Saturday, December 26, 2009

Never buy a property that is fully sold ?




Joseph Tan is one of the most truthful guys who shared his property investment experience. Most property investors would properly brag about how superb property investment is, a smaller group who are willing to admit their failures would curse on it. But believe it or not, Joseph Tan's story actually covers the majority of how a property investor in this region would experience after some time i.e. from the 2nd to 5th property.

Basically he wasn't fully equipped with proper tools to start with but yet making great returns in his first 3 properties. However, the 4th one turned out to be a big lesson and he is sharing it with all. (details in Alan Tan's blog )

If disaster like this happened on the 4th or 5th property, it usually break even with previous earned profit or at worst became an expensive lesson. But for some who faced it on the 2nd or 3rd property, it usually crash their whole personal finance portfolio. Those who managed to stay alive had to start all over.

Most of his sharing are malpf compliant except one controversy point : Location, Location, Location ! For those who has followed malpf long enough, they know that malpf claims Location factor in property investment is just an overweight marketing topic by the developers. You can always jump on the developers band wagon to make some money but it wouldn't be a rock solid property investment strategy.

However, the main reason to mention his sharing is his 3rd point : Don't Buy a Shop in a Fully Sold complex - because - the developer will NO longer promote the property. Generally
  • if not many people are buying, its unlikely you will buy it (something must be wrong )
  • if many people are buying, its most likely you want to buy too ( must be an opportunity, don't miss it! )
And yet he shared his priceless advice ...

There are quite some insights to this sharing.
  • even such a successful business man like him still rely on developer to 'upkeep' the property/area.
  • if the area ( complex ) is no good, your property ( shop ) is no good too.
In any investment, once you are relying on others to make profit, your task is to make sure you join them as early as you could and leave right before they leave. Its NOT a rock solid investment, its more like a speculative exercise.

I am not sure if Joseph bought the shop in Galaxy Ampang but most other smaller shopping complexes in that area faced similar fate. However, some of the 1st batch buyers back then actually earned 15-20%. They jumped out before the developer did.

I know at least 2 private owners who are still keeping properties there and do not feel that bad about it. The biggest difference is they bought the shops for almost half of what other paid for back then.

I don't know if they had foreseen they had to wait 10-20 years but they did adhere to the first part of solid property investment strategy - always buy the property lower than its worth else its NOT a good buy.

Another specific factor on shopping complex is the floor level. The hottest property investment arena in Malaysia is Sungai Wang but once you go above 3rd floor, the value and worth drop drastically. For any non hot-spot shopping complex, looks no further than ground and 1st floor. Else you are not buying a shop, you are just buying a store room. The prices are assessed quite differently.

Strategy Cost ?


"Cost" is the money you paid in order to get something you want in return.
"Strategy" can be simplified as the methods you use in achieving a goal.

Strategy cost is the money you MAY have to pay if you use certain methods but NOT necessary ... depends on how it turns out. For example,

When buying shares in stock market, you will have to pay some broker fees, stamp duty and clearing fee etc. Those are the real cost incurred. The way to calculate cost is usually fix, pre-arranged and agreed up front. Putting these fees aside, right after you bought a share at $1.00 the immediate buy back price is usually lower i.e. $0.99. The difference between this buy and sell price can be seen as strategy cost.

You don't really pay this 1 cent. If the price goes up and you earn money, you earn 1 cent less. If the price goes down and you lose money, you lose 1 cent more. So strategically you are 1 cent disadvantage to the market.

Some may say this is future costing. You actually pay this 1 cent but only deducted from your withdrawal at a later date. Although there is nothing wrong to think of it this way especially account wise, but it could be more beneficial to use strategy cost to access which strategy is better in your investment.

Strategy cost shares parallel direction as your investment movement. When you buy a share, you want its price to go up so that you can earn money. The 1 cent difference affects your ability to do that.

Strategy cost may not be fix and is usually depends on situation. If the demand for the share you bought is low, the buy back price could be $0.98 or even $0.95. So buying a low demand share is strategically more disadvantaged to buying a high volume stock. In this case its a comparisons among 1, 2 and 5 cents. No long just a general concept but a measurable comparison.

Since you don't really PAY strategy cost, it is rather vague to talk about it. But strategy cost becomes more useful when you are comparing different investment methods or different situation.

The very recent comparison is between buying something with CASH vs getting a LOAN.





Malaysia RM50 Credit Card fee waivers



It was mentioned before Malaysia's government initiative to charge RM50 tax on credit card to 'reduce' debt is a plain zany act. When confronted by many institutions and experts, Najib (some of his photos here) even goes public exercising his power to enforce his budget 2010.

Just in case you haven't heard, the time to pay this RM50 tax is the same as your annual fee due month. So if your cards are due in December 2010, you can hold it for another year before cancelling it out. But if your cards are due in Jan 2010, you better find out when the statement date is. You HAVE TO cancel your cards before the statement is generated. Once this RM50 tax is imposed, the banks will NOT be able to waive it for you even if you cancel your cards AFTER the statement is printed.

So far I only know UOB and EON banks will waive this RM50 tax for real.

You have to use your EON cards for 36 times to waive this RM50 tax. Normally you will have to use 24 times to waive its annual fee which is about RM150. So another 10 times more should be ok for those who really use the card.

UOB is one of the first banks to waive this tax in public. Varies options may be available but the one I know is just use RM300 and you will get back RM50 cash benefit to knock off this RM50 tax. UOB is also closely tighted to Robinson so if you shop there often, it could be the card to keep.

see ? The effect is already started .... you have to spend much more in order to save this RM 50 ...

All other cards who offer you RM50 rebate by using the points you have accumulated are just playing with your Finance IQ. It is a common practice that you get back a minimum of 0.2% rebate by using credit cards in this part of the world. The return may reach you either in the form of points accumulation or direct cash rebate on the bill. So giving you the option to 'waive' this RM50 tax with your points is the same like taking your money from your left pocket when you said you want to avoid taking out money from your right.

Do you know any other banks who will REALLY waive this RM50 tax ?

You can use this form to cancel your credit cards

BEST rates in Malaysia - update 2009 12 26


Although Fix Deposit rate stays at 2% for 1 month and 2.5% for 12 months but generally FD interests are 'starting' to rise. This is inline with the speculation that interest rates will be raised by Bank Negara ... and its just a matter of time. This trend will affect both FD rate and BLR.

Three Banks have the lowest BLR since mid 2009 : 5.25%
The Royal Bank of Scotland Berhad
Bank of Tokyo-Mitsubishi UFJ (Malaysia) Berhad
J.P.Morgan Chase Bank Berhad

But most loans come in terms like BLR + or - another numbers. Remember to compare your own true and effective loan rate including fee++ before deciding on a loan package. Usually these lowest BLR banks also offer less attractive effective final rates ie. BLR - a lower number. Some other deals that follow strictly on BLR on the other hand, would be great to deal with these banks.

The highest saving account interest is 1.88%
Mudharabah Basic Savings Account-i by CIMB Bank Berhad
minimum deposit RM 20
interest calculated daily, compounded monthly

The actual rate may only be 1% now. I suspect that they haven't update their marketing system yet. The actual rate payment is on a profit share bases, so the rate is not really as 'guaranteed' as other saving accounts. But historically, statistically and even politically you will most probably be getting back slightly higher interest than promised. For how long no one knows ...

However, this is still the best choice for a saving account. Other banks' Al-wadiah or Mudharabah accounts are ok too.

Some offers 1.5%
J.P.Morgan Chase Bank Berhad - Saving Account, calculated daily,compound every 6 months
Bank of America - BBS Saving Account, calculated daily,compound every 6 months
Bangkok Bank - Basic Savings Account, calculated daily,compound every 6 months

The other high interest accounts 1% are
The Bank of Nova Scotia Berhad - Basic Savings Account, calculated daily,compound every 6 months
Bank of Tokyo-Mitsubishi UFJ - Savings Account, min RM200, calculated daily,compound every 6 months

Best Car Loan rate for New Car is 2.7% by Maybank
Bank Muamalat offers 2.85% but its effective rate could be lower than Maybank. But it has a RM600 admin charge. Both banks can have up to 90% margin and 9 years tenure.

Bank Muamalat offers the same rate for Used Cars. That makes it the BEST rate for used car loan. Late payment charge in Bank Muamalat is only 1%, compares to the normal practice 8% in all other banks.


Friday, December 18, 2009

Loan is disadvantaged to Cash but Limited !

In an earlier article, a myth was broken where it says "getting loan will Decrease your liquidating options" so if you have the cash to buy the whole thing, you should go ahead and buy it and NOT getting a loan. Because once you get a loan, you will end up disposing your item Slower and get back Less worth - which is the opposite of liquidation.

That message has disturbed a lot of old friends who have been using loan successfully in their property investment. They have been borrowing loan in their investment for more than 10-20 years and almost always successful getting back a bigger return as a result of the loans. If loan is not a good thing or not liquidating, what has happened in the past 10-20 years, they just got lucky ?

Loan or any form of effective borrowing,
is a leverage tool.

Lets take a look at the same example used in last article; You have the option to buy an property for $100,000 and you could also get a loan where the interest is 5% for the next 10 years. Below spreadsheets show a few calculations;
The left most column in bold under "sell direct" mean if you bought with cash earlier and sell now, you would have get back this much money after the appreciation or depreciation.

The right most column in bold under "sell with loan" mean if you got the loan in the beginning, then this is what you get back in net after deducting the remaining capital.

The most important column in this article is the 2nd column from the left under "no loan - loan". It shows the difference of buying with cash vs buying with loan. If it is a positive number, it means buying with cash has an advantage earning or saving against buying with loan.
Below show 2 cases where the property could have appreciate or depreciate 10% a year ...

Case 1 : Item "appreciate" 10% a year


Case 2 : Item "depreciate" 10% a year


If you focus on the numbers in 2nd columns, they stay the same. It doesn't matter if your item increase or decrease in value, the differences between buy with cash and buy with loan are the same.

If your item appreciate, buying with loan will earn $5,000 less.
If your item depreciate, buying with loan will less $5,000 more.

It may still seems like a disadvantage to some readers up to here. But it actually is limiting the strategical cost of a transaction. No matter how the market goes, the person who got a loan will only lose $5,000 comparing to those who bought with cash earlier. In order words, the strategical cost of getting a loan is $5,000 for the 1st year.

You may also observe that this strategical cost is decreasing over the years. 2nd year the difference is less than $10,000 ( $5,000 x 2 ) and 3rd year is even less than $15,000 etc.

Limiting strategy cost no matter how the market goes is a very powerful situation in investment.


Tuesday, December 15, 2009

Is Timing Really Everything ?



One of the commonly spread concepts in investment is that "Timing is Everything". The mother of all laws in investment is "Buy Low Sell High", hence knowing WHEN to buy and WHEN to sell is key to everything. Although this seems very logical and correct but it may NOT be the Best strategy one should apply in investment, especially in personal finance.

Timing is indeed very important but it doesn't have to be "Everything".

Timing can be further categorized into (1) timing the exact moment and (2) timing a general period. For example, is current market just over its peak now vs generally the market is still rather high now. While it seems impossible to predict the exact future but its always simpler to get a sense of what may happen next.

I predict that The sun will rise tomorrow morning

vs

The sun will be seen at 7:23am after the clouds are cleared off in 13 minutes

If an investor is Correct All The Time, focusing solely on timing would be a smart thing to do. Otherwise, timing become a variable that can help you as much as killing you. As a matter of fact, it will always help you sometimes and it will always kill you some other time. Hence, knowing what to do when your timing is right or wrong becomes even more important especially when you can't be Correct All The Time. Namely the profit take and cut lost strategies.

It takes 2 timings to get one complete transaction. Buying at the lowest today does not guarantee anything yet if it goes lower tomorrow. Selling (short) at the highest today may still have a higher tomorrows. Hence a perfect transaction that is built by 2 perfect timings can only be justified as an after event. In probability study, even if you can guarantee getting the timing Correct, but there is only half the chance you can get it Correct again twice in a row. In other words, even if you know 100% correct timing when to buy low, but there is only 50% chance that you can also sell high at the perfect timing.

So no matter which ways you look at it, "Timing is Everything" is Not a Guaranteed method. It can make you one in a million, but most people will not get anything positive out of this strategy especially long term wise.

Hence you may need to form an investment strategy that can cater for any timings and events. That would be a rock solid personal finance. If there are certain timings or events that your current profile cannot handle yet, then just temporary exclude investing during those timings and events. Until one day you learn enough to build a more solid personal finance to cater for those timings and events. Thats how malpf's wealth pyramid was introduced earlier, you start with something you don't really need to know like Fix Deposit and slowly learn more before handling mutual funds and stock investment.

However one of the positive human nature is to pursue greatness. Everyone want to hit jackpot no matter how slim the chances are. Timing may not be Everything but it is the Ultimate investment skill. Until today, there is no one formula for Guarantee Exact Timing (GET) in investment yet. And the person who come up with one will sit in the same hall with Newton and Einstein, most probably above all of them.

Hence, totally abandon timing an investment is as ignorant as adhere solely to it, if not worse. What should we do then ?

Build a rock solid personal finance first, then leave a 5% room in it as play money for you to practice timing in real life. This way, overall you will still have a good life ahead of you while not giving up any chances that you can be great! When you find out you are really good at timing, slowly increase your 5%. Otherwise lower the 5% or totally eliminate it especially when your 95% are not even earning more than 5%.


How about you ? How much are you relying on Timing in your life ?







End of Year post


Well 2009 didn't quite pan out as we had expected. It started OK for those of us hoping for reasonable house prices in our city and Province. By the end of 2008, demand had completely collapsed with the MOI near 20. Compare that with 4 +/- now.

However the central banks and governments made a herculean effort to turn things around. Having ignored all these bubbles on the way up, and in fact helped inflate them, they threw caution to the wind.

Buying bad loans from banks, cutting interest rates to zero and in Canada doubling the CHMC's capacity to insure loans. How smart is that??? Encourage people with limited resources to access funds, when prices are high, when unemployment is starting to rise and when interest rates are at historic lows! Exactly what happened in the US. Maybe, just maybe too many policy makers are from Goldman Sachs...like Mark Carney, and Hank Paulson and Robert Rubin and dozens of other decision makers.

As I mentioned in a post early in 2009, the combination of lower mortgage rates and the 15% or so price drops meant that the actual carrying cost of an Average Vancouver property was 30-40% lower.

That was enough to bring people flooding back and we have had another boom in house prices.

Almost every bank economist and even Mark Carney at the Bank of Canada have warned on bubbling home prices. Duh..what do you expect? It would be like inviting your buddies to an all-you-can-eat ribs buffet and then reminding them of their bulging midriffs. They aren't going to hear you.

Rosenberg, the permabear, says the risk for mortgages has been shifted from the banks themselves who are happily gorging on the steepest yield curve for twenty years - ie they pay almost nothing to borrowers but lend long at much higher rates- while the CHMC will pick up the lion's portion of the losses, when and if they occur.

Here are some of my thoughts:

1) House prices have increased at a rate twice as fast as family incomes since 2002.

2) House prices in Canada are up 80% since 2002

3) In the US and Europe, consumer debt to income levels are dropping, as debts get paid by a chastened consumer. In Canada it is still rising.

4) In Vancouver we have been in a pressure cooker for prices for several years. Olympic build out and hype, low interest rates, relative lack of land, population growth and speculation have all fed the frenzy.

However ironically we have not been able to surpass our previous highs (yet) while many other cities in Canada who have not faced these events ..have and are.. hitting all time highs. Even in Ontario which has seen it's manufacturing base badly damaged.

This suggest that interest rates are the most important factor.

It certainly walks and talks like a bubble and does not seem sustainable to me. Unfortunately as a species we are not too concerned with sustainability. The wise thing to have done would have been to use tax and fiscal policy to try and slow down the rise in house prices. Instead they have done the opposite and are now faced with a monster which if disturbed will cause major collateral damage to everyone, even the prudent.

So it would seem that interest rates are the main driving factor.

Well short rates cannot go any lower, so they are 'as good as it gets'. Long rates have been drifting up in the US and I suspect will start drifting up here too. Who wants to be paid 3.5% for a ten year bond. Not me.

I have no forecast for interest rates, but will watching them closely. Generally speaking, short rates are set by the Central banks and the bond markets decide long rates. However there is so much manipulation in the market, with Central banks buying bonds long bonds to keep long interest rates down, and keeping short rates too low (some say 4% too low) for too long, inflation be damned, that they don't make sense.

Remember Greenspan - the previous Fed Chairman, he told folks to go short and variable in their mortgages, and then proceeded to raise rates 16X!! Basically pushing everyone who listened to him into foreclosure. It was as if he was a Manchurian candidate planted by another country to destroy the US.


Well it seems to me like a lot of folks are doing a Greenspan here. They look at their 2.5% short term rate and can afford the payments, but if rates were to suddenly move up by 2-3% they would be calling the CHMC to pick up the keys and then we would all pick up the cost.

They say predictions are only made by fools, so here is mine:

All assets are linked now. Gold and stocks and commodities. Until they keep rising , our RE will also have a strong bid. Some of this is fear unwinding, some is our old friend speculation coming back. A lot is based on the US dollar carry trade...borrow US dollars for next to nothing and buy something, anything.

When and if this all unwinds, then fear will return and folks will see their homes once more as a burden to carry and not path to life-long financial freedom.

When will that happen? Will it even happen? We shall see

Happy holidays to you all. May you have a prosperous and healthy New Year.

Sunday, December 13, 2009

Is Loan really Better than CASH ?


You may have heard people are claiming its better to get a car loan than buying it with cash even if you could, especially from those car salesmen. Likewise, property investment gurus say that its better to get a home loan. These are some of the key reasons why they say loan is better than cash;
  • Liquidity - keep your money with you, you may need it in future.
  • Income tax department may come 'disturb' you seeing that you have loads of cash.
  • buying stuff with loan usually gets more gifts.
It shouldn't be too hard to realize the main reasons why people pursue you to get a loan is because they may get a share of the interest you are paying. For example, car salesmen earn double the commission when they sell you a car with loan. Property agents want you to buy more property with the limited money you have hence they can earn multiple commission instead of just once. Other than that, most others who pursue the same are most properly are just due to ignorance.
This situation is exceptionally terrible when you are buying a new car. The car salesmen will literally give you a bad service if you mention you will buy the car with cash. They will try their worst effort pursuing you to get the loan no matter what. Else they would rather NOT sell you the car at all.
Getting a loan simply mean Pay Less NOW AND Pay More at the end. To be precise, you will have to pay interest to the loan you are getting.

Loan = Cash + interest

So you will definitely be paying more when you buy something with a loan. If you do not need the facility of 'Pay Less Now', you are basically paying the interest for nothing but ignorance.

Lets clear away the simpler excuses first;
  • Income tax only penalize those who earn income illegally so unless you DO have something to hide else there is really no reason to worry about any audit.
  • All 'gifts' come from your own money, the more gifts you receive in a deal, the more suspicious you should worry about the real value you are receiving.


Now the toughest part is the liquidity. It will be very hard to say keeping some money with you is NOT a liquidity option. But it is not necessary always the best liquidate option.

First of all, when you buy something with cash, its just between you and the seller. However, when you get a loan to buy the same thing, there is at least an additional party involved ie. the person who gives you the loan. Its has not just become a 3 parties complexity, its actually a totally 2 different transactions and a 4 different roles play.

( with Cash )
Buyer and Seller

vs

( with Loan )
Buyer and Seller
Borrower and Lender

So in addition to the interest, you will also pay more fees when you get a loan. When you want to sell your item, you will need to pay this fees again and perhaps also getting approval from this lender. Relatively a cash purchased item can be sold off immediately. From this perspective, doesn't cash purchase sound like a more liquidated option ?

Lets say you could buy something with cash at $100,000. You may also get a 5% loan and pay $1,060 monthly for the next 10 years.

Lets say half way down the road on the 5th year, the item has depreciated to $50,000 (13% depreciation rate). If you bought it with cash, you would end with a net cash $50,000 after selling it. If you got a loan, you would have paid $63,639 in the past 5 years, meaning you still have $36,361 cash at hand. Together with the $50,000 you may think you have more than $80,000 but you still have to repay the capital left in the loan, so at the end you end with a net cash of less than $40,000 which is less than the cash purchase option.

On the other hand, lets say your item appreciate 10% a year. On the 5th year, you could sell it for $161,051. But if you got a loan in the first place, you may get back about $140,000 net, which is still significantly less.


So no matter if your item appreciate or depreciate, if you sell off your item earlier or later, buying something with loan will only end you with ;
  1. slower to sell off your item because it involves 2 transactions and it cost more fees too
  2. getting less cash back at the end
The last I check, disposing something off slower and getting back Less cash is NOT exactly a liquidating option at all.

Sunday, December 6, 2009

Will Banks take care of your interest ?

I was once young and naive. Banks are so big, earn so much money that they wouldn't bother to cheat my money. Its safe to leave everything to them and they will take good care of my money, especially when I am not a big user ... but ...


Notice in this statement that previous left over balance is only 1 cent. As a matter of fact, this account has been having 1 cent balance for 2-3 months. Recently I had to use up to RM 100 so that I can use ALL the points to exchange for food voucher before cancelling it. Suddenly there is a finance chargees of 22 cents.

How in the world can there be a 22 cents finance charges out of a 1 cent balance ? The finance charge is 16%.

After digging out the whole Eon team including the highest management demanding for an explanation, no one can answer that except apologizing and waiving the said ridiculous calculated fee. I couldn't help to think how many people out there have been abused by such system bug ? 22 cents x 10 million EON credit card holders = 2.2 millions a month.

Wednesday, December 2, 2009

Help for broadcasters- off topic.

Regular readers know that my pet peeve is the broadcasters, like Canwest Global, who got themselves into a mess by buying assets at the top and then when they cannot service the loans, asking for Federal help (aka bail-outs) or money from the cable companies (which will probably come out of our hides in the form of higher cable fees).

The irony of a right-wing organization like Canwest, which through the National Post used every opportunity to slam unions and bail-outs, and promoted the free-market devoid of government intervention, asking for this is beyond bizarre.

If your business fails- you close down and someone else buys your assets and gives it a shot. You don't ask for government help or demand contracts be renegotiated with other succesful businiesses.

In any case the CRTC is asking for feed-back here:

http://television.askingcanadians.com/affordability-of-local-tv/

This is what I submitted. It took me a few minutes to do so.

Please CRTC DO NOT give in to the pressure from the TV Monopolies. I am a small businessman and if I mess up, over-extend myself and get into financial trouble, I have to deal with the consequences, which include possible bankruptcy.

No one will come to my aid.

However, the TV companies over-paid for assets, over-paid their executives and now are complaining that if we dont face an extra tax to support them they will shut down local programming.

What a farce! Maybe I would be more receptive if they gave an undertakeing to cut their mutimillion dollar purchases of US programming and promised to cap executive pay in the future.

Our media ownership is far too concentrated. Let them break up and others will take over. If necessary the small independants can be funded,but please dont send our money into a big black corporate hole.

Stand up for the Canadian programming and for diversity of ownserhip and views.


....................................

BTW - do we need more competition in the cable space too, you betcha. They are already scooping up a bigger share of the internet and cell phone markets too.

Ok you squeeze another post out of me...




Anon said:

"In Nov 2008, we almost had a great depression. That is what it took to bring the prices down.

Now we are much higher. Anyone guess what it's going to take for an encore? Probably nothing, hence if prices do drop it will be 5-10% at MOST."

He/she has a point. The rebound has happened at lightening speed. Look at Japan for example. When their RE bubble started to burst in 1992, interest rates were cut aggressively, and stayed low. In fact the cutting started just before the bust got going.

However once it started there was nothing that could prevent the drop. However here and in the US, our governments have also cut interest rates to the same absurdly low levels and while it hasn't done much for US housing, our prices have reignited again.


The two charts above show the price of Japanese RE and interest rates:




Tuesday, December 1, 2009

Cash Flow vs Asset, which is more Important ... ?


Cash flow is money in your hand where you can USE right now to buy food and petrol. Asset is something that is worth some value but may not be CONSUMED directly like a house and car.
Although there may be more complication like cash is part of asset and the correct wordings for this topic is liquidated vs non-liquidated assets etc. But if we simplify personal finance as much as possible, cash is cash and asset indicate non liquidated net asset.
Many people who are good with their personal finance numbers always asked which is more important ? Maintain a positive Cash Flow or increase net Asset ? Well, the simple and direct answer is:

Cash Flow is more Urgent and
Asset is more Important

Enough cash flow is important for you to live on. At the moment cash ran out, you may start to suffer so much that your personal emotion may kick in affecting all your other judgement; Including selling your asset way under its value. So what if you have a billion dollar castle in a desert while all you need is a drip of water ? So cash flow not only allows you to get by but it can totally destroy you. When cash flow approaches negative arena, its an Urgent warning !

A properly setup asset will automatically increase your worth in time and it is the key to passive income in personal finance. So the long term goal is to have enough asset setup so that you can live happily ever after. Without any asset, you will always HAVE TO earn what you need. Active income means you HAVE TO always work despite if you like it or not. You will have less choice. So setting up good assets are Important in long run.

Following the Urgent vs Important concepts, the standard way of improving the situation is:
  1. Make sure you solve all the urgent matters,
  2. then allocate time to do more important stuff,
  3. and make sure all the important stuff are done to eliminate chances of any urgent matters in future.
Like wise ...
  1. Make sure you have enough cash to get by then => $C
  2. Acquire as many good asset as possible and lastly => ( $A x i% )
  3. Target to have enough asset's return to cover all your cash flow needs
( $A x i% ) > $C

Needless to say, most people are rat racing in step 1 for a long long time. Then once they moved on to step 2, they felt relief and may relax too much that they forgot to keep a healthy level of cash flow. Not knowingly that cash flow can come back anytime to destroy all the stuff you have setup in step 2. This is especially obvious for people who turn from a career to a business during their mid age life.

Before reaching step 3, you will have to juggle both your cash flow and asset ....

Saturday, November 28, 2009

Sorry there is nothing to write guys...

The market is slow but not weak yet. There are still folks running to buy.

Larry Yatter has shown that some market have started dropping.

However nothing much will happen until all assets start to drop..Gold, Stocks and RE. What will be the catalyst? Higher interest rates or a Dubai-like black swan event.

I am heading into hibernation and probably wont put up a post until something changes, which may not be until the New Year.

Malaysian Life Expectancy


I found this in one of the un-published drafts ...

Life expectancy at birth : male 69 / female 74

Healthy life expectancy at birth (2003): male 62 / female 65

Probability of dying under five (per 1 000 live births): 12 = 1.2%

Probability of dying between 15 and 60 years m/f (per 1 000 population): male 197 = 19.7% / female 109 = 10.9%

Basically a male Malaysian can expect to live healthily until age 62 and then drag 7 years before dying at age 69. Likewise women may drag 9 un-healthy years in average before passing away. Some people may have planned for their departure. But almost all people forget their lives WILL NOT just END like that. Instead, it will most probably be a .... ... ... kind of ending. You will most probably be causing troubles to yourself, your family or at least to the society! Other than the finance preparation, what else have you done to prepare for your golden years ?



Sunday, November 22, 2009

More Info : invest your EPF money in stock market direclty.


It was mentioned before that you can use your EPF money to invest directly in the stock market, especially through Jupiter and Amara. The main selling points are;
  1. cheaper than invest to Mutual Fund ( 5.5% ) vs 3% charged by Amara
  2. freedom to invest in any particular stock and not a whole portfolio.
Although Jupiter only charges 0.1% or minimum RM 10 brokerage fee but actually Amara, the licensed EPF withdrawal facilitator, have more charges other than the 3% one time drawn down fee.


The significant ones are
  • Transaction fee : 0.1% or minimum RM 15 per contract
  • Custody fee RM 0.005 per 1,000 shares per month
Add together with Jupiter's fee, your total brokerage fee may effectively be at 0.2% or minimum RM 25. So each MOTS (Minimum Optimized Trading Size) is RM 12,500. With RM 25,000 you can only make 2 transactions.

Assuming you fully load all your investment in the market and average price per share is RM 1. Then 25,000 shares /1,000 x 0.5 cent = RM 0.125 every month. 1 year would be RM 1.50. That would be 0.006% of your initial RM 25,000 investment.

At the end, you may still be paying 4-5% fee in the whole process. In contrast to mutual fund's 5.5%. If saving fee is your main target, perhaps becoming a mutual fund agent yourself could end up saving more. On the other hands, most of the EPF oriented mutual funds are charging less fee.

So if EPF gets a 5% return, you should be able to do more than 10% in order to 'invest yourself'. Else you may just be depleting your ASS - Automatic Saving System.

Also be reminded that if you make a lot of transactions, you may end up paying more than 6% fee.

Friday, November 20, 2009

You can use Your EPF money to invest in stocks ?

If you have enough money in your EPF, you can withdraw some of them into a stock trading account and invest for yourself. This may interest those who think they are more market savvy than EPF investment. ie. you were NOT happy with EPF past year performances or you think you can do better than them in future.

First of all, depends on what your age is, there is a certain amount of money you have to leave in account 1. After minus out this amount, you can withdraw up to 20% of whatever left in Account 1. However, the fund receiving party may not simply accept any small amount. A common minimum amount to be withdrawn is MYR 30,000.

Together with Amara, Jupiter Online recently has an offer where the minimum amount is lowered to MYR 25,000. This way, more EPF account holder can use their money for this purpose.

Fees being charged are
  • One time 3% drawn down fee. ( by Amara )
  • 0.1% or MYR 10 brokerage fee ( by Jupiter )
The following table shows how much you need in your Account 1 in your EPF so that you are eligible for this. If you have never withdrawn from your EPF before, Account 1 is 70% of your total EPF.

My advice ? Financially one shouldn't simply withdraw money from his Automatic Saving System. Statistically MOST people do not earn consistently from stock investment. Although many may think they did great but almost certainly they have miss calculated the power of compound saving. Not to mention most investors DO NO even have a systematic trading strategy and plans.

Assume foregoing EPF payout is 5% in average. Withdrawing would minus out 3% from the fund. So you can out perform EPF if you consistently gain 8.1% return. ( where does the extra 0.1% come from ?)

A good stock investor can get 6% to 12% so its still a viable option, especially if you agree with these ...
and perhaps some tools that can help you
  • see how the world moves before your market opens @ stock.malpf.com (the story)
  • use this tool to calculate price to buy with historical EPS and projected PE
Be reminded that the best investment gurus like Buffet and Benjamin only out perform market by 6.46%, full story here.

Those are just recommendation base on finance and statistic. If you personally hate EPF or simply don't trust them with your money, you probably just want to take all out despite everything else. Keeping your money in the stock broker account usually gives you a slightly lower than Fix Deposit interest anyway.

Wednesday, November 18, 2009

New record? Not quite- but close

Rob Chipman has pointed out on his blog how close we are to the record (average) prices of 2008.

Here is his chart:

http://www.robchipman.net/blog/images/AvgPriceGraphs/REBGVAveragePriceGraphOctober2009.pdf

Hard to believe that we would see record prices at a time when the US, our major trading partner, was in such difficulty- when our main exports- natural gas and lumbar are down significantly from a year ago, when major employers are cutting back or closing and even the City and Province are pulling in their horns.

I guess it is the very low rates, the pre-Olympic hype and building boom and.....a sense amongst buyers that they may have already missed the boat and have to dive in regardless of the price.

In any case the market is strong and if it goes much higher then we have to re-evaluate the 'bubble bursting graph' which we have been following so far.

It wold be unusual, compared with other bubbles, if the price bounces straight back higher. As I have said several times, if the prices exceed their previous highs then we have a different ball game.

http://2.bp.blogspot.com/_mJmwQtPmusk/R8qBvunTR1I/AAAAAAAABik/1xij0kBSJ30/s400/bubble-lifecycle.gif

However, I must admit the market 'feels' different from the record prices in late 2007 - early 2008. At that time houses were often selling over list, as buyers panicked to buy. There were less than 20 SFH under $1 Million in West Van, now there is 40.

Sellers are dropping their prices (albeit from high levels and by small increments) quickly. It is as if they think that this could be the sweet spot for sellers and may not last.

The Fraser Valley was nearly as hot as down-town, but after the crash of a year ago, the recovery has been much more muted outside of Vancouver.

Lets wait and see. I posted almost 8 months ago, that the huge drop in interest rates, coupled with the 15-20% drop in prices, had reduced the effective cost of ownership by 35% or more from the peak. Well we have given back most of the price drop.

If and when it does drop again, and the banks and CHMC struggle, unemployment rises...I doubt we will have much money left in the kitty to bail us out:

http://www.debtclock.ca/

Sunday, November 15, 2009

Is Buying New Car the Only Way ?


One of the previous articles showed a method to calculate how much one should pay for a car. In that example, the number is $1,300. That article then relates the $1,300 to a purchase of NEW car selling at $43,000 or below.

However buying new car shouldn't be your only way to have your very own transport.

Used Car
You may only get a SMALL NEW car with $40,000+ but you can get a pretty NICE USED car for only $20,000. That is an instant 50% saving !

Borrow
Do you have friends or relatives who have extra cars parking at their homes only being used once in a while ? There was once I drove my uncle's Mercedes for a month and I only paid $800 for it. Last weekend I visited 10 eligible neighbors telling them my car has broke down and I need to borrow their cars for a month. 3 of them are willing to do so for $500.

Car Pooling
Usually people don't car pool and there are many excuses for that. But at the moment I showed some cash, 15% of the drivers suddenly become more friendly. This is especially good for regular trips. As for the weekend get away, I looked for shopping and travel buddies who drive.




What other creative ways you can think of to use your transport money ?

Saturday, November 14, 2009

Get ready

I hope those who are feverishly buying right now are:

1) secure in their jobs

2) have taken into account possible increases in taxes.

Vancouver City council is looking at job cuts and increased taxes to try and deal with huge budget short-falls. These job cuts will be in full time City Hall positions and even police and fire-fighter positions. Not good.

http://www.theglobeandmail.com/news/national/british-columbia/job-cuts-likely-option-to-balance-vancouver-budget/article1363298/

http://www.vancouversun.com/news/City+Vancouver+looks+cutting+staff+close+budget+shortfall/2220380/story.html

What happens after the Big corporate party/ Nationalistic medal struggle AKA the Olympics? What sort of shape will the Provincial and City budgets be in then??

Don't expect to find out until well after the Olympics. You will remember how we had a projected balanced and then a small deficit from the Provincial Government until AFTER the election, when the truth about the deficit emerged.


..................................................

BTW if the answer to 1) and 2) above is no...or not sure, then at least make sure you have a CHMC insured mortgage so we can all be on the hook when you walk...






Thursday, November 12, 2009

Govt. goes public - Don't subsidize the RM50 !

It was hinted before that government may try to stop banks to subsidize credit card users on the RM50 fee to be enforced by the government starting next year.

Today its no longer an internal warnings between government and banks. Government has made it public in the news on this. But of course it was made in a polite way,

if banks subsidize our RM 50
we will FAIL to reduce
Credit Card Debt problem !

Actually following one of the latest sharing commented by Alan in last post, banks faced many rejections on the ideas they proposed to bank negara. But BNM has no control whatsoever on the points accumulated in your credit cards. So when banks use the point system to return the RM 50 value to the credit card users, government fail to stop that approach. Hence, government goes public with news to add public social pressure to the banks.

Its interesting to see how politic and finance fight so fierce over our precious RM 50.

I am predicting the next move from bank is introducing 1Card - use ONE bank's credit card as to replace ALL other banks' card. Such Credit Card will have combined limit of all your other cards. The trouble they are facing now is to combine all the rebates offers because each bank only have contracts with certain retailers.

Imagine a Card that you can swipe up to $200,000 !! You can buy a house instantly with a plastic !!

Tuesday, November 10, 2009

How much should we buy that car ?


Most personal car purchases are sentimental and relate to quality of life ... however if purchasing a car is mainly a transport and finance matters then it could be iron out this way ...

First lets start with some facts of transport life around me;
  • Taxi is as good as my own car if not better ( its my own car + a driver ) but its costly
  • Bus stations are near by and can go almost anywhere but it takes too much of my precious time
  • Intra city trains are fast and efficient but only after you are IN the city
  • Car rental gives the highest flexibility but it could be expensive if park aside too long
So I will need a hybrid solution if I don't have my own car. For me, I will use Taxi - Train - Light Rail during normal days and Bus and Car Rental during weekend and holidays.

First I take a taxi to the near by train station (KTM), once in town I use light rails ( PUTRA, STAR, MONORAIL etc.) to travel almost anywhere within the city. Typically I would need to exchange once within the light rail systems to reach my destination. Return trip same path.
$8 : Taxi to station
$1.40 : Train to Town
$1.80 x 2 : Light rails within city

One way = $13
Return or one day = $26
5 days week = $130
50 weeks a year = $6,500
By weekend, I would rent a car and run away for 2 days ...
$180 / day x 2 days = $360
4 weeks or 1 month = $1,440
12 months or 1 year = $17,280
Adding both up is $23,780 a year.

If $2,000 a month of transportation fee seems ridiculously high, you probably do not need to rent a car every weekend, perhaps every bi-weekly or even every month if at all needed. Run your own numbers for your own scenarios. This example is trying to mimic the same lifestyle with a car.

Now if I do all that with my own car, I would need to pay for
  • petrol : $400 a month
  • parking : $10 / day x 5 days x 4 weeks = $200 a month
  • maintainence : $100 a month
That is a total of $700 a month burn. That leaves $1,300 a month for the car itself. So if I can find a car that I have to pay monthly less than $1,300, it may just be a good deal.

So if I take 3 years car loan at 3% interest I probably should buy a car less than $43,000
if I take 5 years car loan instead, I could spend up to $67,826 for a car.

Consider the resell value as a bonus or final fund consolidation just in case maintainence shoots up or you ended up not using that car that much after all.


Monday, November 9, 2009

Nothing to see here...move along

We have Electronic Arts cutting 1500 jobs including a bunch here. We have Morgan Chase closing their Surrey call centre with the loss of 700 jobs, which followed close on the Ebay call centre closing last May which also saw 700 job losses... and here's what Kodak is doing http://tinyurl.com/yajcdhc
and yet RE is still strong!

That 1.5% Variable rate sure covers up a lot of outrageous pricing.

Who would have thought a couple of years ago, when we had our peak prices, that the US would be facing 10.2% unemployment and a real estate collapse, that BC's biggest resource..natural gas would be at multi-year lows, that BC and the Federal Government would be facing huge budget deficits and YET that our RE would be within spitting distance of those highs and in some other Canadian cities they would be at new highs??

Therein lies the power of devaluing money. Print it, pay nothing on it, lend it, spend it when you don't have it...ANYTHING to keep the worldwide bubble alive and well.

Maybe we are getting some $$ from HK. I just saw a BNN program on the price of RE in HK. If you think we are pricey here, you ain't seen nothing.

Meanwhile those pricey Olympic rentals aren't being absorbed. From the CBC:

Olympic rental market swamped with homes

Thousands of homeowners vying for Games tourists


Last Updated: Tuesday, November 3, 2009 3:49 PM PT Comments88Recommend33CBC News
Tanya Peters and Tyler Jones . (CBC)

The Olympic dream for many in B.C.'s Lower Mainland has little to do with sporting events or who makes it to the podium. They're hoping to rake in the gold by renting out their homes to tourists coming to the 2010 Games.

But it's not working out that way for everyone trying to take advantage of the opportunity. It appears the Olympic rental market has slowed to a crawl.

"There was that big buzz about people renting out their homes and making a killing on it," said Vancouver resident Tanya Peters.

Peters and Tyler Jones planned to get married in Costa Rica during the Games. Their vision was to rent out their house to Olympic visitors to help pay for the wedding. But so far, they have no takers, and now regret not hopping on the gravy train earlier.

"I know several people who rented out and did make a lot of money but they rented out a year ago," Peters said.

Corporations, teams and media outlets that needed to book homes in advance for big prices appear to have already made their bookings.

Jones and Peters have had their home listed on various websites since July. They have dropped their price to $3,000 for two weeks from $5,000.

A Vancouver couple hope to rent out this house during the Olympics, but find themselves in a market swamped with rentals. (CBC)
The explanation might be in the simple economics of the situation: There are more people who want to make big money than there are who want to spend it.

Thousands of homes for rent
"When the supply is larger than the demand, it's hard to maintain those price levels," said Bruce Fougner, president of Lloyds Travel Group in Vancouver.

Fougner estimated there were at least 6,000 homeowners in and around Metro Vancouver looking for Olympic renters right now. The majority of new rental listings were people wanting to get away, he said.

Jones and Peters say they are not giving up on their Olympic dream. And they plan to be on the beach in Costa Rica in February, no matter what.

But if they have to lower their price much further, it wouldn't cover the costs of additional insurance, fitting their home with extra beds and putting their valuables in storage, they said.

"We're not banking on it happening. But if it happens, that would be great," Peters said.

Thursday, November 5, 2009

Bus Fares = OK but ...


Bus fare usage in Kuala Lumpur is averaged at RM 1.70 per ride base on the following usage rates.
50% Zone 1 RM 1.10
30% Zone 2 RM 1.90
10% Zone 3 RM 2.50
10% Zone 4 RM 3.10
Typically one may need to take 2 bus routes to reach destination. So one trip is RM 3.40 or Return trips are RM 6.80

1 week or 5 working days would mean a cost of RM 34 or RM 136 a month or RM 1,632 a year.

Travel within Kuala Lumpur using private transport is average at half an hour. Relatively using buses for the same destinations would increase the travel time to 1.5 hours; include waiting and walking time.

There you go, if you use buses as your main transport, you may need more than RM 1,500 a year and 720 hours commute time. You may save some money yearly but in the cost of 480 hours.

Do you bus ?

New Bus Fares in West Malaysia effective 1 August 2009

KL Buses :
Zone1 RM 1 to RM 1.10
Zone2 RM 1.70 to RM 1.90
Zone3 RM 2.20 to RM 2.50
Zone4 RM 2.70 to RM 3.10

Other Buses :
(No Air Con) RM 0.62 first 2 km, RM 0.094 every km thereafter
(Air Con) RM 0.94 first 2 km, RM 0.094 every km thereafter

Mini Buses :
(No Air Con) RM 0.90 one way
(Air Con) RM 1 one way

School Buses:
(Town) Monthly RM 27.43 first km, RM 2.02 every km thereafter.
(Rural) Monthly RM 20.61 first km, RM 2.02 every km thereafter.

Express Buses : RM 0.085 / km

Wednesday, November 4, 2009

....getting us pumped up for the Olympics


It seems like we are not getting sufficiently excited about having an extremely expensive sports event and hundreds of thousands of people descend on our densely populated over-crowded strip of SE BC.

So we now have media ads featuring our Canadian athletes extolling us to support them, we have a news radio channel (official radio station of the Olympics) telling us how many great jobs are opening up in serving and bar tending. We also have the workers at Whistler being taught by some person from Disney University (yes it exists) and how to be a gracious host. Even Gregor Robertson was all excited about the Olympic Village today and one athlete was telling the media how great it was to be able to stay in luxury accommodation. Bob Rennie was reassuring them that the city wont be on the hook for the 1100 units. lets hope he is right.

Enough already!

There are some of us curmudgeons who really didn't want these games. We cant get around the city as it is. We think affordable housing is a better use of money than big ice rinks and Multimillion dollar ski runs. We don't want Hundreds of Millions spent on security. As for the athletes, we wish them well, very well, but the cost of hosting it here could have been better spent on them..help them train, buy them equipment AND have the whole event somewhere else.

Anyway we are stuck with it and all the inconveniences and it will bring. But please VANOC and major sponsors, spare us the..'we-are-doing-it-for-athlete's' BS. The developers and speculators have done VERY well out of this event. The politicians will feel important for a couple of weeks, and the Olympics have just become a contest of tallying who has the most medals which seems to me to defeat the purpose which is...what is it again
?

Malaysia Unit Trusts 5 years Return

Below table shows the return of Unit Trusts in Malaysia from 2001 to 2006. I added two columns to the right.

Average return per year is simply return divided by number of years, in this case, n / 5 years ie. 25.9 / 5 = 5.18

Equivalent Compound Return Rate is using the FV formula to calculate what the interest rate would be if you save $100 5 years ago to get the same return. This is the number you should use to compare with Fix Deposit interest rate.



Pit falls ? Not so much on that but some key concepts when reading numbers like this ...

These numbers don't mean much by themselves. You should compare them with other numbers to make more senses and decide course of action. For example;
  • Compare with Stock Market indexes. Mutual funds are suppose to outperform certain benchmarks. So a fund is only really doing well when it is BETTER than ....
  • Compare with Fix Deposit interest. Are these rates significantly higher than FD through the same period ?
  • Compare with Inflation rates. Similar to FD comparison but from a different angle.
  • Compare with itself. How are the performances 2002-2007, 2003-2008 etc ? 2007 to 2008 are losing years. If one uses 2001-2006 as the 'BEST' years, then numbers of 2007 to 2008 should also be analysed as the 'WORST' years - as in comparing reward and risk ratio.
Lastly, match past record to today's situation. Index Tracking funds did the best during economy recovering years from 2001-2006. Is today's economy like 2001 ? If yes we should buy ! Or is today more like 2006 where economy is booming but due to doom ? If yes we should probably cash out. Or is today in between ?

Don't know what this is all about ? Apply Dollar Cost Averaging.

Remember that if you apply DCA, above mentioned returns do not apply to you neither.