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A wealth building strategy that has worked for AK.

Sunday, July 24, 2016

Investors must have the temperament to be philosophical about market fluctuations.

This blog post is in reply to a reader's long and thoughtful comment on AK's wealth building strategy which a screen capture could only snap partially:

Read the full comment: here.

My reply to the reader as follows:

Hi Millionfaith,

Thank you for the very insightful comment. :)

Here are my thoughts:

1. I agree with you, generally. 

However, if we invest in a business for income, if it has good income generating ability and if we entered at a good enough price, it could be a case of simply sitting back and not doing very much after that

An example in my case could be ST Engineering which I started buying at $1.55 a share donkey years ago. 

There are probably a few other examples in my portfolio.

2. For most of us, it is about working hard and smart while being financially prudent to accumulate wealth. 

Then, the next step is investing in fairly good income producing assets to grow our wealth, taking care not to do something foolish (too often). 

If we did not overpay, there might also be a chance of capital gains which should give us a leg up. 

I am only human and I was very greedy during the GFC and my war chest was emptied. 

Being pragmatic has helped me on my journey.

3. I always say that I have been mostly lucky and I truly believe this. 

I have been able to capitalise on opportunities to buy at lower prices offered by Mr. Market when he felt depressed. 

GFC aside, I deployed almost $100K into the stock market last August. 

More recently in February this year, I bought more DBS shares at $13+ a piece. 

These were times when Mr. Market felt depressed.

Was there any way I could tell when Mr. Market would feel that way? Nope.

I could not predict but I was prepared.

The journey towards financial freedom needs preparation. 

It is not just about gaining knowledge in FA and TA. 

It is also about having the right temperament.

Of course, temperament is not the easiest thing to acquire, unlike knowledge of FA and TA. 

This is why self knowledge is so important.

Know ourselves and know that there are many ways to build wealth and find the way that is best for us. 

What has worked for me might or might not work for another person.

Related posts:
The mystical art of wealth accumulation.

2. Financial prudence at any age.
3. The "secret" to AK's success as an investor.
4. Journey to financial freedom needs preparation.
5. To be richer, be comfortable with being invested.


Kevin said...

Hi AK,

In fact DBS(D05) shares are still worth buying in my opinion even though its price rose to S$16.29 per share currently.
Its Q1 2016 earnings were decent and its current P/E Ratio of 9.35 and P/B of 0.97 is still very attractive.

On the other hand, I will also pay attention to what sort of actions(if any) will MAS give out to DBS due to lapses on the 1MDB saga.

STE said...

Hi AK, allow me to chip in my two cents,,success in investing = ”天时地利人和",,无可缺一!,meaning we require
1) Time : long time inviting horizon, patient , persistence , compounding interest effect
2) Timing : good timing or entering price,, like AK on DBS and ST Eng,,,cud use different market valuation or methods,,like PE,PB,Div Yield ratio ,,,be it TA or FA ,, not to forget " mean reversion " and market cycle ,,, and of course ,, some " luck factors"
3) Trade/ Transaction. : what to buy ? looking for growth or income stock ? Avoiding value trap on buying cheap stock ,, buying the biz and not the price, using combination of methods eg FA and TA ,,plus EA ( emotional analysis )
4) Market : remember market move in cycle and very irrational ( remember what Benjamin Graham call it Mr Market ) ,,take advantage on market's irrationality ,,, take note that " volatility not equal to Risk "
5) Mind: get your mind-set right and psychologically fit for investing world . Understand the ' behavioral gap or biases " in investing eg .. confirmation. biase, framing or anchoring , loss aversion , ,mental account concepts ,,, which will help u to avoid some investing "pit falls "
Shun Zhi " know yourself , know your enemy ,, hundred battle hundred win " 知己知彼,百战百胜“
6) Money (management ) : analyzing your income statement and cash flow ,, without positive cash flow and saving ,,,one will never be able to talk about investing or wealth accumulation . Also ,, always watch out on your " life style inflation" ..unless one is born with " silver spoon ".. Life style inflation is the most risky thing to do in early wealth accumulation period.
Hope this 3T 3M methods explain some of the " puzzle " on life cycle investing ...
Intelligent not equal to Investing success
Cheap not equal to value
Volatility not equal to Risk
Business value not equal to investing value
Simple not equal to easy .

Happy investing ,,, cheers !

AK71 said...

Hi Kevin,

I share your sentiments on DBS.

I hope to collect more on the cheap.

Investigation into lapses involving money in the 1MDB saga could provide such an opportunity as the bank's fundamentals should be unaffected.

AK71 said...


Words of wisdom! Thank you for reminding us about the 3Ts and the 3Ms. :)

Kevin said...

Hi AK,

DBS has just announced its SGD 700 million exposure to Swiber Holdings which has filed for closure.

I think the stock will have some downward pressure and it may present an opportunity to accumulate if the outcome is within control.

AK71 said...

Hi Kevin,

I believe that a S$700 million write off is not crippling for DBS. It is probably inaccurate but using 1Q2016 earnings as a guide, S$700 million is equivalent to 2 months of earnings for DBS.

The last I read, DBS had S$17 billion worth of loans to the O&G sector made mostly to KepCorp, SembCorp, Ezion, Ezra and Swiber. I hope Swiber is the first and the last.

I will accumulate DBS on any further correction in its share price. ;)

Kevin said...

Hi AK,

I do believe it is a manageable write off too but hopefully the vendors to Swiber do not have a relationship with DBS as well or else this could be a domino effect.

Ezion and Ezra are also watchful as Ezion's net profit dived more than 50% in Q1 and Ezra's Lee family members have been unloading their real estate assets as well as their equity stake in Select quite recently. By the way, are both companies sort of related?

However, I will accumulate DBS on any further correction in its share price too if the damage is not lethal. :P

AK71 said...

Hi Kevin,

The fear is always contagion but unless the entire O&G sector disappears into oblivion, damage to DBS though painful will not be crippling. To be lethal, much more in the economy other than the O&G sector must go under. The world would then likely be in another recession similar to what we saw during the GFC.

AK71 said...

Loke Oilin says...
Big brother has investment acumen.
No need to work has nothing to do with luck but careful planning and harvesting over the yrs.

AK says...
Aiyoh. It is mostly luck lah. Really. ;)
I planned and acted but Lady Luck has been kind to me. :)

Refer to point number 3 in this blog.

AK71 said...

As Df says...
Without the planning and acting even Lady Luck can't help.
That's how we get horror stories of lottery winners that end up in worse situations than before they struck lottery ...

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