Scared to lose 怕输

KIASU: 怕输 : pa(4) shu(1): Scared to Lose

Kiasu in the hokkien dialect means literally to be afraid to lose out. It is one of the fundamental human fears and has been linked as part of the ugly Singaporean myth. The reality is that all human beings regardless of your nationality are afraid to lose something that is precious and valuable to them.

Most people do not like to lose part of what they have or what they are and it is perfectly normal. The problem with achieving financial freedom is that the fear of losing hampens us from reviewing risk-return trade-off in any measure of objectivity.

Why is being excessively scared (fear) to lose a bad thing?
Fear is a human emotion that has its uses. It triggers the flight or fight response when we encounter stressful situations. During prehistoric times, when our neanderthal or homo sapien ancestors walked the earth along with all sorts of wild creatures, fear was what kept us from being eaten up by predators or hunted down by other tribes.

Fast forward to 2007, fear can be good for protecting our hard-earned money from being risked on high-risk low-return investments. My experiences in this continuing journey towards financial freedom is that knowing our own fears and overcoming them using logic, experience and a dose of decisiveness supported by an understanding of human psychology in markets help us achieve returns that can potentially match if not beat the rate of inflation (4-5%!).

However, fear works against us because when we are scared, we are afraid to try out different investment approaches, we become closed to new possibilities in investment and we become lazy to learn about the risk and reward trade-off between different asset classes and stick to tried and tested investment products such as fixed deposits that are safe but guarantee us loss of purchasing power of our money due to recent record inflation rates of 4 to 5%.

Feeling the fear and doing it anyway
I was also afraid of participating in the stock market during my first few years of starting work. I heard about stories of people making and losing fortunes in the stock market. It appeared to be a legal casino where people betted on prices of shares of companies going up or down on any given day. Like many of you, I also wanted to protect my hard-earned savings in order to grow it. Thus, at that time, my investment was mainly in fixed deposits and unit trusts.

The fixed deposits were okay because they were very safe and I deposited during a time when interest rates was 3-4%. However, as time went by, interest rates went south and then the Asian Crisis also hit. I saw my Singapore and Asian Unit Trust melt in front of my eyes. After all was said and done, I exited by unit trusts in 2002 with losses of up to 40% of my unit trust portfolio.

I had encountered my worst fears, i.e. losing money from unit trusts and it opened my eyes to the main weakness of such instruments, the fund managers earn their management fees whether or not they hit their benchmarks. That made me disillusioned with this type of investment and started me thinking about managing my own money by buying stocks and shares in the SGX and exploring other investment instruments like treasury bills.

Overcoming fear in the market place
The lesson I learnt (and am continuing to learn) in the stock market is that it is a market where buyers and sellers interact and is a confluence of fears of people at a particular point in time. Because people are involved, the movement of the market is as rational as the next human being, i.e. it can be high irrational.

That beingthe case, we then need to be as rational as we can be in approaching our investments because if not we tend to be derailed by our own fears and greed. Here are some ways I overcome my fear:

1) Get knowledgeable about investments
There is no excuse not to know more about investments. With the internet and public libraries, you can get information about stocks and shares, property, commodities, treasury bills etc all at the touch of the mouse and keyboard or a short trip to the library. Get yourself a free education in investments. Read all the investment books you can get your hands on!

2) Have an investment plan and objectives
Most people say I want to make money from investing my money. Be specific, set clear goals, e.g. I want to have total net worth of $500,000 by age 50. Or I want to have $1,000,000 investible savings by age 60.

3) Work out strategy to achieve your investment objective
Having a target to shoot for will help you focus your efforts and energy but you also need a strategy how you will execute your plan. For example, my strategy is to ride on the stock market while Singapore's economic fundamentals are strong to grow my investible capital with a view of switching to property in year 2010 where I think there may be a correction. This approach is fluid and is not cast in stone as I have to make allowances for changes in family circumstances as well as market developments.

While doing so, I will also maintain a reasonable allocation of 20-30% cash and cash equivalents (treasury bills/fixed deposits) vs 70-80% in equities. This allocation can change if for example the equities market turns bearish.

4) Execute strategy and keep eyes and ears open to market developments
Having your objective and strategy allows you to be less swayed by fear in the market. While no-one can consistently time the market 100% of the time, if you have a strategy, at least you will be less panicky and reactive and make your investment decisions in a thought-out methodical approach. I know I cannot fully time the market hence I invest in many blue-chip sound businesses and monopolies and have 20-30% cash/cash equivalents to buffer myself. Being 100% in one or another is too extreme and does not fit into my investment strategy.

Fear is a two-sided knife - it can cut both ways
Fear can be used good if you use it to your advantage. I fear financial insecurity and hence work at disciplining my spending and lifestyle habits. I fear the effects of inflation on my networth and purchasing power and hence invest in portfolio of assets to try to beat 4-5% return. I also fear losing my hard earned savings and hence do not put ALL my investible savings in ONE asset class.

What is your own fear doing to or for you?

Take control now.

Be well and prosper!

10 ways to moderate the rising tide of cost of living

Rising tide in the cost of living
Singapore is facing one of the highest rates of increase in the Consumer Price Index (CPI) in decades. The BRUTAL TRUTH that is facing all of us living in Singapore is that your money is losing value even as you save and put it inside bank savings accounts that are yielding 0.25% against the backdrop of 4-5% inflation.

We can sit around and engage in moaning and groaning about WHY, WHY and WHY is the cost of living going up while wages may or may not have gone up but it is more productive to engage in brain storming ideas that we can make our dollar stretch in today's high cost pressures.

10 ways to moderate the rising tide of the cost of living

1) Save and Invest
Some people believe that you should in fact borrow money when the cost of living is going up because saving results in the value of your money declining even as it sits in the bank. This works if you can profitably invest the money you borrow. If you are unable to get consistently low risk returns that overcomes the rate of your borrowings, this may put you at greater financial risk.

Save and invest, continue to do so because when you save more, you will tend to spend less given a certain level of income.

2) Cut down travelling expenses
For those who take public transport, consider walking instead of taking that feeder bus if it is only 1-2 bus stops. Take less taxis or perhaps take a train to somewhere near your destination then take a taxi for the final stage. For those driving, pump the cheaper 92 or 95 octane petrol because most vehicles are able to accept lower octane petrol.

3) Eat more vegetables
Reducing the amount of animal protein (and fat) in your diet and substituting it with tofu, beans etc as well as more vegetables is healthier and helps you save money at the same time. I consume rolled-oats from Mondays-Fridays for breakfast and it saves me a huge bundle plus helps to maintain my weight while providing for good dietary fibre for my system.

4) Drink more water less colas and soft drinks
The cheapest and healthiest beverage you can drink is water! We can still enjoy the occasional soft drink now and then but we should avoid drinking soft-drinks on a daily basis. I carry around a 500ml bottle of boiled water from home and drink it when I am out of the office. I still drink my daily cup of coffee but also consume the 3-in-1 packs on alternate days along with the $0.70 or $0.90 kopi-C.

5) Exercise to destress and relax
Ever since I completed my reservist and no longer have to jog because my Individual Physical Proficiency Test (IPPT) requirement has lapsed, I continue to jog to destress and help me manage my weight and keep myself healthy. When you are healthy, you incur less medical costs and see the doctor less.

6) Sleep early
Sleeping early is under-rated in Singapore because we have the internet, cable television and movies along with various options to entertain ourselves. Giving ourselves sufficient rest and on occasion, more rest by sleeping early saves on electricity and allows us to feel refreshed and energised after a hard day at work.

7) Borrow Books, Audio-Visual materials from the Library
Our public libraries are well equipped in terms of books as well as facilities for a relaxing evening. If you are looking for a place to sit down and read some free magazines, newspapers and books, you can make use of the various public libraries for education, entertainment and relaxation all at once! The best thing is that it's mostly FREE except for premium services such as borrowing of DVDs from library at Esplanade.

8) Sleep without the air-conditioning
December is the month when the weather turns cooler and you'd be surprised that you can sleep on nights that are cool. Just use the fan as opposed to switching on your air-conditioning for 8 hours in the night and you can still get a good night's sleep with the fan that is more energy efficient.

9) Shop during sales
The Great Singapore Sales (GSS) does offer good bargains for working clothes and accessories that one buys. I usually shop for my clothes during the GSS. As a guy, I tend to shop less for clothes and spend my money on gadgets more. My new rule of thumb now is to use up gadgets until they physically fall apart on me before I buy a new one.

10) Visit public parks
If you have visited the various public parks and park connectors in Singapore, you will realise that the Government has spent a lot of money beautifying our surroundings. Make use of these facilities with your families for exercise and recreation as they are also free but provide great value in terms of the playground equipment and the soothing sites that nature (assisted by man) can offer!

There are many other ways to moderate the rising tide of costs of living. Do make use of them and be well and prosper.

Who do you live for vs what do you live for

In our quest for financial freedom, some of you work hard at your jobs and careers while some of you work smart at your businesses and investments. Your hard/smart work allows you to contribute productively to the whole value-chain of human endeavour and at the same time provides you with the money to spend on your lifestyle wants and needs.

Have you ever paused to think if you are living for someone or something?

What vs Who do you live for?
Your motivations drive you both consciously and subconsciously. Your choice of food and drink, your choice of spending or saving, your choice of investing or gambling hinges on your motivations. "What Drives You" by Mercedes Benz is a pertinent question that we need to ask ourselves.

When I first started working, what drove me was to catch up economically and to gain experience after losing 2.5 years of my productive life to the Singapore Armed Forces as a conscript. Hence, I basically worked hard and took little leave and didn't buy myself many luxuries except for mobile phone, pda, personal computer and internet access as well as the occasional vacation. I was saving up to have money to buy a home and to settle down.

When I reached 30, I was settling down, getting married and adapting to married life. This involved a lot of financial responsibility as the housing loan was indeed daunting at the beginning of one's status as a home owner and married person. At the same time, I started to see first hand how fragile corporate job security was! People in their mid to late 30s were getting counselled out even when the company was making profits. It developed in me a deep fear of financial insecurity and has been a key source of what drives me... TO BE FINANCIALLY FREE and not be at the mercy of any employer for my life!

I used to live for financial security
I still see financial freedom as the key goal of my efforts to learn, absorb and apply the principles of living within your means, investing prudently and deferring (as much as practicable) today's wants for tomorrow's needs. However, it doesn't drive me because my main motivator is not SOMETHING, instead, it is SOMEONE.

My daughter will be born in a couple of months time and I realise all my efforts in working hard and working smart is to achieve financial freedom so that I can be a good father to my daughter and a good husband to my wife. Of course, it doesn't sound so noble because when you invest in your family, the dividends reaped are happiness and family harmony. When there is family happiness and harmony, then I have less problems to deal with and can enjoy the journey of life more instead of worrying about them. :-)

What is the purpose of working so hard if you are just going to spend it all on yourself? Overtime, I realised no matter what luxuries I bought myself, I would get bored with them because of the law of diminishing marginal utility. My favourite analogy is how many bowls of sharksfin or abalone can you consume before it becomes meaningless?

I realise happiness derived from using the benefits of financial freedom, i.e. release from pressures of debt, being able to work without worrying about your job and worrying about appeasing your bosses (especially unreasonable ones) is what is meaningful. My time on this earth is limited, so while I am still productive, I want to use my money to touch the lives of my wife and that of my daughter when she is born, so that my time on this earth was well spent and not merely engaged in hedonistic self-gratification in material consumption.

Who do you live for?
As we continue on our journey on this earth and on our journey towards financial freedom. Ask yourself this question, "What Drives You?"

Why do you do the things that help you build up a strong net worth, what makes it so satisfying and is the thing you get up in the morning for?

You decide.

There is no point being so driven in our quest for financial freedom if what drives us turns out to be another THING.

I've decided that what drives me is SOMEONE.

Who is that someone to you? :-)

Be well and prosper!