Friday, 20 November 2015

Revisit: a few good reads on Stop Loss

It is in the human psychology to want to win back what we have lost. It is exactly this psychological notion which set us back and made us sit on our paper losses hoping that one day those losers would make a comeback. It is also this that made us 'throw good money after bad money'.

I think we should be treating our shares like eggs rather than antiques. If the egg has gone bad or lost its value, we should discard it. Don't live in the illusion that your eggs are golden eggs or antiques.

There's no need to time the market in cutting losses - because bad eggs do bad whether in good or bad times. (See fundamental analysis to filter the bad eggs. Undervalued egg ≠ Bad eggs.)

I first published this post back in 2012 but the articles here are still very much relevant.

*Note the following links would bring you to external sites.

5 simple things all wealthy traders do to gain an edge (in trader's context)

I was foolish... but this trick kept me alive

Trailing stops: lock in your profits with this not-so-secret sell strategy

The important lesson to be learnt here - remember to set a stop loss price. For long term holdings, when fundamentals changed - cut losses.

Perhaps we would find the same principle applies to other things in life - job, marriage, business?

Wednesday, 18 November 2015

Blue chips still in red sea

STI snapshot

STI components are down an average of 22.9% from their all time high this year. Highlighted in yellow are the "more shock-proof" stocks which are currently down less than 10%, whereas those in red are down by at least 30%.

The generally shock-proof ones are namely SATS, ComfortDelgro and SPH. I would expect Telcos to be resilient but I guessed because of being over-valued at the high, the rebounds are limited.

Most of the blue chips have slightly rebounded since my previous post in September, which were down by an average of 26.2%.

How many of these blue chips could ride the waves and retain their operating profits in downturn? Contract-based companies, those with steady income stream, those dependent on crude oil prices - go figure.

If you are vested, do keep a lookout for their annual reports. Most of the companies has already published their quarterly unaudited earnings on the SGX website.

Saturday, 14 November 2015

How to save $100k by age 30

I realised there was a same titled article published in Straits Times according to Kyith I didn't read that article but just thought I would share my 2-cents worth of a different approach.

Assuming one starts working from age 23 (for sg ladies who go by the JC route, for guys even if you start work later but could factor in your pay from NS or higher starting pay when you graduate, so do abit of plus-minus), there's 8 years to save this amount. If you are a poly grad, then you would start work earlier, so plus-minus again. To save $100k by age 30, you would need to save at least $12,500 a year.

In the table illustration below, you see that you could actually start off with a lesser saving amount and increase your savings gradually by 5% a year and still reach your goal. As along the way you may get pay-rises, promotions or experience job-hop - to paint a more realistic picture for your path.
If you have started saving from young then you would already have a 'foundation' to build on, so the yearly figure to save here could be lesser (you could choose to challenge yourself from ground up or set a higher target in this case).

Year 1 $10600
Year 2 $11130
Year 3 $11686.5
Year 4 $12270.83
Year 5 $12761.66
Year 6 $13399.74
Year 7 $13935.73
Year 8 $14632.52

If you find the figures are too intimidating, you could further break those figures down into monthly sums. Then ask yourself, how to go about saving that amount monthly?

Rule number 1, don't go splurging your entire monthly salary even though SG gov would probably thank you for boosting our economy. Rule number 2, not to forget rule number 1.

There are 4 main actions to execute - practice frugal spending, repay loans ASAP, earn more, manage your own finances.

Identify the area which you think you could save up the most from and work from there. Draw up an excel sheet, set up a separate bank account for savings and you will be surprised how a seemingly impossible mission suddenly become so much more achievable.

Practice frugal spending - Don't drink Starbucks, drink generic kopi-o

The above is an example, fret not if you don't drink coffee like me. The point is in 'substitution', substitute something you need with same value but different price. Pamper yourself with Starbucks once in a while, but learn to stick with a good no-brand kopi-o for most days. Remember, frugality itself is habitual - just like coffee drinking.

What are those daily expenses you could cut down on? Jot them down. (That's if you 
won't get depression without them.)

Repay loans ASAP - or you will dream of pigheads

Calculate for yourself the amount of interest you need to pay the bank yearly on top of the loans you have taken (if not the bank would calculate for you too). Compare the repayment interest for 5 years versus 10 years, how much more are you letting the banks earn?

ONE exception here is for outstanding loans that come with no interest or is generating you better returns than the interest you pay. Then take as long as you could to repay it while putting those money to good use.

For those on scholarships in your tertiary education years, good for you!

Earn more $$ - be a lobang king

This is more difficult. It's like how it is easier to lose weight by cutting down on calories consumed versus regular exercising. When you save, you are cutting down on the calories consumed. Earning more is like exercising. You either need to get in the boss's good shoe to get promoted quickly or moonlight to earn more income or...

There's a thing known as passive income. So if you have spare cash lying around, put them to good use by either putting into Fixed deposits or Savings bond instead of under your pillows.

I know what you are thinking, please don't buy lottery.

Manage your own finances

If you don't, sooner or later someone will and the someone will make sure his pocket is fatter than yours.

Learn about insurance, learn about banking services, learn about credit cards, learn about investment. There are still many things to learn in your 20s despite having thrown down the books. Wherever you decide to put your money, ask yourself what are the costs and the risks. If you are prepared to put your money to something risky, then be equally prepared to lose all your money there without spinning off into trouble.

What I could offer in this blog may be limited. You could click on the links on my blog side bar to discover more financial articles, learn more tips from or simply pick up a finance book to kick-start your journey.

Opps I thought I wasn't going to preach.

If you are up for some more really kick-ass preaching, here's a book by Richard Templar that I highly recommend . He wrote 107 rules in there about money issues in a very succinct and concise manner. How much of his 'preaching' you could put to use, it's up to your ability to decipher.

Related posts: 

Credit card maximization for small-spenders

That's me, I am the real budget barbie (er ok just kidding, I do spend on big items now and then... *sheepish smile*).

This year my trusty UOB One card has increased its tier for quarterly rebate from $300 a month to $500. It is quite difficult to hit since I do not drive and I have just quit my gym membership. So now my credit card spending just revolves around groceries (fyi I don't cook), dining, lifestyle shopping and holidays (max twice a year). I was disappointed to find out that I failed to hit the quarterly rebate before they up-ed the tier as my July spending did not hit $300 (I was still naively spending on big items the following month with the card). This is because UOB's definition of July spending is really 'June spending' as they take the month reflected on the statement date rather than the month which the spending took place. PLUS one must spend on at least 3 transactions in those months. Blur me.

The famous OCBC 365 is out of my picture because the minimum spending per month is $600, furthermore my salary can't be credited there.

Sunday, 8 November 2015

Contract For Difference - how to be a short seller

*Links in the blog post would lead you to external sites.

The bearish stock market has led me to revisit this post on Contract for Difference which was what I have read up to kick-start short selling. BUT this is not a post to encourage anybody to do so, it's more of an FYI.

CFD is one of the instruments that can be used for short selling which gives you more flexibility to investment and also hedging power, read more here. Only some brokerages offer CFD and it is traded using a margin (leverage) account.

Type of CFD
The brokers that offer CFD can be subdivided into DMA or MM. DMA seems like a better option with higher transparency. DMA stands for direct market access which reflects the actual stock market prices.

Here's an interesting read about what is short interest. But I have yet to discover where can we find short interest ratio for sg stocks.

Using CFD & risks
Short selling can be used as a hedging tool. It can also be used to earn money in a bearish market. However due to the use of leverage, it can also be a double edge sword as an investment tool if not properly used.

CFD is not actual stocks - it is a derivative products (so you do not own any shares of the company which you buy or sell). It is provided by a market maker who earns interest and commission from your buying of CFDs from them.

There are 2 components - commission (usually min $25) and finance charges (p.a).

We could view an example of charge details here.

There may be no time limit to the holdings but as mentioned, since it involves leveraging most traders would use it as a short-term investment to prevent accruing high interest (finance charge from holding the position).

See also:

Last but not least there's 7 useful trading tips for CFD which can be found here.
And a quote to remember...

- "Risk is not knowing what you are doing." Warren Buffett

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