Why do you want to be rich?

I have just attended 2 days of Value Investing Summit (VIS) 2014 over the weekends. It was tough for me physically & mentally due to my lack of sleep; starting from Friday 12pm to Saturday 7.30am was spent at my customer's place doing data migration, then I drove very quickly home in a "drunken" state and got a taxi to get to the venue just before the stroke of 9am for the VIS.

VIS was indeed informative, entertaining, and opened my eyes and mind to more ideas, never mind the hard/soft selling technique of the organizer.

After VIS, I asked my girlfriend why does she want to be rich?

I think it's a very important & fundamental question people should always ask themselves before embarking on their investment journey. Always start with the end in mind, as the saying goes.

1. Do things that I like

Rather than saying I want to be rich, I should say that I want to be Financially Independent. I want to be able to say "I quit" if I want to and really move on to do things I really enjoy...swimming, running, cycling, charity, travel...

If you could choose when and where you like to work, then you are truly financially independent and you are free to pursue your passion.

2. You will never be the same you 

As I'm writing this, I'm in this state of limbo "high" from my lack of sleep, stress, and unhappiness at work. Thinking back when I was in National Service and University, I could go for many nights straight without a wink, now I could feel my body on the brink of collapse.

I'm not my 20 year old self, and my body will inevitably degenerate, more quickly if I continue to push my body to exhaustion everytime, I may not be able to keep up with the demands of my job.

Keep accumulating income generating assets, make money work for you, hopefully when the day comes when you are not able to continue working, you'll have enough moolah to see you through.

3. Charity

I'm really happy that at the end of VIS, the organizers played a video conveying the message of gratitude and charity.

Really, so what if you have a million or 2 million dollars?

Would you be happy if you see your family, friends, relatives, fellow countrymen, fellow humankind, fellow critters of the Earth suffering?

There's only so much food you can eat, beyond that you will feel uncomfortable, there's only so big a house you need, beyond that the extra space does not bring you more convenience and happiness.

Be thrifty, save some, invest some, spend some, and donate the rest.

As a reminder to self for this idea, I put the last point into action by donating USD100 to UNICEF last year, even though I only receive a paltry SGD9 from dividends and the capital appreciation was barely SGD5 the last I check.

Charity begins at home, you don't have to be rich to do it, but it certainly helps if you have more to give :)

The Clash of the Cultures: Investment vs. Speculation - Ten Simple Rules for Investment Success

Watched an episode of WealthTrack interview with John C. Bogle and decided to perform the action point, which is to read his book: The Clash of the Cultures: Investment vs. Speculation.

 

 

His book reflects the thinking of this great man. The last chapter of this book is a summary of his investment philosophy which he advocated throughout his whole life.

 

Ten Simple Rules for Investment Success

1. Remember reversion to the mean
2. Time is your friend, Impulse is your enemy
3. Buy right and hold tight
4. Have realistic expectations: The bagel and the doughnut
5. Forget the needle, buy the haystack
6. Minimise the croupier's take
7. There's no escaping risk
8. Beware of fighting the last war
9. The hedgehog bests the fox
10. Stay the course!

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1. Remember reversion to the mean
• The message is that selecting your fund for tomorrow by picking a winner from yesterday is an exercise fraught with peril
• Basically, Benjamin Graham's principle of voting machine & weighing machine 
2. Time is your friend, Impulse is your enemy
• Enjoy the miracle of compound interest
• Greatest sins of investing is to be captivated by the siren song of the market, which can lure you into buying stocks when they are soaring and into selling stocks when they are plunging (Market timing is IMPOSSIBLE)
• When you think long term, you'll be less likely to allow transitory changes in stock prices to alter your investment programme
3. Buy right and hold tight
Proper allocation of assets: Stocks vs. Bonds
Start with 50/50 stock/bond balance, then raise stock allocation based on time horizon, risk appetite, amount of capital, need for current income


4. Have realistic expectations: The bagel and the doughnut
• Two different kind of baked goods, symbol of two distinctively different elements of stock market returns
• Bagel: Investment return - dividend yield plus earnings growth (nutritious, crusty, hard-boiled)
• Doughnut: Speculative return - Wrought by material change in price that investors are willing to pay for each dollar of earnings; changes from soft-sweetness of optimism to acid sourness of pessimism (flaky)
5. Forget the needle, buy the haystack
• Statistics describe past performance, yet have no predictive power to forecast future returns
• By owning entire stock market, eliminate Stock risk, Style risk, Manager risk, only exposing yourself to Market risk
• Ultimate diversifier of for the stock allocation of a portfolio
6. Minimise the croupier's take
• After heavy costs of financial intermediation (commissions, spreads, management fees, taxes, etc.) are deducted, beating the stock market is inevitably a loser's game for investors as a group
• Beware of compounding cost
  Never forget either the magic of long-term compounding of returns, nor the tyranny of long-term compounding of costs.
7. There's no escaping risk
• Money in savings account will get eroded over time by inflation; a risk that almost guarantees that you will fail to reach your capital allocation goals
• Put money in the stock market, let public corporations help you earn profits on your capital
8. Beware of fighting the last war
• Making investment decisions based on the lessons of the recent or remote past
9. The hedgehog bests the fox
• The fox knows many things, but the hedgehog knows one great thing: Long-term investment success is based on simplicity, low-cost, diversifies broadly, buys and hold, keeps expenses to the bare-bones minimum
10. Stay the course!
• There is no secret
• Investment is simple, but it is not easy
• Requires discipline, patience, steadfastness, and most uncommon of all gifts, common sense