Financial Freedom SG

Sold off my entire position in BYD as my doubts about its ability to build electric cars for the worldwide market grew.

It didn’t do well in its last financial review too. Plus, I wanted to have a bit more cash in reserve so that I can exploit any available opportunities in the market.

Also have been reading some books in the meanwhile. One that I recently completed is “Too Big To Fail” by Andrew Sorkin about the financial meltdown in 2008-2009. Will post its review soon.

A book that is more interesting so far is “Winning the Loser’s Game” by Charles D. Ellis which I am currently reading. So far, it has summed up ideas about why it is better to buy index funds rather than try to beat the market. When I am done with the book, will post a review on it.

While on the bus reading this book, saw an ex-student of mine who came to seat next to me. Think his girlfriend was on the same bus but he sat with me and talked about how his life is so far.

I remembered that he was one of those students who made life miserable for teachers, scolding, shouting and acting like a mad teenager in class. He even beat up his own mum and the poor mum called the school for help. But I connected in some ways with him because of his interest in history and I used classes to teach them about the Jewish Holocaust even though I was supposed to teach Singapore history.

I remember that he would bother to ask questions in class and was all ears when I told them stories about the Japanese Occupation in Singapore.

Anyway, now he’s working as a dealer at Marina Bay Sands.

We talked about house advantage, card counting, blackjack, roulette and how the government is making a pile from the two casinos entrance fees. Like $70 million.

Sometimes, moments like this makes me think about why in some ways, I missed teaching and connecting with teenagers and finding out about how their lives are.

I hope his girlfriend is not too angry at him for speaking with his ex-teacher for the entire bus journey.

The brief years that I taught around 270 students each year has entwined me to their lives. However tenuous the link is. They are now the fabric of society. NS men, university students, poly students, retail sales assistants, credit card salesperson and now a dealer at the casino.

A little like the plain fried rice in the picture from Din Tai Fung, these varied ingredients, be it bitter, sour or sweet come together to form a gourmet dish.

Even investment diversification or building a portfolio is a bit like that. I think.

I was watching the antics of the rich kid who stood to inherit a big fortune from his grandmother in the Korean drama- Brilliant Legacy and saw how he had no concept of money.

For the rich kid, it sort of like grew on trees. Until his grandmother saw that he and his family members had to learn a lesson and earn their own living.

So is your kid one of those who gets anything they want? iPhone, the latest DSLR, pre-booked iPad etc. with no questions asked?

Ever wondered what will happen when you hit retirement and you kid is still living off you? What happens then?

When I was at a bank call centre, I listened to calls of the financial illiterate, although they were often rich in the sense that they draw a big salary. People who drew cash from credit card. Those who pay the minimum payment and roll over their balance in the credit card debt. Including those who cannot differentiate between a chequebook for their current account from the chequebook for their credit line, although this one is more of pure carelessness instead of financial illiteracy.

So what if your kid can earn $100,000 a month. If he or she spends all $99,500 each month saving only $500 each month, they will be worse off than someone who earns $4000 and saves $500. Why? Because the second scenario, the person has lower living costs even though they save the same. When retirement hits, the big spender will still spend a lot even though their savings may not be sustainable.

The thing is that in schools, there is no financial education class. Zilch, nada, zero, nyet.

The only thing approaching that is those in university, if you attend classes like financial economics, investment, etc when you study business courses.

But by that time, it could be too late, with the spending habit already indoctrinated and a bad habit formed of spending beyond one’s own means.

I guess like everything, there is always exception. Like if your parents aren’t spendthrift and give you a budget enough to get by but not enough to make a rope to hang yourself by.

So the first lesson for kids of financial literacy is to give them a fixed budget each week and if they blow it, smile at them teach them budgeting. Or ask them to earn their own living like that grandmother in the Korean show.

To achieve financial freedom for both you and your spouse, plus for your children, you need to be tough on them and let them know that money doesn’t grow on trees.

I leave you with a quote from my favourite investor, Warren Buffett,

The perfect amount of money to leave children is] enough money so that they would feel they could do anything, but not so much that they would do nothing

According to this article from New York Times, Your Investing Behavior Costs You Plenty, by Carl Richards, it is behavior that matters more.

When you think about it, it actually makes sense. At first, I was going, come on, are you serious? What about the Warren Buffetts and Peter Lynches of the world?

The article argues that ordinary real people like you and me are chasing performance  by looking at things with the benefit of hindsight. So what happens is that the average investors will do worse than the returns from an average investment.

So he is talking about churning your investments for no rhyme or reason other than there are shares or products that did better than yours.

Thus a research by Morningstar found that there is a 10 percent difference in the returns of an average investor  from the annualised returns of a Greater China Fund.

Does that mean that you should leave your stocks alone once you bought it and not touch them? Nope, if you have to sell it, it has to be at least two from this list:

1. the stock fundamentals have changed for the worse- ie from a growth company which you bought it for to a declining company
2. you have found another company which you have analyzed and found it with better prospects than the company you want to sell (and not because the share prices of the company you found have risen in the past two weeks)
3. you found that the story you bought the stock for does not fit what you find out about the company later. ie it is one big mistake!
4. the stock p/e has jumped so far off the scale it is wildly overvalued
5. you need the money from the sale urgently

From studying and reading about investors, you find out that it is actually their methodology that enables them to be so good in their investment returns.

So one could say the behaviour/methodology  means that they become more skilled over time through set backs and winners in their portfolios.

What do you think?

The recent news is that that the Monetary Authority of Singapore is considering compulsory tests for potential investors before they can invest in “sexy” products like ETFs (Exchange Traded Funds).

It bears all the fingerprints of the examination psychosis of the scholar bureaucrat  who thinks that everything can be measured by a test or exam. Someone who knows the measure of everything but the value of nothing.

Another way to think about this is that the authorities are using the easy way out. Instead of implementing a compulsory two days financial education on say, school leavers. The put one more test in the life of a Singaporean.

Investor Test

If you put the test, it will just pass the buck to the Singaporeans again. You will have to pay to take the test, for sure. Will it be one centralised body or will it be decentralised to the financial institutions? Will the bank staff be coaching the investors just so these people can buy their products straightaway.

Will the passing mark be 50%? What in the world are they going to ask?

Which stocks does the DBS ETFs comprise of? When did the Singapore Stock Exchange first started operations?

Or stupid questions like: Can a stock suffer total and permanent loss? Can a stock ever go down in price? Does historical prices provide a guide to future prices? (the last question will have Technical analysts up in arms if the answer is a “no”)

I have a feeling it will be stupid questions because they are, in a manner of speaking, covering up their a**.

So in the next structured deposit meltdown or a scandal like unscrupulous unit trust selling happened, the banks can point and say that the investor is educated of the risks and had passed the test.

Investor Education

If there was compulsory financial education to teach school leavers about planning for retirement, credit card excesses, budgeting, investing etc. that will have a better impact on  the quality of life for all Singaporeans.

Coupled with stricter regulations for all financial products in terms of procedures to follow before a sale can take place. For example, the internal audit staff calling customers randomly to make sure that the financial needs analysis of the customer was completed properly.

This should be backed by more draconian enforcement of the regulations where financial advisors found to have flout such rules will be barred once they are found to be lax in these procedures.

Financial institutions found to have too high a percentage of such advisors should be suspended for a longer time, instead of the recent slaps on their wrist by the MAS.

What do you think? Is investor testing more effective than investor education?

I read this article in Washington Post about how “Many Small Investors Have Sat Out Rally” and found it sad that so many of these investors got burnt and will probably swear off investing again only to come back to it when the market is near the highest point.

Another article from the Wall Street Journal, “Surprise! That 401 (k) Account is Looking Good” is perhaps the antithesis or solution to the first article, whichever you prefer.

The key lesson is that it is hard, almost impossible to know where the market is going in the next minute, at the end of the market day or even at the end of the week.

The only thing you have to do is to put as much time as possible in the market and keep investing in small baby steps. This will help you build your investment from almost negligible to something substantial.

If you had been listening to the naysayers of market doom and meltdown, so far it hasn’t happened yet. Will it happen? Who’s to know? And will you know who knows?

I remember reading that when the market is bad, it is bad for retirees and those about to retire, however it is very good for people who has just entered the job market and looking to buy their investments.

The article in WSJ reinforces this point. Those who are younger and did not have as much in the market fared relatively well compared with those in the higher age ranges.

Another key point that was reinforced in the WSJ article is that dollar averaging is a disciplined way to invest, especially in a bear market where people fear to tread. If you stopped investing in September 2007 after putting $10,000 in a fund, you would have lost 10.6% at the end of September 2009. However, if you have purchased an additional $200 each month, you will be down only 6% at the end of September 2009.

The United States leading economic indicators are up again today. It could be the signal to buy more, but i would rather buy bits and pieces regularly and get pieces of good companies at good valuations.

What would you do?

This Youtube video is about a talk given by Sir Ken Robinson on the state of the school today and how they are not preparing the student for the future and a story about a girl who learns through moving and became a multi-millionaire.

A must watch.

This is the Youtube video of Stephen Wiltshire who is autistic and has a photographic memory along with a heroic ability to draw the urban landscape. He has drawn London, Hong Kong, Rome among other cities from pure memory after a helicopter ride lasting from 30 minutes to 45 minutes. Watch the video and be amazed. If you cannot see the Youtube video you can go to this site on Youtube and watch the video.

I saw this Youtube video done by Commoncraft and thought that the strategy used in explaining what is a blog was something everyone can learn from. It captures the essence of what a blog is very well.

A wake up call for people who are still in dreamland- 1. Information Revolution has happened and it is still happening. 2. The two biggest countries in the world are rapidly changing and with it, the world as we know will change. 3. In 1900, Britain was the superpower of the world, by 1945, it was surpassed by USA and Russia. USA will be superceded as a world power by China and India in the next one or two decades. Now you know.

This is an educational and humourous lecture by a Carnegie Mellon professor Randy Pausch who is diagnosed as having terminal stage liver cancer.

Watch this amazing lecture by Hans Rosling who dispels many myths that I held. You won't be disappointed. It is one of the best 20 minutes lecture I have seen, or is it attended? :) Youtube is certainly amazing.

Those statistics professor out there will want to check out the amazing graphical program called "Gapminder" that he uses (he is actually one of the person responsible for its development which I heard he sold to Google later).