Investment Recommendation for Mr. Jack - Fundamentals of Investing

FUNDAMENTALS OF INVESTING

Investment recommendation for Mr. Jack
Risk tolerance of Mr. Jack
Mr. Jack is an ultra-high net worth individual. His net investible assets amount to SGD 500
million. Therefore his risk tolerance is high; his liquidity needs are not high. So he can invest in
real estate assets. Real estate assets such as real property investments do not have high liquidity
(Chandra, 2017). So they are suitable for investors whose risk tolerance is high and who have
long term investment horizon.
Investment horizon of Jack
Jack wants to invest in real estate. So this means that his investment horizon is a long term one.
Real estate investments are avoided by investors whose investment horizon is of short term
(Pandey, 2017).
Risk willingness
Both risk tolerance and the willingness to take risk of Mr. Jack are high.
Current state of the local economy of Singapore
GDP growth rate of Singapore currently is around 3.6% (Blanchard, 2018). The country has a
low and stable inflation rate. Due to the limited geographical size of the country and the high
economic development that it has seen in recent years, real estate prices are high in the country.
Real estate is so valuable in the country that many investors have started considering it as a safe
haven in times of crisis (Samuelson & Nordhaus, 2018). Singapore has one of the highest per
capita incomes in the world (Blanchard, 2018). Standard of living in the country is generally
high. There is therefore strong demand for luxury or premium real estate.

Evaluation of the various investment options
Associated Land Limited : This is the stock of a real estate company. The stock has an average
daily trading volume of 23 million. Its 52 weeks price range is $7.20 - $14.60. It is currently
trading at the price of $8.80. So it is trading at the lower end of its 52 weeks price range. Gearing
level of the company is 25%. This is very low debt usage for a real estate company. Net book
value of the stock is 7.90. So market value –to – net book value ratio is 1.11. The stock pays
dividends, with a dividend yield of 1.1%. The current P/E ratio of the stock is 22.6. This
indicates that the market expects the company to post high growth in earnings (Gitman, Joehnk,
& Smart, 2011).
Regal Property Limited (RPL) : This stock has a much less average daily trading volume than
the stock of Associated Land Limited. Therefore this stock lesser liquidity. The higher the
liquidity the better is price discovery. It is trading near the middle point of its 52 week range.
Price-to-earnings ratio of the stock is 9.22. This indicates that the market expects the company to
post not as high growth in earnings as that of Associated Land Limited. Dividend yield at 2.5%
of this stock is higher than that of Associated. 71% of its total assets are financed by debt.
Therefore financial risk for the company is high (Pandey, 2017). It is trading at a discount to its
net book value per share. Its market price per share is lower than its book value per share. This
stock is less suitable for Jack than the stock of Associated Land Limited.
I – REIT : This is a real estate investment trust. Its earnings come from the rentals that it gets for
its industrial factories and warehouses. Liquidity of its shares is low. It has a high dividend yield
of 3.5%. And it is trading at a discount to its net book value per share of $3.30. Leverage is also
low at 23%.