First of all, I need to remind myself that I am not qualified to give financial advice. Next is I am not financially trained, unlike you as a formal financial personnel, IIRC.
I am just clarifying that the difference between "current yield" and "yield on cost" which might make a different on your financial decision.
(17-08-2014, 10:05 PM)greengiraffe Wrote: [ -> ]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
(17-08-2014, 10:05 PM)greengiraffe Wrote: [ -> ]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
[quote='CityFarmer' pid='91864' dateline='1408283438']
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".
[quote='flinger' pid='91855' dateline='1408270300']
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.
[quote='CityFarmer' pid='91847' dateline='1408260219']
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.
Hi GG,
Do you mean that if you sell and the money return to CPF, you can not use it again to invest because of the limit allowed as imposed by CPFIS regulations?
if that is the case, hmm.....
Yes, when you have exceeded the CPF Investment Limit on stocks, basically once you sell, money from sales return to CPF account means that there will be no further investment allow.
I did manage to get round the rule once when Boustead provided script dividend option and I ended up getting shares for the cash dividend forgo. I was thankful of that gesture but it was continued.
If only my other 2 holdings Starhub and St****** provides script dividend options.
Looks like CPF investment appears to be a thing of the past for many here... housing commitments probably leave many with very little to investment under CPFIS.
GG
(17-08-2014, 11:02 PM)greengiraffe Wrote: [ -> ]Yes, when you have exceeded the CPF Investment Limit on stocks, basically once you sell, money from sales return to CPF account means that there will be no further investment allow.
I did manage to get round the rule once when Boustead provided script dividend option and I ended up getting shares for the cash dividend forgo. I was thankful of that gesture but it was continued.
If only my other 2 holdings Starhub and St****** provides script dividend options.
Looks like CPF investment appears to be a thing of the past for many here... housing commitments probably leave many with very little to investment under CPFIS.
GG
i understand now.
i support your idea.
You, son of a gun.
Today this phrase is used as a term of affection or admiration.
Still have to watch out when capital gain start to reverse.
(17-08-2014, 11:11 PM)Temperament Wrote: [ -> ] (17-08-2014, 11:02 PM)greengiraffe Wrote: [ -> ]Yes, when you have exceeded the CPF Investment Limit on stocks, basically once you sell, money from sales return to CPF account means that there will be no further investment allow.
I did manage to get round the rule once when Boustead provided script dividend option and I ended up getting shares for the cash dividend forgo. I was thankful of that gesture but it was continued.
If only my other 2 holdings Starhub and St****** provides script dividend options.
Looks like CPF investment appears to be a thing of the past for many here... housing commitments probably leave many with very little to investment under CPFIS.
GG
i understand now.
i support your idea.
You, son of a gun.
Today this phrase is used as a term of affection or admiration.
Still have to watch out when capital gain start to reverse.
Thanks for your understanding. Thankfully, I have done well to have picked quality dividend yielders. Otherwise, I would have done injustice to my retirement $.
Cheers
GG
I understand what opportunity cost is and I read investopedia definition. Choosing the investment that gives you a better outcome that the current one you have.
The part that I don't get is , why it must be compared with current yield instead of cost ?
Current Stock :
Yield on Cost = 10000 shares = S$18000 = 0.20/ 1.80 = 11 %
Yield at current cost = 10000 shares = S$40000 = 0.20 / 4 = 5 %
New stock with good fundamentals :
Yield at current cost = 10000 shares = S$40000 = 0.32 / 4= 8 %
Correct me if I am wrong, what you are saying is that I should sell my current stock as it is yielding 5% only based on current yield and buy the new stock that is going at 8% yield based on current cost.
Am I correct in my understanding?
(17-08-2014, 09:50 PM)CityFarmer Wrote: [ -> ]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".
(17-08-2014, 06:11 PM)flinger Wrote: [ -> ]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.
(17-08-2014, 03:23 PM)CityFarmer Wrote: [ -> ]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.
^^ in the above example u are assuming the yield is constant into the future ie like a bond. If thats the case, ceteris paribus the choice is very clear. You would go for the "bond" with similar credit risk and yield pick up. Alas equity investment is far more complicated than using a spreadsheet
(17-08-2014, 06:11 PM)flinger Wrote: [ -> ]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.
(17-08-2014, 03:23 PM)CityFarmer Wrote: [ -> ]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.
Hi flinger
We actually had a similar discussion here on this thread whereby we discussed the difference between dividend income and capital income:
http://www.valuebuddies.com/thread-2641-...l#pid74618
Main thing is dividend income is in general a lesser risk income if the company has been paying CONSISTENTLY. An interesting case study would be Sheng Siong which is unlikely to have strong growth in next 2 years but pays good dividend for u to wait.
The other interesting and somewhat extreme case study is Starhub itself which I pointed out the 3 capital structure scenarios to ponder about. The wrench in the works is FCF profile of Starhub is deteriorating.
The reason why dividend income is less risk is because people tends to be too optimistic on capital gains without downside consideration as per this story:
http://www.valuebuddies.com/thread-5566-...l#pid91846
That is also the focus of Buffett which he constantly pose this question: would u buy a stock if the stock market was closed for the next few years? That already tells u that the focus is not on capital gains. Capital gain is a natural extension of a strong cash flow business. We need to identify the horse and the cart correctly.
Being a specuvestor i cannot say that i adhere to the principle wholeheartedly because it is a very boring exercise
but i respect a certain forumer who has been sticking to this principle and i think he will go very far.
YOC and Current Yield
Many knowledgeable investors are quick to point out that YOC is an irrelevant metric. They argue that current yield is what is meaningful when comparing investments. They are correct in this statement. YOC is entirely specific to the timing of an investment. You can have a different YOC for the same investment purchased at different times on the same day. It is totally determined by the price paid.
If the objective of an income investor is to invest in securities with increasing income over time, the best metric to measure your success in achieving this objective is Yield on Cost. An illustrative example will help. Consider two companies RY and KO. Let's assume you purchase both companies at their low in 1997 and hold them through 2006.
[Image: I8aL6Ly.jpg?1]
If you were judging your investments solely on current yield, they would be virtually the same in 2006 at slightly over 3%. However, based on your original investment, the YOC for RY is more than six times that of KO. This occurred while the average dividend growth rate for RY was only double that of KO - now that is the kind of leverage I like!
As an income investor, I would much rather have held RY during this period.
NB: - Of course this is another way of looking at a company that has growth yoy.
So don’t switch just because of higher current yield? Checking The YOC history of the higher current yield stock is more important?
In other words, we should compare YOC to YOC not only current yield. No?
Off the top of my head 97 was AFC crisis year. As usual timing is important, especially in marketing
I would think banks were "feared".
I would think you should check the business, growth profile and MOS... not the YOC.
(18-08-2014, 08:54 AM)specuvestor Wrote: [ -> ]Off the top of my head 97 was AFC crisis year. As usual timing is important, especially in marketing I would think banks were "feared".
I would think you should check the business, growth profile and MOS... not the YOC.
Ha! Ha!
i remember too. DBS had right issues in one of the turbulent market times; i was so afraid i dared not applied for extra rights issue. And i only entitled to 500 shares. That is/was the FEAR FACTOR AT WORK.
But i was not afraid to apply for right issues and even extra right issues on Capitalmall and Ascendas REITS. And i had many lots in my hands then.
Till now i am quite wary of financial companies.
i understand some Funds in US don't invest in financial companies, at all.
But people say, "Our banks are operated more safely then US or other countries."
How much truth is it?
Care to comment?