Pay yourself first

How many of you pay your bills, household expenses and daily expenses first and save the rest? Or should you save first and use the rest of the money to pay your bills, etc? Most of us work 42 hours each week and that amounts to 168 hours each month. You have slogged so much and doesn’t it make sense to pay yourself first instead of others? Why pay your phone bills or car loan first when you should take care of yourself first?

One should always pay yourself first before paying anybody else. One should set aside at least 10% of the monthly income for savings. The more you set aside, the better it is. The savings can be used as an emergency fund or to invest. You should then pay your bills with the remaining money. No matter how tight it is, you should always pay yourself first and work around with the rest of the money.

To make sure you are following this technique stringently, you can set a standing instruction (or standing order) for your bank to transfer $x to another bank account on your pay-day. Also, it is paramount that you don’t have any debit card/ATM card attached to this savings account. In this way, you will be disciplined enough to save and not use the money unnecessarily.

I first learnt about paying yourself first in Robert Kiyosaki’s book “Rich Dad Poor Dad” back in 2007. I also came across this technique in the book “The Richest Man in Babylon” by George S Clason. This is a technique that I follow strictly till this day. I’m sure it would do wonders for you too if you try this one technique to master your finances.


How to get started in value investing

Quite a number of my friends have asked me how to get started in value investing. They want to start investing and want their savings to work harder for them instead of just earning a paltry 0.1% from the bank. Inflation is eating money left in the bank daily. Personally, I learnt investing by reading lots of books, going for some free and some paid courses and reading articles from the internet.

Firstly, before investing, you should have a strong enough reason why you want to invest your money. Maybe it’s because you want your money to work harder for you, maybe you want to earn enough dividends (passive income) to pay for your daily expenses or maybe you just want to live comfortably during your retirement age. I wrote an article some time back about having a strong passion for what you are doing. Passion is paramount in anything you do, not only in investing.

Next, always remember this: you must only invest with surplus cash. If you need money for daily expenses and are living paycheck-to-paycheck without much savings, then it’s best to take care of your daily needs first. Then, you have to look for ways to save more money. It can be done by two ways: increase your income or decrease your expenses.

I would also recommend you to keep aside an emergency fund of at least 6x your monthly income or 12x your monthly expenses. This fund should not be touched at all, no matter what. Financial advisors usually recommend socking aside 3x your monthly income or 6x your monthly expenses before investing. I’m just a bit too kiasu. The emergency fund will help when one gets retrenched or when something unexpected happens. So, now you have monthly savings and emergency funds set aside. Use your monthly savings to invest. There’s no minimum amount needed to invest in the stock market.

You also need to open a brokerage account. I mainly use DBS Vickers broker. More information on how to open a brokerage account can be found at

Now comes the crux of the post. How to learn how to invest in good companies? This is the hard part as it involves lots of time, reading and research. I would recommend people to start off by reading a few books. They are as follows:

  • The Secrets of Millionaire Investors by Adam Khoo (highly recommended for simplicity)
  • The Neatest Little Guide to Stock Market Investing by Jason Kelly (highly recommended)
  • Buffettology by Mary Buffett and David Clark
  • One Up on Wall Street by Peter Lynch
  • Common Stocks and Uncommon Profits by Phil Fisher (highly recommended)
  • Warren Buffett and the Interpretation of Financial Statements by Mary Buffett and David Clark
  • F Wall Street by Joe Ponzio (highly recommended)
  • Rule #1 by Phil Town
  • The Financial Times Guide to Value Investing by Glen Arnold
  • The Five Rules for Successful Stock Investing by Pat Dorsey

You have to read the first book “The Neatest Little Guide to Stock Market Investing” to get a good overview of how the stock market works and how companies make money, among others.

I would also recommend some sites to start off with. They are:

Investing is not a get-rich-quick thing. It takes lots of time, patience, discipline and determination. If you are looking to make money within a few days and run, then value investing is not for you. If you are willing to learn and invest for the long-term, then investing is one of the best asset classes to accrue wealth.

Opportunity abound among the crisis

On March 11, an earthquake that measured 9.0 on the Richter Scale rocked Japan. A massive tsunami ensued after that. A nuclear plant was also damaged, spewing radioactive materials into the atmosphere. This has caused massive fear in the stock market. The STI dropped from 3075 points on 10th March to 2935 points on 18th March. That was a 4.6% drop in the span of 6 market days.

On 15th March alone, the STI dropped 2.8% with high volume! Investors were in apprehension over the various news that were unfolding in Japan. However, yesterday, the Sunday Times front page screamed “Crisis shows signs of stabilising”. Today, CNBC reported that “some progress is seen at Japan reactors; US sees turning point”. I can only guess that the stock market will start picking up once again when the positive news start rolling in bit by bit.

So it can be seen that the market tanks when there is fear and anxiety. It will rise when there is positive news. However, amid all the fear and tension, we should always remember that the stock market is made up of pieces of businesses. The prices of shares drop due to market sentiment and not due to business failures per se.

Warren Buffett once said, “Be greedy when others are fearful and be fearful when others are greedy”. When investors are showing fear, it’s a good opportunity to buy shares at depressed prices as the market will only pick up, slowly but surely.

Warren Buffett Interview – 2nd March 2011

Warren Buffett was interviewed in CNBC’s Squawk Box on 2nd March 2011 and Part 1 of the interview can be found at There are a total of 7 parts. All the parts can be found at this blog at

I would post some of the questions and answers of the topics that I found interesting below.

On the US economy

BECKY: Your annual shareholders letter that you just came out with on Saturday painted a much more optimistic picture of America than many people had been thinking to this point. Why is that? And why are you so positive about things?

BUFFETT: Well, I’ve been optimistic on America right along, as you know. I mean, I was optimistic when I knew things were going to go to hell. But things do – America gets off the track from time to time, and it was particularly so in the fall of 2008. But you can’t stop this country. I mean, we have gone through, I don’t know, 15 recessions, you know, world wars, civil war, you name it. And there is a resiliency to the American system. It does work. And it sputters from time to time. It’ll sputter from time to time in the future, but you don’t want to get too concerned about that. It’s kind of like having a bad crop in farming. If you’ve got some good land here in the Midwest, you’re going to have a bad crop occasionally. But you know you’re going to have mostly good crops and we have great soil for this country, metaphorically. And it works over time

On gold and commodities

BECKY: Well, speaking of gold, though, we’re looking at gold prices and they were at another record high. They’re up another $3 today, $1,434 an ounce. And there have been some big fat hedge fund managers, like a Paulson or a David Einhorn, who have really buckled down on these bids. Why would you steer clear? And do you think what they’re doing is the wrong thing?

BUFFETT: Well, I just don’t know. I don’t know whether cotton’s going to go up.


BUFFETT: I mean, we use a lot of cotton. I’ve watched it go from 80 cents to $1.90. You know, we use a lot of copper and I’ve watched it go from $2 to $4-plus, so I mean there’s all kinds of things in this world that are going to go up and down in price. You know, maybe hamburgers will tomorrow. And – but I – I’m – I don’t know how to judge that. I do know how to judge to some extent the earning power of some businesses. And the real test of whether you would like it as an investment is whether you would be happy if it never got quoted again, and just in terms of what the asset did for you. But that doesn’t – I will say this about gold, if you took all of the gold in the world it would roughly make a cube 67 feet on a side. So if you took all the gold in the world, we could have a cube that went down there 67 feet…

BECKY: Uh-huh.

BUFFETT: …67 feet high and that would be the whole thing. Now for that same cube of gold it would be worth at today’s market prices about $7 trillion. That’s probably about a third of the value of all the stocks in the United States. So you could have a choice of owning a third of all the stocks in the United States or you could have a choice of owning that little block of gold, which can’t do anything but kind of shine there and make you feel like Midas or Croesus or something of the sort. Now, for $7 trillion, there are roughly a billion of farm – acres of farmland in the United States. They’re valued at about $2 1/2 trillion. It’s about half the continental United States, this farmland. You could have all the farmland in the United States, you could have about seven Exxon Mobiles, and you could have $1 trillion of walking around money. And if you offered me the choice of looking at some 67-foot cube of gold and looking at it all day, you know, I mean touching it and fondling it occasionally, you know, and then saying, you know, `Do something for me,’ and it says, `I don’t do anything. I just stand here and look pretty.’ And the alternative to that was to have all the farmland of the country, everything, cotton, corn, soybeans, seven Exxon Mobiles. Just think of that. Add$1 trillion of walking around money. I, you know, maybe call me crazy but I’ll take the farmland and the Exxon Mobiles.

On the US dollar depreciating

JOE: …because, yeah, let’s just wait and I’ll ask him a follow-up to. Because you do get paid back with your investments in dollars. And if those dollars are, you know, are going to be worth much less in the future then I figure you must – you must figure policymakers are going to get it together eventually, Warren, or else, you know, paper money’s not going to be worth anything.

BUFFETT: Well, but that’s true of – if you’re – if you’re trained to be a lawyer or you’re trained to be on cable or anything else you’re going to get paid in dollars. Now, the question is, if you have something valuable to offer even if the dollar gets worth less, you will retain earning power that’s commensurate with purchasing power.

JOE: Ooh.

BUFFETT: And if – I mean, Coca-Cola, the – in the year since I’ve – was born the dollar has depreciated 94 percent. I mean, it’s 16-for-1 in terms of inflation. But if you owned Coca-Cola in 1930, you’ve still done pretty well. Or if you owned a lot of good business in 1930. Because they have the ability to extract real earnings in terms of what they deliver to people. And your doctor is able to charge 16 times as much as in 1930 because his services are still as valuable. So, as the currency gets worth less, it does not make – it does not penalize the service or the good that is really needed by other people. The world adapts.

JOE:  Hmm.

BUFFETT: And that’s why I like businesses or I like my own earning power as the best assets in a time of inflation. They really can’t be taken away.

On why he likes private businesses compared to public business

BECKY: All right, the first one, let’s say, comes in from Miykael in Canada, who writes in, “With articles mentioning that you’re looking for major acquisitions, with the economy favoring the low-cost segment, wouldn’t Family Dollar be an ideal fit?”

BUFFETT: Well, there are a lot of companies that would be a fit at a price. It’s easier for us to buy businesses that are privately owned than ones that are trading on the market because people – I don’t care what the market price is in terms of what they’re worth to us. But generally speaking, people, in evaluating mergers and acquisitions, look at the premium pay to the market price and decide whether that’s a fair price or not. A fair price to us is one that – where we think we’re going to get our money’s worth in terms of future earnings, and I would say that we will generally have more luck with private businesses than public businesses, although Burlington was a public company, yeah.

On why businessmen should keep their private businesses

BUFFETT: Well, Mars is a wonderful business, and we’re their partners in Wrigley. And if the Mars family were to ask me about selling their business, I would say keep it.

BECKY: Mm-hmm.

BUFFETT: I mean, if you own a wonderful business in life, the best thing to do is keep it. All you’re going to do is trade your wonderful business for a whole bunch of cash, which isn’t as good as the business, and now you got the problem of investing in other businesses, and you probably paid a tax in between. So my advice to anybody who owns a wonderful business is keep it. Now, sometimes there’s a – some reason in terms of taxes or family situations or whatever it may be that a wonderful business is for sale. But I have told a number of people who’ve come to me who have wonderful businesses, if you can figure out a way to keep it, keep it, because all you’re going to do is take that billion dollars you get, or 5 billion, you’re going to pay some tax on it, now you’re going to go out and buy some stocks, and most of those stocks you buy are not as wonderful as the business that you already owned, and you don’t know as much about it and, you know, so sometimes it pays to know when you’re well off.

On liquidity and savings

BECKY: Yeah, you wrote about that in the annual letter, as well, and said that the thing that you learned coming out of that is the importance of liquidity and not getting over leveraged.

BUFFETT: Yeah. My grandfather left–gave $1,000 eventually, at 10 years after the marriage of each of his children and my aunt didn’t marry, but he gave her $1,000 as well and he sent them this letter and he said, `Put this money away.’ He said, `Don’t get tempted to invest it because some day you may need money and who knows what you’re can do with your investment then.’ So you’ll always want to have some cash. He gave me a $2 bill when I was a kid and he said carry this around and he said you’ll, you know, you’ll never be broke.

“Inside Job” movie

I just finished watching a movie called “Inside Job”. It’s a movie on the global economic crisis of 2008 and how it happened. It is by far the best movie I’ve seen that explains the financial crisis in-depth. It leaves no stones unturned. If you want to know the who, what, when, where, why and how of the crisis, don’t miss this movie!

The movie is divided into 5 parts. They are: Part I How We Got Here, Part II the Bubble (2000-2007), Part III The Crisis (2008), Part IV Accountability and Part V Where Are We Now.

Many people got interviewed including George Soros, Nouriel Roubini and Lee Hsien Loong. Overall, a superb story-line!

Should youths stay away from the stock market?

I read with great interest LP’s post on “The youth and the stock market” and comments by readers that followed. In summary, LP’s view was youths should not invest in the stock market due to lack of capital and that it’s more worthwhile to focus on other things like getting a job or studying. Let me present my views on this ongoing debate that have been spotted in forums and amongst my friends as well. Youths in this post represent people in the age range of 18-24.

It is true that most youths lack the capital as most do not have formal employment. The savings youths came from parents, festive “ang pows”, part-time jobs, NS allowances, among others. Most would have amassed around $10k to $15k by the time they are 21? $10k may not be enough to have a substantial position in a blue-chip company, many would think. For example, buying 2 lots of SIAEC would cost around $8k. Anyway, why must a youth have a substantial position? Why can’t he just buy 2 lots, like in my example, to have an “experience” with the market. If the youth has done extensive research of the company and bought the company due to the strong business fundamentals, there isn’t anything wrong with buying a stock, no matter how small the capital is. Or another way the youth can experience the market is by buying the STI ETF that tracks the STI. With $10k, he can buy 3 lots of the STI ETF to experience the market. However, before investing, one should have done a thorough research on the company and know how the stock market works. To learn that, one should read extensively.

Buying a stock due to lack of capital is not the issue suddenly. The issue now becomes the temperament of the youth. At such a young age, without formal employment, a gain of $1000 from the SIAEC or STI ETF that he bought may seem a lot for the youth. He then goes around boasting to his friends saying, “Hey! I made lots of money in the stock market you know? No need to work lah! Just buy stocks can already!”. This is the point when things gets dangerous. Dangerous in the sense that the capital gains got to his head and he thinks that he knows everything and that making money in the stock market is as easy as making instant noodles. Youths, or adults for that matter, should always have a long-term view and not be excited about short-term gains. Arrogance kills an investor. We should always be humble before the market as the market is ALWAYS right. Investors should also have patience and discipline in the markets.

To add on, by starting young, youths have an upper-hand over many of their peers who are preoccupied with other “not-so-useful” things in life. For example, Youth A is an investor but Youth B isn’t. When both reach 35, Youth A would have seen at least one full market cycle but Youth B would only have started off investing. In that aspect, Youth A has got more “experience” than Youth B and has got an upper-hand. Warren Buffett started investing at the age of 11 and he regretted not starting early. So, starting early has its benefits. Having started investing, youths should also keep on upgrading themselves by reading books, talking to senior investors, analyzing various kinds of companies and going to forums.

Thus, I strongly feel youths can always start investing young even with minimal capital. Time is on their side and time is an investor’s best friend. However, they should always be humble and experience at least one full market cycle (bear to bear or bull to bull) before coming to any conclusion whatsoever. They should have a long-term view when investing. Remember, the market is always right!

P.S. Do let me know your comments/views if you don’t agree. Don’t be afraid to shoot me down! Not literally of course..

Super Group FY2010 Analysis

Super Group, Southeast Asian leading brand-owner of instant beverages and convenience foods, announced a 46.7% jump in net profit to S$59.3 million for FY2010. The revenue for 2010 was at $351.8 million (2009: $296.3 million). Ingredients sales, particularly non-dairy creamer in the China market, surged 86.8% to S$58.2 million in FY10 from S$31.2 million in FY09. Super was able to leverage on this demand after completion of its new non-dairy creamer production line in its existing Wuxi plant in China during 3Q10. This expanded the Group’s annual production capacity from 50,000 metric tons to 75,000 metric tons. Gross profit margins and net profit margins are at 37.35% and 16.86% respectively. These are significant improvements over the previous couple of years (as seen from table above). The margin improvements were largely achieved through lower production costs and the sales of higher margin products. Looking at the balance sheet, cash balances doubled to $141.8 million (2009: $70.5 million) with zero debt. ROE is at 17.4% and is the best amongst all the years. ROA dipped for FY2010 and is at 13.3% (2009: 14.5%). Looking at cash flow, cash flow from operations is at $55.4 million (2009: $66.4 million). The drop over the previous year was due to increase in inventories mainly due to higher levels of raw materials held by certain subsidiary companies to meet anticipated production requirements and increase in trade receivables which is consistent with the higher sales revenue achieved during the current year. I will be keeping a close eye on the inventory levels and trade receivables for FY2011. Capex increased to $14.6 million and this was mainly due to completion of its new non-dairy creamer production line in its existing Wuxi plant in China in 3Q10. Average free cash flow stands at $43 million. Outlook by Super from its press release: “The Group expects market conditions to remain competitive in the next twelve months while currency fluctuations and rising raw material costs, such as coffee bean and sugar price, will impact the Group’s operating performance. However, management is familiar with these challenges and will continue to take appropriate actions in managing their impact on the Group’s businesses.With increasing raw material costs, the Group will continue to review the retail prices of its products taking into account competitors’ actions in the key markets. The Group will continuously focus its efforts on the dual-engine of growth – Branded Consumer and Ingredients sales. In view of the robust demand for the Group’s non-dairy creamer, especially in the China market, management is installing an additional production line to expand the Group’s annual production capacity to 100,000 metric tons from 75,000 metric tons by 3Q11.The Group concludes the current financial year with a cash reserve of S$141.8 million and will continue to grow its core businesses and strengthen its brand. Management will also seek out synergistic business opportunities and ventures to enhance shareholder’s value.” I will be keeping a keen watch on the Robusta coffee prices as 4Q10 GPM dipped 7ppt to 32% (4Q09: 39%) due to spike in coffee prices. I’ve confidence in the management and I’m sure they will be able to weather through the rising costs, just like how they have done over the past year by raising the selling prices, selling higher margin products and lowering production costs. Additional production line is also going to be installed to increase Super’s annual production capacity. I will be looking at how this pans out for FY2011.