Investing in Stock Market - Beat the Odds (Part I)

Lets take a look at the first 4 “Don’ts” and see how they can help you keep a cool head when investing…..

Don’t panic

Past weeks, you may have read a lot of negative headlines about the economy of the world, how there may be a impending recession coming up, when and how nobody seems to be able to predict but everyone is talking about it. Do not panic. Panic clouds your brain. If you have stocks and funds in your hands, do not just sell and run. Do an inventory; some stocks are worth holding on to while others are not so strong in their fundamentals. Take stock and sell only those you do not intend to keep but sell it with a profit or only if you need to rid of this stock, at a minimum loss. This will take me to the next topic of not to be greedy.

Don’t be greedy

If you have invested in funds and stocks, you would have already set a target. If you have not, take stock again. Target your investment with time and percentage. Time will be how long you can afford to hold on to these funds. Percentage is how much do you want to earn for the time period you are holding on to. Set a realistic target. If you want a 80% - 100% return, you have to set your timing to 8 to 10 years or willing to hold even longer. If not, take a 10% to 30% profit depending on the market and stock situation. Do not be greedy.

Don’t be impatient

Do not just throw in the towel. Take time to ponder on your investment portfolio. Patience always pay. If you go through each and every one of your investment slowly and patiently, you will definitely see more clearly what you can do with each one of them. Take time to make your decision.

Don’t take risk

Take only calculated risk. The returns you get are proportionate to the risk you take. This is a fundamental law of the markets. To earn a high return in order to build true wealth, you will have to take risk, however, ensure you take calculated risk. Put some of your money in some risky assets like stocks, this is the only investment that can beat inflation, however, ensure that you go for fundamentally sound stocks.

Next — 3 more “Don’t” and 1 “Do”……………

Investment Advice - "Do and Don't"

“If you know that you do not know”; this is knowledge in itself!!

Time and again, we think that we have already learned and that we have great knowledge but then, when you start to really listen to others you may realize that there are still a lot more to learn.

My grandmother used to lament this all too famous Chinese phrase (literally translated) “Eat till old, learn till old” meaning that there is no ending to learning. And there is another Chinese idiom (also literally translated) “The next mountain is even higher than this one” which means to say that “you may be smart but there are smarter people out there”.

These sayings are true and can be applied to investing and how to invest. Investing is a life’s journey and the destination is never in sight. You learn and get better as you travel along this road. You learn to differentiate the pebbles from the sands and the stones from the pebbles.

The next 2 postings will give you the 8 simple rules to follow that will help you along the fine journey of life. Let them guide you to a fun filled and pleasurable path…….

1. Don’t panic

2. Don’t be greedy

3. Don’t be impatient

4. Don’t take risk

5. Don’t be snobbish

6. Don’t worry

7. Don’t be out of perspective

8. Be specific

My Motivational Trigger

Do you sometimes ever wonder "how on earth can people do what they do" even when there was failure upon failure. What motivates them? How do they go on and on? How? And you want to know. I think, basically, all you have to do is find your very own motivational trigger....

Watch this slide which a friend sent me in one of those all famous "Forward mail" :-

Business Intelligence

Today’s businesses have changed so much in recent years you are just not being able to catch your breath if you were not following them closely. At this time if you are still not computer savvy you definitely will be left out on a lot of new happenings. As things changed and the earth evolves, we need to change to fit in.

Paradigm shift is the term first used by Thomas Kuhn in his influential book "The Structure of Scientific Revolutions" to describe a change in basic assumptions within the ruling theory of science. It is in contrast to his idea of normal science.

Kuhn used the duck-rabbit optical illusion to demonstrate the way in which a paradigm shift could cause one to see the same information in an entirely different way.

You must be wondering why are we talking about science. What has science got to do with today’s business.

Of course, the term "paradigm shift" has found uses in other contexts, representing the notion of a major change in a certain thought-pattern — a radical change in personal beliefs, complex systems or organizations, replacing the former way of thinking or organizing with a radically different way of thinking or organizing.

That’s our discussion today…………A change of mindset.

1. Take a Step Back

Stop what you are doing now. Take a step back and look at yourself, assess your situation especially your financial situation, your asset management, your investment, your business plans. Are you doing the right business? Is it giving you the right yield? Are you into the right investment? Stop doing what is not working and reassess your situation.

2. Look for New Ideas

Think out of the box and look for new options. Do not be too attached to old ideas because they were your ideas. Get advice from the best Investment Adviser or have a brainstorm session. Change if you need to.

3. Take Action

Have an open mind. Look out for people who have done what you want to do. Talk to these people, give them a treat and ask for tips. If you want to be successful you not only have to copy ideas but you have to copy them from the best. Copy ideas and improve on them.

4. Continuous Learning

Read. Read a lot. Read on business news, investment articles and what’s new in the market place. Learn from people who has make a success of themselves. If need to, learn by attending classes, listen to success tapes etc.

5. Make Business Offers

Finding a good business is like finding a life partner. You have go out there to talk to people, to make offers and counteroffers, to negotiate, to accept or reject in the market place. By sitting in your office and wait for the phone to ring or for the offer to come by is no more the trend of today. You have to be out there, you have to be in or you will definitely be left out of the good deals.

6. Bargain Hunting

Take a walk through your neighbourhood every now and then and watch out for bargain real estate deals. There are lots of good deals out there waiting to be taken. Some of the best deals are on auction and you just have to find them to get a good return in real estate investment.

7. Think Big

Most people think small by buying only what they can afford. Think big. Buy a big cake and divide them up. This concept goes for real estates investments like land, multi-storey shop lots and other business investments as well.

8. Learn from the best

Learn from history. See how successful people with little higher education can be. So if you have a degree or two, you should do better.

Kentucky Fried Chicken. Colonel Sanders dropped out of school in seventh grade. At the age of 40, Sanders cooked chicken dishes for people who stopped at his service station in Corbin, Kentucky. Since he did not have a restaurant, he served customers in his living quarters in the service station. He worked as a chef and perfected the method of pressured fried herbs chicken. He gained his “Kentucky Colonel” title at the age of 45.

Michael Saul Dell was born on the 23rd of February, 1965 in Houston. He attended the University of Texas with hopes of becoming a doctor but abandoned studies to start his own business at just 19 years of age.

With just one thousand dollars in his pocket Dell started "PC's Limited" in 1984. From his university dorm room Dell started building and selling personal computers from stock computer parts. The idea that set the young entrepreneur apart from others was to sell directly to the customer, rather than going through a third party to sell his products.

Bill Gates and Paul Allen were high school students with great computer skills. They were determined to find a way to apply their computer skills in the real world. In the fall of 1973, Allen began to push Bill harder with the idea that they should open a software company. Gates was still not sure enough to drop out of school. The following year, however, that would all change.

In December of 1974, Allen was on his way to visit Gates when along the way he stopped to browse the current magazines. What he saw changed his and Bill Gates's lives forever. On the cover of Popular Electronics was a picture of the Altair 8800 and the headline "World's First Microcomputer Kit to Rival Commercial Models." They both recognized this as their big opportunity. The two knew that the home computer market was about to explode and that someone would need to make software for the new machines.

Within a few days, Gates had called MITS (Micro Instrumentation and Telemetry Systems), the makers of the Altair. He told the company that he and Allen had developed a BASIC that could be used on the Altair [Teamgates.com, 9/29/96]. This was a lie. They had not even written a line of code. This is how the great success of Microsoft started.

These are 3 motivating stories to learn from.

Moral of the story

“You have to make things happen by going out there to look for your opportunities”.

Are You a Procrastinator?

Are you one who will put off what you can do today till tomorrow. Are you in a habit of promising to do something today and went on with your daily routine and forget about what you have agreed to do?

Take note that sometimes putting off things you can do today till tomorrow might be detrimental to your financial health.

Here is a simple 3-questions checklist for you. Do not procrastinate any further. Use them to get your personal finance and life in order before any regrets:-

• Have you put up a financial budget yet?
• Have you put away an emergency fund yet?
• Have you taken care of your financial succession plan yet?

A Lifetime Checklist

1. Have you put up a financial budget yet?

It is important to plan your life and financially, a budget is important for anyone who is above 18 years of age. If you are 18, you are qualified to have your own personal budget. You may not have a permanent job yet but while you are studying you will still have to survive on a budget; be it an allowance given you by your parents or funds you have borrowed to take you on your pursuing journey and/or additionally you may do some part time job to supplement your monthly fund.

Plan out your expenses now and ensure that you go by planned budget and stick to your plan. You may be surprised that you might have left over after some careful budgeting. Put that immediately into an investment plan.

If you are already working, you would probably have done a budget for yourself. Are you on target with your budget? Have you revised your budget thus far? Remember, after a while, you budget plan may be outdated. Your needs may outgrow your budget so work on updating your budget every now and again to keep up with your lifestyle.

The essence of budgeting is to know where your money is going. Do not fear that you may see what you do not want to see by putting up a budget. You can only put in order what you can see. By putting up a budget will help you put your finances in order.

2. Have you put away an emergency fund yet?

Emergency happens to everyone at one time of our life or another. You have to be prepared and ready for such an occurrence; like temporary losing your job or a sickness in the family etc.

Decide on the amount you may require in case of such situation. You may want to put aside 3 to 6 months of your salary as an emergency fund. This fund should be set aside and should not be part of your expense budget. Take care to put it somewhere where it is earning you money yet can be liquidated easily during your need.

Having set aside an Emergency Fund will help put your mind at ease to get on with your daily life.

3. Have you taken care of your financial succession plan yet?

a. Retirement Fund

For Malaysians, we have our EPF, while the Americans, their 401K and Singaporeans, CPF. These are funds we contribute to in preparation for our retirement on a monthly basis while we are still working. Our employers are required (some countries by law) to pay an equivalent amount usually 10 to 12% of the basic salary.

Be aware of such benefits as soon as you start to work. If you are not receiving this, check it out with your employer. There may be some loop holes to avoid paying employee their due by employing them on a daily rate. Check this out in your own country and ensure that you bargain for this before signing any employment contract. This is a huge part of your retirement plan.

Keep track of your funds by requesting for a yearly statement and know how your funds are doing. Are you been fairly rewarded by leaving them with these organizations? If you are not satisfied with the fund earnings, check out where you can put your funds to achieve better rewards.

Have you assigned your beneficiaries yet? You may have done it years ago before you have a family of your own. Do take time to check this out and do your re-assignment as soon as possible.

b. Written A Will?

Accidents may happen. Sickness may happen to anyone who may be healthy today, so it is important for everyone to have a will done. Do not wait till you are 45 to do this. Your will can be changed as you advanced in age and as and when you want it to change.

Majority of people procrastinate to writing a will as they usually avoid talking about the subject of death. If you are borne, you will eventually die, the problem here is you do not know when you will die. This is the reason why you have to write up a will now.

Go to a lawyer to write up a simple will, it will not cost you more than a few hundred dollars. At least you know where your money will go when you are dead.

c. Bought a Life Insurance?

Have you insured your life against any eventuality? Getting yourself insured is more cost effective when done at a younger age. You don’t have to go for the fanciful packages. Get a simple life plan with critical illnesses. If you can afford it, an additional hospitalisation plan would be good but most organisation insure you for this. You have to assign your beneficiary for this as well.

These may just be 3 simple questions. If your answers are “YES” to all, very good, your financial health is in order but if your answers are “NO” for all or any one of them, my advice is to get to it right away. AIM TO LIVE A CAREFREE LIFE!!

Property Investment – What is Loan Amortization?

For those who are interested in going into property investment for the first time, please take time to understand how you are being charged for the loan by the bank.

What is Loan Amortization?

Wikipedia explains amortization as the process of decreasing or accounting for an amount over a period of time.

And if we are talking about real estate investment or property investment, amortization is a method for repaying a loan in equal instalments of which part will be interest due and the remainder will go to reduce the principal amount; the balance of the loan. As the loan amount is gradually reduced, a progressively larger amount will go towards reducing the principal.

For example, if you are taking a loan of $100,000 for 30 years at an rate of 6.75 (BLR (base lending rate of 5.75%) + 1%, the following is how your “Loan Summary” will look like. You will notice that you pay more interest than principal at the beginning of a loan period but at the end your payment goes more towards the principal. If you opt for 30 years to pay back your $100,000 loan, you only pay a monthly instalment amount of $648.60 but you ended up paying back $233,495.31 for a $100,000 loan of 30 years.

Loan Summary

Monthly Principal & Interest $648.60 Total of 360 Payments $233,495.31

Total Interest Paid $133,495.31 Pay-off Date Oct,2037

Year	Interest	Principal	Balance
2007	$1,124.52	$172.68	$99,827.32
2008	$6,705.41	$1,077.77	$98,749.55
2009	$6,630.36	$1,152.81	$97,596.73
2010	$6,550.09	$1,233.08	$96,363.65
2011	$6,464.24	$1,318.94	$95,044.71
2012	$6,372.40	$1,410.77	$93,633.94
2013	$6,274.17	$1,509.00	$92,124.93
2014	$6,169.10	$1,614.07	$90,510.86
2015	$6,056.72	$1,726.46	$88,784.40
2016	$5,936.51	$1,846.67	$86,937.74
2017	$5,807.93	$1,975.25	$84,962.49
2018	$5,670.40	$2,112.78	$82,849.71
2019	$5,523.29	$2,259.89	$80,589.82
2020	$5,365.94	$2,417.24	$78,172.58
2021	$5,197.63	$2,585.55	$75,587.04
2022	$5,017.61	$2,765.57	$72,821.47
2023	$4,825.04	$2,958.13	$69,863.33
2024	$4,619.08	$3,164.10	$66,699.23
2025	$4,398.77	$3,384.41	$63,314.82
2026	$4,163.12	$3,620.06	$59,694.76
2027	$3,911.06	$3,872.12	$55,822.64
2028	$3,641.45	$4,141.73	$51,680.91
2029	$3,353.07	$4,430.11	$47,250.81
2030	$3,044.61	$4,738.57	$42,512.24
2031	$2,714.68	$5,068.50	$37,443.74
2032	$2,361.77	$5,421.41	$32,022.33
2033	$1,984.28	$5,798.89	$26,223.43
2034	$1,580.52	$6,202.66	$20,020.78
2035	$1,148.64	$6,634.54	$13,386.24
2036	$686.69	$7,096.49	$6,289.75
2037	$196.23	$6,289.75	$0.00

Lets take the same loan amount and calculate it on a 15-year period to see whether it is affordable and how much you can save. The “Loan Summary” below shows that you will have to pay a monthly loan repayment of $884.91, an additional of $236.31 but you ended saving a whopping amount of $72,211.61 on interest.

Loan Summary

Monthly Principal & Interest $884.91 Total of 360 Payments $159,283.70

Total Interest Paid $59,283.70 Pay-off Date Oct, 2022

Year	Interest	Principal	Balance
2007	$1,123.19	$646.63	$99,353.37
2008	$6,583.01	$4,035.90	$95,317.46
2009	$6,302.00	$4,316.92	$91,000.55
2010	$6,001.42	$4,617.49	$86,383.05
2011	$5,679.91	$4,939.00	$81,444.05
2012	$5,336.02	$5,282.89	$76,161.16
2013	$4,968.18	$5,650.73	$70,510.43
2014	$4,574.73	$6,044.18	$64,466.25
2015	$4,153.89	$6,465.02	$58,001.23
2016	$3,703.74	$6,915.17	$51,086.06
2017	$3,222.26	$7,396.66	$43,689.40
2018	$2,707.24	$7,911.67	$35,777.73
2019	$2,156.37	$8,462.55	$27,315.18
2020	$1,567.14	$9,051.77	$18,263.41
2021	$936.88	$9,682.03	$8,581.37
2022	$267.72	$8,581.37	$0.00

Reducing the number of years you take to complete paying the loan amount will help you save a lot on interest.

Another way of saving is to increase the amount of your loan payment. For this example, if you increase your monthly payment to $902.62, (an additional amount of only $17.71) the period to complete your loan will be reduced to 14.5 years with a saving of $2,228.24.

As I have said over and over again, property investment is long term investment and has liquidity constraint. However, if it’s a good piece of property that will appreciate in value over time and is rentable, it is worth investing in.

If you will to put in your cash of $150,000 to purchase a property of $250,000; with a loan of $100,000, a $1,400 monthly rental income will cover your instalment payment as well as an assumed fixed interest rate of 4% on your $150,000 cash investment.

Keep your credit score clean, get a good interest rate from your bank, use the services of the bank to leverage on real estate investment. Property investment is a worthwhile investing avenue to look into.

Investment Advice for Generation Y

What kind of investment advice does the Generation Y needs?

Does the Generation Y faces similar financial problems as their parents? What kind of frustrations are they facing with their financial and investment experience.

Lets us take a look at what the younger generation can do to be financially free:-

1. How to get started

If you hear them, you will realise that they are not sure how to get started, even to the point of going out there to find a job. The older generation would say as long as I find a job that gives me good pay I will be fine but Generation Y would like to have a job that not only gives them good pay but also something that they like and can enjoy.

Then again if they have a job, they will wonder "where do I get started?". Pay off my student loan first? Buy stocks? - What stocks to buy? Shall I put my money into mutual funds or start a small business? Shall I commit to real estate investment? Things get complicated these days as there are so many investment opportunities out there in the market place. When given with too many choices, the less likely are we to make a decision and we normally ended up not doing anything at all.

I would encourage young people to start with enhancing their knowledge by reading. Remember that you do not have to know everything about investing to get started. Investing gets easier once you start. There are lots of easy ways to start, like putting your savings into a low risk mutual fund account. From then on you should try to understand your personal barriers and your risk level. Are you game to take risk? Are you comfortable to long term commitment?

2. Change the mindset

Know what you spend and how you spend your monthly income. Do not do a guessing game with your hard earned money. Most of the young generation do not know specifically where their earnings go. You will be surprised that if you make a notation of what you spend daily, you will definitely find a chunk of your money being spent away on "rubbish". This is definitely a waste of hard-earned money.

Two important things; one, get to know where your money is going; two, make it go where you want.

Change that mindset, you have to be bothered with where your money goes otherwise you will end up having no money.

3. Put up a personal budget and plan

Once you realised that you have been wasting your money, you would want to re-look at what you have been doing and put up a plan. Write a list of the constant (fixed) monthly expenses. Tally that with your net income and see how much you have left. Then, re-adjust your variable expenses to fit into your earnings. Ensure you apportion 20% of your income to your savings first. Read about "Pay Yourself First" to learn more.

From this exercise you will definitely find out where all your money has been going and you will be able to change the tune to put a greater portion of your earnings into investing. Money investment will give you greater satisfaction in the long term.

4. How to invest

There is a difference of being rich and wanting to be rich. A lot of us are caught into the frenzy of hot stock tips, day trading and other fancy alternative investments. Those investment tips are well written, very tempting and motivating and they put you in your dream world. The world of wanting to be rich. They are designed to sell magazines and are not really good investment advice.

Usually the buy-and-hold, long term strategy investment, as advised by Warren Buffet is the best bet. Patience is the virtue of life. Do not get caught up in the "hot tips" lifestyle, you cannot afford to get burn, not even once in your lifetime.

Buy stocks with fundamentals, the ones you can hang on to for long term with good dividend yield. Avoid penny stocks that can give you high percentage of earnings but with no solid hold. Use your head not your heart whenever investing is concerned.

5. Live a debt-free life

The best principle of life is still to "live a debt-free life". A very simple rule - live within your means. Do not overspend. Ensure that your budget is well planned out and live within your budget. Forget about living up to the Jones. Ironically, the grass is always greener at your neighbours. The envy of seeing your friends living in huge bungalows, driving exotic cars and living in sheer luxury is something but you may not be aware, people living in this lifestyle might be living on edge.

So there, young people, if you can start to put the above 5 rules into your life, you may just have created a good start. I know time is on your side but please remember that "time waits for no one" too. Do not procrastinate any further, put your life in order and the faster you do it the younger you will retire - retire young and rich.