Investing is hard, speculating is easy

Investing is hard
To get consistent returns above benchmarks such as the CPF special account interest rate of 4% (or 5% including the 1% extra given by the Government) or even treasury bills of 2% (now closer to 1.7%+) is not hard. It is hard to beat the benchmarks and avoid risk. Speculating or punting on timing the stock markets using a buy low sell higher or sell high buy back lower approaches is easy...easy to LOSE MONEY if these bets turn sour.

Investing is hard work. I am reading Benjamin Graham's "The Intelligent Investor" and some chapters are somewhat heavy going. I can understand why investment and finance books can put some of you to sleep and be a challenge to read end to end. However, we should persevere and continue in our constant reading about personal finance and investments because the only way to learn is to first READ and be aware of the knowledge we need to equip ourselves to approach investments.

Speculating is easy
Speculating is easy because it is essentially a bet. You may call it a calculated risk, an exercise in probabilities but if your intention is not to hold for the longer term to participate in the share of the business of the enterprise you are investing in, then it is a gamble.

For me, speculating takes less brain power and essentially plays on my "feel" for the market. Usually my "feel" is as good as US subprime CDOs. ;-P (i.e. NOT GOOD AT ALL!). I have realised that I have been very fortunate in the last 4 years speculating in the market as looking at my portfolio of 9 stocks, only Singtel has been with me since the beginning and I kept it because it was bought using CPF monies! Even the Group C SingTel shares were already sold by me several years back at a loss.

Thus, I have been speculating for the last 4 years and survived based on pure dumb luck and the fact that the STI moved from below 2000 in 2003 up to the current 3000+ levels. Hence, I was just riding on the wave of bullish sentiment all the way to 2008.

Going Forward
Now that the good times of the bull market appears to be coming to an end, it becomes tougher to obtain reasonable returns in the stock market and I have realised I now need to be very selective in the counters I buy and hold long-term, i.e. next 18 years until my daughter reaches the age of going to the University.

Given that my time horizon is now longer, i.e. 18 years and beyond (for my retirement), capital preservation for a portion of my portfolio is paramount. Thus, I will stick to at least a 25% holding in cash and cash equivalents in the safety of treasury bills and perhaps some investment grade bonds. This provides me with a buffer for unexpected day-to-day funding needs.

I still need to be invested in the market but should move away from the speculative punting activity that has allowed me the privilege of paying the bonuses of my broker and the counterparty who bought/sold the shares I sold/bought.

Achieving financial freedom requires dedication, discipline and a determination to live within one's means, to save and invest and to use the power of compound interest to one's advantage to grow one's nest egg prudently and safely. There is no absolute safety in investments but there is a need to be defensive and NOT LOSE CAPITAL. Having an asset that has a portion invested in safe instruments would help one weather the financial storms we encounter during our journey towards financial freedom.

Be well and prosper.