News, views & reviews

• Principles of long term investing, compounding and dollar cost averaging
• Earn a better yield by investing in equities
• Reduce risk by investing for the long term in a low cost, diversified fund
• How to access information from the SGX website
• How to get information about ETFs, REITS and  blue chip shares (with high dividend yield)
• How to open an account with a stockbroker (using a remisier or an online account)
• Expenses of investing

"we hereby confirm that you are released from your liability under the Guarantee dated 19/9/2003 subject to the condition that such release will be void and of no effect if any payment or security which we have received with respect to the ammount guaranteed is avoided or reduced by any reason whatsoever, and we shall be entitiled to rely on the said guarantee as if this release had not been given."

And now Tim Geithner are saying there is no double dip recession.

So who’s right?

If the top two financial persons in US who’s reading the same page have two versions, what more mere mortals like all of us?

Peter Lynch, the legendary investor, once remarked that if you spend 13 minutes looking at the economic figures and try to figure things out, you have wasted 10 minutes.

So I have wasted your time and mine trying to figure out what the economists and financial leaders are trying to say.

The crack economists in Singapore constantly have economic forecasts which they revise every quarter with egg on their faces.

Should we even care?

As investors, we have control over 2 certain things.

1. Costs
   

2. The time or duration of investment

With low costs, you have more yield in your investment. It’s good to be cheap.

With more time to let your portfolio run, the more the magic of compounding interest can work. I don’t try to time my purchase or sales.I rather spend more time to look for good companies to invest in.

I use the Yahoo finance page which I find useful to track my own stock portfolio (you can see the screenshot below). I don’t look at it every day, but it has just increased by 20% from the previous week.

Do I feel richer? No. Do I feel smarter because the investment has risen? No.

Do I know where it will go next week? No.

If you compare it with my position last year in September, it hasn’t changed by much except I bought Berkshire Hathaway B shares and sold my Breadtalk holdings except for the bonus shares which I am holding onto in order to raise cash for projected spending (I'm going to take a masters course).

If that makes any sense.

Have a good week ahead.

This is a post from our guest writer Lemizeraq who runs the website Financial Freedom SG. The original post can be found here. If you want to be a guest writer as well, or if you have a story to share that will help our readers understand financial matters better, please contact us.

If we are to become better as an investor, we have to learn from mistakes made. So these are some that I either experienced myself or seen with my own eyes.

7. Not Knowing What You Are Investing In

While I was in between jobs, I took up an offer to become an investment advisor. With my grounding in economics and after passing the necessary tests, I became a qualified advisor. There were weekly investment talks held by the bank, from which I was supposed to suddenly become an expert.

So in 2007, my manager told the group to try to push products like the Minibonds series and Pinnacle Notes and said that they were selling well. The only thing I remembered of them was that it was tied to the fortunes of a group of underlying securities. Some were well known companies, like Citigroup, Ford Motor, Bear Stearns etc.

The question I asked myself was whether if I will sell it to my own dad who’s retired. I decided I wouldn’t. It looked too complex and I could not understand some of what it was trying to say. So it would not pass my dad, who was liable to ask plenty of questions I could not answer. And we all know what happened subsequently. I sold unit trusts instead to people I know. And I knew I am not suited for a sales job. Because I cannot sell something I don’t understand.

6. Unit Trusts/ Mutual Funds/ Managed Funds Are Expensive For Investors Like Us

The unit trusts that my wife bought are all underwater. The ones I bought are through dollar averaging and they are profitable, but not by much. The only time unit trust were good for us is when I bought it again through dollar cost averaging from 2002-2005 in China. It earned a tidy profit, but then again, who didn’t do well investing in China during that period?

Through book written by John Bogle, Common Sense on Mutual Funds, and other investment books out there lay the basis on which costs can eat a big chunk out of your investment returns. This is again borne out through personal experience of our investment journey. There are better forms of investment at much lower cost. Look at ETFs, index funds or just buy some stocks through internet.

5. Speculating/Investment Using Leverage Is Highly Dangerous

In my first job with a brokerage, I got to interact with remisers and dealers and saw first hand the dangers of being in close proximity with stocks and shares everyday. At the same time, I was in the margin department which offers leverage for customers pledging their collaterals with the company so that they can use the borrowed money to buy more shares and earn more. I saw the list of margin calls each day, which meant that these people have to top up with cash else their stocks will be force sold.

Suffice to say that if they had the money, they wouldn’t have use the margin services. So their stocks were force sold. You may earn more through leverage, but you have an equal chance of losing everything too and investing is already challenging enough without adding danger to the mix.

4. Lack Of Proper Planning For Investment

In 2004, I sold off my stocks holdings at the time for a loss because I wanted to have cash in hand for the next stage in my life. I was getting married and need money for holding the dinner, buying the house, furniture, renovation and so on. In hindsight, I could have sold off less and the stock position of those stocks would not have to suffer a loss. In the end, the only thing I needed a loan for was for the house, which I stretched to the maximum years available.

For this, I am thankful that my significant other is also thrifty and managed to save a pile of money to help out in all those expenses.

So sometimes when you sell your investment is not determined by the market prices at the time but by your needs which may change so you will need a proper plan and look ahead to anticipate these future expenses which are coming.

This time around, I sold off the Breadtalk position early to have a cash buffer for next two year’s need as I would be taking some courses to improve myself. So a bread company has helped me to defray a whole chunk of my further education expenses.

3. Small Details Can Hurt You

As regular readers would have known, I made a mistake in selling my Breadtalk position as I didn’t read the computerised mailer from CDP carefully about the allocation of bonus shares for Breadtalk to a special counter. So I became an unintentional short seller.

In investing, small details, small footnotes, small costs that are hidden are significant items that will erode your investing returns if you don’t pay attention.

2. The Past May Not Repeat In Future

It hurts as a ex-history teacher to say that sometimes history does not repeat itself. But for investors, that is a big caveat that you have to take note of. Disclaimers of this are emblazoned on marketing materials of unit trusts that warn you that the past staggering returns doesn’t indicate that the future is as rosy.

1. Mindset and Discipline Is More Important Than What You Know

You may know that in a bear market, there are many opportunities to buy. But do you have the mental strength to buy when almost everyone you know is selling and looking at you as if you are nuts? Berkshire Hathaway’s Warren Buffett was said to be past it when during the 2000-2001 dot com boom, he was not invested in the latest cool fad and his company’s returns was way behind those who invested in them.

Michael Burry was buying as many credit default swaps as he could get hold of by using his investor’s money while the housing boom was going on. His analysis was that the housing boom was due to crash and it would get ugly and he used the credit default swaps to bet against the whole sub-prime market. Before this, he sat in an office and read about all the sub-prime bonds reports and made sure he understood it thoroughly. He had the mindset and discipline to constantly seek out new things and analyse stocks.

Without discipline, I would not have the money saved to channel to investments. Without the mindset to investment, I would probably have saved it in banks. It helps that my dad was and is still an investor and I've learnt much from him. Without the mindset to ignore what others are doing, I wouldn't have invested all the way through the bear markets of 2007-2008.

Have a good investment journey!

Source:

1. Learning From Michael Burry

This is a post from our guest writer Lemizeraq who runs the website Financial Freedom SG. If you want to be a guest writer as well, or if you have a story to share that will help our readers understand financial matters better, please contact us.

In anything we do in life, we want to seek improvement. So it is the same for the field of investment. How can we improve as investors?

7. Control Costs

There are a lot of things that are beyond our control in investing. But the one thing we can do is to look at costs. Do you really want to put all your money into unit trust/managed funds when you can find DIY investments like the Exchange Traded Funds (ETFs), index funds which have a lower transactions costs. Plus lower management fees.

6. Learn From The Past

As an ex-history teacher, I always tell students that people who don’t look at history tends to make the same mistakes. The funny thing is that many investment prospectus have the disclaimer that “Past returns is not indicative of future returns.” So you can learn the wrong history. So what do you learn? I prefer to use history to reinforce your investment mindset. To steel yourself so that armed with history behind you, you are calm and collected in bear markets. While being pessimistic and looking to square off positions in bull markets.

5. Balancing Risk-Return

This is one of the more difficult decisions to make as an investor. Do you put your money in ‘safe’ fixed deposits and savings accounts? Or do you take in more risk by investing in the stock market? Then become caught up by the Internet bubble like in 2001? Without risk, there isn’t any significant returns to speak of. And if you chase super high returns, be wary of losing it all or of someone who says it is low risk. There is no such thing as a free lunch.

4. Diversify

One way to balance the risk-return decision is to use diversification. If you buy the whole market, you reduce the risk of buying a significant holding in Enron in 2000 or a Citibank on its way down in 2006-2007. You have them, but in small amounts. You get hit, but by a lot less than people who bought chunks of it. Also, don’t just look at one investment class but different sectors, different instruments and balance it around. When you have a significant retirement portfolio, your decision is what percentage of each you want.

3. Have a Cash Reserve

You can have lots of investment ideas. Without the money to buy it, it is worthless to you. Worse, if you suddenly have an emergency and need the money, you may have to liquidate your investments to raise cash. So it is better to have it ready in your bank account to meet these needs. Then you almost never have to make forced sales of your stock position.

2. Learn From Investment Legends

Warren Buffett, Peter Lynch, George Soros, John Templeton, Anthony Bolton, Michael Burry etc.

1. Learn From Your Mistakes

I have made many mistakes. The best way is to pay the costs, learn from it and remember it the next time the same situation arises.

Sometimes, the mistakes you make the first time around makes you learn the wrong lesson. Like what happened to the French during the start of the First World War. They had a very offensive mindset to attack with ‘elan’ whenever possible and discovered the horrendous costs when their troops were machine gunned or hit by artillery. 

After the war, they built the best fortifications in the world in the form of the long Maginot Line to protect their troops and prepare for a defensive war. And we all know what happened. The Germans devised the Blitzkrieg and sent the tanks around the Maginot Line in World War II.

So learn from mistakes but don’t learn the wrong lesson.

This is a post from our guest writer Lemizeraq who runs the website Financial Freedom SG. The original post can be found here.If you want to be a guest writer as well, or if you have a story to share that will help our readers understand financial matters better, please contact us.

 1. I don't need to budget

Everyone, even those with plenty of money in the bank, can benefit from budgeting. Keeping track of your monthly income and expenses allows you to make sure your money is being efficiently used.

For example, if you knew how much money you were spending on taxi fares every month, you might decide that you'd rather be putting that money toward something else, like fine dining.

2. I'm not good at maths so I can't manage my money.

You only need to be able to use a calculator to add and subtract, and an exercise book. Create two columns on each page of the exercise book, one for your income and the other for your expenses. Record the income and expenses. At the end of the month, use the calculator to add the items of each column and subtract the “expense” total from the “income' total.

Or if you know how to surf the Internet safely, you simply have to be able to follow instructions.. Simply google, “Budget + financial planning + free software” and take it from there.

Or you know how to use spreadsheet software, you can even make your own budget. It's as simple as creating one column for your income, another column for your expenses and keeping a running tab on the difference between the two.

3. I won't lose my job

If you are an employee, losing your job is always a possibility You should always be prepared for a job loss by having at least three months' worth of living expenses in the bank.

It's a lot easier to accumulate this money if you know how much money you're bringing in and spending each month.

4. It cannot happen to me.

We all think that unexpected big bills and tragedies won't happen to us. With the number of things that can possibly go wrong in life, hoping for the best is the most logical emotional survival tactic. However, you might lose your job, be in a car accident, get cancer or need to help a friend or family member.

Be prepared and hope that you'll get to use the “rainy day” money for something pleasurable one day.

5. I don't want to deprive myself.

Budgeting and saving is not the same as spending as little money as possible or making yourself feel guilty about every purchase. The purpose of budgeting is to try to help you to save a little each month. Ideally you should save 10% of your income (excluding CPF savings). At the very least, try to make sure that you aren't spending more than you earn.

Tracking your expenses doesn't change the amount of money you have available to spend every month, it just tells you where that money is going.

6. I'm not saving for anything big

If you don't have any major savings goals it's hard to motivate yourself to save money. each month. However, your situation and your attitudes are likely to change over time.

When you get married, you may both agree not to have any children. But you could change your mind, or there could be an accidental pregnancy.. Remember many parents of girls born in the year of the tiger say it was unplanned.

7 I don't need to budget or save because I'm debt-free.

While being debt-free is most unusual in Singapore and very commendable, it won't pay your bills in an emergency. A nil balance is better than a negative balance, but that zero can quickly become negative if you don't have savings.

A budget helps you identify where your income is going.

Summary

Managing your expenses, preparing for unpredictable events and being able to afford more expensive purchases without going into debt cannot be done without a budget. Keeping track of how much you earn and spend doesn't have to be a chore, doesn't require you to be good at math and doesn't mean you can't buy the things you want.

Budgeting is knowing where your money goes, which means you'll have greater control over your financial situation. And yes, this topic could be entitled “Seven Myths about Budgeting”