Saving money is hard as you grow older. Getting married, having kids and their expenses, needing a car and taking care of the parents. How the hell do  you find large sums of money for investing to grow your wealth?

6 years ago, I came across Richard Russell’s 4 valuable advice to folks all walks of life. The one that left the greatest impression was the difference between an investor who starts investing at 19 years old and stops at 25 years old, versus one that invest the same amount from age 26 all the way to 65.

Their record would have been equal.

Achieving the rate of return is the key, and probably what we discuss more on this site. This week, I cam across an article by Andrew Hallam, who wrote millionaire teacher. The key takeaways are a few things

1. We know that he does low cost indexing and rebalances his portfolio
2. We know the market moves in rough 20 year cycles. What are the chances after 45 years your money doesn’t grow? How about 39 years for the Investor A?
3. In today’s way of living, your dollar is going to be divided into more things that need your attention. If you want to make sure you got enough for retirement, perhaps it is imperative that you start at an early age (18?)
4. How many 18 year olds know this concept?

“Fifty six percent of 18-34 yr olds say they’re saving $0 for retirement! (via cnnmoney.com) How can young investors be encouraged to think long term?”

The answer is really easy.  To get young adults to think long term, they should strive to be lazy and spend more of their income during their lifetimes.  Who wants to scrimp in their 20s, 30s and 40s, so they can have bucket loads of money in their 60s, 70s and 80s?  What a waste.

I’m talking about spending more money during a working lifetimes AND ending up with more money for retirement.  Here’s an example:

Joe Smith studies law in college.

He becomes a lawyer at age 26, but he doesn’t know how to be lazy.  So he spends the money he makes.  OK, this might not make sense if you’re a “worker” who’s used to his or her nose on the grindstone, but stay with me.

Joe starts saving at age 40 for his retirement.  And he socks away $2000 per month for 20 years.  In total, he “saves” $480,000 ($2000 per month x 12 months x 20 years).  That’s a lot of money to save.  And what Joe saves, he doesn’t get to spend.

If he makes 8% per year on his investments, he’ll grow his savings to $1.18 million.  The poor guy isn’t much of a thinker.  To build a $1.18 million investment portfolio, he has to save $480,000 of his salary.

Call Joe a sucker for punishment.

Tim isn’t really smarter than Joe. But he’s lazy.

There’s no way he wants to save $480,000.  He works at the same law firm as Joe, makes the same annual income, but wants to spend more over his working lifetime AND end up with more money than Joe.

Tim starts investing just $200 per month ($6.66 per day) at age 18, which he puts together from the odd weekend job.  From age 18 to 26, he keeps investing the same amount.  If he makes 8% per year on his investments (the same return that Joe makes) he’ll have $27,570 at age 26.

When the law firm hires Tim (at age 26) he starts investing $600 per month and keeps it up until he’s 60.  He earns the same salary that Joe did.

By the time Tim is 60 years old, he has $1.6 million—nearly half a million dollars more than Joe.

Tim ends up with $1.6 million, compared to Joe’s $1.18 million.

But Tim was able to spend nearly $100,000 more than Joe while he was working…on fun things, like holidays, toys, and dinners on the town.

Joe is a worker.  He saves more and ends up with less money.

Tim is lazy.  He saves less (spends more) and ends up with nearly half a million dollars more than Joe.

It pays to use your head and be lazy, like Tim.

Now this is seldom heard of but I noticed this at Jeffrey Gundlach’s bloomberg interview where he draws the similarity of the World Trade Center Tower becoming the tallest building in New York.

Why does this matter? Apparently building of huge tall infrastructure seems to be a psychological indication of human ego at its peak and normally precedes big market draw downs.

If you think this is born out of Drizzt’s fantasy, Barclay issue a report on this as well. You can read an article on it here.

In 1929, the opening of 40 Wall Street and the Chrysler Building were harbingers of the worst-ever U.S. meltdown, the Great Depression. A year later, the Empire State Building became the world’s tallest building, presaging years of gloom.

The 1970s saw the completion of New York’s World Trade Center and Chicago’s Sears Tower. They opened amid stagflation in the U.S. economy, a fiscal crisis in New York and the breakdown of the Bretton Woods monetary system.

Malaysia’s 1,483-foot Petronas Towers were being completed during the Asian crisis.

Can we find some examples to disprove this theory?

In deep corrections like this, investors are more worried about protecting their capital. My portfolio cannot take a 50% draw down. Should I get out of the market?

Things like this run through your head.

Managing your head

How long does an average bear last? Can be from 6 short months to 2 years based on recent historical.

If you are young, you would want to see more draw downs.

Don’t you want to buy SingPost at 80 cents? Starhub at $2.00? KepCorp at $4.00?

It’s a dilemma when things are dear and you are afraid if you buy it, there is no margin of safety there.

So why don’t you want to pull your money out totally? If you have a knack for market timing then by all means do it. But if these are just noises and the market goes back up, you probably forced to buy back at a higher price.

Just like my previous post, know the nature of your investments, whether they are cyclical and the valuation you got them at, if you feel sad seeing profit go to waste, establish a few profit taking targets such as break in trends, a minimum %.

The WORST thing that can happen in such scenario is LOSE YOUR PSYCHOLOGICAL CAPITAL.

Now is a good time to see how risk adverse you are.

Capital Injections are important

What is important, is sound budgeting and establishing “Pay yourself first”.

Visualize where your portfolio will be in 10 years time. How much you will add to it. What kind of average portfolio yield you are looking for.

I have a useful Dividend Portfolio Projection spreadsheet that you can make a copy of to help you visualize. [Spreadsheet here]

My take is that many young folks have probably started building up their portfolio.

The size of it can range from 20k to 40k.

And if your portfolio is small, 2 years of 12k per annum contribution will add 24k to your portfolio at a LOW price.

To get started with dividend investing, start by bookmarkingmy Dividend Stock Tracker which shows the prevailing yields of blue chip dividend stocks, utilities, REITs updated nightly.

Make use of the free Stock Portfolio Tracker to track your dividend stock by transactions to show your total returns.

For my best articles on investing, growing money check out the resources section.

Drizzt: long term market analysis is a series once or twice a month where we take a look at longer term trends in the market to get our bearings right on the general direction of where market prices is going.

How are you guys doing on the investing front? Missed out on the January run up? Got a lot of profits? Europe problem is not solved yet? What should we be doing?

Weekly S&P500 and STI

The long term indicator we use is the cross over between the 17 week EMA and the 43 week EMA. A cut of the 17 week EMA below the 43 week EMA from above signifies an underweight and risk management position. A cut of the 17 week EMA above the 43 week EMA from below signifies an overweight position in equities.

The 17 week EMA and 43 week EMA are still not forming the death cross, but looks to be turning down. MACD is also heading down. The technical picture for the bulls do not look to be broken yet if we look from a 5 years perspective.

And up till this point, the price movement daily looks more like a correction then a full blown draw down.

The STI is more problematic. First it didn’t go above the highs in late 2010, this recent upward move taking it to only 3000. The STI looks to be following whatever is happening on Wallstreet. The 17 week EMA looks to cross the 43 week EMA much earlier than the US market and  MACD looks to be going below zero if the next two weeks don’t turn out well.

What should you do?

If you are a trader trading on momentum, this is probably not an in depth analysis to help you see if the momentum are broken.

For the investor, you would have to look at your holdings into whether they are stocks you wish to keep and whether the stocks are cyclical and opportunistic buys.

Don’t ever get confuse which is which to begin with!

For the long term holdings, corrections like these are good to accumulate more. Think about the age you are. If you are 20++ to 40++, you would WANT more of these. This enables you to accumulate stocks you researched well and are good but at prices that offers little safety.

Buy in batches. You do not know how deep is this draw down. The chart gives an indication we may reach 2500, or it may just resume the uptrend.

There were so many folks waiting for a magical number like 2000 or 2200 and it never came to it. 

Control your head from running wild. These are the time when investors need to do the right thing instead of losing their psychological capital.

For those cyclical plays and opportunistic buys, you may want to take more money off the table. Understand the nature of the company and historical price movement. If you can collect them lower and they don’t offer much in dividends while you wait for it, pare down.

My recent changes

I haven’t bought much this year. Just very small nibbles but looks like I will get my chance soon.

I have sold off some of the stocks that are more correlated to draw downs like Yangzijiang and Keppel Corp. I wanted to get out of Asia Enterprise Holdings but that is still under evaluation.

Will be keeping the rest. Looking forward to seeing my gains get wiped out and going negative.

For those interested in tracking my most current holdings, you can review my portfolio over here. Learn to use our Free Stock Portfolio Tracking Google Spreadsheet to track stock transactions.

We recently had a conversation on how accountants have an upside over us normal human beings in that by training they have to be acquainted with numbers much better than us

Able to interpret financial statements

For one, we have a problem interpreting balance sheets. I took a module in university so I am a little privileged, but for many friends it looks daunting for them.

The ability to interpret statements will go in a long way to recognize the fundamental nature of what officially the company declared.

You will be able to pick out profit and loss, cash flows and whether the company is overly leveraged

Sampling your life as a balance sheet

I also think that since they learn about this in tertiary or secondary education, it puts them on a good footing of not getting into debts, able to recognize that they are overleverage and to build up good assets

Not always the case

So my friend was telling us that this is not always the case. He has a friend who believes Jurong Technology, to him a blue chip, will always do well. Well Jurong Tech went on some really good runs, and to be honest when you see such a 2-3 years sustain runs supported by good profits you will think that way.

Well the story ends that he continued to stay invested right up to when its share price fell from dollar plus to near zero and got delisted.

Another accounts train fella got invested in Chartered Semi conductor which we all know was a Temasek holding (big brother won’t let them die right?) . Chartered went the same way as Jurong and the person probably loss a huge portion of their investments

What do you think? What about the accountants around you?

To me, fundamental reading is only part of the game, these guys fell into the trap of forming a picture that large and blue will always stay that way. Cutting losses are painful but if you have the skill to evaluate that the business proposition is failing or is not what you thought to be, you better do the same thing.

I have my own experience in thinking Interroller (Pteris) was a good blue chip paying dividend stock. When the management leaves, all hell broke lose. The business never recovered. My stock went from what I purchased at 80 cent to 13 cents currently (And I bought after a massive drawdown)

You guys should have encounter your fair share of accounts train people. Do they do well in their personal finance or manage their portfolio well? We would like to hear your stories.

If there are some blue chip stocks that I would snap up in a further draw down, Sembcorp Industries (SCI) would be one of them.

For a bit of its total return history you can view it here.

Sembcorp is undergoing some sort of mini transformation. It owns 60% of SGX listed Sembcorp Marine (SMM), which builds oil rigs and drill ships. This have become its main profit generator and made it a darling among speculator.

In recent years, Sembcorp have aggressively try to build up its utilities portfolio. What happens is that SMM generates the cash flow, pays out the dividend to SCI, SCI leverages on this to build and develop utilities around the world.

Utilities are probably more recurring in cash flow, and perhaps they are preparing for the inevitable when the oil rig craze die down.

The recent 2 quarters have evidently show the cash flow from the utilities coming in. So much so that its full year utilities profit should be able to pay for its existing dividend. The dividend payout ratio is around 30%.

That is rather good. And probably more utilities coming online.

Debt wise we know that that SMM is net cash, this utilities assets is estimated to amount to 3.3 bil and their net debt is 1.1 bil. This make their debt to asset ratio of 33%. This is much lower than many utility and infrastructure plays such as MIIF, SP Ausnet and Cityspring on my dividend stock tracker which typically hovers around 50-60%.

Its trading at a PE of 10 times. really undemanding for a blue chip. Although the dividend yield is low, we view SCI as a growth stock, which will give the odd special dividend.

The upside of this switch to utilities, is that in the future, these utilities may be spin off into infrastructure or utility trusts, which SCI will further stand to benefit from.

Do a bit of homework into this to see if you agree with me.

I have added SCI to my dividend stock tracker as well, so you guys can tune in daily to its change in valuation and yield.

I run a free Singapore Dividend Stock Tracker . It  contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly  here.

Here is one Singapore stock often mistaken as a S-Chip listed on the SGX. STRACO is a developer and operator of tourism-related attractions. It operates 2 main attractions, Shanghai Ocean Aquarium (SOA) and Underwater World Xiamen (UWX).

This sounds like a shitty investment

1. 4.1% yield
2. 9.43 times PE or 10.6% earnings yield
3. 59% of asset in cash,  51% of market cap in cash
4. Its interest from its huge cash holdings pays for the capex!
5. Free Cash Flow 13.4%
6. The dividend payout  is 30%

You can view the Q1 results here.

I have a rather small stake here as I thought tourist attractions do not have a strong moat. But the results are  proving other wise.

Macquarie International Infrastructure Fund is a 9% yielding infrastructure stock listed on the SGX. I am invested in this and talked about my sweet and sour relationship with this stock a fair bit (read here)

MIIF just announced their latest quarter results. There are some good news in that the tax issues of Taiwan Broadband Communications (TBC) have been settled and the expected losses are immaterial.

However, it was still not clear how the expected moderation by the Chinese government over toll charges for Hua Nan expressway (HNE) will affect MIIF. I have asked for a sensitivity analysis from the Investor Relations but judging by their record they should not do anything about it.

I am positively surprise by the surge in traffic for HNE. Still the level of debts in this stock can be crazy and what we know is that most are not amortized which means that somewhere down the line, earnings by TBC and HNE may need to scale down to pay the massive debts or to get them refinanced.

Still, I read this report from AmFraser with their projection on how the cash flow of the 3 major assets will progress to.(read report here) I find them a tad optimistic. I would rather estimate based on the worst case scenario.

MIIF probably need 75 mil from the 3 assets since they need 65 mil to distribute the 5.5 cents annual dividend. The closest projection is 43 mil + 22 mil + 6 mil equating to 71 mil. We are still a bit short there but not that big of an issue since MIIF still have a cash horde.

Still I will watch this stock closely since the management in the past have made some rather questionable moves, its underlying have debts that could cripple distributions.

I run a free Singapore Dividend Stock Tracker . It  contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly  here.

One dividend stock that I missed out on was really vehicle inspection and general testing company VICOM

1. A strong business model that is based on something always needed
2. Zero debt
3. 43% of balance sheet is in cash, 16% of its market cap is in cash
4. Yield has went down to 3.4%
5. One of the few stocks that have been resilient in the GFC
6. Have been raising dividend payout yearly
7. PTB is around 3.8 times indicating that return on assets should be pretty high
8. PE of 14 times or 7% earnings yield

Vicom announced their results today again. View it here. Once again it’s the same old story, Profit up 13%, adding more cash.

I waiting for it to correct to add in. I missed my chance. This is a stock that have very strong moat, low capex and very cash flow generating.

Which would I invest in? A REIT at 6-7% yield or VICOM? I believe VICOM stands out. Even though its yield is lower, but its earnings yield is unlevered compared to the REITs and very defensive. The only thing is the price we pay is high from the historical perspective. Not much safety. Definitely a grower.

Rupert Murdoch testified in the phone spying case that he was not aware that such activities were taking place under his watch. The court ruled that he is willfully blind and cannot be made not responsible for the actions.

The interesting thing was the analysis done on whether CEOs like Rupert and Enron’s convicted CEO were living in their own world as up till the last moment they still believe that they are right.

In all these cases one thing stood out in common in that these CEO build IP a totalitarian system where no one is suppose to cross the defined structure.  The CEO surrounds himself with loyalist who keeps in line with the direction and those that asks questions were ultimately thrown out.

Sounds very much like the Temasek holdings episode.

One wonders whether we made the same psychological mistakes as Rupert Murdoch when it comes to investing.

What works now will always work

For us young investors, we often fall into not asking enough questions about how well what we do works over a longer period of time. In other cases, what works or doesn’t work now will always be the trend on the long run.

“We all succumb to the tendency to readily accept information that confirms our sense of ourselves and discredit data that doesn’t fit our dominant ideologies. And when tired, human minds fall back in stereotype and received wisdom”

If we made money then that method will always work and it will always work that way. Talk to veteran traders have told me that the playing field changes, what worked for you will be turned against you.

SPH will always be that great dividend stock because it is affiliated to the dominant political party.

SMRT is a “pa si buay zhao” business, meaning it will always be a mainstay that makes it a great investment.

You can safely purchase property at any price because PAP will make sure the price doesn’t go down

Industrial reits are definite better investment then shipping trusts as buildings will last longer than ships or aircraft.

Guarding against this form of blindness

As investors, we have to build in a systematic checklist when viewing investing methods, strategies, businesses that allows us to make more impartial evaluation

• Disprove. And always invert. This is what I learn from discrete maths. If you believe SMRT is a good investment, start off with a premise that SMRT sucks, and find evidence that SMRT sucks value wise, business revenue wise, dividends versus other business. If you keep looking yet cannot find much things bad about SMRT then u may have a gem there.
• Verify by doing qualitative and quantitative analysis.  Some good things that came up in working with my boss is that people will always be able to argue about opinions. Drill down to data of past historical earnings, and SWOT analysis would help eliminate lazy analysis
• Make it a habit to read from both perspective. For every bullish article on the market or stock make it a point to read a negative or bearish one.