Starbucks with Song StoneCold: Assets I believe in.

Some of you might remember Song StoneCold's first guest blog here when he had kopi with you. For this guest blog, it is not just any kopi, it is Starbucks kopi. Hope you enjoy this date with Song StoneCold while sipping your kopi latte, kopi cappuccino, kopi mocha frappe etc.:

Song StoneCold says:
Human wants (and even needs) could be unlimited but too bad the cash in my wallet is rather limited.

Last week, I had one of those days when I felt a need to splurge on everything! Stocks, limited edition Batman watch and even a Rolex. I was brought back to Earth after I checked my Big Sweep tickets at the familiar Singapore Pools website. YES! You guessed it! I contributed to Singapore Pools again.

Well, I am not a spendthrift but I am not a penny pincher either. I believe in getting VALUE, buying at a value price. I am an ardent supporter of AK's blog. 

So, before I make any purchase, I will ask myself two questions (which I picked up from a blog post by AK - see related post #2 at the end of this blog):

1. Is this necessary?

2. Is it value for money?

"Simple questions. Always ask these two questions before we buy anything and, in all likelihood, we will be saving more money in future," AK.

Well, I have an additional question that I will ask myself before I "invest" in big ticket items. I like the word "invest" as it sounds very sophisticated! LOL. Besides asking the two questions that I learned from AK, I will ask myself: "Is it an asset or is it a liability?"

As what Robert Kiyosaki said: "Asset can be anything as long as it has value, produces income or appreciates, and has a ready market. Assets put money IN your pocket. Liabilities are defined as things that decrease in value. Liabilities take money OUT of your pocket."

Well my goal is to buy more assets than liabilities. I do buy liabilities too. My car is a liability but I am glad I bought it at a VALUE price. I bought my trusty Lancer Warrior for $38K with 8 years left. For me, it is "no value, no buy" or, as what AK says, "no discount, no buy".

What I consider to be assets can also be slightly different. Besides income generating assets like dividend stocks, I also consider the following as assets:

1) Courses and seminars. I consider attending courses and seminars an asset and I quote Warren Buffett: "The most important investment you can make is in yourself.…The best asset is your own self. You can become to an enormous degree the person you want to be.

"Generally speaking, investing in yourself is the best thing you can do. Anything that improves your own talents; nobody can tax it or take it away from you. They can run up huge deficits and the dollar can become worth far less. You can have all kinds of things happen. But if you’ve got talent yourself, and you’ve maximized your talent, you’ve got a tremendous asset that can return ten-fold."

Learning a skill will increase your market value and it will eventually "put money into your pocket".

Well, I always look for courses and seminars that are of value. Expensive doesn't guarantee that it is good.

2) Charity. Giving creates a feeling of abundance. It makes you feel good and makes you feel that you have more than enough. The main purpose of charity is not to expect any return of fame or accolade. Giving is from the heart and I believe you do not have to announce to the whole world what you have done.

Well, many say that charity will bring you good karma. So effectively, I believe what goes around comes around. One fine day if we are are down, who knows, our good karma might return and tide us through a difficult time. So it may be a good "asset investment" after all.

I shall end with a Warren Buffett quote:

"If you buy things you don't need, you will soon sell things you need."

So, let's spend wisely and buy more assets and less liabilities and live happily ever after! Cheers!

Another guest blog by Song StoneCold:
Getting value out of everything!

Related posts:
1. Counting our blessings.
2. Two questions that build wealth.
3. Robert Kiyosaki: 2 are better than 1.
4. The millionaire next door.
5. Affordability and value for money.

Interview with Matthew Seah (Part 1): Financial Freedom.

I learned from Robert Kiyosaki that in order to gain financial freedom, we have to be free of debt, able to provide for ourselves and to prepare for a future without having to work for money. 

Many people always find themselves short of cash at the end of each month and it is difficult for them to save any money.

To avoid this problem, I pay myself first by saving a portion of my income before spending any money. At the end of the month, if there is any spending money left, it will add to my savings.

Being prudent with money is something I strongly believe in since young as my mother always advocates the virtues of saving money. My Edusave bursaries and scholarships during my school days all went into my savings account.

Now, I have several accounts and not just one. They are:

Account 1: Emergency fund.

This is money which can support my current lifestyle for at least a year in case something untoward should happen.

Account 2: Opportunity fund.

This is money to take advantage of any investment opportunities in a market crisis.

Account 3: Investment fund.

This is money available to invest on a regular basis. To reduce commission and fees as a percentage of a transaction, I tend to invest only after accumulating more than $9,000 in the investment fund.

Account 4: Gifting fund.

This is money set aside for buying gifts, donating to charities and making offerings.

Account 5: Excitement fund.

This is money put aside for holidays.

As passive income from my investments increases, I will be able to set aside more of my total income for investments. One day, when my investments are able to generate the desired level of passive income, I will set aside 90% for charitable causes, keeping only 10% for my own expenses. This is my goal.

So, how should young people go about increasing our wealth to reach the goal of financial freedom?

We need to seek the right financial education or get a mentor who has walked the path with good results since financial education is not available in school.

If young people have a low level of financial literacy, there is a good chance that their families do too. Therefore, they should not seek financial advice from their family members. Actually, it is not uncommon to meet people who think that investing in stocks is synonymous with gambling. This is due to a low level of financial literacy.

Investing in stocks is like being in partnerships with businessmen. Instead of starting our own businesses and hoping to succeed, we can shorten the time to success by being partners with successful entrepreneurs at the helm and stand to share the profits from their success.

Time is the most valuable resource that any person has in investing because wealth from investing grows by compounding. So, young people have a distinct advantage. Start young.

Related posts:
1. Robert Kiyosaki: 2 are better than 1.
2. Teaching young children financial literacy.
3. Interview with Matthew Seah (Part 2): Value Investing.

Rich Dad, Poor Dad: 2 books are better than 1.

Anyone who has been reading local personal finance blogs regularly in the last few years would have no doubt come across many accounts by bloggers about how they read a book titled "Rich Dad, Poor Dad" by Robert Kiyosaki and that changed the way they looked at money.

The book is about financial independence achieved through the ownership of income producing assets instead of working for a salary our entire life. Robert Kiyosaki is a natural story teller and the book is inspirational.

If you should be interested in getting a copy. There are great bargains at BetterWorldBooks:
 
Rich Dad, Poor Dad: What the Rich Teach Their Kids about Money--That the Poor and Middle Class Do Not! (Pre-owned copies available in good condition @ US$5.98 each)

Robert Kiyosaki also wrote another book which divides people into four distinct types:

E is for Employee
S is for Self-Employed or Specialist
B is for Big Business
I is for Investor

I would suggest this as a companion read to "Rich Dad, Poor Dad" as Robert tries to encourage readers to invest in financial education and to start investing for cash flow.

Rich Dad's Cashflow Quadrant: Rich Dad's Guide to Financial Freedom (Pre-owned copies available in very good condition @ US$6.98 each)

"It won’t happen overnight, and it will be hard work. But if you’re diligent, plan well, and execute your plan, you’ll be much better off in the future whether the markets are up or down." Robert Kiyosaki.

Buy pre-owned from BetterWorldBooks and you will be helping the environment and funding literacy for the poor. Free shipping globally.

Visit BetterWorldBooks here:


Related posts:
1. ASSI is an affiliate of BetterWorldBooks.
2. Seven steps to creating passive income from the stock market.

Market gyrations, my portfolio and a sabbatical.

My investments in S-REITs are holding up nicely which gives credence to my strategy to overweight S-REITs in my portfolio. Their relative price stability and high distribution yields provide some solace in a volatile market.

A brief look at some of my larger investments in S-REITs:

1. AIMS AMP Capital Industrial REIT closed at $1.20 per unit. My cost per unit ranges from $0.775 to $1.10.

2. Sabana REIT closed at $0.97 a unit. I first initiated a long position at $0.93 in March 2011. I bought more as its unit price sank below $0.90. I am still holding on to those units I bought at $0.865.

3. First REIT closed at $0.90 a unit. This is an investment I have had for many years. My lowest entry price was $0.42 during the global financial crisis. I took part in its rights issue at $0.50 a unit. I bought more nil-paid rights for a total cost of $0.66 a unit. I also bought more units at $0.70+c.

4. LMIR closed at $0.39 a unit. Like First REIT, this is an investment I have had for many years. My lowest entry price was $0.185 during the global financial crisis. I took part in its rights issue at $0.31 a unit. I also bought more nil-paid rights for total cost of $0.331 to $0.365 a unit.

5. Saizen REIT closed at $0.143 a unit. The history I have had with this REIT is somewhat bumpy. I increased my long position once again with a large purchase as its warrants reached their last day of trading not too long ago. Average price of that purchase $0.129.

I have collected many quarters of income distributions from these investments and my war chest is constantly being refilled. So, I constantly have funds to take advantage of any investment opportunities which might come along.

My strategy is to stay partially invested as we must also have cash to continue investing especially if Mr. Market decides to sell good quality stocks and trusts at bargain basement prices.

Recent efforts to invest in some companies instead of S-REITs have produced below average results. In fact, my poorly timed investments in China Minzhong and Wilmar, although relatively small, are a drag on my portfolio's performance. If I had stuck to my strategy of concentrating on S-REITs in recent times, my porfolio would have fared much better.

Of course, there would be people who disagree. Readers who comb the cyberspace for information would have, no doubt, come across some local blogs which vilify REITs. Well, everyone is entitled to his own opinions.

I have gotten somewhat tired of defending my position. Actually, why do I even need to defend my strategy? If people like it, they are welcome to follow. If they don't like it, don't follow. This is a free world. Just don't be rude.

I was never a savvy person with IT stuff and when I discovered blogging, I was like a child who discovered the sweetness of sugar. I got a sugar high. I have always enjoyed writing. So, I took to blogging like a fish to water. Also, as I age, I have developed an increasingly serious speech impediment. To a rather talkative person, this is an annoyance and makes blogging even more of an outlet of expression.

Making money from blogging was never a first thing on my mind. It came about later on when friends suggested that I could put some ads in my blog. I must say that I have been able to make some pocket money this way. Pocket money? Hey, Nuffnang pays me 20c for every click I get for ads they place on my blog. If my primary motivation for starting this blog is to make money, I must be seriously mental.

If I were to stop blogging tomorrow, what would I lose in monetary rewards?

Well, I have been thinking of taking a break from blogging and I have shared this thought here in my blog as well. There are other aspects of my life I would like to spend more time on. There are also people I would and should spend more time with. It is also quite obvious to regular readers that I have been blogging less frequently too.

We often hear of the saying that "this is the last straw that broke the camel's back". Well, I think I got another catalyst to stop blogging at least for a while earlier this evening.

To my regular readers, you know which blog posts I have here in my blog which would keep you squarely on your goal of financial freedom. Each time you waver, come back to my blog and go down the right sidebar. I would also be doing the same, no doubt. It is not easy to start but start we must. The journey is hard but go on we must. When we see the results of our effort, it would get easier and easier. Remember, if AK71 has done it, you can too.

To new readers, understand that we are all different. Not everyone can be a Warren Buffet or Donald Trump or Robert Kiyosaki. They have all taken their own paths to success. You should find your own. Reading my blog, if you feel that my way is something you would like to emulate, give it a go but know that everyone's circumstances are different. Set for yourself realistic goals. Take baby steps but you have to work towards building up passive income to a level that is equal to or exceeds your earned income. Then, you would have achieved financial freedom and you work because you want to and not because you have to.

In everything we do, there is an element of luck. Even Warren Buffet was wrong before. No one is God and even with Him, there is debate on things He might have done wrong. OK, this is a sign that I should stop. Yes, Father, I have sinned.

----------------
The following was a blog post written on 28 November 2011 after talking to "ao" in LP's infamous cbox (Bully the Bear). It was never published... till now:

A reader asked me recently if I ever get tired of replying to comments in my blog, especially with skeptics aplenty when it comes to my investments in REITs. I told him that I am only human and I do feel tired sometimes.


Recently, I had lunch with the blogmaster of Time to Huat and another long time friend. They asked the same thing, almost. One of them said that some comments were almost repetitive and marvelled at my patience in replying to every comment even so.


To me, I feel that if a job is worth doing, it is worth doing well. How do we measure worth? In the world of blogging, at least to me, it is not measured in dollars and cents. I would be better off giving private tuition with my time, using such a measure.


When I started blogging, I took on certain responsibilities whether I knew it at that point in time or not. I am airing my thoughts in cyberspace. I am sharing ideas. Of course, there will be questions and also disagreements. What is a blogger to do? Face these squarely.


Being a blogger is like being a semi public figure. Semi public? Yes, we can choose to blog without revealing our true identity. I have gotten a taste of what it is like to be a semi public figure and I doubt I would ever want to be a public figure. So, although I have met a handful of readers and fellow bloggers so far, I have decided quite some time back to be more reclusive. I value my privacy too much to ever become a public figure.


Recently, I have been thinking again whether I should stop blogging altogether. My blog posts are usually crafted with care  So, it takes up a lot of time and I only have so much time...

Conspiracy of the Rich.

On my way home after Chap Gor Mei dinner (home cooked food by my mom and sis is the best!), I made a detour and visited Borders as a friend told me they are having a 20% storewide discount.  The first book I picked up was a book by Robert Kiyosaki, titled "Conspiracy of the Rich".  The title was intriguing and captured my attention.

As I flipped through the book, I was actually thinking of buying it until I reached a section which made me put it back on the shelf.

Robert says that most people are lacking in financial education or do not have the right financial education.  Having the right financial education gives people an unfair advantage.  That, I agree.

Robert went on to say that there are many ways to build passive income, which is true.  He went on to say that running businesses (and by that he meant big businesses with hundreds of employees) to generate passive income requires the greatest financial intelligence.  This is followed by investments in real estate but as most people do not have a high level of financial intelligence, they opt to invest in real estate mutual funds known as REITs.  This is followed by paper investments such as stocks, mutual funds and the likes as paper investments require the least amount of financial intelligence.

Now, I will not discuss his choice of words (stylistics) here although that particular section was somewhat disturbing as I sensed snobbery in the writing.  Maybe, I am too sensitive.  So, I shall just discuss his contention that since most people do not have a high level of financial intelligence, they opt to invest in real estate mutual funds known as REITs instead of actual real estate.

Personally, I think investing in real estate is a good way to build our wealth if we know how to.  I have been very open about it in my blog and I have shared my experience.  Definitely, collecting rent is another way to build passive income.  However, I also enjoy investing in REITs.  Not all REITs, mind you, but REITs which meet certain criteria: low gearing, high yields and trading at an attractive discount to NAV.

Now, let's go through these three criteria one by one:

LOW GEARING
When we invest in a piece of real estate, we put down 20% of our own money and borrow the rest.  The idea is to make sure that we borrow at a low rate of interest and let the rental income cover the monthly repayment of the loan and still have money leftover.  We are talking about a gearing level of 0.8x here in such a case.

REITs would probably have borrowings but for listed REITs and in the current environment, it is hard to find a REIT with a gearing level higher than 0.4x (well, CIT is an exception).

Robert talks about good debts and bad debts.  This is something many of us are familiar with but most would agree that less debt is rarely a bad thing.  Many, in fact, work towards reducing debt in their lives.

HIGH YIELDS
If we decide to buy a condominium, for example, what kind of yield could we expect?  Let's say it is a $1m studio apartment somewhere near town, the yield is probably something close to 3.5% per annum.  Not fantastic and even in a low interest rate environment, the returns would not be attractive.

Now, if we look at some of the REITs available in the stock market here in Singapore, there are some REITs with yields of 10% or so.  Attractive?  You bet.

DISCOUNT TO NAV
When we buy a piece of real estate, we are usually buying it at valuation or above valuation (just look at the COVs being asked for HDB flats!) and during bad times, we might just get a bargain at below valuation.

With REITs, we have an opportunity to own real estate at a discount to their NAVs in most cases.  We do have a few REITs which are trading at or above their NAVs (and I don't invest in those).  I like to ask my friends, if a nice condominium in a good location is valued at $2.9m and is now being sold to you for $1.6m, would you buy it?  The answer is always a unanimous "YES!".  It's a no brainer.

Perhaps, the book is meant for an American audience but I do not know how Robert arrived at the conclusion that people with lower financial intelligence invest in REITs instead of actual real estate.  For me, it's just a simple case of value for money.  I invest in the REITs that I do today simply because they provide extraordinary value for money.