09 February, 2019

Why I hardly invest in Reits

Reits are popular in Singapore. And there is nothing wrong owning some of them.
I personally have not held any Reits for a while (mostly due to point 2 & 3 below). This does not mean that I am not currently looking out for them because I see no harm holding a small substantial amount to diversify.

Below are the reasons why I minimize holding Reits:
  1. It is better to have Reits when we have large capital to capitalize on the given yield. 5% yield on $4000 is mediocre but 5% yield on $40,000 is something. In other words, I feel Reits suit the rich more.
  2. Reits tend to move slow in prices (same for Trusts). Yes, this means they have less speculative movements. However, I am still quite young and able to take more risks by building more cash from price appreciations. Instead of gaining about 5% yield , there are so many better risks-rewards out there to grow our money. 
  3. Most of us should know by now, Reits are exempted from taxation as long as they distribute at least 90% of their revenue to shareholders. This explains why their yield are generally attractive. What is expected to happen during down times (declining net profits) in order for Reits to maintain the same payout per share?
  4. Most Reits move with the economy unless we are talking about more defensive Reits like Parkway Life. If we really want to go long term in Reits, I feel it will be worth waiting for the next cyclical downturn. 
  5. Most Reits are heavily in debt and some even have debts higher than 40% of their net worth. 
In my own opinion, anyone thinking to go "All-In" on reits without diversifying should probably think twice.

Thanks for reading,
and Happy Chinese New Year, folks!

29 January, 2019

Broadcom- My New Favorite

Once again, I got rid of Alibaba and this time at a small profit. The cash is then used to purchase Broadcom shares.

I have always longed to own a semiconductor company and finally picked up Broadcom.
Coincidentally, Broadcom (Avago) was one of the highest volume customer in my previous job among other tech companies like Dell, AMD, Apple, Keysight etc etc.
Probably a waste not leveraging on my work exposure then?

There has been fears that over 20% of Broadcom’s revenue come from Apple but they are slowly moving away from their reliance on Apple (despite their already diversified structure).One fine example is the acquisition of CA Technologies, one of USA largest software companies. They also sold off their Wireless Iot business to Cypress Semiconductor, foreseeing the great competition and capex ahead. This will also help push their focus on things that will more likely work.

Another fear is the obvious trade war escalation since a big chunk of their revenue comes from China like many chip companies.

If you did not know yet, Broadcom is actually a shareholder centric company (while Alibaba is client centric). The company is still growing fast and some of their free cash flow are turned into dividends to reward shareholders. Their dividend yield is one of the highest in the chip industry and they also use their cash to buy back a lot of their own shares -which once again benefit investors.

https://www.fool.com/investing/2019/01/02/these-3-things-make-broadcom-a-buy.aspx

The dividend will act as a buffer to volatility as compared to other chip companies like Nvidia, AMD and Micron. Still, I did rather prefer Broadcom use some of the cash to pay off short-term debts to reduce interest payments.

I was lucky to catch the latest price uptrend despite not catching the recent bottom of around $200.
As Broadcom is a great company and its uptrend still looks intact, I will give it some time to see if it will break out through the next resistance of $270.
Happy profiting.