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The "secret" to AK's success as an investor.

Sunday, November 1, 2015

I was talking to a friend over a cup of tea recently and we agreed that most people naturally do not have the temperament to be good investors.

Most of us are not born into a family of good investors. Those who are will have an advantage, for sure. For the vast majority of people, AK included, we might start the journey later in life and we might have to try a bit harder but unless severely disadvantaged, financial freedom is definitely not beyond us.


Having the right philosophy in life is essential as our philosophy will guide all our thoughts and actions. I have achieved what I have today financially largely because of my philosophy in life. Remember the story about the grasshopper and the ant? (See my blog post on being a happy peasant.)


Regular readers would know that I believe in saving money, the more the merrier, of course.

Something I blog about pretty often is the CPF and how we should try to take full advantage of it as Singaporeans. 


I said that if we bulk up our CPF-SA as soon as we could, we would be helping the CPF to help us build a more meaningful retirement fund more quickly. Compounding at 4% per annum over a long period of time without risk would be more magical if there is a larger base to start with.


Imagine compounding $10,000 over 20 years at 4% per annum versus compounding $100,000 over 20 years at 4% per annum. How much we get at the end of 20 years would depend on how much we put in right at the start, everything else remaining equal.


Quite easy to see that, isn't it?


Many of us are probably familiar with the idea that our CPF savings is not going to be enough for us to retire on and that we should save more money. 


Of course, a more sophisticated idea is that we should have investments that will help to fund our retirement and this argument is a very attractive one too.


At this point, let me tell you a story.






One of the stories which I enjoy sharing is how I bought my very first lot of ST Engineering's stock at $1.55 a share donkey years ago. I was attracted to how they were paying 100% of their earnings as dividends to shareholders. 


Back then, when I told some friends what I did and I had more friends donkey years ago, some went:

"Wah! So expensive! That is $1,550 a pop and then there is brokerage fee! You so rich!"


Well, something like that. 


Brokerage fee was more expensive in those days and, yes, one lot was 1,000 shares until not so long ago.

Of course, for us young people who just graduated and drew a salary of about $3,000 a month, $1,550 was a lot of money. Yes, I was a young person once upon a time.




A reader's little niece drew this.


What was even more amazing to many, including my mom, was how I bought more of ST Engineering's stock as its price rose. I remember buying at $1.70, $1.80, $1.90 etc. Well, not at those exact prices but you get the idea. 

I was buying almost every month and I have reaped the benefits of being a shareholder over many years. The very first 1,000 shares I bought are probably free of charge twice over or so by now.


So, similar to my narrative on the CPF and my strategy, it is about saving as much money as possible early in life and putting the money to work as early as possible in life, investing in good dividend payers. 


We don't have to be a genius to do this but the will to save more money right from the start must be strong.






Not too long ago, a fellow blogger whom I respect said that he admires my money habits. He commented that I am probably successful more because of my money habits than my investment acumen. I cannot remember his exact words but his comment is in my blog's comments section somewhere. 


I will be the first to say that I am not a very good investor but I can grow my wealth relatively quickly. This is not because I make a lot of money. It is because I do save a lot of money relatively quickly.


Be much better savers as early as possible in life. 


If we do this, it will allow us to become wealthier faster as it gives us more capital to invest with earlier in life and we will have more time to reap the rewards of being invested (i.e. becoming wealthier). 


If we are able to save much more money than our peers, even if we are not fantastic investors, just by investing prudently for income, all else being equal, we are most likely going to enjoy a much better outcome financially compared to our peers.


Related posts:
1. To be a happy peasant.
2. How did AK create a 6 digits passive income?
3. Greater financial well being is not beyond us.
4. The Millionaire Next Door.
5. Buying a $500,000 watch after 3 years of work.

14 comments:

Budget Babe said...

Glad to know my strategy of saving 99% of the time is right!

Siew Mun said...

Since 28 April 2014, I had changed my life style. I led a simple life style, managed to save 50% of my annual income. I decluttered my life selling my unused and excessive stuff. I feel great and can sleep peacefully. In the event I lose my job I will not fret too much because I already gotten use to the simple life style. My investment gives steady returns, wealth accumulation is in catch up mode and maxed out my CPF-SA. I took a hefty pay cut in a new job with more time for my family and less stress. I still survive as I have downsized. My simple lifestyle has become a habit which is second nature to me. However, I will not hesitate to spend on very special occasions for relationship buiding and will continue to donate (tithe) 10% of my income to charity. I hope your readers are encouraged, especially I started to turn around at ripe age of 49 in year 2014. I still got lots to learn too!

B said...

Hi AK

You've gone a really long way since you last bought your ST Eng stocks at $1.55 :)

I'd concur very much with that blogger who says that you are successful more because of your daily money management habit than anything else. In fact, this plays the defense while your investing plays the offense. Even if you don't invest at all, I'm convinced that your defense would not crumble at all, because that's the daily habit that has won you over in your life.

Thanks for sharing your secret sauce ;)

Sillyinvestor said...

Hi AK,

Save more, we can do more, be it in charity/ own interest or investment. More money to pirsuit what matters to us is happiness and that is wealth abundance.

Just do not save more and get poorer in the end.

GP Blogger said...

I just hope my daughter gets the same enlightenment to start investing early in life.
I have started her a Share builder plan from POEMS, she is 9 years old. I hope to give her a good gift when she enters the real world.

thanks for another simple great post.

AK71 said...

Hi Budget Babe,

I read your comment twice. OK, 99% of the time and not 99% of your income. -.-"

For a moment there, I thought I have been bested. ;p

AK71 said...

Hi Siew Mun,

You are an inspiration to everyone in their late 40s or even early 50s. Could I convince you to write a guest blog for ASSI? Seriously, I think many will benefit from your story. Just 10 or 12 paragraphs. Not too demanding. :)

If you decide to do this, just do it like sending me an email (ak71@sillypore.com). Don't send me any attachments because I don't have software to open them at home. Consider, ok? ;)

AK71 said...

Hi B,

Thank you for the affirmation. :)

However, I would add that if I didn't invest for income at all, I would not be as well off as I am today. Yes, my "defense" might not crumble but I doubt I would be financially free.

You must be a football fan! ;p

AK71 said...

Hi Mike,

With Christmas a few weeks away, your comment is a timely reminder. :)

We don't want to be an Ebenezer Scrooge. -.-"

AK71 said...

Hi GP,

I am always happy to read comments from parents who are helping their children understand the importance of saving and investing for a more secure financial future. :)

I share this message with my niece whenever I get the chance:
At what age to start investing in stocks.

assi ak71 said...

After dabbling with individual stocks i think i am better off getting sti etf. Im just very lousy in individual stocks. Unlike ak. I tend to disagree that being a good saver will get me anywhere near ak. If you look at the IRR of ak, im sure he bested many retail investors. For poor me i dont think i can do better than sti...

Frugal Daddy said...

Hi AK

It is not easy to be "popular and successful" yet grounded. As usual, you are a role model to many.

Frankly, my ability to save and live simple lifestyle enable me to stop work any time at 32 years old. I inherit nothing (financially) from parents anyway. Sometime, we need to put on our creative mind to stretch the money and whether you can live that simple (yet meaningful) life, it is up to individual

AK71 said...

Hi assi ak71,

Replying to you takes "talking to myself" to another level. ;p

This blog post is not about achieving what I have achieved or doing better than me as an investor. It is about improving our financial health through becoming better savers which gives us more fire power when investing for better returns.

We could choose to buy into the STI ETF, of course, which requires less work than stock picking. However, even great investors like Peter Lynch would say that if we are right 6 out of 10 times in our stock picking efforts, we are doing a good job. So, don't be discouraged. :)

AK71 said...

Hi FD,

It is easy for me to be grounded because I didn't set out to be popular. I am still the same boring fellow who started blogging in 2009. Well, I am a bit older and fatter but, otherwise, still the same. ;p

I always say that we should try to keep our needs simple and our wants few. If we do this well, we would require less financial resources to maintain our lifestyle. You are doing a fantastic job of this, it seems. You are a good role model. :)

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