I Spy With My Little Eye

This post has no education value as I would classify this as a marketing tip.  Do note that the following information makes lots of assumptions that the reader is already well aware of the terminologies of the stock market.  If you are a beginner, skip this and come back again when I have covered them in my education series.

 

Anyways, I have promised that whatever stocks I am currently investing, I will share them with my readers.  As such, here is one such entry.  My current research revolved around the Straits Times Index Exchange Tracked Fund (or STI ETF for short).  This fund actually tracks the Straits Times Index.  Hence it is actually a fund that buys the blue chip shares in the Singapore Stock Exchange that closely maps the component stocks of the STI.  These component stocks represents over 60% of the total Singapore Stock Exchange value!  Hence, does it surprise you that you can actually own portfolio of blue chip shares at approximately S$3,000!?  Moreover, the fund trades like a stock, and even gives out dividend like a stock. 

 

So besides the benefits I listed abover, why should I be looking at this right now?  Historically, the STI had a conservative trend of funneling towards a range of about 12 to 15 PE ratio for the past 8 years according to sources like Fundsupermart.  If that is the case, that means that if the STI, admist all the gloom and doom, is still hovering at 12 PE ratio, it is worth a second look, yes?  So that’s what I did.

 

As of now, I am looking at the STI at approximately 2,899 on 7th July 2008.  The STI ETF is priced at S$3.01 (which is quite close to the STI).  At this level, the PE ratio is approximately 12.9.  It is hence on a lower end of the PE ratio funnel.  It is likely that the price may go lower, but remains to be seen.  It is an attractive buy, and I would personally invest a small portion of my portfolio to the STI ETF at this point just to capture the current reasonable pricing.  So if the price goes significantlyl lower, I am not too exposed, and can take the opportunity to invest a little more as it becomes a rather significant bargain.  But it the price turns for the better, I have the higher priced stock to be happy with.

 

So as with my stand in all writings, I only write about stocks that I am willing to invest with my own money.  Hence today I happily invested in some STI ETF shares.  However, do take note, investment is never a get rich quick scheme.  Rather, it is a method to invest in the long term where you get to pick (and buy) stocks at a reasonable or bargain price.  Afterwhich, we can sit back, relax, and wait for the marketing to become sane again.

 

Lastly, for privacy issues, I can only say I bought the STI ETF at S$3.01 per share, but I will not disclose how many shares I bought.  That part is up to you to decide.  The point is that I am putting my money where my mouth is. 

 

Have fun, invest wisely and grow rich!

Dark Side of Day Trading

When an investor uses fancy technical charts to buy and sell financial instruments (or stocks) frequently within the same trading day, it is commonly understood as Day Trading. I would broaden that scope to include frequent trading within a short period of time.

 

I come from a school of thought that follows Warren Buffett - there’s no quick and easy money. Day trading is like a driver engaging in frequent over-taking attempts on a crowded highway at high speeds. Yes you can definitely reach your destination faster, provided nothing goes wrong. But something always go wrong. Eventually the odds will be stacked against you and it is likely fatal. I personally do not recommend day trading for beginners.

 

However, having said that, day trading can be very seductive, powerful, enticing and exhilarating to the unsuspecting investors. Lucky for us, Darth Vader was not a stock broker or the famous scene on Cloud City from Star Wars will play out very differently:

 

Vader: Luke! Join me and I will complete your training with my technical analysis charts! With our combined strength, we can take over the stock markets by reaping indecent profits from quick and frequent trades!

Luke: I’ll never join you!

Vader: If you only knew the power of the dark side of day trading!

Luke: Yoda told me you will ruin my financial returns and fortunes!

Vader: Luke! I am your broker!

Luke: No…no…it’s not true! That’s impossible. I know each time I trade, I would incur a fee of approximately 2% of the total transacted value. Trade 10 times in a month, and I would lose 20% in transaction fees! Look, it already cost me a hand!

Vader: Search your feeling and you know it’s true…Luke! We can beat the stock market and rule the financial world…It is your destiny. Join me and we will rule as broker and investor!

At this point, much to the credit of Luke, he resisted the temptation to join his broker and escaped.

 

While I understand that you can reach your financial goals through day trading, buying and selling often, but the risks of failing far outweighs the potential gains. So choose wisely and stay invested for a long period of time without fattening the wallets of your favourite trading house. Instead, make yourself rich the slow and steady way.

 

ps. For those not familiar to the scene from Star Wars above, see the video below…

 

 

Starbucks Latte versus Kopi

In the movie Godzilla, the gigantic monster started off as a small harmless lizard on some island.  As it was left unchecked, it ate so much rubbish we dump on the island that it gradually grew into a humongous monster.  One day, while suffering from diarrhoea, rushed to the toilet and destroyed half the city along the way…

 

The moral of the story is that devastating effects come in small packages spread across a period of time.  I can think of several famous analogies such as ”death by a thousand cuts” or “cooking a frog slowly“.  All describing a smiliar experience of suffering a slow agonising death without the victim realizing until it is too late.

 

So what do all these have to do with savings for investments?  The major problem with most of us is that we are oblivious about our normal spending patterns.  Small savings in our daily spending routines means more money saved for investments.  Take the following example:

 

Starbucks Latte versus Kopi

A posh cafe latte costs about S$3.50 with tax.   Prepared by happy looking baristers (coffee makers), it makes you feel like the most important person in the world!  The courteous baristers smile and ask about your day.  They almost seem to actually care about your day.  This coffee boosts your ego as it tickles your taste buds.

 

Consider the alternative - Kopi.  This coffee costs only S$0.70 without tax.  This raw unadulterated heartland coffee is brewed from the hot stuffy depths of any nearby coffeeshop.  The brewer is normally an old uncle who does not give a damn about you or your day.  There are only 2 versions available - with or without milk.  The coffee does nothing for your ego and often leaves you in perspiration.

 

Both types of coffee will satisfy the daily caffeine addiction of most folks. However, the Latte costs almost 700% more than a simple Kopi just to massage your ego at the expense of your wallet!  The cost of a Latte is able to fuel your caffeine needs for an entire week in the form of a Kopi.  On an annual scale, you will save approximately S$1,022 just by drinking Kopi instead of Latte.  Hence, a great way to savings is to start taking stock of your spending by cutting down on unnecessary costs. 

 

So should we ever pay for a more expensive Latte?  Does it mean that we should deprive ourselves from the luxurious coffee that life has to offer?  The best approach is enjoy luxury in moderation.  Spoil yourself occassionaly instead of making it a daily habit.  Always remember not to take cost cutting into the other extreme.  You would never get wealthy being stingy either!

When Will You Start?!

There are comments that after so many articles, this blog seems to be stuck at the foundations and basics stages.  So when will the juicy bits like hot stock tips begin?  Or perhaps secret insights into how to amass stupendous wealth through sleek investments? Can you stop talking about savings for investment, and get started already?

 

As my favorite phrase goes, “Patience young Jedi“.  The foundation building of any great investor is the most critical stage of any investment education.  Imagine building an inverted pyramid. While it may still stand upright, any slight rumble will cause the entire structure to collapse.  Hence the bigger and wider the base foundation, the more stable your wealth can be built upon it.

 

Do or do not, there is no try…

Raiders Of The Lost Nuts

In a not so known earlier adventures of Indiana Jones, he once sought and found the lost book of richest ancient empire of Babylon. The secret of its wealth resided in “The Book of Wealth“. After braving many dangers, booby traps, Nazis and all the special effects the movie director can throw at him, he finally found the much sought after treasure.

As he traveled in the safety of his truck sending him home, he opened and read the ancient book in 4 seconds. Subsequently, he tossed the book out of the truck thinking that even if the Nazis were to find this book, they would do the same.

As we now know, Indiana Jones did not take the advise in the book as he had to subsequently come out of retirement just to make more movies to earn more money to sustain his lavish lifestyle. Poor guy…

Was he really loosing his nuts to have tossed that valuable ancient book? We can decide for ourselves. Shortly after, this book was discovered and found to contain only 4 pages. It was publicly examined, but “experts” found so much common sense in them (though uncommonly applied) that it was not deemed worthy of a place in any museum!

Here are the FULL contents of the 4 pages in big bold letters:

1. Earn More
2. Spend Less
3. Grow Savings
4. Protect Savings
   

Would you have done the same as Indiana Jones and suffer the same fate?

Let us examine each point accordingly:

1. Earn More - Every rich person has good earning capacity. They earn the money and riches they have. So if you are lazy, and not even bothering to earn your riches, you can never be rich or wealthy. You would be very lucky not to be poor at all! What about those who inherited their fortunes? Well, unless they learn their earning skills from their parents of benefactors fast, they too will loose their wealth just as fast!

 

2. Spend Less - Accumulation of wealth simply means earning more than you spend. Notice that it refers to everyone, and not just to the rich. So that means that even when you are earning a modest salary, you too can begin accumulating wealth just be spending less than you earn! The general rule of thumb is to have the discipline to save 10% of your earnings every time. nothing more, nothing less. This applies even in debt, which I will talk about in another time.

 

3. Grow Savings - When you have saved enough money, it would mean that you should use this sum of money to grow it rather than letting it stay dormant. So use money to earn more money! So the rich do get richer!

 

4. Protect Savings - Set aside 6 months of your salary savings in cash. This is an emergency fund that should always be protected and never touched. All excess cash should be invested wisely to bring about accelerated returns. The key word is “wisely” so as to never lose money in all investments. Hence we need to always be cautious and careful. More of that topic later.

 

There is true wisdom in uncommonly applied common sense…