Random Finance Tips #1

I’ve been wanting to have a section which will go something like ‘Finance Tip of the Day’ or ‘Finance Tip of the Week’, but as each title implies an action that will be carried out on an consistent basis (everyday or everyweek), which is one that I cannot guarantee, I decided a ‘Random Finance Tips’ would be suffice.

So welcome to the inaugural edition!

The first tip in this series is

“Don’t spend more than you can earn.“

Yes I can probably hear a few people going, “yeah but this is common sense!”

Precisely! It is common sense but yet many people continue to commit this same mistake.

In fact, if your spending is almost equivalent to your income, you are already standing dangerously at the edge. Needless to say, once your spending exceed what you earn, your financial picture is definitely not going to look pretty.

If you are one of those that spend much more than you earn, you probably need to take a look hard look at yourself and ask some questions:

1. Are these spendings just needs or wants?

2. Are they absolutely necessary?

Some market rules to look out for

I wrote this in a forum about two years ago. While searching for inspiration on what to write today, I thought I will just reproduce the whole piece for your reading pleasure. Do note, I’m an advocate of marrying both fundamental and technical aspect of investing together, but what I’m going to highlight here are rules from a technical perspective. So here goes:

The market is quite an unforgiving yet fascinating and challenging place. It rewards handsomely when one is right, and dishes out stern punishments when one is careless and underestimates it. Quite like the principal in school ain’t it?

It can be indeed a humbling experience. Don’t despair if you make mistakes and make losses. No one can make money all the time. Not even Warren Buffett if that is a consolation.

Taking this into perspective, even institutional fund managers, floor traders and professionals make mistakes too. You are not alone in this challenge. Important thing is to not focus on how much you make, but rather on how much you don’t lose. Capital preservation should be your no. 1 priority. After all, you need to make 100% just to break even from a 50% loss.

Crazy day at the Market! You want some?

One of the most interesting and fascinating part of investment to me is standing at the sidelines to observe just how irrational investors and market as a whole can be.

Sometimes, at the lure of fast gains, they can get sucked into a trading frenzy, only to have the whole action dying down just as fast. I never fail to be amazed at such cases of mad crowd behavior.

One instance that reminds me of a crazy day in the market, will have to be the first day China Aviation Oil (CAO) re-opened for trading after a long suspension. For those unfamiliar with the Singapore market, CAO is a Singapore Stock Exchange (SGX) listed company based in Beijing, that supplies jet fuel.

It got it’s ass busted for illegal insider trading and crimes linking to risky oil derivatives speculation which resulted in massive losses of US500 million! To cut the long story short, the director, once hailed as a high flyer in the industry, was sent packing to jail, while the company went through a long painful restructuring process, which also saw the two knights in shining armour, Temasek Holdings (the investment arm of the Singapore government) and British Petroleum (BP) coming to it’s rescue.

Mr Market claimed yet another victim!

Image Credit: www.danablankenhorn.com

Today I read a report in the newspaper that got me shaking my head, half in pity and half in weary resignation.

It seems that there are always such cases happening!

The report was about how a student lost $700 000 trading in shares during the recent market slump! In the process, he wiped out his dad’s life savings, lost his girlfriend, and possibly also his family’s house!

Imagine $700,000! That’s not very far off one million! More money that most of us can ever dream of!

I find such cases really sad. Tragic even. Seriously, such cases can be avoided, and I hope this story serves as a wake up call to investors/traders who are living dangerously on the edge.

Some important lessons we can learn here

1. Firstly, he wouldn’t have been in such a predicament had he invested money which he can afford to lose. That is to say, even in the worse case scenario of 100% loss (assuming he doesn’t leverage), there will be minimal disruption and adverse impact to his financial health. He will still be able to carry on the normal lifestyle that he is leading. Alas, this is not the case here.

Is stock investing really gambling in disguise?

I do remember vividly of one instance when I was discussing investment with a dear friend of mine.

When I mentioned the word ‘stock’, he straight away got a bit wary and defensive and commented, “Isn’t playing with stock no different from gambling? And not to mention it is a high risk game as well? If I make just one wrong move, I’ll be in deep shit right?”

Reflecting back then, I think there is still a perceived notion that dabbling in stock is equivalent to gambling. I don’t really blame my friend for that statement. He had a bad experience where his dad lost a pile in the stock market. Must be traumatizing for him.

Yes while I do admit, getting involved in stocks can be like gambling in certain cases, to equate both of them together will be to do injustice to all the careful and rational investors  who do their due diligence out there.

All too often, we hear of people losing a fortune in the stock market. When you really examine why is this so, the familiar old reasons come out. There are many, but I will just pick 1, which is

Why Internet Marketing, Business and Finance? – Part 3

Finally we have reached the last installment of the ‘Why Internet Marketing, Business and Finance?’ series. I didn’t really have the intention to drag this on to a 3 parters ala Rambo, but sometimes I can really just go on and on!

Damn….I really got to break this naggy habit of mine. =P

Before I waste more time, let’s move to the ‘Financial’ part, shall we?

Now, when we do business, we all only care about one primary concern - profit.

Profit determines if the business is going to be sustainable in the long term.

Profit tells us if the business is worth the while.

Profit in business is everything. No one wants to go in only to find himself facing a loss before long!

Therefore, essentially, having a profit means getting more money coming in than going out. Clearly, having a good understanding of money matters is going to help tremendously.

And when it comes to money matters, a good grasp of finance is absolutely critical.

Simple things like budgeting, planning for expenses, keeping a emergency back up kitty fund and opportunity fund for investing and expanding are very important for any businesses.