Financial education

Hey people, I'm going to start a series of posts about planning for your finances; and also about planning for your future job.

Now you may be thinking, I'm still young, this really doesnt concern me. OR, I got no finances to plan for whatsoever... Now if you are thinking that, you got it all wrong!

A friend of mine started investing his savings of about SGD$2000 back in 1999. By 2004, he had close to SGD$150,000, a whooping growth of 7500% in 5 years. And he did all this while he was still an undergrad in NUS, did not take part time jobs or depend on pocket money from his parents. On top of that, he was a malaysian and didn't have a place to stay in singapore so, he had to rent and pay for all his own living expenses. He also paid for his undergraduate course fees ( about $10000 a year). To top all that off, he could afford to buy macbooks, ipods, new zealand holidays for himself and for his family these past few years. All his expenses he paid for with his investments.

He's got his own condo now; I should think he'll be getting his million soon at 27. Oh yes, in 1999, this friend of mine just turned 20, Just 3 years older than what some of my students are. So I think, its a good idea for you to become financially 'aware' right now, as a start.

What were some qualities this friend of mine had that made him successful?

1. Drive. This friend of mine was highly driven.

While the rest of us were idling our time away with games and shopping and eating, he made productive use of his time. He did what he had to do to do reasonably well in school and in hall activites, but on top of that he did a lot of due diligence on what he wanted to invest in. He read a ton of books about investing, financial management, technical analysis, fundamental analysis and so on. A year before he started investing he had already been following the markets. He did his charts, planned his entry and exit points and read the companies' balance sheets. All this work enabled him to make smart investment decisions so he was correct most of the time and wrong only occasionally. This of course translated to lower risk and higher profit.

In between all that he did find time to go out with friends and catch some concerts.

2. This brings me to my next point, focus.

He was focused on what he wanted out of his life. While I'm not going to touch on how focus impacts every aspect of your life, it's interesting to look closer at how focus impacts investment strategy. Lets take a look at a growth of 7500% over 5 years. It can be averaged in to a 50% growth per year compounded. Can it happen? Yes it can; Just this year, the stock price of Apple computer (AAPL on the nasdaq; chart ) went from $50 in mid July to $91 in early december. The price movements of smaller cap companies can be even greater.

So if your insurance broker, financial planners, unit trust managers etc tell you that they can only grow your portfolio by about 5 to 8% per annum, they're not good enough.

What is their problem? You realize most of the sundry financial peddlers recommend diversification to minimize risk; What they are not telling you is that it minimizes risk to themselves. They don't really know whats good to buy, so they tell you to buy a bunch of everything. They also don't tell you the fees they charge eat up a large part of your profits, while you invest all the capital and shoulder all the risk.

Read this article.

Now is it really a good idea to trust these managers? Most people don't really know what to buy or understand what investment is about; they're financial idiots, so they diversify. And they rely on funds.

What's not risky is focused investment, what's risky is ignorance.

If you really know what you are doing, you focus. Warren Buffett (go wiki or google him) didnt diversify randomly. He focused, taking large stakes in businesses one at a time after careful research and understanding exactly what he's going into ( Go read a book about him so you'll understand what I mean). Oh yes Buffett was at one time the 2nd richest man in the world after Microsoft's Bill Gate, until he recently gave away huge portions of his own wealth into the Bill and Melinda Gates Trust, which spearheads some noteworthy philantropic efforts(I'll talk about that some other time). Again even in philantropy, Buffett adopts a focused approach; he gaved a lot (US$33bn) but only to what he thought was the most effective philantropic organisation in the US; he didnt 'diversify' his giving to other philantropic organisations.

Buffett became the 2nd richest man in the world purely by investing; he didnt inherit the money or run businesses; he simply invested.

So are you going to listen to the sundry financial advisors who tell you 8% is max, and diversify? or are you going to listen to the oracle of Omaha (as Buffett is called) who tell you to focus?

3. Remember, ignorance is risky so start learning!

I think its been good to get started by looking at qualities of drive, focus, and a wilingness to learn; however, to motivate you on this area, lets pull out some numbers.

All the following has been reported in recent editions of the Straits Times or Today newspapers.

This year, Goldman Sachs, the largest invesment bank in the US, is giving its CEO $138 million for his bonus(does not include salary!)

Morgan Stanley is giving its CEO $40 million for his bonus.

Back in singapore, the banking industry has seen average wages grow by about 5% this year, and expects 5% next year. Executives can expect 6 months' to a year's bonus.

Some young investment bankers(in singapore) are taking about US$450000 this year; according to one of them, most of them, even those who just started out should expect at least $100000 to $200000.

So really, if you just want to get a job to make a living, why follow the singapore herd into the professions of medicine or law or accountancy? Just take up the job with the best pay :)

You really should go into professions only if you have real interest in them; ie you reaaaally want to heal people, so you'd like to be a doctor. For me, I like to teach.

Finally you may ask, why the focus on money? The focus is not on money. Rather, its on making wise choices, and on achieving financial freedom which means you don't have to work, but instead spend time doing what you dream of.

In almost every great endeavour, a lot of resources, money is required. You want to fight disease on an epidemic scale? Help victims of natural disasters? Feed the poor, and beyond that, help them to become self sufficient? Lots of money helps. If you have just enough money for yourself, all the talk about benefitting others and being a blessing to others is just that: talk. You can't afford to help others, and your time and energy will also be expended to meet the needs of yourself and your family ( you have to feed your aged parents, your young children, your car, your house, and your wife. It's tough.)

Even in teaching and educating people, you can make great impact if you have the wealth to spearhead programmes, as what Bill Gates has done. He's recently been voted to be the most influential in US education(ranked above the US president, Department of Education etc etc)

Of course, investment banking isn't really an easy job. But really, which job is easy? (more on that in a future post)

And even if you don't become an investment banker, it still pays to figure out how to manage your wealth. My friend's a computer programmer.

You can start by reading great articles or books about investment attitudes and mindsets to get some inspiration before going into really detailed research. A nice author to read will be Robert Kiyosaki; he;s the guy who wrote "Rich Dad, Poor Dad"

He has a column in yahoo finance, and I'll leave you to a link to one of his articles. More to come.

Hohoho

my pc is still dead :( as in my desktop.

So how do I blog? I've to use my office computer(which thankfully is a laptop). But then this being an office laptop cant be used to play PC games, listen to itunes etc etc blah blah.

So how do I while my holidays away??

well..there's the PS2..... hah well i did do some constructive things! First off there the Singapore Chemistry Olympiad! I'm so so so happy for RJC's team (which i coordinated and conducted training with). Its nice to work with a bunch of bright(ok they got brains.. but its whether they use it or not.. heh heh) kids who like chemistry. Ok ok the good news is, that its over and the results arrrrrrrre (drumrolls..)
i) all our 15 candidates made it to final round and got a medal (not true for any other college)
ii) we had 6 gold medals (out of the total of 13 awarded, that means we swept half the golds) plus assorted silvers and bronze
iii) we had the top scorer for the entire olympiad (xinyang from 6D if you wanna noe; the olympiad had 2 theory papers and 2 practicals)
iv) we had the top scorer for the theory papers (ben chen from 3K)
v) RJC team won the best team award!

hmm we didnt get top for practical.. hmm will need to look into that
wooohoo welldone!

hmmm on top of that I found time to do quite a bit of reading (eh? so geeky? yar, i'm a geek)
wikipedia's great! I read about the origin of malays and malay language, and then more ancient civilisation stuff, on mesopotamia, the phoenicians (they're the canaanites), child sacrifice, the roman empire. It also interesting to think that, while Judaism is one of the many religions amongst the middle eastern region in ancient times, its offshoots Christianity and later, Islam came to influence such large populations of peoples and geographical areas. (These religions are called the Abrahamic religions; Abraham, Ibrahim, the same you know)

For Christianity, intense persecution under the Romans forced believers to scatter, and along with that, their message spread. But 2 other important events happened to bring Christianity into such dominance over the western hemisphere. 1) Emperor Constantine legalized Christianity, 2) Emperor Theodisius I (he was the last emperor of a unified Eastern and Western Roman empire) made Christianity the state religion of the roman empire. Now if you didnt know, the Roman empire at its peak stretched from the British Isles, the whole western europe, much of the north coast of Africa (basically all round the mediterranean region) including some of egypt, Most of what is modern day turkey and iran(persia).

Western Roman Empire later collapsed under the barbarian invasions(quite a few other factors also cotributed to its fall, such as economics and currency issues, disease, and environmental degradation), in any case the Roman empire declined, but the incoming conquerors(the germans,gauls, franks, angles, saxon, vandal and visigothic "barbarians") assimilated and later adopted Christianity till modern day Europe (colonization of the rest of the workd by europeans then brought Christiantity everywhere...)

From the Eastern Roman Empire (Byzantine Empire), Christianity made its to Russia. Later on, the Ottomans conquered the Byzantine Empire (The capital at Constantiople itself became Istanbul later on) and brought in Islam (which now dominates the area)
Incidentally, the Ottomans were quite tolerant of the Christian church and also of Jews(the Sultan Bezayid II actually gave refuge to Jews escaping persecution from Europe) while the Protestants and Catholics went at each other's throats in Europe, executing heretics, purging Jews and all...

ehh quite enough talk for now, you can read all these for yourselves; but really, some knowledge of history is so useful, especially for us young people who view many things, including religion in the modern world through simplistic assumptions, when in fact many factors eg social, political, geographical and cultural go into making the world what it is today.

Oh and if you like, Greek mythology is pretty fun too, think Hercules, Achilles.. ahh the body of greek gods (and goddesses) are so fantastic! Did they workout in a gyms with persoanl trainers or sth?