Financial Freedom by 50.

With the coming of age, there has been a great increase in the number of people who are interested in investment. However, many people still hold different perceptions about it. To some, it is merely regarded as a 'shortcut' to riches, one can do without if you have no interest in finance matters. Comments such as "I am just not interested in investing!" or "Investing is just needed for you to get rich which I can live without." are just too familiar. I cannot disagree more. If you are one of these people, I hope I can change your perception by the end of this entry. Let me run a few numbers to illustrate my pont:

Lets say you have just stepped into adulthood by turning 21 year old this way and intend to work after 4 years of university study.

Assuming an average expenditure of $2,500 every month, the mean for an average working Singaporean and a lifespan of 85 years, you probably need this much money now in order to stop working yet be able to maintain a decent lifestyle till 85. $2500 X 12 X 60 = $1,800,000.

This 1.8 million of course do not include family, or any other commitments that you may incur while you survive till 85. (I am expecting home loans, car loans, medical bills and enough spare dough for some travelling etc) Thus it's quite an underestimate.

Coming back to reality, if you hope to retire at the age of 55 and maintain your expenses after you retire all the way till 85, you'll need $900,000. Put it simply, you need to save $2,500 every mth now for 30years just to have enough to spend in the next 30. That's hard savings for a very long period, considering a monthly pay cheque estimated to be about $3,500? That doesn't even take into account the annual inflation rate of about 2-3%. So do your maths and think again. Will working and just saving for retirement suffice? No doubt the government has done a good job with the introduction of CPF but taking into account unforseen circumstances and wanting to lead a fairly comfortable life, I rather not risk it.

Therefore, the importance to invest in today's world cannot be overlooked. I used to want to invest so as to become rich. Now I see that I need it just to be able to get by. Even Einstein believed that compounding interest is the most powerful formula, and why not let your money work for you and not the other way round? With the same scenerio, lets take a look with what investing can do for us:

Lets say we have a capital to put aside for investment now and we are able to grow it at a annual rate of 15%. (With no trading formula or strategy, the US stock market has provided a annual compounded return of 12.08% with dividends reinvested for the past 50years, while the the STI achieved annual compound interest of 10% for the past 19 years, so hopefully 15% is not over-estimating.) Every 5 years, our capital will double. 4.8 years to be exact. There are 6 doubles in 30 years, equivalent to 32 times of the initial capital outlay. So the amount that I need now to successfully accumulate $900,000 by 55 will only be $28,125. So as long as I can achieve my target of 15% annual returns, I will achieve my target comfortably by 55, without any additional capital outlay too. Compare that with $2,500 every month! That is also why I started investing with 30k.

No doubt, people will ask "Where do I get so much capital from the very start?" All I have to say is that it doesnt hurt to start early. The earlier you do it, the earlier it will benefit you. I read this from a fellow investor's blog: "Investmenting is an inverse pyramid. The bigger your capital grows to become, the easier it'll be for you to earn a fixed amount." To earn 1 k with 10k, you need a 10% capital appreciation. But with 11k now, you'll need less. That said, I advise you to please read up and learn more before moving into the real thing, as we all know that there are bound to be risks involved. As dangerous as driving can be as an activity, the most important factor to determine whether you get to your destination is who you put behind the wheel. Does an infant or an experienced driver makes a difference? Hell yeah. It is about whether you know what you are doing in order to minimise risks.

Having said so, 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. Happy investing!

I committed a sin yesterday.
Got swayed by emotions and sold 1 lot of DBS at $11.62. I had no concrete reasons to do so except that I read too many articles on 'Bear Rallies' and saw every counter in my watchlist turning red while DBS was the ONLY survivor. Then thoughts of impending doom overwhelmed me, coupled with the fall in US futures (took a U-turn after SG markets closed), I sold 1 lot for fear of losing profits. Now I locked in profits of $1.8k but that cost me $600 and possibly another $140 in dividends. Total of $740.

What was I thinking?! Selling at a pessimistic low while trying to buy at a optimistic high? What a great way to lose money. Being a contrarian IS the rule of the game. "Be fearful when others are greedy, and be greedy when others are fearful.". ASL dropped to $0.71 yet I was too fearful to buy and anticipated further drops. WRONG WRONG WRONG. It went below my MOS price that I wanted to buy at, and by such a margin too! I should have bought below my MOS price and then slowly accumulate if it dropped further. Now it trades at $0.82. Well done.

Then again, Dow Theory states that one should follow the current market trend rather than trying to anticipate it, or worse, go against it. Doesn't it go against the view on contrarian trading? How do you follow the market trend and act contrary to it at the same time? It just didn't make sense. After mulling over it, I think its the nature of investor that you are and your investment horizon. Contrarian methods are for long term investors that are willing to ride out short term price fluctuations and hunt for bargains when valuations are low. While traders with a shorter investment time frame are opportunists that can only ride on market trends.

So what kind of investor am I? I wish to be a hybrid of both. My 'pillow stocks' will be made up of blue chips that give constant dividends while trading smaller caps. With all said, to sell yesterday without valid reasoning is a suicidal act that I must not turn into a habit.

ASL Marine recently released its financial results for 3Q FY09. Better than expected results and WD's interest in this stock in the past lured me into crunching the company's numbers according to Rule #1. (Some practice will do good!)


The four ingredients for calculating sticker price:

1. Current EPS : $0.212 +$0.038 = $0.250

($0.212 based on EPS for 9M FY '09. Based on $0.078 for the last quarter, I estimate a conservative $0.038 [50%] for the remaining quarter and that adds up to a pretty nice whole no.)

2. Estimated EPS Growth Rate : 36.80%

(According to Phil Town, Equity growth is a good approximate for future EPS growth rate so I used Total Equity for FY '03 = $50,131,000 and Total Equity for FY '08 = $240,196,000 in the first calculation.)

But to be on the safe side and see if this is true I calculated the historical YOY EPS growth since FY '03: 6.7% decline, 24.1% rise, 55.9% rise, 51.0% rise, 39.2% rise. The average for the past 5 years stands at 32.7%. However with the current economic slowdown, I rather err on the safe side with a 20% safety margin. Therefore, I take future growth rate to be 26%.

3. Estimated future PE : 3

(Historical data for past 5 yrs)

4. Minimum expected rate of return : 15%

Doing some simple calculations with the rule of 72.

72 / 26% = 3 yrs for to double = 3 doubles in 10 yrs

Estimated EPS in 10 years : $0.250 X 2 X 2 X 2 = $2

Estimated Price of stock in 10 years : $2 X 3 = $6

Current sticker price of ASL Marine : $6 / 4 = $1.5

Sticker price with Margin Of Safety (MOS) : $1.5 / 2 = $0.75

Taking into account the number of safety margins in place, (50% discount on EPS in the last quarter, 20% discount on future growth rate and 50% MOS) I believe that ASL Marine will be a good buy when the px does hit $0.75.

The Big 5 Numbers + Debt are as follows (In order of importance):

Looks pretty good to me too! Too bad that I missed the boat when the price was about $0.50. Will keep this counter on my watchlist.

Welcome your valuable comments.

Overall markets seemed weak today with more realising that the recent rally has been getting irrational. However, I predict that markets will rocket once US futures pave the way for an overnight rally this afternoon.

I realised I missed the sell signal for my DBS at $12.
I must establish and continuously review px targets.


Bought 9 lots of Liheng at $0.245.

Reasons were not substantial but the desire to ride this bull rally was strong:

1. Blue chips are over-valued and S-shares are my current bet.
   
2. Buy px lower than $0.265 entered in January. (Average down)
   
3. MACD (abit late though) and RSI indicated buy signals.
   
4. Increase in volume and brokerage coverage over past few days.


5. Resistance at $0.30 still some way to go with 20% upside potential.

Px target $0.30. Cut loss at immediate support of $0.22.

Welcome your various inputs.

Today the markets rallied a whooping 5.65% to close at 2028.71!
My DBS is trading at $10.5.



Many do not seem to understand why the rally took place.
I didn't too until I read this article that provided some insights.
However, do exercise your own judgement, it could very well be just another bubble.

http://info.sgx.com/webcoranncatth.nsf/VwAttachments/Att_364C022DE3904DA0482575A8002D1397/$file/ShareholderPrivilegeCard.pdf?openelement

Wow I didn't know there was even such a thing!

Good to know if you are those looking for the small little extra perks in life. :)

"It is August. In a small town on the South Coast of France, holiday season is in full swing, but it is raining so there is not too much business happening. Everyone is heavily in debt.

Luckily, a rich Russian tourist arrives in the foyer of the small local hotel. He asks for a room and puts a Euro100 note on the reception counter, takes a key and goes to inspect the room located up the stairs on the third floor.

The hotel owner takes the banknote in a hurry and rushes to his meat supplier to whom he owes E100. The butcher takes the money and races to his supplier to pay his debt. The wholesaler rushes to the farmer to pay E100 for pigs he purchased some time ago.

The farmer triumphantly gives the E100 note to a local prostitute who gave him her services on credit. The prostitute goes quickly to the hotel, as she was owing the hotel for her hourly room use to entertain clients.

At that moment, the rich Russian is coming down to reception and informs the hotel owner that the proposed room is unsatisfactory and takes his E100 back and departs. There was no profit or income. But everyone no longer has any debt and the small town's people look optimistically towards their future. "

Story received in the mail from my broker. Maybe, just maybe, all we need is the Fed to print money to help solve the current financial crisis which is largely triggered by "phantom" money. Take with a pinch of salt, smile and lets pray that global economic stimulus plans work. What an analogy. lol

Last Monday, 27-Apr-09, STI ended down 34.24pts, or 1.85%, to 1,818.61 due to fears of a global outbreak of swine flu. Investors largely speculated that the virus outbreak will have significant impact on the US economy, thus the decline was deep and broad-based with S-shares being hit the hardest. The Dow Jones industrials ended down 51 points, or 0.6%, to 8,025. The Standard & Poor's 500 Index fell 9 points, or 1%, to 856, and the Nasdaq Composite Index slipped 15 points, or 0.9%, to 1,679.

The next day, 28-Apr-09, Tuesday, the investors found themselves right! To a certain extent the US major market indexes had dipped and so the sell down continued. However, many started to take reference to the closest comparison, SARS crisis in 2003, and start to realise that the impact of the pandemic on global economies totaled less than 1%. (considering the possibility of the virus wiping out the human race, it's surprising.) Smarter investors chose to keep their holdings and buyers were only too eager to buy at support when the prices dipped. STI ended down 10.2pts, or 0.56%, at 1,808.41. (Now notice the decrease in the rate of decline.) That night, coupled with news that US regulaters may need BAC and Citi to shore up their capital, The Dow Jones Industrial Average closed down a mere 8 points to 8,017. The index cross the unchanged level 82 times during the day, Dow Jones officials said. The Standard & Poor's 500 Index was down 2 points, 0.2%, to 855. The Nasdaq Composite Index was off 6 points to 1,674.

By now people start to realise that the impact of swine flu on the economy might not be that dire. Sure enough, the next day STI gained a decent 41.16pts to, or 2.28%, to end strong at 1,849.57. Thursday, the STI was up 70.71pts, or 3.82% to 1920.28. Looking ready to break the resistance at 1950pts.

Despite MACD indicator prompting me to sell my DBS shares at the px of $9 and prices falling to $8.8 on Tuesday, I no longer remained objective from a technical viewpoint. Factors such as higher consumer confidence, consumer spending, Baltic Dry Index, US Fed's suggestion that the worst might be behind us, have greatly improved the investment climate and a surge in investors' confidence and appetite of risk. More importantly, I observed DBS price rebounding with strong volume everytime prices reached the support of about $8.8, while a slew of buy recommendations were rolling out from various brokerage firms.

I reckon that too many investors are afraid to miss the bull and financials lead the turn of the tide in both recession and boom. I decided not to sell, not even when my px target of $9.3 was broken. Today another rally is seeing DBS breach resistance at $10 and trading at $10.12. Im glad for the correct (lucky?) choice but now, is this really the start of the bull OR is it just a bubble created by over optimistic investors?


What does this conclude?

1. Despite the arguments for EMT, speculative investing still do exist in today's modern markets.
2. The outcome of similar past events in the market can be extrapolated to determine impact on future prices to a certain extent.
3. Technical anaylsis though useful, its accuracy can be enhanced with a deeper understanding of the overall market conditions and sentiment.