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Possibly facing my first recession since I started work 5-6 yrs ago, I think it's a good time to figure out how to tide over this rough period. Fail to plan, plan to fail, they say. I think I need to think about 2 aspects of coping with the possible recession - How to save more and how to cope with it psychologically. But for this post, I'll just focus more on the savings part. Maybe more on the psychology part at a more opportune time.


How I'm going to save more


The golden rule applies : Savings = Income - Expenses

To raise savings, I need to increase my income and decrease my expenses. As I've not been through a recession since I've started working, I do not yet know if my job is recession proof. Well, I do hope it is! What I intend to do is to market myself to the upper middle to upper class segment, for I deem them to be able to ride it out better than the average Singaporeans. In fact, I even plan to increase my rates. The good thing about my job is that I do not have to rely on any company, hence during recessionary times, I do not have to worry about being retrenched or suffer a pay cut. I believe that's a big relief factor for me, especially if I intend to take on more debts in the near term for housing and such. I guess it's a different mentality for me because for my job, security is never taken for granted. In fact, it's never secure. I have to fight my way to reach my previous pay every year. Haha, in a way, I'm having a recession every Nov to Jan period where I have to experience pay cut and no work :)

To prevent credit crisis in my job (where people are unable to pay), I think my usual diversification strategy works. I take in around 30 streams of income, so if one fails, it will not hit me too hard. I work on a credit basis - meaning that I provide service and give credit for around a month before I get paid. I might need to adjust the collection period to increase my own liquidity. Perhaps I'll shorten my credit term to two weeks for some. That will have to depend on situation, depending on how bad it gets.




Another integral part of the savings equation is to decrease expenses. I already have cost savings measures in place, regardless of recession or good times, so it's not as if I'm going to tighten my belt or anything because it's already tightened. I'm a valueskate, not a cheapskate.

Recently, I reviewed my insurance policies and found that it's not up to standard. I mean I could get much more for the same buck. That will have to go. As mentioned in my 'valueskate' post, I don't mind paying more if it's going to give me more bang for my bucks. After learning the that price is not equal to value, I think my perspectives opened up. Cheap need not necessary be better. Nor is expensive stuff necessarily good. I'll try to source out valuables at cheaper price, not necessary cheapest price :)

I seldom frequent restaurants, so nothing to cut from there. One trick I learnt is not to buy drinks when having meals. Drinks usually cost 80 cts to 150 cts, which is easily 50% of what I paid for my meals. I simply cannot imagine why. As such, I bring own bottle of plain water and probably saved myself $2 a day, which adds up to $700 a year. I don't buy a lot of clothes, so nothing to cut there. But I do love my Springfield brand, so I'll get it only when they have super discounts from 30% to 50% :) yummy!

After trimming what we spend and shoring up what we can earn, the remainder will be savings. I do hope to maintain at least 50% savings to income ratio even when times are bad. Currently, I'm doing all that I can to save around 70 to 80% of my income, so this will provide me with a truckload of ammunition to fire sparingly at critical levels of the market. I'm happily sitting on a near 80% loss in portfolio - truly an extraordinary time for me :)



Try being an arctic fox. Eat more during good times and ride out the winter during bad times. Rule of nature yes? Do that to your savings now :)

San introduced me to this short movie:



It's really a short movie (4:03), and it's a million times better than most thai flicks i've seen, despite it's length. It's the blending of music and moving stills that creates such an emotive force within me that I get goose bumps every time I saw this. And I've watched it at least five times. There is really only one sound track in this short film, it's none other than Pachelbel's Canon in D. The movie blends in the touching parts of the film with the touching parts of the song, creating an emotive resonance that can only be amplified by the melancholic nature of the violin and piano. There is only around 4 lines of spoken dialogue, but like the classical piece without lyrics, the movie without dialogue makes one focus on the emotional aspects of the film. Climatic scenes are punctuated with short and sharp jabs of the violin. Violent scenes are accompanied by the jarbled and forceful piano song (i don't know which piece is that, can anyone trained in such music kindly enlighten?).

I really like the scene when the camera pans slowly to the broken violin, made to work one last time using scotch tape. The song slowly sinks into your emotions, which is then followed by the quick stabbing of the violin and ends abruptly. Amazing!

Do notice the butterfly towards the end. I think that's what san is showing me :)

The butterfly breaks out of the chrysalis, which is the cocoon like thing that a caterpillar wraps itself during the first stage of the metamorphosis. When it breaks out of this cocoon, the caterpillar changes structurally, to the extent that one cannot see any similarities between the former and present self. I suppose that that is why the short film puts a butterfly towards the end. It shows both the metamorphism undergone by the girl as she reaches new height in her music (she finally understand what it means by music being 'visible'), as well as the main purpose of the short film - to sell more bottles of pantene chrysalis.

For those who are regulars in my cbox, you would probably have known that on Friday, 31st October 2008, the Superfriends of Bullythebear will be having a dinner and dance party at Wood restaurant bar, Vivocity. Erm, dance is optional of course, but maybe we can all ask dream the golden buddha to do a little jiggle for us after a few glasses of wine. It's going to be held in a private function room at Woods, timing will be advised when it's nearer the event next week.

I would like to confirm the attendees for the event. For those who had been invited, or wish to be invited, please confirm your attendance using the comments button right at the bottom of the post. Alternatively, you can choose to email me at duckula06 [at] yahoo [dot] com (it's zero six behind). If I did not reply your mail within 24 hours, u can safely assume that I didn't receive it...my yahoo mail is a bit crazy at times. Text me at nine-four-three-five--eight-nine-three-zero, DO NOT call me as I may be in the middle of work, thks! Do tell me who you are in your email/sms too.

The budget is around $40-50 per person, depending on the items you ordered. The menu is given here at this site, so do check it out. With bro dream going to negotiate a better deal for us, and yours truly guaranteeing that it will not go above $50, do consider attending this rare event to meet all of the superfriends in person. If not for the company, go for the food. If not for the food, go for the wine. If not for the wine, just go there for dinner!

Here are the list of attendees:

Confirmed going:

Me, LP
My gf
San
Dream the golden buddha
Cheng
KK

Special guests (for drinks only - not 100% confirmation)

Cookieguy
Lumiere
Pepper

Please RSVP, best before Tues 28th Oct. Dream will need to confirm the attendees so that the restaurant staff can prepare the table.

It's simply not fashionable to invest in debt-ridden companies now.

Investment are like clothes. There are investments themes that come and go with the vicissitudes of fashion wear. From my short history of market experience, I already can see the different main fashion themes which are hot at different periods.




In the bull market, there are many many themes. Sector rotation, I think that's what they call it. I used to pay attention to companies belonging to a certain sector, like construction plays, oil plays, property plays etc, and look out for companies in those sector that had not run up. I had the misfortune to take part in the construction play leading right to the end of year 2006/2007 and consequently became the last fool holding the unwanted babies. Despite the many themes, the underlying premise of buying is based on PE.

Let me explain. When the market conditions are bullish and prices of stocks are breaking their 52 week high, it's simply not fashionable to invest in P/B kind of stocks. PE values are all time high, so to entice investors to put their monies, low PE stocks are trumpeted as the next growth stock to run up. I've not personally seen another metric used in bullish times locally, which is Price to revenue P/R ratio, though I read that in the telecom/dot.com era in 1990s, there are plenty of such analysts keen on this metric. It's not unexpected isn't it? When prices are so high, and earnings haven't begun to catch up on the prices, the best way to show value is to use some metrics that are independent of the earnings and/or profitability of the companies in question, but instead based on the rapid growth of the companies (never mind profitability, it'll catch up).

However, when the tide turns in a bearish market, fashion police of the investing realm dictate that P/B becomes the new yardstick of measurement. Book value defined as total assets - total liabilities, becomes the fashionable thing to valuate companies. We hear of analysts saying about the P/B of banks or properties counters or reits or whatever being at all time low, compared with SARS, Asian financial crisis, dot.com era or other similarly bearish times. I reasoned that this is the case because the market price of the company are supported by the assets owned after all the liabilities are paid to creditors. As such, P/B ratio becomes the valuation metric of choice when market conditions are bad.

The current aversion towards debt-ridden companies resulted in the relentless selling across the board of such companies regardless of business economics. Shipping stocks seem to be whacked hard for being in the wrong kind of business in the wrong time. S-shares, which are singapore listed china companies, are whacked down hard after the scare by Ferrochina and China painting & dyeing company. That means if you're a s-share and a shipping company, you're doubly screwed. YZJ and Cosco are two examples that spring to my mind.

I also noticed that dividends, ignored during bull market, are back in vogue when times are bearish. Analyst are always touting the high dividend yield of certain companies as being defensive. Reits, most showing double digits yield, are sold to investors as offering higher yields than the miserably low interest rates offered by savings account. The reason we don't talk about dividend yields during bullish times is two-fold - first being that the prices are marked up so high that the yields are nothing to boast about. Second, the capital gains from sheer price appreciation is much more tempting and lucrative than the steady and slower dividend gains.

Here's a summary of some of the metric mentioned and the times they are in vogue:

1. Price earnings ratio P/E = bull
2. Price revenue ratio P/R = bull
3. CAGR growth or CAGR revenue % = bull
4. Price to book P/B = bear
5. Cash per share = bear
6. Dividend yield % = bear
7. Liquidity ratios like current, quick, gearing = bear

One can take advantage of this whimsical swings in the investing realm in two ways. The first is to trade (long/short) the fashion trends by identifying possible candidates. For example, after ferrochina announced its death note, a few days in a row, s-shares was shorted furiously down to crisis levels, especially those debt ridden companies. Another way to take advantage of this is to always prepare one's portfolio for the bear. Chasing the price of companies so as to ride on its growth story is not exactly preparing for bearish times.

Fashion fade, but style is forever - Yves Saint Laurent

Have your own style, don't keep chasing after fashions. By the time the fashion magazines announced what is the hottest for this season, that season is over. Don't be caught wearing last season's wear.

With recession looming like dark clouds over our heads, I think it's a good idea to start a label for my opinions on personal finance. Is it surprising that I'll start on this topic? It shouldn't be, because investing is basically a philosophy that can best be summarized like this: Forgo immediate wants for future gains. I think this philosophy can be extended to the broader aspects of life, rather than just the myopic realm of investing only.

I've a happy problem. I've got difficulties spending money on myself. I find it strange because I can commit 10k into the stock market without batting an eyelid but I've got problems spending $10 on socks. I've been eyeing this brand of socks by Byford, which are rather cheap, for almost a year. I've been wearing those black socks issued by SAF, but the quality is quite questionable as after a few washings, the socks will become quite distorted and gets 'hardened'. Those who wore it before will know what I meant by 'hardened' socks, haha!

How much are the socks, u ask? It's selling for around $10 for 3 pairs, which is about as cheap as it can get. I wonder why I took so long to decide on buying it :) At the rate that I'm walking, I 'holed' socks very frequently, so it's important for me to get good quality at cheap prices. I'm going to dump my SAF issued black socks for the new ones.

Recently I also bought a pair of shoes. I've been using a cheap $23 shoe for more than 10 months, which I think is very good value for money. I used to think that the more I pay, the more quality I get. My previous pairs are from caterpillar, selling around $80 to $100 per pair. But guess what? It didn't last me 6 months. I changed my philosophy on buying shoes now: Buy it cheap, if it last longer than expected, it's a bonus - if it didn't last long, at least I didn't spend too much on it. Buy a pair of shoes for $23 is better than buying one for $90, because while the latter can last me for 6 mths, I can buy 3-4 pairs of the former :) There! My downside (price) is taken care of, the upside (how long it lasts) will get care of itself.

The new crocodile shoes I bought in a sale cost me $29. It is much much better than my previous pair because there are ample support at the heels. From here, I also learnt another lesson: Cheap does not equal to value. My previous pairs makes my angle painful because when my heel strike the floor, the shock goes up instead of being absorbed by sponges or other cushioned support. Be a value hunter, not a cheapskate.

My blade shaver is getting blunt too (and a little rusty), so I thought of getting another one. At guardian pharmacy, I saw that there are two brands of shaver - one from the famous Gillette and the other is the less well known Schick. 3 pieces of Gillette's blade cost $22, while the same quantity of Schick's blade will cost me $12. I decided to try out Schick, even though I've been using Gillette since I started shaving. The mechanical parts of Schick seems to be more inferior than Gillette (it feels a little rickety) but nevertheless do the job it's supposed to do well. I maintain my blades very well, so the $12 is money well spent. The recommendation is to change the blades monthly but I think I've used my blade for 1.5-2 yrs already.




I'm sharing all these because I think that at all times, it's good to control one's expenses. It's only when in recessionary times that we hear people talking about cutting costs, whereas I think one should always trim excesses and adopt a lifestyle that is simple but not cheapskate. For those familiar with Greek philosopher Diogenes, I think I bear a resemblance to him.