The Retirement Number

From reader "bullbear"

"Seng, I am wondering, for a modest lifestyle requiring 3 to 5 k per month, how much savings should one have at ages of 50s, 60s and 70s to retire comfortably. Base the figures on your projection that one may "unfortunately" have to plan for a life of 100 years. : )"

My Dearest Bullbear,

This is a popular financial question. I have received similar questions several times before. There are many free resources on the web, and I encourage you to explore the topic fully elsewhere too. For example, MSN (and others like it) has a whole section on Retirement Planning- see http://moneycentral.msn.com/retire/home.asp. Locally, there are many forums discussing similar questions. Some calls it "The Number" since the question is always "how much do I need to retire comfortably?"

I believe the Number varies with individuals. Even for a specific individual like you bullbear, the number will also be a range since it depends on the future which is inherently uncertain. Conceptually, you are not wrong if you noticed similarities between valuing a stock and valuing this number, since both depends on projecting future cashflows, and then discounting them to today's value in order to derive a number. So, there is no single right figure, but a range of possibly right figures.

However, valuing this number (unlike trying to put a value to stock) has great practical importance - if you put too low a figure, you could end up living poorly and that's not much fun :-) So, you probably want to be prudent, and prefer a large number with a large margin of safety rather than a small number. You don't want to be broke, suffer and then die - much better to die first with a lot of money left :-).

A disclaimer first. You already know I am not a licensed financial planner. Everyone is different in so many ways, so, my view is only mine. If in doubt, always consult a licensed professional. And always exercise a large dose of common sense.

Ok. Let's tackle the problem of determining this Number from a conceptual manner first. What does this number depends on? What are some of the obvious factors and less obvious factors?

The Obvious Factors

1. Planned Retirement Age. At what age do you plan to retire? Retire early, and you have two problems compared to your imaginary "twin" who retires later. First problem is you have shorter period to save. Second problem is you have a longer retirement spending period. So, you must save a lot faster (since shorter period to save) and a lot more (since longer spending period) if you plan to retire early.

To illustrate, let's compare a Retirement Age of 50 vs 70. Let's say you are 35 years old today. To retire at 50, you only have 15 years "savings period", versus 35 years to retire at 70. In short, less than half the period.

Then, as a 50 year old, there is a longer period to spend. If you and your twin dies at age 100, then, your savings must last 50 years, versus only 30 years for your twin who retire at 70. So, you need a much larger amount than your twin.

2. Your Life Expectancy. Life irony is that to live longer, you need a bigger Number, making it even harder to achieve. MSN above has a life expectancy calculator, although they are for Americans and not necessarily the same for Malaysians. Perhaps your parents and grandparents age of death might provide a guide, although even then, there are potential problems. I guess you just need to be prudent and assume a big number just to be safe.

3. Your planned Spending Amount. Smaller spending, smaller Number, other things equal. In practice, tough to estimate, since so many "hidden expenses". Important to both keep track of past actual expenses (to provides accurate data) as well as think ahead carefully. Need to differentiate between regular expenses and once off expenses like a new house, a new car, etc. I believe large expenses like replacing a new car every 10 years needs amortization. Similarly with large overseas holiday expenses every few years, etc. MSN above provide some tools and checklists to determine this.

4. At zero interest (not realistic) and zero inflation (not realistic), anybody can calculate the Number. E.g. If Retirement Age = 50, Life Expectancy = 100, Monthly Spending = $3,000. Then, the Number is simply
= (100 - 50) x (3,000 x 12)
= 50 x 36,000
= $1.8 million.
Maybe too large for most people intending to spend $3,000 per month.

5. Interest helps reduce the Number. Higher interest on capital means you can do with less capital to fund your retirement lifestyle.

6. Inflation means you need a bigger Number to maintain the same quality of life.

7. More obligations means more spending, and so, a bigger Number. E.g. if you are also saving for your spouse, and she is expected to outlive you by another 10 years, you then have a longer spending period (although possibly lower spending after you die). If you want to leave something behind for your children or grandchildren, the Number gets bigger. Etc. you get the idea.

The Less Obvious Factors

1. Your spending pattern is not necessarily fixed, but varies over time and age. Overall, it is prudent to assume one's spending inflation gets higher as one gets older, since medical and health-related expenses rise faster. It is prudent to assume rising inflation that exceeds reported CPI, as one gets older. Unfortunately, most retirement planning tools on the web do not model this.

2. Your investing ability and results (assuming you invest in stocks and cash equivalents) are also not necessarily fixed over time. I believe once you are over say 70-80 (this is arbitrary), you can reasonably expect declining returns % over time. Again, most retirement planning tools on the web do not model this.

3. Before and after you retire, you need to regularly review your Number to make sure it is still adequate. This is very important in practice.

The Spreadsheet

Here is a simple spreadsheet model that you can consider developing on your own, which incorporates all of the above factors. There is no complex maths involved. Like all financial models, they are only as good as the assumptions that goes into it, as well as the wisdom and conclusions that one takes out of the model results. So, treat this as merely a starting point for further consideration, and always rereview to see if it makes sense.



Some quick observations:

1. The spreadsheet above suggests that a 50 year old retiree today with $4,000 per month spending needs to have $1.4 million, assuming initial interest rate of 7% on capital and initial spending inflation of 3% p.a. This suggests a multiple of 29 times initial annual spending. But this number alone is useless.

2. His number ($1.4 million) is heavily dependent on the interest rate assumed. E.g. increase his interest rate to 8% instead of 7%, and his Number reduced to $1.15 million. This has important implications on the Investment Objective and the Investment Plan.

3. His number ($1.4 million) is heavily dependent on the inflation assumed. E.g. increase his inflation to 4% instead of 3%, and his Number increases to $1.75 million. Unfortunately, sometimes, the rate of future inflation is outside your control.

4. For practical purposes, it is critical to ensure that every year, one's actual spending remains lower than interest earned over the same period. E.g. in the above number, Interest remains higher than Spending for most years from Age 50 to Age 81.

Then, at Age 82, Spending first exceeded Interest. I call this the Critical Year. It is at this point when the Capital starts to shrink. And they shrink fast.

To ensure financial peace of mind during retirement, you should adhere strictly to this important principle - never spend more than what you earn in interest. Preferably spend less than half the interest. And if your spending has risen, then, you need to make sure that your interest earns rises. This gets riskier, since the opportunity for higher returns don't always come around, and they tend to come with higher risks, especially for the vast majority of investors.


Conclusion

I believe there is no single magic Number that is the same for everyone. We are all unique, and our Numbers will be very different for various reasons mentioned above.

I am reluctant to give a magic number, because prudence varies by individual, and more prudence requires too large a number that is not realistic for the vast majority of people looking to retire, especially retire early.

Furthermore, those who invests in stocks know that their returns fluctuate from year to year. Furthermore, the rate of inflation varies over time, and is never fully within your control in the long-term. If your returns are poor in one year, then, you need to immediately review your situation to make sure you still have enough to live on. With a large margin of safety, probably you can retain your lifestyle and monthly spending. However, without a large margin of safety, then, your spending must come down immediately. Else, you will not have enough to live on in future years.

The above table assumes someone who retires at age 50, which is considered early by most people's standards. Unfortunately, not everyone can do so, and some might not want to do so. Some do keep on working on their own business and continue to earn income. Some are very traditional, and expect their son/grandsons to not only take over the family business, but to take care of them in their old age. But not all of us can be that lucky too. From a financial planning and perspective, the safest is to assume self-dependency (for both you and your spouse), and plan accordingly.

At retirement, expect to live modestly below your means (e.g. spend less preferably only half of what you earn). If you have them, teach your children and grandchildren to be financially independent, so that they don't have to be financially dependent on you later in life :-) And should your children and grandchildren later support you in life, consider yourself blessed.

In my experience, determining the Number is only one step, albeit a very important step. To put the Number into context, there are many other important implications to consider before deciding whether to retire early or not, but this would be well outside the scope of this article. But don't forget them, as they have great practical importance too. And they would be outside the scope of this blog to discuss them.

I sincerely hope you and other readers here will find this article useful.

Cheers,
Seng.

Welcome Boon!

Yesterday afternoon, the chatbox has another pleasant surprise, with - Boon - from Trade Bursa Malaysia - dropping by to chat.

I believe most of you knows Boon, but for those of you who don't have the privilege, Boon is the author of another highly instructive and popular investment blog on the web - http://tradebursamalaysia.blogspot.com/. From his writings, it is clear that he is a highly passionate and professional trader, and is very focussed on his trades. He also manages a team of traders. He is currently based in the UK, and trades mainly in the futures indices (Dow, S&P, and Russell 2000).

If you are a trader keen on Technical Analysis, I have no doubt you will have already appreciated Boon's blog. In fact, even if you are not a 100% trader (e.g. yours truly), I am sure you will still appreciate Boon's blog. If you are a new investor, you will be immediately struck by the dual simplicity of his trades, and confusion - that you're not quite sure how he does it. Don't believe me? Try this simple and short exchange in his live trade with Maxforce - http://tradebursamalaysia.blogspot.com/2007/07/5k-to-250k.html I don't pretend to fully understand that trade to the extent of being able to duplicate it, but it's clear his understanding of trading goes for beyond merely simple TA indicators like MACD. And his exchange definitely inspired my August 17 chatbox and trade.

I have many favorite investment books, and one of them is by Jack Schwager called "Stock Market Wizards" published in 2001. This is basically an excellent book with interviews with America's Top Stock Traders. In there, you will see many higly successful traders (with high double-digit, or triple digit % returns spanning years, some even longer) who developed their own unique trading systems that clearly went beyond textbooks. Also, it is not uncommon to find some of these traders previously being grounded on Graham and Dodd. To me, Boon is no different - he has his unique style of trading, and continues to be inspired by the writings of Buffett (and James Simons). And there is no question that he reads Soros, another one of the Master investors - http://tradebursamalaysia.blogspot.com/2007/08/george-soros-reflexivity.html

I can probably go on and on writing about the things I like about Boon's blogs, but I think it's better for me to stop here, and let you visit his blog yourself to do a deep study of his past writings. I don't think Boon likes to have followers who follows him blindly. He doesn't try to defend his stock calls, and instead listens to the market. He is constantly aware of the risks of trading, but being human, also makes and admits his mistakes, and more importantly, learn from his mistakes in order to not repeat them.

A quote from his blog profile: "Most new traders win in their first couple of trades. They are very careful when they are new to the market and it takes them months to research and to think of what to buy. As time progresses, they become sloopy and want to do 5 trades in a week! This is when things start to go wrong. The worst is they have forgotten these 3 very, very important prerequisites -- (1) risk awareness; (2) planning; and (3) patience. Be a responsible trader, only trade when you knew you can win!" - Boon, Trade Bursa Malaysia blog. (Large font underline mine - note the past tense "knew" - this is a sign of someone who already knows that he will win, before he puts on the entry trade since he has already planned his exit).

On that note, please join me in welcoming Boon to this chatbox! Like Moolah and Dali, I am sure Boon is very busy, and I hope from time to time, they will be able to join the chatbox to share their views and wisdom with us.

Cheers,
Seng.

Was Friday the bottom for KLCI?

We know it is practically impossible to pick market bottoms before they appear. Those who claimed they do it all the time are likely to be liars. However, almost everyone can identify market bottoms after they appear on the charts - but usually, they are not much use since prices would already recovered quite far. And in between, we have a situation like yesterday where KLCI touched 1141 just before 3 PM, and then, recovered strongly by 50 pts to close at 1191. So, a question may be "was yesterday a bottom?"

Firstly, let me say I don't have a crystal ball - so, I don't know for sure. However, I would like to share with you some interesting observations, and my own practice. You can then form your own opinion accordingly.

1. KLCI technical candlesticks observations

- After Friday closing, many indices regionally formed a "hammer" (small body, lower shadow at least twice the length of body or longer) after a prolonged downtrend.

- The prior days (e.g. Thursday and prior), the force of the downtrend was stronger (longer body), indicating panic selling. Prior days panic selling combined with a hammer is suggestive that the downward pressure is losing force significantly.

- On Friday, KLCI temporarily pierced through the 23.6% Fibonacci retracement support level of 1161 temporarily, but staged an amazing recovery of nearly 50 pts to close above it. This is also suggestive of a technical rebound.

- Relatively high volume on the hammer day, suggesting Friday could be a critical day.

- But KLCI is still below 260 day EMA and 38.2% Fibonacci retracement, both of which are around 1205. Not a confirmed bullish signal yet.

- So, what do you think?

- Me? Based on this point alone, my guess is say 50/50, i.e. 50% chance we might be seeing a "local bottom", 50% chance not yet. Odds improves slightly (say 55%-60%) if KLCI closes well above 1205-1241 (38.2% and 50% Fib retracement support) convincingly next week. Odds also improve slightly with other observations below.

2. US Financial Stocks Positive Divergence?

- Divergence is a very important concept in Technical Analysis. The opposite concept is convergence. Normally, when a bad news is announced, we expect to see the stock price to fall. However, when the stock price rises instead, it is often worth a closer look.

- I first noticed a positive divergence Friday morning, when Countrywide in the US announced a sub-prime related problem the prior night. I mentioned this in the cbox at 11.29 AM yesterday (see below).

- Now, technically, Countrywide did not show a divergence - the stock price took a significant fall, around 11% after the sub-prime bad news announcement. However, related sub-prime stocks - namely Bear Stearns and Goldman Sachs stock price actually rose! So, this is not strictly divergence.

- But I find Bear Stearns stock price behaviour particularly interesting. Despite the continued poor sub-prime news (for Countrywide), its stock price rose 13%! See the circle in chart below. (Actually, the green candle on Thursday night took out last 5 day falls, not 3 days as I mentioned to Goldman).

- But some qualifications: First, a single financial stock doesn't mean entire sector moved. Second, a "bullish reversal" doesn't necessarily mean subsequent rising prices - it could also mean further sideways movement and volatility. Third, the high on Thursday is lower than the week before, although last Friday high is marginally higher, so, touch and go whether we'll see better / worse results soon.

- So, what do you think of this? Is this a significant observation to predict possible local bottom?

- My guess: when combining 1. and 2. above, the odds have improved slightly - say 55% yes, 45% no.

3. The Fundamental's case becomes compelling

- At 3.06 PM yesterday, "grabber" (a regular investssmart chatter) voiced out something which I have been privately thinking all morning on Friday, that maybe the KLCI has fallen a bit too much from a fundamental perspective. See 15:06 entry below, where grabber raised the ANALABS example, but this could have been another fundamental stock:

- My public cbox reply was cautious (I don't want to be blamed again). But for my own personal account, I had already entered buy orders prior to grabber's comment at 3.06PM.

- For ANALABS, the fundamental case looks compelling. At 3 PM, Mr Market was valuing it at only $43m. The stock has $35m in cash, with liquid securities valued at $5m, or a total of $40m, suggesting the profitable business is valued at a paltry $3m. Last year's earnings alone is already $8.4m, i.e Mr Market is valuing ANALABS business at a P/E of well below 1x!!

- You could make similar cases to other fundamental stocks (or at least, the one I was eyeing). In my mind, it was clear Mr Market was behaving more irrationally on Friday, especially just after lunch time.

- My guess: Combining 1., 2., and 3., I think the odds of seeing a local bottom gets better slightly.

4. Yes, my Buy Orders for Friday was executed
It has been quite a while since I had executed orders like last Friday, but see below.

A few points:

- No stock tips and no personal details. But these stocks are real - I only show the first letter of the stock name.

- Yes, Net buy is 17 stocks. Of the 20 stocks bought, 3 were closed before end of day.

- I had originally intended to just "rebalance" my asset allocation on Friday (I was and became more underweighted as a result of the stock price falls the last month). However, the stock price fall after lunch was quite dramatic, and took out ALL my open Buy Orders. I also bought more of others after that. I had some idea, but only properly realized after the trading day that I had bought more than what I had intended. But despite the slight over-trade, I still hold significant cash by many investor's standards.

- To me, all 17 stocks are "Trading Buys", and not "Buy and Hold". I.e. depending on how the market behaves, I could just as quickly close all 17 positions by 9.02 AM, Monday.

- I reserve the right to change this to "Buy and Hold" depending on market conditions. Similarly, I reserve the right to dispose all without informing anyone.

- In short, you buy at your own risk. Me, I intend to be extremely fluid.

- And just in case someone says that I didn't tried calling it for others, here's a snapshot of the cbox at 3.12 PM, and a reminder at 3.19 PM.

- Ok, it turns out I over-traded more than 10% capital last Friday, but not significantly more that would cause me to lose sleep over it.

5. US markets closed strongly on Friday night

- Dow +1.8%, S&P500 +2.5%. The S&P chart shows a better picture:

- You can clearly see the hammer on Thursday. Friday long green candle is a bullish continuation candle, suggesting more upside. Ideally, I like to see the S&P500 close above the 200 day EMA, and cross and stay above the downtrend line at around 1475-1480. If S&P500 closes above this figure convincingly early next week, then, the odds that we've seen a local bottom on Friday for the KLCI gets better.

- As the odds of S&P500 showing a bottom gets better, I expect the odds of KLCI to show a "local bottom" to be roughly aligned.

6. Asset allocation and market timing may turn out to be more critical than stock selection during this correction

- This is not related to the question, but has practical implications on investor's actions.

- Don't get me wrong - stock selection is always important, but the most common investing errors I saw during this correction is the tendency to be fully invested (or be on margin) when KLCI was at 1392.

- It should be clear to all, that had one carefully watched one's asset allocation at market highs and prudently held cash, one would not be completely killed from the current correction. There is a loss, but not so severe.

- Also, once the market starts to correct, it is important to get the timing right before rebalancing. The temptation is very strong to rebalance at anytime over the last fortnight, but that would have been a mistake.

- I emphasized all this repeatedly in the cbox in the last 2 weeks. An example from Friday is below:

- Risk tolerance (the ability to not let temporary unrealized loss to cause you to panic or not sleep soundly) is also another important topic, but that would be outside the scope of this article. My hope is that the current correction and high volality will lead you to become better investors in future. I have certainly learned a lot from the chatboxes and the writings of others.

7. If you haven't bought yet, should you buy next Monday?

- To be honest, I can't answer that question for you. The main purpose of this article is to share with you my observations, and what I actually did last Friday. You have to make your own decisions.

- Another view is that I have been waiting since last month to rebalance, and last Friday gave me that opportunity to rebalance - it turns out I rebalanced more than I needed. So, it is highly doubtful that I will personally buy more next week. So, I don't feel qualified to advice you here. Sorry.

8. Conclusion

- From my own personal perspective, naturally after having bought on Friday, I am glad and slightly relieved to see US markets closed strongly on Friday night.

- If KLSE and Asia regional markets stays true to form, then, we can expect the Asia to follow suit next Monday morning. So, if there is strong divergence, then, I would not hesitate to cash out completely what I had bought on Friday.

- On balance, I think the odds may be better than 50/50 (say 60/40), that we've seen a "local bottom" on Friday. To avoid ambiguity, I define a "local bottom" as KLCI not making a lower bottom than 1141 within next week. Remember, this are just odds, i.e. I could be proven wrong quite easily. And note, my definition only refers to a very short period.

- Based on all these observations, I have bought on Friday, originally intending to just rebalance, but turned out to have over-bought due to the large unexpected market correction. (i.e. lucky).

- But all are trading buys. Why? Because the high volatility is still there. I intend to monitor the markets carefully to make exit decisions if necessary. But I reserve the right to change this to "Buy and Hold" later without informing anyone, depending on how the market behaves.

- Do remember that you make your own decisions based on the observations I have shared with you, and you always buy at your own risk.

- Please feel free to comment if you agree or disagree. Contrary opinions are welcomed. Do feel free to share your own observations if I've missed them.

- Best wishes during these turbulent times.

Disclaimer: Always use your own judgement, and invest (buy, hold, sell) at your own risk.

Can a blog article affects a stock price in the long term?

Recently, there was some unexpected comments by one individual (let's call him "Mr P", ass-u-me male for simplicity) in the 2nd chatbox against a fellow blogger.

Now, Mr P didn't get support in the cbox. My observation is because of several reasons. 1. He started off with a personal attack (that's a No No in my cbox). 2. He used capital letters (another No No), which his fellow chatters find offensive. 3. He was not specific (which doesn't promote rational discussion). 4. A reader commented that they didn't find Mr P's comment useful to them personally.

I am a Buddhist, and a believer that everyone has hidden inside them, a seed of greatness. To cut a long story short, today, Mr P didn't dissappoint me, and came back and the atmosphere was calmer than yesterday. And my observation is that Mr P perceives the root cause to be a negative article written by a fellow blogger against a stock owned by Mr P, which is PSCI. The assumption made by Mr P is that the blogger has the power to influence the market with his article.

Now, the reason I mention this is because I have also personally experienced the same thing. Some time ago, I wrote what someone perceived to be a negative article on CRESBLD. And I received this email. Take a look:




And interestingly, I recalled that Maxforce, Wisdom Wise, Malaysia Finance have all experienced similar things. In other words, there seems to be a strong belief amongst a small minority of readers, that blogging (or chatbox) can really influence a stock price in the long term. The reason I say a small minority is because that is the only email (3 in total, from a reader who calls himself "oskstaff") I got which is negative, but I have received in total over 200 emails, many of which are queries. But is this belief justified?

I really like to hear your comments on whether you think this belief is justified or otherwise. Some of my thoughts are:

1. In the long term, the stock price is determined by the underlying business performance. If a business keeps churning excellent business results, it's just a matter of time that the market will appreciate it. Conversely, if the business keeps churning lousy business results, it's just a matter of time before the market dumps the stock.

2. Buffett - the world greatest investor - is fond of saying "in the short term, the market is a voting machine, but in the long term, it is a weighing machine". What Buffett means is that in the long-term, the stock price / market capitalization will reflect the true worth of the business rather than all the hype surrounding it. I've read that there are many research & articles showing that whilst in the short term, prices may fluctuate away from value, but the collective action of a very diverse and complex market do steer stock prices towards its true business value in the longer term.

3. I recalled reading somewhere that Bursa eResearch attracts nearly 15,000 registered members (I am sure I am precisely wrong, so, don't quote me). My simple guess is that there should be at least 50,000 investors investing in Bursa on an average day (and don't quote me - I know I am precisely wrong here also). On the other hand, my cbox which has been up for the last 6 trading days has attracted around 2,200 views, or approximately 400 views per day max. Now, I don't know about you, but my feeling is that out of the 400 views per day, maybe only 10% takes my views seriously?? Let's be generous and say 100 (out of 400) takes my views seriously. Now, do the maths - what % is 100 out of a large market of 50,000 buyers and sellers? Seriously. Even though I know I am precisely wrong in both figures (15,000 and 50,000), I know I am approximatly right in my conclusion that the current readership is peanuts in comparison. And we are not even institutional investors who control large amounts of money, but merely individual enthusiasts many of whom is made up of relatively poorer "young adults who just started work and investing". Seriously ...

4. And if you compare my blog with Bursa eResearch who has 15,000 registered members, mine is peanuts. And if you compare my blog with a brokerage firm (say OSK or CIMB), they easily influence many, many more players with many times the fund size. And so it is for advisers like ICapital. And what about the Star newspaper who reaches readership numbering over 1 million??? In this overall context, my blog 100-400 readers a day is just a tiny, tiny drop in the ocean.

5. So, I submit to you for your own personal and critical examination. What influence can one blog (whether it is mine or a similar one) affect on the market??? Is it as effective as Star newspaper? Is it as effective as Bursa eResearch? Is it as effective as a broker/analyst report?

6. And I believe we are a relatively small community over the Net. All of us. What % of internet investors are there, compared to the entire investment community in the real world?

My personal conclusion is that this blog (and others like it) have practically no influence on the market. Any blog that attempts to promote a speculative stock is likely to cause its readers signficant loss in the long term, if they are not smart enough to run in time, and that is not a true investment blog in my books. Occasionally, for an illiquid stock, my comments here (either article or cbox) might cause a temporary blip, but that blip is so short, and so small, that I doubt anyone, even myself, can take advantage of it. So, I don't even try. Instead, I find it easier to try to find good quality stocks and let the business and the market does the work for me. So, if you see that my stocks went up in the long-term, - it's definitely not because of me. And vice versa. All I do is to merely spot it, and mention it.

And of course, because I am human like you, I can be wrong!

And I am certainly not god as another reader commented not too kindly. Even the kindest angel in the world do not invite comments :-) And as usual, comments (whether they are similar or different than mine) and questions are welcomed.

Good luck during these turbulent times.

Welcome Dali!

We have another pleasant surprise this afternoon at the chatbox - Dali, the prolific author of the popular Malaysia Finance blog, has kindly dropped by the chatbox! Unfortunately, due to a family medical matter, I had to send someone to the hospital, and couldn't stay on to participate in the chat :-(

If you haven't visited Dali's blog before, I think you have the privilege of being a rare individual. His blog is highly recommended - see http://malaysiafinance.blogspot.com/. Do visit the blog, and you'll know what I mean.

To me, I would put Dali and Moolah right up there in terms of investment blogging. Dali is truly a prolific writer and a hard worker. I really don't know where he finds his energy and inspiration from but he blogs nearly everyday, and sometimes, several articles a day! Whereas yours truly who would be lucky to average once article per week! He has built up a large readership, in fact, reading both his blog and Moolah's has become one of the regular things that I do every morning, just like having a cup of coffee for breakfast. I don't know if coffee is necessarily a good thing for me, but I thoroughly enjoy it! And I intend to continue drinking coffee and do the things that I enjoy doing (including reading Dali's blog) for as long as I live!

One of the things I enjoy about Dali's blog is not just his unique investing and writing style, but his viewpoint. The immediate impression I get is "an original artist" or a "master painter". If you browse through his past articles, you will quickly get a sense that here is a guy who reads extremely widely and writes truly thought provoking articles ... and he's not afraid of saying what he thinks, even if he risks being wrong about it. And to be honest, I find myself constantly being provoked thought-wise, which is a good thing ... I believe one can learn a lot from Dali, if one adopts a critical view towards his articles, and constantly ask questions such as "have I considered this point before? What could be an alternative view? On balance, which is the better view?, etc.". As with all investors, Dali has made his share of mistakes too, but that doesn't detract him from continuing to write and invest in his highly original style, and you shouldn't too.

On that note, please join me in welcoming Dali to this chatbox!

Cheers,
Seng.

Welcome Moolah!

The top chatbox went abuzz yesterday morning, when a few of the early chatters saw that Moolah had joined the chatbox. I was there, and interestingly sensed an aura of temporary disbelief and excitement amongst some of the investors, that the author of one of the best Bursa Malaysia investing blogs had joined them for a chat! For the few of you who may not know who Moolah is, allow me to introduce Moolah to you, not that he really need an introduction from me! :-)

Simply put, Moolah is the owner, author, researcher, analyst, formatter, administrator - in short - the "hard worker" of this popular and long-running blog - http://whereiszemoola.blogspot.com/ as well as Sahamas and the many other blog-links in his main blog. Both are investment places that I can whole-heartedly recommend every investor to visit if not, do a deep study. Moolah is a firm believer of business-like investing, but what makes his approach unique is his disciplined practice of the "negative art" of business-like investing. I visit Moolah's blog regularly, and I must say I have yet to see him recommend a sound fundamental stock to buy whole-heartedly. Don't get me wrong. It is easy to under-estimate this, but if you do a study of Moolah's thought process, you will quickly realize that to him, a company is just like people. There is no such thing as a perfect company, just like there is no such thing as a perfect human being. Every one has their flaws, just like every company has weaknesses. Moolah's unique strength is the ability to question almost everything, and as a result, realistically identify and highlight the potential weaknesses or uncertainties of every single company that he analyzes. This is actually a very important trait of a successful investor, because Moolah is very much aware of the potential downside to any investment. Moolah is one of the very, very rare people in the investment field who actually identified MEGAN very early on as a company to avoid, well before the company was actually exposed for the numerous accounting irregularities and fraud. And I am sad to say that MEGAN is not the only nor last company with problems in Bursa Malaysia. His site is definitely one of the most important websites for all Bursa Malaysia investors to bookmark, visit, and do a deep study. Moolah is also one of the most generous investing blog authors I have known - the quality of his analysis and second opinion generally ranges from good to excellent, he is a prolific writer, somehow, always managed to find the time to write so much, that he as well as Dali certainly set and define the benchmark for investment blog writers to emulate. In Moolah's own style, I must also say that I don't always agree with what he has to say (since he is also human just like you and me), but I always consider very carefully what he says, because more often than not, he has a very good point.

On that note, please join me in welcoming Moolah to this chatbox!

Happy investing! (and don't be afraid to question him! Remember he is Human just like you :-) )

Cheers,
Seng.

Two new chatboxes

As you will have seen from the above, I pleased to have recently implemented two new chatboxes to this blog! I have been toying with this idea for quite a while, but did nothing as I was very comfortable at investssmart blog. I still believe it is an excellent blog, but when I was there recently, there were certain irrational disruptions that started off with targeting me personally. I felt obligated to create a 2nd set of chatboxes to provide the regulars with a backup. That gave me the push to create these. Also, the timing seems ideal - with the current volatile markets, I am more likely to sit out than participate actively in the markets, and so, it seems like a good time to do something else such as improving this blog!

I have purposely created 2 distinct chatboxes similar to investssmart. The top one is intended for fundamental and the more serious discussions. The lower box is intended for technical and other discussions.

If you're new, then, by fundamentals, I mean discussions on Intrinsic Values of the underlying business and related factors. For a better understanding, please see my recent article here (http://fusioninvestor.blogspot.com/2007/07/fundamental-analysis.html). This can naturally be broad ranging since it can cover macro as well as micro issues, global as well as company issues, earnings, valuations, cashflows, income statement, balance sheet, etc. in the past, current, future, short term, medium term, long term.

By technical and other discussions, it can be discussions on historical price charts and volume, support, resistance, moving averages, technical indicators, etc. In other words, the usual TA discussions. Others can be anything relevant to investing, such as psychological, emotional control, money management, etc.

But I won't hold the users strictly to the above. In practice, I noticed users prefer to choose one chatbox, and then, chat there. It is certainly more convenient. But I believe users also have certain preferred styles - either FA preference, or TA preference. If it's the former, you may wish to chat on the Top Box, if it's the latter, try the lower box. For me, I hope to just chat at the top box after things are more settled.

I would also like to mention that there are some readers here who unfortunately, due to their full time work, is unable to participate in the cbox during trading / working hours. Instead, they either review the top box history, or participate after hours. It would be greatly appreciated if the top box is reserved for the more serious comments, and the chatting at the box below.

I would like to share with you a few ideals for the chatboxes. Whether this is achieved or not will depend largely on the community using/residing on the chatboxes, so, it really depends on "the collective us" to make it happen. The analogy I would use is your own community - whilst having a nearby police department helps, it does not guarantee the ideal neighbourhood. To have that, we still need every neighbour's contribution and a collective sense of responsibility to make sure that the community we live in is indeed a better place to live in. I sincerely believe this analogy applies to both here, as well as any other chatboxes.

My ideals for the chatboxes are as follows:
- a place where both novices and experienced investors find it useful, relevant, supportive towards their general investing and trading experience.
- a place where second and additional considered opinions from other participants on certain stocks can be obtained, without fear or favor.
- a place where important business news, analyst and other reports affecting the stocks are shared freely, whether it is just recent earnings results, new stock analyst calls, new major business contracts secured, etc.
- a place to request for further analysis or comments by me or more experienced investors (request subject to availability of time, which is limited).
- a place where we can hopefully, at a glance at both chatboxes, easily see the views of both investors and traders alike, and form a more "fusion" / rational perspective.
- a place where regardless of investing skill, knowledge or experience or any other stereotypes, everyone enjoys being there because of the caring, respect and consideration they receive, and they feel they can grow and proper in their investing skills.
- in short, a place where we are all happy to be at. My wish is that you will find this a place where you find yourself continually learning new and relevant things, because the markets are incredibly flexible. In my experience, everytime you think you've figured the markets out, there's something new and unexpected arising that will knock you down a notch or two. But don't be discouraged. It happens to all of us. And which is why I enjoy investing in the stock market :-)

There are naturally some common-sense guidelines. Be considerate to others - I am inspired by the phrase "do unto others as you would like them to unto you". Bear in mind there are many silent visitors and readers too, besides those chatting. As I prefer to encourage as many participants to join and share views, I prefer each participant to try to make their point with fewer carefully considered paragraph/entry, than a dozen one-liners by a single person to make a point. Naturally, this is not a place to advertise your products nor spam, so, any such activities are highly discouraged. And naturally (and this applies only to just one person so far and not representative of everyone else that I have chatted with), use of inappropriate languages, personal attacks, putting words into another person's mouth, name calling, unsubstantiated accusations, lunatic behaviour, etc. will not be tolerated here. :-)

Otherwise, I wish you all the best, and Welcome to my chatboxes. Look forward to chatting with you!

Cheers,
Seng.

Imposter: Commentary

At the lower unprotected chatbox at investssmart (http://investssmart.blogspot.com/), an imposter, on Aug 5, 12.01 PM, who called himself "newbie" made the following remark:

"newbie: ha ha, seng called for buy on dip, dow down 281 points, still buy on dip ? ha ha hold & die ?now we see how good this tai chek kong seng is"

I would like to take the opportunity to mention a few cautionary remarks:

1. Don't automatically buy just because market has dipped.

It may be counter-intuitive, but the market is not the same thing as the stock. One comprises of thousands of stocks, the other a single stock. A good investor is a discerning investor, and will not buy every Tom, Dick and Harry. There are also many other reasons why (e.g. are you trying to catch a falling knife?), and it is definitely outside the scope of this article.

2. A market dip doesn't guarantee buying.

It can present buying opportunities, and it's just that. There is no guarantee that for the specific stock you are eyeing, it will reach your target buy price. It should also be obvious that there are some stocks that goes up when market goes down, and vice versa.

3. Other things equal, I prefer to buy superior businesess than the stock market.

It's easier to sleep at night, owning sound businesses, than, worrying every day what the index is going to do. You can also choose when to do short-term trading and when not to do so, as your long-term investment does the job for you. In general, I prefer not to do shorter-term trading during uncertain periods.

4. Never blindly buy even if I said I am buying.

Why? Because you are a unique individual. Your investment goals, your risk tolerance, your own personal circumstances and investment capital, your investing experience, your investing skills, your ability to monitor the market, your own financial needs are very likely (if not almost certain) to be materially different than mine.

For example, I have mentioned before that I am very satisfied if my long-term portfolio can earn double F.D. rates especially over the rest of my investing lifetime. Why? Because I am retired, I have done my analysis and calculations and have thought through my own circumstances over a very long period of time before and after I retired and have decided that achieving that goal would satisfy me very well. But 7.4% p.a. might be too low (or too high) and unsuitable for you. That's okay - we are all unique.

Others also said my investing + trading style is probably unique, and impossible to replicate. Maybe true. E.g. you may be aware recently, I followed kiddy's recommendation to buy COMMERZ-CB at 0.275 on 16 July (2+ weeks ago). COMMERZ-CB just expired last Friday, at 25.8 sen. If you had blindly followed me or kiddy, you may have lost money. In the chatbox, I mentioned it is close to gambling (and not investing).

My point in mentioning COMMERZ-CB is to illustrate the point that we are all unique individuals, with different abilities, experience, risk tolerance, objectives, etc. that blindly following a Buy / Sell call can give different results ... In my case, I very luckily made money. Why? Because between 16 to 27 July, I had done a further 7 transactions, to lower my average cost down from 27.5 sen to 24.5 sen (or 24.7 sen with brokerage). But it was pure luck and that is another story.

My point is that if you had followed kiddy or me blindly when I mentioned that I am buying, and left it at that, there's always the chance that you could lose money. Instead, whenever I mention that I am buying, always use your own judgement and assess for yourself whether to follow me or not. Treat this as merely an idea for your own individual follow-up research. And make your own decisions. Don't blindly follow me. (and I certainly didn't blindly follow kiddy, and would never consider blaming him if I had lost money because I know at the end of the day, it's my decision).

5. Don't believe others when they say Seng said Buy (or Buy on Dip tomorrow).

Hopefully, after you've read 1 to 4, you can see how the imposter misrepresented me. You may ask why he/she would want to misrepresent me.

6. Please don't call me "sifu" or "xifu" or "tai chek kong" or "Ah Seng Kor" :-)

Just Seng will be fine. Thanks! :-)

7. I only chat at the upper chatbox in investssmart where it requires registration.

For the record, I have yet to chat at the lower box, although I have noticed from time to time that a chatter pretending to be me appearing there...

8. For the record, I am not the slightest interested in proving how good (or how bad) I am!

That is not the purpose I blog and chat at investssmart chatbox, and nowhere near the list of priorities in my life. Definitely not my mission in life :-)

9. My advice to the imposter

First, thank-you for your comment. It has given me an opportunity to clarify my thoughts on the above topic, and hopefully to the readers here.

Second, consider using your own unique name, instead of pretending to be "newbie". It is unfair to newbie and everyone else who read the blog. Everyone who chats there regularly can see that you are an imposter.

Thirdly, reflect on Albert Einstein's quote below:

"Try not to become a man of success, but rather try to become a man of value"

If you don't have your own investment blog, why don't you create one? IF your life mission is to show the world how good you are, then, use the blog as that vehicle. Hopefully, this is not your life mission.

On the other hand, if you do already have a successful blog and it is your life mission, then, why not promote your blog constructively?. No need to misrepresent someone or cause destructiveness to another person's blog such as investssmart chatboxes. In the long run, everybody will be better off.

As Einstein says, aim to be a man of value.

Good luck in your future endeavours.

Disclaimer: As usual, always use your own judgement and invest (buy, hold, sell) at your own risks.