I think I'll help CW out.
Sometimes we use lingo or terminology that flew over the heads of readers.
Don't laugh. Give chance.
When I started "serious" mobile gaming a few years back, I too was a bit lost when I went to their Reddit site.
I mean I knew in gaming, "OP" was "over powered".
But in Reddit, "OP" meant "original poster"!?
Eh?
Then there was TLDR - too long; didn't read.
Which meant my blog posts and comments would not appeal to these short attention span Reddit users!!!
LOL!
So what is Freehold Investment Income?
Before I explain, let's take a step backwards to explain how land/business owners think.
When a land owner evaluates a new business proposal from his in-house shepherd or outside snake oil, the first thing he calculates is how many years it would take to get his capital back.
For those who studied Business Finance, its IRR (Internal Rate of Return) expressed in land owner language.
Why is it important to take back your capital?
Have you noticed some landowners are doing very well despite letting their listed or non-listed businesses go to zero in a bankruptcy?
As a minority outside investor, we can only take back our capital from sale of our shares or cash from dividends.
But for the landowner, if he is CEO, he can pay himself big salary increases and bonuses despite the company bleeding in red ink.
And if he is Chairman of the board, he can pay himself obscene director's fees for just meeting a few times a year...
Even better if the landowner himself appoints himself BOTH as CEO and Chairman!
Yes! Its ownself check ownself!
Then there's other tricks like siphoning funds out of the company through 3rd party related transactions. Wink, wink.
That's why most outside investors will sit up when they spot land owners divesting their own share holdings or surreptitiously and quietly move company funds back into their own pockets.
Ai yeah! Its the same in a divorce settlement lah!
Some rich men will secretly put their assets in the names of people he can trust. Anything to prevent that bitch from milking him completely dry!
(Eh! Don't get caught! Its against the law one!)
OK, now we've got the context out of the way, what better way to explain this home made investing terminology called - Freehold Investment Income than through examples?
Shock!
You mean its not proper Business Finance terminology? Can't find it in Investopedia?
Eh! Why you all surprised?
Especially those who are fond of using this home made XIRR. Yes, its not proper business finance terminology too!
Why is it happiness whenever we have a 2 bagger or doubled our money in investing?
Its because if we are conservative or strolling down the mountain, we can simply SELL half our holdings and retrieve our capital safely back into our pockets.
Then we are merely risking the "unrealised" profits.
Now its a matter of make more or make less.
We can even "pretend" to be Buy-and-Hold "investors" and chant "Let our profits run!"
Of course conveniently leaving out you already got your capital back...
Shh...
Why?
Because if that investment turned out to be a 10 bagger, pain!
As for those who prefer to flex in percentages, you are ecstatic too!
What's the percentage return for ZERO capital employed?
Infinity returns for the win!
Power or what!?
If you have a rental investment property, and your rental yield is 5%, in 20 years' time, you can do the Tarzan "or-yi-or" thing to others.
"See? This rental property is "free"! Who says you can't have your cake and eat it?"
"And every month, the rental is "free" money too!"
If you are age 25 or 30, compare the above rental investment property path to voluntarily contributing to CPF, which is better for climbing up the mountain?
If don't like property, you can substitute with equities like REITs?
How about cryptos? And double-digit yields from DeFi?
Hello! I'm not dissing CPF OK?
Just doing my gentle poking reminder that depending whether we are climbing up the mountain or strolling down the mountain, the strategies and vehicles we employ can make a world of difference!
Smol,
ReplyDeleteI shan't be a wet blanket & will say that everyone should try a little bit of everything.
After a while you'd naturally find your "calling" and gravitate to that 1 or 2.
With democratization & fractionalization of investing, it's never been easier to dip one's toes in. Only got $1 for etfs or reits? No problem. Even the sometimes inefficient (ironically) crypto space can be on-boarded with fifty bucks.
As for olden days metrics like IRR or ROE or PE, think the newer generation doesn't rely on these so much as stories, narratives & personal experiences.
E.g. S&P 500 now sports 31X PE which is considered nose-bleed high. Basically you'd need 31 years of current profits to breakeven on the average large cap US stock.
But Sea has PE of infinity (since it has zero profits). Investors don't care. With Jackie Chan on your side, you can't lose!
Spur,
DeleteMy contribution to this watering hole is merely to "provoke" a discussion - throw brick attract jade ;)
The last thing I want is to Indian Chief others on what they should or should not do.
I'm not a bleeding heart; I don't care ;)
But its fun shooting the breeze and talking "male-chicken" with you all!
Hope we don't take ourselves too seriously :)
With central banks messing around with interest rates, and new financial "innovations" popping up, youths who don't know what cannot be done have the edge over us old fogeys!
We old fogeys are trapped in a time loop fighting yesterday's war...
But we have one edge over youths ;)
We know through blood, sweat, and tears there's no such thing as, "Its different this time!"
Imagine being a CEO of any traditional fortune 500 company - with real profits and cash flows.
Then you see SEA's valuation based on zero profits is more power than yours...
Shit! The CEO must be thinking he has joined the wrong industry!
Or take Tesla. Its market cap is more than all the US headquartered automakers put together!?
So will Tesla put all these other US automakers out of business in the future?
If I'm a betting man, I'll rather place my bets on German and Chinese automakers to leapfrog over Tesla in the future when it comes to electric vehicles ;)
Quote : "But Sea has PE of infinity (since it has zero profits). Investors don't care. With Jackie Chan on your side, you can't lose!"
DeleteI was fan of Jackie Chan's movies; but when I watched his recent TV ads. What's hell? This Kung Fu Master now doing Bollywood dance ads! LOL!
CW,
DeleteGive chance.
At his age, its easier and more $$$ to do Bollywood ads than to do crazy stunts in his own movies.
If anyone were to offer me $1 million to run naked around Queenstown, I would do it!
I've realised the older I get, the more "fearless" (or shameless) I've become!?
I'm a man-whore; I'll do anything for a drink!
LOL!
Smol,
ReplyDeleteSo complicated. I do not belong to this league of freehold investment income. I will skip such investment and remain in the "dividend" income which is my preferred cup of tea.
WTK
WTK,
DeleteHey! You do you!
LOL!
You know, at 60, I am still game to try "new" things.
ReplyDeleteI opened an account with Coinhako to "invest" in cyptos in Mar this year to have a first person experience of what the fuss/hype was all about. I dont trade, I just hodl. Put in $20,000 of play money to have front seat experience. With that money, I got myself a tiny fraction of bitcoin, some ETH and thousands of Cardano coins. And now I wait & see.
They said the US stock market is the world's market, so I also opened an account with Moomoo also in Mar this year, to invest in US stocks. Put in $36,000 and bought myself some US and China stocks. Again, I hodl, sit and see what's the fuss / hype about.
But really, my real cashflow sources are local - dividends, rental and interests from dear CPF. I think we can retire on the CPF sources alone. As they say, only time will tell.
mysecretinvestment,
DeleteOf course you can retire on CPF alone when you are getting more than $100K per year in CPF interests alone!!!
You are not the average nor the median CPF member ;)
You have earned the right to "try new things". Even if they all went to zero, the total losses don't add up to more than 2% of your total net worth ;)
CPF is great as a strolling down the mountain vehicle when we have made our other pots of gold OUTSIDE of CPF.
For youths still climbing up the mountain, the well-intentioned SAVE MORE advice is to have:
1) $500K in CPF (1M65 minimum PC requirement); or
2) $2 million in CPF (4M65 recommended PC requirement).
Only when they have built up the necessary above CPF "safety nets" can they start to explore riskier vehicles like equities, cryptos; etc???
Huh?
I have more faith in youths to see through that bullshit!
LOL!
Hi SMOL,
ReplyDeleteThe youth have lots of time even if they dun have the money. For old birds, if only money can buy back some time.
AT_AT
AT_AT,
DeleteThat's why youths don't need safety nets.
Fall have lots of time to recover...
Got parents to parasite...
Daddy and mommy, I'm coming home!
Old fogeys with brittle bones cannot risk falling!
The last thing we want is to burden our own children...
Dad, why you itchy fingers again!?