#138. Barack Obama Propping Up Economy

"If we do not act swiftly and boldly, most experts now believe that we could lose millions of jobs next year," said Obama.

We are already seeing people losing jobs like the trees losing their leaves in autumn. News of factories reducing their operation time and working days are now highlighted in the media. 

The US government is now pumping more money into the economy crisis. The latest foray is more money (with at least US$20 billion) is channeled to the ailing Citigroup to prop it up. But how long can the US government keep bailing out these ailing companies? 

First it was the financial backing to JPMorgan Chase’s buyout of ailing Bear Stearns. Six months later, the government was forced to take over mortgage giants Fannie Mae and Freddie Mac. And recently to insurer American International Group.

Who else are queuing up in line for handouts? The Big 3 automakers in the US.

General Motors Corp., Ford Motor Co. and Chrysler LLC and their suppliers have been authorized US$25 billion by the US government to retool their assembly lines for making more fuel-efficient cars. Now, the Big Three automakers want an additional $25 billion in cash infusions from Washington to ensure they will have the funds to operate through next spring. Congress could act on it in December.

Read it again, to retool their assembly lines for making more fuel-efficient cars. For years, they have been producing big SUVs that guzzle petrol without any care of the fuel prices. The recent rise in oil prices must have given them some hard times. 

Car buyers who are wallet conscious (I don't think it is much of green conscious) are going for the Japanese makes that are many times more fuel efficient. And we know, no sales means no profit for the US makers. The US makers have been on a losing streak and it is now quite late for them to 'retool'. What do you think?

Well, let's see what else is going to happen. Which companies are standing in line to fall over, and how much the US government can keep churning out to prop up the ailing companies and economy.

Let's simplify things.

Imagine the you as an individual is a big corporation. If you spend more than you earn or save, what is going to happen? You will soon land in credit hot soup issues. You would need to get a loan from somewhere. 

It's the same with these big companies. If they are not making enough sales and yet have all the high overheads to bear, they will soon need to queue up in front of White House to ask for bailouts. 

Now, what is the best course of action as individuals? Always keep things simple. 

• When times are good, save as much as you can. Invest and grow your money. Look for ways that can make your money work harder.
• Spend less. I like the recycling motto: Reduce, Reuse and Recycle. Reduce your purchase by not buying things unnecessarily. Reuse whatever you have and thus your spending goes down. Recycle means buying good-condition used products if you can. Buy a pre-owned car if you can.
• Clear your debts. Pay off your credit cards debts. These are killers. Next, settle your car loan. And then your mortgage. Be as debt free as you possibly can. Neither a borrower nor a lender be.
• Look for ways to earn extra income. Opportunities are everywhere. Look for it.

I am a strong advocate of keeping things simple. Never complicate things. Keep things simple. If you don't need it, don't buy it. If you can afford it with cash, don't take a loan. If you can't afford it without a loan, then don't buy it.

People are always dreaming of fast money. They want to be rich by tomorrow's noon. My advice, again, keep things simple. One thing at a time. Pay off your debt, and then save and invest regularly. You can't dream of building a big house, if you don't lay one brick at a time. 

Keep it simple, dude.

#137. Misconception On Unit Trust

Why You Need Trust

Recently, I was among some newly met acquaintances. Our conversation were on banking and investment products. We went around the table asking each one what do they invest in.

Of course, there are those that are investing in unit trust funds. Some are investing in properties. And a guy who is investing in properties told the group, "I don't need trust." There are those who just put their money in fixed deposit thinking it is the greatest investment.

So, many people are just limiting themselves to only these 3 categories when it comes to investment and making their money work hard: properties, unit trust and fixed deposit. In that group, I was the only one that mentioned that I invest in gold investment account.

There is of course merit in all these 3 categories of investment or 4 if you add gold investment. The biggest reasons for investing are to grow your money and to have passive income. As I always say "As long as you know what you are doing, any investment is good." Black cat or white cat, as long as it catches the rat, it is a good cat. I have no argument with those who say "I don't need trust."

Use the strengths of each investment

Different folks, different strokes. However, just be aware that no investment is better than any other investment. And it is really arrogant sounding to say "I don't need trust."

There are pros and cons in any investment. Just like the fingers on our hands. No one finger is better than the other fingers. They have their own unique purposes. Used together they become a powerful fist capable of throwing an impactful punch!

That's how we should use all kind of investments to achieve a powerful growth to our money. And most importantly, to diversify our risks and utilise the strength from each type of investment.

Fixed Deposit is the worst among all investments. However, since we need to have an emergency cash reserve of six months (as I always say), Fixed Deposit is then the best place to keep your money.

Properties are good investment, if you can bear with its lack of liquidity and the need of constant maintenance. The looking of tenants. The monthly loan repayments that has to go on even when you don't have a tenant. And so on. The growth can be slow to fast depending on location.

Unit trust on the other hand, has quick liquidity. Whenever you need the funds, you can quickly sell off some units and get your cash. It gives you dividend much like you collect rentals from your tenants. Yet, minus the headache of chasing tenants to pay up. You can do a monthly investment scheme much like you make your mortgage loan repayment to the bank. Every dollar you invest is yours. But every dollar for a property loan repayment you pay to the bank is mainly for the interest to make the bank richer. It does take a long time before you are able to build equity in your property.

And to add further, you don't own the properties until you have fully settled your loan. If you take a 30-year loan, that is how long the bank owns it. Not you. You don't own the properties. If you don't believe me, try to stop your payment to the bank and see if you can still call it "your" properties.

Different investment compliments each other. We should not narrow our mind to limit only to believing in one investment.

Different perception even among Unit Trust investors

Among Unit Trust investors. There are two types. The first is, "I have tried but didn't like it" type. The second is, "I like it."

During the group discussion, there was a guy who said he invested, and suffered losses and thus didn't like it. Another said he made some money but think it is risky, and he stopped investing. Another said he is still investing and it's for long term.

There are a lot of people out there who say that they got 'burnt' by investing in unit trust investment. These are unfortunate people who have no knowledge on unit trust investment. To add on to that, they were ill-advised by their unit trust consultants. Or they have different expectation to the duration of the investment to see their returns. Or other various reasons.

Let me ask this. When you first started riding a bicycle, or took your first baby step, or started driving a car, didn't you fall or knock into something? But that didn't deter you from riding the bicycle, walking and driving! You drive like a pro now, you can even run or cycle with one hand.

To sum this, it is the knowledge that we have in the investment that makes us a successful investor. If you have full knowledge on property investment but with zero knowledge on unit trust investment, you will definitely say "I don't need trust." But when you open yourself to all knowledge, you will say "We need all our fingers to deliver a powerful punch."

Knowledge is indeed power.

Learn, try and try again before you make a comment that an investment is bad. People get rich from all kinds of investment. We should learn from them. Even if they are investing in something you have not heard of.

One is all and all is one. Meditate on this phrase for a while. Happy investing.

#136. Stock Market Direction

There are some who wrote to me to ask what is the market direction now? Is it uptrend or downtrend? 

Depending on who you speak to, or which website you read, you have two opposing views.

Those who claim that the market is going up based their judgement on the recent governments around the world injecting huge funds into the market. The US, the European countries, China with its latest US$586 billion stimulus package, and even Malaysia with its RM7 billion package. 

Let's hope all the funds are channeled properly into development and benefit the whole country. Let's hope the funds do not only go to only a small beneficiaries. 

However, it may takes time to see the market moving back up.

Next, there are those that say the market is going to get worse next year. They argued that the USA has been printing more money and injecting these funds into the market. According to them, these funds have no value whatsoever. 

These same people likened the current situation to the Great Depression of 1929. 

Now, where is the market heading? Where do you think the market will be by the same time next year? Will we see a higher performance or a lower performance. Only time can tell.

Wherever the direction is, are you going to stop investing? Are you going to stop your dollar-cost averaging? Are you going to stop saving your money?

I believe the market is cyclical. The great investor and trader W.D.Gann (you can Google and read more about this great man) had said that he was a strong believer that the market is cyclical. He even quoted from the Bible, Eccl. 1:9 that says:

The thing that hath been, it is that which shall be;

And that which is done, is that which shall be done:

and there is no new thing under the sun.

What is said here is that everything moves in cycles. The day follows the night, the night follows the day. The 4 seasons come one after the other. That is the way nature is. That is the way humans behave. 

The Chinese have a saying too:

The flower is not 100 days red; And men are not 100 days well. 

Some days we are down. Some days we are up. The flowers cannot be red all the time.