Sound Investing In Global Financial Crisis - 6th Dec 2008


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Sound Investing In Global Financial Crisis - 6th Dec 2008

  1. 1. Sound Investing in Global Financial Crisis By Peter Lim CFP, RFP
  2. 2. About Peter Lim <ul><li>Started Financial Industry at early age of 21. </li></ul><ul><li>7 years experience in Loans, Insurance, Unit Trust, Will writing and Financial Planning </li></ul><ul><li>Was a CFP lecturer for Module 5. </li></ul><ul><li>Agency Manager – leading more than 50 Direct + Indirect agents for a Mutual Fund Company. </li></ul>
  3. 3. Personal Money Investment Game 2005 <ul><li>Champion : Father-In-Law with 15.26% </li></ul><ul><li>3rd Runner-Up : Wife with 10.4% </li></ul><ul><li>5 th Runner-Up : Peter Lim with 9.23% </li></ul>
  4. 4. Award winner for 2005 CFP Module 6 paper (Constructing a Financial Plan.)
  5. 5. Books about Value Investors
  6. 6. Books about Benjamin Graham / Valuation
  7. 7. Books about Warren Buffett
  8. 8. My Financial Books
  9. 9. Objective <ul><li>5 Things to prepare before investing. </li></ul><ul><li>Avoid costly investment mistakes. </li></ul><ul><li>7 Lessons for Sound Investing. </li></ul><ul><ul><li>Learn which financial vehicle gives the highest return over the long term. </li></ul></ul><ul><ul><li>How you can minimize risk (while maintaining return). </li></ul></ul>
  10. 12. 1) Before you Invest, Prepare: <ul><li>Live below your means </li></ul><ul><li>Set up emergency fund - (3 to 6 months expenses) </li></ul><ul><li>Don’t invest the money you need within 3 to 5 years. </li></ul><ul><li>Pay off “Bad debts” </li></ul><ul><li>Own a house (but doesn’t mean “paying off the housing loans) </li></ul>
  11. 13. Difference between Good debts and Bad debts Current “Investment” - FD New Investment Return
  12. 14. <ul><li>To Invest </li></ul><ul><li>Successfully </li></ul><ul><li>for the </li></ul><ul><li>Future, </li></ul><ul><li>Learn from the </li></ul><ul><li>Past </li></ul>
  13. 15. In 1926, If you had put $1,000 in each of the 4 investments below, 68 years later you’ll have: <ul><li>Treasury Bills $ 11,680 (3.68%) </li></ul><ul><li>Government Bonds $ 28,360 (5.04%) </li></ul><ul><li>Corporate Bonds $ 40,340 (5.59%) </li></ul><ul><li>Common Stocks ? </li></ul><ul><ul><ul><ul><ul><li> $ 800,530 !! (10.33%) </li></ul></ul></ul></ul></ul><ul><li>(Source: 21 st Century Investment, by Frank Armstrong ) </li></ul>
  14. 16. Inflation Adjusted Returns from 1926 to 1993: <ul><li>Treasury Bills $ 1,430 (3.68%) </li></ul><ul><li>Government Bonds $ 3,480 (5.04%) </li></ul><ul><li>Corporate Bonds $ 4,940 (5.59%) </li></ul><ul><li>Common Stocks $ 98,100 (10.33%) </li></ul><ul><li>(Source: 21 st Century Investment, by Frank Armstrong ) </li></ul>
  15. 17. What if in 1926, your $ 1,000 earns these rates ? <ul><li>Annualised Return Amount </li></ul><ul><li>3.68% $ 11,680 </li></ul><ul><li>10.33% $ 800,530 </li></ul><ul><li>20% $ 242 Million </li></ul><ul><li>30% $ 56 Billion </li></ul><ul><li>40% $ 8.6 Trillion </li></ul><ul><li>Any “investments” that promises above 15% per year, should be screened with extreme caution. </li></ul>
  16. 18. 3 Most Important Idea in Investing
  17. 19. Lesson 1 <ul><li>Common stocks (called as shares/ stocks/ equities) represents fractional ownership of a business. </li></ul><ul><li>Over a long term, Common stocks gives the highest return , because you’ve got the company’s growth on your side. </li></ul><ul><li>You’re a partner in a prosperous and expanding business. </li></ul>
  18. 28. Lesson 2 <ul><li>Risk </li></ul><ul><li>DECREASES </li></ul><ul><li>with time </li></ul>
  19. 32. Lesson 3 <ul><li>Diversification </li></ul><ul><li>Reduces </li></ul><ul><li>portfolio fluctuation, </li></ul><ul><li>while maintaining returns </li></ul><ul><li>(if both Assets earns the same returns) </li></ul>
  20. 33. How much should you Diversify ?
  21. 34. Which Path should you choose? <ul><li>99% of the people who invest </li></ul><ul><li>Extensively Diversify and not Trade </li></ul><ul><li>Best option is a low-cost Index/ Equity Fund. </li></ul><ul><li>Spread your purchases over time. </li></ul><ul><li>1% of the people who invest (or maybe less) </li></ul><ul><li>Concentrate on the best 6 businesses. </li></ul><ul><li>Should be willing to bring time, intensity end effort to the game. </li></ul><ul><li>Believe that you can evaluate a business value better than the overall market. </li></ul>
  22. 35. The 1% <ul><li>Are you convinced to put at least 10% of your net worth into that stock? </li></ul><ul><li>If the price drops by 30% since your purchase, will you get panic? </li></ul><ul><li>The price drops further to 50%. Are you convinced to buy more shares of the company? </li></ul><ul><li>When you monitor your investments, what do you “monitor”? Stock Price or the business performance? </li></ul><ul><li>Is reading annual reports your favourite past time? </li></ul>
  23. 36. Lesson 4 <ul><li>For at least 99% of the people, </li></ul><ul><li>they are better off with a </li></ul><ul><li>low cost Index/ Equity fund, </li></ul><ul><li>spreading their purchases over time </li></ul><ul><li>than </li></ul><ul><li>choosing individual stocks. </li></ul>
  24. 39. Quotes from Benjamin Graham <ul><li>&quot;If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what's going to happen to the stock market.&quot;   </li></ul>
  25. 40. Quotes from Warren Buffett (in Berkshire Hathaway’s 1994 Annual Meeting) <ul><li>“ Charlie and I never have an opinion on the market because it wouldn’t be any good and it might interfere with the opinions we have that are good.”   </li></ul>
  26. 41. Lesson 5 <ul><li>Forecasting the short term movement of the market is a Gambler’s game. </li></ul><ul><li>Invest with a strategy, not guessing the direction of the market. </li></ul>
  27. 42. Emotions of a market “guesser”
  28. 43. Emotions of a passive investor
  29. 44. No emotions involved. Strictly disciplined Rebalancing
  30. 45. Recent Video of Warren Buffett (on 1 st Oct 2008 in San Diego)
  31. 46. Lesson 6 <ul><li>Be Fearful when others are greedy, and be Greedy only when others are fearful ! </li></ul><ul><li>(In other words, he meant Sell when prices are High, and Buy when prices are Low) </li></ul>
  32. 47. Lesson 7: Time is money! <ul><li>Mr. Smart invest $ 1,000 per year for 8 consecutive years. After that, he never invest a single cent (and never withdraw anything). </li></ul><ul><li>Mr. Procrastinate never invest anything for the 1 st 8 years. After that, he invest $ 1,000 per year for 16 consecutive years. </li></ul><ul><li>Assuming both person earns 10% on their investments, Who have more money at the end of 24 years? </li></ul>
  33. 49. Conclusion 1 Before you invest: <ul><li>Live below your means </li></ul><ul><li>Set up emergency fund - (3 to 6 months expenses) </li></ul><ul><li>Don’t invest the money you need within 3 to 5 years. </li></ul><ul><li>Pay off “Bad debts” </li></ul><ul><li>Own a house (but doesn’t mean “paying off the housing loans) </li></ul>
  34. 50. Conclusion 2 When you invest: <ul><li>Over a long term, Common Stocks (or Equities) gives the highest return. </li></ul><ul><li>Risk reduces with time. </li></ul><ul><li>Diversification reduces portfolio fluctuation, while maintaining returns. </li></ul><ul><li>For 99% of the people, they are better off with a low cost Index Fund, spreading their purchases over time. </li></ul>
  35. 51. Conclusion 3 When you invest: <ul><li>Don’t forecast. Instead, invest with a strategy. </li></ul><ul><li>Be Fearful when others are greedy, and be Greedy only when others are fearful. </li></ul><ul><li>Time is money. Put time on your side! </li></ul>
  36. 52. Thank You <ul><li>Questions </li></ul><ul><li>& </li></ul><ul><li>Answers </li></ul><ul><li>Peter Lim </li></ul><ul><li>Contact : 012 – 494 6124 </li></ul><ul><li>Email: </li></ul><ul><li>Web: </li></ul>