Saturday, October 25, 2014

Which one suits you better - earn more or spend less?

We all know there are only two ways to save money. The first is to reduce your expenses. If you spend less, then whatever is left is your savings. The second is to increase your income. If you keep your spending to be the same, what you earned after your spending will be your savings. But which way works better?

I think the key point here is whether your income is scalable. If your income can vary according to the amount of work that you produce, then it's scalable. If that's the case, then you might want to focus on earning more income. My job as a tutor is scalable. A salesman job whose income is tied to the commission earned from the sales made is also scalable. Focusing your energy on an active income stream which is scalable makes sense because there's a lot of benefit besides having a higher income (therefore, higher savings).

1. When you're busy, you can't be shopping. 

I'm not sure about others but when I'm in my peak season, I can't wait to go back home to rest. I understand that some others might go on compensatory shopping to alleviate the stress and pain of working so hard, but to each his own. The months that I spend the least correlates to the months that I earn the most. It's during those months that I've half or a quarter of my work load that I spend more time shopping, watching movies and eating out at restaurants.

2. Working harder might lead you to a higher base salary or a better job

If you work hard enough, you might be noticed by your superiors because of your output. This might lead to a better job prospects/promotion which can lead to higher base salary. Certainty in income is better than variability, so if your hardwork leads you to secure a higher base income, why not? Makes it easier to plan ahead too. If that doesn't work out, perhaps you'll be noticed by headhunters who can direct you to a company that pays you better. If all these doesn't happen, surely there's going to be a better bonus towards the end of the year? Still no? Then maybe you should just switch your company.

3. There's a sense of achievement from career satisfaction or from a job well done

It's not just about savings. A feel-good mentality about your work can lead to a multitude of desirable side effects that makes you happier. Imagine you're the top producer in your company. Beside earning the extra income, you'll also be regarded highly by your peers. Just don't take it that you've arrived and buy yourself an expensive car to go along with that status. A feel good feeling is internal, not necessarily externalized by material goods.

What happens if you income is not scalable? That means that the more hours you put in, not withstanding a possible promotion, you're actually getting less on an hourly basis. I think after some years in your company and looking around at your colleagues who are your seniors, you'll more or less know your chances of promotion. If you still want to stay in your company, then working so hard at work doesn't really benefit you. They know it, you know it too.

If that's the case, working on cutting cost is the option to saving more. Cutting cost forms a good foundation in which you can leverage on. Here's a few good points about the cutting cost path towards increasing your savings:

1. You live on less, so that you don't have to accumulate so much upon retirement

This is perhaps the most important reason. If you reduce your expenses until you can no longer cut without sacrificing minimum comfort, you'll increase your savings on a month to month basis. Even if you have bonus, you'll be able to squirrel that away. But in the future, this habit won't likely go away. This means that upon retirement, you don't have to use up so much per month, hence you also don't have to save up so much now. It's about living on less.

2. You can focus on a simple life

There's joy in simplicity. If you don't have the budget to go out and shop and eat out frequently at restaurants, you'll find a substitute for it. You'll find that there are pleasures that you don't need money to enjoy. A simple cup of kopi with a good book or good companionship won't cost much, but you will won't derive less joy from it. You'll be surprised by how much you need and how much happiness you can get from the simple things in life. I can foresee a healthier lifestyle, with more focus on family and relationship and also nature. What's bad about this, seriously?

3. Less stressful at work

I think once the stress of producing more is relieved from you, you might actually start to enjoy your work once again. No longer do you have to play political games to secure a better position so that you can have a higher pay. You can really say no to a couple of networking sessions. And you know even if you're not needed at work, you can survive with very little and still be sane. That's a very powerful psychological advantage out there.

For me, I focus more on earning more because my income is scalable. I also think that there's only so much cost you can cut, so the better option for me is to increase my income to offset against inflation and also save more. I already know my own spending patterns after a couple of years of detailed tracking, so lifestyle inflation (spending more because of earning more) doesn't work on me. The extra amount of spending that I do to reward myself after a month of hardwork is but a tiny fraction of the amount of money earned, so cash-flow wise, it's a net net gain. I know myself hence I can make an informed decision on where to focus my energy on.

Do you know yourself too? Which method of saving suits you best?

Sunday, October 19, 2014

My service standards in tuition

A student asked me a question that I thought is quite interesting. She had been messaging me through whatsapp, spamming (her words) me with questions throughout the day because of the O'lvls and I had been answering them as and when it comes. She asked if I'll be pissed off because of the spamming of the questions and why I'm so free to answer.

The short answer is that I won't be angry. In fact, I'm actually glad that people asked me a lot of queries. It shows that they care about their work and want to do well. If so, then why should I stop them and inhibit them? I should go all out to support their effort! Do I get pissed of answering at odd hours (some can be as early as 8am and as late as 1130pm)? Nah, I won't be, but I might not wake up so early, oops :)

Actually I'm not that free. But not free doesn't mean cannot take some time out to do some problem solving. I take it as a trivial quiz that pops in my phone every now and then. Oh, what is natural number? What is formed when ammonium nitrate reacts with limewater? How to do this question? How to do that question? Luckily I don't mind solving questions on the go - I actually find it quite fun.

I'm one of the lucky few people whom I know that loves his job. To me, my job is not a job - it's more like a hobby where I meet interesting young people and I will try my best to help them. I get paid for doing this and for solving their problem. To me, it's the interaction and mentoring part of the job that I love, and anything that supports that career goal for me, I'll do it.

My service standard in my website states this:

And I clearly mean to fulfill it. So ask away :)

Friday, October 17, 2014

Prepare yourself mentally for bear market

For those of you who had not seen a real mother bear striking down at the market, here's a sneak preview from the past. Unfortunately, I've lost some of the pics when the server I've uploaded them crashed and died. The pictures I saved is meant to serve as a reminder for me when the next bear comes...which might be now.

This one is taken from 2009 Sept 10.

Just look at the Nasdaq and SP500, you'll see why we haven't reached 'there' yet.

This one is for STI. A drop of 5.61% in one day is no joke.

Lastly, this is for the rest of the exchange. As you can see, it's not called the global financial crisis for fun.

Can you stomach this kind of draw-downs in your portfolio value? Surviving is one thing. You must also thrive in this environment. That's how the cash-rich gets richer in every financial crisis. START saving up your warchest now!

Thursday, October 16, 2014

How do you feel in a jittery stock market?

I noticed a big difference in how I handled the bearish stock market sentiments recently. STI had fallen from a high of around 3300 in early-mid Sept to about 3160 in mid October 2014, roughly about 4%. STI closes on 2nd Jan 2014 (the first trading day of this year) at 3180 and now it's slightly under, wiping all all the gains made so far.

Market is getting more delicious 

How do I feel?

Nothing. Is it calmness or simply bo chup? A bit of both I think. If anything, it's slightly hovering on a excitement, because I can get some company at a bigger discount. I remembered vaguely I was quite agitated when I saw that my portfolio drops a few k per day during the deepest parts of the bear market. I was just trying to see if I should cut loss to preserve my limited capital. From thinking how to survive then, I am now trying to see how I should capitalise and thrive during bearish market. It's a 180 degrees change in mentality.

Just fire slowly. Everyone has limited bullets, so getting it all in isn't going to be good to your psychological well-being. So what should we do?

Shortlist a few companies and do the necessary due diligence. Determine the key levels of support or key levels of acceptable yield to buy in. Look and account for how much capital you have (remember to set aside some liquidity for emergency uses). Apportion your capital into several tranches and buy slowly at these key points, close your eyes, and just wait. It's hard not to do anything, I know. Just imagine you are depositing this amount of money into a fixed deposit and you can only look at it 3 to 5 yrs from now.

Monday, October 13, 2014

Bullythebear's 3 Steps Guide to Stock Market (for newbies!)

There’s a lot of people in this last quarter of the year on how they can start investing in the stock market. I always tell them to read up and I’ll get back to them. If there’s a market truism that you need to remember, it’s this:

"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." 
Alexander Elder

You must not expect the market to give you money without working hard for it. In most cases, the worst thing that you can do to yourself is to make yourself some money without any knowledge, then proceed to throw your entire savings into it only to lose that initial profit plus a lot more. Without ill intent, I always wish stock market newbies to have small failures initially, if only to learn the lesson that the stock market is not your mother who is that to provide and give.

So how do you go about doing it? You can try Bullythebear’s three step method for newbies listed below. I think reading is extremely important in learning how to invest/trade the stock market. If you can’t sit through a reading because it’s very boring or ‘technical’, then maybe you are not ready to delve deep into the subject matter. You might, to borrow the Marine’s jargon, get up and ring the bell to signify that you give up and call it quits. There’s a season for everything.  Perhaps for you, it’s not now.

1. Learn Accounting

If you want to enter the stock market, you cannot help but read. If you do not have the discipline to read, then you might as well just do a dollar cost averaging and keep buying STI ETF.  Whether you are going fundamental or technical, you always need to read. That’s the source where information is passed from one to another.

Why accounting? Accounting is the language of business. If you can’t differentiate between a balance sheet and cash flow statement, then you owe yourself to learn how to do that. But you’re not trying to be an accountant, so learn the basics but ultimately, your job is not to consolidate accounts or trying to balance your accounts. Your job as an investor is to interpret and analyse the company’s health and prosperity by the 3 statements: balance sheet, income and cash flow statements.

If you can’t sit through reading it, maybe you should ring the bell and call it quits from here.

2.Learn FA and TA

There are two branches in stock market. You can be one or the other, or even both. But you need to learn how they operate. If you’re new, you should read up on both to see which side you lean towards. Unlike Harry Potter, we don’t have a magical hat to tell you which ‘house’ you belong to, so you've to learn both to find out your own inclination.

If I’ve to summarise in one sentence what fundamental analysis (FA) is, it’ll be this: The analysis of financial statements and business in order to derive a valuation of a company’s worth to aid in the decision of buying/selling the shares of a company.

Similarly, if I’ve to summarise in one sentence what technical analysis (TA) is, it’ll be this: The use of market psychology in the form of charts and/or indicators to derive the direction and trend of how the price of a company’s shares will move in order to aid in the decision of buying/selling the shares of a company.

Still blur? Read up on both. If you can’t sit through the reading and find it too tedious or boring, maybe you should ring the bell and call it quits from here.

3.Learn stock market terminology and rules

When I started, I struggled to find information regarding the mechanics of buying and selling in SGX. I remembered I was ridiculed by a broker when I told him I wanted to get like 10 shares, because I didn’t know you need to buy 1 lot (which is 1000 shares but going to be 100 shares next year). Little things like this that everyone knows but nobody says it.

That’s why I compiled a list of newbie's FAQ here, in the hope that it’ll one day help others who also walk the same journey as me. I should have update it but I didn’t find the time (and effort) to do so. But these days, with information so widely available, and even local writers publishing books, it’s hard not to find the information you need. There’s a dearth of local books in the past when I started, which always makes me wonder whether the information stated in the book is applicable in our local context.

Here’s another useful FAQ from SIAS, based on local context that I find it very useful for beginners.

As mentioned earlier in the two points, if you don’t want to read, you’ll be severely disadvantaged. If you find it hard to read ‘technical’ financial jargons, just start somewhere. The journey of a million miles begin with by putting one foot ahead of another. Eventually as you read more and more, you’ll soak in all the jargons and can rattle off terms like a pro. But really, just soak up the information whether you understand it or not. You'll reach a critical mass whether things just connect.

Having more knowledge doesn’t mean you’ll make a killing in the market, but having no knowledge will definitely get you slaughtered.

Here's a few books (that I've read) to get you started:

On accounting
(seriously, any books that teaches you how to read and interpret financial statements will do, but I'll highlight the ones that leaves the best impression on me)

1. Accounting Demystified: A self teaching guide - Loita A. Hart
2. Financial statements: A step by step guide to understanding and creating financial reports - Thomas R. Ittelson
3. Financial statements for non-financial people - Ron Price
4. Warren Buffett and the interpretation of financial statements - Mary Buffett & David Clark

On fundamental analysis (FA)

On technical analysis (TA) 

Sunday, October 05, 2014

Storify your facts

My wife and I like to embellish facts with stories.

There's a very recent example of how we do it. There's a blue dustbin that we had in our void deck, that is used to collect bigger pieces of junk for recycling. One day when returning home, wife exclaimed that the dustbin is no longer there. Instead, on the floor where it used to stand were pieces of rubbish that the dustbin is meant to collect.

She told me about it and I told her that the dustbin had worked there for years and had finally saved enough to retire and lead a financially free life. It's a good thing and we should all be happy for the blue dustbin. That was it then and it wasn't until a few days later, that we saw the same blue dustbin on the porch where people usually drop off or pick up passengers because there's a rain shelter there. What an odd spot to see blue dustbin there! I explained that it's because blue dustbin is waiting for the bus to take him back to home. We waved goodbye to him and wished him a good journey. Wife even told him not to take the wrong bus and have himself sent to Semakau, Singapore's (in)famous rubbish island.

I thought that was the end of blue dustbin and we'll never see him again. The rubbish piled up at the usual 'workplace' for blue dustbin and we lamented that a good 'worker' had left the scene. But a few days later, we saw the same dustbin at the same usual workplace. So what happened?

He had missed the bus, what a poor thing, I said. Spent his money on gambling upon his retirement, said my wife. Got cheated of his money on the way back, I suggested. Either way, good old blue dustbin is back at work at his usual workplace but with double or triple the load. My wife threw in a good moral to the story: Be really certain you can reach financial freedom before you leave, otherwise you come back and work your ass off!

Another one?

There's this story of a snail going to the market to buy some groceries after a particularly rainy day. On the way there while crossing a pavement, it suddenly felt a strong pull upwards. Oh no! It must be suffering from heart attack and died or something. This must be the tunnel vision that one experiences when one is out of body! Instinctively it shrank into its shell and waited for the moment to pass and speak to its creator. It waited quite a while but no godly voice boomed to speak to it. Timidly, it popped out its head and lo and behold, it appeared on the other side of the pavement!

What manner of sorcery is this?! It normally take him 5 minutes to walk across if it sprinted there, but this took no longer than 30 s! Still shaken, it went to do the chores required and went home, feeling both grateful and lucky that it's still alive. Later that evening, the snail's news reported of yet another mysterious 'alien' abduction. Statistics show that it's more likely to be abducted by aliens after a rainy day, so it warned all snails around the vicinity to exercise extreme caution and prudence when crossing the mystical 'Pavement 51'.

Life is just that little bit more magical when you do that, isn't it?

Friday, October 03, 2014

Kungfu Cats Academy is here!

For those of you who are regular readers, you'll know what I do for a living. I'm a full-time tutor and had been one for the last 10 years (and counting!). I recently set up a new website to showcase the things that I do as a tutor, and it's called Kungfu Cats Academy. I'll like to share it with you :)

One of the main reasons why I wanted to set up a separate site for my career is so that I can blog about different things that interest me. I find the bullythebear is not the right platform for thoughts and reflections about the education industry in general, so I really really like the idea of setting up a different site to talk about such things. The themes in Kungfu Cats will be about motivational issues, life in general as a full time tutor and other stuff about the educational scene in Singapore. This will be a different platform from what I share in Bullythebear, which is mainly about finance, notably personal finance.'ll never walk alone?

The other reason is obvious blatant advertising. I take in students through word-of-mouth alone and it'll be good for the long run if I can increase the number of people who knows what I do. Hence, the site will act as a focal point of my efforts to make my services more visible. It's also so much easier to tell people to go to a site rather than to type out some of the faq that I also put in the site. One time effort but reaping rewards the rest of the time - I love such asymmetry in effort and rewards relationship.

I had also set up a Facebook page for the same purpose. Those who are interested to receive articles regarding education/tuition/motivation might find it useful. I leave it to you to decide whether to 'like' it or not :) I think the whole purpose of setting up a site like this is to let it grow organically, so I realised from past experiences that having 10,000 likes is not the same as having one person who really likes it. The statistics doesn't matter one bit in how I'm going to do my job. I'm used to talking alone anyway, and that's how bullythebear begins. I still remembered the time where there's only 3 persons in my cbox - me, myself and I.

Why cats, you may ask? There's a lot of things we can learn from them - notably creativity, curiosity and independence. These traits are what an educated person should be.

Tuesday, September 30, 2014

Learn from the Ants!

There's a lot of things that we can learn from the ants. Here's a trick on productivity coming straight from the ants colony itself - it's called Ant Colony Optimization.

How does a scouting ant tell the rest of her colony that there's food here? She will secrete more pheromones - some kind of ant perfume - along the path that she found the food. When her colony mates passes by and picks up the pheromones, they will follow the trail, find the food, giving more pheromones and attract more ant mates and so on. Over time, you find that the chemical trail will get reinforced and becomes stronger and stronger.

So how does Ant Colony Optimization works? It works on exactly that principle - that which is useful will be ranked higher than those that are less useful, subsequently reinforced through repeated trials and eventually, the more useful 'path' will be discovered simply by the usage frequency. I'll give a few examples of how this can work in your everyday life:

1. Sorting files

We tend to sort files alphabetically or chronologically. We don't have to. Take for example one file filled with notes arranged chronologically. Every time we take out something from that file, we place it right in front of the rest, ignoring the order. After several iterations, what we use most often will be placed right in front of the file, making it more optimized for your usage instead of arranging in other common order (like chronological or alphabetical or subject matter) but ultimately useless arrangement.

This is exactly what the Noguchi Filing system works. When I read that, I was mindblown. It wasn't until I read and watched a lot of ants video on Youtube before I realized that it's derived from nature.

2. Sorting apps in your smart phone

Same theory. Arrange your apps according to the usage. Every time you use the app, arrange it in the forefront. Upon subsequent iterations, you'll find that the most useful apps will be right in front and the least useful app are right behind. Go ahead and delete that once it crosses a certain time threshold.

3. Internet bookmarks

If you're like me, you'll have so many 'useful' bookmarks in my internet browser that it's not always possible to find the stuff you need anymore. Yet you can't bare to delete them in the event that you might need it one day.

Here's where ant colony optimisation comes in too. You just sort the bookmark by arranging the one that you use right in front. Over time, the most useful bookmarks will be ranked right at the top while the least useful one will be at the bottom of the least. Again, you can delete those at the bottom with the knowledge that you seldom use it anyway, so there's no need to miss them.

These are just 3 examples that you can use to simplify your life. Besides micro things like these, ant colony optimisation can also be used to decide the best route for transportation networks like where to build a highway, bus routes etc. Basically when there's so many choices leading from point A to point B with multiple variables involved, ant colony optimisation will be useful.

Think about it.

Monday, September 29, 2014

The 3 components of ROE

I've written in the past about the dangers of relying solely on ROE calculations. The danger comes from not knowing the components that makes up ROE. For the uninitiated, it refers to a matrix called Return on Equities.

Not this roe lah!

I think it's important to use Dupont analysis of ROE to break up the components of ROE into 3 main categories:

  1. Financial leverage = Total assets / Equity
  2. Assets turnover = Revenue / Assets
  3. Net margin = Profits after tax (PAT)/ Revenues

If you take the 3 ratios above and multiply them, you'll find that the denominator and numerator of most components will cancel each other, giving you :

ROE = Total assets/Equity x Revenue/Assets x PAT/Revenues = PAT/equity

That is the standard formula for the computation of ROE

Let's use some concrete examples. I randomly take 3 STI components, SGX, ST Eng and Capitaland. They have nothing to do with each other (in terms of the business they do). The only commonality is that they have easily accessible annual reports so that I don't have to plow through everything to get the numbers required. Lazy, I know :)

So here it goes:

If you look at the ROE component, you'll have realised that ST Engineering's ROE is high because it is more highly geared up. Basically with leverage, you'll have a multiplier effect on your gains or your losses. That's not necessary bad, it's just that if you compare ROE alone, you'll miss that fact.

Again, if you look at the ROE of SGX, you'll find that the main component driving it is actually it's high net margins. That super delicious net margins pushes up the ROE. That is not necessary good or bad, it's just something that might not be noticed if you just focus on ROE alone.

You can dig more about ROE in my previous post here. The real important one is the 2nd link, but it's riddled with broken links of pictures...argh..

1. Dupont analysis of ROE
2. Woe be to those who missed out ROE
(I apologise for the lack of pictures...the server that I had uploaded the pictures went it's gone)

Thursday, September 25, 2014

Winning the skirmishes but losing the war

We are sometimes so caught up with our lives that we neglect the big picture. We often keep doing the things that are urgent, but forget about the things that are less urgent but nevertheless are important.

Study the matrix above.

Urgent means that it has a time factor to it. It needs to be done as soon as possible in order to meet datelines that are either self-imposed or externally imposed. Important means that it fulfills certain long term goals or mission.

Quadrant 1 are the tasks that are both urgent and important. These are crises situation and are emergencies. Priority should be given to these. But how many crises situation are there in a day? If everything is a crisis, your workflow is not set up yet, so you might need to work on that. An example of such a situation is when your client calls you for an important presentation that may lead to a sale. Everything else needs to be put on hold while you pursue this lead.

Quadrant 2 are the tasks that are not urgent but are important. These are the tasks that are often neglected because of the lack of urgency. A good example is retirement planning. Retirement is a goal that is years away for working adults but if you don't start planning now, it might reach a point of no return. So for such situation, we need to sit down and think about what are the things that are potentially urgent in the future and has great impact on your life. These, we need to do long term planning. You can probably delay for a week or two, but certainly not delay in years.

Quadrant 3 are the tasks that are urgent but not important. At best, these are interruptions to your workflow. It could be your boss asking you for yet another board meeting. It could be your mum asking you to get something for her while you are doing your work.

Quadrant 4 are the tasks that are not important and not urgent. I try to push a lot of task into this category as I grow up. Not a lot of things are as important now as it seems in the past. An example of this is playing games. It serves at best as a time waster event, though we all need such activities to relax and wind down. Just don't make this a priority when there are Q1, Q2 and Q3 things left undone.

The ideal workflow goes like this:

  1. Classify all activities into the four quadrants 
  2. Settle all the Q1 (urgent and important) activities first
  3.  Then try to push those activities from Q3 (urgent but not important) into Q4 (not urgent and not important), as much as possible.
  4. Settle the remaining Q3 activities
  5. Schedule the Q2 stuff daily or weekly into your timetable. They are not urgent but they are still important. So do them on a daily/weekly/monthly/yearly basis. The key point is to plan it into your timetable, otherwise they will not be missed until it's too late.
  6. Do the Q4 activities the last. Or when you need a break from your suddenly productive life.

I'll proceed to give an example of how to use this in a typical student's life.

  • Do all assignments that is due this week first
  • Pass down some 'arrows' that are shot by your group leaders in your co-curricular activities to others. Those that can't be passed down, just settle it as soon as you can
  • Exams are in 2 months time. Have a plan of how your revision schedule will be like. Stick to it every week. Start early, finish leisurely. Start late, finish panicky.
  • Stop watching you-tube videos or korean dramas when you don't even have time to finish the above. Allow yourself only a very limited time to do these per week, and only after you've had a good productive week.

You can be surprised how many people cannot find the time to study for exams until it's too late. Too swamped by everyday living that they miss the big picture. Are you doing that in your financial life too? Too concerned with day to day living and miss planning for longer term goals?