## Monday, March 30, 2009

### STI and HSI

This is for self reference only.

Below shows the STI index. Poised for a retracement. Possible entry points, 166X, 163X there abouts. I like the 166X support level, as it is the gap support, near to ema 50d support and a trend line coming from June/July last year (touching jan high this year). Could be significant.

The chart below is for HSI. Same pattern as STI.

## Sunday, March 29, 2009

### The mathematics of effort and results

If you start to value your time, you'll realise that being a perfectionist is a very silly thing to do. Why is that so? Effort is not equal to results. In life, I've seen countless examples of people who seemingly put in minimum effort but reaped maximum benefits. This is also known as working smart, not working hard.

I can't agree more.

While showering, I've derived the mathematics of effort and results. It is actually an exponential graph (I'll spare you the equation because it's the form that matters, not the exactness) which looks something like what I've attached below.

Initially, a little effort will reap a lot of results. However, as more and more effort is piled on top of previous effort, the results increment gets smaller and smaller, until it finally plateaus off. The main idea here is that the results reaped is not exactly linear to the effort that you put in.

Here are some examples that I can imagine:

1. A student gets 40 marks out of 100 for his test. He puts in a 10% more effort, he gets 60 marks out of 100. He puts in another 10% more effort, he gets 70 marks. He puts in another 10%, he gets 75%. To reach 90 marks, he'll have to put in a lot a lot more effort than the initial 10% effort that pushed his grades from 40 marks to 60 marks.

2 A woman had a weight of 70 kg. She tries to jog and her weight drops to 60kg. To lose the next 10 kg, she'll have to run harder and faster than before.

There is a region in which the sweet zone is found - this is where the effort put in is reaping the maximum results before the increment tapers off to a plateau. It's your job to define it and find the balance point yourself. If you value your time, just don't be a perfectionist - the effort that you put in to perfect your act might be better spent on other more value-creating actions.

That being said, there are some activities where maximum effort must be put into before a sizeable result can be observed. But once reached, the result will shoot up exponentially without requiring further effort (as shown below).

This kind of activities require patience and usually involve some kind of leverage on either time or money or both. It is also your duty to find and do such activities and work towards that final exponential increment.

I can think of a few examples too:

1. Trading/investing in the stock market. The initial outlay of effort is tremendous, to say the least, since the 'effort' usually involves financial losses as well. However, once the sweet spot is reached, the results will exponentially increase without you putting in a lot more effort.

2. Setting up a successful business. Key word is 'successful'. The initial time and money used to set it up is discouraging in the early stages of the business, but once it starts to take off, the sky becomes the limit.

Have you been doing your part to allocate your time and effort wisely in order to place a higher value on your life-energy?

## Sunday, March 15, 2009

### Sunday's rambling

I browsed through Sunday Times today and noticed that there is an article on the low rate of interest provided by financial institutions in Singapore recently, presumably due to the plunging SIBOR rate, again presumably because the world's central banks are cutting their rates to boost the economy.

It's interesting that every politician have a fetish for growth. It's quite impossible to generate growth forever you know. Imagine that a hypothetical bacteria doubles their population every one minute - meaning a growth rate of 100% per min. If this rate goes on forever, we'll be covered by bacteria in maybe a few months? But this will not happen because somewhere along the nice growth rate on paper, there will be a limit to this whole growth process. In the case of the growing bacteria, either they run out of space, or they run out of food, or their toxins emitted kill each other, or all of them at the same time. I guess economic growth is the same too.

I looked at the article and there are suggestions by different people on what is the best place to put your \$50,000. Almost all of them suggest at least a small part in equities related instrument, either 'safe' blue chips or a few well diversified funds.

If you ask me, where you are going to put your \$50k depends very much on what you intend to do with the \$50k. Are you saving up for short term use - like getting a property, a car or marriage within 2-3 years? Are you saving up for your child's education in 25 yrs time? Are you saving up for retirement in 40 yrs time? Basically the longer the time frame, the more you should put into equities related instruments. If now is not the best time to invest, when is it? 2006? 2007? If you need the money in 2-3 yrs time, I'm not so sure what you put into the equities market can be recovered in this time frame. Hence, if you can't afford to lose your capital in the event of pre-matured cash out, then don't put it there.

I'm put most of my money in MMF because of my short term needs (see my post on Budgeting for the near future). However, they are getting lesser and lesser returns (though I must add they are still better than banks' rate), with monthly returns dropping from 0.17% per month in May 2007 to around 0.06% in Feb 2009. This means that the returns per annum dropped from around 2% to 0.7%. I think I'll stop putting money and perhaps draw some out of it. The risk of losing the money in MMF (though low probability) is not worth the 0.06% returns per month I'm getting from it, especially since I'm not going to put it there for the long term.

For those interested, mine is the Phillips MMF. Here's the unit price for year 2009.

Here's the graph plotting for the unit price of Phillips MMF since I started tracking in May 2007. Can you see the shift in gradient starting in 2008?

## Friday, March 13, 2009

### An epilogue

Today, a pet chinchilla passed away.

In its short life span, it had brought many joys. I asked my gf if she will still have the chinchilla, knowing that it will die at this particular day in advance. She said yes - the joys of having it is so much more than the sorrow that it brings her and so it's worth it.

Life is fragile. It pays well to reflect on who you've been neglecting as you hurdle over life's daily struggle.

Rest in peace, little one, for you'll be in raisin-land with all the other chinchillas.

## Thursday, March 12, 2009

### Sick of s-shares

Do you know what s-shares stand for?

S-shares stands for stupid shares. Actually they are Singapore listed, China-based companies. What have they done to incur the wrath of investors locally? Let's trace it...

1. All began with Ferrochina. The details are hazy, but it goes more or less like this: Debtors force ferrochina to repay their short term debts, and nobody wants to lend ferrochina money to tide them over. Company declared bankrupt, and shareholders 'dieded'. Suspended from trading.

2. China printing & 'Dying' - this one is comically, though not so funny to shareholders. The husband and wife CEO team from the parent company went runnng. Suspended from trading.

3. Fibrechem – auditors have problems finalizing the trade receivables and cash balances at 31st December 2008. Shares are suspended from trading now.

4. Beauty china – Some party wanted to buy over the shares of the CEO, who is a major shareholder himself, as his stakes take up 38.7% of the total shareholdings. It seems that part of the shares sold by the CEO are due to margin calls - which means that the CEO had pledged his shares to do some borrowings. Suspended.

5. Sino-env - CEO had a company, who pledged his shares in sino-env as a pledge to hedge funds. Now, unable to repay their payment obligations, hedge funds threaten to sell off shares. Might affect the company's solvency and ability to pay off bond holders. Suspended.

6. Oriental century – Subsidiary of Raffles education. This is the most recent case where s-shares are involved. CEO substantially inflated sales and cash balances and had diverted unspecified sums to an interested party. There are fictitious accounting and related records, thus leading everyone to believe that the cash they had were in existence. Raffles education shares, who held 29% of oriental century, are halted from trading now. Oriental century shares are suspended from trading.

So who’s the next one to fall? These incidents reflect very poorly on s-shares because of the lack of good corporate governance. If the statements they published publicly cannot be trusted, nobody can do a proper valuation of the company and determine how strong their financial standing is currently. This will affect investors’ ability to judge for themselves the strength and prospect of a company. It’s a shame that such low quality companies are allowed to be listed in SGX.

I remembered fondly in 2006 that any company with CHINA as their names will do very well as punters bid them up, citing very valid and logical reasons like China being able to decouple from US, China being the next powerhouse etc. It’s great that I didn’t participate much in this orgy, though my sins are equally as bad – I bought some of them on the way down.

I’ve two s-shares currently (I do not consider pac andes as s-shares, since they are not china based companies, more like HK based) – china milk and hongguo. Both reported okay business – still making profits but lesser amounts. Both of them share a common attribute, which is they have excellent cash positions. Now, I would have to wonder if the cash reported are really there or not. It sucks big time to me because I can’t even be sure if there accounts are true!

You know what? I’m sick of s-shares.

## Monday, March 09, 2009

### Budgeting for the near future

I was trying to determine the big ticket cash outflow in the near future over the weekend. The 3 biggest ticket items are car, property and wedding. I roughly know the first two and set budget for them already, so I need to estimate how much I have to cough out for the wedding.

I started by writing down the names of the guests I wish to invite for the dinner. At last count, there are around 85 people, with maybe another 40 more coming from friends of both parents. This works out to be 125 guests to be invited, or assuming a table capacity of 10 guests, a total of 13 tables. Let’s just raise it up to 16 tables, in case there are extra.

Since there are only a small number of tables, I thought it’ll be better to have a dinner at a high end restaurant rather than be contented with a middle range hotel. That needs to be worked out with my gf. So assuming \$1200 per table, I need to fork out \$19,200. From what I asked around, the wedding package of bridal gown plus photos/video should cost around \$6000. Add to this the cost of the wedding rings/bands, which I budgeted to be at \$5000, we’ll have a grand total of \$30,200. To be on the safe side, I’ll increase it to \$35,000, which is a near 16% markup for conservative budgeting purpose.

For car, my total budget is around \$30,000, which I intend to pay 50% as down payment and borrow the rest so as not to over stretch my cash coffer. With this budget, I narrowed down to 2 cars – first is a new Kia picanto, the other is a 2-3 years old Honda jazz. I’m undecided as to which is a better bargain, but that’s not important yet in this planning exercise. I strictly do not want my budget to exceed \$35,000. Period. Let’s just use the budget of \$35,000 to begin with, and my intention of paying 50% upfront means I have to fork out \$17,500.

For property, I intend to get a 600-800k property for investment purpose. Assuming a 30% down payment, I need to raise 180-240k cash for it. This might be a little too big for me to swallow, so I’ll have to look for co-investors to share the down payment and mortgage payment. Still, my budget for property is only 100k, so I either have to find enough people to share the burden or just reduce the size of the property I’m looking out for.

Let’s tally the figures:

1. Car purchase: \$17,500 which I’ll need by end 2009
2. Marriage: \$35,000 which I’ll need by end 2010
3. Property: \$100,000 which I’ll need by around 2010 to 2012

Total: \$152,500

Assumptions:

1. I have to pay all the things myself, which is quite a valid assumption for now. My parents are definitely not going to chip in. My wild card here is the contribution from gf and her family. I assumed my wild card doesn’t exist.

2. I heard people saying that I can recover 80% of the wedding banquet expenditure. Since my banquet expenditure is estimated to be \$15,300, this means I can recover back \$15,360. I rather not bet on it. Let’s just assume that I get nothing back.

Cashflow

Getting the car and the property will increase my monthly expenditure as I need to repay the interest and principal of borrowing. The car should set me back by around \$1000 per month (includes everything) while the property should at most set me back by around \$1000 per month too, assuming that I have 2 person to share the burden with. That will set me back by \$2000 per month, meaning that I have less to save unless my income increases by an equivalent amount too.

Of course, the point of buying a car for me is to increase my income, so even though my expenditure is 1k per month, I might/might not be able to break even/make more. The second thing is about the mortgage for the property loan. Best case is that the rental can more than cover the mortgage, generating cash flow for me. Worst case is that there’s no rental and I have to bleed 1k per month till I exit from the property. I’m totally fine with the worst case scenario. The more likely scenario is that my gf can help to ease my burden for both of the debts I incurred, which up till now I have not considered yet. That will greatly improve my situation and most likely I can retain my savings rate of more than 50% monthly income.

3 yr plan from early 2009 to end 2011

I have enough cash to cover both the car down payment and the marriage, which I’m very glad. This means that till end 2010, I do not need to accelerate my savings (like selling off my stocks to raise cash). I have 2 years – 2009 and 2010 – to save up, which at my current rate of 50k per year, I should be able to accumulate 100k for the property at end 2011. The critical period is from 2010 to 2011, as I might need to accelerate my savings before the property market flies off. However, if the market from 1998 to 2003 is any indication of future trend, there might be a period of consolidation while buyers and sellers fight it out. If that happens, I will have more time to accumulate savings for property. If I purchase the property 3 years later at 2012, I’ll have even more cash to buffer.