They chose financial independence over home ownership.

This is somewhat extreme but watch how this Canadian couple chose financial independence over home ownership.  They are in their 30s and,...

Past blog posts now load week by week. The old style created a problem for some as the system would load 50 blog posts each time. Hope the new style is better. Search archives in box below.


"E-book" by AK

Second "e-book".

Another free "e-book".

Pageviews since Dec'09


Recent Comments

ASSI's Guest bloggers

Universal Studios Singapore and a lesson in investment.

Saturday, February 21, 2015

I spent a whole day in Universal Studios Singapore with my family today. It was my first time there and I was pretty impressed.

We went in at about 10am and left at 8.20pm after watching the fireworks. We got our money's worth, I guess.

One thing we did quite a bit of was waiting for our turns to get on the rides. One particular ride made us wait for more than an hour for our turn. It was the Transformers ride. After the ride, I told my mom that it was worth the wait. I think it was even better than the Jurassic Park ride which we got on after a pretty short wait in the morning.

I told myself that some things are worth waiting for. We just need patience.

Now, some people tell me that they feel silly holding on to cash waiting for a crash. Some people tell me that the opportunity cost is too high to maintain a war chest.

I won't tell them that they have to maintain a war chest. I mean the choice is theirs to make, isn't it? However, I would ask them if they are very sure that the stock market would not experience a crash.

If they think that it is only a matter of time that we see a bad crash, then, what is wrong with having a war chest ready? The opportunity cost of not having a war chest ready could be really high then. Don't you agree?

My souvnenir from Universal Studios Singapore!
I hope you don't get too freaked out by my hairy legs. -.-"

When people ask me how I manage to do so well in the stock market, I usually tell them that most of my big winners were purchased during severe market downturns. I could do this because I had a war chest or two ready.

During the GFC, my war chests were filled to the brim. Friends were amazed as I pushed out war chest after war chest to buy battered down dividend paying counters then.

"If you took our top 15% decisions out, we'd have a pretty average record. It wasn't hyperactivity but a hell of a lot of patience. You stuck to your principles, and when opportunities came along, you pounced on them with vigour." Charlie Munger.

So, be 100% invested now or have a war chest ready? The decision is yours, of course.

"Patience is sometimes the hardest part ..."
Source: Little Book of Value Investing.

Related posts:
1. If we want peace, be prepared for war.
2. Get paid more while waiting for war.
3. Revisiting AK's simple strategy.


KS said...

Hi AK, trapped by NOL for long time, finally see some light, do you suggest hold on or let go at this moment.

AK71 said...

Hi KS,

Personally, I feel that NOL has deep seated problems which will persist for years. It isn't something they can resolve on their own.

I won't suggest anything to you but you might want to ask if their problems are company level or industry level problems. Ask if they are doing the right things to improve performance or are they buying time? Will they continue bleeding?

temperament said...

Mr. Market is irrational longer then you can think or bear is always true. With cash as an option with no expiry time limit is definitely very hard to stomach as FD rate is only 1 -1.8 % p/a. Those who hold cash now definitely seems quite stupid, isn't it?
So for ah aunties and uncles who after 55 , still leave their CPF OA untouched and CPFIS intact is definitely a very smart move.

LOL said...

Hi AK,

It was a good read.

Just like to ask you, is your emergency funds part of your war chests?

AK71 said...

Hi temperament,

Yes, beyond 55, retirees can withdraw amounts above the minimum sum from the CPF at any time. So, it is like a savings account with 2.5% to 4% interest per annum. Great way to hold on to cash and receive a higher interest income. :)

AK71 said...


Nope, emergency fund and war chest are not mixed up.

Remember to Eat Bread With Ink Slowly. ;)

yeh said...

So ak
Emergency fund, war chest and amount to settle outstanding hdb loan all 3 are different?

Richard Ng said...

Are you considering wearing the minions shoe to the next talk? lol

AK71 said...

Hi yeh,

War chest is different from emergency fund, for sure. We cannot have a pool of money earmarked for two different purposes. What would we do if an emergency and an opportunity were to occur at the same time? What would we do if an opportunity depleted the fund and an emergency were to strike soon after?

As for money to settle outstanding home loans, I would say that for people who are not thinking of retiring soon, money beyond what is required to service 24 months of mortgage payments (and this money is considered to be part of their emergency funds) could be considered as part of their war chest. :)

AK71 said...

Hi Richard,

They are house slippers. Not meant for the outdoors. -.-"

Danny Tan said...

Hi AK,

Need your advise on leveraging your War Chest...

I read lotsa books and all said kindly avoid leveraging.
My idea is what if you have 300k and loan another 100k to invest in stock especially when the opportunity arises.
This also bare in mind with the rules that you have no other loan such as car loan or credit card loan.
Will you leverage?for sgd 3 you borrow sgd 1 for your war chest. How?
Thanks in advance and really hope to hear your opinion on this soon.

smalkmus said...

What is the ratio of your investment to war chest? Would like to make a reference point

Lim Der Shing said...

Ak, I am also torn between 100% invested and keeping funds to buy crashes. I started doing the former in 2011 and by 2014 am 100% invested because I could not generate the 5% on net worth with a comfortable risk level. If I did not go 100% vested

Can you share what your experience has been in terms of returns on total net asset including your emergency and opportunity funds? Are you able to do 5% annualized on net worth? If so, it is pure equity portfolio with cash or are there bonds and property?

AK71 said...

Hi Danny,

I am very conservative when it comes to such things. In a nutshell, I would avoid borrowing money to invest in anything.

"I've seen more people fail because of liquor and leverage, leverage being borrowed money. You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing." Warren Buffett.

I invest with my own money, money that I can afford to lose. :)

AK71 said...

Hi smalkmus,

Well, there isn't a yardstick for all times although generally I would like to be 50% invested and 50% in cash. Currently, I am closer to 75% or 80% invested because of opportunities to invest in stocks such as SCI, SMM and STE in recent months at much lower prices.

My income investing approach means that much of my portfolio is generating rather consistent cash flow that replenishes my war chest regularly. So, cash as a proportion of my portfolio can grow relatively quickly.

AK71 said...

Hi Der Shing,

Well, I am not one to measure, really. I am not a fund manager who has to answer to unit holders. A fund manager would have to benchmark his performance against some index. -.-"

In my case, the only person I have to answer to is myself. As long as I am beating inflation, generally, I am happy. I have been rather lucky in that I have been able to generate at least very high single digit returns overall for my portfolio in the last few years.

I do not lump other assets such as cash and property in the calculation. I look at these as different business centres. ;p

To me, there is a purpose to hold cash although there is a cost in holding cash. It is a cost that I am willing to pay because experience tells me that not holding cash could result in bigger regrets. If I am able to minimise the holding cost, it is good enough for me. ;)

As for private property, if we look at it from a rental yield perspective, we would never invest in private property in Singapore. So, for me, private property is primarily for capital gains.

I don't lump private property and stocks together in the same portfolio. I keep them separate. I don't worry about how my property portfolio is affecting the performance of my stocks portfolio. I don't look at overall performance. :)

Lim Der Shing said...

Thanks for sharing. To each their own. I track overall peromance and individual asset class performance against benchmarks because I want to know all my effort has concrete benefit. Otherwise I might as well just buy indexes or outsource and stop doing any investing work that generates negative value if I can't even beat the benchmarks.

But I do agree we should see whether we beat inflation or not. I do so by including all investment assets. For example, if we have 2m stocks, 1m cash and 1m investment property. And we do 9% on stock but zero on cash and 2% property, then our effective gain on net investment asset is 4%. Still above inflation of 2-3% but not that fantastic.

I think that is why most experts advocate 90-95% vested. if the markets tank, maybe another way to raise cash us to use leverage. A 10% leverage + existing 5% cash will raise 15% to buy on crashes. With leverage facilities in place, one can fully invest 90-95% with less fear?

AK71 said...

Hi Der Shing,

Well, if one can stomach a sharp decline in the value of our portfolio, then, I guess being 90% to 95% invested might be OK. However, most people are not able to stomach that kind of sharp losses that we see in a market crash.

As I feel that peace of mind is priceless, I do what I feel gives me peace of mind. In part, having a meaningful war chest does that for me.

I remind myself that it was also due to the fact that I had a big war chest ready that I was able to emerge from the GFC much stronger than before. It was a time when cash was king and it wasn't easy to get credit at all.

Experts don't always agree with me and my kind but, of course, I am not an expert. ;p

Lim Der Shing said...

Hmm.. But did you back test before and see if you were fully vested from 2003-2008 and made those gains with the cash component, how the picture would be? Meaning if you invested 95% since 2003 to now, compared to your current cash heavy strategy, which would do better?

My experience past 4 years of significant investing is that being near fully vested allows for gains of 8-10% per year on cash + equity. That is about 45-46% gains already. But if I did 50% cash, then it is only 21% gains. If the crash does not come, basically keeping so much cash means losing out and definitely harder to keep pace with inflation erosion on net worth? Of course the risk taken with 95% invested is higher which i agree and hence my question later about fixed income.

You are right it is up to individual risk profile but you strike me as a thoughtful guy who has much pride in your philosophy and investing know how, so I do wonder how you ended up viewing this critical topic which essentially is about asset allocation. Your view of 50% cash is quite unique among most hnw or uhnw investors. A more normal number is 10-20% cash which is already higher than the 2-5% espoused by the bankers.

Come to think of it, do you have fixed income instrument like bonds or bond funds in your portfolio too? Or is it pure equity and cash.

Siew Mun said...

For the last year 2014, I was 100% vested albeit lesser peace of mind at night. I took the approach in haste drive up my wealth accumulation.
I exited 40% of my reits to anticipate Fed rate increase in Nov. Now I have about 40% cash holding. But I can sleep more soundly at night.
“There are worse situations than drowning in cash and sitting, sitting, sitting. I remember when I wasn’t awash in cash and I don’t want to go back." Charlie Munger
Over the last year I have also learn when you save a high percentage of income (45% of my income saved), things like investment return, inflation, interest rates and dividend yield matter a whole lot less. Most of our financial success can just be attributed to a high savings rate.
Take the 2 points into context, high percentage of income saved and investment a portion of your savings with a war chest is a paradigm shift for me. I work 1 year and get to ~1 year income free. So if you worked 10 years, you can live without having to work another 10 years.

AK71 said...

Hi Der Shing,

Nope. No back testing.

However, I can say for a fact that the last few years were years of abnormally high monetary supply and that has fueled asset inflation. Could this continue? It might.

One of the things massive money printing has done is to encourage recklessness and many now think that there will not be a crash in the stock market for a long time. Of course, they could actually be right.

I think all of us have some kind of strategy. Some have told me to ride the current wave and not worry too much. Unfortunately, I cannot help but worry. So, to avoid all my hair turning white, I decided to stick to my strategy and not be almost fully invested. I think peace of mind is more important than squeezing a bit more out of our portfolio.

There will come a time when I might be almost 100% invested again. Such a time came during the GFC, for example. For now, I am quite content to hold more cash.

Bonds? Not now, no, unless we consider the funds I have in my CPF accounts which are backed by AAA rated government bonds. ;p

AK71 said...

Hi Siew Mun,

You have hit the nail on the head and I particularly like that quotation. Charlie Munger is one of the wisest people I know when it comes to personal finance and investment. :)

When I tell people that I probably save about 200% of my salary, their looks of disbelief are priceless. LOL. Yes, I am a bit perverse sometimes, I know. Bad AK! Bad AK! ;p

In fact, someone told me that if we have a good career and a high savings rate, we don't even have to bother with investments. Highly debatable but I do see his point. ;)

I always say that knowledge about FA and TA is important but knowledge about ourselves is more important.

If we try to do the same things others are doing just because they seem to be making more money but it makes us a nervous wreck in the process, is it worth it? I don't think so.

We should look outwards and learn from others but we must not forget to look inwards and learn about ourselves too. :)

yeh said...

how able to save 200% of income?
please teach me:P

Lim Der Shing said...

Thanks Siew mum for sharing too. AK is right in that end of the day it is personal philosophy. To share my personal experience and view point which I think is both similar and different.

We are similar in that I too believe in high income and high saving. But for the normal guy who aspires, my experience is that household spending tends to stabilize at 300-400k. So unless you have great spending discipline like AK, the key is to earn and invest returns until income is in excess of 300k per year. The rest almost all becomes savings. It's much less stressful than to watch costs.

As for sleeping well with 90 or 95% vested. I do sleep well as I have bonds and property too not all equity. Equity only 35%. What worries me is leverage use. So I will be reducing that this year. But curious to know, AK do you leverage on property? If so under my tracking, I also consider that leverage. I currently leverage 35% on asset including property. is your ratio similar? I want to know what a conservative portfolio thinks.

I am also reminded that gfc/Great Depression happened once in 70 years and with worldwide easing.

Lim Der Shing said...

AK what you mean by save 200% of salary? I thought you are retired?

temperament said...

What Is The Right Asset Allocation For You?

Finding the appropriate asset allocation requires you to know your own financial and life situation and yourself. You must analyze your net worth, employment and income, saving rate, spending rate, housing situation, income you will need for savings, when you will need it and who is getting the remainder when you are gone.
Beyond that the right allocation is the one that you can live with during a deep and prolonged bear market. It’s a mix where you will be ready to buy more stocks as stocks fall and sell stocks as they rise.
It doesn’t do any good to be brave and select a risky allocation that you don’t have the stomach to stick with during the poor market conditions.

We all choose our own "poison', isn't it?
i am with AK 71 now but may choose the 2nd last paragraphs of the "extract" recommendations due to no more HC.

AK71 said...

Hi yeh,

LOL. I give you a clue:

Save 100% of your take home pay.


AK71 said...

Hi Der Shing,

I entered into semi retirement sometime last year. So, I guess I am still gainfully employed although less gainfully as before. ;p

Wah! Household spending for a normal guy is at $300K to $400K? I think this is not a regular household. I wrote a piece on this before: What is $1 million at retirement?

It was revealed that from 1997-1998, an average HDB household's expenses was S$2,681 and 10 years later in 2007-2008, it was S$3,138 or an increase of 17%. By 2042, assuming a core inflation of 2%, an average HDB household's monthly expenses would become S$6,400. This means $76,800 a year. $300,000 is a long way off. -.-"

Yes, I do have a housing loan. Off the top of my head, my gearing ratio is probably less than 20%. I have enough cash to pay off the loan if the situation calls for it. I blogged about this before but I can't seem to locate the blog post now. -.-"

As for saving 200% of my income, I am just having my bit of fun. If my annual pay is $60K and I can save $120K a year, I am saving 200% of my income lor. ;p

AK71 said...

Hi temperament,

Er... What do you mean by "no more HC"?

Please enlighten. I blur. -.-"

temperament said...

No more HC = No more Human Capital.
Sorry for the short cut.

Lim Der Shing said...

AK, I don't mean 300,000 is a regular household spend. That would be ridiculous. 300K annual spend is probably top 5%-10% spending.

What I am saying is for someone who is more normal when it comes to spending, they will usually up their spending as income grows until around the 300K mark give or take 50K. At this level, most aspirations are fulfilled and so spending tapers off without much sacrifice. I checked with a few hnwi, this is about right figure for a household of 4/5.

Interestingly, beyond 300K,everything after that becomes savings. So if someone is capable, they focus much more on income and far less on savings. Simply because most psychology cannot save well at lower levels of consumption.

Your method or the AK method works very well to accumulate wealth. But it requires a person who does not aspire to any luxury goods and who has incredible discipline to save in a manner beyond the norm. I suspect most families will find it hard. Even if one spouse wants to , the other probably will not.

Anyway side topic, appreciate your sharing of 20% gearing. Gives me much food for thought. I need to balance my higher gearing with the fact that I own bonds/hedge funds etc which you don't. So while a crash may drop an all equity portfolio 50%, my portfolio may drop just 30+% due to diversification.

AK71 said...

Hi Der Shing,

Ah, you are referring to the "aspirationals". OK. :)

As for capable people focusing on income instead of savings, I don't know if it is a matter of capability as you have put it. I think it would be more balanced to say that it is not just a matter of ability but also willingness. ;)

Well, there are many paths to financial freedom. Quite obviously, my way is not the only way. As long as people do well, I am happy for them. :)

AK71 said...

OK, this reminder is for more regular folks like me:

Most millionaires – folks with liquid assets of one million dollars or more – are not big spenders. Quite the opposite, in fact.

...the most productive accumulators of wealth spend far less than they can afford...

The wanna-be’s, on the other hand, are merely “aspirational.” ..... Their problem, in essence, is that they’re trying to look rich. This prevents them from ever becoming rich.

How to tell if you are rich?

Siew Mun said...

I found myself more frugal as I accumulate more wealth. Looking for ways to reduce my expenses. My better half commented the rich gets richer coz they are more kiam. :-p

AK71 said...

Hi Siew Mun,

I was stricken with the same illness! -.-"

I became more frugal for a time. Now, I try to be less tight fisted with money. Making some progress but still trying...

Lim Der Shing said...

AK, this article has much inspiration from a good book called millionaire mind. What the writer omits, is that there is another group called the glittering rich who make >20m net worth and income above 2m. These guys are spenders and great savers simultaneously. I guess it is by default, if my hypothesis of around 300-400k spend is right, earning 2m, the household would save 80%.

My experience is slightly different from ak and siew min.. I am aspirational to some extent but I also am value oriented in other sense and believe in spending within what I earn.

Ak, I feel always balance better. We can't bring our money with us, so might as well spend and be generous where possible while still being value conscious. For example, on health, I eat well and avoid all fast food and ramen. My cholesterol has fallen some 40points.

AK71 said...

Hi Der Shing,

Thanks for sharing your approach and, yes, I appreciate that your experience is different from most of us here. :)

I do understand where you are coming from and I definitely do not feel that you are wrong. After all, most things in life are not absolutes. If someone is worth $30m, is it wrong for him to buy a $3m home and a $300,000 car, for examples? A LV wallet that costs $800 is probably just loose change to him. :)

However, the truth is that most of us are not in that category. So, the easiest way for most of us to accumulate wealth, I have discovered, is by being more prudent when it comes to spending money. Of course, we should make a conscious effort to make more money at the same time. People will have varying degrees of success but all should move in the same direction.

I do agree that money should be a tool and not something we hoard. I tend to be more generous to my family than to myself. I also have a list of charities which I support. However, it is true that I am still learning to be less tight fisted with money.

As for food, yes, many readers have told me that I have lots of room for improvement. I love my junk food too much. -.-"

Thanks for the reminder. I appreciate it. :)

Machi said...

Hi AK,

How do you decide which stocks to buy during a huge "Market Sale" like during the GFC? Some people says it's just like shooting fishes in a barrel.

Do you top up your existing portfolios or do you already have done some research and eyeing on a few good stocks?

Or would the safest option be just buying up most of the blue chips?

AK71 said...

Hi Machi,

Oh, I have a watch list at all times and I have an idea of what are fair prices for these stocks. :)

For stocks which I am already familiar with, it is easy for me to act quickly in deciding whether to buy more or not in a downturn.

Of course, if we are not sure of any one stock, buying the STI ETF is always an idea worth considering.

Machi said...

Hi Ak,

Once again, many thanks for your guidance. :)

Truly appreciated.

Jingle Bell said...

Hi A K,
With 70%to 80% invested in the market...should there be a correction you have only 20%to 30% cash n war chest, is this good enough? Also, your portfolio of 70% to 80% would have reduced.

AK71 said...

Hi Machi,

Oh, my. I must have been talking to myself a bit too loudly again. A thousand apologies. -.-"

AK71 said...

Hi Jingle Bell,

I am confident that most of my long positions have a margin of safety. Even if there should be a correction, I think a big portion of my invested capital is safe.

As I mainly invest for income, most of my portfolio is generating cash flow for me. I am able to replenish my war chest quite rapidly. I am referring to my dividend income, of course.

I feel that I am ready to enter a bear market at any time and probably emerge stronger too. :)

You might be interested in this:
How to have peace of mind as an investor?

Jingle Bell said...

Hi A K
Thank you for your sharing. How about those share counters that had bought recently but have been depressed. I understand ,there are many reasons for price decline. If price drop due to industry and market sentiments will nimble as price fall. Under what circumstances will you not buy or even cut loss? Can you name a few circumstances ? I am trying to learn to manage my portfolio esp the bad ones which I thought I have entered at margin of safety. Thank you once again.:)

AK71 said...

Hi Jingle Bell,

It is difficult to get in at the bottom. If we did, we were probably lucky. :)

Even if we were sure we did not overpay for a stock, it does not mean that the stock price could not go lower.

As long as I feel that I did not overpay for a stock, I would not sell even if its price were to decline. I would, in fact, be thinking of buying more.

I would only sell if I feel that the investment is no longer doing what I feel it should be doing for me or if I feel that it is overvalued. There could be other reasons but never simply because its share price is declining.

I shared in the recent past how I reduced my investments in Marco Polo Marine, Yongnam and Sabana REIT, for examples. If you are interested, you might want to do a search for these blog posts. :)

Machi said...

Hi AK,

You're too humble!!

I afterall read your blog to listen to you "talk to yourself" and have learnt alot :)

Keep talking to yourself more! LOL.

K said...

Hi AK,

May I know where you are keeping your war chest at the moment? Are keeping it in FD or investment grade bonds that will be called shortly? Or you have a better place to keep them?


AK71 said...

Hi K,

You will find the answer here:
Use fixed deposits for emergency fund and war chest. (With a section on OCBC 360, UOB ONE and CIMB savings a/c.)

Monthly Popular Posts

Bloggy Award