The Success Formula of a Dynamic Entrepreneur Revealed & Exposed!

I received an interesting comment from Danny regarding my previous blog topic, “Are You working for the Banks or the Insurance Companies?” and think it is beneficial to share with all.

See my reply in bold.

- Hi Ken,

Hi Danny,

I’m not so agreeable with you of buying term and investment such as equity.

Thank you for sharing. There is no right or wrong, only what serve and don’t serve you. In view of our learning and sharing, I do hope you keep an open mind.

Before I start proper, allow me to “Earn the Right” as I believe in walking the talk.

1. I am 31 years old. I own a small advertising and branding company started 4 years ago with 3 men and 1 laptop in a small tiny room with little or no money. Today, we are a 14 men team with 3 offices generating million annually.

2.I practice paying myself first: at least 70% of my monthly income (averaged over 3 years). I can do it because I do not have a house and car. Basically, I am extremely lean on liability. I am single.

3.  I have a six figure investment portfolio that grows over the years, consists of 2 stocks and 1 unit trust fund (I bought the unit trust to support my insurance friend 3.5 year back with no knowledge on what I am investing)

4. Over the years, I have made valuable learning experience in trading. I came from financial background and was trained to trade in various investment instruments since 16 years old.

5. Since 2003, I started investment based on Value Investing principle with 5 simple criteria: A. Under valued stock, B. Margin of Safety, C. Does the business has an unbeatable competitive advantage in terms of monopoly or cost advantage?, D. Did the Management show Integrity and Good Asset Allocation Behavior/Ability? E. Is the business simple enough for me to understand?

6. I do not diversify much. Most successful people I know share the same view. In fact, this is the No. 1 stumbling block to great financial freedom. I will share more on this later.

7.I invest with the money that I do not need for at least next 3 years.

8. My result as follow ever since I invested in equity about 3 years ago (based point 3) SGX: bought at S$1.63 (mid 2003), last valued 18 Jan 07: S$6.35. That is about 290% ROI over 3 years excluding my 7%-10% annual dividend based on my buying price. This is no luck as I have been sharing with people about this stock since 3 years ago (strange thing is only a few take action when the stock was undervalued, but please don’t buy now. SGX is over priced in my humble opinion). I pray daily that the CEO of SGX and their management team in good health and longevity! Next, I have been accumulating one particular stock which I feel is undervalued but I can’t reveal online. The ROI is 15% since I started end 2005 and has been generating excellent dividend. My unit trust ROI is 65% over 3 years (pure luck on my end).

9. Apart from my portfolio, I can survive 84 months forward without working based on my current lifestyle. 4-5 years ago, if you ask me how long can I survive forward without a pay check, my answer would be: “I died last month”.

10. My term policies carry at least S$600k payout plus 2 hospitalization and 1 critical illness plans. I insured my dad adequately with 4 policies on hospitalization and long term care. My total premium yearly including my dad is less than S$3,500. I cancel my life policy which cost me S$3,600 yearly more than 3 years ago after paying for 2 years. Ironically, the payout on my Life is less than S$300k if I remember correctly. It means I pay MORE with LESS insured.

My intention is to show my results in a factual manner. Most importantly, my method is tested and proven pertaining to my needs so that I earn a right to share. I am still learning from mentors and growing. Basically, my point is this: If I can do it, anyone can do the same if not better. Ok, back to your statement.

What if the customers forget to pay the premium for his term plan? He will not have any coverage cos term plan do not have any cash value.

If he bought a life plan, and has pay for certain years (usually 3 years and above), he will have some cash value in his policy.

If the customers forget to pay his premium, insurance company will usually use his cash value to pay for his policy until the cash value has been fully utilized.

GIRO? I believe setting up automatic system to deal with insurance payments. Protection comes first! Your logic of buying “Life” to ensure that holder can pay for premium on time puzzle me.

In the market, most common products are sold are “Whole Life Plan with illness coverage” (pay whole life) and “Endowment” (usually sold between 20 to 25 years) .

Question 1: Ask yourself, “Do you want to pay a Whole Life Plan with illness coverage for life”? (Usually you have to pay your premium up till you reach age 84 to 100 years old, depend on which company you bought).

Question 2: Ask yourself, “Do you want an inflexible saving plan that generates moderate return in the long run”? (usually about 4% for 20 to 25 years plan, provided you keep till maturity) Any early termination of the plan will involved a high cost to you.

Question 1 Answer: “Limited Payment Whole Life Plan with illness coverage”

You have an option of paying the whole life plan with illness coverage for 10, 15, 20 or 25 years and ENJOY illness coverage for whole life.

Advantages: Don’t need to pay anymore premium once you have choose your desire term (10, 15, 20 or 25 years) and Enjoy illness coverage for whole life.

Peace of mind in case illness strikes a person. At the end of the term (10, 15, 20 or 25 years), you still can get back 100% refund of your premium plus moderate return if you choose to cancel the plan at the end of the term.

First, please factor in the annual inflation rate of 4% - 5% at a compounded basis for 25 years and tell me how much that “100% refund” would be left after 25 years? My rough guess that premium money is worth about 60% as compared to today value.

Can you still say it is “100%” refund?

Secondly, in my case, since I’ve save additional of S$3,600 annually on LIFE. Please compute this sum on 11%-15% on a compounded basis for next 25 years. You know my point about LIFE then. Did you say LIFE generate moderate return? I say Negative return.

Thirdly, even CEO of NTUC Income with 30 years experience advocate : “Buy Terms, Invest the Rest”. Well, he must have mastery in insurance right after all these years?

Question 2 Answer: “Invest in Unit Trust (Not ILP) with well diversified investment portfolio”

Reasons: The cost of ILP plan is higher than Unit Trust. (Eg: ILP has mortality charge that will deduct from your units to cover for your insurance).

Look for a company that provides you with FREE switches with ZERO cost (If you cannot find one, you can look for me). Can switch from one fund houses to another without any sales charges involved. (Currently, there are about 26 funds houses with more than 500 funds in the markets).

I agree that not every fund perform well. Could you share base on past 5-10 years, how many percent of 500 funds perform well? 75%? 50% 25%? If you run a check, the figure can be shocking.

Switch fund house? Sound like a trading mentality rather than an investor mentality.
 

The reason for switching of funds is that, not every fund can performance well over the years and you may need to do switching from one fund to another (or maybe from one fund houses to another).

In investment, DO NOT put everything into one “Basket” unless you have only one.

In investment, we need to invest in 5 different sectors namely - “Growth Funds”, “Balanced Funds”, “Income Funds”, “Tactical Funds” and “Money Market Funds” to diversify your investment portfolio.

Common Myth 1: “Do Not Put Your Egg in One Basket”, or “Diversify”
Common Myth 2: “High Risk, High Return”

Allow me to tell the truth with compassion: Unit Trust Funds is for people who know little about investment. Since they know little about investment and hand their precious money to “fund manager” to manage their money, they are in the higher risk! Take this test: Please tell me the exact basket instruments that the growth/balanced/income/tactical/money market fund manager invests in and why do they invest that and not others? If anyone can’t explain what they invest in, it is called blind faith. Most of the fund managers are traders, hardly an investor because 1. They simply do have not enough time to investigate and study in depth on all the investments that they buy, 2. Their pay and bonus depends on short term performance so they are pressured to go for short term gain and hence resulted in timing the market most of the time. 3. They usually buy “flavor of the month” kind of stocks/instruments because they think it is safer to follow the herd. So when market correct, they can said everyone is wrong! In my humble opinion, I will consider only one type fund: Value fund. Even that, I will evaluate and study the Fund Manager track records and their investment criteria. I will shy away from managers who constantly trade within their portfolio. Alternatively, invest in a Global Index Fund as recommended by my friend, Clive.

Highly successful people hardly diversify. In fact, they research, study, focus and concentrate in their investment. I learn this from the second richest man on planet earth: Warren Buffett. The more we know about an investment/business, the lower the risk and thus, the return is higher. In a nutshell, low risk = high return.

Let me give you an example, if anyone has invested in Berkshire Hathaway Inc owned by Buffett in the 60s, it would US$10 per share, today the company value appreciated to US$100,000 per share (A Share), compounded average 22.8% ROI yearly. Proven constant track record over 30 years. Why invest in a fund? Just buy Berkshire share and you will get an average compounded 22.8% annually! Show me a fund that has the same result.

Maybe Berkshire is too far fetch and focus back on local scene. How about Singapore Raffles Design Education? S$0.20 during IPO during 2002 (either in year 2000 or 2002), till today the company value appreciated to the peak of S$3.20 with numerous share splits. If you have gotten SMART at IPO, you will generate 130% till this point excluding dividends. SMART shareholders love it when they announce fare hike every year! There are undervalued gems in the equity market, we just need to investigate and unearth them. For me, it was SGX.

There are ample researches done and show that value investing stocks out perform the mutual fund in a long run at a compounded basis. The reason is simple: value stock provide “Good Margin of Safety”.

Most of the financial institution will normally ask you to put a lump sum and usually they will invest in 2 different funds (May not be 2 different sectors of funds).

Recently, one of my clients calls me and is interested to invest S$100,000.

I advise my client to invest S$50,000 first into 10 different funds (including 5 different sector) with $5,000 in each fund, follow by (spreading the remaining S$50,000 into many months) regularly investing a small amount into this 10 different funds every months (Min of $100 monthly per fund) to spread the risks (Dollar Cost Averaging - putting a fix amount every month).

In my humble opinion, I will do the following,
1. Donate 10% to charity. Givers get.

2. Use 10% to educate themselves in terms of different form of investments including estate/equities/business. The all time classic, “The Intelligent Investor” written by Warren’s mentor, Benjamin Graham cost less than S$35 for a brand new copy. Alternatively, you can get “The Little Book of Value Investing” by Christopher H Browne, easy read. Leaving it to fund managers is not a long term answer for financial freedom. Instead of asking someone to give you a fish, why not learn to fish. Lower risk and higher return.

3. Invest US$3,600 – US$4,000 and buy a Berkshire Hathaway Inc B share and attend their 8 hrs annual general meeting in U.S chaired by Warren and Charlie. It beats any trading courses on planet earth.

4. As for the remaining money, look for any flex cash deposit scheme that allow you put and ready to draw out and invest into great undervalued instruments without any penalty.

In investment, do not timed the market cos is very risky. Dollar Cost Averaging is the KEY for investment.

I agreed with you totally on not timing the market.

Most of my clients are very satisfied with how I managed their investment and I can foresee that their retirement nest will be well build when they reach their “Golden Years”.

Thank you for supporting and helping your clients with such great intention. Would you share with us openly on your investment result? Thanks!

I do not represent any particular insurance companies, fund houses, or banks for financial products or services.

In view of protecting my readers interest, I have edited your contact details at this moment until you have shown you have “earned the right” in showing your own personal financial result. (because you have asked my blog reader to drop you an email or call you for financial advice in the original post)

I only represent YOU (the consumer instead).

Regards,

Danny Ng
Licensed Financial Adviser (Licensed issue by MAS)
* In case if I’ve accidentally offended anyone in my comment, I’m very sorry about that.

Lots of love and support,

Ken Chee, Budding Value Investor (License issued by actual result and ROI)