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Magic of compounding.......

I think affirnity with the market....sometimes u follow to the point also come to failure....for instance, if i follow traffic light and cross when it is green, i can still be knock down by a careless driver..no offend .JMO

 

There is no right or wrong in trading and buy-and-hold, TA and FA.

Price trends is risky if we dont have a tool and strategy and no emotion and risk control. And for a 20-30 plus person to have enough money to hold stocks so that they can earn S$60,000 dividends it is really easier say than done. same ..discpline applie here.

For me i would prefer to make S$1mil in less than 10 years. I am using TA to create investment and passive income(s) and it is working well for me.

HUAT for eveyone !!! 

 

During a depressed market, though dividends are lower, stock prices are also lower. Effectively, if the % stock price drop is lower than the decrease in collected dividends (in %), one will still stand a good chance of accumulating shares in a company with depressed stock prices. So, one can still accumulate shares in a company at cheaper price. When market and businesses recover, with more shares at hand (accumulated during bear market) and rising dividends, one will get more dividends and there is no incentive for buying more shares if the share price is too elevated such that it is so much more than the total dividends one collects during bull market. By doing this, the number of shares will accumulate and one only buys sparingly during bull market when stocks are not overvalued above their intrinsic value. This way of investing does not allow a person to have huge consistent gains. The gains from long term investing (30 years) is only around 13% annually, but the potential loss for one's investments is almost negligiable provided the initial investment is a sound one. On the contrary, the gains from short-term trading is potentially high in 1 to 2 years short term, averaging around 40% annually for 1 to 2 years. However, there is a potential loss of around 20% on short-term trading too. It depends on the personality of the investor. Does one prefer to invest short-term knowing that if one is correct, the gain is potentially better but if one is not correct, the potential loss is also great? Or does one prefer to get a smaller return but the potential loss from a long-term investing lifespan is almost negligible?

 

Hee.......It's ok......Everyone does things differently. There are people who trades on price trends and there are people who do buy-and-hold. I am not advocating any one investing principle is better than another. I am sure there are people from both principles who have benefitted from their methods. The type of investing principle to use also depends on the personality of the investor. I also read about Warren Buffett's investing principles and know about his Berkshire Hathaway not giving dividends through the years. He is looking for investors and not traders to buy the shares of his company. That is why he never splits his stocks so as not to make it too affordable for trading. No matter what methods employ, as long one is careful and rational, I believe one still stand a good chance to be profitable. I do not agree that making 1 million in 30 years is too long. Some people because of the rush to make 1 million in a short time has bust their wealth. They take gambles which are too risky in nature. I prefer to be a slow safe earner. Thanks for your input. I have benefitted from your perspective of looking at investing......Let's continue to discuss about investing principles to increase our learning.

 

To make a million in 30 years in the market is a bit too long.

 

Pardon me but maybe you missed the main point I was driving at. When I mentiooned about SPC, I was not talking based on hindsight. The point you made about holding your stocks for 30 years is just not quite right and holding onto to a "good dividend stock" only works in a bull market simply because in a bull market, companies are able to give better dividends and the stock price appreciates. Have you seen the latest drop in dividend proposed by SPC?

Let me quote to you something taken from a book on the great investor, Warren Buffet. I chose Buffer as an example because I believe you believe strongly in investment and not trading.

"Since Warren Buffet assumed control of Berkshire Hathaway the company paid dividends in just one year and Buffet quips,"I must have ben in the bathroom at the time" Berkshire doesn't pay dividends and Buffet does not like them. Why? Tax."

Buffet believes it is far better to reinvest money back into the company than giving dvidends. Is Bershire Hathway stock a lousy one because it does not give dividend. Look at the value of the stock. It is oneof the most expensive stock as its price has appreciated.  

 

jeremyow      ( Date: 26-Jan-2009 04:23) Posted: Haha.......This is easily said now since the market has dropped unusually low this time round which is close to the great depression time ages ago. If I were your friend and I had predictive powers to predict the market will drop exactly this much and I will suffer so much paper loss, I will also have sold all my shares to lock in that amount of profit. There is no right and wrong decision during that moment of $8 whether one should sell or hold on. This comment is now easily made based on hindsight. If I can predict how much my share price will drop during this bear market, I would have also sold my shares already when I had the paper profit. What if the market had not dropped this much or is going to gain more in future, even more than $8 for SPC shares, then will he have made the right choice by selling all his shares? What I am saying here is that we can never predict the future to know exactly when we should sell or buy. However, over the long term, if a business is doing well and growing, eventually the share price will appreciate to the true intrinsic value. Short term price trends may be risky to follow as one may not always predict accurately what the near future price trend is. I will rather have a long term view and keep accumulating shares when possible at undervalued prices and collect growing dividends along the way and make use of compounding to help me achieve my long term financial goal. If I am onto retirement, all the more I will not sell my shares that easily as I will want to continue receiving dividends. Once I sell off my shares, I am out of the game. No more dividends and I have to look for other opportunities to invest my money which may not always be better than my last investment opportunity. If I can rcontinue to recieve a total of yearly $30 k dividends from shares accumulated over a lifetime, I may not want to sell off my shares since I can continue to receive a hefty passive income which is better than following price trends which is too risky. The idea here is to build a stable substantial investment portfolio that gives stable dividend yields such that the returns from collected total dividends far outweight the risk-reward of short-term trading. Livermore      ( Date: 25-Jan-2009 19:07) Posted: Pardon me but in my opinion that is not the way to go. The fastest way to make a million is go long in a bull market (but you make even more if you are able to catch the uptrend and correction periods during the bull phase). In a bear market, you make by short selling. If one is not comfortable doing that, then just stay out. What you make in a bull market can easily be wiped in a bear market. My friend was in at least nearly half a milllion paper profit in SPC share at its highest price of $8, but now he told me he is "kicking himself" for not selling (thinking it could reach $10) as he is now in paper loss.

 

 last year dividend come to some 60k over...i think going forward , this year will be less, since have sold out some 70%.,.you are right to say that passive income..and 2007 was just as good...even if i dodnt sell out, i think the most is half of 2008..

But not forgetting your share px have been whack down and eat into the dividend...this must be taken into consideration also.

jeremyow      ( Date: 26-Jan-2009 04:23) Posted: Haha.......This is easily said now since the market has dropped unusually low this time round which is close to the great depression time ages ago. If I were your friend and I had predictive powers to predict the market will drop exactly this much and I will suffer so much paper loss, I will also have sold all my shares to lock in that amount of profit. There is no right and wrong decision during that moment of $8 whether one should sell or hold on. This comment is now easily made based on hindsight. If I can predict how much my share price will drop during this bear market, I would have also sold my shares already when I had the paper profit. What if the market had not dropped this much or is going to gain more in future, even more than $8 for SPC shares, then will he have made the right choice by selling all his shares? What I am saying here is that we can never predict the future to know exactly when we should sell or buy. However, over the long term, if a business is doing well and growing, eventually the share price will appreciate to the true intrinsic value. Short term price trends may be risky to follow as one may not always predict accurately what the near future price trend is. I will rather have a long term view and keep accumulating shares when possible at undervalued prices and collect growing dividends along the way and make use of compounding to help me achieve my long term financial goal. If I am onto retirement, all the more I will not sell my shares that easily as I will want to continue receiving dividends. Once I sell off my shares, I am out of the game. No more dividends and I have to look for other opportunities to invest my money which may not always be better than my last investment opportunity. If I can rcontinue to recieve a total of yearly $30 k dividends from shares accumulated over a lifetime, I may not want to sell off my shares since I can continue to receive a hefty passive income which is better than following price trends which is too risky. The idea here is to build a stable substantial investment portfolio that gives stable dividend yields such that the returns from collected total dividends far outweight the risk-reward of short-term trading. Livermore      ( Date: 25-Jan-2009 19:07) Posted: Pardon me but in my opinion that is not the way to go. The fastest way to make a million is go long in a bull market (but you make even more if you are able to catch the uptrend and correction periods during the bull phase). In a bear market, you make by short selling. If one is not comfortable doing that, then just stay out. What you make in a bull market can easily be wiped in a bear market. My friend was in at least nearly half a milllion paper profit in SPC share at its highest price of $8, but now he told me he is "kicking himself" for not selling (thinking it could reach $10) as he is now in paper loss.

 

Haha.......This is easily said now since the market has dropped unusually low this time round which is close to the great depression time ages ago. If I were your friend and I had predictive powers to predict the market will drop exactly this much and I will suffer so much paper loss, I will also have sold all my shares to lock in that amount of profit. There is no right and wrong decision during that moment of $8 whether one should sell or hold on. This comment is now easily made based on hindsight. If I can predict how much my share price will drop during this bear market, I would have also sold my shares already when I had the paper profit. What if the market had not dropped this much or is going to gain more in future, even more than $8 for SPC shares, then will he have made the right choice by selling all his shares? What I am saying here is that we can never predict the future to know exactly when we should sell or buy. However, over the long term, if a business is doing well and growing, eventually the share price will appreciate to the true intrinsic value. Short term price trends may be risky to follow as one may not always predict accurately what the near future price trend is. I will rather have a long term view and keep accumulating shares when possible at undervalued prices and collect growing dividends along the way and make use of compounding to help me achieve my long term financial goal. If I am onto retirement, all the more I will not sell my shares that easily as I will want to continue receiving dividends. Once I sell off my shares, I am out of the game. No more dividends and I have to look for other opportunities to invest my money which may not always be better than my last investment opportunity. If I can rcontinue to recieve a total of yearly $30 k dividends from shares accumulated over a lifetime, I may not want to sell off my shares since I can continue to receive a hefty passive income which is better than following price trends which is too risky. The idea here is to build a stable substantial investment portfolio that gives stable dividend yields such that the returns from collected total dividends far outweight the risk-reward of short-term trading.

Livermore      ( Date: 25-Jan-2009 19:07) Posted: Pardon me but in my opinion that is not the way to go. The fastest way to make a million is go long in a bull market (but you make even more if you are able to catch the uptrend and correction periods during the bull phase). In a bear market, you make by short selling. If one is not comfortable doing that, then just stay out. What you make in a bull market can easily be wiped in a bear market. My friend was in at least nearly half a milllion paper profit in SPC share at its highest price of $8, but now he told me he is "kicking himself" for not selling (thinking it could reach $10) as he is now in paper loss.  jeremyow      ( Date: 24-Jan-2009 00:13) Posted: Consider this:- If someone invest in stocks with a start up capital of $100 k for 30 years and the rate of returns is at 10% annually consistently, and he always does reinvesting of returns through the years, he will have a total investment of $1744940 in 30 years time. He becomes a millionaire in not more than 30 years. Assuming he continues investing additional regular sums into his investments through the years, he will accelarate the time to reach the goal of one millionaire in even less than 30 years. A consistent rate of returns at 10% annually may not be too difficult to achieve if one is an average sound investor. Even at less than 10% returns annually, if one is disciplined enough to do regular investments of savings, one can still achieve the million dollar mark in one's lifetime. The catch here is to have a realistic long-term view to investment returns. Stay invested with sound investments over a period of life-time and get rich slowly but surely. To all investors out there, have a Happy Chinese New Year!

 

I agree with Livermore. Investments must not be purely focused on long-only. No point doing 3 yrs of DCA in a bear mkt of more than 50% drop, hoping to catch that 10% annual return if at the end of the bear mkt, the rally is only for < 20%.

Just take a look at the Nikkei market, over the last 20 yrs. Has it ever returned to its previous peak?

When one talks about investing 100k over 30yrs, how many young investors between, say, 25-30 yrs old can afford that capital? With the investment window of 30yrs, the earliest idealised withdrawal age is 55. Suppose his investments underperforms, then, is it wise to reinvest for another 30yr period? I doubt ppl would want to risk retirement capital until 85yrs old.

Economies can evolve significantly in 30 yrs, what used to be a rising industry could easily collapse in 30yrs. Govt policies can transform massively the fate of different economic sectors, and therefore, the investment attractiveness and performance of different companies.

So, if one wishes to invest on the long side, for the long term, much effort must be put in to identify where the future bubbles (and hence, the booming sectors) are. Understand the economic cyclical patterns. Future bubbles are very often, driven by present latent economic/policy imbalances.

 

Livermore      ( Date: 25-Jan-2009 19:07) Posted: Pardon me but in my opinion that is not the way to go. The fastest way to make a million is go long in a bull market (but you make even more if you are able to catch the uptrend and correction periods during the bull phase). In a bear market, you make by short selling. If one is not comfortable doing that, then just stay out. What you make in a bull market can easily be wiped in a bear market. My friend was in at least nearly half a milllion paper profit in SPC share at its highest price of $8, but now he told me he is "kicking himself" for not selling (thinking it could reach $10) as he is now in paper loss.  jeremyow      ( Date: 24-Jan-2009 00:13) Posted: Consider this:- If someone invest in stocks with a start up capital of $100 k for 30 years and the rate of returns is at 10% annually consistently, and he always does reinvesting of returns through the years, he will have a total investment of $1744940 in 30 years time. He becomes a millionaire in not more than 30 years. Assuming he continues investing additional regular sums into his investments through the years, he will accelarate the time to reach the goal of one millionaire in even less than 30 years. A consistent rate of returns at 10% annually may not be too difficult to achieve if one is an average sound investor. Even at less than 10% returns annually, if one is disciplined enough to do regular investments of savings, one can still achieve the million dollar mark in one's lifetime. The catch here is to have a realistic long-term view to investment returns. Stay invested with sound investments over a period of life-time and get rich slowly but surely. To all investors out there, have a Happy Chinese New Year!

 

I concur with Livermore. My own experience..In 2008 I make a return of more than 280% riding the trends...LONG and SHORT.

MY CPF funds lost around 50%. Luckily I am not near retirement age. It seems like FP can only ask people to buy and hold long term and wait for the bull...worst even when u make a lot...they will not ask you to cash out.

I did it mainly with TA and little FA ..i am able to ride both sides of the market and in fact even when it is sideway. 

 

Pardon me but in my opinion that is not the way to go. The fastest way to make a million is go long in a bull market (but you make even more if you are able to catch the uptrend and correction periods during the bull phase). In a bear market, you make by short selling. If one is not comfortable doing that, then just stay out. What you make in a bull market can easily be wiped in a bear market.

My friend was in at least nearly half a milllion paper profit in SPC share at its highest price of $8, but now he told me he is "kicking himself" for not selling (thinking it could reach $10) as he is now in paper loss. 

jeremyow      ( Date: 24-Jan-2009 00:13) Posted: Consider this:- If someone invest in stocks with a start up capital of $100 k for 30 years and the rate of returns is at 10% annually consistently, and he always does reinvesting of returns through the years, he will have a total investment of $1744940 in 30 years time. He becomes a millionaire in not more than 30 years. Assuming he continues investing additional regular sums into his investments through the years, he will accelarate the time to reach the goal of one millionaire in even less than 30 years. A consistent rate of returns at 10% annually may not be too difficult to achieve if one is an average sound investor. Even at less than 10% returns annually, if one is disciplined enough to do regular investments of savings, one can still achieve the million dollar mark in one's lifetime. The catch here is to have a realistic long-term view to investment returns. Stay invested with sound investments over a period of life-time and get rich slowly but surely. To all investors out there, have a Happy Chinese New Year!

 

One can consider the following qualitative ways to evaluate businesses.

Does the business produce low cost products and services that can sell at high prices? E.g. For Coca Cola company, it costs minimal to produce one can of coke, yet a can of coke can sell at a much higher price. Thus, Coca Cola company will be profitable over the long run.

Does the business have a sustainable market for its products? E.g. Businesses that sell products and services that are consumables have sustainable market generally. These include businesses that sell food and beverages, healthcare products and services, fuels for vehicles and industries, transport for people, telecommunication products and services, and electricity generating companies. Every day, there will be many people using their products and services. Imagine one has to use the phone, use transport, eat meals every day. These consumers will use the products and services of these companies constantly.

Does the business have a competitive advantage over its peers? E.g. Consider Pepsi Cola and Coca Cola companies. Both sell similar beverage products. Which one do you think people will buy more often? That will be an obvious evidence of competitive advantage of one business over another.

Does the business have a strong barrier of entry? E.g. Not long ago, the bubble tea business was a hit in the market. Suddenly, many bubble tea stalls spring up overnight because it was easy to set up bubble tea stalls. Just as quickly over a short period of time, many bubble tea stalls wind down. when too many businesses are doing the same thing, it creates competition and lessen the profit margin. Generally, the higher the technical knowledge and capital required to start the business, the better it is to prevent similar businesses entering to reduce the market share. E.g. It is not easy to start up a bank because of the enormous capital required.  

Is the business cyclical in nature? E.g. Now that the number of tourists visiting Singapore has decreased, which businesses will be most affected? Hotels, retail outlets and airlines may be affected most by the current economic condition and it will be very challenging for these businesses over this period which depend much on number of visitors. Cyclical businesses are more prone to economic fluctuations than non-cyclical ones.

Does the business have able and honest management? E.g. The few excellent businesses have CEOs and management that have stayed with the company through good times and bad times. They cherish their ownership of the company and is leading their company towards a long standing vision they believe in more than just seeing their companies as profit generating machines. They stand and fall with their companies always giving their very best and is excited to see their companies grow and fufil a long standing vision. One evidence to look out for is that during this current hard time, how many managements are willing to cut their own pay in order to help their companies survive this hardship? 

In summary, look out for businesses that produce low cost products and services that can sell for high prices. Look for businesses that people will use their products and services (which are consumables) constantly. Look for businesses with excellent track record of rising up to become the market leader. Look for businesses with a strong barrier of entry that are not easily replicated. Preferably, look for businesses that are non-cyclical in nature so that it is not prone to economic fluctuations. Best of all, look for businesses that have able and honest management that believes in ownership of the business and leading it towards a long standing vision more than just profit making.

Of course, there are other ways to evaluate businesses such as looking at their financial records and financial ratios. Different people may evaluate businesses according to different measures.

 

Hi all,

Can you guys give some pointers on how to assess one company as one worthwile to invest and hold ? e.g wat to look for in their financial statements. Thanks

 

I agree that compounding is initially a slow process. However, if one has a small start up capital and is unusually patient, he will rewarded eventually when his capital has grown to a larger amount. Then, compounding works miracle with a large capital. The initial stages for small capital compounding is like baby steps. But, when large capital are involved, compounding is a wonderful vehicle to increase one's investment value by leaps and bounds........Unusual patience is the key here for compounding to reach its full potential......

 

But one thing bad is that it is slow...but steady..and it pay dividend,

cheongwee      ( Date: 25-Jan-2009 00:43) Posted: When reading your post, the STI ETF come to my mind..i think this one can safely invest and keep inside our drawer,,,provided u believe Singapore is a gone case..buying this is like buying up Singapore...what chance for it to go bust? What do you ppl say? jeremyow      ( Date: 25-Jan-2009 00:29) Posted: Yes. I do agree with you. However, one must also know why one cut loss. If the invested company is not doing well and it's going to be a permanent situation leading to the downfall of the company, then one must be rational and sell out all the company's shares as quickly as possible to prevent loss of invested capital. But, if after assessing the crisis that the company is undergoing and one sees it as not going to be a permanent hurt on the long-term business fundamentals, then is there any good reasons for selling out the company's shares? I will even buy more during a temporary crisis since the company's share price will be depressed. Therefore, whether it is wise to sell out to cut loss or hold on and buy more will depend on the fundamentals of the company whether it has permanently changed for the worst. So, every investment decision must be backed by sound research. One should know what one is investing in and make only necessary changes and not emotional ones. One should always keep watch of one's investments and constantly monitor it. Never buy blindly and sell blindly. Invest in only sound investments for a lifetime. Fundamentals of a company may deteriorate or become better through time. It is only with time that will tell a wonderful company apart from a mediocre one. If I have invested in a wonderful company, I do not need to sell it's shares at all because the lifetime total returns will reward me well. Make investment changes only when necessary. When it's time to change, one must change. When it's not time to change, stay invested through good times and bad times. Have a rational steady long-term investment philosophy.

 

Compounding works both way....

 

When reading your post, the STI ETF come to my mind..i think this one can safely invest and keep inside our drawer,,,provided u believe Singapore is a gone case..buying this is like buying up Singapore...what chance for it to go bust? What do you ppl say?

jeremyow      ( Date: 25-Jan-2009 00:29) Posted: Yes. I do agree with you. However, one must also know why one cut loss. If the invested company is not doing well and it's going to be a permanent situation leading to the downfall of the company, then one must be rational and sell out all the company's shares as quickly as possible to prevent loss of invested capital. But, if after assessing the crisis that the company is undergoing and one sees it as not going to be a permanent hurt on the long-term business fundamentals, then is there any good reasons for selling out the company's shares? I will even buy more during a temporary crisis since the company's share price will be depressed. Therefore, whether it is wise to sell out to cut loss or hold on and buy more will depend on the fundamentals of the company whether it has permanently changed for the worst. So, every investment decision must be backed by sound research. One should know what one is investing in and make only necessary changes and not emotional ones. One should always keep watch of one's investments and constantly monitor it. Never buy blindly and sell blindly. Invest in only sound investments for a lifetime. Fundamentals of a company may deteriorate or become better through time. It is only with time that will tell a wonderful company apart from a mediocre one. If I have invested in a wonderful company, I do not need to sell it's shares at all because the lifetime total returns will reward me well. Make investment changes only when necessary. When it's time to change, one must change. When it's not time to change, stay invested through good times and bad times. Have a rational steady long-term investment philosophy.

 

Yes. I do agree with you. However, one must also know why one cut loss. If the invested company is not doing well and it's going to be a permanent situation leading to the downfall of the company, then one must be rational and sell out all the company's shares as quickly as possible to prevent loss of invested capital. But, if after assessing the crisis that the company is undergoing and one sees it as not going to be a permanent hurt on the long-term business fundamentals, then is there any good reasons for selling out the company's shares? I will even buy more during a temporary crisis since the company's share price will be depressed. Therefore, whether it is wise to sell out to cut loss or hold on and buy more will depend on the fundamentals of the company whether it has permanently changed for the worst. So, every investment decision must be backed by sound research. One should know what one is investing in and make only necessary changes and not emotional ones. One should always keep watch of one's investments and constantly monitor it. Never buy blindly and sell blindly. Invest in only sound investments for a lifetime. Fundamentals of a company may deteriorate or become better through time. It is only with time that will tell a wonderful company apart from a mediocre one. If I have invested in a wonderful company, I do not need to sell it's shares at all because the lifetime total returns will reward me well. Make investment changes only when necessary. When it's time to change, one must change. When it's not time to change, stay invested through good times and bad times. Have a rational steady long-term investment philosophy.

 

A good post. 

However, there's another dimension that I would like to add - what you posted will work in a normal environment where the economy and banking & financial markets are stable and rational. In the current crisis, it may be actually better to cut losses early. Staying invested may prove disastrous.

A good example - people who stayed invested in Lehman Bros have lost all their money. Those who panicked and cut losses were the ones who got at least some money out. 

What I'm trying to say is that we need to adapt our investing/trading habits to suit the changing environment.  

 

Consider this:- If someone invest in stocks with a start up capital of $100 k for 30 years and the rate of returns is at 10% annually consistently, and he always does reinvesting of returns through the years, he will have a total investment of $1744940 in 30 years time. He becomes a millionaire in not more than 30 years. Assuming he continues investing additional regular sums into his investments through the years, he will accelarate the time to reach the goal of one millionaire in even less than 30 years. A consistent rate of returns at 10% annually may not be too difficult to achieve if one is an average sound investor. Even at less than 10% returns annually, if one is disciplined enough to do regular investments of savings, one can still achieve the million dollar mark in one's lifetime.

The catch here is to have a realistic long-term view to investment returns. Stay invested with sound investments over a period of life-time and get rich slowly but surely.

To all investors out there, have a Happy Chinese New Year!