Financial Education

Stepping up on my homework lately...

- Completed most of the important courses at Wall Street Survivor [Highly recommend their "Reading financial statement series].
- Spent a lot more time reading financial blogs and forums.
- Setting up a watchlist at Google Finance.
- Read through some company financial statements (never thought I'll do that).

I've also began attending some newbie seminars by CIMB.

For most investors (who made money from the price rising), there are 2 criteria you must ask before buying a stock:

1. Is it a good company?
2. Is it the right time? (aka right price)

The speaker gave his 2 cents worth on evaluating a good company:


1. Positive Net Income for the past 10 years

This is the company "take home" pay - what is left of their revenue after paying the workers, taxes, expenses etc...

Companies can sometimes manipulate this figure by playing around with stuff like depreciation to make it look nice, for a year or two - But for 10 years? Not likely. Any scam would have fallen apart.

This means the company is a money-maker.


2. Consistent dividends in good & bad times

This is important as it show that you are taken care of as a minority shareholder.

If the dividend payout ratio is reduced, what is the reason? Is it justified?


3. Positive operating cash flow (OCF)

This sounds very similar to net income, but it's not the same. A company may make lot of net income, but still run in cash flow problems. It only deals with cold hard cash on your hand right now. [Not receivables, buildings, machines]

If this is negative, check what the company did. Maybe it brought a new building/equipment for future investments.
 

My Fundamental Analysis

This posts summarizes some of the most important financial ratios I look at when evaluating a company. Note that these are just general, quantitative guidelines. Much more work needs to be done in investing than comparing numbers.

S/N	Metric	Description	What I Consider Good
	Valuation
1	PE Ratio	Price / Earnings	< 20
2	Dividend Yield	DPS / Price	Consistent (4~7%). Use in conjunction with payout ratio.
3	PB Ratio	Price / NAV	0.7 – 1.5, highly dependent
4	P/E * P/B		< 22.5
5	Free Cash Flow Yield	FCF / Market Cap	> 5%
	Effectiveness
6	Gross Profit Margin	Gross Profit / Revenue	>15%
7	Net Profit Margin	Net Profit / Revenue	>7%
8	ROE	Net Profit / Equity	> 15%
	Leverage
9	Current Ratio	Current Assets / Current Liabilities	> 1.5
10	Net Gearing Ratio	(Total Debt – Cash) / Equity	< 0.5. < 0.3 for REIT
11	Debt to Equity Ratio	Total Debt / Equity	< 0.5
12	Debt To Cash Flow Ratio	Total Debt / OCF	<= 3
13	Interest Coverage	EBIT / Cost of Interest	> 5 for REIT

Financial Summary

Been doing some financial research for the past few months - From reading investment blogs & forums, watching financial documentaries/books to comparing the interest rates of different local banks.

Now that I've been working for 1 year+, I think it's really time to look in these. Feel that it's already late, but better late then never, right?

Financially, I think I'm doing pretty well. At the very least, I'm completely debt free.

These are some of the financial actions I've taken in the past year:

- Consolidated and organized the insurance policies from childhood (Thanks mum).
- Purchased a private H&S insurance plan.
- Closed down redundant bank account.
- Diligently keep track of my expenditures for 6 months.
- Accumulated a healthy, more than recommended amount of emergency funds.
- Set aside the emergency funds into 2 of the highest interest rate saving accounts in Singapore (No plans to touch them from now on)
- Saved up a pot of investment fund that I think is now sufficient to make meaningful and efficient investments.
- Created a new securities account on a new platform (which I think is better than the old)
- Brought my first "Precious Metal"! (small one lah)

...

Now, the plan for the new year will of course be getting started in investments. Allocation, diversifying, learning about different securities...... It will be fun~

First Annual Report

Received my first ever "Annual Report" as a shareholder of Frasers. Fully colored!

In it, the management team lists out:

- How the company has performed over the past year, and the reasons contributing to its success/failure

- Summary of the company assets (value of each property, tenants mix, lease period, etc)

- Financial information (cash flow, liabilities, etc)

- Interesting Stuff (like how it organize charity events for the community)

- The forecast for the future, and how it intends to grow the company

- Proposed resolutions (i.e you get to 'vote') on plans for the coming year

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It's like you are now the boss, and the management are reporting to you; submitting their progress report. If you are not happy with the company, you are free to sell your stakes away.

It's what I like about long-term investing. Success is based on actual performance of the something tangible, not reading charts and candlesticks.

Too many people treat investment like gambling. They buy stock based on symbols and price, hoping to sell it at a profit to others quickly.

I buy the actual business, and makes decision to buy/sell based on fundamental changes to the company. It's a long and slow process that can't provide instant gratification, but I'm enjoying the process.

Value of a Car

For the past month, I've had the luxury of having the family car all to myself.

Driving it to work everyday, going to 'faraway places' to attend wedding dinners, etc...

And it makes me wonder, how much value would I place on a car?

To tell the truth, not much. I have no idea why some people place so much emphasis on having a car - to the point that they would pile on debts just to own one. 


1. How much does a car TRULY cost in Singapore? 

Many people underestimate this. Just look at this article for a good idea. 

I can safely say even if you take a cab to work everyday for the next 10 years, it'll still be cheaper than owning a car.


2.  What is the OPPORTUNITY cost of using the $ to buy the car, instead of compounding it?

A car is a depreciating asset that loses its value every year, until it reaches a big fat 0.

Let's estimate that value to be say, $200k. Do you know how much passive income you can get by investing that $200K?

If you use that same $200k to buy 100 lots of Frasers Centrepoint Trust, you can get about $12k a year, or $1000 EVERY MONTH.

Take a moment to let that sink in.

...

That means in 10 years, you will get back about $120k worth of dividends + original capital = $320k. And that's not even including capital gains.

If you use it on the car? You can get back, $0.  Big fat kosong.

WOW.

Now tell me why the hell you would want to buy that car.


3. Miscellaneous

Maybe it's just me, but here are my thoughts after exclusive usage of the car for the past month:

- Yes, it's convenient and much more comfortable, but it actually isn't that much faster. It probably shaves off like 10-15 mins during the morning rush hour. Finding parking lot is sometime a huge pain too.

- I can spend the 1 hour on train reading news, watching movies, etc... instead of getting stuck in the jam.

 - Owning a car comes with many 'additional responsibilities'. People expects you to "give them a lift", etc... Not that it's much of a deal, but it's something worth noting.

Overall, I just feel the cost simply isn't worth it for the little extra convenience and comfort. There's always a cab available ($20, which equals to a day's parking in the city).


Bottom Line

Unless you're in a role that really need that car to generate much more income for you (e.g. Sales), or, you are damn frigging rich, then I see no reason to buy the car.

I have no intention of getting one either in the foreseeable future. I rather have the money generate more money for me.

Once again, compound your $. Even investing in an extremely safe place (e.g STI) will double your $ every 20 years.

First Dividends!

Got the first batch of dividends of my life!

$140 from Frasers (which I will get every 3 months!!!), and $140 from Super.

Haizz.... really regretted not learning about Stocks earlier in my life. Wasted a good 5, 10 years of compounding money.

One dividend payout already way higher than few years of 0.005% interest in the bank.

:(

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...

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Still, better late than never!

I shall wisely invest my money now!

First Piece of Gold

Brought my first piece of gold back during CNY period.

Hedge against inflation!