flow year in, year out, the money will usually be cycled back into the company and compounded, increasing the intrinsic value (including cash and assets) of the company.

If the market value of the company still doesn't reflect its actual value by then, a few scenario might happen:

1) Major shareholders of the company will push for share buyback programs or dividend payout.

2) The company shares will be bought up by another company/institution/individual at a premium to market price and taken private.

IIRC, Warren Buffett prefers capital gains to dividends because of several reasons. First is the "reinvestment risk" of dividends, sometimes it is difficult to find ways to reinvest dividends such that it will have good returns.

Second reason is that fast growth company needs more capital to grow, paying out too much earnings as dividend for such cases actually limits the growth potential of such companies.

[KopiKat]

Reits got sold down again, whats happening man

http://www.remisiers.org/cms_images/rese...706_LT.pdf

https://secure.sgs.gov.sg/fdanet/SgsBenc...rices.aspx

If REITS yield is to follow SG 10yr bond, price of REITS should be close to Aug 2011 when the bond yield is at similar level. Are we there yet?

DBSV has an interesting theory on QE3 impact on SREIT prices from Nov12,

http://www.remisiers.org/cms_images/rese...dDaily.pdf

From my month end data,

[wrap]
[table=REIT]
CapitaComm
CDL Htrust
Ascendasreit
CapitaRChina
A-Htrust
CapitaMall
AscottREIT
FE-Htrust
LippoMapleT
SuntecReit
SaizenREIT
Sabana REIT
MCT
MIT
MapletreeLog
FrasersCT
CLT
Cambridge
Fortune Reit HK$
StarHill
K-REIT
FCOT
AIMSAMPIReit
First REIT
PLife REIT
MGCT[/table]
[table=13-Jun]
$1.505
$1.820
$2.300
$1.470
$0.860
$2.030
$1.285
$0.965
$0.465
$1.620
$0.175
$1.115
$1.200
$1.385
$1.120
$1.995
$1.210
$0.680
$6.760
$0.845
$1.325
$1.360
$1.565
$1.170
$2.390
$0.955 [/table]
[table=Nov-12]
$1.620
$1.925
$2.400
$1.540
$0.910
$2.070
$1.320
$0.985
$0.470
$1.620
$0.173
$1.110
$1.195
$1.375
$1.110
$1.985
$1.190
$0.650
$6.690
$0.755
$1.230
$1.255
$1.425
$1.015
$2.140
$0.930 [/table]
[table=Diff]
$(0.115)
$(0.105)
$(0.100)
$(0.070)
$(0.050)
$(0.040)
$(0.035)
$(0.020)
$(0.005)
$-
$0.002
$0.005
$0.005
$0.010
$0.010
$0.010
$0.020
$0.030
$0.070
$0.090
$0.095
$0.105
$0.140
$0.155
$0.250
$0.025 [/table]
[/wrap]

* MGCT uses IPO Price as listed this year
** Prices Not adjusted for any Rights / Placements, if any

If REIT prices continue to drop, we may have to use Dec-11 data for comparison... haha..

[swakoo]

In June 2007, Business Times Tokyo correspondent Anthony Rowley moderated a roundtable whose participants correctly predicted the Global Financial Crisis of 08/09. You can read minutes of the roundtable here: http://www.321gold.com/editorials/thomso...62607.html

A big similarity then and now is significant mispricing of credit and the overheating of emerging markets. At the time I read the roundtable minutes in 2007, I dismissed it (much to my regret later) partly because I couldn't appreciate how a credit crunch could potentially cause a systemic crash. Nowadays I pay careful attention to what the correspondent writes.

In today's Business Times, he wrote how he feels about the situation now. Extracts from http://www.businesstimes.com.sg/premium/...p-20130613

Published June 13, 2013
A bubble that's primed to explode, not just pop
US tightening, Japan easing, Europe deleveraging - it's a nerve-racking balancing process
By Anthony Rowley
Tokyo Correspondent

I AM getting nervous - very nervous, in fact. In my career as a journalist, I have seen many financial bubbles develop and burst but never anything like the present QE-induced global bubble. I doubt whether there ever has been such a phenomenon before, in absolute or GDP-relative terms.

I'm referring, of course, to the massive quantitative easing (QE) packages that have proliferated in number and size at the hands of the US Federal Reserve, the Bank of England, the European Central Bank and the Bank of Japan (BOJ) principally.

Each and all of these banks has blown its own bubbles in the past: in the UK in the 1970s, in Japan in the 1980s, in the US in the late 1990s, and then again in 2008, and in Europe too.

But they are all blowing together this time and the bubble could explode rather than simply pop.

[Dividend Warrior]

PS. The current drop is tiny compared to the one many of us survived in '11 (-17%) and not even near the one in '08 (-49%). It has not even reached the % drop of last year, May... Up or down, more learning opportunity to come? Good Luck to all...

Yup. We are not even at 2011 levels yet.....

But it is a good (frightening) learning experience for newcomers who just entered the market this year.....

---

Every crisis presents an opportunity, if you look hard enough. Before this correction, the yield for all the stocks in my watchlist is less than 5%. After the bashing in June, some of them are getting close to the 5% yield level again, and if the correction continues, and I think it will, there will be opportunity to buy stocks that give >5% yield again. The critical question is do you have money to buy now? And if yes, how much can you buy? So in stock investing, money management is as important as stock picking. For myself, I think my stock picking skill is only average, but I have good money management habits and self control. How I develop these habits? From many years of experiences plus silly and painful mistakes.

Excellent point. I agree. Most people just focus on studying stocks. But actually the very first step to investing is to save up capital. Always keep substantial opportunity funds.

[fat al]

Dividends seem to still be the key then...

IIRC, Warren Buffett prefers capital gains to dividends ...

Hi guys, my opinion isn't worth even 2c as the maestro Mr WB has given his. I can only direct your attention to page 19 to 21 of his latest letter to shareholers.
http://www.berkshirehathaway.com/letters/2012ltr.pdf

My short interpretation is below but others could interpret it differently.

Note that he justified BH's not paying dividends with his alternative "Sell Off" scenario. At the same time, he applauded his "Big Four" portfolio companies' consistent dividend policy (Incidentally, it was no coincidence that MSFT started paying dividends only after Mr WB became pals with Bill Gates).

Sounds contradictory but it isn't.

His point is that a company should only retain the necessary cash that can build it's economic moat, though he warned against biasedness towards overoptimistic evaluation of projects just so happens that funds are already available.

Any cash that exceeds the requirements of investment projects can be returned to shareholders. Unlike MSFT and his "big four" which may face a limitation on investment opportunities within their own dedicated industrial sector, BH as an investment holding company has almost limitless investment opportunities without sector restriction. Having said that, I believe it was during the dot-com boom of early 2000s that Mr WB once declared that BH may have to start declaring dividends as investment opportunities have dried up due to asset priciness at that time. Therefore even BH's no dividend policy is not a hard rule.

Return of funds to shareholders is either via dividend or sharebuyback.

"But never forget: In repurchase decisions, price is all-important. Value is destroyed when purchases are made above intrinsic value." (page 20)

Ignoring the implications of transaction costs and taxation, it would be logical to adopt a sharebuyback only if the management thinks the company share price is below its intrinsic value (as it is anti-dilutive) and adopt a dividend payout if share price is above the perceived intrinsic value. This however cannot be applied brashly as the dividend decision will also need to meet the shareholders' perception of a "clear, consistent and rationale" dividend policy (page 21).

Mr WB has no preference on dividend vs sharebuyback; or dividend income vs capital gain. He seeks total returns (capital and dividend) and has a clear idea on how the capital management decision should be made logically and consistently to maximise TSR.

[Penguin Papa]

Reits got sold down again, whats happening man

http://www.remisiers.org/cms_images/rese...706_LT.pdf

https://secure.sgs.gov.sg/fdanet/SgsBenc...rices.aspx

If REITS yield is to follow SG 10yr bond, price of REITS should be close to Aug 2011 when the bond yield is at similar level. Are we there yet?

DBSV has an interesting theory on QE3 impact on SREIT prices from Nov12,

http://www.remisiers.org/cms_images/rese...dDaily.pdf

From my month end data,

[wrap]
[table=REIT]
CapitaComm
CDL Htrust
Ascendasreit
CapitaRChina
A-Htrust
CapitaMall
AscottREIT
FE-Htrust
LippoMapleT
SuntecReit
SaizenREIT
Sabana REIT
MCT
MIT
MapletreeLog
FrasersCT
CLT
Cambridge
Fortune Reit HK$
StarHill
K-REIT
FCOT
AIMSAMPIReit
First REIT
PLife REIT
MGCT[/table]
[table=13-Jun]
$1.505
$1.820
$2.300
$1.470
$0.860
$2.030
$1.285
$0.965
$0.465
$1.620
$0.175
$1.115
$1.200
$1.385
$1.120
$1.995
$1.210
$0.680
$6.760
$0.845
$1.325
$1.360
$1.565
$1.170
$2.390
$0.955 [/table]
[table=Nov-12]
$1.620
$1.925
$2.400
$1.540
$0.910
$2.070
$1.320
$0.985
$0.470
$1.620
$0.173
$1.110
$1.195
$1.375
$1.110
$1.985
$1.190
$0.650
$6.690
$0.755
$1.230
$1.255
$1.425
$1.015
$2.140
$0.930 [/table]
[table=Diff]
$(0.115)
$(0.105)
$(0.100)
$(0.070)
$(0.050)
$(0.040)
$(0.035)
$(0.020)
$(0.005)
$-
$0.002
$0.005
$0.005
$0.010
$0.010
$0.010
$0.020
$0.030
$0.070
$0.090
$0.095
$0.105
$0.140
$0.155
$0.250
$0.025 [/table]
[/wrap]

* MGCT uses IPO Price as listed this year
** Prices Not adjusted for any Rights / Placements, if any

If REIT prices continue to drop, we may have to use Dec-11 data for comparison... haha..

You have the price for Dec-11? Do a comparison then. See how much more can REITs drop.

[KopiKat]

Reits got sold down again, whats happening man

http://www.remisiers.org/cms_images/rese...706_LT.pdf

https://secure.sgs.gov.sg/fdanet/SgsBenc...rices.aspx

If REITS yield is to follow SG 10yr bond, price of REITS should be close to Aug 2011 when the bond yield is at similar level. Are we there yet?

DBSV has an interesting theory on QE3 impact on SREIT prices from Nov12,

http://www.remisiers.org/cms_images/rese...dDaily.pdf

From my month end data,

[wrap]
[table=REIT]
CapitaComm
CDL Htrust
Ascendasreit
CapitaRChina
A-Htrust
CapitaMall
AscottREIT
FE-Htrust
LippoMapleT
SuntecReit
SaizenREIT
Sabana REIT
MCT
MIT
MapletreeLog
FrasersCT
CLT
Cambridge
Fortune Reit HK$
StarHill
K-REIT
FCOT
AIMSAMPIReit
First REIT
PLife REIT
MGCT[/table]
[table=13-Jun]
$1.505
$1.820
$2.300
$1.470
$0.860
$2.030
$1.285
$0.965
$0.465
$1.620
$0.175
$1.115
$1.200
$1.385
$1.120
$1.995
$1.210
$0.680
$6.760
$0.845
$1.325
$1.360
$1.565
$1.170
$2.390
$0.955 [/table]
[table=Nov-12]
$1.620
$1.925
$2.400
$1.540
$0.910
$2.070
$1.320
$0.985
$0.470
$1.620
$0.173
$1.110
$1.195
$1.375
$1.110
$1.985
$1.190
$0.650
$6.690
$0.755
$1.230
$1.255
$1.425
$1.015
$2.140
$0.930 [/table]
[table=Diff]
$(0.115)
$(0.105)
$(0.100)
$(0.070)
$(0.050)
$(0.040)
$(0.035)
$(0.020)
$(0.005)
$-
$0.002
$0.005
$0.005
$0.010
$0.010
$0.010
$0.020
$0.030
$0.070
$0.090
$0.095
$0.105
$0.140
$0.155
$0.250
$0.025 [/table]
[/wrap]

* MGCT uses IPO Price as listed this year
** Prices Not adjusted for any Rights / Placements, if any

If REIT prices continue to drop, we may have to use Dec-11 data for comparison... haha..

You have the price for Dec-11? Do a comparison then. See how much more can REITs drop.

I do have the data and it's definitely scary... STI was 2646.35 @ Dec-11, another ~-18% from yesterday's close. So, an easy ball-park estimate would be to give an 18% "discount" to the share prices if we need a feel to frighten ourselves... After that, we may want to get a further thrill by looking at Dec-08 data when STI was 1761.56....

Instead of being an alarmist, let's focus on the individual stocks / REITs and their merits / demerits...

---

In June 2007, Business Times Tokyo correspondent Anthony Rowley moderated a roundtable whose participants correctly predicted the Global Financial Crisis of 08/09. You can read minutes of the roundtable here: http://www.321gold.com/editorials/thomso...62607.html

A big similarity then and now is significant mispricing of credit and the overheating of emerging markets. At the time I read the roundtable minutes in 2007, I dismissed it (much to my regret later) partly because I couldn't appreciate how a credit crunch could potentially cause a systemic crash. Nowadays I pay careful attention to what the correspondent writes.

In today's Business Times, he wrote how he feels about the situation now. Extracts from http://www.businesstimes.com.sg/premium/...p-20130613

Published June 13, 2013
A bubble that's primed to explode, not just pop
US tightening, Japan easing, Europe deleveraging - it's a nerve-racking balancing process
By Anthony Rowley
Tokyo Correspondent

I AM getting nervous - very nervous, in fact. In my career as a journalist, I have seen many financial bubbles develop and burst but never anything like the present QE-induced global bubble. I doubt whether there ever has been such a phenomenon before, in absolute or GDP-relative terms.

I'm referring, of course, to the massive quantitative easing (QE) packages that have proliferated in number and size at the hands of the US Federal Reserve, the Bank of England, the European Central Bank and the Bank of Japan (BOJ) principally.

Each and all of these banks has blown its own bubbles in the past: in the UK in the 1970s, in Japan in the 1980s, in the US in the late 1990s, and then again in 2008, and in Europe too.

But they are all blowing together this time and the bubble could explode rather than simply pop.

Would that be mitigated by Ben taking US off the life support? One less pop / explosion? Or would that be the catalyst for the explosion??

[swakoo]

Would that be mitigated by Ben taking US off the life support? One less pop / explosion? Or would that be the catalyst for the explosion??

If he does that, it will be Ayam Penyet for many of us.

This is WSJ's analysis of what he may say next Wed:
Analysis: Fed Likely to Push Back on Market Expectations of Rate Increase

[KopiKat]

Would that be mitigated by Ben taking US off the life support? One less pop / explosion? Or would that be the catalyst for the explosion??

If he does that, it will be Ayam Penyet for many of us.

This is WSJ's analysis of what he may say next Wed:
Analysis: Fed Likely to Push Back on Market Expectations of Rate Increase

Thx! The more we know, the more fearful we can become.... Yes, Ignorance is Bliss....
Let's hope that when the bomb explodes, our piece of Ayam Penyet is huge enough to last us thro' the winter...

[kelvesy]

I agree with Ben... Stock picking skills and money management skills must go hand-in-hand. I didn't have any emergency funds to pick up any stocks when STI nearly fall by 10%. Feeling the opportunity lost now. Lesson learnt.