Starhub

[Temperament]

YIELD ON COST
Who cares? Effective yield (a.k.a. yield on cost) is completely irrelevant. Yield on cost is a psychological trap that encourages one to remain invested in a stock even though there are better CURRENT yielding opportunities elsewhere. Anyone who focuses more on past performance than future potential should not be writing financial advice.
The yield on cost is misleading.
1. The theoretical price of a stock is the sum of all future dives, so if the div increases, generally so does the share price.
2. Look at the opportunity cost - whatever money I had invested is less relevant than what is it costing me to keep this stock. If I paid $1000 for 100 shares, which are now worth $2000, I have to decide if that stock is a good place to park $2000, which I could invest in other stocks.
3. Look at it this way: say $1000 invested is now giving me a 6% return $60 div (or 3% on the $2000); but I could take the $2000 and buy a stock that is yielding 5%, and get $100 div.

NB:-
i admit understanding is one thing, putting into practice is another. i have been guilty - even now due to many "reasons". But who knows after switching, will it be better another 3 years down the road compare to not switching? After say this, i can't resist taking profit most of the time.This is also why i don't have 5 to 10 baggers in history after 26 years+. Sad or not? But i escape the bear paws most of the times.

[specuvestor]

It may be good reason(s) not to sell, but it shouldn't be due to "yield at cost". The opportunity cost is a real cost, and an important consideration for value investor, IMO.

I am always skeptical on statement of "recouped all cost already, so it is FOC". It is a misleading statement for newbie, thus my post here.

To add to what CF said, it is the aim of long term investor to recover their capital, most conventionally through cash flows, ie payback period and hence the idea of aiming for zero investment cost. But that is not the same as basing FUTURE investment decision, including holding on, just because it is zero cost

They are not the same thing and I too noticed people confusing the 2

[flinger]

I think a lot of people are overly focused on opportunity cost and are not focused on long term investing and in the business. Their focus is on making a profit and moving from stock to stock to based on where the best opportunity is.

That is one way to invest, but not necessarily the only way. It seems the assertion of a number of people in this thread is , this is the only way to invest and make a profit.

[flinger]

CityFarmer & Specuvestor,

I would appreciate if you can clarify for me why you this is a misleading statement for my better understanding and knowledge?

If I invested in Stock A : 10,000 shares at 1.80 per share. = S$18,000. ( exclude the broker free etc....)

If the stock went to 4.00 per share and I sold 5000 shares at 4.00. = S$20000. ( exclude the broker free etc....)

I recovered my invested capital of 18,000. I also now have 5000 shares which are in essence to me are "free".

On top of that, the dividends I earned so far and the dividends I still earn from the 5000 shares are all at no cost correct?

Appreciate if you can highlight to me where I might have a misunderstanding here?

Thank You for your help.

I am always skeptical on statement of "recouped all cost already, so it is FOC". It is a misleading statement for newbie, thus my post here.

[flinger]

I think holding down because is zero cost only is not a good stock investment decision. But if you have zero cost and it is providing good good returns and prospects are good or average based on your portfolio type, then isn't it a good decision to keep it ?

Appreciate your insights specuvestor.

To add to what CF said, it is the aim of long term investor to recover their capital, most conventionally through cash flows, ie payback period and hence the idea of aiming for zero investment cost. But that is not the same as basing FUTURE investment decision, including holding on, just because it is zero cost

They are not the same thing and I too noticed people confusing the 2

[greengiraffe]

Still can't sell buddy. My CPF investment already over limit liao, sell liao money back in CPF earns 2.5% while Starhub at my costs yields close to 10%.

As long as DPS stays flat and Starhub continues to be a viable concern, no worries. In fact in another 4 years, my investment is already recouped liao... the locked up has effectively turn this yielder into a solid investment.

I remember years ago, I recommended a friend to long APB under $5, he bought 1 lot under srs and simply forgotten about the existence. By 2010, he already recouped all his investments and when the buyout came... $53 plus more dividends....

His motto now, as long as he get 7% yield on costs, please dun privatise my company and return me money to give me more him more headches. His similar type of investment included CMPac (bought under $0.30), Boustead (bought under $0.50), vicom (bought under $0.70), Starhub (bought under $2.00), M1 and he even recently accumulated GPI. A true legend even though he buys a little of such stocks...

GG

It may be good reason(s) not to sell, but it shouldn't be due to "yield at cost". The opportunity cost is a real cost, and an important consideration for value investor, IMO.

I am always skeptical on statement of "recouped all cost already, so it is FOC". It is a misleading statement for newbie, thus my post here.

Still cannot sell lah... u tell what can or should I do if you were in my position - sell and return money into CPF? I shoot myself in my own foot by short changing myself. Unless yield on Starhub decline back to below 2.5%, no way to make any sense to sell lah...

Appreciate advice if any...

GG

[CityFarmer]

I assume you understood the definition of opportunity cost, but I would like to refer to Investopedia as a formal definition for our discussion.

"The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action".

http://www.investopedia.com/terms/o/opportunitycost.asp

The idea of zero cost will mislead you on your future decision. It is not zero cost, but a opportunity cost exist. You have a forgone alternative to re-invest the remaining $20K, which should be evaluated base on current yield, rather on "yield on cost".

CityFarmer & Specuvestor,

I would appreciate if you can clarify for me why you this is a misleading statement for my better understanding and knowledge?

If I invested in Stock A : 10,000 shares at 1.80 per share. = S$18,000. ( exclude the broker free etc....)

If the stock went to 4.00 per share and I sold 5000 shares at 4.00. = S$20000. ( exclude the broker free etc....)

I recovered my invested capital of 18,000. I also now have 5000 shares which are in essence to me are "free".

On top of that, the dividends I earned so far and the dividends I still earn from the 5000 shares are all at no cost correct?

Appreciate if you can highlight to me where I might have a misunderstanding here?

Thank You for your help.

I am always skeptical on statement of "recouped all cost already, so it is FOC". It is a misleading statement for newbie, thus my post here.

[CityFarmer]

It may be good reason(s) not to sell, but it shouldn't be due to "yield at cost". The opportunity cost is a real cost, and an important consideration for value investor, IMO.

I am always skeptical on statement of "recouped all cost already, so it is FOC". It is a misleading statement for newbie, thus my post here.

Still cannot sell lah... u tell what can or should I do if you were in my position - sell and return money into CPF? I shoot myself in my own foot by short changing myself. Unless yield on Starhub decline back to below 2.5%, no way to make any sense to sell lah...

Appreciate advice if any...

GG

If the 2.5% is current yield, you are right. If the 2.5% is "yield on cost", than I am not so sure...

[greengiraffe]

Hi CF,

I don't meant to bother you... could you help me solve my problems about my CPF being over the limit and not being able to do anything to my 3 core holdings in it...

I have Starhub that yields close to 5% at current prices, Boustead yielding close to 4% and St****** close to 5%. What can I do to restructure when if I sell any of the above positions, the money will just be returned to CPF earning 2.5%?

FYI, all positions are sitting on huge capital gains - Starhub 2+, Boustead around $1 and St****** around $0.50.

I really hope that someone can offer me advice as I have not been contributing to my CPF and there is no way ever that I can restore my CPF investment limit with fresh contributions. I really don't know if the definition of opportunity costs apply to my situation.

Thanks In Advanced
GG

I assume you understood the definition of opportunity cost, but I would like to refer to Investopedia as a formal definition for our discussion.

"The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action".

http://www.investopedia.com/terms/o/opportunitycost.asp

The idea of zero cost will mislead you on your future decision. It is not zero cost, but a opportunity cost exist. You have a forgone alternative to re-invest the remaining $20K, which should be evaluated base on current yield, rather on "yield on cost".

CityFarmer & Specuvestor,

I would appreciate if you can clarify for me why you this is a misleading statement for my better understanding and knowledge?

If I invested in Stock A : 10,000 shares at 1.80 per share. = S$18,000. ( exclude the broker free etc....)

If the stock went to 4.00 per share and I sold 5000 shares at 4.00. = S$20000. ( exclude the broker free etc....)

I recovered my invested capital of 18,000. I also now have 5000 shares which are in essence to me are "free".

On top of that, the dividends I earned so far and the dividends I still earn from the 5000 shares are all at no cost correct?

Appreciate if you can highlight to me where I might have a misunderstanding here?

Thank You for your help.

I am always skeptical on statement of "recouped all cost already, so it is FOC". It is a misleading statement for newbie, thus my post here.

[corydorus]

Still can't sell buddy. My CPF investment already over limit liao, sell liao money back in CPF earns 2.5% while Starhub at my costs yields close to 10%.

As long as DPS stays flat and Starhub continues to be a viable concern, no worries. In fact in another 4 years, my investment is already recouped liao... the locked up has effectively turn this yielder into a solid investment.

I remember years ago, I recommended a friend to long APB under $5, he bought 1 lot under srs and simply forgotten about the existence. By 2010, he already recouped all his investments and when the buyout came... $53 plus more dividends....

His motto now, as long as he get 7% yield on costs, please dun privatise my company and return me money to give me more him more headches. His similar type of investment included CMPac (bought under $0.30), Boustead (bought under $0.50), vicom (bought under $0.70), Starhub (bought under $2.00), M1 and he even recently accumulated GPI. A true legend even though he buys a little of such stocks...

GG

It may be good reason(s) not to sell, but it shouldn't be due to "yield at cost". The opportunity cost is a real cost, and an important consideration for value investor, IMO.

I am always skeptical on statement of "recouped all cost already, so it is FOC". It is a misleading statement for newbie, thus my post here.

Still cannot sell lah... u tell what can or should I do if you were in my position - sell and return money into CPF? I shoot myself in my own foot by short changing myself. Unless yield on Starhub decline back to below 2.5%, no way to make any sense to sell lah...

Appreciate advice if any...

GG

As I said earlier, Starhub is good or not has nothing to do with your holding cost. Is the opportunity cost that we are concern. I guess we are align here. So do CFP restrict you from buying other counters assuming your conclusion is Starhub is no longer good ? Here's where it is contradicting. How can Starhub be bad if you are happy with the current dividend at value (not cost since we need to consider opportunity cost)?