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. 

The Rat Race

I came across this article by a fellow blogger, Bully the Bear, which resonates greatly with me.


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Have you ever wondered why you're working/saving so hard for?

To fund our retirement, our homes. So that we can be "financially free" one day?

But what does "financially free" really means?

It is not about who saves the most. Who can survive the longest with the least resources. Who have the most passive income. It is definitely not about living an extremely frugal life, giving up the things you want along the way.

...

When we remove all these, we stripped down financial freedom to its essence.

It is when we reach the point that we are not concern about the pursuit of money anymore. We get a life where we don't compare with others anymore.

If in the end, you still benchmark yourself against other people achievements, comparing your incomes, savings, assets, etc... Then you haven't really achieve true freedom. You haven't got out of the rat race at all.

...

"If in the pursuit of financial freedom, you're still bounded by the rules of the rat race, then what had changed?"

You're still a competitor, just that you're taking part in another event.

The Lure of Quick Money

Met up with a couple of friends today and the topic on 'investing' came up.

People were sharing about how they made few thousand bucks on a single trade, and up to hundred of thousands a month. Some even quit their jobs to trade full time.

I would be lying if I say I wasn't the least tempted. Who doesn't want easy money?

In their opinion, I was too 'conservative' with my capital allocation. I should take the chance to "compound" my net-worth quickly by trading and speculating using margins.

Is it really that way? Can I really not feel seduced by the lure of "easy money"? When they are talking about how they can earn your annual income in a month by speculating?


...


I kept thinking about it on the way home.

That's when I finally understood what Warren Buffett, Benjamin Graham and the other greats meant by the "irresistible lure of quick money".

I never met the devil until today. And I pray I can resist selling my soul to it. I guess I consider myself lucky to not succumb to it.

When I first started investing, I was exposed to long term value/growth/income investing. The friends I knew use portfolio balancing, dollar cost averaging and other 'conservative' methods of investing.

I followed the likes of dividend warrior and Brian who are mostly advocators of long term investing. I learned about the importance of keeping a war chest/armageddon funds. I learned about defensive stocks with recurring incomes.

I am 'psycho' daily by Motley Fool and Fifth Person about the risks of speculation and leverage, and the benefits of long term investing (how you never lose money over 20 years).

I idolized AK, an ordinary Singaporean who built up his portfolio brick by brick and is now making $120k per year in dividends alone. I was introduced to the art of 'nibbling' and starting my own dividend machine.


...

I guess all the above help ingrained in my brain the dangers of speculation, and the benefits of the long term. It's slow. It's unexciting. You can't boast about your accomplishments.

Is it a blessing or a missed opportunity? Only time will tell.

There may come a day when these friends are sitting on big cars and bunglows while I am still collecting a puny dividend per month. Or maybe one day they will be burnt badly and what I have learned are proven to be right?

The Dividend Machine

I attended my first ever "paid financial workshop" today - The Dividend Machine by the Fifth Person.

I have never believed in attending these paid seminars and events. To me, they are at best mediocre materials that you can easily Google/self learn, or at worst scams meant to brainwash people in giving them their money. I struggled for a very long time before finally deciding to give it a chance.

There are various reasons:

1) I have been reading the Fifth Person blog for sometime, and felt that their articles are really beneficial and insightful.

2) They priced it relatively reasonably compared to courses that costs up to thousands.

3) I am a more income investor than a growth investor, and I am just starting out in my investing journey. I want to affirm what I have learn, and develop a solid methodology in picking stocks.

And finally, the tipping factor:

4) It received a personal recommendation from AK (1 of my most idolized blogger) in addition to positive reviews by other bloggers.

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Who Is AK?

For those who don't know AK -  he's one of the most famous investment bloggers in Singapore, and this guy makes more than my annual salary in passive income.

Yes you read that right. He earns more than me by DOING NOTHING. WTF?

And take note, he wasn't someone born with a silver spoon. He is an ordinary 'peasant' like most of us earning an ordinary income.

He works hard, spends prudently, invests wisely and capitalize on opportunities for many years to enjoy what he has today (he's just into his 40s and already semi-retired). I have benefited immensely from his writings for the past year, and finally decided to attend this course after his stamp of approval.

P.S: Will share more about him and his investing methodology next time.

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Anyway, review for the course:

It covers 2 key topics - Selecting Income Stocks and REITs.

Content wise, I think you can find 80% of what is taught for free online. They key thing question is can you truly understand, digest and APPLY it to real businesses.

This course organize all these pieces of information and compiled them into an easily understood, step by step evaluation criteria you can use in identifying good income stocks. They also added their "patented criterias", back-testing it to famous companies like Enron and Eratat.

It is a very "down to earth", structured course. No over promises of overnight riches and things like that. (I would have walked out if that's the case) Everything is solid information on picking good stocks that you can hold for the long term. After learning the theory, you get to plow through financial statements of several companies yourself to apply what you have learned.

Overall, I would say it was money well-spent. I think the cost of picking the wrong companies would far outweigh what I have paid for the course.

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A cow for her milk,
A hen for her eggs,
And a stock, by heck,
For her dividends.
 
An orchard for fruit,
Bees for their honey,
And stocks, besides,
For their dividends
 
John Burr Williams

Stock Enlightment

Been investing for almost a year now.

Despite setting the goal to increase my dividend income, I don't want to rush into things and risk making mistakes. Good companies are getting more expensive and I really want to evaluate them before "nibbling", a term I caught on from some of my favourite bloggers.

Anyway, I have compiled the essence of what I have learned. Gonna jot them down here:

- Invest for the long term. Don't be afraid of volatility. Volatility works in long term investors favor. The market is a voting machine in the short term, and weighing machine in the long term.

- The easiest way to destroy your portfolio is to think you can time the market with frequent trading. Patience is your greatest asset. The toughest thing about investing is doing nothing.

- Diversify to reduce your risk. Don't pay huge fees to fund mangers. Don't use leverage.

- Cash to a business is like oxygen to a person. You don't think about it when it's present, but you will die when you don't have it. Always have emergency cash to capitalize on opportunities, and act as buffer against bad situations.



I also came across an article on when to sell a stock. Here are some signs:

- A shockingly high P/E (i.e I would classify that as above 50)
- Its economic moat (aka competitive advantage) is in danger.
- A drastic change in leadership, business model, direction.
- A stalling/falling revenue, and profit margin/earnings.
- It recently cuts dividends.

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.