Funding an education with Thai value stocks.
A long term Educational Savings Fund for a minor. Funded with mostly Thai smaller cap value stocks.
Some 8 years ago I decided to set up an educational fund for our daughter. Instead of using any of the many highly advocated insurance, annuity or bank savings instruments, I of course, put “my money where my mouth” is. So I regularly, over these years, invested in different Thai value shares as I picked over time.
Whenever we had a bit of extra cash we bought some smaller cap Thai shares with high dividends. The timing of this savings was dictated by our availability and budget, not much by perceived market timing. Over the past 8 years we made various investments, all in all totaling some 270,000 Baht. The/my golden rule was to always take delivery of the stock certificates, so not leaving these with the broker. Why?
1) To get a stock in a minor’s name you must first buy the shares in one of the parent’s name. Then, only after settlement, you instruct your broker to issue this stock into your child's name. You so ask to take physical delivery of the share certificates into a minor name. This of course will require proper signatures & ID of both parents and a currently 150 Baht fee. You must as well have at hand a copy of the child's’ birth certificate as well as the Thai document (called Ta Bien Ban) showing where the child legally resides. All documents must be signed by both parents.
2) Because there so is no tempting to sell out after a nice price upward move. This habit of taking profits looks like a wise decision for a while, only to regret this in time. More often then not a stock will price correct, then move further up at some point. Unless the company’s fundamentals seem less appealing, or the stock price has become well overvalued, its best to just hold on and collect the rising dividends.
I did gently –not overeagerly- manage the portfolio from a long term perspective. When a stock soared in value, over some time, we took profits and re-allocated to perceived batter values For example, Banpu, which was the only larger cap selection I chose (as here much favored some 5 years ago) Banpu (146) increased from 22 to well over 160. Several years and dividends later, we took profit this year at 148 and spread this then large holding, into 3 smaller cap stocks., including UMS (a now better pick then Banpu, I belive. Time will tell). Other times we eliminated shares based on perceived concerns. Examples: At one time I had LRH (a Hotel stock) and AJ, both were eliminated for different reasons with some gains. Another time I eliminated a choice at a small loss, only to see it double as was the case with DTCI. Or, KWH where we had a nice profit and then walked away. I will be visiting with KWH (1.78), again after a long pause, in early September.
We made at most average over the entire period of 2-4 changes a year; as the clear investment objective remained long term investing, which means essentially to make few changes along the way but try to keep picking good companies. The shares were always selected on value investing with high dividends, I stayed away from the Banking, electronic or communication/IT sector, believing it changes too fast.
Making changes inconvenient, in some ways this ended up being a blessing. Its inconvenient to switch as one has to bring the stock certificate to the broker along with multiple signatures and copies of ID/Passport.
Regarding Dividends and Rights/Warrant Offerings:
The dividends were paid and sent by registered mail directly in the child's name and its registered address. Dividend checks can only be deposited into a Thai bank account, opened by the parents, in the chid's proper name! If for some reason the check is not received or lost, the parents can contact directly the TSD* to send out again and/or issue a new check. Under this, holding shares in a minor name arrangement, you cannot ask to have dividends deposited automatically into a bank account. (i.e. the E-dividend option is not available). To be clear, you cannot buy shares in a minor name right away, directly, as a minor cannot hold a broker account. Again: First you buy in an your adult name, then after your transfer the shares into a minor name. You can buy the Thai or Foreign shares.
If there is a stock split you receive a letter asking you to send the old stock certificate in -and they (TSD*) will re-issue the new certificate with the newly shown par value. If the company issues free warrants, these will automatically be sent registered mail in the child's name, same if there is a new rights offering. In that case it will be clearly lettered how to subscribe and where to wire funds. The new shares from the rights offering will be sent in the child's name and registered address. This has all worked clear and well for all this time and so has generated a substantial return.
Some high succes shares, which I very favorably expressed at the web site, I actually mostly missed. Just a few examples are: Ticon, here I allocated small as we were back then building the Villa/Research office. Other times I sold out too early, like BH the hospital stock, which looked too expensive to me a few months ago, yet it moved higher. The point is that long term stock market investing is by no means ever a perfect science and we all make “mistakes”. Mistakes are rather forgiving if overall the strategy is sound. To not have/make any mistakes would simply mean not trying hard enough. Count on making mistakes but address them, don’t burry them. Cutting loss is part of it all when other better opportunities appear.
In life we are conditioned that mistakes are most always bad, must be avoided at all costs, and sometimes are unforgiving…like car accidents or touching a electric wire or a poison snake etc.. Many careers have elements were mistakes are terrible or even terminal. Like a pilot flying a plane, where anything goes wrong is bad or even fatal, or a Doctor where prescribing the wrong medicine can have horrific consequences.
Stock market investing assumes mistakes of judgment are and will be incurred! Abnormalities in markets can be opportunities -but abnormalities in an airplane for example is all downside risks, never an opportunity. And often, at what appears to be a first mistake can change to be a big winner later. So often when we buy a stock it will go down first, or at some point before a profit is eventually at hand. The stock does not know you own it, so whom are we to think that we can time things so well? People/investors/savers whom over-try at all cost to avoid this, do miss out plenty of good opportunties. Its a fine line.
A long term investor always has a different set of guidelines & norms as compared to a short term trader. This is the reason *I have always here advocated* in never mixing a shorter term trading account, with long term investing: the two just don’t mix. It is also one reason why the educational fund, through Thai value stocks, should take delivery of the share certificates, not let them site at the brokers office, ready to trade out. Its too tempting.
Don’t count on the brokers here to help. Many will tell you that nobody takes delivery of the shares, but we do for years Then they will tell you, you can’t buy shares in a minor name, but you can and we do. Then, most all brokers will tell you, that a client may only have one account per name, per broker. The are quick to add “its against SEC rule”. Not true. The brokers want you to trade, not to invest for the long term. The brokers are mostly transaction oriented, not investment returns concerned. No broker to my knowledge has ever offered or described the educational fund as I here just did.
Of course the same can be done with a long term retirement fund. Or, as I recently described in an article on Thai real estate investing: foreigner leasing a home for 30 years and investing the annual savings, accounting & auditing fees etc into a sinking fund with Thai value shares.
As an example of just this week, look at Tisco. Here is reputable broker which has been around for at least a couple of decades. They just issued a new research report this week on Ticon, downgrading it to “neutral” from their previous solid buy opinion. The neutral opinion is now advocated due to the company raising its capital. Tisco just assumes the new shares will be issued at a discount to current market prices. They however correctly state that the new shares will dilute earnings per share, but then seem to ignore that is will also raise substantial new & needed capital for further expansion. They conclude their report by stating this company is set to grow at an impressive rate over the next year and in 2008, yet downgrade the stock to a neutral opinion. Let me ask you: if the company is set to grow fast next year and beyond, along with a high dividend, why sell this stock if you are a longer term investor?
Back to the issue of an educational fund via Thai smaller cap value shares in a minor name. We invested a total of around ¼ of a million Baht and this over the years with fairly equal amounts each year. We did not time things, we invested as we went along when some funds were at hand. We did not invest all at once, but irregularly over the past 8 years in a always diversified way. Today the sum of all share certificates at the current market value is 1.25 million Baht. This includes all dividends, which were reinvested back each year, except for last year, where we allowed our daughter to decorate her new room (about 15,000 Baht). Her educational fund has so increased nearly 6 fold over the past 8 years. Remember, we invested this as we went along, not all at once from day 1. While for sure there was volatility along way, I wonder where she would be going to University one day had I chosen the much and varied touted alternatives.
Best Regards,
Paul A. Renaud.
www.thaistocks.com
* See http://www.tsd.co.th/
I have found TSD to be most professional and very helpful in what the do. Here is a summary:
The TSD’s main function is to develop and promote back-office systems for the after-trade services in Thailand in order to enable us to attain the highest level of efficiency and meet international standards. This function is considered to be an important role that supported related institutions in the Thai capital market to be more competitive in the international market.
Services Provided by the TSD. The after-trade services provided by the TSD for its member companies are divided into five main areas;
1. Securities Depository
2. Securities Clearing and Settlement
3. Securities Registration
4. Fund Registration
5. Back Office Service Bureau
At present, the TSD acts as the central securities depository and the only clearing house and securities depository center (SDC) in Thailand, implementing an internationally accepted multilateral netting system for the clearing and settlement of securities traded on the SET and the Market for Alternative Investment (MAI). Recently, the TSD has implemented the Delivery versus Payment (DvP) method to its clearing and settlement system. With this new development, the payment method has been changed from the use of cheques to electronic fund transfers through the settlement banks and the BAHTNET system of the Bank of Thailand in order to reduce risks to the clearing house, as well as to increase liquidity in the stock market.
Services Standard. The TSD has achieved the G-30 recommendations, the international standards for a securities after-trade organization.
