Keep it Simple

Interesting article on Sunday Times - Keep it Simple...

I like the article as it reminds of the principles and values that I am learning and applying since the start of this blog. 

Blessed day and Happy New Year !
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Keep it simple in the Golden Tiger Year


By Goh Eng Yeow



Past Tiger Years have marked milestones in my life and it is with anticipation - and some trepidation - that I await the arrival of the Golden Tiger Year next Sunday and what it might hold for me.

I started working in a Tiger Year - 1986 - just as Singapore was fighting off what was then its worst economic slowdown since it achieved independence 21 years before.

That calamitous experience shaped my working attitude for life. Jobs were scarce, and even graduates with good grades were competing for jobs which paid them less than $1,000 a month.

The uncertainties encapsulated for me early on the importance of setting aside some savings every month for the proverbial rainy day.

Around this time, I was introduced to the joys of investing, quite by chance, when I bought 1,000 Singapore Bus Services shares in order to qualify for the concessionary bus passes which the transport company had offered its shareholders.

I have kept the investment until now and it has multiplied due to stock splits and bonus issues over the years to 16,040 ComfortDelGro shares, as the company is now called, and 1,200 SBS Transit shares.

This part about Comfort reminds me of the ST Eng shares that I used to have and then sold it.  My father still have them and they also 'multipled'.

The next Tiger Year - 1998 - coincided with the Asian financial crisis which bankrupted businesses across Asia as they struggled to cope with the plummeting Thai baht and Indonesian rupiah.

Ordinary investors like myself found it agonising to watch our painfully accumulated nest eggs dwindle to a fraction of their original value as blue chips were lashed by the crisis hitting the region.

At that time, I had in my possession some shares in the now defunct Overseas Union Bank (OUB), which I had bought a decade earlier. As OUB's price plunged and the value of my investment fell by half, it badly shook my belief about buying blue chips to keep as long-term investments.

Fortunately, there was a happy twist to the story. Investors who kept faith with OUB during those dark days were compensated handsomely when United Overseas Bank (UOB) bought the bank for $10 billion three years later.

As I await the arrival of yet another Tiger Year, I find myself taking stock of the hits and misses in my investment portfolio, as the market succumbs to fresh turmoil due to fears that some European countries may default on their debts.

'Buy and hold' has always been my approach and it has worked well despite the three major financial upheavals in the past 15 years - the Asian banking crisis in 1998, the dot.com bust in 2000 and the United States sub-prime crisis in 2007.

Squirrelling away money into high-dividend-paying counters such as Hong Leong Finance and Cerebos Pacific has reaped huge rewards. For a few investments, I have more than recouped my initial capital outlay from the accumulated dividend payouts over the years.

As a conservative investor, I find that it pays to stick to a few simple objectives like realistic investment expectations and a reasonable timeframe to give the investment time to work out.


Buy 'quality' stocks


If you buy quality companies, you would not be tempted to sell when the market suddenly dips and the airwaves are filled with tales of gloom and doom - like during the recent global financial crisis.

Take our well-run local banks. It was business as usual for them in the past two years, even as banks elsewhere were under pressure from the global credit crunch.

And rather than collect their dividends in cash, shareholders of OCBC stood solidly behind the bank and gave it a big vote of confidence by taking up the payout in shares instead since being given the option last year.

It turns on its head the argument that cash is king during troubled times



Trust the explosive power of compounding


Investors have often been sold the idea of how compounding the returns on their investments could help them to build their wealth faster. Set aside $3,000 a month and earn a 10 per cent return a year and it will grow to $1 million in 40 years.

In practice, this idea is sometimes difficult to implement, but there are ways to go about doing it in the stock market.

For decades, banking giant HSBC Holdings has offered investors the option to collect dividends in shares, rather than cash - and many of them have ridden on the coat-tails of the bank to riches, doing so as it expands its global reach.

A few firms have upped the ante and refined HSBC's winning formula. In its past two dividend payouts, OCBC gave shareholders the choice to convert the dividends into shares at a 10 per cent discount from the market price.



Set aside at least 10 per cent of income as savings


Being frugal is the cornerstone to wealth-building. The rationale is simple: nothing saved equals nothing invested equals nothing for retirement.

One trait among successful businessmen is their thriftiness - with many of them living well below their means.

Some will argue, however, that there are few incentives to save, with banks paying a paltry 0.125 per cent interest on savings.

But keeping money in the bank is not necessarily the only option for savers. You can park your cash in the form of preference stocks issued by UOB and OCBC, which work like bonds and offer a dividend payout of about 5 per cent.

In a nutshell, I will keep my investment strategy simple, pick up bargains for the long term and enjoy doing what I love: Grabbing a beer - a Tiger - as I reunite with old friends in the coming Chinese New Year week.

Remember there are far more important things in life - loved ones, family, hobbies, movies, sports. Gong xi fa cai.

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