Monday, 26 June 2017
How to fast-track your retirement
Some people dislike working. They prefer to retire as soon as possible. This article is for them. To fast-track something is not easy. It requires one to take actions that defy conventional wisdom.
First, "Always be a business owner, not a lender".
The easiest way to own a business is to buy shares in the stock market. If you own a share, it means that you are a business owner.
Businesses earn the highest return. The median return on equity of Singapore-listed companies is 9%. If you choose to lend money, fixed deposits give you 1% and risky corporate bonds give you 5%.
You get measly returns from being a lender, so be a business owner. Sometimes, the risk you take from buying poor-quality corporate bonds is as much as being a business owner. To retire early, own a business.
Second, "Put 100% of cash you don't need into stocks".
Don't invest in commodities, gold, land-banking, overseas properties, doughnut shops, hipster cafes, fixed deposits, bonds and flavour-of-the-monh unit trusts.
If you do that, your overall portfolio average return will be 2% for 10 years. $100,000 growing at 2% for 10 years is going to be $122,000.
Instead, putting $100,000 into stocks will net you $216,000 over 10 years at an 8% rate of return. The 8% return is the long-term average of the Singapore stock market. $122,000 vs $216,000? You decide.
Third, " Invest only in small capitalisation value stocks".
Small capitalisation means small companies. Value is short for "value investing". Value means stocks that have low price-to-earnings rations, low price-to-book rations and high dividend yields. Study after study has demonstrated that they give the best returns over the long term.
If you want to achieve returns of 10% or more per annum, buy small capitalisation value stocks.
Fourth, "Be massively diversified. Own at least 100 stocks in different countries and industries".
Most investors have only 10 to 15 stocks. If you have 10 to 15 stocks, you will form an emotional attachment with your stocks. If one of them was sick, you would not be able to sleep at night. When you have an emotional bond, you will make mistakes - such as not cutting losses when something is evidently wrong and holding on to your winners till they become losers.
Instead, have at least 100. Don't just invest in Singapore stocks. Go regional or even global. Invest in Hong Kong, China, Thailand, Korea and so on. Go to the country that is having a cheap sale in stocks.
Treat your stocks like a farmer that has 100 chickens. When they are fattened, slaughter them and bring them to the market. Do not ever give a name to your chickens, or stocks: they are not your pets.
Fifth, "To master risk, change the way you think about risk".
When you see your share price drop, it does not mean that you participated in a risky activity and that you are now paying the price. It just means that some dummy who does not understand the true value of the stock sold it, and someone smarter on the other side of the transaction who understands fair value bought it. The seller probably sold it because he is a nervous chap and he is very worried about the Donald, May, North Korea, Global Warming and the Monster under his bed.
Sixth, "The Way to Wealth: Value Investing".
Value investing means buying a stock for 50 cents when its true value is one dollar. Why would someone sell to you for 50 cents? Either they are mad, scared or both. Humans go berserk from time to time. When that happens, relieve their anxiety and pay them 50 cents for a dollar's worth of stock.
Seventh, "Penny pinch. Use that money to buy stocks".
You don't need that German car. Buy stocks instead.
Source: Aggregate Asset Management, The Edge Singapore, June 26, 2017
Wednesday, 24 May 2017
Investing is a marathon, not a 100m sprint
Extracted from Tong's value investing portfolio (The Edge Malaysia, May 22, 2017)
It's easy to make money when markets are rallying. If you had bought some stocks in the past few months, chances are you would have made money too.
Make no mistake though, just as the past few years have been very difficult for investors at large, this rally too will eventually come to an end.
I started this portfolio (refer to Tong's Value Investing portfolio) back in October 2014, a rather turbulent time. Three months later, by end-2014, the FBM KLCI index had fallen 3.7%. The benchmark index went on to lose another 3.9% in 2015 and yet another 3% in 2016.
I'll wager that for many investors, this hasn't been a rewarding period. Yet, others may have chosen to stay on the sidelines. That would've been a mistake.
Cash generates woeful returns. Money in the bank earns negative returns, once you take into account, the real inflation rate.
Investing is the best way to create wealth. But it's also a matter of how you do it.
From my years of experience, the wisest investment strategy is not about making as much money as possible in the short term.
It's about how consistently you make money over a very long period of time. Importantly, that includes making money even in the worst of times.
On top of that, you need to minimise the risk or volatility of your portfolio.
Last but not least, you harness the power of "compounding" - the snowball effect - by reinvesting profits and earning returns on them over long periods of time.
Even if you make 10% returns annually (or reinvest all your gaints) consistently, you will double your capital in 7 years. This is a mathematical certainly.
Remember, compounding works on the big assumption that you do not go broke during the time frame, which you will if your aim is to maximise short-term profits.
For example, if you want to make a 50% gain, then you must take on a lot more risks. As we all know, risks and returns are two sides of the same coin.
Say you do make a 50% gain in the first year on RM100,000 capital, you will have RM150,000. But if you lose 50% in the second year, you're down to only RM75,000. You've actually lost part of your initial capital, which means now you have less to invest and therefore need even higher returns (and higher risks) to make up for lost ground. You can keep doing the math.
Roll the dice enough times and you'll soon find yourself on the path to financial ruin!
As I said last week, there is no certainty in investments. We clearly cannot always be right. We will inevitably miss opportunities and we will get our timing wrong. We will make losses on some investments.
The keys to profitable investing are consistency, not suffering huge losses and minimising risks.
------------------------------------------------------------------------------------------------
Remarks: A tribute to Tong. His portfolio is up a hefty 60.1% in under 3 years.
It's easy to make money when markets are rallying. If you had bought some stocks in the past few months, chances are you would have made money too.
Make no mistake though, just as the past few years have been very difficult for investors at large, this rally too will eventually come to an end.
I started this portfolio (refer to Tong's Value Investing portfolio) back in October 2014, a rather turbulent time. Three months later, by end-2014, the FBM KLCI index had fallen 3.7%. The benchmark index went on to lose another 3.9% in 2015 and yet another 3% in 2016.
I'll wager that for many investors, this hasn't been a rewarding period. Yet, others may have chosen to stay on the sidelines. That would've been a mistake.
Cash generates woeful returns. Money in the bank earns negative returns, once you take into account, the real inflation rate.
Investing is the best way to create wealth. But it's also a matter of how you do it.
From my years of experience, the wisest investment strategy is not about making as much money as possible in the short term.
It's about how consistently you make money over a very long period of time. Importantly, that includes making money even in the worst of times.
On top of that, you need to minimise the risk or volatility of your portfolio.
Last but not least, you harness the power of "compounding" - the snowball effect - by reinvesting profits and earning returns on them over long periods of time.
Even if you make 10% returns annually (or reinvest all your gaints) consistently, you will double your capital in 7 years. This is a mathematical certainly.
Remember, compounding works on the big assumption that you do not go broke during the time frame, which you will if your aim is to maximise short-term profits.
For example, if you want to make a 50% gain, then you must take on a lot more risks. As we all know, risks and returns are two sides of the same coin.
Say you do make a 50% gain in the first year on RM100,000 capital, you will have RM150,000. But if you lose 50% in the second year, you're down to only RM75,000. You've actually lost part of your initial capital, which means now you have less to invest and therefore need even higher returns (and higher risks) to make up for lost ground. You can keep doing the math.
Roll the dice enough times and you'll soon find yourself on the path to financial ruin!
As I said last week, there is no certainty in investments. We clearly cannot always be right. We will inevitably miss opportunities and we will get our timing wrong. We will make losses on some investments.
The keys to profitable investing are consistency, not suffering huge losses and minimising risks.
------------------------------------------------------------------------------------------------
Remarks: A tribute to Tong. His portfolio is up a hefty 60.1% in under 3 years.
Friday, 7 April 2017
When a stock that you buy doesn't rise
It could be the case that a stock that you buy doesn't rise despite you being dead sure that it will. Why is this so?
I read an article (dated 3 April 2017) in the Edge Malaysia by Datuk Tong Kooi Ong in his value investing portfolio which was very enlightening. The important extracts are listed below:
"Buying shares is not an exact science. Usually, in the long term, share prices will reflect the intrinsic value, that is, the sustainable cash-generating ability of its operations.
Sometimes though, as outsiders, we must also acknowlege the limitations of our analysis and knowledge. There could be reasons why share prices persistently underperform, even after the company delivers in terms of earnings. Perhaps there are reasons that could affect business operations in the future (that are not yet apparent), issues of personalities, and so on.
Whatever the reason, as an investor, we should be patient - but not indefinitely so."
Very wise words indeed.
I read an article (dated 3 April 2017) in the Edge Malaysia by Datuk Tong Kooi Ong in his value investing portfolio which was very enlightening. The important extracts are listed below:
"Buying shares is not an exact science. Usually, in the long term, share prices will reflect the intrinsic value, that is, the sustainable cash-generating ability of its operations.
Sometimes though, as outsiders, we must also acknowlege the limitations of our analysis and knowledge. There could be reasons why share prices persistently underperform, even after the company delivers in terms of earnings. Perhaps there are reasons that could affect business operations in the future (that are not yet apparent), issues of personalities, and so on.
Whatever the reason, as an investor, we should be patient - but not indefinitely so."
Very wise words indeed.
Monday, 20 March 2017
20 Stocks Offering Value Amidst Uncertainties
Shares Investments has highlighted 20 companies (18 listed on SGX and 2 listed on Bursa) that offer value amidst uncertainties.
The companies are City Developments, Global Logistics Properties, Innovalues, 800 Super, SATS, Fischer Tech, Cityneon Holdings, ISOTeam, Courts Asia, MMC Corporation, LHN, Hupsteel, IQ Group, BHG Reit, PEC, Yoma Strategic Holdings, Great Eastern Holdings, Sapphire Corporation, Global Invacom and Singapore Medical Group.
The full reports are attached below:
English Version (5.5 MB +)
Chinese Version (5.5 MB +)
Saturday, 18 March 2017
Cash-Rich Companies listed on SGX
The Edge Singapore carried an article in its latest copy for the week 20 March 2017 entitled "Does your company have too much cash?".
According to the article, at least 100 of the 754 companies listed in Singapore have cash holdings more than half their market capitalisations.
Companies need to strike a balance between holding too much and too little cash. Holding more cash enables companies to weather unexpected storms better or take advantage of opportunities in the market. The downside is that the cash is not being deployed to more potentially productive uses.
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| Source: The Edge Singapore, March 20, 2017/Bloomberg |
Thursday, 2 March 2017
Sunday, 5 February 2017
Friday, 6 January 2017
8 Money Personality Types - Which do you belong to?
1. The Innocent - not wanting to know what is going on
2. The Victim - blames his/her financial circumstances on external factors
3. The Warrior - takes charges of his/her finances
4. The Martyr - too busy taking care of others' needs while neglecting his/her own
5. The Fool - looks for windfalls and financial shortcuts
6. The Creator/Artist - has a love/hate relationship with money
7. The Tyrant - uses money to manipulate and control people
8. The Magician - knows how to transform and manifest his financial reality
- by Gunasegaran Krishnan, founder of Wealth Street Sdn Bhd (an independent fiancial advisory firm licensed by the Securities Commission Malaysia)
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