• Involves a lot of research and analysis.
• Tip #1: Find companies with Durable Competitive Advantage.
• Tip #2: Search for companies with Good Returns Without Any Debt. High revenue and profits, with low levels of debt.
• Tip #3: Look for business that are Scalable. Companies that are able to maintain or increase profits when sales volume increase.
• Tip #4: Do Not Invest in a Business Based on Price. A company that requires a hige capital investment does not mean it is going to be a huge business.
• With the right research, you are able to invest in companies with less risk, less capital and high returns in the long run.

Source: MIP Asia TV

Source: The Psychology of the Stock Market

Source: From Profit From the Panic

(Summary) 

A. Go to the company’s website and download their annual report and understand their business thoroughly.

Step #1: History of Consistent Earnings & Cash Flow Growth

Step #2: A Sustainable Competitive Advantage (Economic Moat)

Step #3: Conservative Debt

Step #4: High Return on Equity (ROE)

 ROE should be above 12-15%

Step #5: High Free Cash Flow

Free Cash Flow = Cash Flow from Operation – Capital Expenditure

 Free Cash Flow/Sales Revenue (x100%) > 5% is considered a GREAT investment.

Step #6: Management is Holding/Buying Stocks

 Go to www.SGX.com >> ‘listed company-general announcements’ >> ‘Notice of Interest/Change in Interest’ or

 www.ShareInvestor.com (paid site) >> ‘Insider Trades’

 To see if the directors and the company itself is buying or selling their shares. If they are buying, it could be a good sign.

Step #7: Stock Price is SAFELY Below Intrinsic Value

 Recommended only to buy when stock price is AT LEAST 25% below intrinsic value.

(A) Projecting Operational Cash Flow for the Next 10 Years (CF Proj)

Tips: Average earnings growth rate of most listed companies is 15%.

(B) Calculating a Discount Factor (DF)

(C) Discounting All Future Cash Flows to Present Value (DV: Discounted Value)

- The intrinsic value of the whole company would be the sum of all the future ‘Discounted Cash Flow’ for the next 10 years = Add up all the Discounted Values (PV of 10yr Cash Flow)

- To find the intrinsic value of one stock = total worth of company (PV of 10yr Cash Flow)/total no. of shares, then compare with the current stock price.

eg. intrinsic value of a stock = $10, current stock price = $5. This means the stock is 50% undervalue. (surpasses the 25% recommended mark.)

Last Step #8:

 Finally, it is always safest to wait for the stock price to reverse into an uptrend and break above its 20-day or 50-day moving average before making an entry.

Start Building a Watchlist of Great Stocks

1. Identify companies that you are familiar with and companies whose product we use, eg. zip companies, fans companies, light bulb companies, rubber companies (tyres for vehicles), etc.

Tips: Avoid choosing companies that you are not familiar with. For instance, Warren Buffett do not invest in technology companies (eg. Microsoft) because he simply do not understand how the business works. Think simple, think great!

Ask yourself what products you use daily? Or what products do people use daily? More examples would me SMRT (trains and buses), staple food such as rice, water, spices, etc.

2. All great investors build a watchlist of great companies that keep an eye on. They prepare when the time is right to buy

Creating a Balanced & Diversified Portfolio

Tips: Never put more than 20% of your money into one stock.

Build a stock portfolio from various sectors and industries such as technology, real estate, oil & gas, consumer goods, financial, etc.

What Every Portfolio Should Have

 Include inflationary driven stocks and defensive stocks. Buy stocks that will benefit from the inflation and higher oil prices.

 Inflationary driven stocks: eg. property stocks, REITS (real estate investment trusts), commodity stocks. For instance, oil ETFs like the United States Oil Fund (AMEX: USO)

 Defensive stocks are stocks that people buy during economic crisis. These stock prices tend to be more stable or even move up when the overall market is bearish.

 Defensive Stocks: eg. Food, oil, utilities, defense and tobacco. SMRT, Singapore Press Holdings (SPH), MacDonalds’, PepsiCo, Kraft, Lockheed Martin, etc.

Tips: People smoke more in bad times. (Ethically, i strictly do not advocate smoking or investing in related companies. What are the things people do when the times are bad? Entertainment? De-stressing activities? Hobbies? Turn to religion? Sharing some ideas that may spur the economy.)

Aaron is Mirriam MacWilliam’s first protégé in Asia and is now a successful trader.

Both Aaron & Mirriam are co-founders and trainers of Asia’s leading options trading program – the Smart Traders Mentorship Program. Since 2003, both have coached over 5,000 people in Singapore, Malaysia, Hong Kong, Brunei, Indonesia and USA.

Aaron is a CPA by training and has been featured in the Sunday Times, Star, The Standard and Shang Hai magazine. Aaron is passionate in acquiring profound knowledge in the business, marketing and financial arena from world-class wealth coaches, trainers, and authors. His belief is that the wonderful dream of financial independence is alive and doing well. And whatever dreams might mean for you, you can have it if you simply take the time to learn how to get it.

Aaron is happily married for over 20 years and has a teenage daughter. He loves life and his work. In his spare time, he enjoys meditation, reading, travelling and attending personal development seminars.
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Armed with a polytechnic diploma, Mr James Ng signed on as a regular in the army in 1998 because he liked the stability that came with the job. He was an army captain when he left the force a decade later to join bungalow specialist RealStar Premier Property Consultant as a property agent.

Looking back, Mr Ng, 35, said that it took a lot of courage for him to step out of his comfort zone and venture into a job that did not come with regular pay.

‘The first few months in the job were tough as I did not manage to sell any property, and as a result, had no income,’ he recalled.

He was also on a steep learning curve. For instance, he had to be careful about not misrepresenting information such as land size to his clients and he had to familiarise himself with the property regulations.

His efforts paid off, and he was one of RealStar’s top producers last year.

Mr Ng marketed smaller landed properties like semi-detached homes first before progressing to bungalows. His first deal was a 3,400 sq ft semi-detached house in Bukit Timah which was sold for $3.95 million in early 2009, earning him a commission of $15,800.

His biggest property transaction to date is a 9,600 sq ft bungalow in Berrima Road. It was sold at $12 million in 2009. It was a co-broke deal with three other parties and he pocketed $20,000 in commissions.

He is now on a lookout for commercial properties as a means to grow his passive income.

Mr Ng graduated from Ngee Ann Polytechnic with a diploma in electronics and computer studies in 1997. He is married to Ms Sharon Yip, 37, and they have two sons Cayden, five, and Kavis, two.

Q: Are you a spender or saver?

I am a saver. Other than household expenses which take up 30 per cent of my income, the rest is saved or re-invested.

Q: How much do you charge to your credit cards every month?

I have six credit cards but I use two of them more heavily, mainly for the discounts and reward points. I charge an average of $3,500 monthly to the cards and I make full payment each month. I withdraw about $500 fortnightly from the ATM.

Q: What financial planning have you done for yourself?

I don’t believe in investing via insurance so all my policies are for providing protection. I own a term plan, a personal accidental cover and medical insurance. I am covered $600,000 on my life. The family’s annual premiums are $3,400.

I’ve invested $22,000 of my Central Provident Fund Special Account in equities via a unit trust.

I don’t invest in instruments that I am unfamiliar with. All my investments are mainly in properties that I jointly invest in with my friend who is also a property agent.

Q: Moneywise, what were your growing-up years like?

I am the third child in a family of four children. We lived in a zinc-roof house in a kampung in Jalan Ulu Sembawang.

My father was a supervisor in a construction firm and my mother was a food vendor in a primary school. I saw how hard my parents worked to make a living. Despite the long hours at work, they could hardly save.

I was not interested in my school work but I managed to graduate from polytechnic. I signed on with the army as it could give me a stable job with stable income.

Q: How did you get interested in investing?

In 2000, I invested in shares without any knowledge of what was going on. It was more like gambling than investing.

In 2002, I invested $30,000 in an ornamental fish business with two friends and lost $10,000 when it closed down two years later.

In 2004, my wife and I set up Mario Dog pet shop in Tampines with an investment of $50,000. It is profitable and my wife is managing it.

My interest in property investments grew when I invested in a condo unit in 2007 with my housing broker friend.

Q: What property do you own?

In 2005, I bought a 1,227 sq ft condo in Simei for $565,000. I sold it for $750,000 in 2008. In the same year, I bought a 1,580 sq ft executive apartment in Pasir Ris Central for $575,000. It is currently worth about $620,000.

Meanwhile, in 2007, I bought a 951 sq ft condo unit in district nine with my friend. The unit cost $1.2 million and we sold it for $1.45 million a year later just before the global markets crashed in September 2008, at the onset of the global financial crisis.

Last year, I invested in two condo units in the East Coast with my friend. One is a 1,518 sq ft unit bought at $2.02 million and sold at $2.27 million within the same year. The other is a 1,109 sq ft 99-year leasehold property bought for $1.1 million and sold with tenancy at about $1.4 million in January. We enjoyed a rental yield of 4.5 per cent for a year before it was sold.

Q: What’s the most extravagant thing you have bought?

It would be my current car, a BMW X3 which I bought for $132,000. Although it is a depreciating item, it has served my family and me well for the past two years.

Q: What’s your retirement plan?

I hope to work for as long as I can because I enjoy what I am doing now. My wife and I are not big spenders, so I think a monthly amount of $4,000 to $5,000 should be very comfortable during our golden years. Currently, I am looking at investing in commercial properties, like shophouses, that should be able to give me a stream of passive income. This would be part of my retirement planning.

Q: Home is now…

My executive apartment in Pasir Ris Central.

Q: I drive…

A black BMW X3.

WORST AND BEST BETS

Q: What’s your worst investment to date?

It was investing in penny stocks without having much knowledge of how the companies were performing. When I was 24, I invested a total of $20,000 in an Indonesian stock and, over a 10-month period, I lost 95 per cent of the value when the price fell. I bought more of the stock when the price fell because I refused to believe that I had picked the wrong stock. I didn’t do my homework… I was silly then.

Q: And your best investment to date?

This was when I bought my first private property in 2006. With the profit of more than $150,000 generated from the sale of that property in 2008, I bought an executive HDB apartment for my own stay in the same year.

Apr 3, 2011

Me & My Money

By Lorna Tan, Senior Correspondent

As the regional head of investment and market solutions at Societe Generale Private Banking (Asia Pacific), Mr Marc Lansonneur has to be convinced of an investment strategy before recommending it to relationship managers at the bank.

For his personal investments, he believes in handling them himself. He maintains two separate portfolios: In the core portfolio set aside for his long-term needs, he keeps the bulk or 80 per cent of his wealth; the remainder goes into his ‘opportunistic’ portfolio, which allows him to take on riskier positions when opportunities arise.

Mr Lansonneur, 46, reviews his core portfolio – equities, fixed income, real estate, commodities and cash – on a quarterly basis. He chooses not to review it too often because he does not want his investment decisions to be ‘polluted by news’. He does not want to jeopardise his long-term perspective – something many investors fall prey to.

In contrast, he reviews his opportunistic portfolio more often, on a weekly basis. He might take short market positions through currency options and futures when he notices any over-selling or over-buying in the markets.

‘I usually turn to a combination of fundamental and technical analysis (charting) to select these positions, with a heavy focus on the risk-reward ratio. The profit that can be made should be at least twice the maximum loss,’ he said.

He graduated from Ecole Superieure des Sciences Economiques et Commerciales in Paris with an MBA in 1989. At Societe Generale, he has been attached to various divisions. His work has taken him to cities such as London, Hong Kong, Taipei and Sydney. He came to Singapore in 2005.

He is married to Taiwanese Yeh Shu-yuan, 45. They have three children, Claire, 15, Laure, 13, and Raphael, eight.

Q: Are you a spender or saver?

As a Frenchman, I have been influenced by a strong national saving culture – this is especially important for me as a father of three children since I want to send them to colleges and universities abroad. I save around 60 per cent of my annual income. However, I will not hesitate to spend on family vacations that let us have a great time together.

Q: How much do you charge to your credit cards every month?

I use mainly two credit cards regularly, and I charge at least $10,000 every month, which covers most of my professional and personal expenditure. I pay the bill in full every month.

Q: What financial planning have you done for yourself?

For my core portfolio, where the bulk of my family wealth is, equity takes up 45 per cent, fixed income 15 per cent, real estate 25 per cent, commodities 5 per cent and cash 10 per cent.

Over the past six months, I’ve increased my equity exposure because I am definitely bullish about equity markets and the yields of certain European shares are very attractive.

I’m thinking of decreasing my exposure to commodities because current market levels seem toppish. My cash holdings are in currencies such as the euro and Singdollar, and recently, sterling. For this core portfolio, I would consider a return of 8 to 9 per cent to be very decent.

For my opportunistic portfolio, the funds are kept in riskier positions, which could include longer-term investments in a startup food and beverage company in France, or short market positions through currency options and futures. I target a higher return of 15 to 20 per cent for this portfolio since the risk is higher.

Q: Moneywise, what were your growing-up years like?

My brother and I were raised in a rented single-storey, four-bedroom house in Provence, in the south of France. Both my parents were in public service. My mother stopped working when my brother was born.

Her family were emigres from Italy during World War II and they suffered a lot during those difficult times. Saving money, long-term planning, appreciating the real value of the simple things in life – all these things became an obsession for them.

As a child, I was heavily influenced by this family predilection. I took on summer jobs such as wine harvesting in Provence when I was 14, and when I was a student in Paris, I paid my way by working as a computer trainer at a friend’s consulting company.

Q: How did you get interested in investing?

My first job out of business school was as a currency options trader at an investment bank in London in 1989. Later, when I had managed to accumulate some savings, I invested in European shares and French government bonds. I enjoyed good yields of 9 to 10 per cent on bonds in 1990.

Q: What property do you own?

In 1998, I bought a two-storey, five-bedroom house with a swimming pool and a land area of 15,000 sq m in Provence. It was my first property investment and the French real estate market had hit bottom then. The value of the land has risen seven times since. The house is now a family residence and holiday getaway.

I also inherited a house by the Mediterranean Sea in France from my grandmother in 2007. We plan to rent out the double-storey, four-bedroom house after the renovation works are completed.

In Asia, my wife and I own a property at Tainan in Taiwan that is rented out. We bought the 120 sq m, three-bedroom apartment in 2000. Its value has gone up 50 per cent.

Q: What’s the most extravagant thing you have bought?

I like to surprise my wife with jewellery even when it’s not a special occasion. I cannot disclose the prices because she shouldn’t know how much they cost. But the money was worth it because she is a fabulous woman.

Q: What’s your retirement plan?

As a French national, I am entitled to pension funds when I retire. Anyway, for the time being, I really have no plans to retire at a set age.

I would probably shuttle between two main residences, in Europe and Asia, for family reasons. But life is hard to predict – it also depends on our children and where they prefer to live.

Q: Home is…

We rent a three-storey, four-bedroom cluster house in the Bukit Timah area.

Q: I drive…

My wife drives a silver-grey Mercedes B class while I have a cobalt-blue Renault Cabriolet.

WORST AND BEST BETS

Q: My worst investment to date…

My first currency options investment in 1990 with four friends in London. We wanted to make quick money to pay for a lavish exotic Caribbean holiday. We bought a call on the greenback and Japanese yen, hoping to double our investment outlay. At that time, I invested about $5,000 but it dropped to zero after two months! Instead of a nice vacation, we ended up camping in the south of France.

The lesson was bitter but very useful, as I realised the importance of proper planning and analysis.

Q: My best investment to date…

That has to be my wine collection. I have about 2,000 bottles in Singapore, London and France. They cost me about $40,000 but are now worth about $250,000. I am a wine lover and have been buying wines since 1995, when my first daughter was born. I mostly purchased Burgundy, Rhone and Bordeaux Primeurs in the good vintage years.

Although I had initially bought the wines to age and to drink, I find that I can now sell certain bottles of my Lafites and Latours at stratospheric prices (above $2,000 a bottle for average vintage) and buy cheaper wines with better value. So I am considering this as an asset-class for me. My cost price for these bottles was less than $200 a bottle in 2008.

For the 2008 vintage, which was completely underpriced when released, I managed to pay for all my wine of this vintage by just reselling 20 per cent of my Primeur purchases.

I plan to still keep some for personal consumption on special occasions such as my kids’ weddings, birthdays and share them with my friends. That’s what wine is for eventually, to be celebrated and shared in happy moments.

Apr 17, 2011

Me & My Money

By Lorna Tan, Senior Correspondent

Entrepreneur Francis Ng has not gone on vacation all his life. In fact, since he set up his seafood restaurant business House of Seafood@180 in April 2008, Mr Ng, 38, has been working from 8am to 1am daily.

Coming from a below-average-income family, Mr Ng realised since he was young that his only way out of poverty was through sheer hard work.

He did not like studying and finished his Secondary 4 education at Serangoon Garden Secondary in 1991 when he was 19. Students typically finish Sec 4 education when they are 16 or 17. But since he was 12, he had been supporting himself and the family by working as a dishwasher and later as a store assistant at a 7-Eleven outlet.

After his national service in 1993, he gained employment with a car dealer and washed cars for a year before becoming a used-car salesman.

In 1995, he set up his own car dealing firm Turbo9000 Motor Trading with $20,000 of his hard-earned savings. It broke even after two years. But recognising that the business did not give a consistent income, Mr Ng, who is a food lover, decided to invest $100,000 in a 3,500 sq ft, 150-seat seafood restaurant in Yio Chu Kang in 2008.

He faced ridicule from some relatives and friends as he had no experience in managing a food business and the outlet was sited along the main road with no parking spaces. He provided valet parking service to customers and proved his detractors wrong when the restaurant became profitable after two years.

In July 2008, he invested $30,000 in a stall at a 6,000 sq ft coffee shop in Bedok. It broke even in six months.

Mr Ng said the popular dishes at his outlets are black pepper and chilli crabs, and nonya-style steamed sea bass.

Now the bachelor is facing his biggest challenge: a 40,000 sq ft, 300-seat seafood restaurant at Cosford Road, near Changi Point Road, 1km from the Terminal One runway. It opened last month. He also set up a bar and a bistro called The Bunker a few doors away. He has a staff of more than 70.

Q: Are you a spender or saver?

I’m a saver. Whatever I earn is reinvested in my business, House of Seafood@180. Spending is kept to a minimum, basically only for daily necessities.

When I was a student working part-time as a dishwasher, I gave $100 of my $350 pay to my parents. When I was a car salesman, I saved about 60 per cent of my pay and managed to save $20,000 to start Turbo9000.

Q: How much do you charge to your credit cards every month?

I charge $1,000 to two credit cards but I pay in full each month. It’s not easy for the banks to earn any interest from me. I withdraw $500 from the ATM every month.

Q: What financial planning have you done for yourself?

My investment portfolio comprises cash, insurance and my businesses. I invest mainly in my business and I hardly participate in other investment vehicles. I own two life insurance policies and have a life cover of $500,000. I also have hospitalisation and critical illness cover.

I maintain one year’s worth of cash reserves for my personal expenditure. This is partly because financial security is very important to me. I like to be cash-rich at all times.

Q: Moneywise, what were your growing-up years like?

I grew up in a humble family of six and I am the third child in the family. My mother was a housewife, but later worked as a cleaner to support the family. My father was a landscaping subcontractor with irregular income. He died in an accident at work. He was 60 then.

We lived in a zinc-roofed house in a kampung at Yio Chu Kang. We lived with my grandparents and extended family till 1986 when we moved to a four-room flat in Serangoon.

I started working part-time at the age of 12 to see myself through school. I had worked as a dishwasher, a 7-Eleven store assistant, a delivery driver, and done other odd jobs. I learnt from young that money doesn’t come easily. Being thrifty is not just a virtue but a necessity in life.

Q: How did you get interested in investing?

I am not a believer in financial investments like stocks. They are all just figures to me. I do not own shares except for the one time when I bought Genting shares at 66 cents in 2009 and sold them at $1.20 six months later.

As a business owner, I feel more secure having a lot of cash on standby and for my business expansion plans. I cannot afford for my cash to be stuck in shares.

Q: What property do you own?

In 2007, I bought a three-room HDB flat in Ang Mo Kio for $167,000. It is now worth about $300,000. I live alone.

Q: What’s the most extravagant thing you have bought?

A used Mercedes E200, which I bought in 2004 for $70,000. It was a 13-year-old car then, made in 1991. I renewed the certificate of entitlement in 2009 and will continue driving it for the next 10 years. I find Mercedes cars reliable. It is fully paid up as I don’t like taking loans.

Q: What’s your retirement plan?

I’ve worked 365 days a year all my life. My present working hours are from 8am to 1am. I was not born with a silver spoon in my mouth.

In order to achieve a stable income when I’m old, I have to work hard. If my health is good, I will continue working and not retire. I think I will need $3,000 a month in my twilight years.

I would like to travel around the world with my loved ones. I will also continue to provide free meals to old folks as a form of charity. In 2009, I threw a free Chinese New Year dinner at my restaurant for 180 old folks from a home.

Q: Home is now…

My three-room flat in Ang Mo Kio.

Q: I drive…

The white Mercedes 200.

WORST AND BEST BETS

Q: What has been your worst investment to date?

In 1999, I invested my hard-earned savings of $50,000 in a friend’s new printing business. I was a sleeping partner. I lost all the money because my friend mismanaged the firm and it was closed down a year later. I learnt I must be hands-on in my investments.

Q: And your best investment?

I put all my savings into my food business. My outlets provide not only a stable stream of income but also employment opportunities for the elderly. Out of more than 70 staff members, more than 30 are above 50 years old.

I plan to expand my business overseas to Kuala Lumpur and to other parts of South-east Asia via franchising.

Apr 24, 2011

Me & My Money

By Lorna Tan, Senior Correspondent