MaxiMiserMom's Principles of Investing

Today, I put "pen to paper" what I've picked up about investing over the last 18 years. I'm not doing so because I think I'm some kind of investment guru (I wish I were one but alas I'm not!), but because my journey, which started from scratch, has been far from easy and I hope readers will have an easier time than me.


Huat Ah!!!

No. 1: Start Early


For those of you who read my 4-part story on how I bought 8 properties in 10 years will know that I started my investment journey at age 27. Hubby and I had just gotten married and used up most of our savings on a lavish wedding. We searched for under-valued shophouses in the aftermath of the Asian Financial Crisis and dot.com bubble burst, and plonked whatever we had left into a shophouse. We generated cash flow by starting our own business there.


Within 3 years, by successfully obtaining credit from the bank and consciously ploughing our earnings into under-valued shophouses, we managed to purchase 3 shophouses with a combined built-up commercial space of almost 9,500 sq ft for a total of S$2,288,000.00. Had we not liquidated our portfolio, based on latest market valuation of the 3 shophouses, they would be worth about S$14 million today. More than a 6-fold increase in 18 years.


My 4-part story can be found here:-

(i) How I Bought 8 Properties in 10 Years (Part One);

(ii) How I Bought 8 Properties in 10 Years (Part Two);

(iii) How I Bought 8 Properties in 10 Years (Part Three); and

(iv) How I Bought 8 Properties in 10 Years (Part Four).


Good credit is an investor's best friend. Mortgage loans are generally the lowest cost borrowings that one can obtain. By putting as little as 10 to 15% downpayment in those days, one could purchase property after property by using the bank's money at a low cost.


These days, with Total Debt Servicing Ratio and a host of cooling measures, credit is much more difficult to come by. However, what remains the same is the older one gets, the harder it is to obtain a mortgage loan. The maximum loan tenure available will also get shorter and shorter as one ages, making it less viable to borrow. Starting young allows you to leverage on cheap money from banks to grow your investment portfolio quickly and effectively.


Many people aim to achieve FIRE (Financial Independence, Retire Early) these days. Although the movement has been around since 1992 when the book "Your Money or Your Life" by Vicki Robin and Joe Dominguez was published, it was not a movement I was aware of until recently nor embraced. In my mind, to retire by the 30s or 40s would be to throw away the most valuable years of one's career and leveraging ability. FIRE may work for some, but it's not for me.


Aside from the relative ease of obtaining credit when young, starting early also gives investors more time to hone their skills, learn from their mistakes and become better.


When we're young, we also tend to adopt a "we've got nothing to lose" attitude and are more inclined to take greater risks for higher gains. As we age, our risk appetite changes, especially with kids in the picture. When the kids are grown and we get even older, the risk appetite all but vanishes and safeguarding of the nest egg mode kicks in. Starting our investment journey early allows us to take high-risk high-returns steps without fear. If we do fall, we can pick ourselves up with significantly less repercussions.



No. 2: Determine your Investment Plan and Strategy


I was brought up in a family of avid investors. Everyone around me dabbled in real estate, stocks, bonds, unit trusts, etc. I watched their wealth grow significantly over the years, so I didn't have to refer to books like "Rich Dad, Poor Dad" for me to come upon the realisation that I wanted the same route for myself and the family.


Owning rental properties, dividend-paying stocks and unit trusts, as well as coupon-paying corporate bonds generate cash-flow, making them very popular with investors. However, there are non-income-generating assets with potential capital gains which can far outstrip any income-generating asset.


For instance, a vacant plot of land of 40,000 sq ft may seem like a poorer investment than a brand new detached house on 15,000 sq ft at first glance. Assuming both cost the same, then many years down the road, you'll probably find that the value of the empty 40,000 sq ft plot far exceeds that of the now old house sitting on 15,000 sq ft.


Other examples would be art, fine Chinese porcelain antiques and other collectibles. They may not generate any income whilst they sit in your living room collecting dust, but given the right buy, their value could far exceed that of any Good Class Bungalow those pieces are lying in. Just watch the way the ultra wealthy Chinese bid for those treasures at auctions and you'll comprehend.


Each person will have their own investment plan and strategy. There is no right or wrong answer, but before we pick our investments, we should always consider why we want to purchase that particular asset, what we see happening to it in x number of years, how we should go about obtaining it, and our exit strategy.


Where a person is gainfully employed, he or she should also consider if he or she will have the time to monitor the investment when investing in volatile assets like equities, unit trusts, Equity-Linked Notes, etc. Imagine a person with a S$1 million stock portfolio is asked by his boss to attend a series of important meetings when the stock market is at its most volatile point. At the meetings, he'll be distracted, worrying about his stocks. It will affect his job performance. Not only will he not be able to make cool decisions about his stocks, he might even lose his job. It might have been more suitable for him to invest in less volatile assets like real estate, which do not require constant monitoring.



No. 3: Only Buy What You Understand


I grew up visiting showflats and open houses almost every weekend as a child, and I picked up bits of wisdom which my parents, aunts and uncles rubbed off on me. Tenure of the property, developer's track record, whether the apartment faced the morning or afternoon sun, cost of maintenance fee and sinking fund, shape of the plot, house number, unit number, fengshui, inconveniently placed columns and beams, stains showing water leakage, severe cracks, etc. These were all little pieces of bones which my parents and relatives threw my way as a kid. Naturally, when it was time for me to put every cent in my name into an asset, real estate was the obvious choice for me.



Everyone has a different story; a different set of experience, interests and skill sets. Some prefer real estate, whilst others have a penchant for stocks, unit trusts, bonds, bitcoin, gold, silver, soybeans or other commodities. Whatever it is, only buy what you understand.


Only buy something after you've done thorough research, and your own conviction tells you it will work. Never buy anything on the back of listening to an investment savvy friend, or an experienced financial consultant like a bank relationship manager, insurance agent or real estate agent. These people may bring to the table interesting propositions for you, but you should definitely do your own research, understand the product, before deciding whether to put a dime in it.


Many say that diversification of assets into a balanced portfolio is key. Whilst that will probably work for some people, it's not always the case. If an investor is very skillful at a particular class of assets eg. stocks, it would probably be more prudent for him to continue using his own analysis to stock-pick than to switch part of his portfolio to unit trusts and rely on fund managers (who remain highly paid regardless of whether the fund makes or breaks) to trade on his behalf. Imagine that you own an Italian restaurant which is famous for its woodfired thin-crust truffle pizzas, and someone came along and suggested that you diversify and offer chicken rice and char kway teow in your menu as well. Would you not throw him a blank look too?



No. 4: Use your own Logic and Common Sense to Determine a Value Buy


Many factors come into play when deciding if an asset is a value buy, and timing is one of the most crucial. Warren Buffett gave sage counsel when he said "Be fearful when others are greedy and greedy when others are fearful."


Seasoned investors keep their ears peeled for new developments, opinions and commentaries, and at the same time do not let white noise cloud their judgement. If you've applied logic and common sense to a purchase, you shouldn't be afraid of being wrong.


In times like these with countries printing and pumping unprecedented trillions into the financial markets, where prices continue to surge without support by fundamentals, where the possibility of hyper-inflation and wild forex fluctuations taking place seem plausible, and the concept of Modern Monetary Theory seeks to calm nerves, we've entered uncharted territories.


The current situation defies logic and common sense to me, so I've decided to sit on the sidelines. It matters not to me that I may have missed the boat several times over because, if I cannot apply logic and common sense to an investment, then it would be no different from betting on the roulette at the Marina Bay Sands. I'd rather sit it out than to take any unnecessary risk.


Having watched wealthy individuals suffer mental meltdowns after chalking up millions in losses on the stock market, I feel such anguish is not worth the while for people who're reasonably comfortable as it is. I'd rather go to bed with restful nights than to toss and turn wondering where the Dow is headed, whether a desperate Trump will start a war or take to Twitter, whether rioters are about to storm the White House, etc.



No. 5: Fate Plays a Role, so Do Not Chase


This applies mostly to property investment. When you come across a value buy, always remember to keep level-headed and do not chase after a price. Sellers who detect keen interest in the buyers will invariably try to raise their prices at the last minute. Buyers who let their emotions cloud their judgement will get sucked into a conundrum of whether to cave into the sellers' new demands. Do your math. If it makes no sense, walk.


I've personally experienced quite a few such situations. After viewing a property several times, it's natural for the mind to form exciting mental images of how the property can be renovated to suit this purpose or that, and an emotional attachment is formed. In the initial years, when a seller rejected our offer and demanded much more, I would feel disappointed, sad and even tearful. Much work would have gone into obtaining an in-principle bank loan, drawing up plans for the property, etc and such feelings are to be expected when those plans do not come into fruition.


However, I've learnt to detach myself emotionally from such matters. Like my dad reminded me, fate plays a role in such things. Learn to let go when it's not meant to be because a more suitable one will eventually come along.



No. 6: Invest What You Can Afford to Lose


As mentioned in point no. 1, one is more willing to take greater risk when young and there is less baggage, than when one is older.


With borrowing rates at record low levels now, some may be tempted to gear up on their homes to invest in another property, equities, gold, etc. Before doing so, always ask yourself if you can afford to lose the roof over your head if the market takes a sudden tumble and you're forced to do a top up in a margin call.


Similarly, before you take on unsecured credit lines from banks, credit card debt or borrow from a moneylender to invest, ask yourself if you will have problems making repayments if the market falls and you lose your job at the same time.


Fundamentally, we should only invest what we can afford to lose. We should also be mindful that more investors lose money than make money in the stock market.



No. 7: Good Credit is an Investor's Best Friend


Some people are averse to taking on debt, as they prefer a debt-free lifestyle. However, as mentioned in point no. 1 above, good credit is the key to upsizing one's investments.


Whether you put down 20% cash and borrow 80% at 1.25% to purchase a house, or you get 0.85% financing for up to 70% the value of corporate bonds or unit trusts to purchase them, etc. are all examples of using leverage to boost your portfolio returns. The returns of an investor who uses credit wisely will outperform one who doesn't take on any debt at all.



No. 8: Use your own Common Sense and Logic to Determine when to Exit, and Be Prepared to Cut Loss where necessary.


A good exit strategy is crucial to investors.


Some people take part in joint purchase schemes whereby a private limited company is formed and people pay for shares in the company. The company then buys and holds real estate and other assets, and rental or other income are distributed as dividends. There is no way to exit such an investment unless another shareholder agrees to buy you out. If no one does, your funds will be stuck.


Some assets are more liquid than others. You can liquidate your holdings in a public listed company, unit trusts or bonds as quickly as within seconds or minutes, but not so for real estate, art, antiques, etc. Before you purchase anything, you should consider whether you're prepared to hold it long term if you have to (eg. some property flippers were caught when the government suddenly introduced capital gains tax), and whether you'll be able to sell the asset easily for a good price down the road.


Last but not least, the question of cutting loss. It takes courage and guts of steel to accept failure, and recognise that preservation of one's capital is more important than trying to make a profit. The ability to be clear-minded and cut loss when the time comes are hallmarks of a good investor. The historical highest point of Japan's Nikkei 225 Stock Market Index was 38,957.44 points in December 1989. It has never gone back up to anywhere near that point. Today, 3 decades later, it's around the 22,500.00 mark. Imagine buying back in December 1989 and not cutting losses when the market turned. Nuff said.

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