What happens when you get thrown into the deepest end of the pool?


Thursday, July 21, 2011

[Update 7] Financial Education & Money Management (Part 1)

Part 1: Job 1O1 | Know Thyself
To kick off this topic, let's talk about the way we naturally behave and approach matters, even before we dive deeper. I will separate this topic into two posts. I might tend to go a little off-topic at some points, so try to see the whole picture and you will see where I am coming from.

To understand this, we first need to understand our thought process. See,
Our brain's instinctive function is to protect us from danger. Hence, when it comes to money, the path most well-travelled by the many is to get education then get a ______. Seek safety and security yes?
As, with a job you put in $0 and yield returns. You sell Time to gain Money, risk free!

Unlike other people, I will tell you that in many ways, a job really is the best Returns On Investments. You gain money but risk $0. You can take my word personally on this, having been on all quadrants of the ESBI. This btw, is the technical definition of 'Infinite Returns'. It's a bit of a joke, I know. Anything multiplied by 0 = Infinite. By this definition, finding 10cents on the floor is also making Infinite Returns. With all the hype built up, I almost wanted to punch the person who told me this in the nose when I heard the answer.

Fun facts aside, as an investor, what you are really trying to do is similar to when your brain naturally knows; lower your risk and maximize your returns. Lowering risk can come in several forms:
1. Monetary/ Financial/ Cost
2. Project soundness/ Viability/ Implementations/ Exits
3. Management/ Macro-factors

Financially, what can be lower than not putting a single cent in? Seeking employment as a way to gain money over other ways (ie. Trading, Business, Investments etc) is therefore the safest way to yield returns.

I don't care what other people tell you about starting a business and make it sound so simple. It really isn't as simple as ABC. Anyone who tells you otherwise is telling you half-truths. You need A WHOLE LOT of special SOMETHING to be a business person. (Note: I did not even mention the word Success yet.) Don't get me wrong. Anyone can make it, IF (And only IF) they set their minds to it. But for most people who have trouble even balancing personal life with employment, Business requires A LOT from you. If you cannot give that, be happy with a 'normal' life, Business might not be your cup of tea.

So you should be very happy being employed...Are you?
As an employee, (And mind you, I did really went all out being an employee too. But..) I always had this sinking and helpless feeling of unfulfillment as whatever I was doing ultimately doesn't belong to me. However much I tried to convince myself otherwise. Same for you? However much you give at your job, an employee will never understand nor commit the kind of devotion, like that of your own convictions.

Here's what most people would do; Get a job >>> Climb the ladder >>> TRY their very best to maximize as much gains from a single income stream (Employment) as possible or Job hop to higher income/ better prospects/ greener pastures etc. Then one day, some years down the road, with the family, the kid/s, the house, the car, keeping up with the Chans, the lifestyle they have gotten so accustomed to...They find themselves without the option to slow down.
a) For some they might hit this situation during bad times, becoming too expensive for the company employing them and face job insecurities and hungrier young people who can work twice as hard and get half the pay. Familiar story? And you can be certain that in the world we live in today, boom/bust cycle is inevitable.
b) For some others, with the $2500 paying job, they are spending $4000. And as they go along, their expenditure snowballs.

Both cases, they end up working harder, longer, look for better pay, still finding themselves playing catch up with their expenses. And they do this year after year after year, next thing you know, 40s-50s are here, stuck in the middle of neither here nor there, very afraid someone comes along and take away their job because they still have housing loans, kids' loans, bills (or worse DEBTS) to pay....
The problem with a JOB is...there is only 1 of you and for that matter, you have only 1 income stream.

Most people get Technical and Professional Education, for them to get a job and earn loads of money. BUT those that don't know how to manage money and tend to squander it all away or even worse, rake up huge amounts of debts.

And there is the other group, with the lack of Financial Education (like me once), they don't know any better so they
  • spend less and save,
  • want to invest but scared,
  • want to buy but don't know any better to decide,
  • want to move right or left, they are also unsure.
  • want to spend the time to learn about all these seems like a whole lot of effort for something so non-core income function,
  • seek safety but want high returns, often committing to the wrong investment,
  • get stuck in employment and forever are neither here nor there, have a sit-on-the-fence approach in their lives, only to look back and every turn and exclaim to the likes of "If only I did that...."
  • behave like babies and complain about the government as they view everything as the government's fault.

Money really shouldn't be a sensitive topic, it should be a transparent topic. Money shouldn't be something you shun or be ignorant about and hope for the better; Just like your health, it should be something you constantly maintain and take care of. Understanding Financial Education comes in 5 parts
1. Income - Expenses = Positive/ Negative
2. No excess vs Additional income
3. What you want to achieve and Putting your money to work.
4. Passive income and being a Money manager
5. Understanding about the world around you and how marco-events affects your pockets

I will talk about Learning about Financial Education and Mastering Money management in my next post.

Until next time.

Your Fellow Investor,
Martin Sim

Previous Updates
6 Evaluating Risk

5 Why is ‘Playing Safe’ the riskiest thing you can do with your money?
4 Inflation hits highest level since 2008
3 Why you MUST Invest!
2 Are you your parents' financial photocopy?
1 Taking retirement into your own hands

Saturday, April 16, 2011

[Update 6] Evaluating Risk

This is possibly why majority of people 'invest' in the wrong stuff and lose money. They didn't evaluate the risk before jumping in, worse off, they don't know what to do. So what should you be looking out for?

1stly, Ask yourself the question: "Do I want to invest?" Because I meet many people who have not even figured this part out yet. So they spend their time being half-hearted, go around listening to bits and pieces of information here and there, procrastinating and looking in envy when they see other people make money.
More often than not, they end up committing to investments based on emotions and the strong salesmanship of the sales personnel.
So if and when you have decided that you want to invest, just like riding a bic or driving a car, LEARN.

2. Understand that in investments, it is not about what you want to do in the market, it is about what the market gives you. And when market gives, you gotta learn how and when to take. Unless you are big enough to manipulate markets, this applies to YOU. Every novice investors comes to the game with big dreams of what they want to earn in the market. "I want 10% returns, I want 20% returns....etc" Some have their journey cut short even before they begin, others go down a path of winning little and losing big...Very bitter experience. Talk to seasoned investors, what they are most bothered about is their downside. They are thinking "I want to do everything possible to ensure that I do not lose money."

3. Take care of the downside, let the upside take care of itself. Why restrict your earnings to 10-20% returns? The sky is the limit! Have a plan in place to protect yourself when things go south.

4. Take a step back and look at investments in smaller numbers. Investments usually involve quite a sum of money, as such it can get quite personal and people tend to get emotional. This is after all your hard-earned money. DON'T. By being emotional, you are doing yourself the biggest disadvantage in investments. Leave the heart for relationship matters. But huge sums of money, many zeros, can drive people CRAAZZY! So either look at it on the merits of the investments alone and block out the amount portion or to look at it in terms of small insignificant money. It will help you clear your mind.

5. Understanding Risk/Reward ratio.
a. Give an example: (Notice I always like to talk in very small numbers) 1sqft of Property A cost $1 and 1sqft of Property B cost $10. By looking at cost alone, everyone would prefer Property A.
But what if I were to tell you that the value of Property A decays at the rate of 10% per year every year and Property B appreciates at 10% per year every year, which would you then prefer?
So to understand investments, don't look at cost price alone. Look at the entire picture of the investment

b. Another example: Investment A offers 50% returns, Investment B offers 10%, again if by looking at returns alone, everyone would opt for Investment A.
But what is the time line? Investment A offers 50% (Capital gains) returns but with an indefinite timeline, Investment B offers 10% (Yield) pa. Now which one is the better investment?

6. As an investor, what you are really trying to do is lower your risk and maximize your returns. That's why for many people when they graduate, they look for a ...??
a. Investment
b. Job

Your intrinsic thought process (Your brain's protective function) already told you, risk none of your own money, derive as much as possible from that source. But, what the problem with JOB? (Next post.)

7. Get Financially Educated and learn proper Money Management. A lot of people get Technical and Professional Education, for them to get a job and earn loads of money. BUT they don't know how to manage money and squander it all away or even worse, rake up huge amounts of Credit card debts, leading to financial problems. I will talk about Financial Education and Money management in my next post.

8. Investment is about opportunity, rather than timing. It is actually a pretty boring thing to do. Put the money issues aside or look at it in insignificant amounts, get Financially Educated, LEARN, apply a fixed set of rules over and over again... & When you see Opportunity....Take It! Take Action...If you procrastinate, opportunity may fleet by you, when lost, it may never return. But don't worry or be envious, there will be other opportunities. Be concerned that you continue to sit on the fence and expect 'magic' to happen, only to find one day years have passed, opportunities have passed then it's really too late..

Until next time.

Your Fellow Investor,
Martin Sim

Previous Updates
5 Why is ‘Playing Safe’ the riskiest thing you can do with your money?
4 Inflation hits highest level since 2008
3 Why you MUST Invest!
2 Are you your parents' financial photocopy?
1 Taking retirement into your own hands

More technical reading you might like

Wednesday, March 2, 2011

[Update 5] Why is ‘Playing Safe’ the riskiest thing you can do with your money?

Here's what most people are like:
1. Risk adverse.       Or

2. They want to achieve something in investing...BUT it takes too much time and effort to learn, and with the job, life, family etc, they procrastinate to get financially educated.
I understand perfectly! Heck, I wanted to outsource my investments once too.
So they go for - Guaranteed Returns. I am sure you know the problem with organisations that offer that. The more guaranteed the returns are, usually means the lower the yield will be, yes?
(Anyone who disagrees with me, pls drop me an email. I am ALWAYS looking out for high-yielding, safe, guaranteed returns! ;D )
First let's understand what 'Guaranteed Returns' really means.
The bank/ insurance agency/ fund management firm/ company etc. that you have deposited your money with, effectively are 'borrowing' the money from you at the small returns they promised you, to put it to more speculative structures. Meaning: They are using your money to make HUGE gains and paying you a paltry sum. You are effectively taking the biggest risk (just that you are 'blind' to that) and getting the smallest returns. Does that sound fair to you?
Worse so are the principle guaranteed products. Principle guaranteed products means (to me. personal experience) the company can use that money and make all sorts of gains, at the end of the agreed time period, are bound to return you your principle sum. And usually they do so, with at most a very very very pathetic payout or just pay you back your principle. What's the point??
And in today's environment, where money can be printed faster than you can count them (devaluation of money ie. banana notes) and what this doesn't already rob away, inflation strips off. Guaranteed Returns products previously cannot cover inflation, currently geez...don't even talk about it!
By 'playing safe' and going for Guaranteed Returns plainly is the riskiest thing you can do with your money. In fact, let me put it this way, if your investments are not minimally returning you 8% nett pa, your money is still losing value.
So to protect and grow your money, in today's environment, you inevitably have to get financially educated (There are of course some shortcuts.) to 'open your eyes' to see what is truly worth investing in. You do so by evaluating risk, I will talk about this next time I post. 
Meanwhile, OPEN YOUR EYES and SEE what we have posted so far at 
Property Investors Club
Equities Investors Network
It is quite ridiculous to live an entire life being stuck under the thumb of money. Take care everyone!

Until next time.

Your Fellow Investor,

Martin Sim

Previous Updates

Tuesday, January 25, 2011

[Update 4] Inflation hits highest level since 2008

Way back in May 2010, I posted regarding demand/supply and inflation issues (this was when there wasn't any inflation issues and market was still bothered about recovery) in Are you your parents' financial photocopy? Lo and behold this is the article on The Straits Times Tuesday January 25th 2011 Page A6 "Inflation hits highest level since 2008". Anyone with two-bit knowledge on economy will conclude the same back then.

The key thing now is: Inflation is creeping up, which side of the coin are you on? I saw people complaining of cost and reports about helping the lower/middle class....

And its gonna get worse, oil hasn't even reach and broke the previous highs yet. (I am eagerly watching.) Just a simple understanding of financial education you are able to protect yourself and your wealth from all these macro-economic factors. 
See inflation can soar through the roof or drop to the ground or not move at all (in your dreams), I still would be happy because in every way I know how to make money off it.

Which is why, just 
like my previous post on Why you must invest! I keep repeating YOU MUST INVEST! YOU MUST! YOU MUST PUT YOUR MONEY TO WORK BECAUSE YOUR MONEY HAS QUIETLY HALF-VALUED. And as mentioned, property is a safe and lucrative way to hedge this erosion of monetary value, as with property you get both yields and capital gains. And given what we can see from our economies today, Asia and Singapore is poised for several more buoyant years at least. Key issue here is buying the right one.

If your response is "Oh but you know something, I don't." Sir/Mdm I wasn't born this way, 6yrs ago I knew absolute
NOTHING! 100% Financial idiot, all I know was to work as hard and much as possible, spent as little as possible and scrape every penny and save, save, save...coming from Singapore, this is what the system 'programmed' us to do. Duracell bunnies the whole lot of us.
In fact back then, for the amount of time and effort required to learn and understand, I initially wanted to outsource investing my small capital as this was a bit of a 'non-core business function'. How dangerous that would have been eh? Constantly, I bugged a buddy to approach his sister who was some hotshot in the bank to help me. Until today, I still thank him very much whenever I see him for brushing me off back then. If not, I wouldn't have bothered to learn myself and I won't know what I know today. Now I don't claim to be some 'Guru' or 'Expert', my point simply is:
YOU lose out being oblivious.

Now I can hear many people lamenting, "No time.." and I totally know where you are coming from with work and life. I am not gonna lied to you and tell you after some 3-day program you will be an expert. The amount of true time and effort it takes to learn, trial and error is A LOT. And not necessarily prefect-able as market is live and ever-changing. Like driving, practical differs from theory. You want to be successful at investing
FAST, here's my shortcut, wanna know? Scroll down.

Just making sure you are awake ;D

Instead of trying to re-invent the wheel/ or muck around trying to get the act right/ or hunting high and low and getting nowhere/ or taking huge risk on your own....(And I did all the above) 
spend some time and effort to learn about the product you are investing in, function as a TEAM, iron out all the trust issues via contract/s and let people who have better knowledge in their fields than yourself lead the way in that area. Simple right? Trust is never a simple thing. But if you don't work that out, you are not going to move forward much. (Even John Rambo grows old.)

Recently, we met a lot of people due to the expansion of Property Investors Club. W
ith meeting all of you and with Property Investors Club getting up and running on its own, (People said with a wordpress website and a yahoo email it is not possible. Incidentally, these people also did not register to learn more. We believe that our passion, our dedication and sincerity has helped us shine through and our message speaks clearer and louder with each passing day. Thank you All for giving us your attention!) 
I want to focus my personal site towards the Mindset and Psychology of an Investor as I come to realize most people unfortunately respond best to sales talks (That's why TOP units are selling like hotcakes, and developers and property agents are making merry, patting each other's backs, laughing all the way to the bank.), evoking their emotions and (hate to say it) greed...This is a very dangerous way to make decisions! Especially one as big as property investing. My inputs are both from my mentors and myself from facing investments daily for the last 6years of my life. Nothing fancy, just some factual accounting of events.

I will be posting more on this in my next post. Meanwhile, think about what I have said and read the report below. Inflation is gonna get even worse, it is inevitable. What are you doing to protect yourself and your wealth?

Thank you All for your time and for supporting Property Investors Club! Welcome On-board! We look forward to many successes in investing. 
Until next time.

Your Fellow Investor,

Previous Updates