myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.

Sunday 29 March 2009

Our financial needs and wants in life

YourMoney: Our financial needs and wants in life
By Yap Ming Hui

2009/02/22

IN order to achieve your financial freedom, you must know clearly what your financial needs and wants in life are. Your personal financial management should make a healthy contribution to the realisation of the life that will make you happy. Contrary to most financial planning practices, I will not define your financial needs and wants before defining what a good life is to you. If you expect your money to contribute to your good life and you're not clear about what that good life is, how can you possibly get there?

In order for your money to be more than just a financial figure, it is important that you identify and articulate your definition of good life.

It must not be the social norm version of good life. Your self-defined good is your innermost driving force. It gives you a sense of direction and purpose. It motivates you to your highest levels of energy.

Your financial needs and wants are about supporting a good life that is consistent with your core values and beliefs and it's the starting place for any money management. Your own definition of good life is there, within you. But most of us simply haven't identified it.

To share with you a guide on defining good life, I would like to quote a formula outlined by Richard J. Leider and David A. Shapiro in their bestselling book Repacking Your Bags.

"Living in the place you belong, with the people you love, doing the right work, on purpose."

According to them, good life is an integration -- a sense of harmony among the various components in one's life.

It means that, for example, the place you live provides adequate opportunities for you to do the kind of work you need to do. And that work gives you time to be with the people you really love. And that your deepest friendships contribute to the sense of community you feel in the place you live and work.

The glue that holds the good life together is your purpose. Defining your sense of purpose -- the reason you get up in the morning -- enables you to continually travel in the direction of your vision of the good life. It helps you focusing on where you want to go and discovering new roads to get there.

If you are interested in finding out more on how to define your own good life, I suggest you can read Repacking Your Bag or any other life-planning books.

Only after defining what good life is, can you move on to identify the financial needs and wants required to support your good life.

The following are some of the questions that you can ask yourself to identify your financial needs and wants in life:

- When would I want to retire and how much income will I need to maintain my desired retirement life style?

- How much tertiary education do I want to provide for each of my children? By when do I need the money?

- How much do I need to finance my annual vacations? How about my vacations during my retirement?

- How much would I need to maintain my current life style?

- How much would I need to buy my dream house?

- What are the other financial goals that I would like to achieve and how much will they cost me, and when would I need it?

A sample list of financial needs and wants

Below is one of my client's list of financial needs and wants for a good life.

- I would like to retire at 50 with RM96,000 annual income.

- I want my wife to retire earlier at 35.

- I would like to provide RM200,000 each for my children's tertiary education.

- I would like to set aside RM20,000 for my annual vacation and I hope to double it to RM40,000 when I retire.

- I would like to maintain my current family lifestyle of RM120,000 per year.

- I am happy with my current house. I will not need to buy another house.

When you develop your list of financial needs and wants, don't be restricted by your current financial resources. You should focus purely on defining the financial needs and wants that will give you the good life you want.

That's what we mean by defining the financial freedom goal that you really want in life. When you do that, you will develop a strong sense of belonging to the financial freedom goal that you set because it means a lot to you. When you do that, you will not blindly follow the common financial freedom goal of just wanting to become a millionaire or a multi-millionaire.

Each one of us will have our own financial freedom goal. Therefore, each will also have our own code for our financial freedom.

We need to find out what combination of spending, ROI, inflation, time and saving is the right code for us to achieve our own financial freedom.

Have you found out what is your code to your financial freedom? If you have, you are on the right track to achieving your financial freedom.

If you haven't, you better start finding it out now before it is too late, because without the essential element of time, it is going to be difficult, if not impossible, to achieve your financial freedom.

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Yap Ming Hui is the managing director of Whitman Independent Advisors Sdn Bhd, which has recently launched Roadmap to Financial Freedom service to help guide Malaysian families to achieve financial freedom

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© Copyright 2009 The New Straits Times Press (M) Berhad. All rights reserved.
http://www.nst.com.my/Current_News/NST/Sunday/Focus/2484254/Article/pppull_index_html

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My 18 points guide to Successfully compounding your money in Stocks

Be a good stock picker.
Think as a business owner.
Always look at value rather than the price. Do the homework.
Buy and hold is alright for selected stocks.
Compounding is your friend, get this to work its magic.
Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.
Always buy a lot when the price is low.
Never buy when the stock is overpriced.
It is alright to buy when the selected stock is at a fair price.
Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.
Do not time the market for such or any stocks.
By keeping to the above strategy, the returns will be delivered through the growth of the company's business.
So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.
The downside risk is protected through only buying when the price is low or fairly priced.
Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.
Sell urgently when the company business fundamental has deteriorated irreversibly.
You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.
In conclusion, a critical key to successful investing is in your stock picking ability.

http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.
2. Never invest in any idea you can’t illustrate with a crayon.
3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.
4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.
5. Time is on your side when you own shares of superior companies.
6. Owning stock is like having children. Don’t get involved with more than you can handle.
7. When the insiders are buying, it’s a good sign.
8. Unless you’re a short seller, it never pays to be pessimistic.
9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.
10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:
- fixed assets such as equipment, property, or industrial buildings
- fixing problems with an asset
- preparing an asset to be used in business
- restoring property
- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

Less is better.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.
• A balance sheet with less debt than other companies in its particular industry.
• A P/E ratio no higher than average.
• A dividend yield that suits your particular needs.
• A below-average dividend pay-out ratio.
• A history of earnings and dividends not pockmarked by erratic ups and downs.
• Companies whose ROE is 15 or better.
• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?

myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Sunday 29 March 2009

Our financial needs and wants in life

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All equity security investments present a risk of loss of capital

The Ultimate Hold-versus-Sell Test

Some thoughts on Analysing Stocks (KISS)

Benjamin Graham

Sell the losers, let the winners run.

Investment Style

Warren Buffett

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