Early Retirement

In the previous Sunday Times, there was an article in the Invest section on living on $35 a day. In it, the writer mentioned a "Mr Money Mustache". It was intriguing. Not the image of a mustache made of money, or the alliteration. But the next line which described this man's credential; retired at the age of 30, currently with a family of 3.

So I harnessed the power of Google and easily found his blog. Just typing "Mr Money" into the mind reader, wrong, search engine and his Web address came out. This guy must be quite something. Apart from his actual blog, there were a couple of links about reviews on him. I've read all about reviews on smartphones, tablets, watches, laptops... But a review on a human being? That's a first for me.

I entered his blog. And it was like a cult (MMM, KKK...?) . He had a strong following, and I could see why. Reading his life story, I was hooked. To retire by 30 and do whatever he wanted, yet not live a spartan lifestyle? That had to be the dream. The new sexy. And I couldn't stop myself from clicking on (or rather, pressing on the tablet). The more I read, the more I wanted to read. He didn't talk about what to invest in, or what to buy. What he mainly posted about was a lifestyle, the art of being prudent. Not a science, an art. The painting was the life, and the brushstrokes the lifestyle. An his life was kind of a masterpiece. The key was not so much to be the best investor, but to save as much as possible. And the "how" to that question is what he is all about. The biggest draw for me? He goes on all about commuting with a bicycle! Finances, and cycling. What better way for the two to intersect!

I could go on and on about his ideology and methods, but a much more effective method would just be to put a hyperlink.

Apart from making me a Mustachian, he gave me thoughts and ideas. Now saving isn't just to get rich, it becomes a challenge to save as much yet still lead a good life. And the stage I am at right now (or will be in a month time) gives me the ideal situation to play this game. The goal? To come up with a better masterpiece than MMM himself. And I've got a pretty good head start right now!

First trading account

And today marks the day I open my first trading account, and CDP, with CIMB Securities. Why CIMB? That's a very good question.

I was at StanChart, wanting to open an account with them because of the no minimum commission. Or rather, I was there paying for my visa fees, and wanted to open an account at the same time. Turns out, I'm still too young! So much for encouraging people to start investing early...

I left the bank a little disappointed, but being in the CBD there was bound to be another bank that would accept my money. Lo and behold, just across the road was CIMB Securities, so I stepped in and passed my IC to the person who was at the counter before I could change my mind.

While waiting, I thought that maybe I should do a bit more research before opening my maiden account. To put it crudely, it felt like losing my virginity to a prostitute.

Okay fine, it didn't feel like that at all. But you get the drift.

But before I could grab my IC and leave, the broker was with me and started talking to me. Soon I was pulled aside by their assistant and found myself signing so many documents. By the end I couldn't really sign accurately, and I wondered if the person checking the paperwork would realize the differences in my various signatures.

And then I was done! All the other details would be filled up by their lovely assistant, and I would be ready to trade in a few days time! That went much smoother than I expected, and I'd like to think that it's only like this in CIMB. After all, it's my virgin experience ;)

Random Walk Part 2

I am done with the book, and I must say the author is pretty pessimistic about stock picking. Earlier I mentioned that he is totally against and biased towards technical analysis. I then assumed that he thus belongs to the fundamental analysis camp.

But no! Turns out, fundamental analysis doesn't work out well either, and fails when compared with the control of an index fund. This man is a firm believer of the efficient market theory (the book name is REALLY apt) and always has something to say regarding a criticism of the theory.

So Malkiel says we should all just buy into index funds, for they offer diversification that retails investors usually can't afford. This form of passive investing also reduces all the unnecessary transaction fees, taxes, and other miscellaneous deductions that eat away at your earnings.

Initially, I had nothing against just buying the STI ETF and slowly accumulating it. But upon thinking a little more, I feel that I should be more adventurous, given my risk profile. I'm young, with no dependents, and sufficient income to invest with. I can afford to lose the money, and I can afford to hold the stocks as I have no need for the money at this point. Thus I should take more risk, and seek higher returns. And of course, Malkiel's conviction that it's so impossible to beat the market makes me want to try it all the more. Challenge accepted!

But of course, I still have a long way to go before picking my own stocks. I have to read up more (Bloomberg, Fortune, Forbes, Wall Street Journal, BusinessWeek, New York Times) and also read about value investing. And I would still want to buy into ETF, but once I am more confident I would set aside an amount for individual, small-cap stocks.

The book also got me thinking about the US market. It is where the world trades, where trade volumes are so much higher, where potential for growth is huge. But this would expose me to exchange-related risks, and also the presence of greater taxation. Still, it's something to KIV.

A Random Walk also introduces the basics of risk and beta, which I felt was a good starting point for a clueless investor. At least I won't be so lost when I see people discussing about betas and alphas. Next up is to understand deltas.

It's only been a few days, but my grand plan has been nudged in a slightly different direction. There's nothing wrong; this is the time to try something different, and learn along the way.

Random Walk

So upon some research on what are some good books to borrow (good meaning time-tested, theories that hold true for decades), I borrowed "A Random Walk Down Wall Street" by Burton G. Malkiel.

I am currently about halfway through the book, and it's apparent that the author is not a fan of technical analysis. There are 2 school of thoughts in the investing world; the first is the firm-foundation theory, which espouses looking at the fundamentals of the firm (growth potential, dividend payouts, risk level, market interest rates). Basically this is what most people would know as fundamental analysis. The second is called castle-in-the-air theory. It means that people may not care about the fundamentals; as long as there are people who believe in buying the stock for a higher price, it would be rational to buy it at the current price, regardless of whether or not the firm is over or undervalued based on the current price. In order to know if the price will rise or fall, they look at past trends and attempt to predict future prices.

According to the author, a buy-and-hold strategy of the indices will tend to do better than technical analysis, after accounting for the transaction costs. My personal feel seems to agree with him, although I have to read more on the other side of the story to make a more informed decision.

And also, eventually there will not be any greater fools to buy the overvalued stock, and that's how crashes happen. So don't be tempted to follow the castle-in-the-air theory, because we will tend to always believe prices will still go up and not knowing when to quit, until it's too late.

The Snowball

Right now I am at the first phase, where investments haven't even begun. I believe the most important thing to do before beginninf is to learn. I'm educating myself by reading, currently from sites on the Internet such as Money Mind from hardwarezone.com. Subsequently I will move on to books that are recommended and on topics that are relevant at this stage.

My expectation of investing is simply to grow my wealth using time. Due to my scholarship, I will probably have excess cash and I plan to use that as my base. The goal is to just grow with the average and not to beat the market, for that would be unnecessary risk that I'm not willing to take as an investor that's just starting out.

My goals? For tangible goals, I hope to have a portfolio size of 200k by the time I am done with my studies. It seems far-fetched, but my future circumstances seem to indicate that this won't be as impossible as it seems for a 24 year old. But it certainly is ambitious. Over the course of 4 years I would only be putting in about 140k, so the rest would have to come from capital growth and reinvestment of dividends. Looking back I may probably laugh at myself, but to the future me I have this to say: Was it that my goal is really impractical, or did I just not work sufficiently hard enough to make it happen? Maybe the joke would be on the future me instead.

My method is simple. As of now I have read a little about the Permanent Portfolio. It seems to match my risk profile and what I am comfortable with, given the lack of knowledge and full understanding of the market at this instance. I hope to follow that, and when my experience and understanding increases, I would like to increase the percentage on equities and to start looking out for individual stocks instead of buying the STI ETF.

I have read about one guy (Dividend Warrior) getting dividends of 1k a month just with a portfolio of slightly less than 200k. If I could get that by the time I start working, my life would look really rosy. It also makes me imagine the possibilities, and the fantastic position I am currently in.

The coming months would be crucial. I need to take concrete actions to push things into motion and get the ball rolling. I would have to read up more to pique my interest and know exactly what I am getting myself into. I need to speak to more people and stand on the shoulders of giants. I need to compound the advantage that I have gained for myself by working hard during my schooling days and choosing this path, and to stay ahead of my peers who are in more prestigious careers.

The wheels have been set in motion. It's time for the snowball to start rolling.