September 15

Investing in Singapore gave me $3000 a year – here’s how

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For the first three years that I invested in Singapore, my stocks returned nothing. I probably even lost money.

But being a complete amateur in investing, I didn’t know what to do next.

3 years later, I think I’ve managed to get a better hang of it.

best way to invest in Singapore
No longer scratching my head or pulling out my hair as much

Many people in Singapore chase the fanciest stocks in the US. Why not? There are bigger names, and Singapore seems too small a market where you can make money.

I thought I should try, before writing off an investment abroad. Buying US stocks such as:

  1. Berkshire Hathaway
  2. Facebook, now Meta
  3. Apple
  4. Alibaba
  5. Microsoft

I promptly saw the value increase significantly, by 20% in a single year. Alas, I didn’t invest much!

But after 2 years of investing in the US, I still favour Singapore as a better way to invest, especially if you live here.

It’s not only about the free food you get when you go for the Annual General Meetings. But there’s much more reasons why you should invest in Singapore.

Here’s why.

Money flows right into your pockets

For all the chatter about how many times people have multiplied their investments by overseas, in Singapore, the money flows right into your pocket. No need for complicated transfers of USD into SGD, before pocketing the money.

Many exchanges abroad also penalise you for drawing out your investments, charging you money for taking out the money in the account.

But here in Singapore, if the stock pays a dividend, it goes into the Central Depository, and then is banked right into the linked bank account. Even if its paid in foreign currencies, CDP converts it for you, so that you get the money!

Examples of dividends I got in August, for holding stocks in Singapore
Examples of dividends I got in August, for holding stocks in Singapore

Best place for dividends

Singapore is one of the biggest Real Estate Investment Trusts markets in the world. It’s the largest in Asia (excluding Japan).

Just read this.

43 S-REITs and property trusts with a total market capitalisation of S$110 billion (as at 30 June 2022).

Singapore has the largest REIT market in Asia (ex-Japan) and is increasingly becoming a global REIT hub.

REIT Association of Singapore
REITs are a big part of Singapore’s market

These REITs give you persistent income, so it’s like you being a landlord, without buying a $1 million house in Singapore!

That said, there are certain things you may need to note about investing in Singapore.

This isn’t the best place for exciting tech IPOs

Not many tech unicorns are listing in Singapore.

This is because of Singapore’s smaller market capitalisation, compared to bigger markets like New York.

New York is at $28 trillion, whilst Singapore is a paltry $700 billion. Listing is meant to raise funds for companies, and it doesn’t make as much sense to list on a smaller market.

Singapore's market cap is a paltry $700b, which may not be the market of choice for companies.
Singapore’s market cap is a paltry $700b, which may not be the market of choice for companies.

So what’s the best way to invest in Singapore? It depends on what your goals are, and how confident you are at picking the right stocks.

Here’s how I’ve tended to make money in this market. I also share some of my primary mistakes in investing, so you don’t have to go through the same pains as me.

Principles

Knowing the principles behind how to invest best in Singapore would serve you better, over stock recommendations from everywhere across the web.

Smaller caps may work better

I prefer smaller caps because I think there’s a bigger opportunity for stock price multiplication there in Singapore. Essentially, I’m looking for 100-baggers, rather than the simplistic 2 or 3-bagger.

Whilst the biggest stocks on the SGX may have greater liquidity, I am doubtful of their ability to multiply.

Small caps with large growing demand for their goods

Some of the best performing stocks I’ve invested in include Hour Glass, a luxury watch retailer, Propnex, a property broker, and Multi-Chem, a firm selling cyber security products.

The best performing stocks, with prices correct as at 15 Sep 2022 (data from Stockopedia.com)
The best performing stocks, with prices correct as at 15 Sep 2022 (data from Stockopedia.com)

Looking back, I only assessed the strength of these businesses based on their balance sheets, according to Stockopedia, which provides in-depth screening to financial fundamentals.

I can’t say that I made a decision 3 years ago based on how well their business models would hold. For example, when I bought Hour Glass in October 2018, I would have never expected people buying $1m watches to collect.

I mean, why would you?!

But there was growing demand for luxury items like houses and watches, as people’s disposable income no longer went into travel, but items like these.

Smaller caps in technology, at supply chain end-points and start-points

Singapore may not be the most innovative place, despite what the Government touts to overseas investors. What’s the greatest invention out of Singapore that you might know it for?

Hawker food?

best way to invest in Singapore
Food may seem the most famous things out of Singapore

I may be wrong, but you may not expect great software and hardware to come out of Singapore.

That’s why a stock like Multi-Chem, which sells cybersecurity software others have developed, has worked better.

REITs may work, but only quality ones

I haven’t had the best experience with REITs. Whilst I thank them for the income, the capital appreciation has been less than helpful.

You can see the many losses incurred.

Because REITs deal with property, it’s much harder to move those transactions than something lighter, like an Apple iPhone. You get the idea. There are some sponsors that have used the Singapore listing to generate funds, so that they can acquire more properties, but without a fundamentally strong balance sheet.

Well, well. Subpar REITs didn't return as well as expected.
Well, well. Subpar REITs didn’t return as well as expected.

The quality of the sponsor matters. A lot. This was pointed out in Gabriel Yap’s book ‘Making your millions in REITs’.

The best ones in Singapore are those linked with Singapore’s sovereign wealth funds.

  1. Ascendas
  2. Frasers
  3. Mapletree
  4. Capitaland
Frasers Logistics and Commercial Trust has done much better than other subpar sponsors
Frasers Logistics and Commercial Trust has done much better than other subpar sponsors

You only need to look at my investment in First REIT, an Indonesian healthcare REIT that dropped 70%, to know why quality REITs matter.

My biggest mistakes

Now that you’ve heard about my First REIT investment dropping 70%, you would know that I’m not some fancy investor who never gets things wrong.

Here are some lessons that may help you.

Small caps may get stuck

Boustead is one of those companies which I have enjoyed reading about. Classic Singapore story.

A brand that’s been present for 200 years, but which hit lean times, gets acquired by turnaround artist Wong Fong Fui, and then gets promptly stuck.

Despite its best efforts to spin off and list its businesses, such as its development arm, Boustead Projects in 2015, and then later carving out its industrial properties to unlock a huge financial gain of $139.4m.

The balance proceeds of approximately $139.4 million will go towards the expansion of Boustead Projects’ businesses in Singapore and overseas, general corporate and working capital requirements, along with the potential declaration of a special dividend.

A great stock, that got stuck.
A great stock, that got stuck.

Yet it continues to be stuck at $0.90.

What would you do?

Small caps get stuck in Singapore because of a lack of attention from institutions, which can suddenly generate great rises in prices with greater attention and buy-in.

There may be no re-rating that allows the stock to reach its perceived value. You may end up getting stuck with a stock that is fundamentally strong, but which does not get recognised as so by the markets.

My lesson?

Buy mid-caps, or small caps approaching mid-cap status, rather than micro-caps.

What should you do?

My personal advice is that you should first use Stockopedia to screen for stocks. Once you’ve identified one with a high StockRank, you can then do deeper analysis on the stock.

Read through the annual reports, and see if you can understand the business.

But more importantly, ask yourself,

If you had to explain this stock to your 12 year old kid, would you be able to?

You’re buying a business, not a ticker.


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