Wednesday, June 24, 2009

How to be a millionaire

After reading so many books on financial freedom, I realised these are the ways to be a millionaire. Why are people so obsessed with being a millionaire? I'm not so sure, perhaps it's a milestone in their lives. For me, being a millionaire is not the most important thing to do. How about being able to spend a million for a start? Haha!

Ranked in order of ease, these are:

1. Start off as a billionaire, spend till you become a millionaire

I suppose a portion of the world's millionaire are actually formed this way. It's the best way to be a millionaire. Shiok until cannot shiok.

2. Use SGD $3,494.28 and exchange for 1 million Zimbabwe dollars

You want to be a millionaire right? Next time, when you rub a magic lamp, make sure you tell the genie exactly what kind of millionaire you want to become. 3 wishes are very precious...

3. Start saving 3k per month for the next 27.8 yrs

Hey, even by putting aside 3k per month regularly under your pillow, you can amass 1 million given enough time. If you start working at age 23, and do that consistently till you reach age 51, you'll get 1 million. Not so simple, because in order to save 3k, assuming 50% savings rate, you'll need to earn at least 6k and spend only half of your income. And make sure you don't hire a new maid and forgot that you had a million under your pillow....

4. Start with 25k, invest at 9.7% per year over 40 yrs

Or start off with 50k and invest at 10.5% for the next 30 yrs. Too long? How about starting off 100k and investing at 10.5% for the next 23 yrs? Easier said than done, I know. A mixture of trading and investing might just push it through. Unless you're Mr. B himself, who gets a CAGR of 20% at last count. Hey, at this rate, you'll double your money every 3.6 yrs.

Sunday, June 21, 2009

Bullythebear gathering

It seems like many people prefer sat 10 am to 12 noon. The venue proposed is actually Tea Chapter. You can click on the site here to view it. However, it opens at 11am.

I suggest we meet at 1045 am on 27th June, sat, then by the time people comes streaming in, it'll be just nice. They sell some little snacks there too :) I think the gathering will take 2-3 hours.

IMPT: Since the response is not warm, I think we'll postpone the session to future date :)

Friday, June 12, 2009

Polling time

Trying to arrange an outing in a tea house recently, so need some feedback from the regulars. Can you please post in the comments:

1. The day of the week which you are available eg. Fri or Sat
2. The time of the day which you are available e.g from 11am to 3pm.

The venue should be the place I mentioned last time, no need to mention it here again. If you're unsure, can always ask those in the cbox.

I'll try to arrange it :)

Friday, June 05, 2009

How to motivate people

First of all, a disclaimer. If I really know how to motivate people, this will really be my ticket to financial freedom. To motivate someone, you really need to understand both the science and the art. I've been doing this for 6 years, with varying results. Still trying... Broadly, to motivate people you have to maximise their pleasure and minimise their pain. I'll try to include accompanying examples.

Where applicable, I'll use a common example to illustrate the finer points. The example is this scenario where you are bringing your kid to the toy store. But the kid wants to buy a particular toy which you are not so interested in purchasing.

1. Threat of punishment

It's the classic "If you do this, I will do this" kind of motivation, though the "do" part is more like a disincentive to do certain things. I've always seen parents who said this. It's more a perceived punishment rather than actual punishment. But if the promise of punishment is not carried out, then the threat gets weaker over time.

Example 1: "If you are still so naughty, I'll will make sure you'll get caned when we get back"

2. Lure of rewards

"If you do this, I will do ___" - that's the key point of this method. The "do" is followed by something positive and pleasant. The promise of reward is usually good enough to motivate someone, not the actual reward itself. If the reward is not carried out after the promise, the method gets weaker over time.

Example 1: "If you get 80% of his final year exams, I'll buy you the toy. Do you want to study hard for your exams?"

Example 2: "If you don't make a scene here, I'll bring you to eat ice cream. The weather is so hot, you do love a nice cool ice-cream don't you?"

3. Reduce disapproval

I find that women are better at using this. Humans need to seek approval from significant people in their life - either parents, partners, spouses, friends, classmates etc. By putting your criteria in which you disapprove people, you can put a disincentive for others not to act in a certain manner.

Example 1: "Look at the little boy there who is crying. He is so disobedient and don't listen to his mummy. I don't like kids like that. Are you going to be disobedient like the boy too?"

4. Maximise approval

Same as disapproval. You set your criteria for your approval, then you compare how someone is approved by you because he/she fulfilled the criteria.

Example: "See your brother sleeping in the pram. He's so nice and quiet. I love kids who are quiet and obedient, so please don't make me angry ok?"

5. Appeal to ego/pride/vanity

Self explanatory? A bit similar to approval but the motivation is clearly different. Ego/pride is more internal.

Example 1: "You are such a big kid now, still crying at this age? Look that uncle is laughing at you now"

Example 2: "You are such a big kid now. Big kids don't cry over toys. You don't want to cry over little things like toys right?"

Example 3: "If you cry more, then you will be ugly already. No more pretty face. You like to be pretty right?"

6. Fulfil basic needs

Basic needs of a living thing are the ability to reproduce, to eat, to excrete and to move about. Essentially, this is the need to survive (or the survival of one's genes). This is one of the most important yet primal motivator in anyone's life. Crude but it works very well. In modern times, the need to survive can be rested on one commodity - money. Thus, wanting to earn more money is classified by me as a primal need to survive.

This method is so effective. Just look at what people will do just to survive an earthquake or tsunami.

7. Satisfy curiosity

To discover the unknown, to find out 'what if'...these are motivated by the need to satisfy one's curiosity. It's the motivation that makes one read a book (to find out what happened) and perhaps to finish one whole drama HK drama series in one seating. I suppose scientist are quite motivated by this. It's quite hard to find people who are motivated by curiosity in Singapore, from my experience. It's a rare sight.

To sell or not to sell?

Do you ever wondered about this - Imagine you have a stock which you had bought at $1.20. The price now is $1.80. It gives out dividend (not guaranteed, of course) at a rate of 5 cents per annum last year (dividend yield of 4.2%), with possibility of increasing its yield every year. Will you sell the stock for capital gains of 60 cts (1.80 - 1.20 = 60 cts) but forsaking 5 cents or more dividends forever?

Here's a few ways to valuate this:

1. Assuming that the dividend is fixed at 5 cts forever, it'll take 12 yrs (60/5 = 12) for the dividend (if you hold the stock) to cover the present capital gain (if you sell it now at $1.80). Which do you think is better - 60 cts gain now or 60 cts gain over 12 yrs.

Of course, the complications come in when you talk about the possible capital gain (or loss) if you hold the stocks for 12 years. The company might be bankrupt, it might freeze or cut dividends, it might give more and so on. It's never easy to decide.

2. The first method does not take into account the time value of money. It's better to do a discounted dividend approach to account for the time/money relationship.

Below shows my calculation, assuming there is no change in the dividend given per year. I assume a discount rate of 4% (why? that's the inflation rate I assumed) to account for the opportunity cost of holding cash.

After my garbage in garbage out (GIGO) exercise, I end up with a value of 41 cents. The safety factor is to account for any funny things that makes my assumption invalid. If after accounting for the safety factor, I end up with 60 cents, then theoretically I have no incentives to act on either options of holding or selling now. To push me to sell now, I raised the value of 41 cents by 30% to 53 cents - this means if I gain anything more than 53 cents, I'm actually motivated to sell now to lock in my gains.

Since selling now at $1.80 I'll get 60 cents. I'll sell now.

Again, this method does not take into account the possible capital gain/loss of holding the stock for a long period of time. I've already stated in my previous blog post "The false security of intrinsic value" the illusions associated with this kind of discounting method of valuation, so I shall not elaborate more here.

3. Last method is this: I saw another counter with better prospects, so I sell now to lock in my gains, and switch to another counter. What is better prospects? It could be better yield, safer yield, likelihood of higher capital gains in the future, charting etc. Exactly how does one know which counter gives a better prospects - I leave it to you. I do not know myself.

After being played in and out by the market, my inclination is towards method 1 and 3. If it does not scream out buy when using a calculator with only + - x ÷, then you probably need to look elsewhere.