How did STE who is married with children retire at age 44?

It has been a while since STE last wrote to me. STE is now enjoying his early retirement and has generously decided to share some thoughts with us here:

Hi AK ,

Yes , is me , STE. I have stop working since end last year and still on “sabbatical leave“ till now (it might become a “permanent leave without ending date“ haha ..

Escaping from 9-5 working environment is really something different and is a big change for me and my life style. Now, I have more time with my kids and doing more exercise (be more healthy now, I guess less stress also partly contributed to my better health, I used to have migraine and gastric for long time, but after almost 6 months after staying at home and doing nothing, all these medical symptoms seem gone. :)

Well, I thought of sharing my latest financial portfolio and some thoughts on investment strategies. 

My friends wonder how am I going to survive without a job for past 6 months. the answer is, yes, “Passive income through long term investment.“

Allow me to tabulate my “passive income“. Since day 1 of my investing journey, I like dividend very much, you may notice from my earlier post, the share I brought in early days on Malaysia stock market for counters like “Perlis Plantation / BJ TOTO/ PB Bank / Oriental Holding / Tan Chong / Malakoff /BAT etc “ were those with high Dividend Yield and good fundamentals.

Dividend Matters:

To show the importance of Dividend in process of wealth accumulation through investment, I would like to append below table. YTD accumulative Dividend and Qtrly dividend I received. I kept record on all the dividend I received since day one of my investing journey.

• Current Qtr dividend range from $40-50 K and total accumulated dividend is hitting $ 1 MIL soon
• About 42 % of total profit from our portfolio came from Dividend Income .
• Notes : Jump in dividend collected since 2009 was due to fund transferred from my Malaysia’s share portfolio and house since we decided to convert our citizenship. I was really "Lucky" as mentioned in my previous post on your blog.
• Notes : Quarterly dividend seems smooth out from early 2015 after Asia Pay TV change to pay their dividend on Qtrly basis.

Does size matter? Definitely. To have such amount of quarterly dividend, one needs to have quite substantial amount of portfolio but look at the chart, everything must start with “small steps“  and remember “Rome was not built in a day“. "Gamba Teh"!

What is your CAGR  and “power of compounding “ …

I think all the serious investor need to know what is their own investment CAGR. Well, our portfolio manage to achieve 11.13 % for past 17 years. Gone through various market cycles … dot com/ SARs/ 911/ GFC / etc. I hope my portfolio could sustain in next crisis.

Since market’s long term return on investing was around 8-9%, sorry, I have taken some of your money from market. Based on quotes from the book  “The incredible shrinking Alpha“, ”Alpha is a Zero-sum game (before cost ), meaning that for some investors to generate Alpha, they must exploit the mistakes of others“.

Picture worth more than thousand words :

Other than two investment strategies I have shared previously ie "Margin of safety" and "Mean Reversion vs Market Cycle", I would like to share few pictures which I deem important for all serious investors.

< On Market>

< Andre Kostolany: "Psychological create 90% market ">

"I can calculate the movement of the stars, but not the madness of men.” , Sir Isaac Newton

"Investors want certainty, and we cannot give them certainty. We can give them high probability; we cannot give them certainty" by Charles William Hamilton

Note: Of course, one needs to know how to avoid the “pit fall“ of investing in “hot or hype“ stocks from time to time.

< Sun Zhi : Know yourself , Know your enemy (market ), hundred battles, hundred wins.> 

< On Forecasting :>

Warren Buffet : “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”

< Short term vs Long term >

• Short term is full of noise and volatility, only long term will show result.

When we invest in property or setting up own business, we could afford to wait for years to see the result, but our expectation change when we invest in stock. We buy today and hope the price will increase much tomorrow.

Patience. Wait for the durian to drop.

< Investing during Crisis time >

Investing in crisis time can be really rewarding and it has shortened my journey to Financial Freedom. I still hold most of stock I bought during crisis which gave me double digit Yield on cost.

Warren Buffett: 
The incorrect lesson often preached that volatility is a proxy to Risk is dead wrong. Volatility is far from synonymous with Risk. Volatility can create opportunities or risk at the same time.

I am holding approximately 20% cash now. I was 100% fully invested 2 years ago. Since then, I have taken some money off the table and keeping my dividend received as War Chest as well.
I always look at CPF money as “investing in triple A rated bond“. I’m not using any of my CPF money to invest at this moment but I will use that once crisis hits same as during GFC.

AK’s idea of maximising our CPF-SA account is absolutely right. $25K of interest p.a (both me and my wife ) is really a good money to accumulate in next 10 years before we hit 55 . By then , we would have more than $1 MIL in our CPF accounts combined. This is another cushion in case market crashes drastically. Not forgetting the "power of compounding ", the CPF returns around 3% average (combine OA/SA/MA) is good money in the long run.

Last but not the least, on <Money Management and Life style >

As I mentioned in previous blogs, our lifestyle is rather simple and I’m staying in a HDB flat and eating at hawker centres or cook our own meals. With current our dividend income, we still could save up to 60% from total dividend amount. I think that is another cushion in case market crashes and dividend drop by half. I guess we still can survive .

Even before we talk about investing, living below our means and saving the difference for investing is the most important or key to Financial Freedom .

Cheers to all and I hope all could have smooth and wonderful journey to achieve your own financial freedom (and knowing how much is enough in your life).

NOTE: I think some readers did ask me on what books I recommend to read in previous blogs where I failed to answer that time. Below is a list of books I would recommend for all the serious investors. One may notice that I would recommend more Market History and Psychology as compare to Economics or pure Finance / Stock analysis. As I mentioned before, Market is 90% of people and 10 of Economy. And History repeats itself without fail.

- END -

I am sure we get a bit tired of hearing the same old stuff from AK all the time. So, thanks to STE for sharing. Much appreciated. Some points STE made are great reminders for me too.

So, make some time to meditate on what STE has shared with us and maybe read a few of the books he has listed too. Go to a nearby public library or do a bit of charity by buying pre-owned copies from BetterWorldBooks.

We also want to remember what Charlie Munger said before:

"It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities." Charlie Munger

Oh, most importantly, congratulations to STE on his early retirement and improving physical health!

Related posts:
1. "Patience is the hardest part..."
2. Mystical art of wealth accumulation.
3. STE's story: Millionaire Next Door.
4. STE's story: Investment strategy.
5. STE's story" Personal finance.

STE's story: The Millionaire Next Door.

Thanks to a reader, Sun, who reminded me of the fact that STE is a "millionaire next door", I remember that there is a very good book that shows us how common people can become millionaires.







Generally, there are two types of people:

1. "Under-accumulators of wealth (UAWs)": This type of people spend everything they earn as soon as they get it.

2. "Prodigious accumulators of wealth (PAWs)": This type of people are frugal. They save and invest. They become millionaires.





People sometimes think that high income earners are wealthy people. This might not be true. In fact, in the book, it is revealed that most high income earners are not wealthy. They make a lot of money but they don't keep much of it.

To become wealthy, we have to own income generating assets which will appreciate in value over time.

STE's story shows us, once again, how common people can become millionaires. He has done it and so can you! (You must be tired of hearing "If AK71 can do it, so can you!". So this is a change.)






I have found some bargains for anyone who doesn't mind pre-owned books:


Paperback:
15 copies in Very Good condition at US$ 6.48 each.



Hardcover:
US$8.98 each.



Free shipping worldwide.

Related posts:
1. STE's story: Personal finance.
2. STE's story: Investment strategy.

STE's story: Investment strategy.

In this second instalment of STE's story, he shares his investment strategy. Here, we see how he frankly admits that luck plays a part in the grand scheme of things.

Like I found out the hard way, never trust anyone who says that his success is due to foresight and that luck has nothing to do with it.

Someone who is humble and admits that he was lucky as well is the more credible investor.

..................................................

My investment philosophy is simple. We only need to know two things:

1) Margin of safety
2) Mean Reversion

In the long run, the stock market trends upwards and, of course, it is hard to catch the bottom. However, one should try to avoid hype and enter the stock market when things are hot. If we had invested in tech stocks when their share prices were chased sky high, I think we might not have recovered even now.

Most of time, the stock market is stable and doesn't move much. Although stock prices will fluctuate, big fluctuations are rare and maybe happen on less than 5% of days.

"Mean reversion is a mathematical concept sometimes used for stock investing, but it can be applied to other assets. In general terms, the essence of the concept is the assumption that both a stock's high and low prices are temporary and that a stock's price will tend to move to the average price over time."
Source: Wikipedia.

I suggest that we study and understand the market by reading some books on behavioural finance and economics. This, I believe, is more important than any books on investment. They help us to understand market psychology.

I was lucky to buy some shares during the 1998 Asian Financial Crisis. I bough a lot of Malaysian banking stocks back then. I skipped the dot com bubble. I also bought stocks of many blue chip companies like IOI, Perlis Plantation and Genting, making a few hundred thousand dollars soon after.

As we decided to switch citizenship in 2007, we disposed of all our assets in Malaysia, including our house in JB. On hindsight, we were really lucky because the sub-prime crisis erupted at the end of 2008 and we had the cash to take advantage of the situation.

At that time, I wondered what to invest in. Since the property market was badly hit, I thought it must be a good bet and since I needed some margin of safety, I decided to invest in REITs which generate stable income. Most REITs were giving double digits distribution yields then. I bought into Suntec REIT, K-REIT, Mapletree Logistics Trust, Cambridge Industrial Trust etc. I am still holding on to some of them now.

Another reason why I invested in REITs was because of "price stickiness".  Rents might be adjusted downwards but I believe they will not go to zero especially in Singapore which is such a small country with high population density. Although interest rates might increase in the next few years, inflation will still be a problem.

I would usually try to maintain 10 to 20% in cash BUT this time round I bet BIG and invested all, including my CPF money. I might be wrong but who knows for sure?  Anyway, every 2 to 3 quarters, we will have more than $100K collected from dividends. Since we are both still working, we can save all the dividends collected.

We plan to retire by age 50 and that is 7 years away. Using the magic of compounding, our investment portfolio should have added another $2 million by then without any fresh injection of capital. I believe that we will be able to retire comfortably if we are not extravagant, keeping our life simple. We are happy and contented with what we have.

I hope to inspire others with my story that we could achieve financial freedom through our own efforts even without anything in the beginning.

Read the other blog post on STE:
STE's story: Personal finance.

Related posts:
1. To be richer, be comfortable with being invested.
2. REITs: For those who have paid higher prices.

STE's story: Personal finance.

There are many savvy investors in Singapore and the majority of them are not in the public eye. They could be our neighbours, our colleagues or even our relatives and we might not even know that they are actually millionaires from their investment efforts.

Recently, a reader, STE, contacted me to share his story to show how common working people could become millionaires without being entrepreneurs. His story shows how hard work, frugality, investment savvy, patience and luck are the ingredients to financial freedom.

He sent me a lot of information and I am thankful for his trust in me. However, I have exercised much discretion as to what is to be published. I think it will be more than enough to inspire.

Don't ever say that common people cannot achieve financial freedom. It is simply not true.

-------------------------------------

My wife and I came from Malaysia. My family is quite big and I have 7 siblings. I am the youngest. We were poor and most of my siblings didn't even have a chance to complete primary school education. I was lucky as I had the opportunity to go to the university on a Malaysian government scholarship.

My wife came to Singapore after her "O" levels and I joined her in Singapore 5 years later. When we first came to Singapore, we worked very hard and even held part time jobs although we had full time jobs in the day. We worked on Sundays and even public holidays.

We keep our money separate but most of the investment decisions are made by me. She is a good wife, very hardworking and takes good care of our family. We have two daughters.

As we were not born with silver spoons, we had to work hard in order to have money for investments. Saving money is very important as how much we save is more important than how much we earn. If we earn $10k a month but spend $11k, we are in the negative.

We were very frugal and, for example, a few years ago, a friend laughed at us because we still did not have a flat screen TV although it was already a common thing. I thought that as my TV, then 9 years old, was still good, there was no reason to change. At that time, I was also still using "dial-up" for internet access while most of my friends had broadband.

Only very recently, we decided to enjoy the fruits of our labour and our family went on a holiday to Alaska two months ago. Although I take the MRT daily to work, I do have a car but a weekend car. This is for the convenience of going back to Malaysia for social visits.

Read part 2 of the story in:
STE's story: Investment strategy.

Related post:
The very first step to becoming richer.