From rich to broke?

Added (1 Feb 2017):


Over the best part of two decades, Johnny Depp has been spending US$2m a month, according to TMG, which is suing the star for an unpaid loan.

The actor is alleged to have forked out US$75 million on 14 homes, including a 45-acre (18-hectare) French castle, a chain of Bahaman islands, several Hollywood homes, penthouse lofts in downtown LA and a horse farm in Kentucky.

Since 2000, the actor has spent US$18 million on a yacht, bought 45 luxury cars and shelled out almost US$700,000 a month on wine, private planes and a staff of 40 people, according to the lawsuit.

TMG says Depp has accrued more than 200 artworks by Warhol, Klimt and other masters, 70 collectible guitars and a Hollywood memorabilia collection so extensive it is stored in 12 locations.

"... when Depp's bank demanded repayment of a multimillion-dollar loan and Depp didn't have the money, the company loaned it to him so that he would avoid a humiliating financial crisis." TMG attorney said in a statement.

Source: CNA





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I have shared this story many times before but I might not have blogged about it and that is how someone I know who was making >$15k a month at work became broke.

This person was quite a few years younger than me but he was very successful in his career and by the time I got to know him a few years ago, I know he was definitely making >$15k a month. 

It could have been >$20k a month but he wouldn't say.

Home was a 3 bedroom condominium in D10 which he bought a few months before getting married. 

He had a Mercedes Benz S something. He was always well dressed and each of his watches (yes, he had more than one watch) would probably have cost me a few months' salary. 

He and his wife would go on annual holidays to Italy, France, Switzerland etc. 

Although he was making a very nice salary, to have been able to have all that he had, he must have been heavy on credit.




When the Global Financial Crisis happened, he lost his job and everything unravelled. 

Of course, at that time, it was hard to sell any piece of real estate for a good price. 

The car would definitely be sold at a hefty loss. 

Pre-owned big name watches would be worth very much less as well.


For him, it was a swift descend from heaven to hell. 

Everyone who knew about it was shocked because he always appeared so confident and so wealthy.

What can we take away from this?





1. Everyone needs to learn financial management skills. 

The younger we learn the importance of financial prudence, the better. 

At its simplest, everyone should learn how to save and grow our hard earned money.



2. Everyone wants a higher standard of living. 

So, often, people end up buying expensive cars, expensive homes and expensive everything. 

However, what this also means is that we have higher costs of living. 

Can we not have a higher standard of living without a much higher cost of living?






3. Everyone needs to think of all the bad things that could happen to them. 

I know it can be depressing but it is necessary. 

How long can we continue in our current lifestyle if we were to lose our jobs? 

What if we or our dependents were to need long term medical care?

Stress test our finances. 

If we cannot pass these tests, we better do something to set our houses in order.






Of course, a very good question to ask would be: "Was he ever rich?"

All of us might have friends or family members who are living beyond their means. 

Of course, sometimes, people need to suffer a fall before they are aware of their financial mortality but I feel that it is our responsibility to at least talk some sense into them, if we could. 

It is as much for their own good as it is for ours.




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Johnny Depp's story makes my friend's story sounds like a walk in the park? 

Sorry. 

To me, there is no difference. 

To me, broke is broke.

Related posts:
1. A common piece of advice on savings.
2. Wage slaves should be fearful.
3. "How to tell if you are rich" by Alexander Green.

Tea with Skipper: How much do we need to retire on?

Some time back, Skipper very graciously made me a promise to do a guest blog to share his thoughts on his retirement and what he thinks is sufficient for him in terms of money needed. True to his word, here is the blog:

First some caveats :
 

• What is written should not be construed as advice but merely the planning and thoughts of an individual who has stopped full time employment.
• To stop full time employment, you must not have any outstanding debts such as mortgages for your dwelling or any other item you cannot pay off immediately should the need arise.
• You do not have any dependants or children who are not earning their own living.
• You are of reasonably good health without any major dependency on long term expensive medical treatment.
• You own the dwelling you are living in.
• Circumstances will vary from individual to individual and the list is by no means exhaustive.

 

Now that the assumptions are out of the way, we can seriously look at the expenses you would incur when you don’t have a monthly salary. Before we look at the day to day expenses, some important and in fact necessary expenditure must be in place. In terms of importance, they are as follows :

Insurance

The most important are the H&S policies like MediShield. I cover my wife and me with the Enhanced IncomeShield with Riders. Better still if you can go for one that covers private hospitalisation as well. This is often one of the neglected areas, which will become very obvious when we fall sick and worse still if it is chronic.

Travel insurance if you make occasional trips abroad. Get an annual coverage if you travel often. We cover ourselves with an annual policy at $650 / year per person.

I intend to cancel all my WholeLife policies this year as we do not have any dependants. One policy which I have been faithfully paying for the past 20 years for a $75k coverage will return $38k. For TPD, I will buy a Personal Accident policy.

Annual Expenses

These would include Property Tax, Car Road Tax and Insurance and any other expenses which are particular to each of us.

Monthly and Daily Expenses

These would include conservancy charges, newspapers, PUB, telephone, internet, cable TV, petrol, parking charges, membership dues etc. List your own and tally the total amount.

Contingencies

Household maintenance/repair charges, replacement of appliances, dental treatments, car maintenance/repairs.

Leisure

Travelling expenses, course fees for leisure activities or classes. Set aside a certain amount for these activities. 

For my wife and I, we would need about $5,000 a month without the Leisure activities. We have put a sum of $20k for the leisure activities. So, it would all add up to $80k per year.

To be on the safe side, I have planned for a passive income of at least $100k per year but would prefer it to be $120k to cater for inflation in future. The additional sum can be reinvested for more income to cover inflation.

The $5,000 figure works for me but I am sure many would be able to do with lesser. One of the ways would be to cook at home more and eat out less. It is not only cheaper but also healthier as you can control what you put into the food you are eating. 

Please work out your own figures and add whatever buffers you feel comfortable with.

Skipper, thank you very much for sharing. :)

Read another guest blog:
Tea with EY: Money talk, money laugh.

Related post:
Why a wealthy nation cannot afford to retire?

Stock picking: Spotlight on Marco Polo Marine.

I received a very well written email from a reader with some very good questions. I have a gut feeling that the questions and my reply could be of interest to other readers and decided to publish our emails:

 

Hey AK,

I have been quite an avid reader of your blog since I chanced upon it last year. Your blog has taught me a lot about investing, in particular, fundamental analysis (I was a complete klutz on this before). I believed more in technical analysis back then, but your blog has shown that a good investor has to accord time and effort to both technical and fundamental analysis, in order to make rational decisions. So, just wanna say a word of thanks for showing me the ropes and helping me be a better investor.

I find your analysis very objective and illuminating, and truly I am learning something new with every post you publish. But above all, I am struck by your humbleness and willingness to help other budding investors out with tips to aid our financial journey. I dare say, precious few who are blessed with such good grasp of the market as you are, will be willing to share this with other people.

If you don't mind, I like to ask you a question on fundamental analysis, as I concede I am really terrible at it. Take for instance, Marco Polo Marine, where you have astutely highlighted out its sound fundamentals and strong economic moat. Can I just enquire what made Marco Polo stand out as an outstanding stock to you in the first place i.e. how did it get on your radar? I read that you noticed the high insider trades... is monitoring of insider trades a first requisite step to identifying strong fundamental plays? I'm asking because, there are so many companies out there, and one cannot possibly research everything, so I was wondering what aspect of their fundamentals you will notice first, before it gets on your "monitoring list" for further research? (Btw, I have taken your advice, and taken a closer look at MPM and am now vested in it too - so really wanna shoutout a word of thanks)

Secondly, and still on MPM, I understand that a great portion of the moat comes from the cabotage law. Would you say that actually this makes MPM rather vulnerable to policy uncertainities in Indonesia? For instance, if Indonesian authorities face strong appeals from the Indonesian oil and gas lobby and then decides to rescind the cabotage law - then surely MPM could be, pardon the pun, be left high and dry, its moat all gone. Additionally, is reflagging one's vessels under Indonesian colours a substantial barriers to entry? If not, then we could see supply (in terms of reflagged vessels) coming back into play, eroding any advtg MPM had. Of course, I do still have my eye on the attractive P/E of MPM at 6 vis a vis its peers e.g. Jaya, ASL. But in your opinion, if not for the Cabotage Law, would the P/E of 6 be sufficient reason for you to purchase MPM?

Keen to hear your thoughts on the matter, and once again, thanks for all your insights.

Cheers,
T..

 

 

My reply to T..:

 

Hi T..,

First off, I don't give advice. I am not allowed to. My blog is a place where I talk to myself and I cannot help it if people overhear what I say (as I talk rather loudly). If overhearing me talking to myself has helped you on your own journey, I am happy. ;)

Regarding Marco Polo Marine, yes, it was the continual insider buying that prompted me to dig into the stock. Insiders could sell their stakes for myriad reasons but to increase their stakes and by large amounts, it could only mean that they think the stock is undervalued.

Keeping a tab on insider buying activities is one way we could possibly find undervalued stocks since insiders know their businesses best. Of course, it should not be the only thing we look out for. We would still have to look into the numbers from reports and look at analyses by research houses if they are available.

As for how to generate a "monitoring list", I try to read as much as possible. I like to get a feel of macro economic trends which are helpful in telling us about the health and prospects of different sectors and countries. This is, of course, a top down approach.

This should be followed by a bottom up approach as we look at different companies with businesses in the sectors and countries which are likely to do well. Of course, this is where we examine the income statements, the balance sheets and the cash flow statements. Then, there are all the different ratios.

Having done all these, I would look at the charts as I believe technical analysis provides a window into the collective pyschology of market participants. In a bearish situation, cheap could get cheaper. In a bullish situation, dear could get dearer.

Then, make a decision. Of course, decision making is based on the best knowledge we have at any point in time. That best knowledge must also include the risks involved from a fundamental as well as a technical perspective.

The most important knowledge of all is self knowledge. Can we accept the risks involved? Don't just think of the possible gains. In the event that we should suffer a paper loss, how would we probably react? I always say that a peace of mind is priceless.

Now, all these might make me sound like I am infallible. I am not.

Sometimes, I get lazy. Sometimes, I make mistakes. Sometimes, I get in too early. Sometimes, I miss the boat.

Before I digress further, on your concern that Marco Polo Marine's moat might dry up, I would say it is a pertinent question.

I cannot make any representation as to how probable a change to the cabotage law in Indonesia is going to be. However, if we take the cue from Mr. Lee Wan Tang who probably knows the sentiments of the Indonesian government better than us, then, it is a reasonable risk that we are accepting as investors, isn't it?

Foreign competitors could reflag their vessels if they are willing to take a minority stake in a potential Indonesian counterpart. Whether they are willing to do this, I don't know.

Would Jaya be willing to go into a joint venture with an Indonesian company, taking a minority stake, so that 3 of their OSVs (in a fleet of almost 30) could get back into Indonesian waters? Your guess is as good as mine.

Marco Polo Marine was able to react very swiftly and decisively to the cabotage law because the Lee family are Indonesians and the Indonesian company that Marco Polo Marine took a 49% stake in was their own. Indonesia is Marco Polo Marine's own turf, so to speak.

To answer your last question, although the cabotage law has been fortuitous for the company, without it, Marco Polo Marine's much cheaper valuation against its peers in the sector would be compelling reason enough for me to buy its stock as sector fundamentals suggest that positives are on the horizon.

I hope that I have addressed all your concerns.

Best wishes,
AK

 

Related posts:

1. Recommended books for FA and TA.

2. 5 rules for successful stock investing.

3. Little book of value investing.

4. Be comfortable with being invested.

5. Risks, risks and risks.
6. Marco Polo Marine: Insider buying continues.

New coins for Singapore!

The new $1 coin is beautiful! Actually, all the coins look beautiful!

I don't know about you but just by looking at them evokes a feeling of pride in me. I feel proud to be a Singaporean.

I think the MAS has done a good job here and I can't wait to see the physicals when they start circulating in a few months from now.

"Coins reflect the events, persons or symbols significant to a nation. The new series coins depict local icons and landmarks that are familiar to Singaporeans and reflect various aspects of Singapore's progress as a nation," said Ravi Menon, Managing Director of the Monetary Authority of Singapore (MAS).

Read full article: here.

Asia's 50 Best Restaurants!

Want to know which are Asia's 50 Best Restaurants?

A list of top 50 hottest new restaurants in the region is the result of careful selection by over 900 leading chefs, food journalists and gourmands around the world.

Find out more at: Asia's 50 Best Restaurants!

The Official Financial Services Sponsor for the awards is Diners Club International (DCI).

Over 400 invited guests will attend the event in Singapore including many of the top 50 nominated chefs, the media, VIP guests as well as sponsors.

Why a wealthy nation cannot afford to retire?

CNBC just published an article titled "A Wealthy Nation That Can't Afford to Retire" a few hours ago. Instead of cutting and pasting the entire article which some have done, I would like to pick out a few paragraphs and make some comments.

"According to a latest study by HSBC, the citizens of this country, which has one of the highest per capita incomes in the world, face the grim prospect of running out of their savings almost halfway through retirement as the high cost of living and increased life expectancy eats into their nest egg."

It was not stated how HSBC measured "nest egg". Was it just money in our CPF accounts?

Now, I believe that anyone who is preparing to retire with just money from his CPF accounts need to be shaken by the shoulders (quite firmly). Of course, the money wouldn't be enough.

"More than half of the 1,000 Singaporeans interviewed for the survey said that either they were not adequately prepared or not prepared at all for retirement as they expected to continue working beyond the age of 65 to be able to afford their desired lifestyle."







So, more than 50% were not adequately prepared or not prepared for retirement. The rest were adequately prepared? This was just a measurement of sentiments on the street, wasn't it?

What people feel is one thing. What is the reality? How many are actually adequately prepared for retirement? How do we measure this?

Further on in the article, I believe there was a chance to do something more constructive when they interviewed a Mdm Janice Tan. However, it didn't happen. Let me try here:

"Tan and her husband are currently paying for the education of their two children, including a 21-year-old daughter studying in Perth, Australia. While Tan, an administration professional, hopes to retire soon, she says she knows it might be another 10 years before that happens."

Mdm Tan, if you hope to retire earlier, why did you send your 21 year old daughter to Perth to study? I do not know which course your daughter is doing but a quick check revealed that the annual tuition fee for Economics is A$22,500 in Murdoch University. Over a three year period, if fees stay constant, you would have spent A$67,500 on school fees alone for her!

Would it be too much to assume that a three years stay in Australia for your daughter could cost some S$160,000 to S$200,000 in total? That is a significant amount of money. (A$1.00 = S$1.28)







"With retirement savings drying up at a time when Singaporeans are most vulnerable to health problems, funding medical bills could become a big burden, HSBC said. Tan backed that sentiment, saying that medical bills from a motorcycle accident that her husband was involved in last year have been a drain on their finances."

Mdm Tan, did you and your husband get a good H&S insurance policy with a rider? I hope you have policies that pay out in case of critical illnesses. I also hope that you have policies that protect your earned incomes too as you seem to need them still.

Articles such as this one from CNBC do little other than to sensationalise issues. Unfortunately, few would bother to ask the questions which matter. Some would instead use such articles to fan the fear and resentment on the ground.







Yes, costs are rising and this is not about to change. Is complaining about rising costs going to change anything?  Is fearing rising costs going to change anything?

We should, instead, ask if we are doing enough to prepare for retirement in the face of such challenges.

I would suggest a critical look at our lives and to examine ways to increase income and reduce expenses. While we are at it, look into getting good insurance policies to safeguard our earned incomes (if we still need them) and to take care of expenses related to H&S as well as critical illnesses.

Related posts:
1. Millionaire or not, plan for retirement.
2. Enhanced incomeshield for my mom.

Read CNBC article: here.