How to grow our money

Recently one of my friends asked me about my opinion on endowment fund and unit trust as she wanted to invest some of her spare cash. I fully understand her concern. I recall myself doing all sorts of things to grow my money too. Cash in bank generates paltry, if not, negligible return. Some expect the return can be big enough to supplement their main income, or perhaps contribute to their retirement savings. While some others who are savvy enough are able to leverage the concept of passive income & use it to fully pay their annual expenditures – in other words: being financially independent. Ultimately, the main goal here is how to make our money work, as hard, or even better, work harder than us.

At this point, I think it’s crucial to introduce several key concepts:

  1. Time value of money & compound interest – Time is money. Albert Einstein once said that compound interest is the 8th wonder of the world.

    “He who understands it, earns it … he who doesn’t … pays it.”

    In short, interest as a double-edged sword. Most people on the streets like to borrow money from banks to purchase consumption goods, such as the latest IT gadgets or HDTV set. Yet, credit card companies encourage us only to pay the minimum sum monthly instead of fully pay our bill. There’re too many stories on people trapped in debt unable to even settle their interest charges. On the other hands, savvy people would know that every $1 invested with 10% annual return compounded would double our investment in 7.2 years. This leads us to the next concept:

  2. Rule of 72 – the rule simply says that in order to double your money, it would take (72/x) years, where x is the compounded annual rate of return (%). If you manage to find an investment that gives you 6% annual return, it would take 12 years to double your money. Ultimate question is how much is your expected return? Also the key here is where to find such investment vehicles. Most importantly, it has to be a safe vehicle. This leads up to yet the next concept:
  3. Risk and assets volatility – risk is generally proportional to the reward. The higher the risk we’re willing to take, the higher the rewards. That’s why fixed deposit generates higher return than regular savings account. And that’s why unit trust is expected to generate higher return than fixed deposit.
  4. Different types of asset class & their corresponding fees – I believe there is no such thing as free lunch in this world., management fees & transaction costs are the expenses that we need to consider when choosing our investment vehicle. Some unit trusts charges as high as 2% for initial fee and between 0.5% – 2% for annual fees. In addition, usually there will be some costs incurred as well for every buying or selling transaction we make. We just need to ensure that our annual return does not get eaten out by these fees.
  5. Differentiate between investment and insurance – There are some products in the market that claim to give us both insurance protection and good investment return. However, most of the time, the reality doesn’t paint the same picture. We have to know what we want to achieve from the beginning.

At the end of the day, we should not delegate our money management to someone else. Fail to adhere to this and we will learn some expensive lessons guaranteed. It is much better that we learn slowly by accumulating sufficient knowledge & then dipping our feet into the market rather than being too rashly aggressive chasing for the highest return available. There is no one else in the world who cares about our money more than we ourselves.




How to Identify Fraudulent Companies

20170711 thief

The last thing investors wants to see is losing their hard-earned money in the stock market. But wait, there’s an even worse situation. That’s when they lose their hard-earned money invested in fraudulent companies with no way to recoup their investments. We have witnessed many examples in US stock markets, who doesn’t remember about the Enron & Worldcom scandal?

Closer to the region, in Singapore, there are many vivid cases on how failed companies ruined people’s life, mostly their minority shareholders. The so-called retail investors are always at the receiving end of the bad news when it imploded. Sometimes without any avenues to reclaim their original investment. Who are these fraudulent companies? For the uninitiated, more than 90% of frauds are caused by S-Chips. Hence, the ultimate question for investors is: “How to detect for any red flags?” In other words, how to leave the “parties” before the music stops abruptly?

Firstly, let’s do a quick line-up on what are the list of proven fraudulent companies in the context of SGX (Singapore stock exchange) universe. They are as follows:

20170711 Schips

Secondly, how can an investor detect for any red flags in any of these companies mentioned above? The following are the top 13 identified – in no sequential order:

  1. Significant levels of cash & cash equivalents, yet unwilling to pay dividends
  2. Dividends not declared despite net profit position
  3. Major shareholder selling off shares below IPO price
  4. Right issue at a price way below cash value of the company
  5. Right issue despite significant huge cash balance in the balance sheet
  6. Draw down of bank credit lines even when there is a positive cash balance
  7. Net non-cash settlement of trade debts and payable
  8. Trade receivables long outstanding (not converted to cash)
  9. Non-proportional increase of trade receivables compared to increase in sales
  10. Significant capital expenditure with no apparent upgrade in P&E or increase in production capacity
  11. Profits generated not translating to “net cash from operations”
  12. Sudden resignation of independent auditor in the absence of any disagreements with management
  13. Sudden resignation of CFO

Finally, as an investor, how can we avoid such pitiful situations in the first place? There are few critical steps here:

  1. Look at the company history… generally companies with longer history (>20 years) are less-susceptible to such fraud
  2. Look at the independent auditor’s report at the Annual Report… whether auditor issues any qualified opinion. We need to dig deeper in case the auditor issues qualified opinion.
  3. Look at the company’s customers profile… are there any big company names? Big companies generally already have a due-diligence process (i.e. KYS – Know Your Supplier) in place for their suppliers.
  4. Attend its AGM (Annual General Makan), I mean Annual General Meeting… whether the CEO and board of directors are willing to answer shareholders’ questions? Are they friendly or hostile? Or, they don’t even bother to attend the AGM?

These are the four easy steps that a beginner investor can use to avoid putting themselves into such mess. In the end, it’s our hard-earned money. If not we ourselves, who else will look after?


My Investment Objective

I always believe that things happen for a reason. I still remember back in  year 2005 – 2007 when I purchased a huge sum of Chinese Renminbi (huge sum for a penniless fresh graduate back then). That was right after I came back from my four month stint in Beijing for language study. Back then in late 2004, 1 RMB can buy approximately 1000 worth of Indonesian Rupiahs. As of today, RMB has strengthened so much that 1 RMB now can buy IDR 2k.

My reason to invest in RMB back then, was because I felt things in China were so cheap. I remembered on my first day in Beijing, we went for dinner at a fancy Chinese restaurant, just opposite our campus, BLCU in Wudaokou area. When I stepped in, I could almost feel the sense of regret. Regret knowing that this could be a huge mistake. Imagine, a penniless young graduate with limited budget had to spend some huge amount for money for a dinner. In my mind, I always thought that such a fancy dining like that would cost us easily close to S$15-$30 per head. After our sumptuous dinner, I was shocked to read the total bill. My share of dinner was less than RMB 8 (equivalent to US$1) back then.

Ever since, I discovered that Chinese Renminbi were definitely extremely undervalued. That’s when I decided to buy a lot of Renminbi. Hoping that I could just keep it and perhaps use it again the next time I return to China.

I discovered the world of investing from reading various books. It started with Rich Dad Poor Dad (by Robert Kiyosaki) during my university days. Then Unlimited Power (by Anthony Robbins), then Think And Grow Rich (by Napoleon Hill). And subsequently, I discovered Intelligent Investor (by Benjamin Graham) back in 2008. Ever since, I’ve read more books on value investing & other various investment methods.

My investment objective is simple, to make money. The objective can be simple, but the execution cannot be too simplistic. In other words, we also need to consider all the pitfalls of various investment methods. The key here is to simplify the complex world of investment without losing the essence. You don’t have to invest in a complex investment vehicle. You also don’t need to have an IQ of 160 in order to be successful in investing. But it takes a huge dose of common sense. Understand the business model. How does the company make money. Understand time value of money and compound interest. Understand that time is money.

My medium term goal is to generate passive income large enough to cover our family’s annual expenses. There are many ways to generate passive income, however what I will cover in this blog is mostly on generating passive income from stock investing. Why do I need to generate passive income enough to cover the annual expenses? Because that is the definition of being financially independent. This is the first step towards being financially free.

I’d like to leave you with this note… “Success is a process not a destination.” By enjoying the process along the way, we won’t lose our soul when reaching our destination some day.

Tortoise and Rabbit

Beginning of The Journey – 3 Lessons for Beginners



It’s not easy to change a habit. Really! This blog was born because I started to adopt a new habit. It’s been almost eight years now since I started to take investing seriously. And I’m still learning till now. It would have been a more fruitful journey had I documented my logic and thought process when making every investing decision. Anyway, it’s better late than never. So here it is. This blog will serve as my virtual journal to keep track and record.

Back in March 2009, I still remembered how I stepped inside the Phillips Investor Center in Toa Payoh Central. It all started from a spark of curiosity and a desire of improving my personal finance situation.

If I could turn back time, here are the top three advice I would tell my old-self:

  1. Never let others to be in charge of your finances – Somehow after reading so many books on finance and investing, I decided that one way to improve my finances is by taking it into my own control. It’s my money anyway.  I work hard for it. Why trust it to others? I used to have a portfolio of unit trusts managed by an independent financial adviser. But apparently, their interests are not always aligned to yours. I suggested to take profit, but he suggested to hold. It was January 2007. The peak of the market. After then, huge losses came in and I had no choice but to liquidate back then. Looking back, I could have just sit still and let the portfolio rebound. But I was not enlightened enough back then.
  2. Always seek to learn – Learn new knowledge. It can be from books, from a mentor, or from a community. With the internet era like now, it’s even getting easier to obtain information. I found that certain websites such as ValueBuddies has a collection of quality posts and ideas.
  3. Try not to lose a huge sum of money along the way – Your capital seed is limited. It’ll take a 100% gain in order to compensate a 50% loss of our portfolio. Never make huge risky bets with a substantial amount of your portfolio. Try to limit risky bets up to 10% of the portfolio. Here comes the important lesson of portfolio allocation. If your bet turns out to be a bad one (you never know Chris!), you won’t lose big time.

I am sure that there are other crucial tips for beginners who’re just about to embark on their journey. Will share them along the way.