Tea with ENZA: Explaining Mr. Market's behaviour.

I chatted with a private banker on FB this evening and he shared some interesting stuff with me.

perhaps I know a little too much of how the inside job, so the more I m actually reluctant to share with the outsiders. because they don't know how to take advantage, but just make noise.

not the inside information, but more of how the institutional investor invest and how fund house and banks work... that's the big big thing coz we don't know why people do certain things and when price moves everyone panic etc...

an example is: sell in may and go away...

By using statistic, 32 out of 34 years actually proves to be true... But the thing is, why??? May is a summer period in Europe. They get 10% of monthly salary for summer holiday. So nobody would like to work during that period. institutional or retail, half of them would go for summer holiday.

So who is there to provide liquidity?? The remaining half. But before people go for holiday, they are worried about market fluctuation... so how to negate that, they hedge off or sell off... Market plunge...

That thing itself is actually a very common sense thing, but who would be able to link the entire picture until we are in the industry working...

Same thing for santa clause rally...

It seems like a simple thing, but those so called technical analysis bullshit to an extend people thought it is a kind of voodoo effect...

and of course the post-may period is a low period, few market data, few earning reporting release, TA guys get out of the fun... the entire duration is low volume and neither bull or bear...

When I suggested that I would like to share the above with readers in my blog, he said:

**send killer to hunt ASSI, burn the laptop and the house**

So, I am actually risking my life to share this here in my blog!

Kidding!

Don't worry because he finally agreed.

aahhh... ok ok go ahead and post ba hahaha

FB has allowed me to "meet" some really nice people.

Save 100% of your take home pay. What?

Oh my, is this another sign that AK is ageing? 

Did he just say save "100%" of our take home pay? 

Maybe he meant 10%.

Well, no, I really do mean 100%.







What? 

AK is not only ageing, he is growing senile! 

How is it possible to save 100% of our take home pay?








OK, assuming that we had a gross annual income of $50,000 and we took home $40,000 after CPF deduction, could we, at some point in time save $40,000 a year, assuming that our take home pay remains constant?

The answer is "yes". 

How?

1. Save 50% of our take home pay each year. This amounts to $20,000.

2. If we invest to enjoy at least a 6% yield a year, in the second year, we would be able to save $21,200 or 53% of our take home pay.

3. Invest again to enjoy at least a 6% yield a year and in the third year, we would be able to save $22,472 or 56.18% of our take home pay.





Just keep repeating the process and the numbers are:

4th year, $23,820. 59.55%.

5th year, $25,249. 63.12%.

6th year, $26,764. 66.91%.

7th year, $28,370. 70.925%.

8th year, $30,072. 75.18%.

9th year, $31,877. 79.69%

10th year, $33,789. 84.47%.

11th year, $35,816. 89.54%.

12th year, $37,965. 94.91%.

OK, for those who are superstitious about the number 13, this is where you might change your mind.

In the 13th year, we would be able to save $40,243 or 100.6% of our take home pay.

Would you like that?

Of course, there are many things we can say about this blog post and being unrealistic is one of them. 

For one, it is almost unthinkable not to get any increase in pay for over 13 years. 

Also, it is quite possible that there could be a period of unemployment (or two).




Instead of being unrealistic, let us try being realistically optimistic instead. 

If we should get an increase in pay, what should we do?

Maintain the same lifestyle, if possible. 

Then, we would be able to save more and invest more.




So, for example, if our take home pay became $50,000 a year in the 5th or 6th year, we should save $30,000. 

Of course, there will be things we can say about this being unrealistic as well. 

What about the higher costs of living, for example? 

What if we should start a family? 

What if there should be unexpected expenses?

What about an emergency fund?

Obviously, this blog post cannot take all circumstances into consideration and it has also dispensed with the consideration of having an emergency fund which, by the way, is very important to have.

All of us have different circumstances but I think we can all agree that the decisions in life, especially those which involve money, can either give us a boost or slow us down as we work towards a financially secure future.




Isn't it more important to get down to doing it and not keep thinking about how this is impossible and that it is unrealistic. 

There are too many "what ifs" in the world. 

For those who are still hanging on to the "what ifs", try this:

"What if this really works?"






Would we rather have a chance of making this work for us or not at all?

Now, if I have captured your imagination, let me add another dash of excitement.

Is there a possibility that at some point in time, we might save 200% of our take home pay?



Related posts (The prudent stuff.):
1. A common piece of advice on saving.
2. 5 points you ignore at your own risk.
3. Very first step to becoming richer.

Related posts (The scary stuff.):
4. Not enough money to be married.
5. From rich to broke?
6. Financially prepared to be married?