What is AK's way of investing in stocks?

This was a rather amusing exchange (which went on to become quite exasperating):

E:
saw your blog
can i know how you invest?

Assi AK:
If you want to learn how to invest, I don't really teach in my blog. 

I am just blogging my experience.

You might want to go to the right side bar of my blog and you will find some recommended reading material under "Food for Thought".





E:
Why don't you share how to invest?

Assi AK:
Everyone will find his own way. 

I share my way in my blog. 

You are welcome to read my blog but you will have to decide if is suitable for you.





E:
After reading your blog I still don't know your way???

Assi AK:
Alamak...

Read a bit more and see if you can find the way. 

If still cannot, then, I think I lost my way liao.

E:
can lost your way like you?

Assi AK:
Yes, people follow me and fall into longkang sometimes... -.-"

E:
why?

Assi AK:
then no chance to fall into longkang lor

E:
Then how?

Assi AK:
Don't follow me lor ;p





E:
Why not?
How?

Assi AK:
You can follow me using the options available in the left side bar of the blog.

E:
What options?

Assi AK:
Check my blog. 

You will see in the left side bar.





E:
u are value investor?

Assi AK:
I like good deals, for sure, but I am not pure value investor.

Mostly, I like stocks which generate meaningful income regularly for me.

E:
so you buy dividend stocks only?

Assi AK:
nope
I am not a pure income investor either

E:
so what are you?





Anyone has an answer?

Related post:
Have peace of mind as an investor.

Can we retire at age 40 with peace of mind?

I am sure that some of us have thought of when we might be able to retire from active employment before. So, this conversation with a reader might be of interest to some:

Reader says...

I am 32 this year and I planned to achieve financial independence by 40. I actually realised it is easier to achieve lump sum cumulative retirement fund than passive income > expenses. 







Few reasons:

1) returns are ups and downs

2) To generate a decent passive income, the invested amount must be at least $600,000 to generate $30,000 at 5%.

3) I don't really need that much money to live the life i want, so about $550,000, coupled with my private annuity and CPF Life will be sufficient.

4) Invest in safe money instrument such as Singapore Saving Bond, OCBC 360, and so on to get between 2-3% return.

5) Once a while gain some profits from Bear markets or obviously under-valued shares





I think passive income is great because it generate lifetime income, but I still think it is not a must for early financial independence.

Based on your financial knowledge, you think my figures and reasoning are sound?

I actually felt topping up CPF is not an option for me because I got child, NS, annuity and other relief that I can be exempted from taxes for years. Since obviously I don't have spare cash as I am aiming for early retirement, I think topping up CPF is a no go, right?

Retire with peace of mind.

My reply:

If we have a very simple lifestyle, we don't need too much money to be financially free. You are absolutely right. Everyone will have a figure in mind, I am sure. So, how much do we need? This is very subjective.

I cannot tell you if your figures are sound enough for what you have in mind. Only you will know this, even if it is just an estimate. ;)

Is your reasoning sound? 







Well, if we wish to retire very early and retiring in our 40s is considered very early by most people, I feel that we need a bigger buffer unless we are willing to consider the option of re-joining the workforce if things should go wrong.

If we do not invest for income, retiring at 40, $550,000 in savings won't last very long especially with a family to support. 







The CPF Life will only start paying us at age 65. OCBC 360 only pays a higher interest on the first $50K and once you stop working, you will lose that extra 1% interest from salary crediting. 

SSB, you will only get the full coupon of 2+% if you hold for the full 10 years. It isn't very liquid that way.

Inflation is probably the biggest threat to your plan. 







Investing for income, the returns could keep pace with inflation or even beat inflation. 

Not investing for income, it is likely that your wealth will shrink in value, year after year.

For me, it should be about having a level of certainty that our assets are not being chipped away in our retirement and that they are, in fact, generating meaningful income to help fund our retirement. 

Then, we can retire with peace of mind. :)







I certainly do not know everything and, perhaps, this blog post will generate a meaningful discussion which will provide different points of view.

Related posts:
1. National Day Rally: Retirement adequacy.
2. Retiring before 60 is not a dream.
3. Millionaire or not, plan for retirement.

Wake them up before they get financial nightmares.

I remember when I was a boy, I sometimes had to help wake my siblings in the mornings. 

Sometimes, they were the ones who had to wake me up in the mornings. 

We looked out for each other because we didn't want anyone to be late for school.

When a reader wrote to me in FB to say he woke up after reading my blog, I asked him to help wake his friends up as well. 

I am sure we want everyone around us to be prepared financially for retirement too. 

I am sure we want our friends and family to be financially secure.

My task as a blogger, I feel, is easier because people who are willing to listen will read blogs like mine. 

Targeting people who we believe need to make changes to their money habits and to sit them down to talk about it is a more delicate task. 

It is a sensitive topic, after all. 

Good intentions could be misinterpreted.





Well, let us try to make a difference, anyway. 

They might not see the light now but the suggestion we have planted in their minds might grow and blossom one day. 

They might or might not remember who planted the seed by then but that shouldn't be important to us. 

If they do change for the better, I am sure we would be happy for them.




Related posts:
1. Wealth is attracted or repelled by habits.
2. Ambassadors of financial freedom.

Beef up financially to attain financial freedom sooner.

Reader says...

First stop, thanks again for sharing your knowledge on financial literacy. I have made progress again, lol! 

The best part is the progress is very tangible and someone could actually see these effects within months.






Anyway, I have a question on the topping up of our CPF. 

As much as I do understand that topping up the SA account is important, given the 4% risk free interest rate coupled with 0 re-investment risk, this is just too good to ignore. 

However, what do you think of topping up the medisave account to its mms before putting money into SA instead?

Therefore, once the amount in medisave hits the ceiling , the amount that is supposed to be allocated into the medisave would go into our OA in which then one could subsequently transfer into the SA account. 

In this way, this will result in a higher contribution into the SA account per year. Do correct me if I'm wrong.






Something else which I would like to ask you is, what do you think is a good amount for Singaporean to set aside in the OA account assuming that they haven't bought their flat.

Just to share, I used to have this habit of wasting money on the latest gadgets released. 

After knowing you (technically yes, since a blog post is almost like a one-to-one conversation), whenever such thoughts of spending money crosses my mind, I transfer half of this money into CPF and the remaining half into a separate savings account.

Without money being accessible, no money to spend, no money to waste! Best part, money is saved! Thanks again!

Learn from the squirrels?

AK says...

I am very happy to learn that you are beefing up financially. 

Having financial muscles early in life will set the stage for, ultimately, achieving financial freedom later on in life. ;)

Should someone in his 20s top up his CPF-SA or the CPF-MA first? 

Well, my preference is to top up the CPF-SA first because the first $40K in the CPF-SA will earn 5% per annum. 

Topping up the CPF-MA has more practical considerations, of course. 

So, perhaps, after reaching $40K in the CPF-SA, switch to topping up the CPF-MA instead. :)





How much should we accumulate in the CPF-OA before buying a flat? 

I think this is rather subjective. 

So, please remember that this is just my opinion and I am going off tangent to share what I feel is more important.

I will try to use as little of my CPF-OA money as possible in the purchase of my home. 

This is because it earns a risk free 2.5% to 3.5% per annum. 





In the future, when I sell my home, I will have to pay interest to my CPF-OA (i.e. the accrued interest for the money in the CPF-OA I used). 

This was how I approached the subject on the use of my savings in the CPF-OA in the purchase of my first home donkey years ago.

I like how you ended your email. 

Yes, don't see money, won't spend money. 

I told this to a spendthrift friend before too. Haha... ;)

Where did our money go?

Reader says...

Indeed, and learning that each step we take is bringing us closer towards financial freedom just makes things feel so much more joyful.

On the part of frugality, being frugal has made me happier as a person in total as I learnt to be contented with what I have while balancing the equation of needs and wants.

Sadly, as my generation of folks (gen y) are largely exposed to new age media content, its hard not to be taken in by those fancy marketing campaigns for the latest product and service offerings that are largely wants but hardly needs. 

Unfortunately, the result of which is more expenses incurred on an individual, worse still, these things hardly produce much tangible benefits to warrant the expenditure.





However, the best part is, we all have choices. 

As opposed to spending, we could instead save this amount of money, and subsequently making them work harder for us through investments. 

If one has the discipline and is regularly putting aside income into savings while investing for a sensible return via both cash and the CPF-SA, financial freedom is not as far fetched as it sounds, and is in fact very achievable for a commoner like myself.

On that front, I started out by reminding myself of the opportunity costs incurred for this purchase which would potentially set me back from my eventual goal. 

Now, I don't even have to post mental reminders to myself anymore, it has been infused into my habits. 





I hope I don't sound like a drug addict who has just successfully undergone rehabilitation. =P

Noted on the point you have made on the CPF-SA. 

Right before I started to type this email, 

I have already transferred a proportion of my CPF-OA into CPF-SA, resulting in a $40k amount in my CPF-SA. 





And upon keying some numbers into the calculator, I finally understand why $40k is seemingly the "magic" number and why the government has provided additional incentives in the form of an additional 1% interest rate on the CPF-SA account of below $40k. 

Yet another blessing for Singaporeans to count!

Yes! Money saved = money earned. You shared that before too.

I should be the one thanking you as your sharing has changed me and I'm sure many others as well. =)





Related posts:
1. Do the right things and transform our lives.
2. How did AK amass so much in his CPF-OA?
3. Don't see money, won't spend money.
4. Money management: Needs and wants.
5. A dollar saved is a dollar earned.

Is there a secret formula to getting rich? (Wealth is attracted or repelled by habits.)

WARNING (Added on 6 Jan 17):


If you are a "jin satki" (very capable) person, you might want to skip this blog because you might find AK's peasant mentality to wealth building distasteful. 

You have been warned.




As my blog becomes more popular, it disturbs me that people think that I am some investment guru. 

Of course, I am not. 

I might be a bigger retail investor than most of my readers but I think that is where the difference mostly ends.

Regular readers know not to expect magic from AK. 

I don't even have a working crystal ball. 

Well, I try to get my bowling ball to talk to me sometimes but I haven't had much success, have I?





Is there a secret formula to getting rich?

To me, there is no secret formula to getting rich. 

Honestly, to be financially secure and, then, financially free later on, it all starts with being financially prudent and that is where a big part of my level of rather attainable wealth by the common man has its source. 

It is about being sensible when it comes to personal finance matters. 

A dollar saved is a dollar earned and, believe me, it adds up.

Dinner for $2.80.

Even as I make more money in life, I try my best to keep my needs simple and my wants few. 

I try not to be frivolous with money. 

If we do a good job of this, money will stay with us. 




In the last five years, I have heard from readers who changed their habits including one who gave up having Starbucks coffee every day and one who convinced the whole family to cut back on restaurant visits. 

They saw how, in just a matter of weeks and months, the changes they made in their money habits improved their personal balance sheets.




Wealth is attracted or repelled by our habits. 

If we want to attract wealth, then, we have to make sure we have the right habits. 

The results might seem magical but, really, magic is not the reason. 

Discipline is.



-------------------------------------
Added on 6 January 2017:

I saw on Facebook and I had to kaypoh.

The statement above which I took issue with:

"Skipping Starbucks to get rich is really bad advice, my view. It give (sic) you a poverty mindset that I can't afford it..."

OK, I must say I rarely comment on other people's FB wall or even blogs.

If people want to drink Starbucks kopi, it is their choice. 

I might nag but it is their choice.

However, when I read the claim that skipping Starbucks kopi to get rich is bad advice because it gives us a poverty mindset, that, to me, was a judgement which I could not agree with.

A frugal mindset is not a poverty mindset.

We can make a lot of money but if we are careless with money, it will only set us back if we are working towards financial freedom.

Related post:
How to recession proof your life?

QAF Limited: $1.14 a share is cheaper than 93c a share?

One year ago, when QAF Limited's stock was trading at 93c a share, I observed that the PE ratio was 16.6x and I said that to buy in at that price would be making an assumption that earnings could improve dramatically in the future. 

There were pertinent concerns such as rising costs of doing business as well as the weak Australian Dollar and how these could continue to weigh down performance.



Video added in November 2016.

Well, for the full year 2014, QAF Limited has exceeded expectations as earnings per share (EPS) improved 46.4% from 5.6c to 8.2c, year on year. With the Australian Dollar having weakened further against the Singapore Dollar, how did this happen?

There was a one off contribution by Oxdale Dairy through the sale of its dairy business. Group operating profit, thus, received a boost of $1.6m. This will not be repeated, of course. However, considering the fact that Group profit improved some $15.7m (before tax), not having this one off contribution in the current year would still mean that QAF Limited would do very well, everything else remaining equal.

All business segments did well but the lion share of the improvement came from Rivalea, an Australian business segment. Operating profits improved threefold although revenue stayed flat because of higher selling prices, better product mix, productivity gains and lower raw material costs.

Lower finance costs also helped QAF Limited to do better in 2014 as borrowings were pared down. Interest expense decreased $0.9m from $4.1m to $3.2m last year.

Today, QAF Limited's stock closed at $1.14 a share and based on an EPS of 8.2c, we are looking at a PE ratio of some 14x. Even if we remove the one off divestment gain by Oxdale Dairy, we would be looking at a PE ratio of 14.5x, thereabouts.

So, although QAF Limited's stock is priced higher now, compared to buying at 93c a share a year ago, it is actually cheaper at $1.14 a share. This is what I meant when I said that a stock could actually be cheaper although its price could be higher. It is about value, not price.

QAF Limited has made their first foray into China in October 2014. With operations in Singapore, Malaysia, Philippines and Australia stable and doing well, if their Chinese operations should prove successful, we could see things looking even better in the next few years. After all, the Chinese market is huge and bread is an accepted staple as well as convenience food.

A final dividend of 4c per share has been declared for a full year DPS of 5c. This DPS is probably sustainable and I look forward to receiving free bread again in future.

Related post:
QAF Limited: Rising 5c to 93c a share.

How to get $50K in passive income by investing in stocks?

Extracted from a reader's email:

Hey there ak,

I was just wondering if your willing to answer some of my questions.

A little background, I'm 32 this year. Yet to marry, planning to.

I was always interested in trading, have tiny experience while working part time in a stock training center. 

Anyway, I seriously want to achieve financial freedom. And stumbling upon your blog was super!! And I want to be an income investor!!






Been reading up and giving myself till 2018 to start investing. There is still so much to learn. I'm still currently "know nothing" phase. Haha.. 

I don't have much cash. Since my wedding is around the corner. Most of it is tied up. 

So I decided to take up the POSB invest plan, 500 for the next 4 years. Should end up with 20k roughly. Which I intend to invest in 4 counters (by 2018).






My aim is to get 50k passive income.  But from my calculation, (assumption on 2014 dpu) I need 800k. No idea what I'm doing wrong. 

Anyway, since I can't amass such an amount, I was planning to, POSB invest plan to 20k (withdraw full), invest in 4 counters by 2018. 

And start OCBC BCIP 1.2k per month for 4 years get roughly 70k, invest as per my plan (counters to have by 2022) and again start another OCBC BCIP to amass cash for investing. (800k will kill me le :( , sianz)






From your view point, do you think I should do this way? As in invest every few years?  

My concern is, this will take me very long to achieve my 50k target. Your advice please.

Thank so much for blog, it's in line with my goals. And I'm reading it everyday at work.

Fellow investor (to be),




P

AK's reply:

Hi P,

Welcome to my blog and I am happy to read that you are inspired to invest for income. 

Investing for income does help to provide a sense of well-being and therein lies part of its attractiveness. :)

OK, firstly, if you are going to put money in the OCBC BCIP or the POSB Invest Saver Plan, you have to understand that these are with long term investors in mind. 

They are investments too but in a basket of stocks. 





So, what about the idea of taking out the money in 2018 to invest in specific stocks? 

Be warned that there is no guarantee that the stock market won't be lower than what it is today in 2018.

(When the time comes and if we need the money, we would have to take whatever price Mr. Market offers.)





The ETFs are not meant to be places where we keep our war chests or emergency funds. 

They are investments.






I would suggest that you continue to spend time reading up and also to concentrate on your career move and your upcoming wedding for now. 

Congratulations, by the way. :)

Be frugal, save money and wait for opportunities to buy income producing stocks on the cheap. 

Hey, you could be buying the STI ETF on the cheap too. Of course, you could start nibbling at some stocks in the meantime. 





It is important to remember that there is really no rush. The stock market will always be there. ;)

How to achieve $50K in passive income from investing in stocks? I think I blogged about this before many times in the past but not in recent times. 

There is really no magic. 






In summary:

1. Increase our earned income.

2. Do not increase our expenses beyond what is reasonable.

3. Save the rest and invest for income.

4. Save the income from investments and invest again.






We can make money in many ways. As long as they are legal and ethical, we want to think of seizing opportunities to make more money. 

People often upgrade their lifestyles as their incomes are upgraded. 

Be meticulous in distinguishing between consumption and investment. Yes, people often mix them up.





A reader told me that he hopes to achieve a third of what I have achieved by the time he is my age because his circumstances are different from mine. 

He wants to have children and his wife stays at home. This is an important thing to remember. 

Our circumstances are all different from one another's.





So, I remind readers not to be fixated with numbers.

The important thing is that their quality of life improves. 

The important thing is that they feel financially more secure, year after year. 

Investing for income will help to do this for them and it will do it for you too. :)





Best wishes,
AK

Related posts:
1. $1m in liquid assets or $120K in passive income?
2. To retire by 45, start with a plan.
3. Seven steps to passive income from the stock market.
4. OCBC Blue Chip Investment Plan.
5. POSB Invest Saver Account.

SembCorp Industries: Partial divestment.

Yesterday, a reader asked me if I would be selling my investment in SembCorp Industries. 

I replied that if I thought SembCorp Industries was fairly valued at $5.00 when I made my first purchase a few months ago, would I sell at a lower price?






Honestly, the investor in me said to stay invested while the trader in me said to look at possibly selling at least part of my investment. 

Let me talk to myself and throw some light on the matter.

As SembCorp Industries' stock price fell in recent months, I added to my position at various price levels: $4.80+, $4.50+, $4.20+, $4.10+. 

My memory is a bit patchy but something like this. 

I believe that SembCorp Industries is a good company and that Mr. Market was overly pessimistic as the stock kept falling in price.

Then, whether I would sell or not would depend on whether the investor or the trader in me wins. 






Finally, the trader won but only after giving a concession to the investor. 

What do I mean?

I initiated a position in SembCorp Industries at what I thought was a fair price and I said so in a blog post soon after the purchase. 

I went in with my eyes open and knew what I was getting for the price I paid. 

However, given a choice, the investor in me would prefer to purchase an undervalued stock.






So, having added at lower prices as well, recovering the capital utilised for purchases made at higher prices which fairly valued SembCorp Industries, retaining the purchases made at lower prices which undervalued the conglomerate somewhat is a palatable proposition.

After looking at the charts this morning, I determined that there should be stronger resistance at $4.84 if the stock price continued its ascent today.

So, I put in sell orders at $4.82 and $4.83.







I still like SembCorp Industries and if its stock price were to weaken to retest its lows in the last few months, I would probably be adding to my position again. 

If its stock price should rally after taking a breather, I would stand to gain with my remaining investment in the conglomerate.

Related posts:
1. SembCorp Industries: A safe price.
2. AK went shopping in the stock market.
3. Investing for income and position sizing.

ST Engineering: A letter from a reader.

We are supposed to be emotionless as investors. This is not easy to achieve. Well, at least I am still working on it. I am a poor candidate for a ninja, er, I mean, investor.


Dear AK,

I went to your last seminar because of a friend. I have been investing for a year but I never make money. After your seminar and reading your blog, I understand why my friend said you are good.

At the seminar, you and the audience discussed ST engineering. I was inspired by your own story about your first lot at $1.55 almost 20 years ago and holding till now. I was excited that the stock pays you every year.

Some people said they know the business and also bought the stock. I remember one guy said he keeps buying every year. You gave me confidence when you said you bought again at around $3.30 and $3.40. You said it was not expensive. So, I bought that week.

Today, it is $3.77. I am very happy. Don't worry. I know you will say bu yao hai wo. You said to understand price and value. I have been reading your old blog posts. I know price can go lower in crisis. But I just feel happy. So, many thanks. You are a good person.

Yours sincerely,
W

I think we discussed STE at the 3rd "Evening with AK and friends"

Hi W,

Your last paragraph saved me from having to write you an email on the difference between price and value. Sounds like you have emerged from a fog and are beginning to plot your route in the stock market as an income investor.

It is, of course, normal to feel happy that our investments are doing well. However, please be mentally prepared that we might see prices sink one day. Knowing something could happen and being prepared for it are two different things. Apart from being mentally prepared, we should be financially prepared as well. So, have a war chest ready too.

I am glad that you have found my blog useful and that one of my chit chat sessions (not seminars) started you on your journey as an investor for income. Stay the course and, I believe, you will do well enough over time. Gambatte!

Best wishes,
AK

Related posts:
1. Seven steps to creating passive income.
2. 2014 full year income from non-REITs.
3. The mystical art of wealth accumulation.