Monday, September 30, 2013

The millionaire next door ....... part II

EPF numbers is a good place to get an overview of majority of working class wealth. My gut feel tells me if a person could not retain much of their net worth in their EPF account, it is unlikely that they can have significant wealth outside their EPF account as well. Only persons with confidence of generating at least 8 - 10% will be likely to withdraw from their EPF savings for investment purpose. If it is for education or housing purpose, it is very likely that a person do not have have enough savings. The simple logic is if they are not financial distressed, why are they breaking their EPF piggy bank?

When I look at the numbers, there are only about 15,783 members with more than RM 1 million in their account. Even we include the borderline millionaire, as a percent to total 6 million active members is less than 1% or 0.3% to be very precise. The number is very. Very small.

The second table says 85% of members are earning less than RM 3,000 month but my interest is to study the "rich" people. When I sieved through the Economic Planning Unit(EPU) data, I found that household income with more than RM 5,000 is rising fast from about 10% in 1999 to about 34% in 2012. Most of them are concentrated in the urban area.

If 33% of people is earning more than RM 5 k, I figure out if someone can have monthly contribution of RM 1k/month, that will put 33% of household to be in RM 800 k bracket when they are in their late 40s. Surprisingly, if we look at the first table, there are only 3,000 people in this bracket.

The top 20% highest income earner in Malaysia is drawing an average of RM 12 k/month. If you are earning more than RM 10 k, that I figure will put you in the top 3% earner in this country. Again, the number of wealthy people in comparison to their earning power is too low! I would expect to see at least about 100,000 millionaires but shockingly only less than 20,000.

In the book of the millionaire next door, the same shocking statistics is incredibly consistent manifesting itself.

  • More than half of America wealth owned by 3.5% of households. 
  • More than 7 millions households earn more than USD 100 k
  • More than 25 millions households earn more than USD $ 50 k
  • Average net worth of American, excluding home equity, is only USD 15 k

How come there are so little affluent people even though they are hardworking, educated and high income earner?

How come? How come they are not wealthy?

The measurement of wealthy is relative. Let's put overall happiness index asides for a while, let's focus on more down-to-earth materialistic measurement. For a person earning RM 40 k per year at the age of 40, is considered wealthy if he accumulated at least RM 160 k. On the other hand, a person is earning RM 400 k per year, at the same age of 40, if he accumulated only RM 500 k does not consider to be wealthy. At his income and age, he should accumulate at least RM 1.6  million, if not more!

The formula is Realizable Income x Age / 10

I found this formula is very useful, though it is a little bit subjective or arbitrary derived by the authors, but that at least it is a very good effort to quantify or to measure whether a person is considered wealthy. I find it very sensible because it helps to establish measurement of a person ability to accumulate wealth based on their potential. It is very fair because the measurement is taken in relation to their earning power. It is also telling us how long a person can sustain him or herself before running out of money. I bet that a person with RM 160 k wealth from RM 40 k income can sustain him/herself at least 5-7 years without a single sen coming in. A person with RM 500 k wealth but earning RM 400 k/year will likely to run out of money within 2 years if he cannot find a similar job!

......................................................................................................................................... to be continued

Monday, September 23, 2013

The millionaire next door......part 1

What are the signs that you have too much time? I find that it is getting increasingly difficult to find undervalued stocks. So I decided to take a break(it has been almost 1 year plus actually) and let the market sort out by itself. I am now have so much time that I begin to re-run TVB dramas that produced between 80s and 90s. I hardly watched any of the TVB drama post millennium perhaps the quality of scripts and cast have not been as good as before. The Korean dominates post 2000. 

I know that I am in trouble because I started to go back watching classic dramas(a sign of old age). The latest series is The Shanghai Bund. I remembered in those days, housewives would prepare their dinner early so that they could watched their favorite drama at 6 pm. The streets will literally empty because most people will be glued on the TV screens. I remembered TV was a luxury item that not every household can afford it. We would need to "tumpang" watching at neighbors. The doors of neighbors opened widely that we could walked in and out as if it was our own house. 

Today Malaysian house probably will have at least 2 TVs(mine one only) protected by high walls and monitored by CCTV(mine none) and guards and gates, things have changed rapidly. We probably have done a little bit better materially but certainly going backwards spiritually - getting more insecure. 

Chow Yun Fat is certainly my idol. Back then he was 25 years old, today he is fast approaching 60. There is no mistake that people called him People's actor. I did not know much about his humble background until 33 years later where I get more information about him by "google-ling". 

Chow was born in Lamma IslandHong Kong to a mother who was a cleaning lady and vegetable farmer, and a father who worked on a Shell Oil Company tanker.[2][3] Of Hakka origins,[4][5] he grew up in a farming community on Lamma Island in a house with no electricity.[6] He woke up at dawn each morning to help his mother sell herbal jelly and Hakka tea-pudding on the streets and in the afternoons he went to work in the fields. His family moved to Kowloon when he was ten. At seventeen, he quit school to help support the family by doing odd jobs including bellboy,[7] postman, camera salesman, and taxi driver. His life started to change when he responded to a newspaper advertisement and his actor-trainee application was accepted by TVB, the local television station. He signed a three-year contract with the studio and made his acting debut. With his striking good looks and easy-going style, Chow became a heartthrob and a familiar face in soap operas that were exported internationally.
He is a superstar today with net worth more than billions(HKD) but surprisingly he lives a frugal lifestyle. He is frequently spotted taking public buses. The best part of all, he pledged to donate 99% of his wealth after he dies.

He still patron wet market, going to Kowloon to buy 'vegetables'. I can't agree more with him that there is a strong correlation between shopping at wet market and finance literacy. It's the best place that you learn about inflation and budgeting. Jim Rogers is another person who shops frequently at the wet market. 

He walks freely with his wife with no social consciousness. Can't find a better picture but this the one that I can find conveniently to show that she is a plain Jane but a person who can provide security, support and frankness with him. They stay married for 26 years. She is his mean finance manager.  

Since this is a finance blog - I must go on to talk about personal finance stuffs though gossiping sometimes is fun. There are two superstar Chows who are very investment savvy - he and Stephen Chow.

Both of them famed for their speculative or investment skills. Both of them earns substantial profits from their property investments even though they also made killings profits from stock market and businesses.

So far, it is quite true that behind every successful man there is a woman. It was unfortunate that Stephen and his longtime girlfriend  Yu Wenfeng did not work out well at the end after 10 years of dating. She is the youngest daughter of one of the largest real estate founder Hong Kong Construction Holdings, Ltd. She was the head of finance for Stephen Chow company. She has been his excellent advisor by asking him to refurbish and then hold back from selling a particular property that resulted his net worth to increase by HK$2 billion.

There is a favorite pair of mine - Sean Lau Ching Wan and Amy Kwok.

Lau Ching Wan 1992 successful tv series The Greed of Man has created a strong brand of him as investment actor. His well accepted image has landed him various stock market movies like Overheard, Overheard 2, Life without principle or even in a less popular ATV series of divine retribution. 

He was quite straight forward to tell everyone that he is quite bad with investment decisions and knew very little about investment. He leaves everything to his wife Amy Kwok. Their lifestyle is extremely frugal  like regular salaried "workers" - going to wet market, breakfast at old shop and shopping at regular shops. 

His wife was once aspired to be a professor in the university ended up winning Miss Hong Kong 1991 title and a successful actress. She is almost like goddess reincarnation who has beauty, brain and tremendous character. She earns a degree in mechanical engineering and master degree in electronics. She seems to be really the one that wearing the pants at home. 

Most people would know especially in entertainment world that easy money can come and go very easily. She probably realized that. As early of their acting career and dating way back to 1994, she has been in the driver seat making property investment decision. Lau Ching Wan is the passive investor by just entrusted the money to her. She was so good at it that she did never lose any money in property speculation/investment. She had withdrew herself from acting since 2006 to concentrate managing the family affair and finance.

She is very hands-on. She dressed like a regular housewife not shopping for LV bags but shopping for best property deals in town. 

What I like about this couple is though they did not reach the superstar status, commanding a lot lesser acting fees, but by compounding their wealth over time, they accumulated hundreds of million wealth quietly. They seems to be happily married for 15 years.

This reminds me of the traits of many wealthy people in a book written and published in 1995. 

Friday, September 6, 2013

The Greed of Man - Final part

Do we sometimes wish that we have supernatural power when comes to speculating or investing. Do we wish we can fly? 

Do we wish we can see the closing price printed in tomorrow's newspaper? Above all, do we wish we can be god? Can we make things happen by having strong self belief. In the final battle between Ar-Bok and Ting Hai, he was very confident that that stock market will go up despite of all the evidences pointed to American will hit Iraq, hence down is the path of the least resistance. He said if you have strong enough convictions, you can make things happen. If you keep thinking of getting an Ace, you will get an Ace. That is the power of self fulfillment prophecy. This what a NLP program will teach you. If you keep thinking of something and repeat the same thoughts over and over again million of times, thoughts will transform into actions ultimately making dreams come true.

Relying on self belief, astrology or seeing magicians  are not uncommon especially among Asian investors or speculators. A research house like CLSA, suppose to be an intellectual powerhouse, has been publishing a slideruler to guide many of its customer especially in Hong Kong who believe very strongly in Feng Shui to make many money decisions. The below chart was published around Chinese New Year. How accurate is this call?

At one glance, it is seems to be very accurate. If we feel the market is pretty shitty now thus our minds and eyes are easy to be deceived. When we compare the actual results, it is seems to be completely opposite. CSLA said Hang Seng Index supposed to rally all the way to July and enter correction phase until end of September. The opposite seems to be happening. The market rally fizzled out in January and has been sliding and bottomed out in June and now is going up.

So do you still believe in market wizards? Many do, after all, Warren Buffet will not be called as god of stocks.

The story continues, Ar-Bok defeated Ting Hai simply not because he has strong self belief. No doubt he believed his wife could brought him luck and inspirations. No doubt he believed he has some six sense but above all, he understood the power of liquidity. In his term, he called it "borrowing lucks".

Prior to market collapsed, Fong Chun Sang helped some very righteous businessmen who refused to bribe to get their company listed. One of them believe to be "Li Ka Shing" who had a concrete plan of what to do with his business. He had done tremendous home works to acquire companies on cheap if these companies collapsed when the bubble pricked. He had visions of how a port can turned into luxury properties in the future.

Many years later Ar-Bok's father after passed away, he thought these businessmen can help him as a favor of Ar-Bok's father had done. He presented three halves HKD 500 that represent a gentleman agreement for favor repayment.

Ar Bok requested these three richest men in Hong Kong to help him to buy stock when stock market opened on Monday. The powerful liquidity would surely flushed out short sellers.

The promised was fulfilled. Hang Seng index broke above 10,000 for the first time. In reality, 1992 actual Hang Seng index was at around 4300. The script writer over exaggerated the number by doubling it yet we took 11,210 as absolute truth because it is so familiar to us.

The drama ended with bitter sweet when Ar Mui died in the arm of Ar Bok's arms peacefully. She seems to be perfectly happy as she thought all her dreams had been fulfilled. How a person feel with not so happy ending tells a lot about a person. It tells a lot whether a person can accept imperfection is just part of this world. We can't have everything going our way, it's just unrealistic. Though we may feel a little sober for a few hours thinking of the satisfying ending(not perfect ending) but we just got to move on.................