Sunday, July 27, 2008
What is Dollar Cost Average (DCA)?
It's a benefit whereby investors who do regular fix amount of investment will enjoy. Very suitable in a market that is uncertain/volatile. The key word is regular investment and fix amount.
Let's say an investor invests $1,000-00 regularly in today's equity market scenario, whereby the price is going downhill (assuming no service charge incur).
To read the data below, pls follow its header's colour with the data below (sorry, cud not prepare a proper table in this page, so has to be creative here) ;)
Mkt Prc Units Ttl Units Total DCA Investment
Sen/unit Bought Collected Cost (Total Cost/Total Units) Value
------------ ----------------- ------- --------- -----------
0.25 4,000 4,000 1,000 0.25 $,1000-00
0.22 4,545 8,545 2,000 0.234 $1,999.53
0.21 4,761 13,306 3,000 0.225 $2,993.85
0.19 5,263 18,569 4,000 0.215 $3,992.34
0.20 5,000 23,569 5,000 0.212 $4,996.63
0.17 5,882 29,451 6,000 0.204 $6,008.00 (began to make profit)
0.18 5,556 35,007 7,000 0.200 $7,001.40
0.16 6,250 41,257 8,000 0.194 $8,003.86
0.17 5,882 47,139 9,000 0.191 $9,003.55
0.18 5,556 52,695 10,000 0.190 $10,012.05
0.20 5,000 57,695 11,000 0.191 $11,019.75
0.21 4,761 62,457 12,000 0.192 $11,991.74
0.23 4,348 66,805 13,000 0.195 $13,026.98
0.25 4,000 70,805 14,000 0.198 $14,019.39
0.26 3,846 74,651 15,000 0.201 $15,004.85
It's an investor's objective to BUY LOW and SELL HIGH (that's how profits are being made). In mutual fund, another objective an investor has is to ACCUMMULATE UNITS.
Dollar Cost Average is Total Cost divide with Total Units. It represents the ACTUAL COST of each unit on average basis of what the investor have on hand (total units).
Look at the first purchase of $1,000 at 25sen, total units was 4,000. Therefore cost of each unit is 25sen.
As the price goes down (25sen to 22sen), with the same investment amount ($1,000), the number of units the investor is able to buy increases (extra 545 units). Take note of the DCA value which also reduces (25sen to 234sen). This is made possible as the cost of each unit at the current low price (22sen) helps to reduce the cost of other units on hand (4,000 units originally at 25sen/unit ) thru additional units.
For an investor who decides to practice one time off investment ie to invest $1,000-00 only at 25sen, the investor would have to depend on the fund's price to increase above 25sen in order to make any profit or, to wait for any distribution/dividen to be declared in order to increase the number of units owned. It may take awhile in the current market condition. Furthermore, the dividen earned may not be significant as the principal is low ($1,000 only or 4,000 units). "Not enough power leh!"
By practising regular investment, investor is making sure his money works hard for him as he amass greater number of units at lower cost thus enable him to make profit faster and greater once the market improves as shown in green.
Investor is able to breakeven at 17sen compared to those who invest as a one time off at 25sen. Making profit even when the market price is low?! Yup! Makes sense to invest regularly right? Imagine when "free" additional units are given during distribution or as dividen. The DCA would be lowered further as no additinal cost incurred for the extra units! That is your bonus! Up goes your profit! :)
Invest for the future especially for your retirement as during our golden years our income stops but we still incur expenses in terms of food, lodging, holiday, higher medical cost, etc.
In addition, with the current equity market which is so.......... cheap and with higher......... inflation rate; this method of investment is one of the best way to ensure that our hard earned money's value is being protected otherwise inflation is quietly draining our money's purchasing power.........
Did you noticed you have to fork out extra money to get the same item? That is inflation my friend!
Saturday, July 26, 2008
A story to share with you on creating passive income. Btw, if you have any questions, please contact me directly. Any details that you may leave on the given link will go some where else as it's not mine but I find the story to be very useful.
Friday, July 18, 2008
I was in town yesterday and noted that the Mega Sales is back from 5 July - 1 Sept 2008!
Lots of discount were in the offering from 10% - 70%! As it was a working hour day, the crowd was .....ok. I used to remember many years ago whenever there's a sales, the traffic would be bad and the queue to the changing room was long......! I've even heard of people using their annual leaves to take advantage of the huge discount. Is it the same now?
People are willing to queue either in the changing room or at the cashier to take advantage of the huge discounts being offered. Or be in the tight crowd, jostling in their attempt to look for items on sales. Their purchases could be huge and some of the items bought could either be used immediately, kept for future use, to give away or a just-in-case purchase.
This scenario is somehow missing whenever there's huge sales in the equity market. Currently it is also having Mega Sales but investors are dumping their shares (making losses) and prefer to be on the sideline, watching for any signs of recovery. Buy when prices going upwards?
Many investors that I've met bemoaned that they are making losses but in actual fact they are currently facing paper loss and not real loss unless they have sold off their shares/funds. It is funny, as the same is true when the equity market was good. Investors were pleased when the equity market was doing well and they assumed that they were making money and were ever more than willing to invest more even when the price was high! In actual fact, no real profit is being made unless the investors sell off their investment and pocketed their money! It is just a paper profit if nothing is being done!
The two situations are similar but somehow they have portrayed human's love for immediate gratfication through spending and lacks patience and the wisdom to take the necessary risk to await for greater profit.
If investors were to adopt the same attitude when they shop to how they invest, I am sure they would note that the current equity market is their goldmine.
With long term strategy in mind, wise investors would right now select quality low priced shares and keep them. For those who are unsure which shares to collect/buy, appoint a reputable mutual fund company to manage your investments. Let the fund managers do the shopping for you.
As all of us are unsure for how long the market will be this cheap or getting cheaper, the only practical strategy is to pick the shares / buy the funds in a gradual manner (bits by bits) in order to take advantage of the dollar cost average benefit in the event the prices continue to head south. Furthermore, based on history, anything that goes down will eventually goes up. Therefore, for long term investor, there is never a better time but now to invest when prices are heading south whilst waiting for the market to correct itself, which it normally does.
So what are you waiting for, jom, shopping!
Wednesday, July 9, 2008
From my past blogs, you'll noticed that I have been harping on the issues of investing in the current low priced equity market. The current market conditions, brought about by the States' mortgage prime issue, seems to have domino effects on other countries' equity market even though they do not have the same problem back home. That's baffling isn't it? Its surprising that the State could be saddled with such problem despite not too long ago, Asian countries were saddled with somewhat 'similar' financial crisis. The States apparently do not practice what they had preached to the East who viewed them as their 'panadol' to their various ailments. Well, since our usual panadol has a problem, I wonder who will be bringing the next remedy to cure the current ailment?
I heard over the news that the crude oil price is expected to go as high as USD180 this year and could even touch USD200 next year! What does this mean? Worse equity market and higher inflation?! So which is your greatest fear?
I recalled when I was working in an office building in Kuala Lumpur between 1992 - 1994 which houses a share trading company and a very chic chinese restaurant. During lunch time, the same restaurant could either be very busy or very quiet depending on the share market of the day. When the market was doing very well, one of my colleagues used to take leave to sit in the trading house together with many retirees who even carried their own foldable stool as there were insufficient seats due the house being full. The office lifts were also packed and the only conversation that was swirling in that little lift cabin is ...you guessed right and with lots of excitement too! The restaurant would be housepacked and being a chinese restaurant, whether its chic or otherwise, the noise was impeccable! That was the good times. The opposite holds true when the market was down and weak. Reserving a table in that same restaurant for lunch was very easy.
What's the effect on me at that time when the equity market was good or bad? Well, at that time, I was very ignorant about share market but knew that good money could be made if we choose the right share. But being a non investor, I could only feel the excitement or the quietness of the market only. However, over the years, I had noticed that the money that I had been hoarding in the bank's account gave very low return that it was insufficient to buy what I've desired ie a house or good holiday. This had caused me to be bold to dabble in the share market but of course I piggyback on one of my relatives who used to make lots of money from share market. Guessed what? Called it back luck, I lost everything and as the chinese used to say, there's no dust left!
The moral of the story is......whatever happens to the share market, it does not affect the non investors. However, all of us, living mortals, have dreams ie to buy house, dream holiday, retire comfortably, start a business, etc and all these requires money. We do hope to achieve our dreams quickly and safely.
We knew that placing our money in a place that's safe ie bank would not help us to achieve our dreams in this lifetime and therefore, we need to invest to earn greater cash and at shorter time so that we could enjoy our fruit whilst we are still here. Besides, if we are to place our money in a place that does not give us higher return than our inflation rate, our cash purchasing power will depletes and we need to work extra hard and longer to ensure that we have enough cash to buy our dreams. All these are vicious cycle and if we are not careful, we may end up chasing for more and more money and no time for ourselves or family.
Being ignorant about investment does not mean we do not invest.
Based on my experience, since investment is necessary, we need to piggyback on someone who is the expert ; no, I don't mean an "expert" investor according to our definition but a professional person who has good track record and has a mission to create and accummulate wealth for its investors.
Dabbling in the share market is too risky for most of us due to various reasons, therefore, my recommendation is to place your "future" with a mutual fund company with good track record. Furthermore, the risk is minimal, diversified and managed by professionals. That frees you to do what you are skilled in and let the experts take care of your money.
I am able to recommend mutual fund with certainty based my experience with one who is currently still managing my money. Right now, I am even promoting their services to those who care enough about their future and prefer their money to work hard for them.
As always, invest with long term in mind, and with the current bearish market, there's no better time but now to gradually pick and invest in your favourite funds. Do regular savings and you'll be rewarded in due time on this new habits of yours .
Happy realising your dreams!
p/s: Am able to post this blog as am right now confined to the house due to bad cough and loss of voice. Might as well use my down time to share my 2sen worth of thoughts!
Friday, July 4, 2008
Inflation, to me is like cancer. On the outside everything looks fine but its effect to its host by wasting its cells is unknown until its too late.
Inflation reduces the value of money but the written value on its surface remains the same. The pinch could be felt every time price adjustment is being carried out and once inflation has set in, it never leaves. Thus, the buying power of cash deteriorates as inflation increases.
In treating leukemia, the number of red cells is being increased to overcome the white cells count. Similarly, to overcome cash's reducing puchasing power, we need to generate more cash faster than its depleting rate. To do this, investment is the only way to generate more cash. It could be in various forms and its choice is dependent on its owner's capability, experience, knowledge, etc.
Generally, investment knowledge is very low in Malaysia. We have never been taught in school nor in uni. Most of us were only aware about it once we have had started working and depending on the type of crowd we associate with, our knowledge expands accordingly. It is easy to blame our education system, friends, teachers, parents, etc but the onus is on us to do something to improve our current situation. Therefore, one form of investment that is very important, to me, is to invest in knowledge relating to wealth creation. It could be in the form of books, magazines, journals, seminars, trainings, or just network with the correct group of people, you'll notice your learning curve is shorten. So does this equation makes sense "income = knowledge". I do now. :)
Inflation could be seen as a foreign word to lots of people as they are aware that prices of goods are increasing but did not realise that is the effect of inflation. Despite having known that the cost of goods and services have increased, yet they do nothing to protect what they have had worked hard for. They merely adjust their way of life as they try to fit into the changing economy. Most of the time, they work harder chasing for more money whose value keeps reducing in order to maintain their standard of living. Is that what life is all about? No wonder it has been known that Asians are the hard working lot!
It has been said that the rich lets money work for them. I guess they realised that much earlier thus able to be where they are now than the ordinary people who are still in the dark, chasing money.
The rich invests so that their money works hard for them whilst the poor works to pay for their expenses. The rich use their passive investment or business income to support their desired lifestyle, the poor continue working for money and be a slave to money. Which is your preferred choice?
Since we knew that inflation reduces our money buying power, don't you think you should multiply it quickly by letting your money works hard for you and be your slave instead of the other way round? So, is investment important? You decide.
Thursday, July 3, 2008
These past weeks have been a tough week for the Malaysian and the world's stock market. The Malaysian market has reached its lowest level of 15 months surpassing the historical 10 Mar 08 index of 1157 point with PE ratio of 15x yesterday. We have seen the worst in the 80s and 90s but we don't think the CI would ever come to that level again as we are now fundamentally stronger in terms of corporate earnings, stringent listing ruling, good economic policies, etc.
There are various contributing factors to the current situation but the most glaring factor is the unstable local political situation. Technical forecaster expects KLCI to dip to as low as 1120. Remember, it is just a forecast only. If we are to examine Malaysian political scenario, it usually is amicable and our PM has actually announced his plan to do a proper hand over. However, human being human with emotions especially when it comes to investment, any hiccups is construed as TB. So, how to invest in this yo-yo and uncertain market situation?
Foremost, investors should ask themselves, what's their investment objective (besides the obvious reason of making profit). Is it for quick profit which is short term or is it to accummulate enough wealth so that investors are able to retire comfortably and overcome the silent purchasing power zapper ie INFLATION?
Everyone has been focusing on the equity market situation but neglect to pay attention to the effects of inflation on their current and future wealth which affects their cash buying power. The global's inflation rate has increased in tandem with the increased in the crude oil's price but the rate has never been adjusted when the oil price dipped. Various countries' government gave various figures on their country's inflation rate but their citizen knew the rate published is beyond truth.
Less than a decade ago, I recalled having to spend on average RM35-00 each time I refilled my car but today at RM60-00 it's hardly half tank full! What has happened here? Does that reflect a mere 2% increased in our CPI? They must be kidding!
The question everyone should ask is; "Is my money's purchasing power getting better or worst in face of the ever increasing inflation rate? If the latter, how do I ensure that my hard earned money is able to sustain my living past my retirement age?" or "How do I ensure that I maintain my standard of living during my retirement period? Would I need to adjust my lifestyle during my retirement to a level that is lower than the current lifestyle?"
Investment is a necessity to overcome inflation and create greater wealth. But the big question is what investment vehicle to choose? When is the right time?
Forget the bank's fixed deposit interest please! It exists only to enable us to place our money safely (from theft not inflation) for a short period of time and is not meant to generate revenue for individuals as its too low to overcome inflation rate, or even appropriate for corporate's excess cash as its taxable in Malaysia.
For those who are too busy working, lack of know-how, insufficient capital for bigger investment vehicle (equities, property, gold, commodities, etc) or is risk averse, isn't it better to appoint someone who is professional, dedicated, has mission to generate income and preserve investment capital for their customers, has no emotional attachment as they are able to cut losses or exit at certain profit margin?
Mutual Fund is not the only investment vehicle available but it addresses the problems mentioned above. The beauty of this vehicle is that it is a basket of well DIVERSIFIED shares, picked by professional fund managers.
The keys to successful investment using Mutual Fund especially in this uncertain equity condition are as follows:
(1) Do regular savings to take advantage of DCA
(2) Do not time the market as no one has the crystal ball
(3) Suitable for mid to long investment period
(4) Review your investment objectives regularly with your UT Consultant
(5) Rebalance your investment portfolio with your UT Consultant
(6) Be a responsible investor by knowing what you are investing
(7) Let the professional fund manager do their work by observing all of the above.
The current market is actually an OPPORTUNITY to enter as it is cheap and the risk is much, much lower for those who have never invest and good for those who are already in the market as they are able to get more units at lower cost thus reducing their average cost per unit which translate to higher profit opportunity. Continue to pick those low priced funds / equities and remember, market always comes back.
Be a responsible investor, invest only when you are ready. The final decision is yours. Only YOURS to make.
Hey, I am not bias but am also an investor like you. ;)
May the good force be with you!
Tuesday, July 1, 2008
Smart investors are those who:
(1) do not follow the herd
(2) buy when price are low
(3) do regular investment to take advantage of Dollar Cost Average benefit
(4) are not involve in speculative investment but invest based on strong fundamentals
(5) look at long term
It's a fact :-)
Market ALWAYS comes back/rebounce.