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Posts Tagged ‘Investments’

Let's look for treasure!

Let's look for treasure!

I happen to recall an episode on an adult cartoon about 2 foul characters known as “Terrence & Philip”.  But this is not a post about their cartoon, but rather to borrow a phrase from them that depicts their favorite game where one of them says “Let’s look for treasure!”.  Most often, this game was played in the oddest of places.

 

As I was browsing the stock market to hunt for bargains (did I mention that the stock market is now like a Great Singapore Sale?), I happened to notice the developments of M1.  Here is a brief take on the situation to help you decide if it is a true hidden treasure.

 

According to M1’s CEO Neil Montefiore in statement recently on its 3rd quarter results for 2008, there are some tidbits of information that he mentioned that are of particular interest to me as a share owner of the company:

  1. The stock expects a single digit % drop in net profit earnings for 2008
  2. M1 aims to pay 80% of net profits out as dividends

So what do these information tell me?  If all else remains constant, we can expect:

  1. Net profit to be at S$154.17 million assuming a 10% drop in profits (yes, I am a pessimist!)
  2. Expected dividends can be S$123.34 million
  3. Current outstanding shares in market – 893.88 million shares
  4. Dividend per share is then S$0.137 per share
  5. Dividend payout of 7.4% against a valuation share price of S$1.85, or
  6. Dividend payout of 8.5% against the current share price of S$1.61

Compared to the interest rates of what is available out there, is this a hidden treasure or what?

P.s.  Take note that the current price of M1 is at S$1.61 at the time of writing.

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Consider Ethics

Consider Ethics

My dear friends. I understand that some of you might have reservations about my previous article’s suggestion to raise capital for investments from family and close friends. Some voiced concerns that it is bothering on being unethical as we are placing our loved ones’ hard earned cash at risk at 0% interest rates.  Logically, compared to taking a loan from anyone to buy luxury items like a car or to go on a holiday, borrowing to invest is extremely ethical.

 

If this still bothers you, and that you strongly believe in no free lunches, here are some suggestions to structure a loan program from family and close friends that I am personally using.

 

1. Matching Funds – To build trust, place a dollar for every dollar you loan into a fund pool. The fund should then be used only for investments and not allowed to be withdrawn unless mutually agreed with your debtors.

 

2. Attractive Interest Rates – give interest rates better than any fixed deposit but lower than prevailing loan rates. For me, I figured I was able to give 4% interest based on amount invested with me.

 

3. Capital Guarantee – I guarantee the capital invested along with the interest rates agreed. So in the event my investments fair poorly, I am still obligated for my pay outs. Hence the burden to perform is on me.

 

4. Annual Cash Out – all who invested has a chance to cash out once a year with no questions asked. But only once a year. On the flip side, they must stay with the fund for at least 1 year minimum.

 

 

Having the loan approved is only the beginning. The following instructions are harder to manage with these family linked debtors. However, if you can adhere to them, you will go a long way:

 

1. Invest wisely– this is your responsibility given the generosity of your loved ones. This also imply taking it like a man and do the right thing! No lazy investor ever got rich. Do your homework and have loads of patience.

 

2. Report performance yearly and no sooner – While this seems to run contrary to point 1, this is not so. All good intentions are often ill timed. So you owe it to them to focus on your investments and not be distracted by constant nagging from them. While they may operate on herd mentality, you need to be Joe cool under all circumstance to see opportunities others missed.

 

3. Pay out what you promised promptly – You do not know what lengths your family may have gone through just to raise that capital for you. It should be up to them to decide if they want to re-invest or enjoy the dividends. This is also a matter of trust. Deal fairly.

 

Thus with this method, I managed to build a fund for investing with relatively cheap cost of money with a very clear responsibility structure that builds mutual trust and understanding.

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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.

 

Accident

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.

 

Dark Side

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…

 

 

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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…

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10% Please!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.  

  3. 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.
  4.  

  5. 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!
  6.  

  7. 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.
  8.  

There is true wisdom in uncommonly applied common sense…

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SnowballIt may surprise many, but even humongous things probably began as a small and insignificant item.  Imagine being smashed on the face by a snowball thrown by a snow monkey.  Not much damage given the size of the snowball.  However, do not attempt to annoy the same monkey when it is armed with the same snowball at the top of a snow covered mountain.   

 

AvalancheA small snowball, given sufficient time and momentum, is able to gather in force and size that it becomes a monstrous force of nature.  This frightening force of nature, also known as an avalanche, can be so immense that it is capable of destroying an entire town!  All the mayhem and destruction started life as an insignificant snowball!  So what does this have to do with investment, savings or even wealth? 

 

Most folks grumble and belittle the small amount of savings that they are able to put aside each month.  But little do they realise, that this “insignificant” savings can be accumulated into a significant sum money.  Coupled with compounded interests across a good period of time, with wise re-investments of dividends and interests, this gradually accumulates momentum into a rather significant wealth.

 

For example, at 12% compounded annual interest rates, doubles every 6 years of investment.  So with only just $10,000 savings, it becomes approximately $320,000 in just 30 years.  Did I mention only basic math and no physical labor required! 

 

No wonder the rich gets richer!  What are you waiting for?  Start your very own saving avalanche now!

ps.  No snow monkey was harmed during the writing of this article.

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Sounds like I have just gone bonkers!  However, the concept is very simple.  Start with an end goal in mind.  Can you know how to begin if you don’t where you are going?  You might end up like a dog chasing its own tail.  Going around in circles.  Lots of sweat and work involved, but leading to precisely NOWHERE.

So when you retire at 60, do you want to:

  1. Be bankrupt and full of debt – leaving your next few generations of descendants to work as slaves to pay your debt.
  2. Be worth millions in value – asset rich but cash poor. You may have to start eating your valuable house at some point when you grow hungry as you have no money left to buy food.
  3. Be worth millions in cash and have a valuable home – live off your money in style! You will definitely be the favourite dad/mom where all your kids are dying to win your favor for obvious reasons.

Assuming your choice is option 3, then calculate how much income you need at 60 years to live comfortably in a preferred lifestyle. For example:

  1. I have 30 years to retirement
  2. Assuming that my current lifestyle costs me S$10,000 per month to be comfortable
  3. We need to factor inflation at say 3% per year for the next 30 years
  4. Using an calculator, S$10k multiplied by 103% by the power of 30 years, we need approximately S$25,000 per month (or S$300,000 per year) to have that lifestyle 30 years later

So if an investment pays 10% annual interests or dividend rates, we need to have at least S$3 million in investments just to have the lifestyle we want.  So how far are you from that retirement dream?

The thing is, most folks leave these important life calculations and decisions to either the government, or some proclaimed investment banker/adviser. Take charge of your life NOW!

Later in my articles, I will explore how to live comfortably of your annual interests or dividends and still die a millionaire (and not exhausting your savings)!

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