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.
Wednesday, September 2, 2015
Friday, August 28, 2015
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.
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.
Monday, August 3, 2015
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.
---
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!
---
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.
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.
---
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!
---
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.
Friday, July 17, 2015
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?
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?
Tuesday, June 30, 2015
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).
-----------------------------------------------------------------------------------------------------------------------
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.
-----------------------------------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------------------------
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. :(
----------------------------------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------------------------
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.
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).
-----------------------------------------------------------------------------------------------------------------------
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.
-----------------------------------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------------------------
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. :(
----------------------------------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------------------------
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.
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