News Highlight (3)

Mature man earns $800,000 in capital gains and more

Full time retail investor Isaac Chin, 60 , was waiting on the stock market sidelines with $3million in cash when the local benchmark STI sank to a record low in march.

He decided that the market has bottomed out and backed his judgement by investing the full $3m in four REITs that month.

"When the STI hit 1,457 i bought heavily into A-Reits, CapitaMall Trust (CMT), Suntec Reits and CapitalCommerial Trust (CCT) he claims. "At that time, my friends advised me to wait for better bargains should the STI hit the 1260 level as predicted by soo many" My rationale was that a further 'discount' of 200 points was good but unnessary as the STI had dropped from about 3900 a year ago. I was proven correct.

The sum of $3million came from loans from two banks in August last year against his thee condominium units , which werw valued at about $6million then. Based on the interest charge of 2% on the loan, the monthly instalment works out to about $20,000. This amount includes the principal and interest repayment for 14 years.

"I pay a 2% interest on the loan based on the reducing valance. The four were bought at very attractive prices with dividend yields averaging 10-12%. Simple mathematics taught me that i can make a difference of at least 8% per annul with a further potential for enormous capital gains when the economy and share prices recover in a few years' time", he said.

He said that he had bought A-Reits at $1.03, CMT at 97c , Suntec Reits at 65c and CCT at 0.62c a unit. He added that he liked the four Reits as their dividends are non-taxable and they represent prime real estate here. As of Friday 29Th May 2009 , all Four Reits rose in share price giving him a capital gain of about $800,000.

Taken from Weekend Business Times 30-31May 2009

Possible lesson learnt from here.

1) Have guts, to invest when others are fleeing

2) Find low interest borrowing methods and invest in financial instruments that give high yields

3)Benefit then from the spread.

4) Know what you re doing. In terms of weigthing risks and returns