Year In Review 2015 - Financial Cash Flow

My first full year of the most comprehensive and detailed income/expenditures tracking finally completed!

*All figures exclude CPF, investment capital gains/losses (but include dividends).

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Total Income VS Total Expenses

Expenses were pretty much stable except for the months where I made "major purchases", most notably a new mattress in February, Dividend Machine course in April, Langkawi trip in June, Samsung Galaxy S6 in August, Cameron Trip + S6 repairs in December. I also spent slightly more on minor indulgence stuff in December to 慰劳 myself a bit.

Income were highest in January and March from bonuses, and there's a minor National Day bonus in August. Can't wait for the upcoming one to top-up my war chest!

Other fluctuations in income are mostly due to dividends payout. Being my first year of investing, this will take some time to stabalize as I "lock down" on the stocks I have (receiving full year worth of dividends), and having each subsequent purchase make up less of my portfolio.

Overall, I managed to saved near 82% of my total income. My plan is to reinvest and inject at least 70% into my portfolio every year. Let's get the snowball rolling!

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Recurring Income VS Recurring Expenses

The chart strips out the noise and highlight only the "recurring" portion of my cashflow.

Recurring income include only salary + passive income, and excludes 'one-time' items like lottery winnings, angbaos, SAF allowance, bank special promotions, etc...

Recurring expenses remove all "major purchases" and "vacations".

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Recurring Expenses Breakdown

As expected, my top expenses are food, utilities, personal and travel. Other random discoveries:

- I spent about $12-$15 on average each month on lottery tickets. -.- So far, I only "won" $10 back. They are indeed a bad investment. Treat them purely as entertainment.

- Of all the entertainment expenses, about 50% of them comes from KTV sessions. LOL. Does it imply most of my entertainment come from singing, or is it because singing is the most expensive form of entertainment?

Food: Breakfast, Lunch, Dinner, Supper, Snack, Groceries
Entertainment: Any form of entertainment expenses such as KTV, Video Games (e.g. Purchases from Steam), Movies, Sports, Etc
Gambling: Any Losses from Lottery, Mahjong, etc...
Healthcare: Doctor, Dentist
Household: Consumables (e.g. Stationary, Toiletries), Others (e.g. Pillow, Bedsheets)
Personal: Things that are consumed personally by me, such as Clothing (e.g. Head to Toes), Haircut, Personal Care (e.g. Toothpaste, Skincare, Grooming), Other (i.e Exercise Stuff, Army)
Social: Wedding, Social Functions
Tax: Income Tax
Travel: Public (e.g. EZ-Link Topup), Taxi
Treat: Non-personal expenses
Utilities: Telephone, Internet

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Road To Financial Independence

Passive income now cover almost 20% of my expense! Not bad for my first full year of investing!

I have exceeded my goal for 2015 by collecting more passive income. The short term negative impact though - it's like exchanging "capital losses" in the process.

Given the market correction (i.e Great Singapore Sale), I will selectively accumulate on weakness to further accelerate my yield next year. Goal next year is to generate 1 month salary from stock dividends.

Year In Review 2015 - Financial Portfolio

2015 has not been a kind year to investors with the market taking quite a beating. Most people would be in the red and I am no exception. I must be really 'heng' that that my first full year of investing is the hardest to make money in 78 years. Viewed positively however, it's actually a good thing for someone in their early stages of investing - It means I get to accumulate more companies at fire-sale prices!

While I would like to think that I am "out-performing" the index, the sample size (investing period) is really too small to make any conclusion. Still, it's a consolation point to know that it's not because of my bad choices that I'm in the red - the whole market is going down.

Thankfully, I still have the majority of my holdings in cash. In 2016, I will look to selectively inject more into solid blue chips (with long term, sustainable dividends) to further diversify my holdings.

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Next up will be a brief review of all my holdings and lessons learned:

Frasers Centrepoint Trust
My first and most trusted holding. Each visit to causeway point just boost my confidence in this company. Economic recession? Property downturn? I don't think these macro-economic factors will make much of a dent on FCT. It's amazing 8 years consecutive DPU increase is unmatched in the REITs sector.

This have provided me with the most stable and biggest returns since I started investing, and I intend to hold it forever.






Super Group
A costly lesson in not blindly following analyst reports. I went in way too early in the midst of a downturn, catching a falling knife in the process. Have been holding on for several reasons:

1) Cyclical stock that should turn-around eventually.
2) Strong balance sheet, good management and still profit-making.
3) The nose-dive makes this only a small portion of my portoflio now, so there is really no point selling anyway.

Keeping my fingers cross that its newly launched Essenso coffee will take off.




China Merchant Pacific Holdings
Another one of my "dividend cash-cow". It has a diversified portfolio of 8 toll roads now in China. While there are worries of slowing China growth, I am satisfied with the current yield.

The interest hike has been weighing down on the stock price, but with its track record and strong parent backing, it's the least of my worries.

Like FCT, I intend to hold this for a long time. Keep calm and collect dividends!





Sembcorp Industries
OUCH! To be fair, no one could have foresee oil prices plummeting from $120+ to $40. Sembcorp has been massacred, burning many people in the process.It was so bad that Marine even posted a loss for the first time in the company history. Thankfully, the Utilities are helping to offset the losses, with potential growth coming from overseas segment.

Not going to sell this as I still believe strongly in "ah gong" stocks. At the same time, I can't average down as it will make me too over-weighted in a single company. If opportunity arises, I may look to "average down" via Keppel Corp to capitalize on the potential oil recovery.



M1
A valuable lesson to be learn about being patient. I was too hasty to deploy my cash after my bonus and didn't wait for a more opportune moment (like now! A Telco with 7% yield now are you kidding me!).

Many fellow investors, myself included, did not expect the 4th Telco news to impact M1 so negatively.

Its fundamentals didn't change much at all - earnings were still growing steadily and they are exploring new avenues of growth. To me, it's really cheap now and I would definitely want to buy if it weren't for the same ugly problem of over-concentration.

Just think about it. 4th Telco or not, we are heading for 6.9 million population. That means more people, more subscribers, more money for Telcos. If I could, I will definitely buy every single Telco and wait for 2030. Confirm huat lah!


Capital Commercial Trust
While the price has taken quite a beating after I brought, I am quite comfortable with this holding.

1. I entered at a reasonable price, with a good 20% discount to NAV, near its 52 week and historical P/E low.
2. Confidence in the management track records and grade A properties.

Even though there are headwinds of office over-supply, I don't think it will impact the DPU too badly. In the best case, CapitaGreen should provide some form of growth. In the worst case, a stagnating DPU for next 2 years - still satisfactory for me.



Accordia Golf Trust

I already know this is quite a 'risky' buy, but definitely didn't expect the DPU to drop so drastically. A few reasons why I brought:

1. Seduced by its unbelievably high yield (>10%) and 30% discount to NAV.
2. The false sense of security that "it can't get much lower!" (30+% from IPO price), a deadly fallacy.
3. Convinced by several bloggers - AK is still fighting on, B has backed out.

I am still holding on for its current annualized 7.2% yield, albeit with more risk. The management has been touting the return of golf to the 2016 Oylmpic Games as a growth pillar. Let's see if that comes true.

Straits Times Index

I have been deliberating between the various banks when the bear hits in September. In the end, I fled to safety and brought the STI. Haha.

This is a safety net for me, and I entered at a really good price. Now the issue is when, or should I sell? Looking to add either DBS or OCBC if I do sell this.

To My Future FI Self

Hopefully, you've managed to achieved FI before the age of 40. Are you planning to retire/semi-retire already?

Unfortunately, this is not something that is socially acceptable in Singapore. Your friends and families probably think it's a crazy, absurd dream. In a society where we are encouraged to work until we are 67 years old, wanting to retire early sounds ridiculous. You will be criticized or deem as weird/lazy. Quote from a fellow investor who reached FIRE:

"I had trouble convincing authorities that I was not a burden to the tax-payer in spite of being an unemployed law student. Our government is still not equipped with the procedures to cover income investors. I had to compile a report on dividend cash flows and had to deal with an ICA officer who was just puzzled that "stock market sends me money on regular basis". In a more unsophisticated country, I would have been accused of practicing witchcraft.

The second incident which may have killed my retirement plan is when I tried to hire a maid to look after my dad. Without an earned income in my IRAS filings, I was not allowed to be the sponsor. My dad had to put in his spare cash of $50,000 into a fixed deposit to sponsor his own maid as all my money is tied up in my CDP. This convinced me that Singapore society, as affluent as it is, it does not have the infrastructure in place to recognise dividends cash flow as a valid substitute for earned income. A CDP statement, no matter how large, is no substitute for a FD account which puts us in a bind because of the cash drag."

Perhaps that's why I haven't been sharing this dream of mine with many people. B sums up this dilemma perfectly in his recent post.

It's like getting married. It's something we are expected to do out of social norms, regardless of how much pain it would bring us.

If you are already FI, you shall remember and follow these advice:

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1. Thou shalt not become a slave of money
It will be difficult to give up working when you realize how much income you will lose, even after you have enough passive income to live without working. It will be tempting to chase after more and more zeroes in your bank account. This will never end - humans greed are limitless.

Before you know it, you'll reach the end of your life being a slave to money. Do not let that happen to you. Do not let society norms determine your future.


2. Thou shalt follow your heart, dreams and passion
You promised that you will do that. Remember your initial goal when you started on this journey.

Your dream job pays much lesser than your current one? You can afford to switch now.

You wanted to take a long sabbatical to enjoy life? Do it.

You wanted to go back to school, learn something new? Do it.

Do not falter. Do not forget the initial reason you started on the journey to FI.


3. Thou shalt not shift your goalpost.
It's easy to shift goal post and make the criteria for achieving FI harder and harder.

While it is prudent to take inflation and cost of living into account, you must not adjust your lifestyle to chase higher material wealth, making it so you never reach the goal.

Remember the value you set initially and adjust it accordingly.


4. Thou shalt regularly evaluate your financial situation
Remember, it doesn't mean you have to stop working for the rest of your years. We need to set in buffer for financial crisis and bad times.

Do not squander your portfolio. Do not spend your invested capital. Only spend the dividends, with enough left over to reinvest and grow your portfolio.

F-You Money

Recently, I learnt a new term known as "F-You Money". The concept is entirely familiar to me, but I never thought of using such a straightforward, in your face term to describe it.

You can read this article to understand F-You Money in all its glory.

Interested?

This guy wrote one of the simplest, no-nonsense article about the path to wealth accumulation, and I highly recommend you read it.

One small regret I have was not bookmarking down a lot of good financial articles I came across this year. I'll try to jot and compile these down into a list in the future.

10 Years - Road To Financial Independence

29 years old! How quickly time flies.

This is one of the most "turbulent" year of my life, with many obstacles and down period. Looking forward to the 2 weeks year end leave to recharge and re-organize.

As I don't forsee myself settling down anytime soon, there are few "life goals" I can make aside from financial ones. On the positive note, perhaps that isn't such a bad thing.

Come January, I will officially kick start my 10 years master plan to financial independence.

Having worked for 3+ years,  I have reached a stage of relative stability - No debts, sufficient emergency funds, mini war chest and decent portfolio. I also just completed my first full year of investing, and while the results weren't pretty due to the minor market crash, I have learned many valuable lessons. It's also lucky that I'm experiencing a market correction early in my life.

I have mapped out a plan based on how much I can inject yearly, a conservative yield of 5% dividend and 5% capital gains, roughly based on this calculator. According to my calculations, it'll be 10 - 12 years until I gain financial independence. (Hopefully before I reach 40!)

*All these are based on assumptions that I remain single, don't purchase a property or raise a kid. They also excludes any wage raise, inflation and CPF calculations. Anyway, I shall write in more detail in the year end tabulation.

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What does it all mean then? Am I going to retire then?

Actually, financial independence has nothing to do with retiring. It got to do with the freedom of your life.

I've seen many people around me "suffer" from poor financial status, either minor or major.. They are scared of losing their jobs at 40 years old because they have no savings. They endured humiliation and pain because they have families to feed. They developed health problems but can't take time off to rest. They give up their dreams because their passion can't feed their lifestyle.

I really hope I don't become like that.

Who knows what will happen by the time I'm 40?

Will I still have passion for technology? Will I still have the the energy to do what I am doing now? Will I still be fit and healthy?

Or will I have developed new interests? Maybe I'll rot at home. Maybe I'll travel the world. Maybe I'll just continue working as normal.

The point is that whatever decision I make, money would no longer be a factor in it. I will have total control of my life.

The Misunderstood Path of Frugality

Respected blogger Kyith from Investment Moats shared the story of how a man paid off his house mortgage in 3+ years by living a life of "poverty baseline". It's an extremely educational and enlightening read.

Instead of applauding and learning from him, the internet condemn his story with things like how he has no life and is a slave of money. I found it laughable.

The reason why we live a frugal life is exactly the opposite - we DON'T WANT to become slave of money. We can't afford to not be disciplined if we want to escape the money cycle while we are still young and energetic.

To re-quote from Felix (another 1 of my respected blogger):

"This current generation YOLO too much. YOLO can be meaningful at times, but often it is nothing but short term gain and long term pain.

YOLO after graduation, don't work, go travel a year. That's financial suicide.

The right way should be work 10 years, build your golden nest egg, and let your eggs give you a free holiday."

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I could not agree more.

It's all about discipline and delayed gratification.

And that is exactly what I am trying to do.

A 10 years path to financial independence.

Road To Financial Freedom

Earlier this year, I completed the financial book by Tony Robbins, Master the Money.

It's a pretty good read, similar to his other classics like Awaken the Giant Within. The most important concepts he advocates are exactly what I believe in: long term investing, avoiding management funds with high fees, compounding your money today for the future.

The specifics are more applicable to United States, but the concepts and ideas are much more important. (e.g. Their 401K can be thought of as CPF in Singapore) Anyway, I don't intend to do a thorough review of his book.

I just want to borrow his ideas of "financial milestones" and expand upon them for my own purpose. In the book, Tony describes 5 major financial milestones, and I altered them slightly into smaller steps for the milestones of my life.


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1 - Financial Stability
The foundation of any financial management. You achieve this when you have no bad debts, 12 months of emergency funds and sufficient insurance coverage. At this stage, there is no passive income to speak of. Everyone should seek to reach this asap, or a single bad accident could wipe you out.

From what I have read online, 4 out of 5 young Singaporeans have NO savings at all. That just sounds crazy to me. If you can achieve this, you are in good shape to start your financial dream.


2 - Financial Security
Tony describe this as the stage where your home mortgage, utilities, food, transport and basic insurance (the absolute basic necessities) can be paid for without having to work to pay for them again.

I feel this is the toughest milestone to reach because it requires one to start saving and investing. You need to overcome the fear of investing and the temptation of quick money, then take the first step forward. Many people I know see it as impossible, and eventually resort to gambling and other 'get rich quick' methods because it just takes too long to see results.

We see it as a huge mountain to climb, but it's not. A journey of a thousand miles begins with a single step. We are still young, and we need to take baby steps. We need to set baby goals to keep ourselves on track.

How about setting your first goal as generating enough passive income to cover all your lunch expenses? That's a simple enough start. As you reinvest your earnings and compound your money, you will grow your passive income faster and faster. Before your realize it, it'll be enough to cover your all your food expenses. Then your phone and internet bills!

I think a good time to reach this stage would be 5 - 10 years, depending on whether you are married/single (have home mortgage or not). 


3 - Financial Vitality
The third level of dream refers to the situation where you can not only meet all basic needs, but have some extras for enjoyment! When achieved, your personal items, minor healthcare, entertainment and 'small indulgence' costs can be covered without working.

For me, that'll include things such as movie tickets, video games, the occasional lottery tickets, social functions (e.g wedding dinners) and dental/doctor trips.

Personally, I feel this would be a breeze if you are already at stage 2. You probably take half the time it takes to go from 1 to 2.


4 - Financial Independence
The most well known form of the financial milestone. Financial independence is attained when your passive income is sufficient to provide the same lifestyle you have today without working.

Congratulations! You can now afford to quit your job and "shake leg" at home. You don't have to worried about getting laid off, or struck with emergencies anymore.

For me, it would include all my recurring expenses + my average major purchases (like IT gadgets, vacation) for the year.

On a side note, it's important not to lose yourself after attaining stage 4. Remember why you started out on this journey in the first place.


5 - Financial Freedom
The ultimate financial dream - not only can you cover your current lifestyle, you have enough passive income to cover your "desired lifestyle" (throw in your luxuries)

Yeah, throw in your multi-million bungalow, Rolls Royce and the likes.

This varies greatly from person, and if your current lifestyle is already your desired lifestyle, then 4 and 5 would be the same. Who is to say you must want a big fancy house and car?

I wouldn't even want to think about this stage at this moment. I feel there is a bit of a "dream" factor built into this one, to have something to work towards after achieving financial independence.


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As you can see, it becomes obvious why I have been diligently tracking my expenses. It lets you know exactly how much you need per month to meet your financial milestones!

For my personal journey, I planned to introduce a "100% margin of safety" as a conservative buffer. This is mainly due to guard against future increase in expense and financial turmoil. In other words, I must achieved 100% passive income above the stipulated amount before I considered myself to have reach the milestone.

A journey of a thousand miles begin with a single step. Take that first step today.

Revelation - Financial Management

Financial management is a complex subject, and it's often hard to put yourself in another shoes because everyone's circumstances are so different. It's also a topic where you can easily 'offend' other people and receive tons of backlash.

"How dare you criticize/judge me for not saving? You don't give as much to your parents."
"You are single while I have families to raise. It's not possible to save."
"You earn more than me blah blah blah..."

Etc... you get the idea. Of course I think there are really genuine, serious cases out there of people  struggling to make ends meet. Their income is not enough to suspend bare necessities. What I am describing here excludes them.

Anyway, here are my observations:

I've known people who have worked for ~10 years or more, and doesn't have >3months salary worth of savings. I also know people who prefer to drag their school loans for as long as possible, paying the minimum each month and pay an additional god knows how much in interest. Then there are people who have no qualms about splurging on expensive vacations then claiming they are poor. This is something I am totally unable to comprehend.

These are views that I keep to myself, because you can see how easily they can be offensive to others. I have no business meddling with how they wish to spend their money.

I see people around me claiming they don't want to work until they die, yet they're not even saving/investing at all. What do you expect? Strike the lottery 'someday'? If you can't save now while you are young, do you think you can save later when you've got families, aging parents, worsening health, more commitments? 

To me, I am very clear on my financial goals and my strategy to achieve them. There are more than one way to Rome, and I don't claim mine is the best. Some people work harder to increase their income, some live frugally to cut expenses, other choose to start their own businesses. It is just what you choose to sacrifice, and I stood by my principles and beliefs.

Still think it's impossible? Again, you can look around the financial blogosphere for inspiration. Take a look at "Budget Babe", who saved $20K a year on a $2.5K salary. Or "Dividend Mantra", who had nothing at 28 years old (2009), and in 6 short years has built up a portfolio generating $5000+ per year. How about this janitor who amassed $8 million dollars by simply saving and investing over 65 years?

You might be thinking that's stupid cause there's no point being the richest man in the graveyard. Well, I don't plan to wait that long either. And we don't have to.

I think most of us here earn more than the janitor. If we just practice a little delayed gratification, avoid bad debts and big purchases that will lead to financial ruin, it is very possible to achieve financial security in 10 years, and financial independence in 20 years. All these without "going overboard". By that I mean still enjoying life in the process, not de-voiding yourself of all pleasures of spending.

Most of us are not lucky enough to be born with a silver spoon or blessed with a super high paying job. We need to plan the first half of our lives carefully to escape the rat race. The goal is not to amass mountains of wealth to show off or compete with others, but to generate your personal income stream so that finances no longer becomes a factor in the future. You can finally afford to choose a job you love without consideration of the salary. You can finally sleep in peace knowing you are prepared for any emergencies.

If you look far in the future, you will see that starting today is definitely worth it.

Revelation - Investing

As I got more into investing over the past year, it has also become a more prevalent topic in my life. I have made many observations about how people around me react to this, and I think quite interesting. I'll break down these observations into 2 separate posts, this one on investments, and the other on financial management.

When it comes to investing, I have encountered 2 major groups of people in my social circle.  


Those who are completely uninterested in the topic 
They view investing as something dangerous, risky, and roughly equivalent to gambling. I think maybe they watch too much drama, or news of people jumping off buildings during financial crisis. I was such a person in the past - and today one of my biggest regret is learning about investing 10 years late.

Do you know that $100 now can only buy $50 worth of things in 20 years time?

Do you know that if you invest 'conservatively' in the market, your $100 will grow (past on historical results) to $400 in 20 years?

People spend 8-10 hours a day working, 40+ hours a week working and they don't even spend 1 hour a month to learn about growing their money. That 1 hour is worth much much more in dollar value than your salary.


Those who speculate/do trading
I think these are the people who give investing a bad name.

These are people I know who time the market actively, buying/selling based on chart patterns, some even buying without even knowing what the company (usually penny stocks) do. Worst: Some employ leverage and trade using borrowed money. My intention here is definitely not to laugh at them, although I think some of them feel this way. In fact, it pains me to see people I care about sink deeper and deeper into the hole.

Studies have shown again and again that 95% of traders lose money. On the other hand, if you invest your money in the market for 20 years at ANY point of time, you would never have lost money. Time in the market matters, not timing the market.

Even the best fund managers and companies in the world, who do these as their full time job, have gone bankrupt from speculating. Do you seriously think you are better than them?

I think that is the problem with 'young people' nowadays? They want to get rich fast, and they want to get rich NOW. (yeah it makes me sound like an old man)

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Whenever I tell people I am investing, they automatically categorize me as the 2nd type.

Then they start sharing macro economic trends, simi simi patterns, simi simi penny stocks. It really is a stereotype linked with the word 'investing'. Even my own family had the same reactions. They do not believe there is such thing as buying a company 'for the long term'. To them, long term = 6 months. Growing your money means putting it into banks fixed deposits.

And hence, my observation is this:

The 2nd group of people 'scares' the first group of people from ever starting to learn about investing. And if somehow the first group of people got started, they became the 2nd group of people.


Long Term Investing

Very few of my friends actually share the same investing methodology as me. Luckily, I have a huge group of "enlightened tutors" (启蒙导师) that I follow online. It makes me feel that I am not alone on this arduous and misunderstood journey.

If you bother, take a look around the local blogosphere community: There are many examples of normal, working class 'peasants' who are recording their step by step journey towards financial independence (and some already 'reached their destination'). They are not born with a silver spoon. They are not multi-millionaires giving generic, motherhood statement advice. They are middle class citizens who got a median income job just like you and me. Just google them:

AK71 - Semi retired at 40+, with a 6 digit passive income every year yet still live a frugal lifestyle. Blogs about saving money, investments, CPF and many other topics.

Dividend Warrior - Started investing in 2008 and accumulated a portfolio generating $1000 per month by early 30s, before starting his own business.

15HWW Couple - A couple who recorded their expenses monthly, married and saved $250k before 30. Earned $8K passive income last year. (how lucky is it to have a SO who share the same financial dream as you!)

Got Money Got Honey - A 25 year old chap with a $20K portfolio, $300/year passive income who writes really entertaining articles. He has a clear goal of what he wants to achieve at each stage of his life.
  
And many more which I can't possibly list. 

As you can see, they are all at different stages of life with largely different "networth". Some started earlier, some started late, but that's not what is important at all. 

What is important is they all largely believe in long term investing, in creating passive income to ultimately achieve financial independence. Accumulating durians no longer works in the world we live in today. We need to plant durian trees where we can harvest year after year.

"Measuring returns at the start of every month from 1988 to August 2013, if the index was held for a year, there’s a 41% chance of sitting on negative nominal (i.e. unadjusted for inflation) returns. Hold it for 10 years, and losses occurred only 19% of the time. Double the holding period to 20 years however – here comes the kicker – and there were no losses." (Straits Times Index, Motley Fool)

No Shortcut To Financial Freedom

Few months back, I made a post about the lure of quick money. I didn't expect it to happen so quickly, but I heard my friend lost quite badly after one of the stock went strongly against his position.

I am not trying to gloat here, but it made me even more firm on my 脚踏实地，循序渐进 stance towards financial freedom.

I am glad I picked up poker back then - many of its theories applies to stocks, and I think I benefited immensely now that I started investing. You need to put in lot of effort to learn the science and art of the game. It's not simply a game of chance - everything is about probability, psychology and bankroll management.

You may have done your homework and foresee a high probability of success, but you still can't dump all you have in a single stock. Even if you hold AA, the best hand possible, would you bet your ENTIRE life savings on a single hand? I hope not, because even the best hand only wins 85% of the time.

I talked to him about it and we both agree it was greed. (I guess he was influenced as well) It's like a "越陷越深" thing. The more you win, the more you'll 'gamble' the next time. Your 'luck' will run out one day.

It's even worst in stocks because it isn't a level playing field like poker. No matter how confident you are of a company upcoming earnings, remember that you are but a small pawn in the market. Your 'opponent' are big banks and hedge funds with billions and trillions of dollars under their disposal. Do you really think you can beat these people? They can move markets, we can't.

Sometimes we make the wrong decision but got a good outcome (just like a suck out), or we make the right decision and end up with a bad outcome (bad beat). We can't control over the course of 1 hand, or 1 session. What we can do is to buy good companies, and hold it for the long term. Like the saying goes, Time in the market > Timing the market.

The path to financial freedom is filled with hard work and patience.

Absolute Conviction

I think it's always very easy for outsiders to say "buy low, sell high", etc...

You don't get to experience how tough it is until you put your money on the line.

Do you really dare to buy when you see the stock keep skydiving?

This is based on my true story: 

1) When Stock X dropped from $2+ to $1.7, I thought it is a good price so I went in.
2) Then it drop to $1.5. I held on.
3) Then it keeps dropping and dropping. $1.4, $1.3, $1.2...!!!
4) By then I have 'lost' nearly 40% of my money.

Imagine you put in $10K and 'lost' $4k in less than 3 months. You don't know the pain until you experienced it.

To continue buying, you have to have the ABSOLUTE CONVICTION in the company you have brought. I didn't back then. I didn't do enough research or understand the company enough. I brought it simply because I thought it wouldn't go down any further.

I did not have the ultimate trust and belief that the company will rebound back. This usually happens when you don't understand the company enough or you brought based on 'hearsay'.

5) The stock eventually drops to nearly $1 and I didn't dare to average down.
6) 3 months onwards, it has rebounded to hit the $1.5 again. Alas, how much I would have made if I have the absolute conviction to buy more.

It's weird.

- I knew the company had an amazing management and track record (20 years of consistent dividends)
- I knew the problems faced are probably temporary (i.e Crisis in Thailand)

And yet I am afraid of putting in more money.

Thankfully though, I have enough conviction to hold on. For those speculators, they would likely have 'panic sell' and really lost the 40%.


Lesson learn: Invest in a company you understand inside out and absolutely believe in. When the stock plummets, understand why. Is the crisis temporary or permanent? Learn what is the management doing to recover from the crisis.


Lastly, whatever you do, no regrets.

My Investing Philosophy

Received my bonus! In addition, the stocks I owned (especially Super) have rallied greatly, causing quite a move in my portfolio.

If I exclude emergency funds, my allocation is currently around 30% equities, 70% cash. Is it too conservative? Perhaps.

At the same time, I am also extremely wary of the seemingly unstoppable bull market. Brian, one of my favourite bloggers, have noted this as well and sold off part of his Frasers stock. This makes it even harder for me to buy.

I realize now that I am really quite unhappy when I see the prices go up, even for stocks I own.

Am I mad? Aren't I "losing money"? No.

Let me put it this way. Let's say you like to eat Mcdonalds, and you're gonna eat it many many more times in your lifetime. Are you happier if the price of the burgers go up or down? Down of course!

The same actually applies to stock. If you are going to be a net-buyer of stock for the rest of your lifetime, you should be praying for it to go down, so that you can get more at cheaper prices.

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Then of course, the prerequisite is that the company you brought is a 'tennis ball' and not an 'egg'. A tennis ball always bounce back when it hits the floor. An egg simply shatters.

It might sounds weird, but I buy stock praying it will hit lower so that I can buy more. As of result of my investment philosophy, I have to keep a large cash allocation.

Now, what about selling?

Should I sell my FCT now that even Brian thinks it's heading into overvalued territory? I thought really hard about this.

How do I come up with a concrete plan that is predominately based on long term investment, while having the benefit of capitalizing on short term volatility when opportunity arises?

I thought about everything I have learned from the past year, and consolidate them into this.


My Investing Model

1. Buy Good Companies

This cannot be summarized easily, but it mainly got to do with these: Strong economic moats, strong balance sheet, positive free-cash flow, recurring revenue sources, stable and predictable dividends.

Do your homework during good times so you know what these companies are.


2. But Don't Overpay

Of course, the ideal case is buy them when they are undervalued, but this is not possible most of the time. The next best case is buy them for a fair value.

But NEVER overpay.

Easy to say, but extremely hard to attain. How to know the fair price? Do your homework, then add in a margin of safety. If you think $1 is fair, try to buy it for 80 cents. Never pay $1.20 for it.


3. Always Nibble, Always Have More Bullets. (Buying Down)

NEVER be greedy and go all in. Even if you have 90% win rate, one wrong move and you will lose everything. Always nibble, nibble, nibble.

If you buy $1000, make sure you have $5000 behind. What is lower can go lower. You can never predict how low the price can go.

If it goes lower, nibble down. If it goes even lower, start biting. Down EVEN MORE? Bring out the artillery.

*Make sure it is a good company that you are confident in, and never put everything into a single basket.


4. Option To Sell If It Becomes Overvalued

Again, this is a controversial step. How do you know it's overvalued?

You buy at $1 and it goes to $1.20. It may head higher to $1.50, $2.

If you sell and it keeps going up, it may be a long time before you can get it back into your portfolio again.

The bottom line though, is that it is never bad to sell for a profit. This is an option that you can execute if you really think it's overvalued, and put your money in another company that you can nibble down on.

Quote from Brian: "Even though the objective is to focus on fundamentals for the long term, it would be pretty foolish not to consider selling at some point should the market over react by providing opportunities for investors to take profits."

Otherwise, hold on, keep calm and collect dividends!

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As you can see, my investing model is simple.

Keep loads of cash and nibble on good companies at reasonable prices. If it goes down, you get to accumulate more. If it goes up, you have the option to lock in profits.

This is the essence of how I invest. No speculating on short-term market movements. No risky leverage.


Finally, let me end this post with some advice from one of my favourite blogger, the dividend god AK:

a) Make sure that you are always prudent with your personal finance matters.
b) Get the necessary insurance coverage, but don't overpay. 
c) Know what are needs and wants. Delay gratification. 
d) Go for low hanging fruits.
e) Invest in income producing assets to supplement your earned income.
f) Be an opportunist and buy more when assets are on sale. 
g) To do that, have a war chest ready always.

What Question Do You Ask When Buying A Stock?

A friend of my saw me queuing up for a stock recently and asked: "Why you buy ah? Will it go up?"

At that moment, I realized something.

That's not really the question I asked when I buy a stock. As least, not the first nor most important question.

The first question I ask is "What does this company do? Can it make money? Will it go kaput? Can it keep paying me in bad times?"

Only after that do I ask, "Is this a good price to pay for it?"

Whether it goes up or down right after I buy is not really on my mind. Of course, we all wish we can "catch the bottom". However, with that comes the risk of "missing the boat". It's a tug of war situation and there's really no way out of it. I have been on both sides of it and both hurts a lot.

For me, I stick with a price and go with it.

I guess that the fundamental difference.



Afternote:

Came across this article on Motley Fool which I felt really describes the core of long-term investing in layman terms.

If I share this with my friend he will probably think that I am stupid, or I am laughing at him (for losing $ recently). Perhaps they have gone too deep to turn back.

When you used to make $30 every month in dividends, and now you are punting $100K on a single stock. When now you are making/losing $500 for every 1% movement of the stock. When now the interest fee you occur each month is more than the dividends you used to received for an entire year.

Do you think you can go back?

My Financial Business Intelligence

At the end of 2014, I made a resolution to dutifully track ALL my income and expenses for 1 year.

I am really glad I followed through and did exactly that. 5 months onwards, I finally have some results to show for it!

What's more - Hey, I'm in the Business Intelligence field.

This is only for a 5 month period (actually only till 29th May), so I'm really looking forward for the full year results!

*All figures excludes CPF, investment gains/losses (but includes dividends).

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Total Income VS Expenses



My 5 months cashflow statement is summarized by 2 simple graphics. The huge spike in February was of course due to my major mattress hoot.

Yes. I have only spent 16+% of my income so far!!! Sick!

Of course, this is largely bias due to the bonus income in March - That expense % will slowly increase for the rest of the year. There are also some other major expenses I am preparing for the 2nd half of the year (e.g. Vocation!).

I reckoned it'll be in the region of 20% to 25% by the end of the year.



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Recurring Income VS Recurring Expenses
- Income excludes 'one-time' items like lottery, CNY angbaos, SAF allowances, bank special promotions, etc.
- Expenses excludes 'one-time' major hoots




Again, this is largely bias due to the bonus income. If I normalize it, my expenses is around 20% of my monthly income.



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Expenses Breakdown
Food: Breakfast, Lunch, Dinner, Supper, Snack, Groceries
Entertainment: Toto, 4D, KTV, Video Games, Movies, Etc
Healthcare: Doctor, Dentist
Household: Household Items
Personal: Clothing, Personal Care Items
Social: Wedding, Social Functions
Travel: Public (e.g. EZ-Link Topup), Taxi
Treat: Non personal expenses
Utilities: Telephone, Internet

 

I was quite surprised when I first saw this breakdown. Nearly 50% of all my expenses are on food.

The absolute essentials, Food, Utilities and Travel expenses already make up 70% of all my expenses.

I don't spend a lot of food, that means I'm spending too little on entertainment and life. Life of otaku. :(



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Passive Income VS Active Income

 

The most important chart of them all, and the best measurement to my ultimate goal - financial independence.

My short-mid term goal is to have passive income form 10% of my overall income.

Since I spend around 20% of my income... If I can increase my passive income to 20% as well... does that mean.... !!!

...

Long way to go man. Long way to go.


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Miscellaneous

Some other interesting facts...

I spend $2.46 on Breakfast, $4.96 on Dinner, and $5.15 on Lunch on average.

The approximately cost per restaurant visit (includes low-end ones also) is $19.14.

I also spend approximately $8.6 per month on lottery. And no, I haven't won back any for the year. :(

I highly encourage people to take up this challenge of recording your expenses.

It's a huge pain at first, but it becomes habitual very fast.

And the insights you gain can be quite invaluable.