Covid-19 has caused lots of jitters and worries in the equity market, and some were lost and unsure of what are the best steps forward in today’s chaotic market. So, I thought that this penned letter from my close friend, YJ, was worthy of being shared to give us some directions in today’s market. This article does not focus specifically on real estate, but to me, the principle of investing in real estate and equities investment is pretty similar. In essence, we should have a strong understanding of the properties/equities, invest within our financial means, be patient and cut through the noises to make the best investment decision.

Ben Graham on Investing

A bit on YJ before we start, he is a happy family man with 4 kids. A giver. A late 30s man with awesome 6-packs and hitting 2.4km well under 9 minutes. On investment, he has been advocating no-leverage, objective, value investing within our close group of friends and has made remarkable financial success that is worth emulating.

Here are his thoughts he has penned for his family and close friends:

Since shares were sold down and STI came even lower than 2500 a psychological support level, many came and ask me how the market will go, what will happen to the system, is it a good time to buy and what to buy. Hence I decide to sit back to pen out my thoughts on this issue. Since 2009, shares have behaved obediently, and people start to have confidence in the equities market. When I say people, I mean the general public. As Central banks started printing money and lowering the interest rate, equities will inevitably outperform when one can borrow at a low cost (less than 2 per cent) and received dividends of 4-5%.

Over many years as equities tick higher and higher, people get complacent that it will last forever. The Massive sell down is not by chance it is by people who have weak hands, who took on the risk of losing their capital. Specifically, these are the people who are already very wealthy, yet they use the money they need and try to make money they do not have(buying shares on margin) and do not need. A Pandemic takes out all of these complacent and greedy people as they sell at all cost to cover the interest on the loan and to pay the loan what we call a margin call.

On the other hand, if one is not in the game, Good!, you may have a chance to pick up some companies and make money along the way. However, some word of caution to people on these group which have been staying on the sidelines. Please ask oneself, are u comfortable with this price, is it because someone you know recommend it? Or u have been following it in which you understand the business behind it how much cash they have, the debts they own? What are the sales figures like? Will their activities continue etc. A successful investor will not and should not outsource his thinking. It is my belief that if you have not been actively investing, your outcome will be equally mediocre. For example, if one just started out with say 50k, they decide to take a chance in this sell-off, says Comfort Delgro, are u ready to accept that the dividends could be dropped from 10c to 5c or no divvy at all? Are you prepared to see your hard-earned 50k turned into 20k?

For those who are already vested and are emotionally affected (hopefully you do not belong to the leverage group as this is no advice for you as you probably will be needing to cut loss and face the music of indebtedness). Ask yourself, say u owned an HDB flat which you bought at 500k. A property, unlike shares they do not have daily quotations. Your neighbour if he wants to sell lower at 300k, you will not know immediately, and you have no plans to sell quickly, you will not be affected. If this is so why should you be affected by people who are selling the shares lower just because they caught up with margin calls and needed the money?

The stock market is not for everyone. Ask oneself, are you really passionate about investing?

Active investing involves a lot of reading and homework, knowing the business in-depth, what their value, and what is good and what is not? Opportunity cost evaluation involves a good grasp of accounting and a good clear mind. Investing is simple but very difficult to implement because of emotions like greed and fear.

If you are not ready to put in the hard work to understand individual businesses, it is likely better to start buying an exchange-traded market fund (ETF) regularly. Investing in an exchange-traded market fund is investing in the best companies in the country. An ETF also rebalanced as required, adding better companies and removing worsening company for you. Investing in ETF, you can just sit back and enjoy the dividends.

Warren Buffett on ETF

If you are thinking to have one-time effort this time, listen to some STOCK TIPS, wanting to turn your 20k into 1 million, I do not have that kind of insight, and if anyone promises you that, I say you quickly run away.

Investing is a journey. You need to spend time to nurture your portfolio, buying the winners and cutting the losers. By nurturing, it means adding on whenever you can afford either by selling when an existing stock reaches your target selling price or reinvesting your dividends to enjoy the compounding effect of wealth.

Don’t get envy of others when they claim they make tonnes of money. ENVY is negative and drains your precious time and energy. It is very tiring. Ask yourself, are you an investor? Do u have the right frame of mind to fight the challenges of the MANIAC behaviour of others?

A successful investor (1) understand the fluctuations of the market that it can at any one time goes up 50% and down 50%, (2) treat the shares as a real business and (3) ensure a margin of safety by not overpaying for the shares.

As to whether to invest now or not depends on your personality and the critical question to ask is, do we believe that the governments and leaders of the world have the foresight and ability to bring us out of this pandemic? Will we be able to carry on our lives as per normal after we are out of the woods?

I firmly believed so, and the Chinese had shown resolved and ability so far.

I value financial peace. It gives me no unduly worries with money. I eat simple, live in a house similar to you and wear about the same clothes (well for once, I wear mine for ten years, yours is probably newer). Other than that, we do not actually need so much in life so long we have proper insurance coverage (life and medical coverage, especially those with young ones). I am grateful that we are in Singapore where healthcare is the best. What I am always worried about is the well being of my elderly parents and kids. The virus is real, and it is infectious. For the majority of you, my friend, I say u will likely have a good prognosis in getting better and its free now if we are unfortunately diagnosed with it. Take care, drink more warm water, have more fruits and vegetables. Don’t worry the groceries and perishables, they are still coming even Boleh land decided a lockdown.

Cheers

YJ

20th March 2020

YJ and me.

Disclaimer: Above article is our opinions and thoughts, and you should not make your investment decision solely on the above article.

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