Financial Planning and Reinvesting Your Passive Income

Reinvest money from passive income

My Cash Flow Framework

Cash Flow Diagram

HAVE YOU STARTED YOUR JOURNEY TOWARDS FINANCIAL FREEDOM?

No, what is financial freedom?	7 (6%)
No, I don't intend to start my journey.	1 (0%)
No, but I am preparing to start my journey.	26 (25%)
Yes, I have just started my journey.	40 (39%)
Yes, I am half-way in my journey.	17 (16%)
Yes, I have achieved financial freedom already.	10 (9%)

Source:  

My Investment Portfolio in Singapore

Saving Money In Singapore

Quotes/Rules of Investment

Rule no. 1: Never predict the market direction.
Rule no. 2: Don't forget the first rule.
Rule no. 3: It's far better for other to buy an overvalued stock from you, rather than you buy an overvalued stock from other.
Rule no. 4: No discipline is the key of losing money in the market.
Rule no. 5: For a wonderful company, be delighted when its stock price falls, be regretted when its stock price rises. 
Rule no. 6: Slow and steady will definitely win the race.
Rule no. 7: You can never find it easy to catch a butterfly unless you have a big net.

http://myinvestmentportfolioinsingapore.blogspot.com/2009_11_01_archive.html

15 U.K. Shares Trading Near 52-Week Lows

Published in Investing on 20 June 2012

These shares are near the cheapest they have been for a year.

Unless the market is gripped by irrational exuberance, there will always be some shares trading at depressed prices. I trawled the market to find companies whose share price is within 5% of its lowest point in a year. Investors have to determine what has led a share price to fall and what the probability is that a significant turnaround could occur.

A list like this should be used as a starting point for further research. These shares have previously been higher and could rise significantly if sentiment improves. Alternatively, the picture could worsen, driving further falls.

Company	Market Cap (£m)	Share price (p)	% off 52-week low	P/E	Yield %
Tesco (LSE: TSCO)	24,354	303	2.9	8.9	4.9
Glencore International (LSE: GLEN)	23,136	334	2.4	7.5	2.9
Wm Morrison (LSE: MRW)	6,892	278	5.0	10.7	3.9
Resolution (LSE: RSL)	2,707	197	3.3	7.5	10.1
Songbird Estates (LSE: SBD)	1,586	102	1.8	n/a	n/a
Man Group (LSE: EMG)	1,330	74	3.2	18.0	14.4
African Minerals (LSE: AMI)	1,108	336	1.3	n/a	n/a
Genel Energy (LSE: GENL)	805	605	3.2	n/a	n/a
APR Energy (LSE: APR)	564	722	1.6	n/a	0.9
Fidessa (LSE: FDSA)	550	1,495	3.9	18.5	2.5
Computacenter (LSE: CCC)	500	325	4.4	8.9	4.6
Shepherd Neame (LSE: SHEP)	497	625	0.8	12.6	3.8
Halfords (LSE: HFD)	476	239	2.4	7.0	9.2
Shanks (LSE: SKS)	308	78	0.7	11.4	4.4
London Mining (LSE: LOND)	292	212	2.7	n/a	n/a

Here are three shares I found particularly interesting.

1) Tesco

In the entire FTSE 100 (UKX) index, there is not a single company with a lower price-to-earnings (P/E) ratio, higher dividend yield and better forecast profit growth than Tesco.

The shares trade on 8.8 times forecast earnings for 2013. The forecast dividend yield is 4.9%.

21 FTSE 100 stocks are expected to pay a higher dividend than Tesco. The same number of FTSE 100 companies trade on a lower forward P/E. Only eight FTSE 100 companies trade on both a higher expected dividend and lower forward P/E than Tesco. None of those eight companies is expected to match Tesco's profit growth. At today's price, Tesco represents a unique proposition of blue-chip value, income and growth.

Much of the investment discussion on Tesco describes the company as "struggling". That pessimism is not matched by the professional analyst community. They expect Tesco to deliver modest eps growth for 2013 of 1.0%, followed by 7.7% growth for 2014. The dividend is forecast to rise 1.2% for 2013 and by another 7.9% for 2014.

Investors may have been encouraged by Tesco's recent announcement that it is withdrawing from the Japanese market. This decision leaves management more focused on the company's core markets. Worryingly, trading statements from rival firms such as Sainsbury's (LSE: SBRY) suggest Tesco is losing UK market share. Tesco's success in the UK market had driven international expansion and shareholder returns. The company's current valuation suggests investors expect Tesco rivals to continue to gain ground on the market leader.

2) Fidessa

Don't be fooled by the current low in Fidessa's share price. The financial software specialist is a great growth story.

Fidessa provides multi-asset trading and analytics software to major investment banks and asset managers.

Fidessa has established itself in an industry where technology solutions have enjoyed increased demand. Fidessa software might be used by a stockbroker to send your trades to the market and then report the transaction back to you electronically. Fidessa's products are also used by the increasingly significant algorithmic trading desks.

In the last five years, the company has delivered compound eps growth of 21.2% per annum. The dividend growth averages out at 22.7% every year.

It would appear Fidessa has suffered some rating compression. Five years ago, the company traded on a forward P/E in the high 20s. Although growth was delivered, the market is now placing a lower rating on Fidessa shares. Today, the company trades at 18.1 times the consensus 2012 eps forecast and 16.7 times the estimate for 2013.

Shares in the company have fallen 21% in the last 12 months. This might be explained by the previous high rating and the fact that analysts are now expecting single-digit growth for the next two years. For the shares to rise from here, either Fidessa will have to deliver better growth or the market will have to start expecting it again.

3) Songbird Estates

Songbird Estates is one of the largest companies listed on AIM. Unfortunately, that means the shares are not eligible for ISA investment.

Songbird's share register is dominated by three overseas investment groups. Their combined holdings total 68% of the shares in issue. As a result, there is not a lot of liquidity in the company's shares.

It appears that the company's small free float and lack of dividend are deterring investors.

The company's operations have traditionally focused on Canary Wharf. Songbird owns a majority stake in Canary Wharf Group, owners of the eponymous tower. The Canary Wharf estate spent a long time being derided as a white elephant. This changed in the mid-90s when the working population there more than doubled in four years. The company is now diversifying beyond Canary Wharf. Such large-scale construction projects are long-term in their nature.

Perhaps it is the absence of a fast payout that is seeing investors send their cash elsewhere. However, for long-term investors Songbird looks to be one of the best ways to get exposure to the multi-decade boom London is enjoying. Other companies looking to exploit London's construction and development bonanza include Capco (LSE: CAPC) and Quintain Estates and Development(LSE: QED).

Warren Buffett buys British! The legendary investor has recently topped up on his favourite UK blue chip. Discover what he bought -- and the price he paid -- within our latest free report!

Further investment opportunities:

• 2 Share Tips For Olympic Gold
• The 12 Fastest-Growing Blue-Chip Shares
• A £332 Billion Problem For UK Investors

> David does not own shares in any of the above companies. The Motley Fool owns shares in Tesco and Halfords.

http://www.fool.co.uk/news/investing/2012/06/20/15-shares-trading-near-52-week-lows.aspx?source=ufwflwlnk0000001

This is the opportunity facing you today. You could be at the forefront of the largest gains when the tide turns.

Sure, there may be volatility in the market for some months ahead. Years even. But this should NOT stop you from taking control of your financial destiny.

Your money might survive being mothballed in a bank account, gathering a feeble 1% or 2% per year. But unless you can get a pay rise or a windfall sometime soon, nobody is going to help you grow your wealth in the many alternatives available.

At some point, the markets will rise again, and – in our view – those who are already invested in rock-solid shares should make serious gains.

I'm old enough to remember all sorts of stock market crashes and periods of underperformance -- the causes and durations of which are long since lost in the mists of time.

What I do know is that markets eventually recover, and carry on heading upwards – carrying our stocks, and investment wealth, with them.

This is the opportunity facing you today.

You could be at the forefront of the largest gains
when the tide turns

The majority of private investors are too scared by what happened in the last few years to invest right now.

But looking backwards and doing nothing is not the way to take control of your financial destiny.

Think of it this way. You'd be crazy to drive your car whilst spending all of your time looking in the rear-view mirror.

And yet many people invest like this. They assume that because 2011 was a tough year for the world's stock markets, 2012 will be just as bad.

But the financial world doesn't work that way, especially the stock market. The past is... well... history.

The tide turns when everyone least expects it. The more obvious the market's direction seems, the greater the odds that you're wrong.

As Floyd Norris of The New York Times has pointed out that, for the past half-century, the market has moved in 15-year cycles where returns swing from spectacular to near-zero.

In 1964, the average real return over the preceding 15 years was a stellar 15.6% a year.

Then it flipped. By 1979, the previous 15 years produced a negative real return.

Then it flipped again.

By the late 1990s, 15-year average returns were near record highs. And again – as of the end of last year, stocks returned a measly 3% a year over the last 15 years.

The trend is clear: After booms come busts, and after busts come booms.

Sound crazy? It sounded crazy in the early 1980s, too.

So did the notion 10 years ago that we were about to face a decade of stagnation.

That's always how these things work. After booms come busts, and after busts come booms. Happens over and over.

Of course, history isn't guaranteed to repeat itself. And what drives stocks to a decade of low or high returns isn't the calendar: it's valuations. Stocks do well after they're cheap, and poorly after they're expensive. So the real question shouldn't be how long stocks have been stagnant, but whether they're cheap.

And right now we believe they are.

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How rock-bottom airline shares made bold investors 400% gains

How rock-bottom airline shares
made bold investors 400% gains

After the September 11 terrorist attacks, shares in airlines were understandably out of favour.Boeing's shares hit rock bottom about a year after 9/11. But it was sentiment and fear driving the share price so low, not the fundamentals of the company. A bit of clear analysis would have told you that was a buy opportunity.

If you'd bought Boeing shares in 2002, you would have watched them soar to FOUR TIMES their value within 5 years.

The rule is, buy when share prices are depressed. Warren Buffett puts it this way...

"When hamburgers go down in price, we sing the Hallelujah Chorus in the Buffett household. When hamburgers go up, we weep. For most people, it's the same way with everything in life they will be buying except stocks. When stocks go down and you can get more for your money, people don't like them."

When the mood is pessimistic, and sentiment – not facts – drives prices down, then that's the time to buy.

https://www.fool.co.uk/shop/secure/order-01.aspx?dc=ccd70129-62cb-417b-a440-99de3c029d1a&sf=0512_hb_plndr_L1&pd=07&source=u74spoeml0000189

"Be greedy when others are fearful."

The Buffett Buy Signal
You'd Be Foolish to Ignore

Warren Buffett is one of the world's most famous and successful investors. He lives by this maxim: "Be greedy when others are fearful."

Another investing legend, John Templeton, said:"The time of maximum pessimism is the best time to buy."

We could go back even further. Baron Rothschild, an 18th century British nobleman and member of the Rothschild banking family, said: "The time to buy is when there's blood in the streets."

Look around you... eurozone in crisis... top execs stuffing their bank accounts with undeserved bonuses... ordinary people angry with falling living standards and pay freezes... riots on the streets of Athens... looting and violence across London last summer.

You don't need me to tell you that 2011 was a shocker...

In the European debt storm, the markets took a battering. The FTSE 100 slumped by 10% in August to a low of 4,944 points... In November alone, £864 million poured from equity funds, the biggest outflow since 1992.

Today, for many investors, the aftermath of the storm looks grisly.

The eurozone is still in turmoil. At 3.6%, UK inflation remains painfully high¹². UK Government debt stands at over £1 trillion... a whopping 66% of the total economy¹³... while we consumers owe around £1.5 trillion.¹⁴

No wonder many private investors won't go near the stock market...

The herd is running scared.

Earlier this year, Warren Buffett seemed to think that once again it was time to be greedy. And there was one UK blue chip in which he made a significant bet. It's the supermarket chain Tesco. Buffett first bought into this company in 2006. In January 2012, he invested another £500m¹⁰ after the company issued a profit warning, which saw the shares dive by 20%.

Tesco has taken a hit – but the likes of Warren Buffett are moving in on what could be a bargain

This is without doubt one of those periods of pessimism that gets investors like Buffett excited. And it's the mood of the crowd that's driving many share prices down to lows we think they don't deserve.

This could mean you have an opportunity to snap up some serious bargains – companies with solid fundamentals, tasty prospects for growth and ridiculously cheap share prices.

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The time to BUY is actually when shares have been beaten down by the market.

Why the panicking crowd has got it wrong
– again – and how you can profit

Let's face it, even the most optimistic analyst would say that the volatile conditions of 2011 are likely to continue over the next year or two.

Whatever our politicians might hope for, the eurozone's problems of high national debts and a tepid economic recovery aren't going to go away any time soon.

So, what's an investor to do?

Sadly, history already tells us what many investors are doing: cutting and running, deciding that the stock market isn't for them, and taking their losses on the chin.

Research shows that time and time again, private investors pile into equities at too high a price...when shares have already shot up way too far... And they get out at a price that's too low... often just before they start to recover again.

If that's not wealth-destroying, then I don't know what is.

For example, UK investment author Tim Hale has pointed out that in 1984-2002 – a bull market when the equity markets turned $100 of spending power into $500 – private investors turned that same $100 into just $90⁸.

A 2007 study of UK investors over the period 1992-2003 found that the returns of private investors were around two percentage points a year lower than the funds that they were invested in...⁹

These feeble returns are all thanks to the fuzzy thinking of a crowd that follows their emotions, rather than using clear-headed analysis.

They wrongly believe that you buy shares when they're going up and you get out of the market when they're hitting rock bottom.

Here's why this is wrong – in fact, the time to BUY is actually when shares have been beaten down by the market.

That is, of course – if you know what to look for...

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Why You Should Buy When Share Prices Are Low

A Lesson From History:

'The Buffett Buy Signal' –
Why You Should Buy When Share Prices Are Low

Warren Buffett has made millions from going against the crowd and buying when share prices are low, not when they're heading up.

Here are some examples...

1968

During a high point in the markets, Buffett complained about how he was having trouble finding "first-class investment ideas". He held onto that view until 1974. From June 1968 to October 1974, the S&P 500 fell 37%. For the decade starting in June 1968, the S&P lost 2.6%.

1974

Buffett changed his tune as the market fell. In late 1974, he made his famous comment that he felt like "an oversexed man in a harem" – meaning simply that he was awash in investment opportunities. The S&P 500 rose 11% per year over the next five years and 10% per year over the next decade.

During that bear market, Buffett bought shares in the Washington Post Company because he believed they were a bargain. Since then the price has soared by more than 100 times – and that's before you factor in dividends.

1979

When the market slumped between 1977 and 1979, most investors got cold feet. Buffett toldForbes that stocks were still the way to go. The S&P 500 returned 9% over the next five years and 13% over the next 10.

Of course, that's Warren Buffett. He's a legendary and fabulously wealthy investor. How can the ordinary investor today tell the genuinely cheap shares from those that deserve their low price?

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Investor's Checklist: A Guided Tour of the Market

The list below covers just about every corner of the market.  It should help you wade through the different economics of each industry and understand how companies in each industry can create economic moats - which strategies work and how you can identify companies pursuing those strategies.

Over the long haul, a big part of successful investing is building a mental database of companies and industries on which you can draw as the need arises.  The list below should give you a jumpstart in compiling that mental database, and that will make you a better investor.

• Investor's Checklist: Health Care
• Investor's Checklist: Consumer Services
• Investor's Checklist: Business Services
• Investor's Checklist: Banks
• Investor's Checklist: Asset Management and Insurance
• Investor's Checklist: Technology Software
• Investor's Checklist: Technology Hardware
• Investor's Checklist: Media
• Investor's Checklist: Telecom
• Investor's Checklist: Consumer Goods
• Investor's Checklist: Industrial Materials
• Investor's Checklist: Energy
• Investor's Checklist: Utilities

It is easier for companies to make money in some industries than in others. Some industries lend themselves to the creation of economic moats more so than others, and these are the industries where you'll want to spend most of your time. The economics of some industries are superior to others. Hence, you should spend more time learning about attractive industries than unattractive ones. Every industry has its own unique dynamics and set of jargon - and some industries (such has financial services) even have financial statements that look very different.


Ref:  The Five Rules for Successful Stock Investing by Pat Dorsey

Investor's Checklist: Health Care

Developing drugs is time-consuming, costly, and there are no guarantees of success.  Look for companies with long patent lives and full pipelines to spread the development risk.

Drug companies whose products target large patient populations or significant unmet needs have a better chance of paying off.

Make sure you have a big margin of safety for pharmaceutical companies with mega blockbuster drugs that make up a large percentage of sales.  Any unexpected development can send cash flow, and the stock price, reeling.

Unless you have a deep understanding of the technology, don't invest in biotech startups.  Payoffs could be large, but the cash flows are so far out and uncertain that it's easier to lose your shirt than win big.

Don't overlook the medical device industry, which is full of firms with wide economic moats.

Cash is king for firms that rely on development (pharmaceuticals, biotechnology, and medical devices).  Make sure firms have enough cash or cash from operations to get through the next development cycle.

Keep an eye on the government.  Any drastic changes in Medicare/Medicaid spending or regulatory requirements can have a deep impact on pricing throughout the sector.

Managed care organizations that spread risk - whether through a high mix of fee-based business, product diversification, strong underwriting, or minimal government accounts - will provide more sustainable returns.  

Ref:  The Five Rules for Successful Stock Investing by Pat Dorsey


Read also:
Investor's Checklist: A Guided Tour of the Market...

Investor's Checklist: Consumer Services

Most consumer services concepts fail in the long run, so any investment in a company in the speculative or aggressive growth stage of the business life cycle needs to be monitored more closely than the average stock investment.

Beware of stocks that have already priced in lofty growth expectations.  You can make money if you get in early enough, but you can also lose your shirt on the stock's rapid downslide.

The sector is rife with low switching costs.  Companies that establish store loyalty or store dependence are very attractive.  Tiffany's is a good example; it faces limited competition in the retail jewelery market.

Make sure to compare inventory and payables turns to determine which retailers are superior operators.  Companies that know what their customers want and how to exploit their negotiating power are more likely to make solid bets in the sector.

Keep an eye on those off-balance sheet obligations.   Many retailers have little or no debt on the books, but their overall financial health might not be that good.

Look for a buying opportunity when a solid company releases poor monthly or quarterly sales numbers.  Many investors overreact to one month's worth of bad same-store sales results, and the reason might just be bad weather or an overly difficult comparison to the prior-year period.  Focus on the fundamentals of the business and not the emotion of the stock.

Companies also tend to move in tandem when news comes out about the economy.  Look for a chance to pick up shares of a great retailer when the entire sector falls - keep that watch list handy.  


Ref:  The Five Rules for Successful Stock Investing by Pat Dorsey


Read also:
Investor's Checklist: A Guided Tour of the Market...

Investor's Checklist: Business Services

Understand the business model.  Knowing if a company leverages technology, people, or hard assets will provide insight as to the kind of financial results the company may produce.

Look for scale and operating leverage.  These characteristics can provide significant barriers to entry and lead to impressive financial performance.

Look for recurring revenue.  Long-term customer contracts can guarantee certain levels of revenue for years into the future.  This can provide a degree of stability in financial results.


Focus on cash flow.  Investors ultimately earn returns based on a company's cash-generating ability.  Avoid investments that aren't expected to generate adequate cash flow.

Size the market opportunity.  Industries with big, untapped market opportunities provide an attractive environment for high growth.  In addition, companies chasing markets perceived to be big enough to accommodate growth for all industry participants are less likely to compete on price alone.

Examine growth expectations.  Understand what kind of growth rates are incorporated into the share price.  If the rates of growth are unrealistic, avoid the stock.  



Ref:  The Five Rules for Successful Stock Investing by Pat Dorsey



Read also:
Investor's Checklist: A Guided Tour of the Market...

Investor's Checklist: Banks

The business model of banks can be summed up as the management of three types of risk:  credit, liquidity, and interest rate.

Investors should focus on conservatively run institutions.  They should seek out firms that hold large equity bases relative to competitors and provision conservatively for future loan losses

Different components of banks' income statements can show volatile swings depending on a number of factors such as the interest rate and credit environment.  However, well-run banks should generally show steady net income growth through varying environments.  Investors are well served to seek out firms with a good track record.

Well-run banks focus heavily on matching the duration of assets with the duration of liabilities.  For instance, banks should fund long-term loans with liabilities such as long-term debt or deposits, not short-term funding. Avoid lenders that don't.

Banks have numerous competitive advantages.  They can borrow money at rates lower than even the federal government.  There are large economies of scale in this business derived from having an established distribution network.  the capital-intensive nature of banking deters new competitors.  Customer-switching costs are high, and there are limited barriers to exit money-losing endeavors.

Investors should seek out banks with a strong equity base, consistently solid ROEs and ROAs, and an ability to grow revenues at a steady pace.


Comparing similar banks on a price-to-book measure can be a good way to make sure you're not overpaying for a bank stock.


Ref:  The Five Rules to Successful Stock Investing by Pat Dorsey


Read also:
Investor's Checklist: A Guided Tour of the Market...