Pay yourself first

How many of you pay your bills, household expenses and daily expenses first and save the rest? Or should you save first and use the rest of the money to pay your bills, etc? Most of us work 42 hours each week and that amounts to 168 hours each month. You have slogged so much and doesn’t it make sense to pay yourself first instead of others? Why pay your phone bills or car loan first when you should take care of yourself first?

One should always pay yourself first before paying anybody else. One should set aside at least 10% of the monthly income for savings. The more you set aside, the better it is. The savings can be used as an emergency fund or to invest. You should then pay your bills with the remaining money. No matter how tight it is, you should always pay yourself first and work around with the rest of the money.

To make sure you are following this technique stringently, you can set a standing instruction (or standing order) for your bank to transfer $x to another bank account on your pay-day. Also, it is paramount that you don’t have any debit card/ATM card attached to this savings account. In this way, you will be disciplined enough to save and not use the money unnecessarily.

I first learnt about paying yourself first in Robert Kiyosaki’s book “Rich Dad Poor Dad” back in 2007. I also came across this technique in the book “The Richest Man in Babylon” by George S Clason. This is a technique that I follow strictly till this day. I’m sure it would do wonders for you too if you try this one technique to master your finances.

How to get started in value investing

Quite a number of my friends have asked me how to get started in value investing. They want to start investing and want their savings to work harder for them instead of just earning a paltry 0.1% from the bank. Inflation is eating money left in the bank daily. Personally, I learnt investing by reading lots of books, going for some free and some paid courses and reading articles from the internet.

Firstly, before investing, you should have a strong enough reason why you want to invest your money. Maybe it’s because you want your money to work harder for you, maybe you want to earn enough dividends (passive income) to pay for your daily expenses or maybe you just want to live comfortably during your retirement age. I wrote an article some time back about having a strong passion for what you are doing. Passion is paramount in anything you do, not only in investing.

Next, always remember this: you must only invest with surplus cash. If you need money for daily expenses and are living paycheck-to-paycheck without much savings, then it’s best to take care of your daily needs first. Then, you have to look for ways to save more money. It can be done by two ways: increase your income or decrease your expenses.

I would also recommend you to keep aside an emergency fund of at least 6x your monthly income or 12x your monthly expenses. This fund should not be touched at all, no matter what. Financial advisors usually recommend socking aside 3x your monthly income or 6x your monthly expenses before investing. I’m just a bit too kiasu. The emergency fund will help when one gets retrenched or when something unexpected happens. So, now you have monthly savings and emergency funds set aside. Use your monthly savings to invest. There’s no minimum amount needed to invest in the stock market.

You also need to open a brokerage account. I mainly use DBS Vickers broker. More information on how to open a brokerage account can be found at

Now comes the crux of the post. How to learn how to invest in good companies? This is the hard part as it involves lots of time, reading and research. I would recommend people to start off by reading a few books. They are as follows:

  • The Secrets of Millionaire Investors by Adam Khoo (highly recommended for simplicity)
  • The Neatest Little Guide to Stock Market Investing by Jason Kelly (highly recommended)
  • Buffettology by Mary Buffett and David Clark
  • One Up on Wall Street by Peter Lynch
  • Common Stocks and Uncommon Profits by Phil Fisher (highly recommended)
  • Warren Buffett and the Interpretation of Financial Statements by Mary Buffett and David Clark
  • F Wall Street by Joe Ponzio (highly recommended)
  • Rule #1 by Phil Town
  • The Financial Times Guide to Value Investing by Glen Arnold
  • The Five Rules for Successful Stock Investing by Pat Dorsey

You have to read the first book “The Neatest Little Guide to Stock Market Investing” to get a good overview of how the stock market works and how companies make money, among others.

I would also recommend some sites to start off with. They are:

Investing is not a get-rich-quick thing. It takes lots of time, patience, discipline and determination. If you are looking to make money within a few days and run, then value investing is not for you. If you are willing to learn and invest for the long-term, then investing is one of the best asset classes to accrue wealth.

Opportunity abound among the crisis

On March 11, an earthquake that measured 9.0 on the Richter Scale rocked Japan. A massive tsunami ensued after that. A nuclear plant was also damaged, spewing radioactive materials into the atmosphere. This has caused massive fear in the stock market. The STI dropped from 3075 points on 10th March to 2935 points on 18th March. That was a 4.6% drop in the span of 6 market days.

On 15th March alone, the STI dropped 2.8% with high volume! Investors were in apprehension over the various news that were unfolding in Japan. However, yesterday, the Sunday Times front page screamed “Crisis shows signs of stabilising”. Today, CNBC reported that “some progress is seen at Japan reactors; US sees turning point”. I can only guess that the stock market will start picking up once again when the positive news start rolling in bit by bit.

So it can be seen that the market tanks when there is fear and anxiety. It will rise when there is positive news. However, amid all the fear and tension, we should always remember that the stock market is made up of pieces of businesses. The prices of shares drop due to market sentiment and not due to business failures per se.

Warren Buffett once said, “Be greedy when others are fearful and be fearful when others are greedy”. When investors are showing fear, it’s a good opportunity to buy shares at depressed prices as the market will only pick up, slowly but surely.

Warren Buffett Interview – 2nd March 2011

Warren Buffett was interviewed in CNBC’s Squawk Box on 2nd March 2011 and Part 1 of the interview can be found at There are a total of 7 parts. All the parts can be found at this blog at

I would post some of the questions and answers of the topics that I found interesting below.

On the US economy

BECKY: Your annual shareholders letter that you just came out with on Saturday painted a much more optimistic picture of America than many people had been thinking to this point. Why is that? And why are you so positive about things?

BUFFETT: Well, I’ve been optimistic on America right along, as you know. I mean, I was optimistic when I knew things were going to go to hell. But things do – America gets off the track from time to time, and it was particularly so in the fall of 2008. But you can’t stop this country. I mean, we have gone through, I don’t know, 15 recessions, you know, world wars, civil war, you name it. And there is a resiliency to the American system. It does work. And it sputters from time to time. It’ll sputter from time to time in the future, but you don’t want to get too concerned about that. It’s kind of like having a bad crop in farming. If you’ve got some good land here in the Midwest, you’re going to have a bad crop occasionally. But you know you’re going to have mostly good crops and we have great soil for this country, metaphorically. And it works over time

On gold and commodities

BECKY: Well, speaking of gold, though, we’re looking at gold prices and they were at another record high. They’re up another $3 today, $1,434 an ounce. And there have been some big fat hedge fund managers, like a Paulson or a David Einhorn, who have really buckled down on these bids. Why would you steer clear? And do you think what they’re doing is the wrong thing?

BUFFETT: Well, I just don’t know. I don’t know whether cotton’s going to go up.


BUFFETT: I mean, we use a lot of cotton. I’ve watched it go from 80 cents to $1.90. You know, we use a lot of copper and I’ve watched it go from $2 to $4-plus, so I mean there’s all kinds of things in this world that are going to go up and down in price. You know, maybe hamburgers will tomorrow. And – but I – I’m – I don’t know how to judge that. I do know how to judge to some extent the earning power of some businesses. And the real test of whether you would like it as an investment is whether you would be happy if it never got quoted again, and just in terms of what the asset did for you. But that doesn’t – I will say this about gold, if you took all of the gold in the world it would roughly make a cube 67 feet on a side. So if you took all the gold in the world, we could have a cube that went down there 67 feet…

BECKY: Uh-huh.

BUFFETT: …67 feet high and that would be the whole thing. Now for that same cube of gold it would be worth at today’s market prices about $7 trillion. That’s probably about a third of the value of all the stocks in the United States. So you could have a choice of owning a third of all the stocks in the United States or you could have a choice of owning that little block of gold, which can’t do anything but kind of shine there and make you feel like Midas or Croesus or something of the sort. Now, for $7 trillion, there are roughly a billion of farm – acres of farmland in the United States. They’re valued at about $2 1/2 trillion. It’s about half the continental United States, this farmland. You could have all the farmland in the United States, you could have about seven Exxon Mobiles, and you could have $1 trillion of walking around money. And if you offered me the choice of looking at some 67-foot cube of gold and looking at it all day, you know, I mean touching it and fondling it occasionally, you know, and then saying, you know, `Do something for me,’ and it says, `I don’t do anything. I just stand here and look pretty.’ And the alternative to that was to have all the farmland of the country, everything, cotton, corn, soybeans, seven Exxon Mobiles. Just think of that. Add$1 trillion of walking around money. I, you know, maybe call me crazy but I’ll take the farmland and the Exxon Mobiles.

On the US dollar depreciating

JOE: …because, yeah, let’s just wait and I’ll ask him a follow-up to. Because you do get paid back with your investments in dollars. And if those dollars are, you know, are going to be worth much less in the future then I figure you must – you must figure policymakers are going to get it together eventually, Warren, or else, you know, paper money’s not going to be worth anything.

BUFFETT: Well, but that’s true of – if you’re – if you’re trained to be a lawyer or you’re trained to be on cable or anything else you’re going to get paid in dollars. Now, the question is, if you have something valuable to offer even if the dollar gets worth less, you will retain earning power that’s commensurate with purchasing power.

JOE: Ooh.

BUFFETT: And if – I mean, Coca-Cola, the – in the year since I’ve – was born the dollar has depreciated 94 percent. I mean, it’s 16-for-1 in terms of inflation. But if you owned Coca-Cola in 1930, you’ve still done pretty well. Or if you owned a lot of good business in 1930. Because they have the ability to extract real earnings in terms of what they deliver to people. And your doctor is able to charge 16 times as much as in 1930 because his services are still as valuable. So, as the currency gets worth less, it does not make – it does not penalize the service or the good that is really needed by other people. The world adapts.

JOE:  Hmm.

BUFFETT: And that’s why I like businesses or I like my own earning power as the best assets in a time of inflation. They really can’t be taken away.

On why he likes private businesses compared to public business

BECKY: All right, the first one, let’s say, comes in from Miykael in Canada, who writes in, “With articles mentioning that you’re looking for major acquisitions, with the economy favoring the low-cost segment, wouldn’t Family Dollar be an ideal fit?”

BUFFETT: Well, there are a lot of companies that would be a fit at a price. It’s easier for us to buy businesses that are privately owned than ones that are trading on the market because people – I don’t care what the market price is in terms of what they’re worth to us. But generally speaking, people, in evaluating mergers and acquisitions, look at the premium pay to the market price and decide whether that’s a fair price or not. A fair price to us is one that – where we think we’re going to get our money’s worth in terms of future earnings, and I would say that we will generally have more luck with private businesses than public businesses, although Burlington was a public company, yeah.

On why businessmen should keep their private businesses

BUFFETT: Well, Mars is a wonderful business, and we’re their partners in Wrigley. And if the Mars family were to ask me about selling their business, I would say keep it.

BECKY: Mm-hmm.

BUFFETT: I mean, if you own a wonderful business in life, the best thing to do is keep it. All you’re going to do is trade your wonderful business for a whole bunch of cash, which isn’t as good as the business, and now you got the problem of investing in other businesses, and you probably paid a tax in between. So my advice to anybody who owns a wonderful business is keep it. Now, sometimes there’s a – some reason in terms of taxes or family situations or whatever it may be that a wonderful business is for sale. But I have told a number of people who’ve come to me who have wonderful businesses, if you can figure out a way to keep it, keep it, because all you’re going to do is take that billion dollars you get, or 5 billion, you’re going to pay some tax on it, now you’re going to go out and buy some stocks, and most of those stocks you buy are not as wonderful as the business that you already owned, and you don’t know as much about it and, you know, so sometimes it pays to know when you’re well off.

On liquidity and savings

BECKY: Yeah, you wrote about that in the annual letter, as well, and said that the thing that you learned coming out of that is the importance of liquidity and not getting over leveraged.

BUFFETT: Yeah. My grandfather left–gave $1,000 eventually, at 10 years after the marriage of each of his children and my aunt didn’t marry, but he gave her $1,000 as well and he sent them this letter and he said, `Put this money away.’ He said, `Don’t get tempted to invest it because some day you may need money and who knows what you’re can do with your investment then.’ So you’ll always want to have some cash. He gave me a $2 bill when I was a kid and he said carry this around and he said you’ll, you know, you’ll never be broke.

“Inside Job” movie

I just finished watching a movie called “Inside Job”. It’s a movie on the global economic crisis of 2008 and how it happened. It is by far the best movie I’ve seen that explains the financial crisis in-depth. It leaves no stones unturned. If you want to know the who, what, when, where, why and how of the crisis, don’t miss this movie!

The movie is divided into 5 parts. They are: Part I How We Got Here, Part II the Bubble (2000-2007), Part III The Crisis (2008), Part IV Accountability and Part V Where Are We Now.

Many people got interviewed including George Soros, Nouriel Roubini and Lee Hsien Loong. Overall, a superb story-line!