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Thursday, January 3, 2019

Year 2019 - General Strategy

It is often said that the failure to plan is a plan for failure.

This year starts ominously with my portfolio badly battered, which is down 70k as I type.  Accordingly, the three things I would like to focus on for 2019 are:

1) Growing passive income 

This appears to be a no-brainer. Having a source of passive income is essential to any one looking to FI. While the passive income need not be in the form of dividends from stocks, this is the version I am most familiar with.

Unlike 2018, I do not expect a huge capital injection in 2019.  Most of the injected capital will come from active earned income, and re-investing the dividend income.

The preference remains guided towards lowly-geared  (less than 35%) REITs, with decent yield (more than 6.5%), and good assets.  Good assets may be properties that have locked-in long leases, with contractual rental escalations, and stable tenants. An example of such an asset is the Caroline Chisholm Centre held by Frasers Commercial Trust

2) Capital preservation

The last quarters of 2018 saw me going on a bit of a shopping spree, driven by two main factors: I was flushed with cash after the sale of my condominium, and the market was undergoing correction.

But cheap can always get cheaper - a well-trotted out adage but its utility in practice is questionable. No one can predict whether the boat will sail off if you stay on the sides, or whether the tide will sink further.

That said, having a peace of mind, is always superior to getting an extra 1% yield on your capital. Hence, instead of Sasseur REIT, CRCT, LMIRT and First REIT, I probably should have focused-fire on lower-yielding but more solid (defensive) assets like OCBC/DBS.

But what is done is done. Just have to wait for an opportunity to rebalance the portfolio.

My first purchase of 2019 was made on 2 January 2019, where I loaded another 6,000 SingTel shares at $2.92. Singtel suffered another terrible day as the proposed merger between Vodafone and TPG may be blocked Down Under. TPG is also promising to disrupt the Singapore mobile market by offering unlimited data plans (we have been down this road before). My gut feel is that TPG has no idea what they are getting into, and will probably have to exit this tiny market eventually, after being bruised and humiliated. But not before dragging the incumbents through another costly, cut-throat price war. 

Again, while the news is certainly grim, it appears that ST is being unreasonably sold down. The Singapore mobile market only accounts for 7% of its group revenue. 

At $2.88, the expected yield until 2020 is 6.07%. 

At this price, I believe there is significant margin of safety for entry. Further downside is limited. One can simply sit and collect a 6% yield until a major player / fund decides to pump the stock again.

3) Expense control 

The last aspect is expense control. 2018 saw significant lifestyle inflation - mostly attributed to my decision to rent a place of my own. I also took 2 long holidays to Japan and used up most of my leave.  I have also dined out more, and indulged in more frivolities. Credit card bills are at an all-time, lifetime high.

In 2019, while unlikely to reduce expenses, the goal is to control further inflation.

I have to replace my ten year old Chevy Aveo by Feb. I must resist the urge to buy that swanky A3 cabriolet, and stick to an entry level ride like a mazda 2 or a honda jazz.

The good news is that I have managed to renew my lease with a 7% reduction in rent.  Every bit counts.

Concluding remarks 

With a larger portion of my portfolio now in lower yielding non-REIT assets, this year's forecasted dividend return may be hard to meet, even with continual capital injection from earned income.

However, i am cautiously optimistic about using the three-prong strategy above to achieve this year's financial goals.

Onward to FI my brethren.

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