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Thursday, February 21, 2019

Should Singapore adopt a wealth tax

There was a piece in Todayonline by former AO, and current academic, Donald Low, which suggests that it may be time for Singapore to consider implementing a wealth tax.

As I understand it, wealth tax may include taxes on capital gains, dividend income, and/or inheritance.

Such a wealth tax, if applied, would surely adversely affect a significant fraction of the FIRE community, many of whom rely on dividend income as the primary pillar of their FIRE plan.

I must say I do not quite understand the rationale for such a tax. The primary goal of such a tax appears to be purely borne of a desire for contrived wealth redistribution, which unduly punishes the owners of capital.

It is as if the word "capital" itself has acquired a dirty, unsavory connotation, which people associate with "sloth", and "undeserving".  People tend to forget how owners of capital came to be in the first place.

Barring a healthy inheritance, I would argue that most members of the FIRE community came into substantial amounts of capital through a combination of:

hard work (to increase earned income),
thrift (to reduce expenses),
prudence (to increase savings) and
meticulous planning (to craft an investment portfolio).

To penalize one for possessing these attributes seems self-evidently absurd.

Furthermore, their source of accumulated capital is primarily from active earned income, which is already subject to income tax.  Indeed, the individual looking to achieve FIRE is often a high income earner, which means he/she already pays a disproportionately high amount of income tax relative to the average taxpayer.  Therefore, to even imply that it is "unfair" that capital is not taxed requires a feat of mental gymnastics and a blatant disregard of reality. 

Additionally, persons who derive income from capital in retirement are also the demographic least likely to require Government aid, whether in the form of GST vouchers, CHAS subsidies or CPF top-ups.  If anything, we should be encouraging more Singaporeans to delay gratification and accumulate capital, to lessen the burden on future taxpayers  (i.e., your kids and grandkids).

In the words of a particularly cringey  NTUC Income video ad, the best gift for your child is your own retirement plan.  Indeed, we should be incentivising behavior that promotes self-reliance and financial independence in old age.  A wealth tax achieves the exact opposite.

Not to mention, our Government is clearly not in need of revenue, having declared years and years of surpluses without including land sales revenue. Incidentally, it is interesting to note that the G is able to continually operate with surpluses because of the NIRC - income derived from capital held by Temasek/GIC.  Let's not make capital a dirty word.

Wednesday, February 20, 2019

Sold Sasseur REIT

Sasseur REIT experienced quite a rebound in share price, and surged from 0.64 (Jan 30) to 0.78 (Feb 20).

The reported results were a bit better than forecast. But the rebound seems to be motivated by reasons other than the slightly better than forecasted results.

I have no idea for this price surge. But it did present an opportunity for me to liquidate this position. As mentioned in earlier posts, this is merely part of my rebalancing strategy to get out of high yield (but high risk) stocks.  Nothing against counters with businesses domiciled in China, but their rep ain't the best. 

As they say, a bird in hand is worth two in the bush. In the money is in the money.

All in all, a 5.45% (+$1,597.10) gain over the course of 5 months. It ain't that terrible.

Friday, February 15, 2019

Singtel - More trouble ahead?

Singtel continues to show weakness with yet another set of disappointing results.

For the three-month period ending Dec 2018, EPS declined from 5.88 cents to 5.04 cents. In other words, the EPS for the full year may decline to 20.12 cents.

If so, the expected dividend payout after the 2020 may decline to 12 cents to 15 cents a share. At current share price ($3), this translates to a yield of 4% to 5%. To be fair, this is by no means terrible for a blue chip stock, but it is a far cry from its current 17.5 cents a share dividend.

A critical factor for the continued weakness was attributed to fierce competition in India (Bharti Airtel), which posted losses. It further did not help that Singtel's ID and TH associates also posted lower profits due to "handset subsidies and advertising".

I believe Singtel continues to be a long term value play, primarily because Singtel's size and experience would ultimately allow it to gain an edge over the competition in its Asian businesses.  Singtel retains a healthy balance sheet, with FCF of 2.53 Bn. This will continue to afford Singtel ammunition to wear down its competition and take a larger slice of pie when the markets revert to sustainable profit structures.

If you have not yet invested into Singtel, or are waiting for an opportunity to accumulate/average down, you might want to wait to see how much further EPS would decline before deciding on an appropriately safe entry price. 

For income investors with long investment horizons, this transient weakness should not be overly disconcerting. Indeed, these may be opportunities to take meaningful positions in a sleeping Asian behemoth. 

Onward to FI!