047 Being pressured by bank to invest

I met few friend investors yesterday. There are not my investors, but banks. Their questions? They do not know how's their fund, being sold, perform; or they do not know are their investment making or losing money. And they seems like do not want to check out from the bank. Why? I guess the reason they invest revealed as much. "Aiyaa! I do not want to buy one. I want to put in FD. But the bank officer keep saying this fund better than FD. So, I buy some lor."

In fact, my mother-in-law was sold the same thing in the same way. She went to the bank to renew her FD. The bank officer simply suggest a product (without revealing it is an unit trust fund) that claimed to be better than the normal FD. So, she bought it. After a while, she wondered why the statement doesn't come in the time frame promised. She went to the bank to check out. Bank told her statement had been sent out. Apparently, all her unit trust statement will be sent to her daughter's address. She called us whether we had received it. Aha, it is with us. Then only we all realized she had been sold a unit trust fund. Luckily it was a low risk bond fund.

I guess they are many more people who face similar problem - being pushed / pressured by bank to invest in unit trust fund without really knowing the product features. I pity them. They went to deposit FD but was sold something else.

Being their friend, I have to prepare some fact sheet or report to show to them the fund's performance and to give some advice whether they want to keep the fund. Normally, if they are satisfied with the returns, then I will let them to keep the fund. If they insist to redeem, I will help them as well. In either case, it doesn't matter they re-invest the money with me or not. I remind myself that I should propose at the best interest of client. Silly?

045 Beware of scams

"The lesson here is that if an offer is too good to be true, it often is exactly that." That's the advice given by Federal CCID director Comm Datuk Seri Mortadza Nazarene.

Yes, there is no such thing as easy money. All business has its strengths and weaknesses; has risks of poor sales etc. The profit of a genuine business is maybe 10%~20% of it total sales, and it has to control spending so wisely to achieve that. This we can see from the annual reports of listing companies.

Recently, it was reported the scams of "World Richest Man" and "Surewin2u" were busted. All of them promised high returns. We read in newspaper some investors lost ten or hundred thousands ringgit.

So, when something is offered to us at an irresistible rate, let's be alert. Let's not be too tempted to try it. Let's cool down and think it over.To safeguard our hard earned money, let's not make rush decision.

It makes more sense to me if an investment has decent returns; has some positive and negative returns; needs time to grow; approved by authorities (e.g. BNM, SC etc); marketed by authorised or licensed agents.

What should we do if we have doubts?

Bank Negara Malaysia maintain a webpage (http://www.bnm.gov.my/index.php?ch=en_financialconsumeralert&lang=en) to educate general public on the unauthorised or unapproved investment schemes. BNM also maintain an updated list of websites or companies on alert (http://www.bnm.gov.my/documents/2014/20141231_FCA_EN.pdf).

Therefore, the best thing we should do is to check the list whether the investment is inside the list. If it is, we should stay clear. If not, we can still call or email to BNM to clarify a scheme.

If the investment is genuine, an intelligent investor will still need to read the available prospectus, proposal, fact sheet, disclosure documents, risk profiling etc to know if the products suits us. Judge does the product complement our existing financial assets to achieve our goals? Be prepared if the investment returns does not meet its designed expectations.

Lastly, the product with "highest returns at low / no risks" has not arrived in this world. If such product exists, I believe the rich would be the first to get it quietly. Talk to your trusted planner before you decide to invest.

What's your method of preventing yourself falling into scams?

044 Lipper Fund Award 2015

Every year Lipper will measure the performance of unit trust funds in Malaysia, and award the best performer with its Lipper Fund Award. For the year 2014, the winners are as below.

All the winners are the best in their category. Congratulations.

043 Invest with the correct attitude

The common mistakes of an investor is always expecting positive returns fast and will regret in investing after seeing his investing amount shrunk in value. We always see such reactions especially after a market slump.

Investors will start to count their losses:- both from the investment and the interest from Fixed Deposits. Then they will start to contemplate to redeem their investments; forever assuming "investments" are equal to "lose money".

I see this after the 2008/09 market crash and now I see the same after the recent correction due to oil and gas.

That's why I think all investors, or general public, should read words of wisdom from Warren Buffett, for example. I like the below paragraphs from his annual letter 2014.

The unconventional, but inescapable, conclusion to be drawn from the past fifty years is that it has been far safer to invest in a diversified collection of American businesses than to invest in securities – Treasuries, for example – whose values have been tied to American currency. That was also true in the preceding half-century, a period including the Great Depression and two world wars. Investors should heed this history. To one degree or another it is almost certain to be repeated during the next century. Stock prices will always be far more volatile than cash-equivalent holdings. Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely-diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions. That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk. Though this pedagogic assumption makes for easy teaching, it is dead wrong: Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray. It is true, of course, that owning equities for a day or a week or a year is far riskier (in both nominal and purchasing-power terms) than leaving funds in cash-equivalents. That is relevant to certain investors – say, investment banks – whose viability can be threatened by declines in asset prices and which might be forced to sell securities during depressed markets. Additionally, any party that might have meaningful near-term needs for funds should keep appropriate sums in Treasuries or insured bank deposits. For the great majority of investors, however, who can – and should – invest with a multi-decade horizon, quotational declines are unimportant. Their focus should remain fixed on attaining significant gains in purchasing power over their investing lifetime. For them, a diversified equity portfolio, bought over time, will prove far less risky than dollar-based securities. If the investor, instead, fears price volatility, erroneously viewing it as a measure of risk, he may, ironically, end up doing some very risky things. Recall, if you will, the pundits who six years ago bemoaned falling stock prices and advised investing in “safe” Treasury bills or bank certificates of deposit. People who heeded this sermon are now earning a pittance on sums they had previously expected would finance a pleasant retirement. (The S&P 500 was then below 700; now it is about 2,100.) If not for their fear of meaningless price volatility, these investors could have assured themselves of a good income for life by simply buying a very low-cost index fund whose dividends would trend upward over the years and whose principal would grow as well (with many ups and downs, to be sure). Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do. Active trading, attempts to “time” market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy. Indeed, borrowed money has no place in the investor’s tool kit: Anything can happen anytime in markets. And no advisor, economist, or TV commentator – and definitely not Charlie nor I – can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet. The commission of the investment sins listed above is not limited to “the little guy.” Huge institutional investors, viewed as a group, have long underperformed the unsophisticated index-fund investor who simply sits tight for decades. A major reason has been fees: Many institutions pay substantial sums to consultants who, in turn, recommend high-fee managers. And that is a fool’s game. There are a few investment managers, of course, who are very good – though in the short run, it’s difficult to determine whether a great record is due to luck or talent. Most advisors, however, are far better at generating high fees than they are at generating high returns. In truth, their core competence is salesmanship. Rather than listen to their siren songs, investors – large and small – should instead read Jack Bogle’s The Little Book of Common Sense Investing.

Our mistakes:-
:- wrongly perceived investing share as risky investment simply because the price fluctuation is higher;
:- wrongly perceived shares can only be bought during crisis (even though the fact is most people will see the share price to drop and to rise again without doing anything);
:- ignore effect of inflation to our money but complains of losing purchasing power;
:- wrongly perceived to make money in share is to trade for price difference;
:- do not want to invest for long-term;
:- do not understand to invest in share is to invest in the business (as a shareholder);
:- do not understand share price will eventually reflect the underlying business performance;
:- do not want to learn from the successful but from the mediocre instead;

In Malaysia, Public Bank, Lonpac Insurance, Digi has proved themselves that their share price appreciation over the years. But trading the share by buying high selling low will still cause us losses. The passive investor who bought it and keep it is the one who is going to reaped the fruit of "investing".

We are too easily affected by the daily share price quote. Now I can understand Mr Market better. Mr Market simply quote a price based on his emotion. Ignorant investor will be influenced and act unwisely.

I am seeking clients who understand, or who is willing to understand, investing is to become a shareholder of a business. A successful business will still experience daily price fluctuation. So long as the management is managing the business well, short term price fluctuation should not worry us.

If we think Warren Buffett is too far away from us, please remember we have Mr Cold Eye has been preaching the proper investment principles. Both of them has proved to us investing works and is not risky (they both are in retirement years).

The first step to successful investment is to get our attitude right. Because our worst enemy is ourselves.

042 Public Bank Annual Report 2014

I received the latest Public Bank Annual Report 2014 yesterday. Public Bank has been my favorite share.

Public Bank is proud to track and announced its share price and dividend history. By investing long-term in Public Bank shares, many would have achieve superior investment returns.

One of my favorite section is this section below. Like for the investor holding Public Bank share since end of 2009 and hold it till end 2014, and by subscribing to its right issues, would have doubled his money. Those who bought Public Banks shares since launch would be millionaires.

I have kept a separate record of past years' Public Bank records. Public Bank shares has returns in the range of 13% - 25% for five years holding period. The record went through economic highs and lows. Those who dare to invest in lows reaped the highest returns.

Public Bank	2004-2008	RM5,660 => RM12,668	123.8%	21,2%	Annual Rpt 2008, p52
	2005-2009	RM7,100 => RM15,301	115.5%	19.4%	Annual Rpt 2009, p 59
	2005-2010	RM6,550 => RM17,000	159.5%	24.3%	Annual Rpt 2010, p 67
	2006-2011	RM7,750 => RM16,926	118.4%	18.9%	Annual Rpt 2011, p 75
	2007-2012	RM11,000 => RM19,722	79.3%	13.3%	Annual Rpt 2012, p 80
	2008-2013	RM8,850 => RM22,969	159.5%	21.0%	Annual Rpt 2013, p 76

Investing in a good business prove to be rewarding. In the long run, share price will reflect the business results. Instead of punting for shares for short term profits, why not invest in this share for the long term? It gives investors the dividends and long term growth.

I believe this share should be in everyone's portfolio.

041. What is your definition of "financial freedom"?

If we are going to ask people on the street to defined their definition of "financial freedom", we are going to get different answers. It is almost certain most people will perceived being financially free is to have lots of money to buy whatever they want. Hardship no more. After all, that are the reason we work, or invest, so hard.

But is financial freedom merely an increase of our savings or investment numbers?

Most employees cannot retire comfortably. Many would count themselves lucky if they can have a retirement fund of RM200,000 - RM500,000. This is understandable because most employees' salary would be spent on daily spending. Few has the discipline to save before spend. The common practice is save after spend. The sad fact is most people will spend their savings in their early retirement years. So, we see elderly people continue working even after their retirement years. Because they can't afford to not have income.

If employees can't retirement comfortably, their employers should be able to, right? Most business owners are rich. When business are running good, their wealth accumulates very fast. They should be the lucky one. Not quite actually.

Some business may failed because of poor management; not adapting to change in business environment; or did not save for rainy days etc.

Some successful business owner can't simply close down their business. Not because they can't afford to, but because of their responsibility to their employees. Closing down a business is easy but it would mean a loss of employment to some of the employees, especially the more seniors. Long serving employees are almost like their extended family members.

That's why certain business still continues even the boss is thinking of quitting. However, now we see a phenomenon where more businesses are closing down due to the impending GST implementation. Small businesses owners deem it not worthwhile to carry on the business for many reasons. (I don't know will this create a influx of unemployment to the market.)

Will then be a stock speculator be able to achieve financial freedom? In the first glance yes. But if the fact is he needs to speculate to get income, then apparently it's a no. Maybe certain speculators have a very high success rate. However, I think that activity will require him to have a healthy body and mind, and a high confidence level, or even luck by his side, to constantly punt the market successfully to give him that kind of income. And his time, maybe part of it, will be stuck in front of the computer screen. If his health or mind fails him one day, is he financially free?

Who then can be financially free?

My definition of "financial freedom" is "a state where a person, who has over the years, accumulated a pool of financial assets that is able to generate passive income that is so great that the income is enough to provide for his daily needs and, better still, fight against inflation."?

Financial freedom should be money working for money, no more man working for money.

So, who can retire financially free? An investor it seems. All employees, employers, freelancers can be investors.

Financial assets has to be accumulated along our working years. It can't be created overnight. For a business to grow, it takes time. For a tree to grow, it takes time. For us to keep fit by going to the gym, it takes time.

And it takes persistence. Regardless of good or bad weather, good or bad market conditions, keep on accumulating. Rome is not build in one day. And it can't be fine days everyday.

Every stones or bricks count when building Rome, so does our investment amount no matter how small.

I have a dream to have a portfolios of investments that will generate passive income during my retirement years. I am working on it. My current career is giving me passive income, and it will continuing paying, regardless of my health conditions, for my contract can't be terminated simply based on sales quota. I love my job.

040. Reading the "Berkshire-Hathaway's Letter to Shareholders 2014"

The talk of the town for the last week of February is the upcoming Berkshire-Hathaway's Letter to Shareholders 2014. People around the world read the letter. As Warren Buffett puts it, even their competitors read it. This year's letter is especially precious because 2015 marked the 50th years of Warren Buffett and Charlie Munger in the management of the company. It's the their Golden Anniversary in Berkshire-Hathaway (BH).

Like everybody else, investors especially, we talked about the success of Warren Buffett as the sole people on earth who earned his wealth by investing. Surely his investment method and philosophy must be successful. With all the books in bookstore, surely his method must be replicable.

I must admit my misunderstanding of his investment philosophy. I take the opportunity of Chinese New Year Holidays to re-read The Intelligent Investors (by Benjamin Graham, and later another book entitled The Warren Buffett Way (by Robert G. Hagstrom). Through these two books, I gained a bit more knowledge of how Warren Buffett developed his investment philosophy through Ben Graham and then refined it through Charlie Munger's cooperation.

People want to know about Warren Buffett and his success story but he never write any book personally. So, the annual letter is one of the medium to know how he has management his company and investment, and the results of his investment philosophy. I have not read any of those annual letter before. But as I get more interested in his philosophy, I decided to give it a go.

My first impression will be it is such a good experience to read it. It is in simple English I can understand; with some humor which sometimes I can't understand the meaning. (Pity my poor English.) He is honest, straightforward, and full of wisdom.

I would like to note down some important points related to investment or investor.

The first thing to strike reader will be the impressive performance of BH's share value in terms of "book value" as well as "market value". For compounding annual return of 19.4% (in book value) or 21.4% (in market value), it is impressive indeed. Who can beat it? The nearest I can think of is our Public Bank. Public Bank tracks its record and the performance of its shares market value about 19% since listed in 1967. Does that mean I can't buy BH, I can buy Public Bank?

BH also has cash on hand to buy potential wonderful company at fair price, or better at wonderful price. There are three points here investors must remember: cash on hand, wonderful company, fair price.

One of average investors' weakness to be fully loaded with stocks at all time, for he can't stand to see idle money sitting, well, idle not earning any money. When something happened, he has no more money to buy wonderful shares.

Bh looks for wonderful business to acquire. It must fulfill some criteria: (1) Large purchases (at least $75 million of pre-tax earnings unless the business will fit into one of our existing units), (2) Demonstrated consistent earning power (future projections are of no interest to us, nor are “turnaround” situations), (3) Businesses earning good returns on equity while employing little or no debt, (4) Management in place (we can’t supply it), (5) Simple businesses (if there’s lots of technology, we won’t understand it), (6) An offering price (we don’t want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown).

Companies with brand reputation are obviously of interest to them too. As investor, we must consider our investment target to have some of the criteria before investing. Not simply invest without knowing what the company do or their competitive advantage etc.

BH will calculate the intrinsic value of a company and will only buy when it is at fair value or, best of all, wonderful price. BH bought Heinz during the 2009 crisis. Average investor is either in fear or cash tight when crisis bring shares on sales.

Investors are also confused "volatility" with "risky" and thus shun equity investments. For the short-term, equity is more volatile than currency-denominated investments but over the longer term, "safe" investments can't generates the returns to keep pace with purchasing power. Here, we know investment must have a long term perspective and not to be shocked by daily quotational price movement.

It is suggested investor to keep short-term and long-term money in T-bills or bank deposits and index funds respectively.

BH being such a good company would surely be a trustable investment target but, nevertheless, Warren Buffett still advised whoever want to invest in BH's shares to hold at least five years, and never to borrow money to invest. That's prudent advice.

* * * * *

I am impressed how Warren Buffett insisted on the sound investment philosophy he learned from Ben Graham. If all investors can do the same things, we all will be greater investors. Fear and greed are always fighting inside us, it is out duty to tame them. We should be investing, not trading.

Obviously, Buffett's investment method is replicable by any serious investor, if we all invest like we are investing in the business itself and not just the paper security. Go for the business we can understand; track record; low debt. Go for long term. Never succumb to price volatility, instead make use of it.

Highlight to me if I have misunderstood anything.

039. Time for CMSRL renewal

How time flies. It is Mar 2015, a year has passed since I was approved as CMSRL licensee. I have to renew my license in this month. This is the first time I renew my CMSRL. For the renewal, I need to complete few things.

First is the continuing education requirement where I must collect 20 CPE points before anniversary. As as Jan 2015, I only collected 15 CPE, with 5 more to go. I checked SIDC training calendar and found none in Johor for the month of Jan. I thought it would be unwise to wait till last minute. So I decided to go to KL to attend one FPAM training. That training gave me 10 CPE, making a total 25 CPE to fulfill this requirement.

Last Friday, company asked me to complete the declaration form for the renewal. I need to declare have I been charged, or gone into bankruptcy etc, and also to declare the shares I traded for the past year. The company will also conduct bankruptcy search. A renewal fee must also be paid.

Being a CMSRL licensee, I keep reminding myself to move from agent-based mindset to client-based mindset. I now represent client to look for solutions. I appreciate client's trust.

It has been a wonderful year.

For the coming year, I look forward to  further upgrade myself in the financial planning field. We must conduct fact-finding for client, to know their problems, before knowing how to solve their problems. Next will be to polish plan writing skill. Hopefully one day I can participate in FPAM plan writing competition. Gambatte.