Thursday 21 April 2016

What the humble "Bak chor mee" can teach us about investing

Let's talk about food! Had a bowl of bak chor mee for lunch at the canteen. Well it costs $3.50; let's be honest, it wasn't the tastiest bak chor mee in my lifetime but it did give me an epiphany which deserves a post.

You see, I have frequented this particular canteen and sometimes I will order the spaghetti bologanise for lunch, which costs $5.50. What struck me was how the time and effort to prepare both dishes are similar - put the noodles in hot water for a few mins, wring it dry, add the sauce (which has been prepared likely from a central kitchen) and its ready. And to me personally, both dishes cooked in this particular canteen provided the same level of satisfaction, "fullness" and the quantity of meat given was roughly the same. So why should I be paying $5.50 for one and $3.50 for the other when they are giving the same utility?


In a CNA interview, Dr Leslie Tay talked about the idea of culinary prejudice and how people tend to put foreign food on a higher stead than local food. How is this related to investing? 

Perhaps local investors have been putting blue chip names at a higher stead and this why the local stock market seems to ascribe a higher valuation (price point) to blue chip companies than their lesser well known counterparts; which means we may find smaller-cap stocks which are selling at a lower P/E or at a higher dividend yield to their well known counterparts of a similar industry. It is true that big names deserve a premium, however it is up to us as investors to question if such a wide price differential be warranted?

What are your thoughts? Have investing in lesser well known but well run companies been worth it?

Sunday 10 April 2016

Start Saving when we are young

Came across an article today by SGYI and in which a reader has commented the difficulty of getting returns of 12% etc etc.. Guess what, I did write on a similar subject on "the powers of compounding" few months back with realistic settings. 

Here is an excerpt:

"Albert Einstein called compound interest "the eight wonder of the world" and rightfully so. Lets consider an example to illustrate it. Two individuals, Ah Huat and John, enters the workforce at 25. Knowing the importance of saving when young, Ah Huat decides to set aside $7000 yearly from age 25 to 35 and does not save further from age 35 to 60; John on the other hand starts to set aside $7000 yearly from age 35 to 60. Both invests in the same investment which yields a 6% return per year. At the age of 60, Ah Huat has amassed $476,782; while John has $438,940. Hence, despite saving for only 10 years as compared to John (25 years), Ah Huat has saved up a larger amount of money thanks to compounding! From this example, it shows how important it is to start saving when young to enjoy this eighth wonder."

Many people are attracted to the dream of financial security and are looking for a way to it.

Start saving when young 

Pretty simple.Getting 5 to 6% returns out there, IMO, is pretty decent and achievable especially if we are bench marking it to SPDR STI ETF's annual returns of 6.28%. (Do note on the volatility of the ETF though). So start saving from young! Yours truly did exactly did and is benefiting from it. 

Secondly, saving $7,000 annually is easy. For all those new to the workforce, instead of signing up for a $200,000 coverage whole life or savings plan from that "sweet-talking eye candy" in a tight fitting skirt (that last phrase is for guys), why not buy a $200,000 term plan instead. The former will set you back about $3650 per year, while the term will set you back errrmmm, $450?. That's a savings of $3200 of course without the investment component. 

Of course, you will want to invest the remainder of the money right, well you can invest it in the STI ETF or REITS, that where 6% returns is achievable but you must be ready for the volatility. Investmentmoats has a few good articles on REITS and ETF. You can read it here and here.

To summarize:

This is Ah Huat

Ah Huat wants to be financially free.

Ah Huat does not believe in internet get rich schemes and on street investment talks.

Ah Huat does his own research, saves from young, saves well and invests wisely (he reads my blog)

Ah Huat is smart.

Be like Ah Huat.

If you are interested on how to save and invest well, here is the link to my first article. At this juncture, I will highlight that investing is risky and one must have appetite to stomach the volatility (that includes passive investing)


Saturday 2 April 2016

Local Crowdfunding Expansion and Defaults

March has been an eventful month for the P2P industry with high profile loans being issued. While p2p loans are innovative, there is still one risk that remains - default.


March too has seen a few defaults. One of which has been covered by another blog. The company is a travel agency who has a few p2p loans.

Similarly, Moolahsense too has encountered a default on a bullet term loan by one of its issuers. And yours truly too has a late repayment by one of the companies in my p2p portfoilo. 

What can we do?

The only probable way is to research on the company issuing the loan and diversify your portfoilo to minmise your risk. Letscrowdsmarter has  good write ups on beginners tips for p2p loans which you can read here and here.

Basically, what we individuals have to do is research more on each company we intend to invest in, know the risk and diversify. This will take time like in stock researching

What the industry can do? Trust

The P2P industry here is new locally. And being a new kid in the block, building trust is paramount. Talks with many of my friends, shows not many people are willing to trust such third party sites as wealth building vehicles yet, this is because of the red flags and lack of regulations in these otherwise promising industry. There are few who are only willing to give new comers a chance as the risk borne is high. Hence for such p2p service providers, it is important that they first build up trust among the community that p2p loan is viable, and not a cowboy town despite being in an unregulated industry.

It is indeed nice to read reports of million dollar loan issuance, however if the industry is riddled with defaults and recourse of non payments by issuers, many people will not want to invest due to a lack of trust. Furthermore, P2P loans are not exactly cheap; one has to invest at least a few hundreds or one thousand dollars. Unlike taobao or, where you are putting a few dollars at risk, the money quantum in p2p loans are larger. You can laugh off being scammed $3.99 for trying to buy a USB cable online but losing a $1,000 due to default is something you will definitely kpkb and remember for a long time. This demonstrates how and why the public will require a larger degree of trust that these platforms are credible/have done their due diligence before approving these companies.

No doubt, these companies have turned to crowd funding because of the probable fact they are unable to obtain bank loans. But P2P platforms should be aware that as pioneers of this industry; unless they are only planning to be profitable for the next 12 months, rapidly expanding without due consideration to the type of loans issued will result in the erosion of the public's trust in p2p loans.

Trust is important to building the foundations of any business. While it is tempting companies are now knocking on the door for crowd funding loan, compromising on the aspect of service delivery for profits is a recipe for disaster.