Financial Tips 2016

This article was first published in NST dated 11th January 2016.

NST articleAfter a SLOW 2015, what would 2016 bring us? More negative news? Well, no matter how negative or how positive, we must stay focussed on our investment goals. If we do nothing, then when we need to retire, we really have nothing much. These would be some personal tips that I would be using in 2016, no matter how awesome the whole market is or how bad it may become.

 

Stay focussed on VALUE.

In the stock market, there are many companies which are doing well but the share prices are down and thus it’s undervalued. We can start our research with companies which has a high dividend yield which are 2 times the fixed deposit rates. Then, look at its Earning per Share (EPS). I would personally skip companies with EPS of less than 2x of FD. Preferably it should be 2.5x of FD’s return. Last, understand the business that the company is doing. Many times, our own judgement is good enough. Think long term. I quote Warren Buffet, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”

 

Think ‘View-and-Offer’ and not ‘wait-and-see’

If we need to buy a property, do not ‘wait-and-see.’ Please also do not follow ‘buy, buy, buy (BBB) as well. We need to stop focussing on hot areas. Understand why these areas are hot, for example maybe it’s because there are malls, international schools, near to expressways or even LRTs / future MRTs. Use the same criterias and look at areas which has ALL these attributes but is stil priced much lower, for example 30% lower or more. Then, ‘view-and-offer’ a price which gives the seller some profits and yet attractive enough for you versus the potential 3-5 years later. Remember to stretch the focus from just distance to duration.

Spend our time productively. Reading, learning and sharing with like-minded individuals. Honestly, watching more Korean dramas or even hours on Facebook with friends do not help much when it’s time to retire in the future.

 

Actions with property, unit trusts and fixed deposits

A good property is a great asset to hedge against inflation and provide potential capital appreciation. However, it takes months to buy or sell one. This is why majority are not looking at it and that’s why we should. Some even said they prefer to rent. It’s okay, we can buy to rent to them.

Unit Trust is for the long term. We need a very good agent for this, one who would be helping us to switch between funds to maximise returns. Just simply buying one and not doing anything meant normal returns which may only be slightly above official inflation numbers.

Fixed deposits (FD) are really just fixed deposits. If we have none, do not start any investment. At minimum, FD should cover 6 months of our current monthly pay. Once we have this minimum amount, start thinking about increasing our wealth through what we have currently.

 

Books to read for 2016?

I would personally be reading ‘Resources’ type of books. For properties related, Ho Chin Soon is a resource we must not miss. Through actual maps in all his books, it gives us an objective perspective about how the centres of growth are moving. We can then make a decision based on our own analysis.

I would personally stay away from books which tells me how to be rich in a very short period of time or how to buy properties even if we have no money etc. Frankly, greed was the main recipe for the 2008 mortgage crisis. When we look back, if we can do it, everyone else could and soon, the market would be full of speculative activities. As soon as we see everyone going ‘crazy’ with abnormal returns etc, take a step back and reassess. Perhaps that’s what Warren Buffet has advocated, “Be fearful when others are greedy and greedy only when others are fearful.”

 

U.M.N.O

Uncertainty Means New Opportunities. My good friend, Dr. Daniele Gambero commented recently that the worst times are also the best times for those who are focussed on grabbing the opportunities that come our way. Always remember what we always tell everyone else. We should buy when times are not good because this is when we can get bargains. One important piece of advice would be to buy within affordability. When times are uncertain, we may not know how long we would need to hold until the investment starts to appreciate or increase in value. Therefore, best to buy or invest with the view to potentially hold for at least a few years.

Happy New Year and happy investing for our future.

written on 25th Dec 2015

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