Should I go against the market?

Some investors who managed to catch stocks at cheaper prices may have been selling most of their holdings lately. Unfortunately, the market continues to trade higher than previous selling prices. In such situation, the worst mistake for some retail investors is to abandon their contrarian strategies and start buying back the shares that they disposed off earlier at even higher prices.

I still remember one of Warren Buffett’s favorite quotes is something like “to be fearful when others are not, and to be brave when others are fearful”. In other words, when others are panicking and sell, the price of the stocks will take a plunge. That is the good time for long term investors to acquire some stocks. And when others are franctically buying in order to jump on the so-called ‘wave’, it’s time to sell before the bubble bursts.

But as you’ve read in the article, this is not always the case and it CAN be disastrous if you don’t have a proper plan. I believe the keyword here is patience. Never ever panic. Remember that in stock market, missed opportunities are nothing special. Whatever that goes up will eventually come down.

Conclusion, go against the market and also the main population (of the investors) if you know what you are doing. Don’t ever become impatient because being impatient can be disastrous when investing in stock market. But if you are truly an investor (and not speculator), buy low on the stocks that you really interested to invest in. Just be prepared to hold on to your stocks for at least 3 to 5 years.

The Secrets of Financial Freedom: An Interview with the Millionaire Next Door

Once you’ve finished the article, you’ll notice that there’s no magic formula when it comes to becoming rich. The 2 points that I can get from this article are:

• Spend less than you earn
• Invest your money

For the first point, it’s quite straightforward. You don’t buy things which you cannot afford. Spotted that nice and cool car? Can you afford it? Or that nice condo in Mont Kiara? Can you afford it? When I said “afford”, it doesn’t mean taking up a loan which will tie you down for another 40 or even 50 years. It means you have the means to own that something without committing too much. If you can be 100% sure you will live comfortably with the new 30 years long housing loan, then by all means, go ahead. The thing I notice in most people is that, they want all the nice and trendy stuff in the world but they cannot really afford these things. So they take up loans after loans…and delaying all the credit card payments (transferring the outstanding balance here and there just to minimize the interest charges). If only people can start thinking properly and ask themselves this simple question – can I really afford it?

Also, stop going for things like Starbucks and those expensive dining places. I work in KLCC, and I only went to Starbucks for farewell (or free treats). Mmm…I think I only went there not more than 5 times during the 3 years working in KLCC area.

Anyway, for the second point, it’s again a no-brainer. Invest your money. If you don’t invest, it’s likely you are going to spend it away or you will put it in a place where…the value will just depreciate with time. Take note of the inflation rate in your country and try to find an investment type which can give you return HIGHER than the inflation rate. Surely, you don’t want your hard-earned money to become worthless after 10 years or so.

So, there you are, 2 very simple points to remember for anyone who wants to live a comfortable life or to become rich. As you can see, you can still buy your NEEDs and WANTs as long as you don’t spend more than you earn. That’s all. You don’t really need to lock yourselves up in a room so that you can cut away the spending and become rich. Just control your spending and only get things you can really afford.

Hope it helps.

Anyway, a few friends of mine started asking people (I’m one of them) whether is it okay to buy property now? Most of them want to take advantage of the tax deduction incentive and, well, most of them are starting their own family soon. Here are some of the questions that they’ve asked.

Should I buy a property now, since there’s such a good incentive?

This is a very good opportunity to have your very own house/condo. But the main question here is, can you support the house during this economy crisis? How stable is your job or your monthly income? If you feel that you might lose your job in a few months time, then it could be risky to commit yourselves to another long-term loan.

I still want a property but I might not be able to pay the monthly interest, can I still get a property?

Yes. There are few property developers who managed to come out with certain promotions. I know that SPSETIA has this 5-95 plan which means you only need to pay for 5% down payment and the remaining 95% after the property has been completed (which is normally 2 years from now). And if you can’t find such plans, then don’t commit. It’s too risky. Also, beware of hidden charges since some of such promotions do have hidden costs.

Will the property price drop further?

I don’t think so. In my opinion, property developers will not be stupid to launch a housing project which is cheaper than their previous projects. This will decrease the market value of their properties and also make the previous buyers angry. They will either delay the launching date, or come out with more freebies and promotions. The property price drop might occur in the secondary market though since some buyers might not be able to pay off their housing loans.

Will the interest rate drop further?

It’s possible, seeing how our economy is turning from bad to worse. But I don’t see the impact as very big since most of the housing loans nowadays have flexi interest rates.

Then what should I do? To buy or not to buy?

I believe the best course of action now is to see whether your job is stable and how desperate you are in getting a property. If you’re not desperate, then wait for a few more months. I’m sure things will be clearer then, and there might also be more promotions.

You can also check this blog post from ChampDog – Tax Deduction Incentive for Property – Should I go for it?

Remember that during this difficult period, the best investment is property but provided you can support it.

Each of the 10 millionaires are unknown or normal people. It’s just like you and me…normal people spending time doing things for their normal life, and staying in normal house, working in a normal job. There is no big deal about who they are or what they are doing. But they’re rich……far richer than the normal folks….and far richer than most people thought they are.

The reason behind this is their lifestyle. All of them practice frugal living and only buy things which they really really need. They seldom (some of them never) buy anything which they want but don’t need. And even if they need something, they will make sure they don’t have anything which can be reused (or modified). If they do have such things, they will just modify and reuse.

I know to some of you, this kind of lifestyle is pathetic and sad. But this is the path they’ve chosen. They never aimed to be millionaire though….they just love to live a simple life and only use things they need to use.

So now, think about it. Do you still want to be a millionaire? Do you think you can do it? If yes, how will you do it and what will you do in order to be a millionaire? Live frugally or be the next Bill Gates? Well, to be honest, it’s easier to do the former than the latter.

Last but not least……let me throw you a question. Take a wild guess, what are their occupations?

From what I can remember, there’s a school teacher (a normal one, not those who teaches in tuition centers), a bank officer (not the type who cons the bank’s money), an insurance agent, etc. As you see, these are really normal folks.

So if they can do it, why not you?

What I mean here is never to get other people’s money in order to invest – banks included. Because the risk will always be there when it comes to investment. What if the money you get from others, or you borrow from others, started to become lesser than the original amount? Will the “investors” panic? Will YOU panic? How are you going to pay them back? What if there’s a sudden need to repay that amount of money?

For money from banks, it’s worse because it involves interest rate charges. If you are not able to pay the bank on schedule, they will even charge you penalty fees. If the losses in investment don’t kill you, the bank loans will.

That’s why it’s best not to use other people’s money to invest. Even if it’s your own money, you should only use your extra money and not your emergency fund. Because whenever you want to invest in something, you must always begin with a mindset that you are prepared to lose.

Even Warren Buffett cannot be 100% sure he will earn money every year. If you can, do drop me a message, I would love to know how.

Anyhow, this does not change the fact that most people still want to eliminate or reduce their debts, myself included. So I went online and did some research, and realized that there are basically 2 types of approaches in eliminating debts.

• Eliminate the one with highest interest rate
• Eliminate the one with the smallest outstanding balance

Each has its pros and cons. Mathematically speaking, the first option which is to eliminate the one with the highest interest rate would be a better option in order to eliminate the total outstanding amount.

For example, if you have the following debts or loans (just estimations and the interest rates might not sound realistic to you):

• Car loan – RM 50000 at 3%
• Study loan – RM 60000 at 4%
• House loan – RM 200000 at 5%
• Credit card balance – RM 2000 at 10%
• Computer installment – RM 3000 at 2%

If you were to use the first option (eliminate highest interest rate first), it will appear like this.

• Credit card balance – RM 2000 at 10%
• House loan – RM 200000 at 5%
• Study loan – RM 60000 at 4%
• Car loan – RM 50000 at 3%
• Computer installment – RM 3000 at 2%

But if you are going for the lowest outstanding balance first, it will look like this

• Credit card balance – RM 2000 at 10%
• Computer installment – RM 3000 at 2%
• Car loan – RM 50000 at 3%
• Study loan – RM 60000 at 4%
• House loan – RM 200000 at 5%

If you are following the first option, one warning to you – you need to be a highly disciplined person and pay your loans on time EVERY TIME. Because if you don’t do that, you will incur more damages that you possibly wanted. And most importantly, you will start feeling demotivated because even with all the hard work and cost-saving things you’re doing, you are still unable to pay off anything completely. It is a very big psychological blow and it is the last thing you want while trying to clear your debts.

That’s why some experts recommend the second option and to remove the debts one by one COMPLETELY. Pay the minimum amount possible for all the other debts (in order to avoid getting extra interest charges), and pay more (whatever balance you can squeeze from your monthly income) to the one with the least amount. That way, you will feel more motivated especially if you can manage to remove 1 or 2 debts completely from the list. It is a very good psychological boost.

I am not sure whether this will work for everyone since it does force you to pay more than the traditional way of eliminating debts. But in a year when most experts are being pessimistic, having a shorter list of debts is always a good thing to have.

If you’re still unclear about what I’m explaining here, maybe the following link can help. After all, I did my research based on the link below.

Two Approaches to Debt Elimination

Hope it helps!

As for Public Mutual agent, it is not about tips but commitment from the agent. Can your agent really commit his or her time? Is what your agent say relevant (more like advice than tips)? And is your agent efficient enough?

Those are few questions you need to ask yourselves before locking yourselves up with a particular agent.

As for me, I engaged my ex-supervisor who is a part-timer. She used to help me a lot in the past and I did not hesitate much then. But the end result is not really that pleasant.

• I told her I need to change my equity to bond. That was before the market crash. She told me not to do that because China funds are sustainable. I know China funds are better than some other equity, but I also know bond funds are better options when the economy is bad. To date, the bond funds which I was looking at have gone up quite a lot, but my equity funds have dropped nearly 30-40%
• I also told her to stop the auto debit in September. She said it will only take effect in October but until now, it is still the same. I was hoping to collect enough cash for myself to use and keep during this difficult period since I expect the equity funds to drop further in early 2009. Save up now, and use the money to buy more at lower price later.
• Also, I have no ways to know how much money I have invested after all this while and how much money I have left based on the current fund price. It’s important to keep track of the total loss or profit but I just don’t have the mean to do so since my agent doesn’t help me with that.
• It’s very hard to meet my agent since she no longer works in the same building as I do. There’s not much communication between my agent and I.

To some, these 2 might not be very big problems. But to me, I was hoping my agent will listen to me and do what I told her to do. If she is not free, then she can tell me and let me know how I can get it done by myself. In the end, I consulted my friend who is in Penang. Here are the solutions for point (2) and (3).

• I can call Public Mutual’s number if I want to stop the auto-debit or I can leave my bank account balance to be less than the auto-debit amount for 3 months, and the auto-debit feature will stop automatically. Or I can just go to the Public Mutual office (I know there’s one in Damansara Perdana) to fill in a form to stop the auto-debit.
• Go to the Public Mutual office and seek help from them to check your outstanding balance and how much you’ve earned or lost. They have the system to calculate that.
• If you want to change to another agent, you can go to the Public Mutual office and fill up a form.

As for my case, I will talk to my current agent first and will most probably change the agent to my stock broker uncle. At least he stays nearer to me and I do meet him quite often.

Hope my personal experience here can help you.

Here are some of the tips given by CNN Money.

• Consider paying cash – time might not be enough for you to get a house loan.
• Perform due diligence - always check out the property before you buy. You will need to ensure the property is in an OKAY state.
• Hire a licensed appraiser - no point buying a foreclosed property at a lower price, if the property actually worth nothing much. Get a professional to tell you the value of the property before you buy.
• Buy short – it is still better to settle this out of the official way, as in before the property is foreclosed. You will have more time to arrange your things (money, loans, etc) and maybe can get a better discount.

These are very important tips to remember before you actually go for a foreclosed property. We’ve heard ugly stories about foreclosures but there are also a lot of successful stories. Just be sure to check everything properly before you commit your money. Good luck and hope it helps.

If you’re interested to read the full article from CNN Money, please proceed to “4 tips for buying foreclosed properties“.