Choosing a Trading Representative

Extracted from http://onefinanceasia.com/forumsview.php?tid=109

The following is a list of characteristics and qualifications you should establish in choosing your trading representative:


—Easy to talk to. You should feel comfortable with your trading representative. The more your trading representative knows about your financial situation and goals, the better your account will be served. You will be giving your trading representative some very personal information. If you feel uncomfortable, you may not give your trading representative as much information as might be needed to properly service your account.

—Doesn’t pressure you. You need to keep in mind that your investments must please you, not just your trading representative. A good trading representative will take the time to find the investment strategy that is best for you and won’t put you into a certain investment just because other customers are.

—Pays attention and acts on what you say. If you tell a good trading representative that you don’t want a certain degree of risk or a certain type of investment, then that trading representative won’t be constantly recommending that investment to you. On the other hand, a good trading representative will try to find out why you don’t want a particular investment and may even recommend the investment if he or she believes that such an investment is best for you.

—Explains things until you understand. The securities business is very complicated and can be difficult to understand, especially if things aren’t explained properly. A good trading representative will provide you with information and will take as much time as necessary to explain a proposed transaction until you understand. Remember that this is your investment—you have every right to understand exactly what is going to happen with it.

Dividend stocks: quality counts too

Hock Lock Siew
By MICHELLE TAN
5th July 2011


THERE has been a big buzz around dividend stocks since the last global financial meltdown as investors and funds start to see the importance of establishing a regular income source, especially when the going gets tough.

Moreover, with Singapore's population demographics reflecting a fast ageing population, dividend stocks also serve as an avenue to generate income to fund retirement especially for investors with weaker saving habits. However, are dividend stocks really such a god-send, or have they been over-hyped by financial media?

In general, analysts and investors ascribe a lower risk and volatility profile to dividend stocks due to their ability to generate regular streams of income that help bolster the ill-effects of a potential downturn.

But does this mean that dividend stocks are less likely than their lesser yielding peers to see price upswings due to their less volatile nature?

As a simple illustration, should one compare the basket of 30 Straits Times Index (STI) constituents with a basket of 30 dividend stocks, findings show that though both portfolios generated positive year-on-year price returns, the former reflected a higher annual return of 13.8 per cent as opposed to the 9.6 per cent registered by the dividend stock portfolio.

As such, based on the findings, it seems that dividend stocks tend to experience lower capital appreciation when compared to index stocks.

Having said that, the STI basket is made up of blue-chip quality counters that tend to be highly favoured by both institutions and layman investors alike.

Perhaps, if the comparison was drawn to a basket of lower cap counters, findings might have shown otherwise.

Now coming from a dividend perspective, dividend stocks triumphed over the STI basket with the former having a forecast consensus dividend yield average of 6.2 per cent in FY11 and 6.5 per cent in FY12 as compared to the latter's 3 per cent and 3.3 per cent for the respective financial years.

The findings are not surprising though investors should bear in mind that the STI portfolio has some dividend stocks, which would have given a slight lift to the basket's average yield.

Should the basket exclude dividend stocks entirely, the average dividend yield would have been even lower.

More pertinently, the dividend stock portfolio, unlike the STI one, is able to outstrip domestic inflation rates, which is cited as a key worry for investors today.

As such, investors who are unable to buy commodities like physical gold or property to hedge against inflation could perhaps turn to dividend stocks as their answer to a cost-efficient inflationary hedge.

But there are no fool-proof investments in this world. Just like any equity, dividend stocks are still susceptible to industry recessions and other sector-specific woes.

In fact, during the last recession, many dividend stocks such as real estate investment trusts (Reits) were not spared from the falling knife.

Admittedly, there was sunlight after the rain for investors that had the financial muscle to tide through the rough patch.

But for investors who were retrenched and needed the funds, liquidating dividend stocks such as Reits - and other non-dividend stocks - back then would have severely decimated their wealth.

All that said, it is an undeniable fact that all boats sink when the tide falls. But one of the better known ways to break the fall is to diversify.

After all, putting all your eggs in one basket is never a wise move, especially from a capital protection standpoint. And this holds true even for stocks with a more conservative risk profile, such as dividend stocks.

The key point to drive home is that whether one is planning for his retirement or is merely seeking extra side income, quality is still of paramount importance.

A high yielding stock does not always mean it is a good stock. Though a stock with sound fundamentals and with attractive yields to boot would be a wise investment option.

Worries trigger property stock sell-offs

Published 20 June 2011
The Business Times
By Uma Shankari

SINGAPORE-listed property stocks, which have taken a beating since the start of this year, are now trading at up to 50 per cent below their revalued net asset values (RNAVs) – a level of discounts that was last seen in 2009 during the recession.

‘Sentiment towards property stocks have been dampened by the spate of uncertainties in the sector and property stocks are now trading at an average of over 30 per cent discount to RNAVs – which is back to the 2009 levels,’ said DBS Vickers analyst Lock Mun Yee. 

Eight selected property stocks that DBS Vickers tracks are trading at discounts of 17 per cent to 50 per cent from their RNAVs. 

Property stocks have been punished over the last few months as investors pulled back on policy risk and oversupply concerns.

In addition, developers with significant exposure to the Chinese market were hit further last week as data from China raised concerns that a slowdown in the world’s second-largest economy could lead to easing demand for homes.

According to DBS Vickers, CapitaLand – Singapore’s largest property group by market capitalisation – has shed 26 per cent of its value so far in 2011 and is now trading at a discount of 49 per cent to its RNAV.

CapitaLand’s retail unit CapitaMalls Asia was also punished for its China exposure. The stock has shed 27 per cent since the start of the year and is now trading at a 38 per cent discount to its RNAV.

City Developments, which has shed 20 per cent this year, is trading at a 17 per cent discount to RNAV. Keppel Land, which has lost 29 per cent so far in 2011, is now trading at a 40 per cent discount to RNAV.

By contrast, the benchmark Straits Times Index has lost just 6 per cent so far this year.

Analysts attribute the sell-off of property stocks mainly to speculation that another round of demand-side measures to cool the property market could be on the way.

‘The drip feeding of policy measures continues to dominate investor thinking,’ said Goldman Sachs in a June 9 report.

‘In particular, the expectation of an additional round of housing measures has been a further drag on the share prices of developers. ‘

But much of the policy risk has already been priced into real estate stocks, analysts noted.

OCBC Investment Research analyst Eli Lee pointed out that the share prices of major property developers (such as City Developments and CapitaLand) have fallen significantly year to date, despite continued increases in home prices, as investors braced for potentially lower prices ahead.

For the sector as a whole, home price dips have mostly been priced in, given significant forward visibility, Mr Lee added.

Since the market has already factored in possible headwinds in both Singapore and China, there could be good deals for the discerning investor.

Said DBS’s Ms Lock: ‘Stock prices appear to have factored in much of the uncertainties presently but re-rating catalysts in the near term may be modest. We would adopt a selective bottom up approach to stock picking.’

But having said that, it is important for investors to keep the following factors in mind.

Singapore has a new minister in charge of housing in National Development Minister Khaw Boon Wan. It is something that is keeping the market on edge, and unsure of how far his ministry will go to moderate demand for private homes.

Goldman Sachs pointed out in its report that the widening price gap between private mass market homes and public housing, or Housing Development Board (HDB) flats, is of particular concern.

‘The widening of the price gap between the private mass and HDB prices to about $490psf, a record, is turning into an insurmountable hurdle to upgrading aspirations, suggesting the government has little choice but to also moderate mass-end prices,’ said the firm in its report.

In addition, the long overdue review of the HDB household income ceiling is likely to shrink demand for private homes.

The income ceiling is widely expected to rise from $8,000 to $10,000.

Another big question mark hangs over developers’ exposure to China. The China situation could turn out to be a lot worse than expected.

But it could also turn out to a lot better. One point worth nothing is that China is not the United States – China’s slowdown in May was deliberately set off by government measures to cool the property market and prevent home prices from surging out of control.

In the event that the slowdown becomes sharper than anticipated, the Chinese authorities could always relook their policies.

Things to do..

Learn how to read the market well (it will takes years)
- tools
- define your own trading strategies (with time frame) for various products and market conditions.
- create new system of building and supporting clients

Learn how to manage your clients well
- how to help them manage their portfolio
- portion out your day schedule between market analysis, meeting customers, spending time with family and conducting trainings courses.
- what do they want to know about trading?
- think how your client contact and communicate with you easily
- what the different types of clients. What are those you should avoid.
- How to judge their credit worthiness? Income/ employer/No. of working experience in the current company/past credit records/ face to face assessment
- How would you handle walk in clients.
- Are you comfortable with clients referred by your current clients
-

Don't think you know the market well
- Be conservative in trading
-

Set goals and activities daily
-

How do you want to manage your earnings?
-

What are your goals in years to come?
-

The Joys and Woes of Being a Remisier

Extracted from http://www1.sim.edu.sg/mbs/pub/gen/mbs_pub_gen_content.cfm?ID=2656&mnuid=92 By Tan Chee Teik

In a bull market, remisiers are so busy taking orders that they have little time to visit the toilet. Many of them became very rich overnight. Now with the prolonged bear market, many are giving up their seats to work in other careers. But the bull cycle will certainly return one day so the younger professionals may want to prepare themselves for the exciting job of a remisier.

THE job of a remisier can be very rewarding or it can be very risky when a client places a huge bet and is unable to pay when the stock falls. A remisier is also known as a commissioned dealer’s representative. He is an agent of a stock broking company and receives a commission for each transaction handled. In French, the word “remisier” means an intermediary.
       A paid dealer’s representative is a direct employee of a stock broking company and his remuneration structure is based on a fixed monthly salary. In some brokerages, dealers are paid a monthly salary and at the end of the year they will receive a bonus based on performance
       The minimum academic qualifications to be a remisier are at least four GCE “O” level credit passes or higher. Apart from this, under the new licensing framework introduced by Monetary Authority of Singapore, MAS, for the Securities and Futures Act (SFA) and Financial Advisers Act (FAA), every potential remisier is required to pass a new modular examination structure known as the Capital Markets and Financial Advisory Services (CMFAS) Examination. Upon passing the various modules, one can apply to MAS for a representative licence under these two Acts.
       There are two main categories of the CMFAS modules, namely, the Regulatory Framework and the Product Characteristics. The Regulatory Framework modules cover the laws and regulations and associated codes, notices, practice notes and guidelines governing the capital markets, and life insurance intermediaries. The Product Characteristics modules cover the various products, tools, and strategies needed to analyse them.
       For a trading representative for securities, one needs to pass the CFMAS module 1A (Rules and regulations for dealing in securities) and CFMAS module 6 (Securities products and analysis).
       Most broking houses do not provide inhouse training on areas of tools and trading strategies with the exception of the launch of a new product by the Singapore Stock Exchange, SGX, or new regulations by MAS. All basic training is expected to be taught during the CFMAS modules courses.
       Some brokerages place the trainee for a week in the backroom to learn about the administrative processes and how to handle the trading system.
       In areas of non-product or regulations-related training, such as trading strategies and trading tools, most trading representatives will upgrade their skills and knowledge by attending additional courses, workshops, seminars or conferences conducted by external parties such as the SGX, Association of Remisiers, Alpha Alliance Training LLP, and others. It is imperative for trading representatives to constantly upgrade their skills and knowledge in order to serve their customers better.
       The exception is when a trading representative’s training is paid for by the broking house as in the case of the Continued Education Programme (CEP). In order for trading representatives to renew the trading licence each year, they are required by MAS to go for continued training annually to earn the relevant points required for their licence renewal. The choice of training topics and logistics will be determined and arranged by the respective broking houses.
       Collin Seow who has been a remisier for three years and is a lead trainer at Alpha Alliance LLP says: “Each trading representative has to set aside a S$30,000 bank guarantee or cash deposit. There is no monthly fee that a trading representative has to pay to the broking house except for the sharing of the commission between him and the broking house. In general, he gets 40 per cent of the commission and 60 per cent goes to the broking house. In addition, the broking house may impose the minimum gross commission (usually S$5,000 monthly) that a trading representative has to meet each month. Failing which, he will be liable to pay for the renewal fees for his licence.”
       Some brokerages set a target of S$60,000 per year as the remisier’s income failing which the remisier has to pay a monthly fee. For example, if the remisier only managed to have an income of S$30,000 that year, he will have to pay S$500 per month as the fees.

Job Satisfaction
       According to a seasoned remisier who wants to be known as John, job satisfaction depends on the individual remisier: “There is enjoyment and job satisfaction if remisiers have learned how to read the market well. They can then help clients to make some money or to avoid pitfalls. The learning curve takes a few years to be be competent in this.”
      Collin says: “I choose to be my own boss instead of being a salaried employee. In this business, I have the flexibility of time and my choice of how I wish to organise my work and serve my customers without being ‘bonded’ by corporate practices or cultures. I am able to arrange my daily schedule among trading, market analysis, meeting customers, spending time with family, and conducting occasional training courses which is my passion to impart knowledge.
      To be able to set my own goals and activities, meeting the customers at the end of the day or even to receive affirmation from them about their satisfactory trades, makes this decision to be my own boss a right choice.”
       Robert, a schoolmate of mine, who has been a remisier for more than 40 years for the same brokerage says: “Every client is your towkay. Sometimes you get brickbats and sometimes you get a bouquet of flowers from them. You need to have good public relations skills to handle your clients.”
       It is true that many remisiers because they think they know the market so well are tempted to trade on their own behalf. According to Robert, he is very conservative in such kinds of trading. He knows of other remisiers who are risk-takers and punt in a big way.
       John observes that the tendency to trade in this line is very strong. Most remisiers and dealers trade using their own accounts and many end up losing money.
       He says: “They trade because they receive a low commission, especially when they are new and do not have a strong customer base. Some brokerages have certain quotas in terms of commission earnings for a six- month to a 12-month period. This can induce a remisier to trade on their own accounts. Consistent poor performers are sometimes asked to leave the company.
       “During very bad months, when most clients stay away from the stock market, in order to make ends meet or to supplement their income, some remisiers will resort to trading on their own. Experienced remisiers can have problems with a shrinking client base over the years due to the ageing or retirement of customers or simply those who have lost money will stop trading. This group of remisiers will revert to trading on their own to make a living.” During Collin’s earlier years as a trading representative, there was a tendency to trade on his own as he analysed and monitored the market daily. The temptation was very great and real. But subsequently, he realised that there is much more in the job than just trading for himself.
       He says: “To be successful, I must build a strong customer base and provide good support for all my clients. Eventually, I made a decision to change my trading styles and created a new system of building and supporting my customers.
       “I implemented new trading styles with a trading time frame for a longer term trades ranging from two weeks to two years. Trading without a powerful trading tool and trading strategies is suicidal, so I researched and invested in a powerful software called MetaStock to design my own trading systems and strategies for various products and market conditions. With new trading styles proven over time, inhouse developed trading systems, and constant review of the trading strategies according to market movements allowed me to guide my customers to implement the same system in their own trades. As I improved, my customers grew with me by making wise and decisive trading decisions.”
       “To continue with this practice,” he says, “I have also created my own blog to share information with my customers and the general public. However, I believe in community networking and sharing of information, so I added a forum and a chat room as part of my blog to encourage my clients and other traders to network and share their knowledge.
       “With the harnessing of technology, I began my own SMS market alerts to my customers and my trainees, pointing them to various market conditions to watch for throughout the trading day. As I constantly work on improving my customer support, I began to move away from the temptation to trade on my own.”

Risks and Benefits
       The remisier’s monthly income may not be stable in comparison to a salaried job. He has to ensure constant and continued trades by the customers. The other major risk is that the remisier is responsible for any losses incurred by the broking company through any securities transaction under the remisier’s customers’ accounts. If the client is unable to pay for the losses or default in payment, the remisier will have to bear the loss.
       John says: “We have to be very sensitive to the risk profile of our clients and always manage our client’s risk exposure conscientiously. Any benefits derived from this job do not outweigh the amount of risks we are taking, especially when commission have been reduced to a meagre 0.5 per cent per trade through us and 0.275 per cent per trade via the Internet.”
       It is estimated that an experienced remisier with over 200 clients can earn from S$4,000 to S$10,000 monthly. In a cold market, he may earn from S$500 to S$3,000. In a hot market, certain remisiers with wealthy clients can earn over S$100,000 a month.

Some Strike It Rich
       Collin remembers the former remisier king, Peter Lim, who struck it rich. In 2007, his reported nett worth was more than S$2 billion, making him the seventh richest man in Singapore. Then, there is the “A-team”, consisting of two cousins who struck gold by seizing control of the China firms’s initial public offering space. They made about US$1.1 billion. Subsequently, the duo diversified their assets into property over the years. Two of their better known transactions are the purchase of foreign worker dormitories in Jurong for S$60 million and the Kovan condominium site in 2007 for S$290 million.
       He says: “There was also news of remisiers who broke the law under the Securities and Futures Act. One remisier was fined S$120,000 on three charges of using the clients’ securities accounts to trade for the benefit of a company’s chief executive officer and a director.”
       John says: “I know somebody who became a remisier almost fresh from the varsity. He worked as a financial analyst for awhile and managed to get to know a few big clients along the way. When he became a remisier the few big clients helped him. He made big profits. But he had many sleepless nights when one client lost over S$500,000. He is a smart fellow and he realises his rich earnings cannot go on indefinitely. Finally, he cut off the few big punters thus reducing his risk exposure. He has enough money to buy two properties.”
       The credit worthiness of new clients is rated based on their income, the employer they are working for currently, the number of years working in the company, past credit records, as well as face-to-face assessment meetings.
       Robert says: “If the new client is introduced by my established client, I’m quite comfortable because my client would know the creditworthiness of that person well. I’ve not taken in any walk-in clients. We can set the limit of trading for a new client. If he is reliable over time, we can increase his trading limit.”
       The growth of the Internet has become a platform for offering a wide range of financial services and products to customers. Collin says: “The Internet allows the investors to research and have access to useful information. It cuts across national boundaries thus globalising the market. On the negative side, Internet trading has reduced the remisier’s commission from 1 per cent in the 1980s to a low of 0.25 to 0.28 per cent. For traditional trading representatives who continue in their old ways of doing business, they will find their earnings dropping tremendously.”
       He adds: “Although the Internet has brought in new ways of trading and giving the investors a wider choice of investment possibilities, it also means exposing the public to new risks. Besides the introduction of Internet banking, the reforms and liberation of Singapore’s financial sector have created a new group of players in the capital markets who are more educated and who benefit greatly from a wider range of products and investment possibilities that promise competitive returns. Because it is cheaper and easier to trade shares over the Internet, the line between investing prudently and gambling recklessly is a gray one and easy to cross over. Day trading by trained amateurs may seem profitable in a bull market, but when the market falls, the casualties will suffer.”

All about REIT - REIT, Business Trust, and Shipping Trust

Extracted from http://sreitinvestor.blogspot.com/2009/12/all-about-reits-reit-business-trust-and.html

Other than REIT, Business Trust is another investment class that offers investors a way to invest in high yielding cash-generating assets. Shipping Trust is actually a type of Business Trust with assets mainly in ships. Following are brief descriptions of these investment products:

REIT

A Real Estate Investment Trust (“REIT”) raises capital to purchase primarily real estate assets, usually with a view to generating income for unit holders of the fund. It allows individual investors to access real property assets and share the benefits and risks of owning a portfolio of property assets which typically distribute income at regular intervals.

Business Trust

Business Trusts offer investors a new way to invest in cash-generating assets. Business Trusts are business enterprises set up as trusts, instead of companies. They are hybrid structures with elements of both companies and trusts. Like a company, a business trust operates and runs a business enterprise. But unlike a company, a business trust is not a separate legal entity. It is created by a trust deed under which the trustee has legal ownership of the trust assets and manages the assets for the benefit of the beneficiaries of the trust. Purchasers of units in the business trusts, being beneficiaries of the trust, hold beneficial interest in assets of the Business Trust.

As of this writing, CitySpring Infrastructure Trust and Hyflux Water Trust are 2 Business Trusts listed in SGX that owns infrastructure assets.

Shipping Trust

A shipping trust is registered as a business trust, and its business mainly involves acquiring ships and leasing them out to shipping companies for cash income.  

Currently there are 3 shipping trusts listed in SGX, namely the Pacific Shipping Trust, First Ship Lease Trust, and Rickmers Maritime. Compared to their REITs cousins, the shipping trusts are not doing as well recently. Their stock prices are still relatively depressed, probably because they are deemed as being riskier with their association to the volatile shipping cycle. The depressed prices in turn means higher yield to compensate for the risk in holding them.

Similarities
Following are some similarities between a REIT and a Business Trust:

• Unlike a listed company, the dividend payout of both REIT and Business Trust are from the operation cash flow rather than the accounting profit. As such, for a listed company, appreciation or depreciation of assets will  affect its accounting profit, and will in turn impact the dividend payout. REIT and Business Trust, on the other hand, can still maintain the same dividend payout even if there is appreciation or depreciation of assets as these are just accounting profit/loss and not loss in cash income.
• No tax on individual investors on the distribution income.
• Assets they own are usually highly expansive and requires some form of debt financing for the acquisition.
• Most of them have a sponsor that injects assets into the trust based on a right of first refusal agreement.
  

Differences
Following are some differences between a REIT and a Business Trust:

• REIT is legislated under the Code on collective Investment Schemes, while the Business Trust is under the The Business Trusts Act.
• The REIT has a separate Trustee and asset Manager, while for a Business Trust, these roles are fulfilled by a single entity. The Trustee-Manager of Business Trusts thus has dual responsibility of safeguarding the interests of unitholders and managing the Business Trusts. This stems from the difficulty in apportioning the fiduciary responsibility between two roles given the nature of Business Trusts as active enterprises.
• The gearing limit for REIT is 35% without corporate rating, and 60% if it has a rating. There is no gearing limit for Business Trust. Thus it is not surprising to find Business Trust with debt being equal or even few times the value of its total assets.
• Assets of REITs are restricted to real estate. Business Trust has no such restriction, and may own a variety of cash generating assets including ships, gas stations, power stations, water treatment plants, etc.
• REIT has to maintain a minimum payout ratio of at least 90% of its distributable income. A Business Trust does not have this restriction, but it will usually maintain a high payout ratio.

REIT or Business Trust?
This is a question that cannot be generalized because different REITs and Business Trusts can have different levels of quality and risks. Even among the Business Trusts, we cannot compare apple to apple a Shipping Trust and an Infrastructure based Trust. Having said that, because of some distinct differences in their nature, the are some factors we can consider when deciding between a REIT or a Business Trust.

• As a Busines Trust has no gearing limit, it can potentially have a gearing of 100% or more. So when you have a REIT of 20% gearing and a Business Trust of 300% gearing, both giving the same yield, what should be the decision? Of couse some may argue that having no gearing means that the Business Trust can potentially grow much faster by debt. Well this boils down to the risk tolerance of an individual, whether you are looking for high risk high return kind of investment, or otherwise.
  
• The minimum payout ratio for REIT is 90%, while Business Trust has no such restriction. So Business Trust may have a higher element of surprise in having a drastic cut of payout ratio in times of difficulties. Case in point, Rickmers Maritime. Due to the current difficult operating environment, the Trust has accelerated its cash retention efforts. The distribution payout for 2Q2009 and 3Q2009 was 13% of distributable income compared with 46% in 1Q2009 and an average of 67% for FY2008. Compare this with CDL H-Trust, which cuts the payout ratio from 100% to 90% earlier this year.