BULLy the BEAR

What are you risking?

duckula06@yahoo.com (la papillion) — Sat, 31 Oct 2009 13:12:00 +0000

Someone sent me a newsletter that essentially is an advertisement to buy some diversified funds. Attached in the newsletter is this picture which I found it very interesting. This is, of course, not the first time nor the last time I’ll ever see this picture. I’ll like to take some time to think about the myths portrayed in the diagram.

The diagram shows the investment risk pyramid, where the highest and presumably highest returns are placed right at the tip of the pyramid. At the base, and therefore forms the foundation of the whole pyramid structure, lie the no risk and presumably lower returns (in fact, negative returns). You can see that cash is defined as a no risk instrument.

I think everyone should define what they mean by risk. In the academia world, risk is volatility – or how much the price of the instrument varies from its mean price. In that aspect, then the investment risk pyramid would make perfect sense.

However, I find that definition of risk a bit inadequate for my laymen, non-academic purpose and $-minded purpose. Risk, at least for me, is defined by how much you can lose for how much you want to gain, i.e. I risk $10 to bet that this team will win, so that I can get back $15. My risk for earning $15 is $10. It does not really matter to me if the it yo-yo up and down since I know how much I can lose and how much I can win. I suppose in that sense, the pyramid does not make sense to me at all.

I know the risk of holding cash - it will be lower each year after accounting for inflation (which is around 3-5% pa). It's invisible but the effects can truly be felt. In the past, I can go to the food court with $3 and have a full meal. Now, I can barely fill my stomach or even buy anything with $3. So, I'm questioning if it's right to treat cash as 'no risk'. In fact, the risk of holding cash is that you will lose some 3-5% of it every year.

Going by the same argument, if you treat shares as the second highest risk group according to the investment risk pyramid, it doesn't make sense to me too. Yes, shares are highly volatile (actually, have you seen those illiquid stocks that pay high dividends before? Vicom, anyone?) hence it has one of the highest volatility. This means that it's 'risky' since the price fluctuates wildly about its mean. Well, they can go ahead and classify them as risky but I'll do it anyway. Not dabbling in shares intelligently is the most risky thing you'll want to happen to your financial health.

After reading through the newletter, the punchline came. It offers a product that gives a guaranteed annual return of between 2.30% to 2.55%. Sounds good isn't it? Better than fixed deposit - a fact that they never fail to mention.

Thanks but no thanks.

Diversification

duckula06@yahoo.com (la papillion) — Wed, 21 Oct 2009 21:22:00 +0000

On the subject of diversification, there had been many many articles and books written about it. I'm here to contribute more noise to it and provide another dimension on that subject.

Diversification works very well when the market is in order. We all know that the market is fairly efficient, but not entirely so all the time. To assume that each and every individual is fairly rational when they evaluate their own buy and sell transactions is, in my opinion, a much better one then the assumption that they are always rational. Thus, under usual market condition, we can expect that the market will behave in a fairly rationale manner.

When we diversify, we try to buy into different instruments in different asset classes, different sectors in the same asset class and perhaps different prices in the same counter (aka dollar cost averaging). The key point in diversification is to bet on something, yet with a hedge in case the event you are betting on did not happen. Academics had written at lengths on the optimum portfolio allocation, efficient frontier, blah blah blah. Basically, the idea is to buy non-correlated assets in a optimum mix so as to increase the returns of the portfolio without increasing its volatility.

However, there is something that needs to be thought about, and that forms the gist of this article.

In this new world where information flows fast and furious, the non-correlated asset classes - so carefully chosen in order to optimise your returns - are not so un-related anymore, especially so when the market goes into its moment of madness. What I'm trying to say is that the correlation between asset class is not a constant - it changes according to times, sometimes even direction. Take for example the usually un-questioned assumption that bonds and stocks goes in opposite direction.

The following are charts taken from yahoo! finance website. I compared the blue SP500 (^GSPC) and the red 10 yr treasury bond (^TNX) over a period of years.

You can see that there are periods of time where the bonds and stocks go in the same direction, despite the market truism that bonds and stocks are negatively correlated. So imagine, a person who blindly follows the oft repeated 'fact' that bonds are safer than stocks and that when stocks go up, bonds go down. Things are just not that simple.

But do not get me wrong - I'm not trying to say that portfolio allocation or even the idea of diversification is bullshit. It is important. However, blindly following market truism without having a thought in it can be dangerous to your financial health. Be very very careful of those one liner advice like "Buy low sell high" or "It's not about timing the market, it's about time in the market".

There are a lot of missing things not said in such truism, and don't they say "What is not said is more important than what is said"? Oops....that is also another truism for you to think about.

Newbie mistake in dividends

duckula06@yahoo.com (la papillion) — Thu, 01 Oct 2009 03:10:00 +0000

Let's say you have reit A with 10% dividend yield at $0.40, then another reit B with 10% dividend yield at $1.00, which would you buy?

Reit A, because it's cheaper so with the same capital I can own more so I'll get more dividend? That's what I thought till I calculated it out. Here it goes:

Supposedly I have $4000 to invest. For reit A, I can buy a total of 10 lots (4000/0.4 = 10,000). Thus, at the end of the year, I'll have a total of $400 in dividends. (0.40 x 0.1 x 10,000)

For reit B, I can buy a total of 4 lots (4000/1 = 4,000). For this reit, I'll have a total of.... ahem...$400 at the end of the year too (1 x 0.1 x 4000).

I was a little caught by this result. Haha, newbie mistake...tsk tsk... Conclusion - dividend yield depends on the dividend amt declared and the price of the stock you bought. If both stocks have the same dividend but one is cheaper in price than the other, it will not affect the amt of dividends you have if you have a fixed amt of capital to invest.

The roaming treasure trove

duckula06@yahoo.com (la papillion) — Wed, 23 Sep 2009 04:49:00 +0000

Ever talked to taxi drivers?

I found myself in that exact position when me and gf took a cab back home. The cab driver is around 60 yrs old. He didn't look like that age at all, but perhaps the dim lighting hid his age well. My gf started to talk to him while I was basically slumping in the seats, having had a hard day of work. It was late, I just wanted to get back home and rest, so the last thing I would do is to talk to a stranger who had no interest in your life at all except for that half an hour or so that it took for the cab to go to your desired destination.

Still, on that very night, my gf started to make small talk with him. It's amazing how much information you can gleam from others, if only you ask the right questions and sound sincere enough. It's like a rusty tap - give it the right twist and all the water that had been in the pipes will flow out. I'm a good listener, especially so when I'm tired, so I just sat that with all the water flooding around me.

I started off hearing, then began listening as the information gets more and more interesting. That cab driver had been retrenched, fallen into debts and got nearly bankrupt (I like the word nearly...it implies that you are looking at one scenario that could have happened but didn't...but i digress). However, he managed to stem the bleeding and recovered in 8 months. He had 2 kids - one daughter and one son - both of them had already graduated and started working. Having no need to work anymore but wanting to get some more money, he still treats his job very seriously. He lamented about other cab drivers who are not there to make a living, preferring to drink kopi with other drivers instead of doing their rounds. He proudly mentioned that from the moment he started his shift, he'll be in the taxi until he first recovered his $90 rental, then plus some more.

That cab driver is a very knowledgeable person with a very open mind. He shared with us his philosophy in life freely and I learnt a few tricks to cultivating kids so that they will grow up to be someone who can stand on their own. His immense sense of responsibility and duty dawned upon me when he mentioned that even though he is in debts, it is his problem to resolve it and he never pass on the problem to his family. He truly displays the characteristics worthy of being called the man of the house!

Gf mentioned to me before that everyone has a story to tell, if you would only listen to it. I think just sitting on the cab for the journey made me gain XX years of life experience. He had so much to say and we had so much more to learn that we kept talking for 30 more mins even after we'd reached our destination.

Had his phone number already... we'll be meeting this guy for some very long chats.

Market happiness theory

duckula06@yahoo.com (la papillion) — Thu, 10 Sep 2009 13:02:00 +0000

There is a disparity between what I see and what the people in power are saying to us. It seems like we're in the midst of a major recession not seen since the great depression. The major economies are in trouble, banks had collapsed, inflation and worse - stagflation is looming, GDP is contracting, unemployment is rising, wage freeze wage cut...these are headlines of what I read in the newspaper. However, the reality seems to be far from the picture.

I see people queuing up for property so as not to miss the opportunity to invest during 'recessionary' times. I see many people buying cars. I see penny stocks occupying the top volume of sgx charts and those ultra pennies are in fashion once again. I see people who are not interested in stocks suddenly becoming interested in it and scolding others for being 'old-fashioned' by putting money in savings accounts.

What do I make of this? I don't know.

As usual, I'm skeptical of the whole cheery outlook. It's just a few months ago that we seem to be at the brink of global recession and all of a sudden, the clouds had cleared and the sun shines again. If I'm sure of anything, it's just that humans in general have extremely short term memory. I think it's a good thing that we are wired this way, otherwise life might be too unbearable to live through.

I think in uncertain times, it is best that we have a plan in mind. Basically, there are two opposing realities playing out right now - one is that we're out of the gloom and the other is that we're heading from the top to another one. So, I think it's reasonable to think of two scenarios:

1. What if the market rises high, then sinks deeper

I'll be happy because there are certain counters that I need to buy and haven't got enough or any yet. It'll be a good opportunity to scoup up some more bargains when and if that happens. I'm afraid if the bad times do not come earlier, the temptation might be too strong to just join the crowd and raise my buying price.

It's one thing not to make money. It's totally another when one do not make money yet sees others making money. It'll wreck havoc on one's pysche.

2. What if the market moves up further, punctuated by shallow corrections

I'll be happy because I'm already invested along the way. It's actually less stressful because thinking about how much profit to take is better than to think about whether to cut loss or ride it out. Bullish times is good to sit back and relax because everyone is happy.

Happiness is nothing more than good health and a bad memory - Albert Schweitzer

Crash is King

duckula06@yahoo.com (la papillion) — Fri, 21 Aug 2009 03:17:00 +0000

After reading W.E.B's op-ed, I have some thoughts to share. Cash is really not king presently. Look at the returns of the following possible places to park your money:

All returns are quoted in per annum time basis

1. Cash - savings accounts - 0.1% to 0.25% (DBS)
2. Cash - fixed D - 0.1% to 0.7%
3. Money market fund - 1-2%
4. SGD treasury bonds - 15 yr bonds - 3%
5. Stocks dividend - roughly 5% (don't kill me over this figure pls, I know there are higher yield than this)

Considering a rough inflation rate of 3-4%, I think most of the places to park your money will give you negative real returns. Except of stocks that is. But this is not a blog post to ape W.E.B's op-ed cry out to buy buy buy. I'm just showing you how much you stand to lose by holding on to the false security of holding cash.

Some of the older folks are holding dear cash since forever, afraid that the stock market will eat up their money. Oh, that's undeniably true - stock market gives good returns and do note that it is also the ONLY one listed above that your capital can be eaten up too. The rest are more or less risk free and pretty much capital guarantee. It reminds me of the boiled frog parable - if you put a frog in boiling water, it'll jump out to safety. If you put a frog in water and warm the water up to boiling point, the small differences will not be perceived so readily by the frog and it will scorch to death.

This analogy extends to holding cash. It's rather easier to get 'eaten' by inflation at the rate of 3% per year passively than a one shot (possible) 5% loss punting the stock market actively.

Still, don't go out and just BUY BUY BUY. Ask yourself this: what to buy, when to buy and how to buy. The market is not your mother - it will snatch the milk bottle off your mouth, steal your toys, tempt you with poisoned sweets and maybe, there's a chance that it will reward you for taking that risk.

The greenback effect by Warren E. Buffett

duckula06@yahoo.com (la papillion) — Thu, 20 Aug 2009 14:47:00 +0000

August 19, 2009
Op-Ed Contributor
The Greenback Effect
By WARREN E. BUFFETT

Omaha

IN nature, every action has consequences, a phenomenon called the butterfly effect. These consequences, moreover, are not necessarily proportional. For example, doubling the carbon dioxide we belch into the atmosphere may far more than double the subsequent problems for society. Realizing this, the world properly worries about greenhouse emissions.

The butterfly effect reaches into the financial world as well. Here, the United States is spewing a potentially damaging substance into our economy — greenback emissions.

To be sure, we’ve been doing this for a reason I resoundingly applaud. Last fall, our financial system stood on the brink of a collapse that threatened a depression. The crisis required our government to display wisdom, courage and decisiveness. Fortunately, the Federal Reserve and key economic officials in both the Bush and Obama administrations responded more than ably to the need.

They made mistakes, of course. How could it have been otherwise when supposedly indestructible pillars of our economic structure were tumbling all around them? A meltdown, though, was avoided, with a gusher of federal money playing an essential role in the rescue.

The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous
as that posed by the financial crisis itself.

To understand this threat, we need to look at where we stand historically. If we leave aside the war-impacted years of 1942 to 1946, the largest annual deficit the United States has incurred since 1920 was 6 percent of gross domestic product. This fiscal year, though, the deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory.

Because of this gigantic deficit, our country’s “net debt” (that is, the amount held publicly) is mushrooming. During this fiscal year, it will increase more than one percentage point per month, climbing to about 56 percent of G.D.P. from 41 percent. Admittedly, other countries, like Japan and Italy, have far higher ratios and no one can know the precise level of net debt to G.D.P. at which the United States will lose its reputation for financial integrity. But a few more years like this one and we will find out.

An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money. Let’s look at the prospects for each individually — and in combination.

The current account deficit — dollars that we force-feed to the rest of the world and that must then be invested — will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients — China leads the list — to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased.

Then take the second element of the scenario — borrowing from our own citizens. Assume that Americans save $500 billion, far above what they’ve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).

Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washington’s printing presses will need to work overtime.

Slowing them down will require extraordinary political will. With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can’t come close to bridging that sort of gap.

Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes. In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

I want to emphasize that there is nothing evil or destructive in an increase in debt that is proportional to an increase in income or assets. As the resources of individuals, corporations and countries grow, each can handle more debt. The United States remains by far the most prosperous country on earth, and its debt-carrying capacity will grow in the future
just as it has in the past.

But it was a wise man who said, “All I want to know is where I’m going to die so I’ll never go there.” We don’t want our country to evolve into the banana-republic economy described by Keynes.

Our immediate problem is to get our country back on its feet and flourishing — “whatever it takes” still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.

Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

Savings in life policy

duckula06@yahoo.com (la papillion) — Thu, 13 Aug 2009 14:40:00 +0000

I was looking at Tan Kin Lian's blog. He was lamenting on the poor returns of life policy (meaning whole life insurance). He mentioned that it will breakeven after 15 yrs and the returns are somewhat in the range of 3% to maybe 4%. I've some thoughts about it and I would stress that this post is not to criticize him, but rather to voice out my opinions on the same matter.

I totally agree with Mr.Tan that whole life returns is not fantastic. Buying a whole life insurance is certainly not the best way to maximise your returns. But I think those who buy whole life insurance to save up is missing the big picture. One of the most prominent advantage of using whole life, as opposed to term insurance, is that you are covered until til 100 yrs (plus minus), whereas term life covers you until age 60 (plus minus again). If you think that you only need to cover yourself until age 60, then why buy a whole life plan for? If you intend to cash out the returns from a whole life plan, then why buy a whole life plan for?

I believe no products are bad. It's just a mis-match between the problems that you intend to solve and the solutions you used to solve it. If you need better returns, then don't buy a whole life plan, buy something that gives you better returns. If you hire a maths tutor, but complain to the maths tutor that the science results are bad, I think you need to hire a science tutor, not a maths tutor.

Now, I would be totally pissed off if there is misrepresentation though. If the whole presentation during the sale of the whole life is about being about to save a PROJECTED 8% (for example only), then something needs to be done to the industry. Then again, projected returns are just that...it's looking at a crystal ball and soothsaying what will happen in a very long timeframe. If it doesn't happen, too bad. Do you blame the soothsayer or the person who believes in them?

Driving test

duckula06@yahoo.com (la papillion) — Tue, 11 Aug 2009 04:08:00 +0000

Arggh, the blogger posting site is acting weird again, so it's just plain text from now on...again!

I passed my driving test last Friday, on 7/8/9 (nice numbers eh?). It was my second time taking the test and for those who had done it before, I'm sure you'll agree that driving test makes one a nervous wreck. I felt more relieved that happy after I'm over and done with it because I've promised my gf that I would pass once she passed. She passed...so the promise had to be fulfilled.

How much did I spend for that piece of elusive paper?

2.2k!! A total of 1 PDL renewal, 33 driving lessons, 2 tests and other misc. fees chalk up that astronomical sum. Okay, exaggerating a bit here. Considering that the license is a one time affair, 2.2k is a fair price to pay to be able to drive for life. Imagine those membership that you have to pay every year of your life...this is in the very okay range. Still, I can't help it that I could have used this amt to do a lot more useful things.

One of the things that people asked me after I passed is: when am I getting a car? I'm going to use my own 2 kahs for a longer period of time still, because I've got more pressing matters to attend to. If I ever get one, it'll be budgeted at 30k, and I'm not budging too far off that figure. There are some changes in my plan as plenty of months had passed since I first muse over the thought of getting myself a set of wheels. Got to put on hold for that one.

I reflected that there are some very good lessons in driving that can be applied to other areas in my life:

1. To succeed, you need to visualise and plan your success.

Since I last failed, I've been visualizing my passing. How? I visualize myself right from the start of the tester calling my name in the waiting room to eventually turning into the centre and getting the results. Though I've taken the test only twice, I've mentally taken the test don't know how many zillion times. The driving lessons are not exactly cheap, so I've been doing my mental driving lessons a few times every week and once before every real driving lessons.

In life, there are many possible variables. Your job is to reduce or eliminate those variables.

2. Shouting out to the universe what you want

I literally said aloud to myself that I'm going to pass this time round. What follows is nothing short of a series of miraculous coincidences. Amazing...this universe can hear your voice and echo it back to you. Believe it or not.

3. Join a competitive sport in school, it's more useful in life

Huh? What's this? I remembered this when laksa and a few others are debating on uniformed group as ECA (now called CCA) versus competitive sport. I joined competitive sport before and all the stress before the big match comes in. Your mind starts wandering into pessimistic scenarios, and when it does, your body will follow. That is the time to apply the correct breathing techniques, semi-meditation, semi-self hypnosis to induce a feeling of confidence and optimism in yourself so as to ease the pressure and stress before the big match. You need to feel relax, but it's easier said than done.

I'm glad I knew how to handle this kind of performance anxiety stress. I've seen a few others in the waiting room handling theirs. Some girls look so stressed up that they are willing to give up when the tester called their names.

4. If shit hits you, move on. If more shit hits you, still keep moving on.

I was getting into fights with my driving instructor the first time round. I can't stand his attitude and I still can't stand it now. However, I'm very amazed how he can forget about all the negativity and pretend nothing had gone on and still do his job. In the past, when I'm angry, I tend to focus on the angry stuffs but I had since learnt from my instructor how to move on.

Wake me up when september ends

duckula06@yahoo.com (la papillion) — Sun, 02 Aug 2009 14:43:00 +0000

For those who is hoping to jump into the market, perhaps you can take a look at history. I posted this article on the seasonal effect of STI since 1985.

Based on historical data, average monthly returns for STI is pretty bad. But hey, the market is like a 1000 ml glass with 500 ml of water. It's half filled or half empty. It means either that you should start looking to re-balance your positions or you can start looking at some bargains for the things you've been eyeing for so long.

Of course, past data do not guarantee the future. Haha, I'm getting good at saying a lot without meaning anything :)

Phillips Money Market Fund

duckula06@yahoo.com (la papillion) — Thu, 30 Jul 2009 16:30:00 +0000

I started to put my money back into the Phillips money market fund (MMF) again. I withdrew the bulk of my money from it when the monthly returns for the MMF dipped to 0.053%. Since the money placed in MMF is not insured by the govt (unlike the bank deposits, which is insured up to 20k), I thought the miserly interest isn't worth the risk, so I placed the bulk back into my savings accounts (which gave me an equally miserably rate).

Here's the returns from the MMF so far:

* The monthly returns are calculated by subtracting the MMF NAV of the last day of the month from that of the first day of the month, divided by the NAV value of the first day of the month, in percentage terms

As you can clearly see, during May, the returns per month dipped to 0.053%, giving an estimated returns of 0.64% per annum. It's better than savings, but not much better. I started putting my money back into MMF again during June, when I noticed a rise in the returns to 0.089%, which gives roughly 1.07% per annum. That is more acceptable for the risk that I put into the MMF. Though I say that, do take note that MMF is as safe as savings deposits, since most of the capital is placed in time deposits, treasury bonds, bills etc.

The heydays where the monthly returns of 0.15% and above is over. That happened in mid 2007. At that time, the stocks are breaking new high, so who the hell wants to put into MMF. Given an average monthly returns of 0.15%, it'll add up to 1.8% per annum at least. I didn't include compounding.

Here's how the MMF returns tracked since May 2007 to present looks like:

For this month of July, the returns for this month is 0.089%. Just one more day to go, shouldn't be too far off from there.

Out of action

duckula06@yahoo.com (la papillion) — Mon, 27 Jul 2009 09:00:00 +0000

There's something very wrong with my blogger. I think from what I goggled, something wrong with singnet internet, proxy, blah blah...basically it makes the blogger posting site misaligned. I tried everyday since last Thurs to post something but I can't attach pictures.

I still can't attach any pictures now. BUT at least I can post something.

Looks like I'll be out of action till this thing recovers itself. I've no time to remedy it.

Reflections

duckula06@yahoo.com (la papillion) — Tue, 14 Jul 2009 04:10:00 +0000

I know I've not been blogging for some time, so here's my feeble attempt to do that.

Blogging has always been a reflection of myself. Though I've not been writing, I've always been reflecting. So, maybe this blog article will just log in some of the things that I've been thinking about since the myriad things I reflect are too short to exist as an individual article by itself.

1. Most dominantly on my mind is how to make more money. Ya, I sure know how it sounds like. But that's the truth. I'm still trying to meet my 50k target by this year end, and am most happy to say that for my target set per month, I managed to do it. But it's getting tougher and tougher to do that. Hey, setting a goal is the first part. Relentlessly pursuing it is the next part. Who ever said it's going to be easy?

Sometimes the only motivation for me to keep doing work at the pace I'm doing is the elusive utopia that I won't be doing this forever and I'll be financially free from the burdens I'm carrying now. I need to remind myself why the hell am I saving for.

2. Time and money. I need to leverage my time more. I NEED to earn more but work less. I know it can be done and I just need more time to do it. That would be one big goal settled, if I managed to pull it off successfully. This will really seriously accelerate my goals of being financially free.

3. Endowment plans... I always try to separate my insurance from investment. For example, I never try to use whole life as an instrument for investing and will not compare the returns of whole life to say a fund returns. I've no intention to cash out my whole life policy to get the cash returns (though it's good to have an option if I have to) hence will not launch into the big debate about buy term invest the rest philosophy.

What I want to say is that endowment plans does have its uses as a savings plan. Endowment plans have a lock in period, maybe like 10, 15, 20, 25 yrs, which you have to pay premiums for a certain period (like maybe for 5 yrs only). I think a typical endowment policy will give returns of like 3-4% projected. But for planning purposes, I suggest taking a look at just the guaranteed part. If you put in 50k in premiums, if I get back say 70k guaranteed, I'm fine. Any extra coming from non-guaranteed part is bonus to me.

Ever though this will severely underestimate the returns from endowment policy, it will prevent disappointment when the policy matures in the 10-25 yrs later. I'm trying to protect the downside here, because while investment returns can yield higher (maybe 6-10% pa?), investment returns are non-guaranteed at all. Can I bear the consequences of not being able to meet my savings target?

So, if I have a child today and want to save up for the education needs of say 70k in 20 yrs time, perhaps I will subdivide the 70k savings target into two. The first will be dumped into endowment but looking only at the guaranteed part only. The second will be to do my own investment.

To illustrate, I'll do 60% in endowment, meaning 42k. I'll go hunting for an endowment that gives me 42k guaranteed in 20 yrs time. Then for the remaining 40% (28k), I'll do my own investment. I just need to start off with around 9k (8,730 to be exact) and earn a compounded annual growth rate of 6%. I think that can be reasonably achievable.

Mega downside: I'm in heaven, but at least with the endowment policy that I bought, it can still continue saving after I'm gone. You can get a lump sum payment...that's the best I can do. Love you, kiddo, will be watching over you from up here. Take care of mummy.

Super downside: Daddy can't work after the accident. At least with the waiver of premium, the endowment policy can still carry on. Sorry kiddo, you might have to borrow some money.

Downside: I lost all my 9k and I have a shortfall of 28k. Hey, daddy tried his best, I'm sorry kiddo, you have to loan the remaining 28k yourself. At least daddy can sponsor you 42k of your fees, representing 60% of the amount you need. Be thankful.

Upside: I have more than 70k because the endowment gave me an extra 3% returns and my own investment generated 10% returns. Hey kiddo, you can keep the money to start your own little venture and own stock investing.

I'll rather protect my downside. It'll be sucky not to be able to give your child a good education. I'll seek to minimize my maximum regret.

~I'm not a financial advisor. If you act after reading this personal ranting about my life, you seriously need to find a qualified one. Run, don't walk.

How to be a millionaire

duckula06@yahoo.com (la papillion) — Wed, 24 Jun 2009 13:38:00 +0000

After reading so many books on financial freedom, I realised these are the ways to be a millionaire. Why are people so obsessed with being a millionaire? I'm not so sure, perhaps it's a milestone in their lives. For me, being a millionaire is not the most important thing to do. How about being able to spend a million for a start? Haha!

Ranked in order of ease, these are:

1. Start off as a billionaire, spend till you become a millionaire

I suppose a portion of the world's millionaire are actually formed this way. It's the best way to be a millionaire. Shiok until cannot shiok.

2. Use SGD $3,494.28 and exchange for 1 million Zimbabwe dollars

You want to be a millionaire right? Next time, when you rub a magic lamp, make sure you tell the genie exactly what kind of millionaire you want to become. 3 wishes are very precious...

3. Start saving 3k per month for the next 27.8 yrs

Hey, even by putting aside 3k per month regularly under your pillow, you can amass 1 million given enough time. If you start working at age 23, and do that consistently till you reach age 51, you'll get 1 million. Not so simple, because in order to save 3k, assuming 50% savings rate, you'll need to earn at least 6k and spend only half of your income. And make sure you don't hire a new maid and forgot that you had a million under your pillow....

4. Start with 25k, invest at 9.7% per year over 40 yrs

Or start off with 50k and invest at 10.5% for the next 30 yrs. Too long? How about starting off 100k and investing at 10.5% for the next 23 yrs? Easier said than done, I know. A mixture of trading and investing might just push it through. Unless you're Mr. B himself, who gets a CAGR of 20% at last count. Hey, at this rate, you'll double your money every 3.6 yrs.

Bullythebear gathering

duckula06@yahoo.com (la papillion) — Sun, 21 Jun 2009 15:27:00 +0000

It seems like many people prefer sat 10 am to 12 noon. The venue proposed is actually Tea Chapter. You can click on the site here to view it. However, it opens at 11am.

I suggest we meet at 1045 am on 27th June, sat, then by the time people comes streaming in, it'll be just nice. They sell some little snacks there too :) I think the gathering will take 2-3 hours.

IMPT: Since the response is not warm, I think we'll postpone the session to future date :)

Polling time

duckula06@yahoo.com (la papillion) — Fri, 12 Jun 2009 00:33:00 +0000

Trying to arrange an outing in a tea house recently, so need some feedback from the regulars. Can you please post in the comments:

1. The day of the week which you are available eg. Fri or Sat
2. The time of the day which you are available e.g from 11am to 3pm.

The venue should be the place I mentioned last time, no need to mention it here again. If you're unsure, can always ask those in the cbox.

I'll try to arrange it :)

How to motivate people

duckula06@yahoo.com (la papillion) — Fri, 05 Jun 2009 15:09:00 +0000

First of all, a disclaimer. If I really know how to motivate people, this will really be my ticket to financial freedom. To motivate someone, you really need to understand both the science and the art. I've been doing this for 6 years, with varying results. Still trying... Broadly, to motivate people you have to maximise their pleasure and minimise their pain. I'll try to include accompanying examples.

Where applicable, I'll use a common example to illustrate the finer points. The example is this scenario where you are bringing your kid to the toy store. But the kid wants to buy a particular toy which you are not so interested in purchasing.

1. Threat of punishment

It's the classic "If you do this, I will do this" kind of motivation, though the "do" part is more like a disincentive to do certain things. I've always seen parents who said this. It's more a perceived punishment rather than actual punishment. But if the promise of punishment is not carried out, then the threat gets weaker over time.

Example 1: "If you are still so naughty, I'll will make sure you'll get caned when we get back"

2. Lure of rewards

"If you do this, I will do ___" - that's the key point of this method. The "do" is followed by something positive and pleasant. The promise of reward is usually good enough to motivate someone, not the actual reward itself. If the reward is not carried out after the promise, the method gets weaker over time.

Example 1: "If you get 80% of his final year exams, I'll buy you the toy. Do you want to study hard for your exams?"

Example 2: "If you don't make a scene here, I'll bring you to eat ice cream. The weather is so hot, you do love a nice cool ice-cream don't you?"

3. Reduce disapproval

I find that women are better at using this. Humans need to seek approval from significant people in their life - either parents, partners, spouses, friends, classmates etc. By putting your criteria in which you disapprove people, you can put a disincentive for others not to act in a certain manner.

Example 1: "Look at the little boy there who is crying. He is so disobedient and don't listen to his mummy. I don't like kids like that. Are you going to be disobedient like the boy too?"

4. Maximise approval

Same as disapproval. You set your criteria for your approval, then you compare how someone is approved by you because he/she fulfilled the criteria.

Example: "See your brother sleeping in the pram. He's so nice and quiet. I love kids who are quiet and obedient, so please don't make me angry ok?"

5. Appeal to ego/pride/vanity

Self explanatory? A bit similar to approval but the motivation is clearly different. Ego/pride is more internal.

Example 1: "You are such a big kid now, still crying at this age? Look that uncle is laughing at you now"

Example 2: "You are such a big kid now. Big kids don't cry over toys. You don't want to cry over little things like toys right?"

Example 3: "If you cry more, then you will be ugly already. No more pretty face. You like to be pretty right?"

6. Fulfil basic needs

Basic needs of a living thing are the ability to reproduce, to eat, to excrete and to move about. Essentially, this is the need to survive (or the survival of one's genes). This is one of the most important yet primal motivator in anyone's life. Crude but it works very well. In modern times, the need to survive can be rested on one commodity - money. Thus, wanting to earn more money is classified by me as a primal need to survive.

This method is so effective. Just look at what people will do just to survive an earthquake or tsunami.

7. Satisfy curiosity

To discover the unknown, to find out 'what if'...these are motivated by the need to satisfy one's curiosity. It's the motivation that makes one read a book (to find out what happened) and perhaps to finish one whole drama HK drama series in one seating. I suppose scientist are quite motivated by this. It's quite hard to find people who are motivated by curiosity in Singapore, from my experience. It's a rare sight.

To sell or not to sell?

duckula06@yahoo.com (la papillion) — Fri, 05 Jun 2009 03:20:00 +0000

Do you ever wondered about this - Imagine you have a stock which you had bought at $1.20. The price now is $1.80. It gives out dividend (not guaranteed, of course) at a rate of 5 cents per annum last year (dividend yield of 4.2%), with possibility of increasing its yield every year. Will you sell the stock for capital gains of 60 cts (1.80 - 1.20 = 60 cts) but forsaking 5 cents or more dividends forever?

Here's a few ways to valuate this:

1. Assuming that the dividend is fixed at 5 cts forever, it'll take 12 yrs (60/5 = 12) for the dividend (if you hold the stock) to cover the present capital gain (if you sell it now at $1.80). Which do you think is better - 60 cts gain now or 60 cts gain over 12 yrs.

Of course, the complications come in when you talk about the possible capital gain (or loss) if you hold the stocks for 12 years. The company might be bankrupt, it might freeze or cut dividends, it might give more and so on. It's never easy to decide.

2. The first method does not take into account the time value of money. It's better to do a discounted dividend approach to account for the time/money relationship.

Below shows my calculation, assuming there is no change in the dividend given per year. I assume a discount rate of 4% (why? that's the inflation rate I assumed) to account for the opportunity cost of holding cash.

After my garbage in garbage out (GIGO) exercise, I end up with a value of 41 cents. The safety factor is to account for any funny things that makes my assumption invalid. If after accounting for the safety factor, I end up with 60 cents, then theoretically I have no incentives to act on either options of holding or selling now. To push me to sell now, I raised the value of 41 cents by 30% to 53 cents - this means if I gain anything more than 53 cents, I'm actually motivated to sell now to lock in my gains.

Since selling now at $1.80 I'll get 60 cents. I'll sell now.

Again, this method does not take into account the possible capital gain/loss of holding the stock for a long period of time. I've already stated in my previous blog post "The false security of intrinsic value" the illusions associated with this kind of discounting method of valuation, so I shall not elaborate more here.

3. Last method is this: I saw another counter with better prospects, so I sell now to lock in my gains, and switch to another counter. What is better prospects? It could be better yield, safer yield, likelihood of higher capital gains in the future, charting etc. Exactly how does one know which counter gives a better prospects - I leave it to you. I do not know myself.

After being played in and out by the market, my inclination is towards method 1 and 3. If it does not scream out buy when using a calculator with only + - x ÷, then you probably need to look elsewhere.

Disgusting Pac Andes

duckula06@yahoo.com (la papillion) — Fri, 22 May 2009 17:18:00 +0000

Pac andes just threw a grenade towards my direction. Make it 2 grenades. It got me hot and bothered!

1. First grenade - they are issuing rights on a basis of 1 rights share @ $0.15 for every existing share held. The rights come with detachable warrants, with an exercise price of $0.23 each to convert to 1 ordinary share.

Hey, didn't pac andes do a rights issue in 2007 before? And they are doing it again? C'mon...are you so pressed for money to keep asking shareholders to part with their cash?? It's not enough to dump shareholders with rights issue, and you still want to get more money out of shareholders when they convert their warrants??

2. Second grenade - they are going to restructure their share capital. Initially, their share capital of $400 mil is divided into 2000 mil shares, with par value of $0.20 each. Now, they are going to divide their share capital into 8000 mil shares instead, giving a par value of $0.05 each.

This takes some fees and do you know what's the rationale for this exercise?

It's stated that the main purpose for this reorg of share capital is to enable the company to undertake the proposed rights issue because the average closing price of pac andes is at $0.186 (for the 7 month prior to the date of the announcement today). This happens to be below the par value of $0.20 per share in the current system.

Since the Bermuda Companies Act prevents a company from issuing shares at a price below the par value of the share, they are going to go through a reorg of the share capital just so as to allow the proposed rights issue to go on! They stated that this will allow them greater flexibility in issuing new shares in the future when the opportunities arise.

HELLO! There's a lot of nasty things I wouldn't want to blog in public. What is the management thinking about?!

How much to save to retire

duckula06@yahoo.com (la papillion) — Mon, 18 May 2009 17:36:00 +0000

I was just doing some simple calculations to see how much I need to earn in my working life (assuming I have to retire at 55) in order to sustain myself only till the end of my life. I've a average monthly expenditure of around 2500, all inclusive.

So assuming I pass on at age 85,

$2500 x 12 x 54 = $1,620,000

I probably need this much money now in order to stop working yet be able to sustain my lifestyle till 85. This 1.6 million of course do not include family, or any other commitments that I incurred while I survive till 85...thus it's quite an underestimate.

Reality sucks, isn't it?

Assuming I maintain my expenses after I retire all the way till 85, I need to spend $900,000 (based on $2,500 per month expenses for 30 yrs). I only have 24 yrs to get this amount before age 55, the age I can retire. This means that I need to save $3,125 per month from now till age 55 in order to save up to that amount. That's hard saving only and it's hard saving that amount for that long period.

If I have an investing capital of $100,000 now, I figured that I need to get a returns of around 9.6% per year on average to multipy that capital to reach $900,000 in 24 yrs. That's assuming I didn't add in more capital to that initial capital outlay. Do you think it's do-able?

How can anyone not invest? It's not impossible to reach financial independence, but it'll be very hard if one has to do it by savings alone.

The father, the son and the donkey

duckula06@yahoo.com (la papillion) — Wed, 13 May 2009 17:43:00 +0000

KK shared with me this story in the cbox. I really thought it's a very important lesson to be learned from it. It is happening to us all the time. Since we learn different things from the same story, I'm not going to interpret but leave it open for readers to form their own thoughts about it.

----------------------------------

A Man and his son were once going with their Donkey to market. As they were walking along by its side a countryman passed them and said: "You fools, what is a Donkey for but to ride upon?"

So the Man put the Boy on the Donkey and they went on their way. But soon they passed a group of men, one of whom said: "See that lazy youngster, he lets his father walk while he rides."

So the Man ordered his Boy to get off, and got on himself. But they hadn't gone far when they passed two women, one of whom said to the other: "Shame on that lazy lout to let his poor little son trudge along."

Well, the Man didn't know what to do, but at last he took his Boy up before him on the Donkey. By this time they had come to the town, and the passers-by began to jeer and point at them. The Man stopped and asked what they were scoffing at. The men said: "Aren't you ashamed of yourself for overloading that poor donkey of yours and your hulking son?"

The Man and Boy got off and tried to think what to do. They thought and they thought, till at last they cut down a pole, tied the donkey's feet to it, and raised the pole and the donkey to their shoulders. They went along amid the laughter of all who met them till they came to Market Bridge, when the Donkey, getting one of his feet loose, kicked out and caused the Boy to drop his end of the pole. In the struggle the Donkey fell over the bridge, and his fore-feet being tied together he was drowned.

"That will teach you," said an old man who had followed them:

"Please all, and you will please none."

Wordle here wordle there

duckula06@yahoo.com (la papillion) — Thu, 07 May 2009 17:46:00 +0000

This is another wonderful piece of art form I found from PG's website. Indeed very fun - I spent a few hours playing with it just to see the different combination that comes out.

Here's a wordle of the books I've read so far this year. The bigger the fonts are, the more times it occurs in the titles of the books I've read :) Have fun trying, it's found here!

See? I've read a lot of books on millionaires and a lot of them have the words 'Buffet' and 'Richard' in them :)

Top-down approach in investing

duckula06@yahoo.com (la papillion) — Thu, 07 May 2009 04:15:00 +0000

I usually adopt a bottom up approach towards investing, so it's good to do a top down approach too, just to see the broader picture. I read this little book series (yes, finally completed everyone of them!) called Bull Moves in Bear Markets by Peter Schiff and in it, there are a very investment themes to take note of. Basically the author is very bias towards the near term future of US, notably because of the high amount of debts that it is mired in and the unwillingness of FED to raise the interest rate to curb inflation, thus running the risk of hyperinflation.

Here's a few countries that might do very well in the future:

1. Australia - This is a country rich in natural resources, with lots of supplies of natural gas and metals. Being very close to China, who is very likely to consume huge amounts of metals and energy in the future to fuel its economic growth, Australia is thus likely to participate greatly in the commodities bull run mentioned by Jim Rogers and other such 'visionaries'. I think its close proximity to China makes it a good exporter of commodities to China at a cheaper price.

2. Canada - Stupid also mentioned about the loonies. It is the largest foreign supplier of energy, including oil, gas and uranium to US. Canada is resource rich with a lot of metals, agricultural commodities and energy. Again, another commodities play, with likely appreciation on its currency, like Australia.

3. Singapore - Yes, this little tiny dot is mentioned in the book as well, which I'm pleasantly surprised. For those cheapo neh neh, can go to bookstores to browse this book. It's on page 163. Singapore depends a lot on export, particularly in consumer electronics and IT products. Manufacturing is diversified into petroleum refining, chemicals, mech. engineering and biomedical sciences. I guess Singapore's advantage is its good relationships with China and US, so can probably use its status as a financial, hi-teh and medical tourism hub (the book said so, not me) to leverage itself into a nice cushy position. The other advantage I can think of is the stronger stable government.

Hey, you can complain all you like about the government, but we all have to concede defeat to its stability and the effects this can have on investors abroad. No strikes, tri-partite relationships with labour unions (do we have one?), low unemployment rate, highly educated labour force -- all this adds up I suppose.

There's a line which I snigger at: "Singapore is the third most popular place for Chinese companies to list their stocks, after Hong Kong and the United States." Oh true, that's why we get all the third-tier ass shares listed here.

Ok, I'm not going to list say more...here's the list of other countries that the author feels for: Norway, HK, Switzerland, New Zealand and Netherlands. We can analyse the countries and see that he is bullish on Asia (esp those leaning towards China), as well as those countries with lots of commodities.

Okay, enough from the book. Here's a few themes that I think are worthy to consider in the future:

1. Green technologies

There is this strong undercurrent of green movement happening around the world today. Carbon footprint seems to be a key concern too. I've a lot of young people telling me about saving the earth and so on. China might also be setting up their own green cars to compete with US. Might be the next technology to lift the world's stock market to another feverish bubble.

2. Commodities

Energy related commodities will continue to play a big part to power the world's economy. Hmm, unless someone managed to find a very environmentally friendly and abundant supply of fuel...looks like bubble creating material to me. There are reports saying the huge demand of metals that China will need in build its infrastructure, thus turning it from a net exporter to net importer. With the low interest rate environment, inflation could be a problem in the future, so countries with lots of commodities will be able to take in more foreign exchange gains if the commodity bull run is true, thus maintaining their currency from dropping.

Microsoft Live Writer review

duckula06@yahoo.com (la papillion) — Tue, 05 May 2009 16:23:00 +0000

After listening to what PG had mentioned with regards to my time saving article recently, I decided to adopt and download the free Microsoft Live writer. It's actually a very cool piece of software and I'm testing it right now as I type this article. In the past, I used to type my blog on Microsoft words then cut and paste onto the blogger site, but it seems that this cool piece of software can publish straight to blogger!

I can even see how it looks like in the actual colour settings, which is damn cool! If not, I can always switch to html or the normal 'words' format to edit as I wish. Very convenient indeed! I can even put in pictures from web or from my computer, which previously I can't from microsoft words.

The software is also quite idiot proof and I spend less than a few minutes trying to figure out which buttons is for what functions. It certainly makes my blogging experience more enriched. I think it's even more user-friendly than the blogger interface :)

Conclusion:

Definitely a must-use for me! Potential time-saver found!

Ways to save your time

duckula06@yahoo.com (la papillion) — Mon, 04 May 2009 15:02:00 +0000

As time gets more and more precious, I wondered how else I can do to squeeze more time. Everyone gets 24 hours a day, but some people wasted a good part of their time doing things that are not aligned to their goals or not pleasurable to themselves – in order words, their time got ‘robbed’ by others.

Here’s a few ways for me to squeeze more time to really do the things I want to do:

1. Blog my articles in Microsoft words first, then cut and paste it straight to blogger.

I’m currently doing that now because my internet connection was down, so I’m using the time now to type it out in the words form so that later I can just copy and paste it to post the article up. This is a great time saver because by blogging the articles when my thoughts are the most lucid and fluid, I can save a lot of time thinking about what and how to write the articles.

2. Give yourself 5 minutes to read through the snail mails and decide what to do with them straight away

I used to keep a pile of snail mails on my desk, waiting for the day when I’m finally free to sort them out. It takes a great deal of time just reading the mails again then following up the actions required. These days, I give myself 5 minutes to read through, decide and follow up the action immediately. These grant me two advantages – firstly, my desk is clutter free and secondly, I do not have to sit through the piles of mails to follow up the actions required. I either throw them straight away or file them up if needed. This ‘no-second-look’ philosophy must have saved me a few hours per month, which is substantial savings in the long run.

I think this rule applies to emails too. If I didn’t follow up my emails immediately, chances are that I would not do it anymore. So I make it a point to apply my ‘no-second-look’ philosophy to that too.

3. I always bring a book whenever I go

It never fails to amaze me how a well-planned schedule for a day can go horribly wrong. I might end up waiting a few hours for events to happen, and I dread having nothing to do while waiting. Thus, I always bring a book whenever I go in case I have to end up waiting for people longer than I should be. I also kicked the habit of sleeping on trains and use the time to read while standing/sitting. I can’t read on buses (it makes me dizzy), so I nap a while or just think about stuff.

4. Use of the SBS-Iris online before I go out

As I take buses most of the time, I detest waiting the long waiting time at bus-stops. Since last month, I’ve been using the SBS Iris website to determine the waiting time I need for my bus to arrive at the bus stop and plan my trip accordingly. This is such a time saver that I make it a point to check whenever I’m going out, if it happens that I’m taking a bus.

Use your time wisely. It’s the only resource that you have!