Investment in Stocks

Archive for the ‘Financial Intelligence’ Category

I would like to share with you 2 stories.

Story 1: In 2008, due to the lack of exercise and overeating, i began to gain some weight. I decided to go on a regime and within 7 weeks, I loss weight and gain the body i am satified with.

My friend (lets call him Hanson), asked me how he too can achieve the same results. I quickly sat down with him and pull out a sheet of paper to give him my winning formula. I wrote down and explained the exercise he should start on as well as the kind of diet he should take. And while i was sharing with him this success formula, he would make remarks like, “I do not like to go to the gym, it is so ‘gay’”, or “I do not like to eat that kind of food.”

Finally, i asked Hanson, “So what exercise do you like to do and what kind of veggies do you like to eat?”

Hanson answered, “I like to play Wii Sport and eat French Fried…”

Make a guess if Hanson managed to slim down?

Story 2:

In my Value Investing Talks, the first key thing i share with my participants is that we must look at stocks as businesses. Thus, the winning formula is to buy businesses that can continue to make profits and buy them when they are cheap. This by the way, is the method used by Warren Buffett and many other Value investors that made them very rich. I also teach a method which I named as “Value Investing Options Strategy” (VIOs). This method is a simple method in which I SELL (or Write) Options and collect premium based on the stocks which I had done my research on and deem it as a business which i want to buy and hold.

After I shared with the class, there will always be someone who will ask me, “What if i get stuck with the stock? How can i avoid such a scenario?”

I will then emphasized that we want to buy and own the stock anyway, because once we purchase the stock, we become owners of a good stock. And i will also emphasize that Value Investors such as Warren Buffett himself does that.

They will continue to probe, “What if the stock price falls and the stock i am holding is worth much lesser? I don’t want to be in that position.”

Even with several attempts to quote them on what Famous Investors say about the need to NOT be Bothered about Market Fluctuations, they would still persist on their own way.

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Many people want to get different results from what they are already getting but they do not want to change the way they think and they way they behave.

“Insanity is trying to do the same thing but expect a different results”

I am going to give you one more bonus story.

There was a man who was tracking along the mountain when he slipped and fell off the cliff. In the final second, he managed to grab and hang onto a rock. As he was hanging onto the cliff, he yelled, “Somebody! Save me!”

He was astonished when he heard a voice boomed. “My son, this is God and I am here for you. I will save you and ALL you have to do is to LET GO!”

The man paused for a second and yelled, “Is there anyone else up there?”

What is the moral of the story? It is the same. We know the formula for keeping fit, getting rich and getting rescued, but most of the time, we prefer to HOLD ON to our old ways and do it our way. All because we are not comfortable doing it any other way. I got to admit, if you ask me to LET GO while i am hanging on the cliff, i may not be able to do it immediately.

Just sometime back, i was wondering to myself why is Warren Buffett so determined to enrol himself into Columbia University to learn directly from Benjamin Graham (The Father of Value Investing) ? It was recorded that by the time Warren attended the class taught by Benjamin Graham  and David Dodd, he was even more well versed in the methods than the authors. He could recite the book and memorize them by heart. So why did he want to learn from them?

In my opinion, I could imagine Warren Buffett being amazed after he read the book and as he explored with the methods. He could get the strategies and even the thinking behind the book, but what a book can not do is to display the entirety of the authors’ mindset. We can read a book about fitness, but it is more likely we will get into shape when we change the way we look at exercising and food. The fastest way? Surround yourself with people who are already like that.

So do come and join us as you get to witness how our group invest and compound our wealth. Lets create passive income through proper investment together.

Click HERE to book a Free Investing Workshop.

To your dreams,

Sean Seah

Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffett Way
http://www.investment-in-stocks.com,

As an author on Money, people like to talk to me regarding this ‘$ubject’. Some people ask me how to have more of money, some asked me why have I choose the path to evil since money is the root of it. Different people have different perspective of money.

Not too long ago, I was talking to a person who was close to me and was trying to convince him how important it is to manage our money well and to invest part of our money. Our debates were heated and I cornered his every argument. As I was more well read and had actively practiced what I learn about Money, I could win the argument, but I just could make him “see the light”. He agreed with my logic, but i sensed that  deep inside, he just wanted to brush me off and stop talking about the topic.

He reminded me of children at times. It is so difficult to explain logic to children because they just couldn’t see what we can see as adults. I remember when i was young, my mum used to say

“Don’t watch too much TV, you will spoil your eyes and become short sighted.”

Wow! What a wise advise. And it makes total sense… to a adult. Logically speaking, whenever my mum say this, I should rush over and give her a hug of gratitude, saying, “Thank you so much for warning me mummy! I love you!” But is that what I did? Well, you might have guessed that I was an angry young boy whenever my mum nagged and I continued to glue my eyes on the TV set. What immaturity. It is no surprise that I am wearing glasses now…

I was thinking through and wonder what is it that makes a person mature? I came up with a thinking that it has got to do with how “far” we can see into the future.

Just like the event of me watching TV. In this event, my mum considers a longer time frame than myself. She is probably looking at a 5 to 10 years time frame where I will have to bear the consequences by getting poor eyesight. But for me, I am only considering a 30min time frame when I want to finish the TV programme. In this case, my mum is obviously more mature than me.

Another example was the time i was in Secondary School and my mum nagged at me to study hard because this affects “my future”. She could see how my actions will affect my future. But for me, i couldn’t care less… Missing a soccer session with my friends today will be the end of the world for me. What immaturity!

Now in terms of Finances, i have met many Financial Babies. All they can think of is “today”. They make financial decisions based on “NOW!”

“Buy NOW while stock last!” “The discount is only TODAY!”

Don’t get me wrong, i love to purchase things when they are on a bargain, but i do not jump at every single one of them. And of course, before I purchase anything, i look at the longer time horizon and ask myself if i really need it and if i could afford it.

Again, these financial babies can never see how they determine their destiny with the next $1 spent.

Before I proceed further, i want to add that there are some people who are mature in thoughts, but are like babies in behaviors. An example is my friend Dan. He KNOWS logically that over eating is going to make his body look like a balloon, and he does not want THAT to happen. But guess what Dan looks like today? Yes a balloon, all because he had mature thoughts, but immature behaviors.

So i have also met many people who read Rich Dad Poor Dad by Robert Kiyosaki, Multiple Streams of Income by Robert G Allen and even Winning the Money Game by… ahem, ME! In their heads, they KNOW what to do, BUT, (when there is a but, it is usually a one), they don’t do it!!!!

So really, how far can you see with regard to your finances? And how does your action correspond to your vision? Lets take your last paycheck as a reference. How did you use you paycheck?

Financial Adults will take the first 10% to save and invest. They will use the 10% to buy assets (things that grow in value and produces income). These group will eventually become very wealthy.

Financial Young Adults would pay their bills and save the remaining. These group are responsible people and they will not get into much financial trouble as long as things remain stable.

Financial Teenagers would spend whatever they make and wait eagerly for the next paycheck.

Now, lets talk about Financial Babies… These group spend MORE than they earn. They overspend on their credit cards and couldn’t pay on time. Then they will find “creative” ways to cover the credit card debt by borrowing from somewhere else….

For each group, their financial decision is based on how far they can see the consequences of their decisions. For Financial Babies, the could see past the latest offer or whatever item that is dangling in front of them. They can justify their actions with good arguments, but their actions reveal how immature they are.

Regardless which group you are, you can and should grow. The question is: Are you ready to grow? If you are, come and join us in our FREE workshop to learn a time tested, powerful method to invest – Value Investing.

Click HERE to book a Free Investing Workshop.

To your dreams,

Sean Seah

Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffett Way
http://www.investment-in-stocks.com,

One of  the best group of Value Investors in Singapore is found in the shop, “Cash Convertor”.

These highly trained men and women can take a look at the item you are selling them, and they can give a good estimate how much it is really WORTH. The they will offer a price way below how much it is worth, if you are willing to sell them at the price, they will buy it from you, if not, they will just let you go without much pleading.

That…. is excellent value investing.

We know that the mircowave i sold to them at $10 is worth much more. They will buy it at $10 and sell it at $25, because they know it can sell at $25.

Imagine you can do too, not in the Cash Convertor shop, but in front of your computer.

The fact is, a big group of us do that, in the stock market. We buy the stock below what is it really worth, and they we sell it when the market (aka Mr Market) realises that it is worth much more and offer us a fair price.

So the question is this: How Much Is A Stock Really Worth? What is the Intrinsic Value of a Stock?

Let me first began by sharing what Warren Buffett said in his 2010 letters to shareholders

“The challenge, of course, is the calculation of intrinsic value. Present that task to Charlie and me

separately, and you will get two different answers. Precision just isn’t possible.”

The good news is, the idea behind learning to measure a stock’s worth has already made many people millionaires and billionaires, so precision isn’t a requirement.  I would like to share an article to discuss how we can start to quantify how much a stock really is worth.

Here is an article from moneychimp.com that gives a basic idea of how to determine intrinsic value.  

Investment Valuation: A Little Theory

We’ll start with a little theory before we get to the calculators.

A company is valuable to stockholders for the same reason that a bond is valuable to bondholders: both are expected to generate cash for years into the future. Company profits are more volatile than bond coupons, but as an investor your task is the same in both cases: make a reasonable prediction about future earnings, and then “discount” them by calculating how much they are worth today. (And then you don’t buy unless you can get a purchase price that’s less than the sum of these present values, to make sure ownership will be worth the headache.)

Let’s take an example. Suppose you are interested in a company that earned $10 per share over the last twelve months. Assume you expect the company to grow over the foreseeable future, so that its earnings will grow at a rate of 8% annually for the next 10 years; then, to play it safe, you make no assumptions about earnings after that, but just expect the company to stay at the same size from then on. Your earnings expectations look like this:

Here the height of each blue bar is the earnings per share that you expect for a particular year in the future. (The first bar is earnings over the next twelve months: that is, it’s what you expect the company’s reported annual earnings to be one year from now.)

Now for the discounting, finding how much each “blue bar of the future” is worth to you in the present. We’ll be using a discount rate of 11%, which is about the average annual return rate of the stock market over the past many decades. The idea is that earnings of $1.11 next year is only worth $1.00 to you right now, since you could invest the $1.00 in the S&P 500 and expect it to grow to $1.11 in one year’s time. Finding the present value of all of the blue bars gives a new graph:

Here each green bar is the value to you, today, of each corresponding blue bar in the first graph.

If you want to check into this in a little more detail, use the popup calculator in future value mode to find that $10 per share growing at 8% annually will grow to $21.59 in 10 years (that’s the height of the blue bar at year 10); and then in present value mode to find that $21.59 10 years from now is worth $7.60 today assuming a discount rate of 11% (that’s the height of the green bar at year 10).

We’ve drawn both graphs with forty bars, but the valuation formulas we’ll use in the calculators assume the company will keep going forever: an infinite number of bars. But the key is that the green bars are shrinking so rapidly that, even though there are an infinite number of them, if you stacked them up they would only reach a finite height: in this example, the height would be $155.40. That total – the sum of the present values of all future earnings – is the theoretical value of the investment right now.

How Long is Forever?

The last paragraph said we’d assume earnings would be going on forever into the future – not exactly a realistic assumption. But it turns out that assumption isn’t really important: the rapid shrinkage of the green bars means that any contribution from the distant future is negligible. In this example, all earnings after year 50 contribute only about one dollar – less than 1% – to the stock’s value today:

What are “Earnings”?

Purists would say that a company is worth the present value of its future free cash flows  rather than its earnings. The trouble is that you would have to know a lot about the company (and use fancier calculators!) to find values with FCF. So we’ll assume that earnings and free cash flow are equivalent in the long run, and that both approximate real cash profits.

What about Debt?

What does debt do to the value of a company? The quick answer is that any valuation based on earnings has already accounted for debt. That’s because interest payments – the “cost” of the debt – are an expense, and have already been deducted from earnings. So if the present value of future earnings adds up to $20 a share, the company’s stock is worth $20 a share, regardless of the amount of debt it has.

Of course the real world is more complicated than that glib theoretical answer; for example:

1. Debt is better than that: interest is an expense, so debt financing gives business a tax break unavailable with other forms of financing.

    

    

2. Debt is worse than that: interest is an absolute obligation, so debt increases the risk that some years will have low reported earnings (not to mention the risk of bankruptcy).

If you put those two contradictory statements together they actually form a coherent whole: Debt is a cheap way for a company to raise capital; and the superior profits that result will be a reward for stock investors willing to accept the added risk.

Want to join us to learn more about how to purchase a stock under value? Come to our free workshop and learn how every single one of us produce consistent results via Value Investing.

Click HERE to book a Free Investing Workshop.

To your dreams,

Sean Seah

Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffett Way
http://www.investment-in-stocks.com,

In my book, “Winning the Money Game”, i shared a story about a friend named ‘Fred’ (not real name). He was asking me how to start managing his finances and how to invest.

This type of question usually will get me on fire, because i was excited about this topic. I began firing off a series of tips and personal experiences to which most he merely answered, “I already know that.”

Whenever, he gave me the answer, “I already know that”, i will quickly jump to something which i think he doesn’t already know. To my surprise, Fred is a very knowledgble dude and “knows”, most of the things already.

So in the end, I asked him, “Fred, your knowledge is probably as good as mine, what is your experience in investing so far?” He paused at my question and confidently answered, “Well, investing is just too risky, i have not started and will not start until i get enough knowledge.”

Are you a “Fred”? Waiting to accumulate enough knowledge before you are willing to risk your dear hard-earned money? Don’t get me wrong! I do not wish for anyone to risk their cash, but let me share this, to Not Invest, is a sure way of losing your cash through this pesky guy called Inflation!

But Fred feels that he doesn’t have enough knowledge to move on? He is waiting until he gets to complete his thesis and gets his PHd before he is willing to invets a single cent… But we know that the the best investors aren’t Professors, they are Practitioners!

The best investors, invests!

Let me share with you the other end of the spectrum. Those people who acquire enough knowledge just to get them into big trouble. I was one of them. I started by attending a trading course and then threw my entire savings in. Guess what? I lost huge bucks! OUCH!

I am thankful that our authorities are regconizing this problem and are aiming to educate investors before they get themselves into trouble.

Now, let me share my concern…

In this new rule, investors are requried to fill in a form to declare how experience they are before being allowed to trade financial deriatives. If you trade more than 6 trades, you are good to go. If you have less than 6 trades before, you are required to complete an online education session followed by a quiz.

Out of curiosity, i attempted the online education session and the quiz. I think that tremendous effort was put into the design, but alas, the skills taught are very very basic. In fact, i would classify them as non-tertiary skills (in other words, just textbook theories that cannot be applied). If taken out of context, it can be misleading as well.

Nevertheless, i applaud the authorities for taking action to emphasize the need to proper financial education before investing your cash.

Who then should we learn from?

When i was in NTU choosing what subject to major in, i asked my friend for advise. I wanted to do ‘Marketing’ as a major but he challenged me asking, “Does it mean that you will be a better marketer after you major in marketing? If we both set up a business, does it mean you will have more sales than mine?”

That made me ponder… If i want to be a good marketer, who then should i learn from?

Probably Steve Jobs, Donald Trump or Bill Gates rather than Marketing Professors.

Does that mean academics is not useful? Not at all, because they provide basics and are studies of people who had gone the path. My point is that we should further seek knowledge from those who produce fruits.

A book, a seminar very often give the illusion of getting you more knowledgeable or educated, but you know that you really know when you do it and produce results.

Seek practical knowledge, seek it from the right source (people who already produced knowledge)

Come to our free workshop and learn how every single one of us produce consistent results via Value Investing.

Click HERE to book a Free Investing Workshop.

To your dreams,

Sean Seah

Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffett Way
http://www.investment-in-stocks.com,

Dear Friends

This is Part 2 of a series of articles that I will be writing. In case you have missed out Part 1, please read the article at http://www.investment-in-stocks.com/financial-intelligence/passive-income-101-part-1-how-you-too-can-be-financially-free before you continue to read.

Done reading the above article?

That’s great.

How should you get started now. I will provide some simple steps as a guide for you based on my personal experience:

Step 1: Which area of investment interests are you passionate about (Eg. Stocks, etc.). This interest will sustain you in a long run since we are investing long term.

Step 2: Are your investment interests able to generate more Return of Investment (ROI) than the inflation in your country? If not, search for another investment vehicle.

Step 3: Are you educated in your investment interest to a level that you are willing to put your hard-earned savings into it and you can sleep peacefully at night without worrying? If not, get the knowledge first. You may register for a FREE ‘How to Achieve Financial Freedom Using Only 15 Mins Per Month’ Workshop at http://www.investment-in-stocks.com/free-investing-workshop.

On this article, our focus will be in investing in Stocks or Shares to help you achieve your financial freedom.

Before I start, I am going to assume that you are a new in this area. As such, I am going to use very simple terms. Get ready!

In simple terms, a holder of stocks (a shareholder) is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares. For example, if a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 10% of the company’s assets. This leads to our Secret #2.

SECRET #2 – Stocks are businesses, NOT numbers in the stock charts

Most investors or people who claimed that they are investors looked at share prices every day, every week or every month thinking that they are monitoring the stocks. May I ask you: “If you are buying a business, do you want the business to make money or lose money?” The answer is obviously YES.

However, how many people out there who are buying/selling stocks truly knows what are they buying? Is the company that they are buying making money? Unsure? Then you are speculating.

If you are just looking at the fluctuation of the share price every day, then you are speculating.

Do you dare to put your entire savings into that company and you are able to sleep peacefully at night? You can’t? Then you are speculating!!

REMEMBER! In order to protect your hard-earned savings, you MUST see stocks/shares as a business and NOT just numbers fluctuating on the chart which leads us to SECRET #3…….

SECRET #3 – Invest, DON’t Speculate

So what is REALLY the difference between Investing VS Speculation. An INVESTING attitude is that you invest in an asset and you look at the returns that the asset is giving you. Eg. If you invest in a Coca Cola, you want to know how much money is this company bringing you, versus looking at the price regularly without knowing about the asset, that’s pure SPECULATION.

So which one works better, Investing OR Speculation? Look at the most recent Forbes Richest List at http://www.forbes.com/wealth/billionaires/list where it list down the current Billionaires. Focus on the TOP 10 and ask yourself this question: “Are there any investor or speculator in the TOP 10?” The answer is YES, there is an investor by the name of Warren Buffett but no speculators. If the Wall Street speculators are really that spectacular, why aren’t they in the Forbes List? We can infer one thing – an INVESTMENT attitude works, simply because results tell the truth.

By the way, Warren Buffett started investment in stocks as young as 11 years old and he is now 81 years old. 70 years of solid investment wisdom with a current networth of US$50 Billion. So is he just lucky for the past 70 years or is he skillful? If he is really that skillful, how did he do it?

In the next few part of this series, I will share with you how he does it. A SNEAK PREVIEW is available at www.facebook.com/valueinvestingacademy. “Like” us and get 2 Investment EBooks and Our Exclusive Interview with Mary Buffett.

Do come and join us for our free workshop show you how turn this time into the chance of a life time to be wealthy and financially free!

Click HERE to book a Free Investing Workshop.

Cayden Chang
Founder & Director, Mind Kinesis Management International
BSc(Hons), MSc
Lifelong Learner Award 2008 Honouree
Co-author, “Do You Have What It Takes To Be BOSS?”
Join our Fan Page on Facebook at www.facebook.com/valueinvestingacademy
www.nlpinsingapore.com

In this post, I would like to share an idea, a philiosophy which I have been thinking about recently which is on top on Value Investing Criteria which can serve as a way to start finding businesses to evaluate.

When we purchase a share of a company, we become a part owner of the business, therefore, shouldn’t we invest in businesses in which we support the “cause”.

Let me give you an example, (i will becareful of what i write so i do not direct at any specific companies.)
I will never support a company whose main business encourages people to gamble. I am not saying that it is not a profitable company, but rather, i will never want to be a owner of that company. I will also not invest into a company producing tobacco or cigar.

I realise by saying this i may turn some people off, but the truth is that I do not support the activities of these people. I do not agree to their mission or vision.

There are some companies that i find pretty neutral, like transportation, publishing etc. I do not particularly love them, but i do not disagree with them.

At first glance, it may seem that this post is pure philiosohical, but let me share why i do not think it is.

In Value Investing, we only buy businesses we understand. The key word I would like to share here is to “understand”.

Can you truly understand someone you don’t like? Well, i guess it works both ways. You may hate an enemy so much that you spend time stalking the person to find out more about his/her weaknesses to destroy him/her, but i find this foolish.

Instead, find someone you love and spend your entire life understanding more and more about the person. You will find yourself in love most of the time since you invest your resource in love.

Bringing this into investing, you should find a couple of industry you love and have passion for. An industry you love to do more research and reading on. You love to follow the news and you love to twit and facebook about it. If you already have an industry in mind, my friend, you may already have found an industry which can make you very rich.

In the book, Acres of Diamond, a man sold his house and went searching for diamonds in a faraway land. The irony is that weeks after he sold his house, the new owner looked into the river beside the house and found some shiny objects – Yes! They were diamonds.

Perhaps you already have diamonds in your mind which you specific love for certain industries and companies.

I strongly suggest you read up their Vision and Mission to see if they fall in line with your personal interest.

When you find these potential diamonds, that is when you can start to evaluate them with Value Investing Crtieria.

To learn more, come to our free workshop where we can discuss more about how to start investing in a solid manner to build your wealth.

Click HERE to book a Free Investing Workshop.

To your dreams,

Sean Seah

Master Trainer (Value Investing Options Strategy)
Investment in Stocks Blog
Value Investing Academy – the Warren Buffett Way
http://www.investment-in-stocks.com,