Watching Millionaire Inside

[quek]

I just discovered these excellent gems of knowledge that "whizzard" shared some time ago...

In short, he invested in equity and held them for years. He also invested in property. For more details, see quote below and also read his posts (with deep insights) in this long thread.

Originally Posted by whizzard---

OK, this is what I did, all in the spirit of sharing only. (1) I tried my best to spend within my means and have some spare cash left over each month. (2) I accumulated the spare cash and invested it instead of spending it off. I didn't make money on all my investments, but on the whole, I did well enough to grow this a little. (3) I re-invested most of the profits instead of rewarding myself by spending it all away. I did reward myself though, but sparingly.

I made the bulk of my money investing in properties and some of my equity investments multiplied e.g. Capitaland & Keppel Land. To provide some details: bought DBS Land (before it became Capitaland) at $2.95 on 19 July 99, Keppel Land at $2.31 on 22 Sep 99, ST Engineering at $1.93 on 23 Aug 99, Natsteel Electronics at $3.12 on 18 Oct 00 (was taken over at US$4.53), etc, etc. I held these for many years. I began pulling most of my money out of equity in May 07, after the 1st time China stocks corrected in Jan/Feb 07 as I felt that a bubble was forming (I heard stories of Chinese workers demanding to take time off during lunch to trade the markets, young executives and housewives borrowing to trade stocks, people quitting their jobs to trade full time in the market, etc - sounds familiar like 93-94 in Singapore, yeah?) and the markets were getting very dangerous due to the extremely high PEs in China and extreme volatility in the regional markets when the Shanghai Index corrected - but it recovered and continued marching northwards until sub-prime hit for the 1st time in July 07. I got out for the wrong reason but I was out and this accounted for my current cash holdings.

Of course there were some bad equity investments over the years which I realised losses. I do invest in what some may call speculative stocks (I'd rather term them as situational plays which I aim for 30% to 50% returns within a short time frame of 2-3 mths. For longer term equity investments, I look for blue chips and put in smaller amounts per counter but for shorter term situational plays, I do put in substantially more per counter. No prices for guessing which I lost money in.

I have held onto my globally diversified unit trust portfolio for the past 8 years, seeing it yo-yo up and down and am regretfully still holding onto it now. Very bad returns - up 5% based on today's market valuation - but who knows what tomorrow (1 year, 3 years, 5 years) may hold?

My 1st foray into the property market was from 1994 onwards, where I bought and sold a couple of condos. Made a few hundred thousand on those, funded by my wife and my savings and some bank loans. The house which I am staying in was bought in 1996 with those profits, a bank loan and CPF which was subsequently paid off over quite some years. I paid $2.4 mil for all 3 current investment properties which I bought direct from developers in 2002, 2004 and 2005, each time paying the progress payments with my savings from salary, bonus and rental income. I wouldn't want to reveal details of those properties here as I prefer to remain anonymous.

And yes, I had a good opportunity with my career which propelled my annual pay-out to btwn $300k to $750k pa since the last 5 years (depending on whether I had good or leaner years). There are others in my age-group who earn more, I am sure of that.

In short, I could have developed a lavish lifestyle (spent my investment profit/bonus to finance a Porsche, Maserati or even a Ferrari - you get the drift - spend all the easy money) and raised my "core expenses" but I chose to exercise restrain and invested substantially my profits, my salary and bonuses into properties, paying off the bank loan and meeting the progress payments. And I did say that luck and timing do play a role too. Touch wood, I have been lucky on properties thus far.

I also have some friends who have done much better financially and are worth much more, if they did not spend it all away. I pale in comparison but once you start comparing, there's no turning back. So to me, life is a journey. I chose to live carefully in my initial years and now I can take it easier (I think).

The take-away at least for me, is to spend within your means at all times and try to have some leftovers for investing. No matter how small, they can grow into something. All you need is 1 good cycle and not get shaken out during any downturn (and that is why capital is key - I could have invested by leveraging up highly but I may get shaken out during any downturn). Lastly, as long as you spend within your cashflow and don't drawdown on your accumulated capital, you will be OK for the rest of your life. For most, cashflow = salary. I have tried very hard over all these years to change that equation to cashflow = non-salaried income and I think I have finally reached there. Of course, salary is important but the comfort of knowing that you don't need to rely on it is very assuring, trust me on that.

The point I am trying to make is not about how to accumulate $1 mil or $5 mil or $10 mil but to get the formula right from day one and how far you go from there depends on your hardwork, perseverance, discipline, risk appetite, luck and timing. Firstly, spend within your means - if not, no spare cash. No spare cash, no investment. With spare cash, invest it and not spend it. With profit from investment, re-invest. If you made a wrong investment, you start again. If you don't build up the means to invest, you will never generate any returns. The only way to build up the ability to invest is to spend within your means. Otherwise, salary is the only cashflow and that would mean running the rat race for a long time. I don't have a shortcut though I wished I had one. Read the recent article on the guy who blew all his toto winnings away? If he had paid off his bank loan (which he did, wisely) and put the rest in his bank, he would have the means to invest - instead, he blew it all away on dinners, holidays, relatives, friends, etc. If the credit card promoter had saved up her earnings instead of splurging on expensive handbags, she would also have the means to invest. They "lost out" their new found wealth because they did not live within their means.

Equity valuations have gotten very cheap recently. Property prices have also been moderating. Imagine having spare cash around - you can start planning how to enter the markets.

Wise words worth repeating again. Great advice in the last para below - if you had followed it at the time he said it, you would have made a bundle.

"The point I am trying to make is not about how to accumulate $1 mil or $5 mil or $10 mil but to get the formula right from day one and how far you go from there depends on your hardwork, perseverance, discipline, risk appetite, luck and timing. Firstly, spend within your means - if not, no spare cash. No spare cash, no investment. With spare cash, invest it and not spend it. With profit from investment, re-invest. If you made a wrong investment, you start again. If you don't build up the means to invest, you will never generate any returns. The only way to build up the ability to invest is to spend within your means. Otherwise, salary is the only cashflow and that would mean running the rat race for a long time."

"Equity valuations have gotten very cheap recently. Property prices have also been moderating. Imagine having spare cash around - you can start planning how to enter the markets."

Originally Posted by wiseman

"Equity valuations have gotten very cheap recently. Property prices have also been moderating. Imagine having spare cash around - you can start planning how to enter the markets."

When did the whizzard said the above? Is it still good to enter the markets now? Stocks or property? Or both?

Thanks.

[glenndanker]

Practice delayed gratification. It works. Improve your financial quotient and that's the way to go Yeah!!!

Hi all, I'm a retired sell-side (stockbroking firm) analyst. Retired at 45 with a net worth of S$8m. Started out being in debt with student loans after my degree. Am about 50% in property (live in a bungalow) and 50% in mostly high yield stocks that give me about S$200K in dividends per year. I am not completely retired in that I have an easy 9-5 management job that pays about $200K (total including bonus) a year. I didn't work for a short while, but boredom almost drove me insane. That gives me about $400K in income per year when you combine with the dividends.

My family expenditure is about $200K per year and includes 2 cars and I didn't change my lifestyle when I "retired". So operational savings are around $200K+ per year, which is basically all of my relatively simple job. I don't have to work if I don't want to. The value of my stock portfolio has varied a lot. It was down about $1m in 2008, but is up about $1.6m in 2009. Just before I "retired", I brought in $900K steadily for the last 3 years of my career working at a top foreign firm. Because the job was so busy, I never really actively managed my investments, just slowly built up my high yield stock portfolio steadily buying for about 8 years. I don't really listen or follow any investment advice. I just buy and buy. I made about $1m profit on selling a property, but wasn't really from conciously investing or speculating. Thats just the profit I made when I sold my condo to move into a bungalow a few years ago. At one time, the condo was valued at $400K below my purchase price though! You have to sell at the right time. The bungalow has doubled since I bought it.

I didn't even work that long in as an analyst - about 8 years - just that I was good at it. For the first 15 years of my working life, I saved only about S$1m. Then, the 8 years when I was an analyst, my net worth rose S$7m. I worked in a different industry before I became an analyst, but it was the experience in that industry that got me hired and I had to figure out all the finance stuff by reading books. Thought about a CFA, but eventually I never bothered to get it because I was doing well. For those contemplating being an analyst, the key thing is not how smart you are, but how well you deal with smart people like fund managers and management. Towards the end, I hung out with CEOs of large companies in Singapore and knew a lot of fund managers very well. Key advice from my history is that you can dramatically change your life/weath by changing careers. I did it when I was 37 years old and was able to retire by 45. Most won't be able to repeat what I did because there are large numbers of failed and mediocre analysts. But it is good training to get into other areas like sales, trading or even corporate finance. Hope some find my experience useful.

Originally Posted by anoldanalyst

Hi all, I'm a retired sell-side (stockbroking firm) analyst.
...
Because the job was so busy, I never really actively managed my investments, just slowly built up my high yield stock portfolio steadily buying for about 8 years.

You were a stockbroking analyst, yet you didn't even use the research or analysis reports you produce?

Originally Posted by Unregistered

You were a stockbroking analyst, yet you didn't even use the research or analysis reports you produce?

At bulge bracket firms, thanks to Eliot Spitzer and others, compliance is extremely strict. You are either strongly discouraged or banned from buying stocks or sectors that you cover if you are a sector analyst. Even when you try to buy or sell other stocks outside your coverage, you can't do it when there are client orders and there are ALWAYS orders for large cap stocks. So I chose to slowly build up a portfolio of high dividend stocks when I could. I actually did most of my buying during gardening leave in between changing firms.

Being a highly paid analyst at the institutional level isn't really about getting your calls right all the time anyway. I estimate that I had a 60% hit rate, which is considered good. Your success is measured by mainly by the number of votes that the institutional investors give you in a confidential communication between the sellside firm and the buyside institution. There are also other factors like external rankings in Institutional Investor Magazine and services that mechanically evaulate your calls and earnings estimates like Starmine.

Originally Posted by anoldanalyst

Being a highly paid analyst at the institutional level isn't really about getting your calls right all the time anyway. I estimate that I had a 60% hit rate, which is considered good. Your success is measured by mainly by the number of votes that the institutional investors give you in a confidential communication between the sellside firm and the buyside institution. There are also other factors like external rankings in Institutional Investor Magazine and services that mechanically evaulate your calls and earnings estimates like Starmine.

Nobody cares if all the analyses add value at all?

Since you're retired from being a professional stock analyst, could you kindly give an honest assessment of the value of all the analysis reports that are produced en masse by big and small institutions nowadays?

Does anyone or any website track the hit rates of analysts?

Originally Posted by Unregistered

Nobody cares if all the analyses add value at all?

Since you're retired from being a professional stock analyst, could you kindly give an honest assessment of the value of all the analysis reports that are produced en masse by big and small institutions nowadays?

Does anyone or any website track the hit rates of analysts?

The institutional investors won't vote for you unless you add value to them. However, most of that value is communicated directly, via phone calls and visits by the sellside analyst to the portfolio manager/buyside analyst.

As you mentioned, there is an overwhelming volume of printed/PDFed research being produced by analysts and quite a lot of it finds its way into the hands of retail investors. Some is good & some is bad. Part of the success of being a good fund manager is figuring out which analysts make a difference and ensuring that you know when an impactful analyst makes a call immediately. Some analysts make lousy calls, but provide good insight into the industry that they cover. A good fund manager will use these analysts for their industry/country insight, but may not follow their calls. I would say generally that the top ranked analysts in Asiamoney and Institutional Investor provide good research.

The mechanical hit rate of analysts is part of the Bloomberg ANR function. Starmine StarMine also tracks both recommendation accuracy and earnings forecast accuracy via a mechanical formula. Starmine is partially used to compute bonuses at many large sellside firms because of an agreement with Spitzer to have a mechanical component to analysts' compensation.

Originally Posted by anoldanalyst

For the first 15 years of my working life, I saved only about S$1m. Then, the 8 years when I was an analyst, my net worth rose S$7m.

Reading this brings back poignant memories, as I've had a similar career path (though not as an analyst). It took me almost as long to save my first million.

Fortunately, I got out of the sinking boat before it sank, else I'll become the equivalent of a test tube washer today, and probably take another 15 years to save the next million. It was a really close shave.

Most important lesson I learned - those who follow the Government's advice end in grief.