Saturday, 25 April 2020

[Post 117]Investment Book Summary 1:Secret of millionaire investor by Adam Khoo

For the first book review ever on my blog, I am going to summaries some key points from the book that I have just recently borrow from the library "secrets of millionaire investor " by Adam Khoo.

Image result for secret of millionaire investor pdf

The book is actually quite interesting to read compared to at least 70% of investing books out there. Not a sponsor post by the way(is there even anyone that wants to sponsor me?😂).

Anyway, back to the book. The next few posts are going to be the key points from the book.

Chapter 1 is basically an introduction, so let's begin with chapter 2.

Chapter 2:The power of investing in building your wealth

1.Investing in low risk and high return

  • Most investors in the world are risk-averse,(surprise surprise, Warren Buffett is one of them!)
2.A quick introduction of the US stock market
  • There are three primary U.S. stock exchanges: New York Stock Exchange, Nasdaq, and American stock exchange 
  •  The general market performance is measured by the index
  • An index is a chosen stock portfolio that is used to represent the entire stock market
  • One of the most common stock indexes to evaluate the U.S. market is S&P 500(now you know what it means and you can show off in small conversations with friends),
  • The S&P consists of the top 500 companies in the US market and represents more than 70 percent of the US market
  • The S&P 500 is calculated by taking the average price of the top 500 companies
  • Another popular index is the DJI (Dow Jones industrial)index (another term to show off to friends)
  • The DJI index consists of 30 largest companies in the US, similar to our STI ETF
3. Choosing the US market or the Singapore Market?
  • The author recommends the US market as he makes the best return from there
4. Why the author prefers to invest in the US market?
A wider selection of stocks and deviation
  • Over 9,000 listed companies in the US market compared to 620 companies on the Singapore market
  • Easier to find a company that is able to meet the criteria to invest
  • US companies have a higher potential to increase earnings and sales as the number of  US consumer is huge compare to the number of Singapore consumers
  • More US companies stock have options written on them allowing us to use a wider range of trading strategies
Higher liquidity and volume
  • US market has a higher volume of stock liquidity per day.
  • Us market also has "market makers" who will buy the stock that you are selling even if there are no people who want to buy
Superior research data and tools at a much lower cost
  • Basically, US stocks data such as financial ratio are more easily and readily available on the internet compare to Singapore Stock(totally agree with this!!, not all the financial ratio of a Singapore company may be found easily online and often one have to used paid service to analyze Singapore stocks)
  • The US has cheaper brokerage fees compare to Singapore(totally agree!!)

5. Four investment strategies, from beginner to expert level as follow

Growth strategy 1:Buying Market index and Sectors
  • Index such as the S&P 500 index, Dow Jones index, Sector refers to the different sector such as healthcare, financial, etc
  • (>12.08% return annually)
Growth strategy 2:Value investing
  • A strategy employ of Warren Buffett. In value investing, you will learn to buy high companies at a fraction of what they are worth.
  • In order words, you will learn when to buy companies stock at a cheap bargain(undervalued) and sell it when the market realize its true value
  • (15% -25% return annually)
Growth strategy 3:Momentum investing
  • A short time frame of 3-6 months. Momentum stocks tend to be priced above their fair value.
    However, due to the optimism of the entire market about the shares potential, these stocks tend to rise significantly in value within a very brief period of time before they are overbought and fall (this is when you sell and make enormous earnings).
  • (>25% return within 3 to 6 month)
Growth strategy 4:Options trading
  • the art of how to make 100%-500% returns on your money from as short as one day to a maximum holding period of 3 months, pretty risky
  • (100% return within 1 day - 3month)
6.The psychology & habit of a successful investor

Buy on strict rules and not emotion

  • Buy and sell based on rules and not emotions, for example, many successful investors sell their stock once the stock price drop below 10-20%.
  • They do not let emotion define their buy and sell.
Become an expert and Don't rely on expert
  • Simply read a little everyday, Don't rely on outside tips.
When there is nothing to invest in, Don't  invest
  • It is not always a good time to invest, invest only when the investment criteria are met(e.g the financial ratio is healthy)
Take 100% responsibility for your result
  • Don't blame others for your mistake, learn from your mistakes
Be passionate about investing
  • You must enjoy investing and not see it just as a tool for money-making(When you see shopping malls think CapitaLand, food court you think koufu, etc).
  • Better yet, be passionate till you dream about investment in your sleep(just kidding!)
Reduce Risk and maximize return

  • A master investor will only invest if he finds an investment with a very high probability of success, one with very high potential upside with limited downside.
  •  So, only invest when with minimal risks and very high returns.

Chapter 3 has an interesting pov of why we should invest in ETF if this doesn't convince you to invest in ETF, nothing will!

Chapter 3:Buying Index and Sector

Growth strategy 1:Buying index and sector

From the chart above showing the S&P 500 performance from 1950-2016, you can deduce a few things
  • In the short term, the stock is volatile (goes up and down).
  • In the long term, the stock will only rise higher and higher
  • The stock market is always on a long-term uptrend.
  • This means that each low point is higher than the previous low and each high point higher than the previous high.
S&P 500 (an index comprising the top 500 companies in the US) obtained an annual compound return of 12.08 percent with reinvested dividends.

However, this does not imply that every year the stock market increased by 12.08 percent
Some of the years, you can see the stock prices drop, and in some years, the price increase. However, the stock price is always increasing in the long term

7. Why do stock prices rise?
  • Stock prices are affected by company earnings
  • The greater a company's earnings, the higher its shares will be priced.
  • Over time, inflation pushes greater prices of the products and services of a company
  • For instance, a MacDonald meal today costs twice as much as it did ten years ago and it will be even more costly in the future
  • While the world's population is growing and becoming richer (particularly in developing nations such as China and India), more and more individuals are selling their products to them.
  • For businesses, higher prices at higher volumes lead to higher and higher profits/earning. This constant increase in the company profits over time help to push their stock price higher
The next part is not from the book, though I  will simplify and summarise it

Here is a ten-year performance of the US stock market from 1970-1980

As you can see, in the short-term, stock prices randomly move up and down. If you had bought stocks at one of the peaks in 1973; you would have had a massive heart attack when the market plunged the next following year (1974). If you panic and sold the stock at the bottom, you would have made huge losses.

This is exactly why most ignorant investors lose their life savings in stocks and find it extremely risky. 

However, let's say you brought at 550 points of the S&P in 1973, if you had held the stock until today, it would have increased to 2900, you would have made over 600%(without dividend reinvest)

Now let’s take a look at the actual gains and losses from the S&P 500 year-on-year(*Note: this refers to the percentage changes(or difference) of the stock price at the beginning of the year and the end of the year). Take note that these annual returns include the dividend(refer to credit)

From the table, you can see from 2000-2018, you will make a negative return in 2000,2001,2002(dot com bubble),2008(2008 financial crisis) and 2018(trade war)

But what if we put all in a 5 year period?

Average annual return of 5 year Period of the S&P500(yes, I calculate it myself)

From the table above, you can see the average annual return of 5 year period(the figure is taken and calculated from the previous picture of S&P 500, year on year) returned a positive figure.

So, what is the average annual return?
  • The average used by investors to measure the performance of investments over a period of time
  • It takes into account the effects of compounding interest and it is more accurate than using the simple interest formula
  • The average annual return means that your money will increase 15.85% per year if you invest from 2010(see 2010-2014)
Most of the 5 year period average annual return is positive, this means that if you kept your money invested for at least five years, your chance of loss would be ‘zero’.

But as you can see in the period 1970-1974 and 2000-2004, it has a negative average annual return. To conclude, if you invest in a period of 5 years, it would decrease your chance in making a loss

However, what if we invest in a period of 10 years or more?

  The average annual return of 10 year Period of the S&P500

As you can see if you invest in a period of 10 years, the chance of loss is zero. That includes 2000 and 2008 two financial crises, dot com bubble and 2008 financial crisis). This means that your money will grow by 1.212% per year. It is not an impressive figure but it proves that investing in the stock market for a long term such 10 years,20 years, or even 30 years would ensure that the chance of loss is zero.

If you are interested to read the rest of the book, do borrow it from the library:), hope this post proves useful!

Wednesday, 22 April 2020

[Post 116]TipforThought: Stock saying?nah it's all bulls****

Firstly, credits to grandpa lemon from investing note

I m sure you have heard of some stock saying such as "sell in May and go away", here are some great insight from grandpa lemon on why those stock rumors are not really true as they seem

1. Sell in May and Go Away
  • The period from November to April inclusive has significantly stronger stock market growth on average than the other months.
  • Stocks are sold at the start of May and the proceeds held in cash.
  • This originated in London more than 100 years ago with traders believing they could make more money if they sold their stock holdings in May and bought them back in late September after "St Leger's Day", the start of the British horse-racing season.
  • However,stock market goes up and down for a variety of reasons. 
  • The stock price will move because of corporate earnings and economic data. Even if you are inclined to sell in May, there is no reason to do so the moment the calendar turns from April to May.
2.Invest in what you know
  • The most famous saying of Peter Lynch is "Buy what you know.". Most investors know that Starbucks sells coffee and Mcdonald's sells burgers. A valid argument can be made that these companies bring predictability and help mitigate risk in one's portfolio, however, the fact remains that the biggest gains from stocks typically come from companies in the earlier phases of growth. The "easy" money has already been made.
  • Typically, big well-known companies cannot grow at the pace they did when they first became publicly traded. Unfortunately, many who read Mr. Lynch’s book, One Up on Wall Street, mistakenly think he was suggesting that people simply buy based on initial clues, such as a popular new store or restaurant in the community. Such readers miss Mr. Lynch’s critical advice on page 42 (paperback edition), where he states:
  • “Finding a promising company is only the first step. The next step is doing the research.”.
  • Most people spend more time researching their new car or holiday than they spend researching their favorite stock (even though the stock may represent a larger investment), just come IN and follow the "experts" cue. 
  • Do not use a simplistic approach consisting of buying shares of a company just because you like one of their products. You also need to look at their whole product portfolio, at the valuation multiple, growth rate, etc.
3.Financial Advisors
  • The worst advice, which I read and hear frequently, is that you should find a good financial adviser by seeking the recommendation of someone you trust.
  • The odds of your childhood best friend, the person in the cubicle next to you, or your Uncle Bob referring you to a good financial adviser are slim. It’s the blind leading the blind.
  • There is no substitute for self-education. Those unwilling to learn are destined to repeat these same mistakes.
  • Maybe the best summation is by Dr. James M. Dahle in his book “The White Coat Investor.” He says: “The main difficulty with choosing an investment adviser is that by the time you know enough to choose a good one, you probably know enough to do your financial planning and asset management on your own.”
4.Grandpa's secret sauce
  • It has to be software, period. I will give you an analogy. Do you care whether your Netflix show is running on AMD or Intel chipset, or whether it is running off Dell or HP servers? Or do you even care about whether its M1 or Singtel or Starhub network? All you care is my "Billions" show is playing steady and no lagged. 
  • Without you realizing it, you are already part of the whole Software As a Service customer. From GRAB, PayNow, Netflix, Office365, and even your very own IN platform, the software is the single most important lubricant that ensures the smooth functioning of enterprises. 
  • Every single business function, in every industry vertical, uses software to run efficiently. Collectively all these programs are known as enterprise software - and it's a lucrative industry that has made a few companies, that build these programs, extremely rich.
  • The business model usually involves licensing the software to customers named or concurrent users for a fixed fee. Revenue is subsequently generated through after-sales services in support (e.g. patches) and subscription upgrades to the software. Typically, the upfront cost of acquiring the software is just 10 percent of the product's total cost of ownership. 
  • At the center of this phenomenon is the rise and rise of cloud computing, which provides a simple way to access servers, storage, databases, and a broad set of application services over the internet. 
  • By accessing the “cloud”, companies save money by avoiding large upfront CAPEX and instead turn into an OPEX pay as you go, model, similar to your utility bill. Companies get the ability to access resources in the cloud as and when they need it and pay for only what they use. 
  • There are three kinds of cloud services — Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (SaaS) as illustrated below 
  • The cloud infrastructure market is estimated at US$30 billion and projected to grow to beyond US$85 billion by 2021 and forecasts AWS’s revenues will grow 30% annually to reach US$68 billion by 2022.
  • AWS had a 70% share of the market last year, Azure 22%, and Google 8%, among the top US players. The Big Three are being challenged by Chinese giants such as Alibaba Group Holding, Tencent Holdings and Baidu, which dominate the cloud services business in their domestic markets and have built a strong business in Southeast Asia.
  • The other 3 players in the SaaS space I am watching are Workday, which sells cloud-based finance and human resources software to small and medium-sized firms. Another is finance and tax software firm Intuit, and digital signature firm DocuSign.
  • If you are watching the space, you would have to know that Elastic, a firm provides open-source search software and related analytics and enhancement services to enterprises, almost doubling the IPO price on Day 1. Another IPO company (2019) to watch is Slack. If you work in an office, you’re probably familiar with the messaging platform Slack. Slack has only been around for a few years, but a lot of businesses and offices have started to adopt the messaging platform. As of May 2018, Slack has grown its daily active users by 33% to 8 million since September 2017. In addition to that, the company has grown its paid users to 3 million, up 50% from September 2017.
  • Slack’s platform allows for an integrated way to communicate and get work done with the rest of your office. There are a variety of apps you can download and use on Slack’s platform to make it easier to do the tasks you need to get done and share documents easily and more efficiently. In May 2018, Slack also announced that it has 70,000 paid teams. User growth is essential to companies like Slack. The company’s ability to grow its paid subscribers is going to be the top priority, and for potential investors, that’ll be a huge factor in if they invest or not. (In my personal experience, my workplace also uses slack)
Once again, credits to grandpaLemon for investing notes,really useful information!Hope it help!

Sunday, 19 April 2020

[Post 115]Learning investing/trading together part 23:Investing vs Trading

This week on learning investing/trading,we are going to compare Investing vs Trading.

Investing vs Trading

  • Investing and trading are two a different way to profit from the market
  • Investors and Traders both attempt to seek profit from the market
  • Investors seek higher return buying and hold for a long period of time
  • Traders seek even higher return by using various trading strategy to profit
  • Build wealth slowly over an extended period of time by purchasing and maintaining a portfolio of stocks, share portfolios, mutual funds, bonds, and other investment resources.
  • Investments are often held for years, or even decades, taking advantage of benefits along the way, such as interest, dividends, and share splits.
  • Although markets naturally fluctuate, the investor will hold the stock when its share prices are declining, with the hope that stock prices will stabilize and any losses will eventually recover.
  • Usually, investors are more concerned with market fundamentals such as price/earnings ratios and current ratio, etc
  • Anyone with a CPF is investing even though they don't monitor their investments on a daily basis. Because the goal over the decades is to build a retirement account.
  • Trading includes transactions that are more frequent such as buying and selling stocks etc. The goal is to achieve returns that surpass buy-and-hold investing
  • Trading profits are created in a relatively short period of time by buying at a lower price and selling at a higher price. 
  • It is also possible to make trading profits by selling at a higher price and purchasing to cover at a lower price (known as "selling short" or "shorting") for profit in falling markets.
  • Traders usually fall into one of four categories: Position Trader: Positions are held from months to years.
  1. Position Trader: Positions are held from months to years.
  2. Swing Trader: Positions are held from days to weeks.
  3. Day Trader: Positions are held throughout the day only with no overnight positions.
  4. Scalp Trader: Positions are held for seconds to minutes with no overnight positions.
Image result for investing vs trading

  • If investing is a is like homework, trading is like preparation for an exam
  • There are plenty more factor to take note of such as low commission rate due to regular buying and selling of share as they add up quickly
  • Working hours: if you are working the regular hour of 9-6, the US market may be suitable for you as it does not clash with your working hours, otherwise you would probably have to place your stock order whether buy or sell early in the day before you go to work
  • As they always say, why not a mix of both investment and trading?

Friday, 10 April 2020

[Post 114]TipforThought: Interesting ways to save money and Getting over Monday morning

Interesting ways to save money

Today's post will be touching on the clever shortcuts, tips, and tricks to saving money.(Maybe after reading this, you can implement some of the interesting ways to save money).

Declare no spend days

Whether for a month, a week, or just a few days, it's beneficial to reset and find a way to recommit to your saving goals.

Master your car

Learn how to change a tire, add air to your tires and replace my windshield wipers and air filters-all take less than an hour and save hundreds every year.

Match Buying and Saving 1:1 

Say you want a $100 pair of jeans. Make it a rule that, if you buy the jeans, you'll put $100 into saving. This could help curb your spending. Even if you give in to the impulse, you're still doing something good for your finances 

Time-Pricey Buys 

Big-ticket items have designated (often multiple ) sale periods throughout that year. In September, you can often find deals on kitchen appliances, lawnmowers, mattresses, grills, and bicycles. Keep a list on your phone of the big purchases that might be coming up and include the brand you like and the price. Then, if you can, wait for the sales period.

Budget with a gift card

If you have a splurge-type item in your budget(like eating lunch out) and find yourself overspending, buy a gift card at the beginning off the month for the allotted amount. Once the gift card is spent, you're cut off from shelling out any more

Ask for presents that save you money 

If relatives or friends are inquiring about birthday or holiday gifts, ask for a membership to places like the zoo, aquarium or museum. Something that can occupy you and your child for one day, a pass to the above places can last for months

Getting over Monday morning

Image result for monday morning cartoon

Credits:Real simple

1. Follow the one hour rule

No more trying to catch up on lost sleep on Sunday mornings "initially,it was thought  that weekend recovery sleep was sufficient to pay back sleep debt"

Research suggests that weekend recovery sleep may not reverse the effect of chronic sleep deprivation and that an irregular sleep schedule can make it harder to stay awake and fall asleep

Staying up late isn't great weekend habit either: it can either lead to feeling even more tired on Monday morning, so sticking with a constant sleep schedule all week long is the best.

At the very least, try not to go to bed or wake up more than an hour past your normal times , and if you need to nap, a brief snooze(under 30 minutes)in the early afternoon should help you avoid grogginess and disrupted nighttime sleep.

2.Rethink breakfast

Eating satisfying and balanced breakfast will allow you to hear appropriate hunger and fullness signals throughout the day. But don't think you have to eat immediately upon rising which is the biggest misconception people have about breakfast. If you get up at 6a.m, you may not feel hungry then, and that's OK.

Wait until you do than eat breakfast. You"ll get the energy you need and enable your body to eat more healthfully the rest of the days because you won't be starving. You"ll also get a mood boost when sipping decaf, smelling coffee or even just thinking about coffee can be enough to give you a boost.

3.Wear a feel-good outfit

You know you feel better in clothes that you like. To better your mood choose a bright color, your favorite fabric or print or a sustainable brand you feel great about. Better yet, pick the outfit beforehand so you avoid a wardrobe crisis on Monday

4.Seek natural light 

Perking up your morning can be as simple as getting a dose of natural light. Try opening the shades, eating breakfast outside, watering your garden or taking a walk.

"Light is like a coffee", it has an acute alerting effect. Plus, being out for five minutes can give you happiness high.

Can't get outside in the morning?. Change the light in the indoor space to brighten things up,move your computer close to the window or paint your wall a more vivid color.

5.Create a routine

Our brains love routine, and the less work your brain has to do, the happier it will be. Routines are also a great way to conserve energy for more complicated parts of the day. You will have more control over your attitude for the day.

By adopting a morning ritual, this will put you in a good mood. For instance, you may brew a good cup of coffee, a morning jog, etc. With something pleasant build into your morning schedule, you will feel less dread when Monday morning comes.

6.Plan for fun activities

An easy way to turn Monday around is to make them the day you commit to fun plans for later in the week. Schedule a night out with friends or even binge-watch your favorite shows.

Regardless of the activity, just thinking about the good times in store for you later in the week will be an instant mood lifter. Half the enjoyment of any activity is anticipating it, which is why it is important to have things on the calendar you can look forward to.

7. Do a random act of kindness

Put positive energy into the world and you will get it back. Performing an act of kindness for seven days will boost happiness and well being. At the start of the day do a random act of kindness and your mood would immediately brighten up,e.g buying coffee for your co-worker.

Hope the tips help:)