The Investor Mindset

“Be fearful when others are greedy, and be greedy when others are fearful.” 

These were words spoken by Warren Buffett at an interview he conducted during the height of the 2008 Financial Crisis. I had them printed out and displayed right in front of me so that I could see them everyday, especially when I am reviewing my stock portfolio  Whenever my portfolio takes a beating or I feel unsure about whether to buy more, his words are a beacon of sanity and wisdom for me.
From the many books I’ve read on investments, there are many strategies and tactics to trade or invest in shares.  There is however one general common theme: you need a highly disciplined mindset to profit from stocks, because you must be different from the general crowd.  Easier said than done, as I’ve found out from my over one decade of investing. 

For me, it was easier to be not “greedy” than to be not “fearful”.  During the past few boom runs, I realized I could steer myself to sell and take profit when the market was getting too hot.  However, when stocks plunge, I get the jitters and failed to act fast and swift enough to buy more, even though I have been preparing myself mentally and financially to do so. 

Just imagine this: blue chip stocks which you have witnessed selling at over $20 plunge to single-digit prices.  Reports of global meltdowns and companies going bankrupt appear in the news everyday.  Everyone you know seems to think it’s time to get out of stocks and go for bonds or gold.

During market crises, I had to brace myself whenever I decide to buy more.  I had checked through the company’s financials and made it a point to buy only well-managed blue chips.  We also used only money that was set aside for investments. 

I knew it was impossible to predict the bottom, and so had to buy more as the stocks trended down.  It was not easy to ignore the doomsayers and the price falls that succeeded every buy order.  My fingers even started to get the jitters when I pressed the order “confirmed” button.  Talk about grit.  There’s no time for lament, only emotion-less, almost robot-like action and an unshakeable faith that stock markets go through cycles. 

After the initial jitters, I don’t think I have ever really lost sleep over our stock portfolio as we were never subject to any financial risks, having set aside our emergency cash funds and having a very low level of debt. 

So far, Warren Buffett’s words have been proven right.  Stocks do rise and usually within the 12-18 months after that. 

The recent Greek crisis and Europe woes have resulted in a gyrating stock market.  The slowing down of China as well as the lagging US economy are likely contributory factors to a global slowdown.  I cannot predict when the next crisis would strike, but I do hope that when that happens, I have the grit and guts to pick up stocks which are undervalued.

(This article first appeared in CPF's IM$avvy website.)

If you’re thinking of sending your kid to tuition, read this!

I left Singapore five-and-a-half years ago.  On returning Singapore this year, I realized that if any business is growing and thriving better than any other, it’s tution centres!  There is practically one or more in every shopping mall, at void decks and even within the schools. They are everywhere: it almost sounds weird if your child is not in some tuition programme. 

If you are indeed considering sending your child for tuition, enrichment or whatever name it’s called nowadays, please take a few steps back and think through a few things before committing yourself:

1)     Financial and non-financial costs: For tuition to have an impact, it usually takes at least 10-12 of one-hourly sessions.  Calculate how much time and money you have to spend. Please don’t think this is a short-term commitment.  I have a friend with three children who started tuition in Primary school and even though the oldest one is now in Secondary 2, she still has to receive tuition.  Some of my friends have to be “drivers” or “chaperones” to bring their children to the centres or forfeit family time together to make sure the children continue with the lessons.  One family I know spend at least $1,500 a month on tuition expenses, not to mention the number of hours of time commuting, waiting to pick up the children and hiring a maid so that the mom can do all these!

2)     Sense of dependency: I remember reading how a top PSLE student says he enjoys going to tuition agencies because they motivate him to study.  I would think this is cultivating a sense of dependency instead.  Some parents may be able to afford it all the way through to university but certainly, at some time, the child has to wean off from external help and practise self-resilience to work hard on his own accord. 

As a mother whose child just entered Secondary 1 this year, I can vouch that post-primary school life can be so hectic that there is really not enough time to commit to a regular tuition programme and the inherent extra homework involved.  Perhaps that’s why tuition agencies tend to start them young, focusing a lot on primary school kids. This way, it’s almost like an “addiction”: once you’re addicted to having tuition to “force” you to study, it seems impossible to get out of it.  And please, do not be the ultra-kiasu parents who hire tutors to help their children complete the homework set by the tuition agency! This is truly killing the joy of learning.

3)     Is it worth the money?  I signed the consent form for my younger primary 5 son to attend weekly Chinese composition writing “enrichment” lessons offered by his school.  I didn’t think much of it and paid the course fees since it can be deducted from Edusave.  After a few lessons, I realized that it was provided by an external course provider and he was merely learning how to “piece together” sentences which the teacher had written on the board.  There was in effect very little writing done by himself although I must say the “final” work is a lot better than what he would have written by himself.  I asked him if he felt he learnt anything useful.  He replied no.  If I haven’t probed, I would have thought that he had indeed improved in his Chinese composition writing when in reality, he had improved only on his copying skills!  So, customers beware!  Not every course is what it’s made out to be. 

4)     Beware tuition agencies with “entrance exams”:
Lately, there is also a growing class of “elite” tuition agencies which are known to set high entrance standards.  They do not accept just any student and sell themselves as “stretching” the potential of children under them.  High-calibre students who end up with high-calibre results – these agencies can then further augment their marketing by saying how well their students have done.  They are selling on “snob appeal” and this seems to have worked: waiting lists to enter the school are purportedly very long.  Not surprisingly so.  It is, after all, a business model that is self-sustaining as long as there is demand to feed it.

Ultimately, parents, let’s be rational and not join in the mad rush sending our children to tuition agencies just because it’s what every neighbour, relative or friend is doing now.

This is not just a financial decision but a decision on how we want our children to grow up.

(This article first appeared in CPF's IM$avvy website.)

Property A-Bubbling?

I am no property expert but even I have to say that signs of a property bubble are beginning to show.  

While we were still in China, my husband and I have been monitoring the Singapore 

private property scene for years hoping to buy a condo before we shift back. The price just didn’t seem right. With our rather sudden repatriation back to Singapore this year, we thankfully still have our cosy HDB flat to live in. But like most Singaporeans, we aspire to “upgrade” to a private property. Part of the reason for the shift was to be nearer to our children’s schools so that hours do not have been wasted on commuting. But signs of any property price slowdown, if any, are muted. So, we wait. And we wait.

Just last week, news of the launch of Singapore's most expensive suburban condo, Sky Habitat in Bishan, made me sit up. Almost 70 percent were sold during the weekend launch and majority of them to Singaporeans. Average prices range from $1,747 psf for a one-bedder to $1,642 psf for a four-bedder at this leasehold project.  A 3-bedroom apartment would cost about $2 million!  If you were to check the URA website, these psf prices are even higher than older but mind you, freehold condos nearer to the city!  Twin Regency in Tiong Bahru, for example, was last transacted at $1,500 psf.

Sky Habitat  Source: www.capitaland.com

Let’s do the Math here for a family of four. Typical median pay of say, a manager, in his late thirties is about $5-6k and even assuming that both husband and wife hold similar positions, total household pay is roughly $12k. To service a 30-year loan of $1.5 million, the monthly instalment alone is close to $5k. Debt-to-income ratio is 42%, already above the recommended 33% and this does not even include stamp duties and other expenses associated with owning a private property.

The above calculations also hinge on a crucial assumption: a thriving economy that can sustain jobs and good pay. The sad thing – as we have learnt in recessions before – during bad times, jobs and salaries get cut or interest rates may creep up in tandem with global rates during bad times. When the odds are against you, a property is not as liquid as stocks – it’s just not something you can get rid of as and when you want to.

It was not so much the high pricing of Sky Habitat, but what buyers of the expensive condo said, that gave me a sense of deja-vu. One civil servant was quoted by The Straits Times as saying he is confident that the value will be higher when he eventually sells it 10 years later. There was also a sales executive who bought two 3-bedroom units before he even took a look at the showflat. With the intention to rent out both units, he commented that he had “not 1 percent of regret” about his purchase. 

I remember such optimistic comments being uttered too in the property run-up of 1996, a time when long queues formed at property launches and buyers made their purchases before stepping into showflats. Additionally, there is now a false sense of security because of the historically low interest rates. Rates are not going to stay this low for the next 30 years of the loan term. A one percentage point increase can result in an additional $600-$1k repayment every month, depending on your loan amount. Bear in mind too that much of the repayments in the first few years go toward paying interest, not to the loan principal.

Prices which run up too quickly are bound to come down – this is one of the easily-forgotten laws in any market which are cyclical in nature or for which government measures can have a deep impact.  I do not wish for anyone to be caught on the way down but it looks like history may just repeat itself.

(This article first appeared in CPF's IM$avvy website.)

Be Financially Educated - It Pays!

Sometimes, I wish governments worldwide would mandate a “Personal Financial Education” module in school curricula.  

I started to really understand the importance of being financially educated only at the age of 23, when I received my first paycheck and mind you, after graduating with a university degree.  Before that, I thought getting a regular income alone was enough to assure a bright future financially.  My savings was however not growing as quickly as I envisioned.  Whatever I invested in at that time were on unit trusts which I didn’t really understand. 

Fortunately, I began to devour book after book on personal finance in the years after.  I began to learn how to manage debt, income and expenses.  I realized that I needed to build passive income (money that you earn even if you’re not working), and to do that I had to understand the mechanics, charges involved, risks and trends of the financial instruments I want to invest in. Reading was one thing; taking action was another.  My husband and I started actively planning for our financial future only when I was expecting our first child six years after that.

There really is no excuse to stay financially “ignorant”.  Singapore is probably one of the best places to learn about personal finance without having to fork out a lot of money.  Here are some sources of readily-available and mostly free information:

1)      Library books – the shelf for catalogue number “322” is my favourite haunt.  This is the shelf where you can get your hands on a whole array of Personal Financial books.  The majority are books from the States and I used to think they don’t work here.  When you do pore through, you’ll find that quite a number of the principles behind financial planning are universal, just that the systems mentioned may differ, like the States has their 401(k) and we our CPF for retirement savings.  The best thing is, if a certain book doesn’t appeal to you, just return and borrow another one.  There’s bound to be at least one you can learn something from. 

Some of the recommended must-reads are “The Real Cost of Living” by Carmen Wong Ulrich, “The Millionaire Next Door” by Stanley & Danko, “The Family CFO” by Alvin & Larson, as well as local books such as “A Singapore Guide to Personal Financial Planning” by Andy Ong.

2）Seminars & talks – if reading puts you to sleep, seminars may be your thing.  I may love to read but to hear someone more experienced sharing their tried-and-tested methods makes the learning a lot more palatable.  Recently, I attended a seminar by well-known trader Elder Alexander and was pleasantly surprised by his down-to-earth delivery.  A few years back, I also attended a workshop “Money and You” which really helped to straighten out my archaic perspectives on money.  Since returning to Singapore from our China assignment, I am pleasantly surprised by the number of free seminars that the general public can attend. These range from seminars on the basics to intermediate, and can be found at the SGX’s (Singapore Stock Exchange) newly-launched My Gateway, Moneysense and Singapore Investors Association websites and even free video seminars available on I M Savvy.  If you have signed up with a shares brokerage house, you can also check out the seminars or workshops they have lined up for their clients.   

3)     Websites & blogs – If you believe everything the web says, don’t try this.  However, it is possibly the most accessible form of resource you can find. I tend to go for the company-run or more “official” websites when I am looking for more technical knowledge.  These would be SGX My Gateway, Moneysense, Bloomberg, Business Times.  For some inspiration on how others started on their financial journeys, I love to read personal blogs.  Just googling would get you some pretty good ones.  As the full-time CEO of the household, aka cook, maid, tutor all rolled in one, I am also constantly on the look-out for useful tips on how to save on groceries, utilities etc.  For this, I subscribe to e-newsletters such as “Dollar Stretcher” and “Frugal Living” which are sent automatically to me everyday. 

4)     Mentors – know of someone you admire who is into stock investment or is a multiple property owner?  Why not ask them out for a coffee and have a good chit-chat on how they started?  You never know what you could learn from them.  Most of the people who have passed this way are very eager to share with you their lessons learnt. 

Finally, let’s clear the air about some myths surrounding financial education for laymen like you and me:

1)     You don’t have to be a Math whiz to plan your finances.  You just have to have the patience to look at numbers.  Of course, if you really dislike it, you could always look for a good financial planner.  I choose to do it myself because I always believe that no one else will help me look after my finances better than well, myself.  Do your research though before settling on whom to be your financial planner though.  And never trust him or her with all your money.

2)     Women are not money-dumb.  Women tend to be perceived as more “switched off” when it comes to anything linked to money, but I beg to differ. I know because I have girlfriends who seem to think that anything to do with money has to be their husband’s domain.  However, I sincerely feel that women, being the ones closer to the home front and the children, are in the prime position of making a difference in everyday money decisions and do play a critical role in imparting the right values to the children on money matters. 

3)         Don’t need to feel that “I must do something now!”  Hold it…learn first.  If it takes 14 years of education before one can graduate from university, I think patience is justified if we want to invest our hard-earned money in anything.  Never plunge head-long in an investment without understanding how it works and the risks involved.  Sometimes, it’s amazing how much more time we spend agonizing over which bag to buy than over what unit trusts to invest in!

If you’ve nothing planned for the weekend, make a date with yourself to get a dose of financial education, be it at the library, seminar or to just catch up with a friend who is financially-savvy.  Trust me, this form of education does pay dividends in the long run.

(This article first appeared in CPF's IM$avvy website)