Category: Investing

George Soros

On Terror: “How can we escape from the trap that the terrorists have set us?” he asked. “Only by recognizing that the war on terrorism cannot be won by waging war. We must, of course, protect our security; but we must also correct the grievances on which terrorism feeds…. Crime requires police work, not military action.”

On the Bush Administration: “An open society is a society which allows its members the greatest possible degree of freedom in pursuing their interests compatible with the interests of others,” Soros said. “The Bush administration merely has a narrower definition of self-interest. It does not include the interests of others.”

On the Bush Administration: “The supremacist ideology of the Bush Administration stands in opposition to the principles of an open society, which recognize that people have different views and that nobody is in possession of the ultimate truth. The supremacist ideology postulates that just because we are stronger than others, we know better and have right on our side. The very first sentence of the September 2002 National Security Strategy (the President’s annual laying out to Congress of the country’s security objectives) reads, ‘The great struggles of the twentieth century between liberty and totalitarianism ended with a decisive victory for the forces of freedom and a single sustainable model for national success: freedom, democracy, and free enterprise.'”

On Philanthropy: “I’m not doing my philanthropic work, out of any kind of guilt, or any need to create good public relations. I’m doing it because I can afford to do it, and I believe in it.”

On Stock Market Bubbles: “Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception.”

Supernature

Straits Times. 11 Feb
By Nur Dianah Suhaimi

WHEN Ms C.F. Chen set up her organic food shop Supernature in a quiet corner of Wheelock Place 10 years ago, she had only five items sitting on the shelves and even fewer customers coming through the door.

When they did, they cringed at the prices and complained about holes in the apples and less-than-pristine vegetables.

Her friends thought she was crazy to have given up her $2,500-a-month job at the now defunct Telecommunication Authority of Singapore to sell ‘rabbit food’.

Today, the 37-year-old is having the last laugh.

Her two Orchard Boulevard shops are among more than 40 organic stores, cafes and warehouses in Singapore, all part of an industry estimated to be worth between $6 million and $10 million a year.

Organic food is produced without artificial pesticides or fertilisers. It is also free of additives and, in the case of organic meat, growth hormones.

Last week, Club 21 founder Christina Ong’s COMO Group bought over the two shops for an undisclosed sum, leaving Ms Chen in charge of the day-to-day operations.

Continue reading “Supernature” →

Speculation

There are many ways in which speculation may be unintelligent. Of these the foremost are:

(1) speculating when you think you are investing;

(2) speculating seriously instead of as a pastime, when you lack proper knowledge and skill for it; and

(3) risking more money in speculation than you can afford to lose.

Benjamin Graham

Insurance and Risk

The purpose of insurance is protection against financial disaster. In this regard, there are usually 3 areas where disaster can strike:

1. Loss of income. Not many people realize that their greatest financial asset is their ability to earn money. A disability, whether physiological (e.g. loss of one hand) or psychological (e.g. mental illness), results in an inability to perform productively. This means that you will either lose your high-paying job or become unable to operate your business effectively. Either way your income falls.

2. Loss of health. A major illness or accidental trauma can run up hundreds of thousands of dollars in medical bills, in addition to the loss of income during hospitalization.

3. Loss of life. This is actually a variation of a loss of income, since it’s not the life itself but the income associated with the lifespan that can be valued in monetary terms. However insurers distinguish between loss of life and loss of income since you can be alive and kicking but totally unable to earn your previous level of income.

Comparing your lifetime earnings and the typical rates quoted by an insurer, there is no excuse for not insuring your ability to work. A disability income policy will pay a percentage, usually 75% of your last drawn pay, should you become unable to work. If you suffer a pay cut it pays a percentage of the pay cut. A typical 25 year old fellow in Singapore earning say $30,000 annually would likely earn at least $900,000 over the next 30 years, excepting increments and bonuses. Yet the cost of providing 75% replacement income ($650,000) is $400 or less annually. It is the most cost-effective coverage you can buy – ‘leverage’ is over 1,500 times.

The average person gets sick 4-5 days a year, but that’s small things like a cough, cold or the flu. 1 in 3 men will suffer a heart attack, stroke or cancer before age 65. For women, it’s 1 in 5. There are other alarming medical statistics freely available that demonstrate that the likelihood of living out a full life without a major medical incident is rather low. The local Medishield and its variants offer extremely limited coverage – there are dollar caps on every item, plus a significant deductible. At a minimum, all locals should move to IncomeShield (best of the Shield variants), but it’s not enough.

A third-party hospital and surgical plan offers better coverage (no deductible, much higher dollar caps). Premiums are in the mid-hundreds to low-thousands per year, meaning you’ll likely spend $20,000 over a lifetime. But one medical claim alone can hit $20,000, and a major operation like an organ transplant can cost $200,000. So one claim, and you’ve recovered your premium costs. Of course, ideally you don’t want to have to claim at all! Insurance is one bet you always want to lose. Critical illness plans (which pay a lump sum on diagnosis) are a nice-to-have option, although their coverage overlaps with health and surgical plans (which work via reimbursement).

Loss of life is actually only an issue for those with dependents (young children, aged parents etc). For those without dependents, life insurance is actually a waste of money, because nobody suffers a financial loss if you die. All you need is enough coverage to pay for funeral expenses – and most locals are covered in this respect by the Dependants’ Protection Scheme (automatically paid from CPF unless you opt out). But for those with dependents, it is prudent to have sufficient coverage to cover the loss of income – disability coverage usually doesn’t pay much on death.

In financial terms, when facing a risk, one should, in order of preference:

1. Avoid it.
2. Minimise it.
3. Transfer it.
4. Absorb it.

As far as health/life is concerned, you can’t avoid getting sick. You can minimise the risk by maintaining a healthy lifestyle. You can transfer the risk of major bills to an insurer. You can absorb the risk of small bills from seeing your general practitioner.

Where income-earning ability is concerned, you can’t avoid getting injured or dying in an accident. You can minimise the risk of death or injury by choosing a less hazardous occupation. You can transfer the risk of consequent financial loss to an insurer. You can’t absorb the loss of income by saving enough money during good times.

Everyone but the extremely rich should have medical insurance to pay for bills and disability insurance to replace lost income. Only those with dependents should bother about life insurance.

Investment is a game of greed where you give up small known losses (in inflation and opportunity cost) in order to get large unknown gains. Insurance is a game of fear where you give up small known losses (in premiums) in order to avoid large unknown losses. Fear and greed are distinct; do not mix the two. Yet both are vital to any financial plan and must be adequately addressed.

Philip Fisher: Common Stocks and Uncommon Profits

Philip Fisher

Philip Fisher’s Investment Philosophies

– Invest for the long term.

– Diversify your portfolio through proper asset allocation.

– Blend passive with active management.

– Know your costs and keep them low.

Philip Fisher’s Investment Principles

1. Buy companies that have disciplined plans for achieving dramatic long-range profit growth and have inherent qualities making it difficult for newcomers to share in that growth.

2. Buy companies when they are out of favour.

3. Hold a stock until either:

(a) there has been a fundamental change in its nature (e.g., big management changes); or

(b) it has grown to a point where it no longer will be growing faster than the economy as a whole.

4. Deemphasize the importance of dividends.

5. Recognise that making some mistakes is an inherent cost of investment. Taking small profits in good investments and letting losses grow in bad ones is a sign of abominable investment judgment.

6. Accept the fact that only a relatively small number of companies are truly outstanding. Therefore, concentrate your funds in the most desirable opportunities. Any holding of over twenty different stocks is a sign of financial incompetence.

7. Never accept blindly whatever may be the dominant current opinion in the financial community. Nor should you reject the prevailing view just for the sake of being contrary.

8. Understand that success greatly depends on a combination of hard work, intelligence and honesty.
Continue reading “Philip Fisher: Common Stocks and Uncommon Profits” →

Knowledge

“If a man empties his purse into his head, no one can take it away from him. An investment in knowledge always pays the best interest.”

– Benjamin Franklin