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Common Stock Investing Mistakes (#002)

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Filed Under: Dividend Magic Show 0

This is an article I’ve been wanting to write for a long time. As more new investors are starting to take interest in stocks this year, I see this as timely. This will be a sort of companion article to Episode 2 of .

A list of all the videos and episodes of the Dividend Magic Show can be found hERE.

I’ve been investing for a few years and made a few mistakes along the way. Thankfully, although painful, these were mistakes that I was able to recover and learn from.

Which brings us to the main objective of this piece – I sincerely hope all of you reading will be able to avoid all (or some) of these pitfalls

Mistake 1: Timing the Market

To make this easier to relate to, I’ll be basing these mistakes off my good friend Alan.

Let’s start off with Alan first venturing into stock investing. He has had his eyes on a stock for the longest time. With cash on hand and ready to buy. He feels that the price right now is a tad high and wants to wait it out.

So he continues checking in with the stock every day, but to his dismay, the stock just keeps going higher. And at the end of the day, Alan is still holding on to his money and he has yet to make an investment.

So this right here is when one metaphorically misses the boat. It is one of the consequences of trying to time the market and hoping to buy at a stock’s lowest point or sell at its highest.

You’ll more than likely not be able to time it right, instead an investor should have his/her own target price after their own research is done. And based on this price, an investor will be able to decide if it is the time to buy or sell a stock.

Another strategy to manage this type of situation is allocation. Let’s say a particular stock is within my target price. And I have allocated RM5,000 for this stock. I will first put in and purchase 30-50%. And then if the stock price drops further, I will purchase the remaining amount to average down. But if the price goes higher, I will be content with the profit I’ve already earned.

Mistake 2: Chasing High

Back to Alan. So now that Alan sees the prices going up, he experiences a fear of missing out (FOMO). Thinking ”What could go wrong? Prices are going up, I don’t want to miss this boat”, he buys into the stock hoping for prices to go up even further.

What usually happens at this point is that in the next few days, prices will retrace and Alan is caught at a high.

And here comes the next mistake which is what we term “chasing high”. I do notice that a lot of investors like to buy in when the stock is hot and trading up. Reasons for hot stocks can be many, but most commonly, we see Malaysian investors buying on news and rumors.

Most of the time when the price goes up, it attracts investors’ attention and hence a lot of people will buy, hoping that the price will continue to increase. However, it is very common that they will find themselves trapped at these prices when the stock price retraces.

We need to understand that if the stock goes up at a rapid pace, there is bound to be some price retrace, or the price will stabilize within a trading range.

Mistake 3: No Due Diligence 

Now Alan who was afraid of missing the boat and bought at a high price, faces a retrace. He is probably looking at a paper loss of 5-10%. In Alan’s mind, he will want to buy more units of the same stock to average down. 

And as the stock price keeps going down, naturally Alan will start to panic. He scrambles around to look for the company’s annual and quarterly reports. He starts calling up friends and acquaintances looking for advice as they initially recommended this stock to him.

Multiple real-life occurrences here. First, this one is very real where a person is investing based on someone else’s recommendations. On top of that, Alan appears to have zero understanding of the stock he is investing in in the first place. I’ve always emphasized and urged readers to always, always do their own due diligence. No matter how convincing a person is when recommending a stock to invest in, you should always do your own homework first. 

Say, for example, one is looking to make a big purchase. A house or a car. Naturally, you’d make sure to shop around, do your research, check every detail before making said purchase. So why should our stock purchases be any different? So, always, always do your own due diligence.

Mistake 4: Benchmarking on Past Performance 

So back to Alan again. A few weeks have gone by, he has now accumulated a bigger, let’s say 20% loss as the stock continues its retrace. Alan has finally taken the time and had a good look at the company’s reports. The company has been doing great for the last few years, paying consistent dividends. So Alan thinks to himself, if they can do it then, they could do it now right?

So right here, Alan is potentially stepping onto a minefield. As the saying goes, past performance does not always indicate future growth. While a company’s past and history can provide us a certain benchmark and understanding of the company, we should also incorporate critical thinking into our analysis.

First, we should always make sure that the company is still functioning and doing business as it always has been. We then need to make sure that there is still room for the business to grow and that they have not peaked and plateaued. Competition is also a huge factor unless there are high barriers to entry. So these are the few things to look at, we will go deeper into this in our as we talk about individual stocks.

This is also true for dividend investing. Past dividend yields will never guarantee you future yields. You might be looking at a company that’s paying very high yields based on its past payouts. But in fact, the price has actually gone down, pushing up the yield %. Many are attracted by the yields when prices drop. But the said companies are actually unable to payout the same dividends as last year. So make sure that you as an investor do not only look at a company’s past.

Mistake 5: Emotional trading

Now that Alan’s holding is constantly bleeding, we can imagine him being both sad and possibly angry and confused at the same time. His next step is to then recklessly average down, hoping to push his average buying price down so the moment the stock rebounds, he can sell it off for a profit. As days go by, the stock hardly moves and stays stagnant. Until one day Alan realizes that he is in fact looking at a huge potential loss.

Now, we say potential loss because Alan hasn’t actually closed off his position. I see this as a loss already because of opportunity cost. This money and capital could’ve been invested elsewhere, earning returns. So the loss is actually two-fold. The loss itself, and the opportunity cost of not investing that money into something else.

So, never ever involve emotions when it comes to investing. Stick to your research and trust the numbers. If a company’s stock prices continue to plummet, you either realize that a mistake has been made, and cut your losses or, if the company’s fundamentals are still intact, hold it out. Or, continue adding to your position. 

The Solutions

The reason why we are sharing this is that in the past few months, the stock market (especially KLSE) has seen a lot of speculative trading. An influx of new investors who buy base on recommendations, news and rumours. Some of you may have been lucky and made a profit. Some of you may have not been so lucky and are in the red. If you’re looking to invest in the long term, please do consider the mistakes above and try to avoid them.

Remember to always:

  • Make sure to do your due diligence, understand the business thoroughly before you invest.
  • If you are unsure of the price trend, you can always allocate 30-50% of your funds first. 
  • Always have a plan in mind. If you are holding a stock for the short to mid-term, remember to set a target price for yourself to sell the stock. If it hits the target price, stay disciplined, and sell it off. Never try to time the market and hope to buy at the lowest, sell at the highest.
  • Don’t let your emotions affect you. This usually happens if someone has a huge % of their portfolio in one single stock. So when the price goes down, it will lead to bad decisions or worse it will affect your daily life. Always remember to diversify. 

End.

This article is written as an accompanying piece to Episode 2 of The Dividend Magic Show.

https://youtu.be/kCBGsdXOYxg

I’m sure there are lots of other mistakes not mentioned here, leave a comment on some on the worst mistakes financially you’ve done while investing in stocks.

ETFs vs Mutual Funds/Unit Trusts in Malaysia

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Filed Under: Investment, Other Investments 4

This is an article for Malaysians who are looking for:

  1. A better alternative to Unit Trusts and Mutual Funds
  2. Exposure to equities
  3. An easy way to invest without having to do too much research
  4. Long-term, low-fee investing

If you do not have the know-how and/or time to do the research and valuations on individual stocks and equities. Fret not, there are a few options out there for us Malaysians. Some are better than others.

Choice 1 – Trade Yourself

First off, I’ll have to have this option here. This is what I do, I invest and trade stocks myself. I pay no annual fees or management fees. I only pay brokerage which comes to about RM8 or 0.1% whichever is higher.

This option is available to everyone. If you have the time to do some research and think logically, anyone can do it. To start investing in stocks, you can head here for a guide.

Choice 2 – Invest in ETFs

Exchange-traded funds would be my choice and recommendation if you don’t want to trade and invest in stocks on your own. Depending on the ETFs you invest in, you can be exposed to all sorts of asset classes in different sectors and regions. There are tons of ETFs around the world, so take your pick.

Specifically, I’d recommend passive index funds if you’re looking to invest long-term. Most noteworthy ones can be found in the US ie. the Vanguard S&P 500 index fund. You can learn how to invest in US stocks hERE.

Unbeknownst to many, we have a few ETFs here in Malaysia. The closest we can get to an S&P 500 fund is the MyETF Dow Jones US, which provides you the exposure to the US equity market. Somewhat similar to the S&P 500 ETF that mainly indicates the performance of the US market, there is FTSE Bursa Malaysia KLCI ETF (FBMKLCI-EA). Where the S&P 500 fund tracks 500 shares, ours tracks only the top 30 largest companies in Malaysia.

Choice 3 – Unit Trusts and Mutual Funds

Last but not least, mutual funds & unit trusts. I don’t like unit trusts because of one huge factor – FEES.

If you take the time to dig in and do some research, you’ll find that most of them don’t even beat the market/index’s returns over the long term. So why pay more fees?

Malaysians are still stuck in the unit trust era with the older generation and I think younger more financially literate investors are starting to realize that there are other options out there.

I’ll have some facts and figures below to demonstrate.

The Actual and Long-term Cost of Fees

Unit Trusts vs ETFs

Mutual Fund Fees

Firstly, I’ll be using unit trusts and mutual funds interchangeably. For the purpose of this article, they are one and the same. I have a more in-depth article on the impact of fees here.

Secondly, we’ll be mainly comparing ETFs vs Unit Trusts here. I do this because I want to draw more attention to our local ETFs in Malaysia which are the closest and better options compared to unit trusts. I want to get Malaysians off high fees and unit trusts.

For those who don’t know what unit trusts / mutual funds are, let me explain it simply. Mutual funds are managed by a fund manager(s) who claim to be able to procure superior returns for investors. You put your money in a mutual fund and they invest it for you, for a fee. That’s it.

The only and most logical question an intelligent investor would ask is:

  1. Can they beat the market’s rate of return?

The short answer? No.

Unit trust holders would argue that there are funds out there that beat the market. Yes, there are but there aren’t many. The fact is that the global majority of actively managed funds just don’t beat the market. And the small number that does, they may be taking higher risks. Sometimes, it’s even down to pure luck.

The next factor would be the fund managers themselves. Funds are only as good as the fund managers that run them. This is a problem itself because fund managers come and go. A good fund manager does not stay long at a particular fund. This means – a fund does not stay good for long.

The KLSE isn’t a very efficient market when compared to other countries which is why UT funds are still able to outperform our benchmark. This is the only reason they’re still in business. Because some still generate decent returns. However, if you think about it, when there are so many other cheaper alternatives out there that can do the same thing and beat the local KLCI index, is it necessary for you to pay the high fees for a fund manager to do the same thing?

Which is why we find ourselves comparing ETFs to UT funds.

Fees

I’ve written a previous article on the impact of fees which is a tad bit outdated. I realise that front-load charges (or sales charges) have gone down since that article.

To compare the cost of Unit Trusts vs ETFs, we assume the following:

  1. An initial investment of RM100K with no further reinvestment.
  2. A 30 year long-term investment period.
  3. 10% return per annum.
  4. A conservative industrial average total expense ratio (TER) to be used. 2% for UTs and 1% for ETFs. Calculated below.
 Unit Trust FundExchange Traded Fund
Sales charge2.50%0.00%
Brokerage fee0.00%0.30%
Clearing fee0.00%0.03%
Initial cost 2.50%0.33%
Yearly TER2.00%1.00%
Initial investment cost
in the 1st year		4.50%1.33%
Subsequent year cost2.00%1.00%

Conclusion

Over a period of 30 years, just from the impact of fees alone, you will lose approximately RM340K or 35% of your returns. The difference in fees is only 1%.

Bear in mind that we are working with very conservative figures here. I know of many unit trust funds that charge much higher fees. And if we take a low-cost fund like Vanguard’s S&P 500 ETF instead, we will be looking at a much, much bigger difference.

The above example is only taking into account the fees you’re paying. I hope the simple comparison above makes the case for seeking lower fees.

If, after looking at the data and reading this, you still find yourself wanting to invest in unit trusts and mutual funds (you’re crazy), I’d ask you to look at online platforms like Fundsupermart. They are the cheapest as an online platform. Please do not get yours with agents who charge high sales charges.

ETFs Available in Malaysia

Back to ETFs, your choices for ETFs in Malaysia are actually many. These are all local ETFs available on Malaysia’s KLSE exchange and can be traded just like individual stocks.

Account opening can be done easily online with brokerages like Rakuten Trade. I list a comparison of all our local brokerage firms hERE.

ETF Malaysia Returns

Above is a list of ETFs found in Malaysia with their returns calculated based on NAV.

In terms of fees (which directly correlates to your returns), ETFs are superior to UT funds.

You may have other concerns with local ETFs. One of which would be their liquidity. You’d be happy to know that as a requirement by regulators, Malaysia’s ETFs are backed by market makers. So, liquidity issues? Check.

While researching local ETFs for this article, I was actually pleasantly surprised to find so many ETFs listed on the bourse. Looking forward to see more innovations and choices from ETFs in the future.

If you are looking for something to track our KLCI index, the FTSE Bursa Malaysia KLCI ETF tracks the top 30 companies in Malaysia by market cap. Another interesting one is TradePlus DWA Malaysia Momentum which uses smart beta (technical analysis) to select the top 20 Malaysian stocks with the highest momentum.

Looking for local ETFs in Malaysia that have foreign exposure, for example, China? TradePlus’ S&P New China economy, and Principal FTSE China 50 ETF both provide you with exposure.

To get exposure to the gold industry which is well known as a safe haven and good for hedging, we have the TradePlus Shariah Gold Tracker.

Choices of ETFs listed on Bursa Malaysia may not be as broad as those found in other countries, we do however still have a relatively good range of selection.

End.

Another similar investment product that I didn’t mention above is actually Robo-advisors. They’re similar in some ways to UTs and ETFs but not so similar that I can compare them all in this article. If you’re interested in Robo-advisors, you can read about my Stashaway portfolio hERE.

As with all investments, be it UTs, ETFs, or Robo-advisors, I’d caution everyone to do their own due diligence and research before making an investment.

It is my sincere hope that Malaysians are more educated and just a little more financially literate after reading this article. May you make better financial decisions in the future.

As always, my Facebook and Instagram Do follow and keep up to date.

Our Investment Goals and Strategies (#001)

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Filed Under: Dividend Magic Show 0

Wilson Wong, a close friend of mine will be joining me on our new YouTube channel – the Dividend Magic Show.

He will be a regular feature on the show when we discuss and attempt to value stocks – both local and international ones. This serves as a sort of introduction to both me and Wilson where we discuss our investing goals and strategies. Learn how we think and why we both choose to invest in stocks over other asset classes.

As we had to do this over Skype, episode 1 will only feature our voices. The audio is of a lower quality as we couldn’t do this in person.

A list of all the videos and episodes of the Dividend Magic Show can be found hERE.

As always, Facebook, Instagram, and now ! Follow, keep up to date.

Episode #001

This is a little reveal before the big reveal of how I sound like. Enjoy!

SUBSCRIBE:

https://youtu.be/QbzTIRn023M

One of the main reasons for the reveal is for me to be able to do videos on YouTube. I get asked a lot on my process when it comes to valuing a company / stock and the best avenue for me to do that is through videos. Instead of a 2,000 word article for every company I talk about, a 1-hour long video would convey my thoughts better.

So please do support the channel and I hope to see everyone at the reveal ”party” at 2 pm on the 8th of November. Thank you for making the time.

Selected Links

Show Notes

  • Introducing my friend Wilson. (0:24)
  • Plans for the channel. (2:35)
  • Why do we invest? (7:00)
  • What comes after reaching our targets. (7:30)
  • Our current asset allocation. (11:36)
  • Why my rental property isn’t part of my portfolio. (14:07)
  • Why does Wilson favor stocks over other asset classes. (15:00)
  • How do we tackle inflation? (16:25)
  • Our investing philosophy and strategies. (19:25)
  • Value investing, buy low, sell high. (22:31)
  • Goals for local and US portfolios. (23:44)
  • Why do we choose to invest in the US? (25:48)
  • Thoughts on Mahsing’s venture into gloves. (28:15)
  • More examples of why we prefer the US market. (33:00)
  • Our portfolio goals. Dividends in Malaysia, capital gains in the US (35:40)
  • End. (38:15)

Invest Singapore by CGS-CIMB Securities

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Filed Under: Dividends, Investment 2

InvestSG 2020

Interest in overseas investing has been huge lately as we look for bigger growth opportunities and higher yields. I know for a fact that Malaysian investors have always gone on to invest internationally, Singapore, Hong Kong, China, the EU, and the US are common countries.

We have one of the world’s most robust stock market right next door – Singapore. The equivalent of Bursa in Malaysia, Singapore’s stock exchange is operated by Singapore Exchange Limited (SGX).

CGS-CIMB Securities (formerly known as CIMB Securities) will be bringing us Invest Singapore on 18 November 2020. The event is aimed at Malaysians and to introduce Singapore’s stock market with many experts lined up.

Event details:

Date: Wednesday, 18 November 2020

Time: 9am – 1pm

Link:

Invest SG

Invest SG Schedule

Updated as of 1 November 2020. Changes to the schedule can be viewed via the link above.

Invest SG Schedule

Slots I’m Interested In

Singapore’s Economy

Despite us being neighbors, I as a Malaysian am still unsure about Singapore’s economy and market conditions. Hoping to gain some insights during the 9.35 am session with Jamus Lim, Song Seng Wun, and Lim Say Boon.

It’ll be beneficial to those that plan to invest in Singapore stocks as well. Doesn’t hurt to have a macro view of a country as a whole before you invest there.

New Trends in the REITs Sector

I’m especially interested in the REITs listed on the SGX, specifically data center REITs.

At the 10.20 am – 10.45 am slot, there’ll be a topic on this moderated by CGS-CIMB Analyst Lock Mun Yee together with REITAS CEO Nupur Joshi, ARA LOGOS CEO Karen Lee and Keppel REIT CEO Paul Tham.

I know most Malaysian investors have already bought into some or are actually eyeing them. Data centers REITs like Keppel REIT has actually been doing well recently. So, if you’ve been wanting to invest in Singapore REITs, this will be the slot to watch.

Navigating Singapore 

CGS-CIMB Securities provides one of the most comprehensive research coverage of over 2,000 stocks in the SEA region. You can get limited access to these hERE. As a client of CGS-CIMB, you’ll be able to get full access.

The 12.00 noon session features investing strategies for stocks listed on the Singapore Exchange.

Geoff Howie from SGX will be talking about momentum and volatility. As for Lim Say Boon, Chief Investment Strategist for CGS-CIMB, he’ll be sharing his views on REITs, property, banks, and more.

CGS-CIMB Securities, a broker in Malaysia & Singapore

CGS-CIMB Securities International Pte. Ltd. (“CGS-CIMB”) is a 50-50 joint venture between China Galaxy International Financial Holdings Limited, a wholly-owned subsidiary of China Galaxy Securities Co., Ltd, and CIMB Group Sdn. Bhd.

Through a network of local offices, branches, and strategic partners, the Group has a global presence in over 20 countries. Well-positioned as Asia’s leading financial services provider, CGS-CIMB has a core focus on well-researched and in-depth analysis on financial products.

With a focus on value creation, CGS-CIMB Securities offer a suite of investment and financial solutions for retail and institutional clients.

Their businesses include:

– Derivatives (CFDs, Forex)

– Equities Trading

– Equities Research

– Fixed Income

– Institutional Equities

– Leveraged Products

– Prime Services

– Retail Trading & Investing

– Wealth Management

Zero Commission Promotion

CGS-CIMB Securities is offering ZERO commissions when you buy Singapore stocks from 19 November 2020 to 28 February 2021. There will be more information on this during the event so sign up for Invest Singapore to find out more.

Final Thoughts

I’ll be looking forward to InvestSG on 18 November 2020.

This isn’t another course offered by financial gurus you see on FB taking your money and telling you what stocks to invest in. Instead, you’ll be listening to experts speak and given a macro view of a new market and whole new industries to invest in. What’s more? It’s free.

So sign up, make time for it and I guarantee you’ll learn something from this.

The fully virtual event will run from 9 am to 1 pm. It’ll be half a day of learning. If you missed it earlier, registration can be done .  

Also, you can stay updated with CGS-CIMB here:

FI/RE Guide – Financial Independence Retire Early for Malaysians

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Filed Under: FI/RE 6

Financial Independence, Retire Early (FI/RE) is a movement dedicated to savings (sometimes extreme) and investment that allows its followers to achieve financial freedom and early retirement far earlier than traditional retirement plans.

Some proponents of the FIRE movement have retired as early as age 30, instead of the conventional and agreed-upon retirement age of 65.

Steps to Achieving FIRE

In recent years, I’ve seen more and more Malaysians embracing the FIRE movement, especially the millennials.

Of course, many of us are still striving to achieve financial independence, myself included. My aim is to achieve this by the age of 35. Below are some of the steps I’ve taken.

1. Saving

There are no shortcuts here. My savings rate has always been high and well above the average Malaysians. In the first few years of being in the traditional workforce, I saved like hell. I detail how I built my investment portfolio through frugality hERE.

Asians in general are predisposed to saving from the onset. I think most families cultivate savings as a habit from a young age and that alone will set us apart from other cultures. Saving alone, I think, accounts for 50% of your FIRE journey.

Emergency Fund

Saving and your emergency fund goes hand in hand. The first step is always to build a fund for emergencies. Steps and how I structure my emergency fund can be found hERE.

An emergency fund helps in two major ways. Firstly, it gives you peace of mind. And secondly, if and when an unexpected financial crisis occurs, you won’t have to liquidate your investments to cover those costs.

Having set up my emergency fund, my next step was investments.

Debt

I’ve been fortunate enough to get out of my education debt early thanks to wonderful parents.

Another huge debt hurdle I foresee Malaysians encountering in their lifetime is of course your mortgage. Two ways to go about this, either factor in your mortgage repayments into your annual expenses, or if it is cheaper, rent. If you’re lucky to have your parents leaving and bequeathing you the family home after they’re gone, you’re set in this department as well. Just make sure to take care of them.

Other debts such as credit card and personal loans, stay clear of them. If you have them, pay them off at once, then start on your emergency fund.

2. Grow Your Money

There are a 101 ways to grow your money. The path I’ve chosen is to invest in stocks. You may find that you have superior knowledge in other assets like real estate. Or you may prefer to put your money in robo advisors like StashAway. To each his own I say. As long as you’re investing in something that is an asset.

By investing in stocks, my money will grow in two ways.

a) Capital Gains

A capital gain is when my stocks increase in value. For example, purchasing Nestle 2 years ago for RM70 per share. Today, that same share is worth RM140 per share, giving me a 100% or 2X in capital gain in two years.

The same can be said for real estate. Purchasing a residential property at RM100K 5 years ago, you may sell it for RM200K in today for the same 100% gain in five years.

b) Passive Income

A whole article can be written on passive income alone. This is just what I did and you can read about it hERE.

To keep it simple here, passive income is income I receive without having to put in effort or work. Through stock investment, I get passive income via dividends. As a real-life example, I received RM16,322.26 in dividend income last year from my Malaysian stock portfolio – the Freedom Fund.

Another example of passive income using real estate as an example is rental. The rent you receive from your tenants can be considered passive income as well.

Your FI/RE Amount

Financial Independence Retire Early FIRE FI/RE Malaysia

The amount everyone is aiming for to FIRE is actually different. It depends on your monthly expenses. If you’re able to live on RM1,000 a month, you can achieve financial independence and retire at a much earlier age with a much smaller amount in the bank.

How I Calculate My FI/RE Amount

As a general rule of thumb, you want to have 30X your yearly expenses in the bank, the dollar amount most people go by is RM1 million. For me, I’ve calculated my annual expenses to about RM36,000. And 30X that amount is RM1.08 million.

This of course is my own personal amount, no family as of yet. For those who are worried about inflation, I believe that a good investment portfolio will negate the effects of inflation.

Using mine as an example, investing in consumer stocks like Nestle and real estate like REITs, inflation is taken care of by these businesses themselves. Ie. Nestle will raise prices to keep up with inflation. REITs like IGB REIT would definitely increase rental rates as the years go by.

If you however are just saving your money in FDs, you will have to account for inflation. So make sure your portfolio is invested in the right assets.

The First RM100,000

However, I’ve found it to be much easier to break down that RM1 million goal. Start with the smaller and (in my opinion) much harder-to-achieve goal of RM100K.

This is how I achieved my first RM100K.

After getting that RM100K, RM1 million becomes much, much easier. Snowballing from RM100K to a million is much easier than from zero to 100K.

The Different Types of FI/RE

I know I know, they confuse the hell out of me as well.

Fat FIRE

So Fat FIRE is the best FIRE of all. You’re basically living it up post-retirement and enjoying it to the fullest.

You’re able to survive without a job as your passive income more than covers ALL your expenses, not just your basic ones. It is of course the best way to retire, but also the hardest to achieve. You’ll have to be earning a lot as well as having a high savings rate.

But come post-retirement, think extravagant getaways, a beautiful home, and no more worrying about paying your bills.

Lean FIRE

This is the opposite of Fat FIRE where you basically cut your expenses as much as you can. If you’re prepared to lower your standard of living to the bare minimum post-retirement, Lean FIRE is for you.

People hop onto the Lean FIRE wagon when they realise that they aren’t able to save that much and/or time is running out. Also, if you prefer to spend your younger years enjoying and living a minimalist lifestyle after retirement, you may want to look into Lean FIRE.

Pros and cons here, if you’re absolutely all right with a minimal life, Lean FIRE is the way to go. You don’t need to save up as much for your retirement. It is a significantly lower amount. Also great if you don’t want kids.

Barista FIRE

This one here is pretty new to me. It is what’s between Fat and Lean FIRE. It basically means taking on a part-time job to supplement your income.

Thereafter, depending on how your investments do, you make a more informed decision moving forward. For example, if your stock investments do well over the next 3 years, and you’re able to achieve Fat FIRE, by all means, quit your part-time job.

Protecting Your Money

What happens now that you’ve achieved 30X your yearly expense?

You’ll want to protect and continue to grow my money. Some proponents of FIRE actually stop growing their money at this stage. Instead, opting to make small withdrawals (typically 3%) a year.

Personally, with stocks, I aim to continue growing my portfolio from a million to much more. Retiring early isn’t a part of my plan.

Regardless, you will want to protect your wealth by diversifying your money into less risky assets now. At this stage, I would start moving my stocks and building a more defensive portfolio. I’ll focus on maintaining my dividend income as well as preserving my portfolio’s value. No more risky bets at this stage.

How Long Will the Money Last?

If you can get to 30 times your annual expenses, technically, that is enough for you to live off – forever.

With prudent management of your wealth at this point, trust me, you’ll be able to live off that portfolio for a long time. You may even have some leftovers for the next generation.

FI/RE requires discipline and letting time work in your favour. This is why starting early on your savings and investing is so important. Just keep at it and in no time, you’ll be living off your passive income.

If you’re looking to start saving and start investing, you can check out our stock investment guide here.

If you’re interested in the concept of FI/RE and want to mingle and exchange ideas with like-minded people, we have a Facebook group hERE. To those that have already achieved FI/RE, please join us and share your journey.

As always, Facebook and Instagram. Keep up to date and help support the blog by following and sharing. Thank you!

Review of pitchIN – Malaysia’s Equity Crowd Funding Platform

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Filed Under: Investment 5

What is Equity Crowd Funding (ECF)

Equity crowdfunding is the act of raising capital from the ”crowd” through the sale of securities (shares, convertible note, debt, revenue share, and more).

I’ll be using pitchIN as my example here because I only have experience in using pitchIN as an ECF platform. There are many other platforms in Malaysia but right now, pitchIN is the largest and in my opinion safest.

Raising Capital from the Crowd

The ”crowd” includes individuals and institutional investors alike. Anyone can partake in the offering. There are however certain restrictions in place ie. an individual has to be of age. Also, there are limits on how much capital an individual can invest based on their income, net worth, and financial knowledge.

pitchIN groups its investors into 3 different categories.

  1. Angel Investor
    Gross Income of more than RM180,000 per annum.
    An angel investor is entitled to invest a maximum of RM500,000 per annum in total in any company.
  2. Sophisticated Investor
    Net personal assets of more than RM3 million with experience in investing.
    A sophisticated investor can invest freely on pitchIN up to any amount.
  3. Retail Investor
    If you’re not in the aforementioned two groups, you belong here together with me.
    A retail investor can invest only RM5,000 per company and a total of RM50,000 per annum.

Equity Crowdfunding

With equity crowdfunding, companies are selling securities, giving investors skin in the game and a slice of the company.

On pitchIN, investors typically become a shareholder of the company with all the associated rights and benefits.

Pros of ECF

ECFs are a high risk high return form of investment. I’d rank it as one of the highest among all other asset classes.

Your potential return can range from 2x to 100x in a few years if you invested in a well-managed startup.

Individual investors like you and me can get access to start ups for a few thousand ringgit. The risks are high but so are the returns. As with all investing, remember to always do your own due diligence.

Risks and Cons of ECF

The Company Dictates the Terms

The terms and conditions of a deal and offering are dictated by the issuing company. It is imperative that investors especially retail investors take note of this.

Familiarize yourself with how companies raise capital. For example, if you’re in the first round of a start-up’s fundraising exercise, you’ll want to make sure you are protected as an early investor. You don’t want your shares to be diluted when the company goes for its second round of fundraising.

Exiting and Cashing Out

ECF is a long term game.

As an early investor in a private company, your avenues for cashing out and taking profit are limited. You either wait for the company to get big enough and lists on the stock exchange or you find yourself a private buyer.

In my experience on pitchIN, every company out there will tell you they’re aiming for an initial public offering (IPO) in X number of years.

And until platforms like pitchIN provide for a secondary market, those will be the only two options available to you.

Lack of Follow Ups from Management

This is one of my biggest irks with investing in a private company. Their obligation to minor shareholders isn’t much. pitchIN does try to have management engage more with their investors but from my experience, companies don’t try as hard after taking your money.

They’ll woo you with presentations, video calls and nicely done financial projections in the beginning. But after receiving your investments, be prepared to hear nothing from some companies.

At the end of the day, you’re just a minority shareholder and you basically do not have rights. You can vote, but your vote won’t matter. So make sure you do your research on a company’s management team before you invest. You want responsible people at the top that will work for the good of the company and its shareholders.

My Investments on pitchIN

I invested in two companies so far on pitchIN.

I treat my investments here as very high risk with similar potential returns and may even expect them to completely go bust. I invest in these companies with a long term (5-10 years) horizon.

My investment with MHUB was back in October 2019 which makes it a year old now. Oxwhite’s crowdfunding process ended in January 2020 which makes less than a year old. Both are relatively young and I’m excited to see how they’ll continue to develop.

One of my regrets was Kakitangan. I didn’t invest in them because I was still doing my research on the company itself as well as pitchIN as a platform.

Moving forward, pitchIN itself will be doing an ECF offering soon which I again, am mulling over. Is anyone considering investing in pitchIN?

What companies have you invested in and what are your experiences with them? Have they been good to you as shareholders?