My Investment Philosophies

1. Invest Value-added BiZ
2. BiZ with excellent track of record, excellent management and sustainable products
3. Understand what I invest in
4. Invest for Long Term
5. Gd blend of Active & Passive investments
6. Being a BiZ analyst, not a stock analyst
7. Know my costs and keep them low
8. *Diversify* through proper asset allocation- invest in stocks of different industries, economies

#1 STEP TO CREATING WEALTH

A PART OF ALL YOU EARN IS YOURS TO KEEP

• Do not overstrain or try to save too much
• Be content with what you keep
• Enjoy Life

ACTION2008:I shall save $500/month into my investment account for which I would not touch for any expenses. Target: $10K in my investment account.

CONTROL YOUR EXPENDITURES

• Live below your means

ACTION2008:I shall not spend on unnecessary things.

LET MONEY WORK FOR YOU

ACTION2008:I shall use my investment account to invest in stocks.

GUARD YOUR MONEY FROM LOSS

• "Risk comes from not knowing what you are doing" by Warren Buffett
• Understand an investment before trying it
• Seek advice from expertise of each field

ACTION2008:I shall do in-depth research on stocks before buying it. Long-term investment is ideal. No harsh movement! Give reasons why I am buying this stocks.

INSURE A FUTURE INCOME

• Save for the rainy days

ACTION2008:My insurance with monthly premium of $90 has insured me. I need at least a month's pay in my expense account for any emergency use.

INCREASE YOUR ABILITY TO EARN

• Desires must be SIMPLE and DEFINITE
• The more of wisdom we know, the more we may earn

ACTION2008:I shall continue to increase my knowledge on finance. I shall give tuitions, 4hrs/week to increase my income, hence my savings.

reflection of The Richest Man in the Babylon

circle of competence

Outstanding businesses

• are understandable
• have strong balance sheet
• have good economics (i.e., free cash flow that will grow, pricing power, high return on equity, and bright prospects)
• have competitive advantages

Competent management

• capable management
• rational capital allocators
• appropriate incentives
• a shareholder orientation
• share ownership by management

Great price

• companies that trade at 75 percent or less of economic value
• competitor analysis
• multiple comparisons
• present value of future owner earnings

Phil Fisher's simple investment philosophies

1. Invest for the long term
2. Diversify your portfolio through proper asset allocation
3. *Blend passive with active management*
4. Know your costs and keep them low

*I shall invest in both Stocks and Index funds/ETFs/Bonds/REITs*

Warren Buffett's Investment Principles

1. Know what you own
2. Research before you buy
3. Own a business, not a stock
4. Make a total of only twnety lifetime investments
5. Make one decision to won a stock and be a long-term owner

Market's versus Buffet's Approach to Investing

Financial Statement Part 2

The Balance Sheet

• tells you how financially strong a company is. companies that are financially strong are able to recover from recessions and business mistakes the management might make.
• ASSETS=LIABILITIES + EQUITY
• When Assets increase, (Liabilitiy + Equity) must increase.

Contents in a Balance Sheet consist of ASSETS AND LIABILITIES. There are CURRENT ASSETS and LONG-TERM ASSETS, and vice versa for liabilitiies.

Current Asset

• Cash & Equivalents- having too much cash is bad as it shows the management is not fully utilising the investors' money to good use.
• Accounts Receivables (AR) - money owed to the company by customers who have yet to pay for their purchase of the company's products or services.
• Inventories-important to watch in manufacturing and retail companies. They include products yet to be sold.

Long Term Assets

• Property, Plant & Equipment (PPE) - it form the company's infrastructure and includes buildings, land, plant, machinery equipment and so on.
• Long-Term Investments-includes money invested in long-term bonds or stocks in other companies.
• Intangible Assets-include the value of intellectual property the company owns as well as its goodwill. It is something like a brand which investors are willing to pay over the book value of the company's equity.

Current Liabilities

• Account Payables (AP) - bills that a company owes to individuals (like staff salaries) and other companies (suppliers) that are due to be paid within a year.
• Short-term Borrowings- money a company borrows for less than a year.

Long-term Liabilities- long term debt that company has borrowed from bank or bonds that it has issued to the public.

Profit and Loss Statement

Sales Revenue

• known as just 'sales' or 'turnover', represents how much money the company has brought in over the eriod.
• Revenue= Price per unit x Quantity of units sold.

Cost of Goods Sold (COGS)

Gross Profit

• Gross profit = Sales Revenue - COGS. it tells you how much a company is able to mark up its product or services over the cost of producing it.
• Gross margin (known as profit margin) = gross profit/sales revenue x 100%
• companies with high GM above 25% over five to ten years indicate that they have highly differentiated products and have a strong competitive advantage against competitors.
• company with falling margins is a sure sign that it is facing greater and greater competition.

Operating Expenses

• Research & Development & marketing ensures the company continues to innovate better products and build its brand name.
• Depreciation is when a company buys a physical asset to last a long time (e.g. factory) and expenses its cost over a number of years.
• Non-recurring charges/gains are one off chages or gains that are not part of ongoing operations and not likely to be repeated.

Operating Income

• shows the profit the company made from its actual operations.
• Operating income= Sales Revenue - COGS - Operating Expenses.
• company may also make additional profits or losses from interest income (from money it puts in the bank) or from one off non-operational activities like selling an investment for a profit (known as extraordinary items).

Net Profit after Tax (Net Income)

• the actual profit the company has made.
• it shows how much goes to you as dividends or goes to retained earnings, which will then increase the company's value and hence share price.
• Net Profit after Tax= Operating Income +/- interest income/expense - Taxes

Earnings Per Share (EPS)

• EPS = Net Profit After Tax/Number of Shares Outstanding
• increasing EPS leads to higher intrinsic value and higher share price

PE Ratio

• PE = Current share price/EPS

The Statement of Cash Flows

• records all the cash that comes into a company and all the cash that goes out.
• tell you how much cash the company actually generated and how much it has used up over the accounting period.
• gives a true picture of the company's profitability & stability.
• a company can show good earnings report on its income statement, but cash flow tells extactly how much cash was received.

Cash Flow from Operating Activities

• how much cash goes in and out of the company as a result of it selling its goods and services.

Cash Flow from Investing Activities

Cash Flow from Financing Activites

Increase (decrease) in cash equivalents = Operating cash flow + Investing cash flow + Financing cash flow