What I did with my new found wealth (2010)

Another year flew past and I am glad that the company I am managing grew its sales by another 15% again in 2009. Fulfilling our profit obligation to the business buyer, I was paid in full the second installment from the escrow account in Jan 2010.

With the second payout, my target for 20K passive income seem to be in my sight. Feeling comfortable with my bonds investment, I decided to load up a few more bonds issues. The following are the bonds that I had chosen for 2010:

1. Temasek Bond (10yrs, 4.3%)
2. DBS Preference Share (perpetual, 4.7%)
3. Olam Bond (3yrs, 4.1%)
4. Olam USD Bond (10yrs, 7.5%)
5. Hyflux Bond (5yrs, 5%)
6. Sembcorp Ind Bonds (5yrs, 3.73%)
7. Arief (3yrs, 4.75%)

I started experimenting with equity linked notes (ELN) and I was sold the following benefits:

• get interest yield of about 7% to 10% if equity price on redemption day is above strike price. 
• get the underlining equity at a price that I am comfortable with if the price is below strike price + interest

I was quite comfortable with ELN and was holding 3 to 4 contracts at any one time. Each ELN contract last about 45 days and I would go for yield that is about 10% to 15% depending on the volatility. About half the ELN that I held expired with the underlining equity below the strike price. I would hold them for a while and sold them at a small profit at a later date. I never really kept track of the average yield but it should be in the range of 7% to 10%.   

After I am familiar with ELN, I become more comfortable with equity. When the market seem to be picking up, bonds yield seem to be dropping below my target yield of 5%. With some successes from ELN, I decided to buy some equities. I must admit that I had zero experience in the equity market and I could only relied on my private bankers for advice. Without any FA or TA, I decided to buy only blue chips and REITS for dividend yields. I end up buying REITS with strong sponsors like Capitalmall Trust, AREIT and Ascott Reit giving yields of about 6%. 

I started reading up on all the equities that I own or had interest in and I started to form some personal view on the Reits market in Singapore. I decided to choose reits based on their dividend payout record for the past 3 years. For example, I found that Cambridge Ind Trust dividend payouts were very consistent for the past 3 years. With this simplistic logic, I added reits like Cambridge into my equity portfolio.

As a entrepreneur most of my working life, I was used to leveraging to grow my business. With the housing loan at a record low, I figured that getting a yield above 2% should be a piece of cake. Thus I decided to mortgage one of my properties and dump the fund into 'safe' bond such as Temasek bonds and earn the difference in interest spread.

At the end of 2010 my net passive income grew from 14K to 23K, excluding yield from ELNs. I had finally achieved my target of passive income >20K/mth.

Portfolio : 2010