Advice on Spending Your Money in Your 20s-30s

Just an observation from Google Analytics, most of my viewers are between the ages of 25-34 (>40%) based on the over 50% of session recorded (and also predominantly, >75%, male, but that's beside the point). So, I've decided to write a post on some ideas and advice by others on how to spend your money in your 20s and 30s, hope this will be helpful to you.

Jardine C&C - Possible Opportunity for Dividends

Just saw the price of Jardine Cycle and Carriage continuing its fall today, dropping to as low as $33.03, as well as the STI,(read: Does the recent drop in the STI represent a good buying opportunity?) which . Despite the rights issue that it just had (1 right at $26 for 9 shares), it may be a good buy now as the price has fallen quite a far bit in recent weeks.

(Image source: http://sgforums.com/forums/4148/topics/448537)

Better Way to Grow your CPF Monies

Just giving some suggestions and ideas with regard to your CPF monies instead of leaving them there earning 2.5-4% interest rates. I'm not exactly sure of the CPF interest rates, they keep changing until I get confused, but anyway, from what I understand, you get 2.5% (or the major local banks from Feb to Apr of that year, whichever is higher) interest rate on money in your Ordinary Account (OA) and 4% on money in your Special Account (SA), Medisave Account and Retirement Account. There is an additional 1% on the first $60,000 of our savings, $20,000 of which can come from OA.

Key to Growing Wealth

Many people will go all their life asking "What is the key to growing an enormous fortune?" There are many answers, earning a high salary, striking the lottery, setting up a successful enterprise. But there is one method that will allow you to grow your wealth to what may now be an unimaginable level. I'm not in the business of five-minute quick fixes and what-not, but compounding is a magic touch which can allow your portfolio to grow exponentially. But of course, as things go, compounding takes time to work its magic and good things come to those who wait.

Saving - More Money Through the Door

This is the second part of the Saving, where I will cover ways to help increase the amount you can save. In the previous part, which can be found here, I covered how to start cutting down on your expenses first by recording them then analyzing and removing those unnecessary ones.

This second part will sum up the Chinese phrase "开源节流", which means to increase income and cut down expenses. So cutting down expenses has been settled now let's go into some ways in which you can start increasing your income

Value Investing

You may be wondering what's with all this talk about value investing that many investors claim to be doing these days. This blog post is going to try and help you understand what is value investing and why you should practice it, as well as some examples that are not value investing.

This sums up the difference between value and price and its importance

(Image source: http://blog.wallstreetsurvivor.com/2013/08/29/the-basics-of-value-investing/)

Saving - Start knowing where your money goes

This is one part of Saving where I will cover some of the changes you can make to start increasing the amount of money you can save which would be the first step in your investing journey, the next part on increasing your income can be found here.

Whether you decide to use a budgeting app or write them on excel or just use a good old-fashioned notebook, keeping track of where your money goes is one of the first steps to starting to save. By knowing where your money is disappearing each month, we would know which are the areas that we can cut down our spending on or avoid completely.

For this, I usually like to group my expenses into 4 groups : Subscriptions, living expenses, enhancements and others

Banking Shares - Which is the best to buy now?

With the recent drop in the price of bank stocks in Singapore, namely DBS, OCBC and UOB, due to the Fed interest to remain stagnent due to the soft data from the US. Since I think that the banks would not be largely affected by this development much, the reasons covered in more detail at Does the Recent Drop in the STI Represent a Good Buying Oppourtunity?, this presents a good buying opportunity in my opinion for investors to pick up bank stocks. But then there is the next question: Which is the best to buy now?

Intrinsic Value - Discounted Cash Flow Model

This is the next part of calculating intrinsic value, where another way to value a share, the Discounted Cash Flow Model (DCF Model) will be introduced. This model is very similar to the Dividend Discount Model (linked to the post) and I would advise that you read the section on it before coming here to get a better understanding of some of the key terms as well as methods to calculate.

Intrinsic Value - Dividend Discount Model

This is a section which I thought I should add to the Understanding Financial Statements topic as after understanding the financial statements, the next thing that an investor would or should know is how to use this information to value businesses. Of course, there are also as many intrinsic values of businesses as there are people valuing the business as there is no hard and fast rule on intrisic value and the factors which have some of the greatest impact on calculation come from the perception of the investor, which can and will, vary from investor to investor.

This section will cover two popular methods, the Dividend Discount Model (DDM) and the Discounted Cash Flow Model (DCF Model). This has been split into 2 parts when writing as each model takes quite a lot of explanation as well as diagrams.

Thoughts on Indexing

Indexing or buying index funds provides investors with a well-diversified funds, usually at a low-expense ratio. Exchange-traded funds (ETFs) on the SGX do include some indexes such as the S&P 500 and the STI. My recent thoughts on the STI can be found here: Does the Recent Drop in the STI Represent a Good Buying Oppourtunity?

$10 For $9 in Singapore's Stock Market

Anyone believe that you get get $10 notes for just $9? Probably not, but you can get around $10.50 worth of cash and listed stock for just under $9 by investing this company. Any guesses?

Thoughts on Dollar-Cost Averaging

Same amount, different amount of shares

(Image source: http://www.wealth.newwealthadvisors.net/Knowledge-Center/Thought-Leadership/2013/Handling-Market-Volatility)

Just sharing some of my thoughts on monthly investment plans, only example I can think of is the one offered by Maybank Kim Eng, but you can search through the web to find if there are any others. Anyway, that's not the main point of this blog post, the focus of it will be on: Should people invest money in the stock market or bonds at regular intervals (months)?

Ways To Begin Saving For Retirement

Just started this blog post to share some of the key ways to start saving for retirement that I have been able to find online.

How's your retirement fund going along?

(Image source: http://www.bankingsense.com/how-saving-slowly-over-time-builds-your-retirement-portfolio/)

Does the Recent Drop in the STI Represent a Good Buying Oppourtunity?

In recent weeks, the STI has lost almost 5% of market capitalization of its constituent stocks. Does this drop represent a good buying opportunity for investors? The current P/E ratio of the STI as a whole is 13.39 and the distribution yield is 3.05% (numbers from SPDR STI ETF page, the distribution yield was derived from the fund distribution yield plus the net expense ratio of the fund).

(STI- chart from Yahoo! Finance)

Understanding Financial Statements (Part 4) - Financial Ratios

Everything is relative, to measure something, compare it to something else

(Image source: http://didyouknow.org/the-size-of-the-sun-in-comparison/)

This is the last part on Understanding Financial Statements as it aims to uncover some important ratios that can give insight to the health of a company when comparing with those from the same industries or even comparing across industries.

P/E Ratio - Price to Earning Ratio. This is one of the more commonly used ratio, where the price of the stock is compared to the earnings of the stock

P/B Ratio - Price to Book Ratio. Not as commonly used as P/E but still important for value investors as a P/B Ratio of above 1 would represent a premium over the tangible value of the company.

Current Ratio - The ratio of current assets to current liabilities, this represents the firm's ability to repay its short-term (current) obligations. The current ratio of below 1 or just above 1 puts the company at significant risk of being unable to repay its short-term obligations, especially if its debtors are unable to repay the credit extended

Quick Ratio (Acid Test) - Similar to the current ratio with the exclusion of inventory, which as mentioned in the Balance Sheet segment of this topics, can be devalued quickly in certain industries.

Return on Equity (ROE) - Net profit of the company divided by the equity, shows the percentage returns that the company is able to return on its equity, a high ROE is usually an indication of an economic moat

Return on Assets (ROA) - Net profit of the company over assets, in my opinion not the best of measures as ROA can fluctuate greatly during each reporting period and a sudden drop in ROA may not signal a decline in the sustainability of the business

Return on Invested Capital (ROIC) - Net profit of the company divided by the equity of the company plus the lease obligations and debt minus the cash and cash equivalents held by the comapany. In my opinion, this is more useful than ROA as this represents the resources provided to the company by the various parties. This can also be used as a comparison figure to the company's cost of debt, which is the interest expense over total debt.

Free Cash Flow (a.k.a. Owner's Earnings) - Cash used in operating activities minus capital expenditure (money used to purchase or maintain PP&E). This is used to determine the amount of money that can be taken out of the business without affecting its earnings and can be used for other purposes such as acquisitions or paid out to the owners in the form of dividends

Summary

This concludes the topic of Understanding Financial Statements, hope that some of the knowledge gained can help you in your own financial freedom journey as you analyze your own investments' financial statements.

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Understanding Financial Statements (Part 3) - The Cash Flow Statement

For other parts on this topic:

Part 1: The Income Statement
Part 2: Balance Sheet
Part 4: Financial Ratios

This is the third part of Understanding Financial Statements, this part will cover the cash flow statements section of the financial statements. The cash flow statement shows the net inflow and outflow of cash in the various items stated. It begins with the profit before income tax. After adjustments for items on the profit and loss statement which do not actually affect cash flow, for example, depreciation and amortization as they do not physically remove cash from the company, the operating cash flow before interest, income tax and working capital is obtained. This is where we shall begin

A company that doesn't generate cash isn't worth very much, is it?

(Image source: http://en.yibada.com/articles/7609/20141028/singapore-dollar-approved-to-trade-with-chinese-yuan.htm)

Cash used in operating activities

This represents the amount of money that the company has gained or lost through its operating activities. From the operating cash flow before interest, income tax and working capital, income tax and interest that has been paid in the reporting period (it can be deferred to future periods), we get operating cash flow before changes in working capital.

The working capital component comprises of trade receivables, trade payables and inventory among some other industry-specific items. The changes in working capital show the changes in the cash conversion cycle of the company (the amount of time taken for the company to receive its money after making payment). This would affect the amount of short-term borrowings that the company has to take up to meet its short-term obligations

Cash used in investing activities

This has two main groups of items, those involved with acquiring property, plant & equipment (PP&E) and those involved with the companies under the group (main company). Money used in acquiring PP&E is the cash flow statement equivalent of depreciation and amortization, as they both represent the same thing, except that PP&E in the cash flow statement would show all of the money outflow on one statement while depreciation and amortization is usually spreading the cost of the PP&E over the usable life of the item or as it is devalued.

Money involved with the companies of the group would be in areas such as acquisition of other companies, increasing the ownership in the company or extension of loans to these comapnies.

Cash used in financing activities

This section includes the amount of money paid out in dividends to the owners of the parent company and the minority interests as well as the draw down of loans, issuance of bank notes, rights issues and repayment of loans or notes.

Net Change in Cash = Cash used in operating activities + Cash used in investing activies + 
                                       Cash used in financing activities

Summary

With this part, we end the focus on the numbers presented in the financial statements and in the next part, we will be moving on to the various ratios commonly used to assess the health of a company.

For the next and final part of this topic:

Part 4: Financial Ratios

For the previous parts of this topic:

Part 1: The Income Statement
Part 2: Balance Sheet

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Understanding Financial Statements (Part 2) - Balance Sheet

For the other parts:

Part 1: The Income Statement
Part 3: Cash Flow Statement 
Part 4: Financial Ratios

This is the second part of Understanding Financial Statements, this part would cover the balance sheet segment of the financial statements, which shows the assets that the company currently owns as well as the liabilities it has. There are 5 key segments of a balance sheet: Current Assets, Non-Current Assets, Current Liabilities, Non-Current Liabilities and Equity.

Assets of a company

(image source: http://www.recruitingblogs.com/profiles/blogs/your-people-are-not-your-most)

Current Assets

This category comprises assets that are expected to be sold, used up or able to be liquidated within a year or within an operating cycle for a company, which is the amount of time needed for a company to purchase raw materials, process them, sell them and receive the payment.

Cash and Cash Equivalents

As the name goes, this includes the cash and assets that can be easily converted to cash that the company holds. This includes cash on hand, fixed deposits, short-term government bonds and money market funds. Usually companies need a buffer of cash in case creditors come knocking on the door before their clients are able to pay for their products, however, too large a cash reserve (cash hoarding) is not a good sign as 1) it shows the management's unwillingness to pay dividends and 2) the company would make a good target for an unfriendly takeover. Unless the management has clear plans for the cash, a large cash reserve is usually an alarm bell due to the low returns that cash and cash equivalents are able to generate.

Trade Receivables 

This item is made up of amounts due to the company by its clients for the products or services that it has supplied. In a more real-life and individual example, when you work for your company and get your paycheck at the end of the month, you are actually receiving receivables from the company as you have provided the service and the company legally owes you your wages. In the perspective of a company, trade receivables are created when companies sell services on credit.

Trade receivables provide some insight into the business as well. If trade receivables are increasing at a rate faster than revenue is growing, the company is giving more liberal credit terms for its customers or distributors, which is usually a sign of deteriorating business and vice-versa.

Inventory

This as it implies is the inventory that the company has on hand. This is an important item in some companies, where products are devalued quickly, such as fashion and computer hardware. Large inventories without sufficient revenue to support them would result in the company having to write down the value of its inventory at a later date when it is forced to dispose of them or sell them at a lower price.

Non-Current Assets

This category refers to assets that would take longer than a year or an operating cycle to be used up and also includes non-tangible assets (goodwill)

Property, Plant and Equipment (PP&E)

This is made up of the land, the buildings, the machinery, software, etc, that the company owns. Some industries may require more, such as manufacturing, construction, etc, while other industries would require less, eg service industries.

Investment in Companies

Usually this is shown as "Investment in associated companies", "Investment in Joint Venture", "Investment in Subsidiary", but they refer to the same basic idea that this is the value that the company has placed on its share of companies that it owns. Just for extra info, the difference between a subsidary and an associated company is that subsidaries are majority (50% or more) owned by the company while associated companies only mean that the company has significant voting rights (usually 20-50%)

Goodwill

This is one of the segments that you would like to focus on in the balance sheet. This is made up of intangible assets, added when there is a discrepancy between the purchase price of a company and its tangible (physical) assets. When looking at the balance sheet, usually I like to remove the goodwill portion of the equity as it is intangible and is based purely on the purchase price of the companies set by the management of the company.

Liability burdens 

(image source: http://kwatu.org/sitemap.xml)

Current Liabilities

Directly in contrast with current assets, these make up the amount of money that the company is likely to have to pay within one operating cycle or one year.

Trade Payables

These make up the value of the products or services that the company has obtained on credit. Opposite of trade receivables, the faster this grows relative to revenue (of course not overwhelmingly so), the better as the company is able to get better payment terms with its suppliers and is hence able to hold on to money for a longer period of time, reducing its short-term borrowing costs.

Borrowings

This refers to the short-term borrowings or long term notes or borrowings that are due to mature within the operating cycle or one year. A large amount of borrowings in current liabilities with little current assets is not a good sign as the company has liquidity risk, the risk of not being able to meet its short-term obligations.

Non-Current Liabilties

Borrowings

This shows the long-term borrowings that the company has. Having too much of this is not good as it increases financing costs for the company (unless they are able to earn a high rate of return on it)

Equity

This is not the end-all-be-all of the financial statement but is an important part of the information that you can gather from it. This shows the net assets that a company has and after deducting minority interests, represents the net value of assets that belong to shareholders of the company

Share Capital

This shows the amount that the company has gathered by issuing shares.

Reserves

Some of these are due to legal restrictions on the cash of the company or as an allowance for bad debts. Their specific purpose is covered in the Notes to the Financial Statements of the company

Retained Earnings

This is the amount of money that the company has generated for shareholders in excess of the share capital, which was provided to the company.

Current Assets + Non-Current Assets - Current Liabilities - 
Non-Current Liabilties = Total Equity

Total Equity - Minority Interests = Equity attributable to owners of company

Summary

This concludes this part on the balance sheet segment of the financial statements, the next part, the cash flow statement would cover the cash  flow of the company.

For the next part on this topic:

Part 3: Cash Flow Statement 

For the other parts on this topic:

Part 1: The Income Statement
Part 4: Financial Ratios

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Understanding Financial Statements (Part 1) - Income Statement

In this section, I will be covering on the different parts of the financial statements of a company, highlighting the areas of focus which I think are important and my opinion of them, while other more detailed items in financial statements would be listed under the more general item of "others" in their respective categories. (Feel free to discuss some of them in the comments) This blogpost does not aim to go into the details of financial statements and hopes to be a stripped-down version to be easily understood.

Part 2: Balance Sheet
Part 3: Cash Flow Statement 
Part 4: Financial Ratios

Where does one get the financial statements of the company?

If you own shares in the company, you would get a copy of the annual report sent to you. Alternatively, if you do not own the stock but want to research on it, you can go to the SGX website to get the annual report or to the company's investors relations page, where quarterly reports are usually available as well.

Now, let's begin on the first part of the company's financial statements: The Income Statement

Many pieces of the puzzle in understanding profit 

(image source: http://strategicsellinggroup.com/perceived-value-creates-profit-a-b2b-customer-retention-case-study/)

Revenue 

Revenue is the first thing that we would expect to see on a company's Income Statement. This shows the value of the goods or services sold by the company in the reporting period. However, this usually needs to be read with relation to the profit generated by the company as a company which generates lots of sales but loses money on them isn't worth a lot to investors.

Cost of Sales

This appears just below the revenue and refers to the costs directly involved in the production of goods sold by the company. For example, labour costs or purchase of raw materials to produce the end product are included under cost of sales.

Revenue - Cost of Sales = Gross Profit


Other Expenses (Operating and Non-Operating Expenses)

This is the section where indirect expenses are added, such as staff costs, depreciation & amortization charges, research and development costs, mostly expenses which are not reduced even when the business generates less revenue (operating expenses). The other category where these expenses are added is the non-operating expense category, where costs not involved in the main business of a company such as interest on bank loans for a manufacturing firm are added.

Revenue - Cost of Sales - Other Expenses = Profit Before Income Tax


Net Profit Attributable to Owners of the Company

This is Profit Before Income Tax after income tax and minority interests and is the total amount of money made by the company during the reporting period. Divide this by the total number of shares outstanding and you get the earnings per share for the company.

Profit Before Income Tax - Income Tax = Net Profit

Net Profit - Minority Interests = Net Profit Attributable to Owners of the Company


Summary 

This is the first part of Understanding Financial Statements, hope that it has cleared up some doubts on understanding the Income Statement component of Financial Statements. For the other three parts, the links are as follows:

Part 2: Balance Sheet
Part 3: Cash Flow Statement 
Part 4: Financial Ratios

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Singapore Saving Bonds (SSBs)

Investment-grade bonds offer a good alternative to stocks especially for risk-adverse investors

(Image source: https://www.drwealth.com/2015/05/12/all-you-need-to-know-about-the-singapore-savings-bonds/)

Sharing some thoughts on the new government bonds, SSBs. I think the new SSBs being introduced are a good alternative to fixed deposits, especially since most fixed deposits last at most 3 years. The money invested can also be taken out in any given month, without loss of principal or accrued interest, which would definitely beat the fixed deposits where little to no interest is accrued if the money is withdrawn before the expiry date. 

Yangzijiang - a worthwhile look?

In this blogpost I decided to share on one of the other stocks that I think are worth consideration at its current price. As mentioned in the title, this blogpost will mainly cover Yangzijiang, a China-based with shipbuilding and offshore engineering as its main businesses. At its current trading price of $1.42, it has a dividend yield of ~4%, along with a price-to-book ratio of 1.2 and a PE ratio of around 7.

Telco woes

This is my first blog post on investing. Decided to share on telcos in this blogpost. With the recent drop in the stock prices of two local telcos, M1 and Starhub, they are a possible good buying opportunity.