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Posts Tagged ‘Wealth’

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!
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  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!
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  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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GOLD Member!

GoldmemberOne of my favorite villain in the movie Austin Powers is Goldmember. The funny thing is that this character shows what most people are doing right now!  An overwhelming obsession with gold when the value of the US dollar is in the decline. Didn’t anyone learn from the movie that it was his obsession with gold that made him an evil villain in the first place?

So now to the key question: Should you invest in Gold right now?  The experts, financial analysts, bankers, and even the newspapers are saying that it’s the hottest thing since hot dogs!  Everyone (from your pet gold fish to your granny) should jump in and buy some! Before you do so, pause and think for a moment.

Here is a useful chart to begin our discussion:

30 year historic gold price

  1. In Jan 1974, gold price was approximately USD 100.
  2. Assuming inflation of 6% per year, 36 years later in 2010, gold price should be about 8 times the price in 1974. That works out to be about USD 800.
  3. The year is now 2008. So that means that by simple estimation, the price of gold should be close to USD 800 without any significant change in demand.
  4. Gold price in the market is currently at approximately USD 930.

So it is a risk to get into gold at the current price. So why are people paying higher prices now?  Is there a supply shortage?  Is it possible that Goldmember (the villain) is taking over all of the world’s gold for his evil love for gold showers, and thereby crippling Indian weddings (who needs gold dowry) and Chinese gold teeth markets?  Or perhaps folks are just driven by pure speculation and fear of the falling value of the US dollar.  Whatever the reason, the reality is that there will always be a limited supply of gold.  When there is more demand than supply, prices will rise.  So why is everyone placing more value in gold than money?

Perhaps we should now realise that money is just pieces of paper with some long dead guy’s face printed on it.  So whenever any government wants more money, it has the authority and ability to bring out its mega photocopier and print lots more!  Now where is the value backing paper money?  Some currencies have a micro-small footnote that says “blah blah blah government promises to pay bearer”.  While other currencies even go to the extent of omitting this statement altogether.  So the value of money is actually the value of the government’s promise to pay.  But to pay what is the question even I have no answers to.

Having said that, so gold should be best investments, right?  The problem is that there are no business fundamentals to back up the price of gold except global supply and demand.  So unless you are an expert world economist with the IQ of Einstein and incredible insights, I have no clue what is the true supply and demand!

So if you still insist on betting your wealth on gold at this price, limit your exposure to only 10% of your investment portfolio.  However, if you have several gold teeth, rush to your nearest pawn shop to ask for valuation of your gold fortunes!

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Introductions

There is an old chinese saying that goes “All incredible journeys begins with a first step”.  It took me long enough to customise the blog to suit my needs.  Now it is time to begin writing.  There is much to cover, but there is little time.  Join me as I explore the exciting journey into investments….mostly at my expense!

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