Facts in the Balance Sheet

This entry is not for the business students... Why I say so? It's probably something many business students SHOULD know.

I actually did study this whole accounting and finance thing during my Diploma for a year. Honestly, it's been years since I last take a look at it and when I started looking at it again, everything was a blur. I really can't remember crap.

So what's a balance sheet? A balance sheet is basically a summary of all the company's assets (what the company owns) and liabilities (what the company owes). A balance sheet usually gives one year worth of information.

Things you may find under Assets (What the company owns)

• Cash - Cash is the most liquid asset a company may possess. As much as you may think that having cash in the company's bank is a total waste of potential investments/income, you might just be wrong. Some companies maintain their cash reserves to earn extra cash in the money market funds, and some use them to pay outstanding loans that are soon to come.
• Accounts Receivable - Accounts receivable refers to money that is owed to the company. For example, if I purchase a washing machine from Courts at $200 and I have yet to pay for it, this sum will be recorded in the "Accounts Receivable" section of the balance sheet. Be weary of firms that has too high "Accounts Receivable" for they may not be able to return outstanding loans in time, despite the fact they have great amount of sales. Try analysing the company should this figure be too absurd.
• Investments - Just like our personal investments, some companies have investments too!
• Property and Equipment - This is the least liquid of all assets. Should the company be in a sudden need of money,  property and equipment takes a longer time to sell and liquidify (unlike investments and cash). Equipment depreciates over time and this is calculated as part of the cost of doing business each year. Depreciation is subtracted from the value of the equipment and reflected in the balance sheet.

Things you may find under Liabilities (What the company owes)

• Accounts payable - Accounts payable refers to the money that the company owes other firm/people when they place orders to purchase things. The "time lag" between recieving the bill and paying for it is called accounts payable. As much as companies with high accounts payable may seem like a worrying issue, this may also mean that the company is great with their financial management by taking a longer time to pay their bills. The longer time they take to pay their bills, the more money they have to increase revenue.
• Accrued compensation - This refers to the money that the company owes their employees. E.g. pension money which the company has to pay their employees someday.
• Income taxes payable - This refers to the taxes the company has to pay for its business.
• Dividends payable - Not all firms pay dividends, but those that do has to set aside money to pay dividends to their shareholders (like you and me!)

Equity
Equity is the difference between a company's assets and liabilities. It is what keeps the balanced sheet.... balanced!

Therefore.

Assets = Liabilities + Equity!

*it's really hard to put a balance sheet in words.. Find an example and the terms should be similar to the ones I have stated here.

Wanna be a rat?

I read this quote someone which sparked me on investing..

"Even if you win the rat race, you are still a rat."

Time to get out there and make some money.

Oh Mcdonald's has some DIVIDENDS!

While I've been eyeing on BP for close to a week or more already (honestly I'm getting really tired and bored and I'm REALLY forcing myself to stay committed), I'm also looking at other firms to safely "park" my other funds as part of constructing a diversified portfolio.

Then I came across trusty Mcdonald's. hmm. Unless a random Act of God that destroys that massive golden arches, I pretty much believe Macs has a very safe and firm business plan. I'm just a little sure that Macs will grow over the years (with emerging markets in other countries), but I'm pretty darn sure that Macdonald's has been doing pretty well.

A company like Mcdonald's will not be greatly affected my economic crisis for people turn to cheaper alternative of food and Macs happens to fall under that category (Not comparing your $3 chicken rice from Singapore.)

Although the dividend is at about 3.4% per annum, I believe it's not just about receiving high dividends but rather stable ones as well. Surely I wouldn't want to end up in a company that pays 10% dividends this year, and nothing the next few!

So Oh Mcdonald's has some dividends! yee  yah  yee  yahh  ohhhHH!

Photo courtesy of photobucket.com

What is Price/Earning Ratio?

I've seen this in MANY reports.. p/e ratio for short.. had no idea what is it, I usually just ignore it.
Laziness is my bad habit, time to take a step forward and forcing myself to believe that "ignorant is NOT bliss".

So let's have a scenario (I love scenarios...and analogies... and story-telling. People who know me well enough will know that).

There are two companies selling televisions- Firm A and Firm B. Firm A has it's stocks priced at $50 per share and Firm B has it's stocks priced at $100 per share. Does this means that Firm B would be a better buy?

Well after doing some research, I learnt that price/earning ratio will help answer that question!

So what is p/e ratio?
P/e ratio determines the stock price per share relative to the annual earnings per share. Faster-growing and more-profitable companies generally has higher p/e ratios. P/e ratio helps to compare the price of a stock to the company's profits per share or the overall market's price level to overall corporate profits.

Below is the formula to calculate p/e ratio (most sites usually calculates this already.)


SP/AE = p/e ratio

SP = Stock price per share
AE= Annual earnings per share (this can be derived from taking the total annual earnings divided by the total number of stocks issued)

Incoming Waves~! Get on the Right Boat!

I read this interesting story from a book  - 7 Commandments of Stock Investing by Gene Marcial.
It's quite a book with many examples, lessons and historical facts. I got it from the National Library. If you are out looking for it, it's probably borrowed...by me!

Well, the book taught me an analogy that I thought I should share.

The market is like tidal waves. Sometimes low, sometimes high. Stocks are like boats on the waves, they ride the waves up high as well.

here's the problem... Some boats have hidden HOLES. uh-oh. Imagine sitting on your boat, watching the rest of the boats going up and yours heading down. UH-OH.

Don't simply "follow the trend", do your homework. I can't emphasize more. Not that I'm in any position to "instruct" you to do it. But I learn there's just SO MANY things to look at just for ONE company. The P&L statements, the history of the company, the reputation of the company, the dividends they are paying out, their liabilities, their reserves, the list goes on.

Inspect your boat before going on it. You don't want to be on a submarine.

Courtesy of http://www.morningstaronline.co.uk/

STOP WHINING WORLD!!!

I had a REALLY long day. So I'll keep this entry short.
It's back to  BP. Someone referred this link to me which I thought it was hilarious.

Check out Bloomberg's columnist view on the BP oil spill.

QUIT WHINING USA, YOU USE A CRAP LOAD OF OIL TOO!

Here's the link to the really interesting article.. Enjoy! Stop Whining People! Says Bloomberg

Investment VS Gambling

I thought I had to free my mind on this matter. A friend of mine was telling me that day, "Matt, stocks are like gambling, you should stay away from it.". It bugged me for a while and I decided to take a closer look at this subject.

First let us start by looking at the meaning of both words.

Investment is defined as

Property or another possession acquired for future financial return or benefit.

To gamble is defined as

To stake or risk money, or anything of value, on the outcome of something involving chance

The word that should be of emphasis here is "Chance". Investment isn't a based on an outcome of something involving "Chance". When one invest in the company, he sincerely believe that the company has a strong prospect in the future. In his perception, this is how he views the company. Indeed his perception may be wrong, or any random act-of-God may pull down the firm, but at the point of investing, he believes in the firm.

On the contrary, gambling does not depend on any statistics or profile. Your returns are determined by a roll of the dice, or a flip of a card.

Everything in life is an investment, not just the stock market. Selecting a University to go to is an investment, buying a new laptop is an investment, even dating a girl you just met may be an investment!

Investment as a form of gambling
Am I contradicting myself here? Have I gone nuts? Not exactly. But many investors have turned investment to gambling. Instead of doing their "homework" and "read-ups", they purely look at stock price history and throw their money in the stock at its lowest point hoping that it may rise again due to the fluctuations of the market. They even buy and sell their shares on the same day and spend the whole day staring at the market.

Be a Gambler Investor!

• Read up on daily news and market trends
• Monitor one stock closely on a daily/weekly basis before diving straight into it.
• You should feel good about yourself after buying the stock because you believe in it!
• Read up on books and magazines to learn more about the stock market.
• Don't trade on emotion 

Courtesy of http://www.noluckneeded.com/

Power of the IPHONE!!!

Here I am sitting in front of my laptop reading the news, in the midst of the quiet weeknight of Singapore.

The other side of the globe, people wait in anxiety for the release of the NEW IPHONE 4! As of the time now, the Iphone will be released in half an hour. Exciting stuff!

Just want to give my readers a heads up of the POWER of iphone.

Last Monday, shares of Apple rose 0.9% to $258.22. All this just in anxiety of the new Iphone launch.. I can't imagine how the shares will jump after that.

Up for Apple, down for Blackberry
Never thought I would say this, but YAY for Apple! Just as Apple shares rose 0.9% on Monday, RIM (Research in Motion Limited, the company producing blackberry) fell almost 5%! More can be read here Reuters - RIM Shares fall

I'm on my edge of my seat just typing this entry. I wonder if I can even get to sleep or should I just wait for the world to proclaim the big news!

A Simple Formula for Foreign Shares

Thinking of pumping SGD14,000 on a USD20 stock? How many can I buy?

I came up with this simple formula, just sub in the details.


[(PA/PFC)-brokerage charge]/PS = number of foreign stocks you can buy.

PA= Principal Amount in SGD
PFC= Price of Foreign currency against SGD
Brokerage Charge= must be already in foreign currency
PS= Price of stock in foreign currency


Therefore If you have $14k, and the price of the USD against SGD is 1.4, and your brokerage charge is USD40, and your stock cost USD20 each, this is how it should work out.

[(14,000/1.4)- 40] / 20 = 498.

Thus with $14,000 SGD, you will be able to buy 498 stocks worth $20 USD each with a brokerage charge of $40.

Hope this helps!

BP - Bearish Problem, or Bullish Possibility?

Somehow when I first started this blog, I knew for sure there will be a time I'll be REALLY tempted to type something about BP's Big Problem (B.P.). I can't help thinking and following the news about BP all week or so.

So in case you have no clue what the whole issue is.... here's a summary.

• So BP's Deep Horizon oil rig caught fire and sank into the ocean deep spewing it's contents at the gulf of Mexico.
• The oil spill began on 25 of April and they tried a ton of ways to stop the millions of gallon of oil but to no avail. (they even tried putting golf balls and mud over it.. really..)
• An estimate of 500,000 to 800,000 gallons of oil is released to the ocean DAILY.
• The people affected at Louisiana aren't too happy as they live their lives with the beautiful beaches and marine life (all of which are mostly dead, scattered)
• BP chalked up to-date $1.25 billion of bills and charges
• BP stocks fell from $62.38 (high point in the 52-week) to a all-time low of $37.25
• BP still offered to pay dividends to their investors in July which made President Obama not too happy.

Okay, this is really a VERY brief summary. I can't type out a months worth of news. Please click the link here to refer to the long list of news. BP Stock news by Fool.com

If it's months news, why only type now?

BP's stock price has been going DOWNHILL since the disaster. Stockholders have been pulling out their stocks desperately and quickly. Thing is, BP share price finally picked up $0.45 (1.21%). People are beginning to dump their money in the firm once again.

After all that has happened, how can BP survive?
This thought has quickly passed my mind after doing some research. I narrowed it down to factors that may affect BP's survival. These three factors are namely Money, Society, Product.

Let's first look at BP's monetary issue, does BP has the financial capability to not go bust?

As of today, BP has chalked a total of $1.25 billion in bills. Sounds scary enough. But if you actually take a quick glance, BP has a total of $7 billion in cash reseres as of 31 March. Talk about a big sum of money. Well then again, BP is not just losing money from the costs of the oil spill, BP is also losing "potential money" from the oil leaking from the oil spill. Above that, will BP still pay, as promised, their yearly dividends of close to 10% to their shareholders this July?

Secondly, let's look at another of BP's problem. There are facebook sites to boycott BP and the people of Louisiana aren't really too happy with BP causing the oil spill and taking so long to clean it up. America is boycotting BP. Louisiana has held countless rallies and campaigns against BP. This social issue will definitely bring down BP's revenue. Looking at it at a whole different light, BP has stations all over the world and this thought came unto me, does the world really care about Louisiana's problem? Would one in China really not pump BP or buy it's all-time-low stocks just because BP has made lives terrible in Louisiana?

The last factor that probably affects BP's potential future is the product that they are offering. BP offers oil. The world runs on oil. Simple, and to the point.

Would I buy BP stocks?
Do I see BP as a bullish possibility? Definitely. I highly doubt BP may go bankrupt. Of course, nothing can be promised. BP stocks are taking a dive, but would I be catching falling knives? Perhaps the stock isn't "ripe" yet, I'll wait a little longer to see it's progress. I wouldn't pump all of my $10k into BP stocks though, that would be a maneuver of too high risk. If anything fails my whole pot will do downhill together with this blog.

There's really a lot more to BP's story and potential, you should really check them out. I'm trying to keep this post as short and summarized.

Look at the poor oil-covered Pelican... will that stop you from supporting BP's stocks? (call me cruel but not me really..)

Photo courtesy of http://news.yahoo.com

How to Start Trading.

Hello everyone! A friend of mine was speaking to me about stocks recently (if it was really anything else, it wouldn't be here. haha). He mentioned I should blog about "How to start trading." Strangely that topic never hit my thoughts once, but here it is then!

Starting a trading account really isn't that difficult! In most cases, even free!

First, before you start trading, allow me to recommend a series of videos from SGX website(in case you're still caught in a blur with acronyms, it's Singapore Stock Exchange). I actually found the SGX Investor Guide a little useful if you're completely new. Trust me, it's a little boring at first, but just swallow it. Bad tasting medicine doesn't mean it doesn't help.

Well you must be convinced to invest if you have read my blog to date. Now you need a broker to manage your buyings and sellings. There are many brokers you may use. Do check out the list of brokers from the SGX website. Alternatively, you may simply click the link Directories of Securities Members in Singapore.

I am currently a member of ONE of the securities firm listed. I think I should not mention the name to not advertise or be bias against any other firms.

Photo courtesy of http://www.flickr.com/photos/jmoffat/3809167123/ 

What's Brokerage Charge?

Simply, the sum of money that brokers charge you when you buy/sell stocks. Currently I'm paying $25 or 0.28% whichever is higher for trade (For SGX only). This price is correct as of this date. Well, do your sums and predictions well. If you trade $2k once, it's $25. If you trade $2k on two separate dates (i.e. $1k on Monday, $1 on Tuesday), you'll be paying $50 of brokerage charges! This will probably eat into your dividends or you probably have to wait for your share price to go even higher to make a profit. Plan well before you click "buy!"

Am I only allowed to trade SGX by using the securities firm given on the SGX web site?

Depending on the firm, most firms allow you to trade foreign shares like US as well.

So what is the minimum number of shares do I have to buy?
If you are planning to trade in SGX, the minimum require to buy is 1 lot. This equates to 1,000 shares. Therefore, if the stock cost $1SGD, you have to purchase $1,000SGD worth of stocks.

Oh talking about US shares, they're so expensive! and they're in USD! How does a small investor like me buy?
No worries! The US market do not require you to buy shares in lots. You can buy 5 to 10 of its shares. Well then again, it doesn't make any sense to buy $50 worth of US shares and pay brokerage charge of $40USD just to buy it (Firms may charge differently for US market). Again, planning. Know what stocks are of potential VALUE. Expensive doesn't mean it's the best. (Typical Singaporean mind set.. paying more means better!)

So how to buy and sell?
Depending on the firm, some firms require to call them up directly and some have an online system whereby you may do your trading online. For example Phillips Securities.

Must I pay to start an account?
Again, depending on the firm, some firms require an initial deposit of maybe $1,000. This is to prevent people from randomly opening accounts that are not active. Generally most firms do not require a deposit from you.

After I got an account, who else can help me?
Different types of account provides different services. Some advisory accounts provide you with advices, with a price of course (nothing comes free). You may also be interested in attending seminars conducted by SGX Academy SGX Academy Site. Some securities firm also conduct their own seminars, you may take a look at their websites.

Most importantly friend, have fun.

What is S&P500?

As I began following the stock market, I begin to realise many stocks are in reference to S&P500.

Courtesy of fool.com

So what in the world IS S&P500? This really bugged me. Every US stock I monitored had that irritating line that defines itself as S&P500.

After some research, I understood that S&P500 is in short for Standard & Poor 500. That didn't really help, I just had more "huhs?"

Well here it goes then.

S&P500 is used as a bench mark for US share prices. It is made up of 500 different companies each with diffferent liquidity, size and sector. To put it simply, it's the average price you would pay if you would buy shares from all 500 different companies.

Bet you didn't know that...

The word "poor" in Standard & Poor doesn't literally mean "poor" from the dictionary. It was created by Henry Varnum Poor and the Standard Statistics Bureau. Hence the name, Standard & Poor.

Is the world broke?

Something interesting I saw on the news, thought I could share with everyone..

People are just splurging too much!

And Governments are paying loans using loans? oh man..



Videos courtesy of http://video.foxbusiness.com/

My First Step in Earning

I am one who has been very lavished..by myself. I spend money on almost everything. Clothings, transport (like cab rides), food (and we're talking really paying for food), etc. I usually end my month with a small fraction of what's left of my monthly income. We're not even looking at a "slice of the pie".. think "scraps".

Time to make a change.

I HAD to bold that line and isolate it. This is to emphasize my point and keep it as a constant reminder. I'm awfully pampered by $100 dinners, $20 cab rides home with night surcharge, buying things I don't need. My obsession with music instruments doesn't help either.

I remembered myself as a kid enjoying the reality TV show The Apprentice by Donald Trump. Allow me to quote his statement,

"A penny saved is a penny saved."

Well, if you actually dwell into his statement, it makes a whole lot of sense or cents (pun super-intended). I have to admit, I'm one that easily buys random things that I THINK I need which eventually ends up at the corner of my room, or in the depths of my cupboard. I am sure we are all guilty of that.

This blog could have been called the 20k pot or the 50k pot.. but no. It's called the 10k pot. Only because I'm a victim of my own nonsensical expenditures. Well it doesn't take a genius to know that money makes more money. The more you have, the more you will have in return. Sadly, I'm forced to live with my disastrous consequence.

Savings goes a long way. Saving a dollar today could mean earning you easily much more in the future. I believe I do not need to cite an example for this. The more you save, the more your investing power, the greater the earnings, the closer you are to your financial goal. This post seems totally unnecessary, but trust me, you'll be amazed at how many Singaporean youths are actually NOT saving up each month.

Here are some steps I took to cut down on my monthly expenses.

• Take the buses and trains. I learn how convenient they are. Walk if you can..
• Find less expensive entertainment. Go for evening jogs instead of late night parties at clubs. Spending your nights at clubs is a killer. Drinks are expensive and you have to pay for a hefty cab ride home. Let's not forget about you feeling like crap.
• Avoid fast-food. I'm always tempted to "drop by macs" and grab a burger. Check, it's $6! Eating at home is cheaper AND healthier (if you want it to be of course.)
• Borrowing books from the library instead of buying them

Well, that's about all I can remember. Usually it just hits me very naturally now and I learn to be reluctant on splurging. In fact, I even went to the extent of taking up another job during the holidays (despite the fact that I'm leaving Singapore in a month to study) to earn extra pocket money or hopefully pump more into positive-looking stocks.

Saving is a first step in earning.

Money in the Bank. Save and Safe?

Courtesy of http://images.inmagine.com/

As soon as I left the Singapore Armed Forces, I started asking my friends around me a very "stupid and annoying" question as many may deem.

"so... what are you going to do with your money?"
The majority of replies I got was, "put in the bank la!"

I knew that wasn't the answer I was looking for. I began my search on this topic on "what-to-do-with-my-money". And I didn't find that answer, but instead, I found a more disturbing problem.

Take this situation.

You leave $100 in a savings account with a bank. The bank offers an interest rate of 4% per annum. Inflation is at 3% per annum. This leaves you with a positive figure of 1% per annum. Let's include government taxes at about 2%. This leaves you with a negative figure of -1% per annum. This simply means your spending power has been reduced to $99 instead. Yes, indeed by figures you have now $104, but you only have a spending power of $99!

Don't quite get it? Let me put it in another light.

Two men had intentions to buy a CK watch. The watch cost $1,000, and both men had $1,000 each. One of them decided to buy the watch now, the other decided to buy it 5 years later. 5 years later, the same watch cost $1,100. The man who bought the watch at $1,000 sold his watch at $1,100 and got himself another watch. The other man who didn't buy a watch initially, now can't afford a watch.

Don't get me wrong, I'm not asking you to spend all your money now. What I am implying, is that inflation and government taxes is a double whammy that will bring your spending power down. Let's start by doing a small reality check.

•  A bank's savings interest is NOT 4%. DBS is currently offering a yearly interest of 0.25%. As per their website DBS Deposit Rates. This is correct as of 5/6/10.
• Inflation rate was recorded as high as 7.5% in 2008!. Currently Singapore's inflation rate is at 3.2%. As per TradingEconomics website Singapore Inflation Rate

Uh-oh. What about fixed deposit? Surely that will make a difference?
Okay, let's do a quick reality check again.

• OCBC has a timed-deposits account that promises a higher interest rate per annum rather than the ordinary savings account. You may put any amount of money of more than 5,000SGD for 36 months and enjoy an interest rate of 0.8%. As per their website OCBC Rates. This is correct as of 5/6/10.

0.8%... You still aren't beating or even curbing inflation. You are still losing money! Yes, you are losing your spending power just by leaving money in a bank! After discovering this, I made my mind to begin studying about investments. It is, no doubt, a very dark, scary step. But everyone starts off new. Warren Buffett wasn't a genius overnight. His hard work pays. Thus, by this, I'm very determined to educate myself more about investments, keeping up with daily news and of course, sharing this cold hard fact with any potential readers of my blog.

So, may I ask you this question then.

"What are you going to do with your money?"

To begin with...

To begin with...
I started this blog to keep track of my investments and view points on the current market. At this time I'm starting this, the market has been so exciting. First the BP oil spill, the Euro Crisis and wait, US stocks dropped to all 4-month low (eyes widen)? New Japan minister? oh, there's just so much happening!

I'm 22 this year and a future student of the University of Melbourne. I'll be graduating with a Degree in Commerce and I have plans to do a double major in Marketing and Finance in 2013. Honestly, market trends and global news intrigue me. Has it been the past few years? Not exactly. Somehow recently (ok, not THAT recent), I can't pass each day keeping up with global news. Note. Global. Not just what the New Paper had to say.


So why the 10k pot?
I'm finally done with my 2 years of National Service. Yes, 2 long mandatory years of serving the Singapore Armed Forces. What has it left me? A priceless experience, a probably long-term back injury, and ... $10,000. No it's no remuneration, it's savings. Now that I'm heading to Australia to pursue my further education, what am I to do with the money? Leave it in the savings account? fixed deposit? Nah, I'm heading to the stocks.


But it's such a pathetic amount for investment in stocks!
I believe everyone agrees with me in this aspect. What IS 10k? I am only 22 this year, and I'm only beginning to start investing. Start small, end big. I'm investing this 10k not just only as a form of stocks, but also as a form of education. With me putting a foot in to the stock market, I'm very sure there's alot for me to learn, and importantly so, to share with any future potential readers. Do note though, I'm no professional, and whatever posted is simply my viewpoint on the market.


If this blog is just going to be about your pathetic 10k, it's boring...
Definitely over time, when I am very much more confident with the market, I aim to be adding more into my investment pot.. Well, the idea of this site is not to disclose my earnings/losses or track my finances. Like I mentioned, I'm using this blog to sort out my thoughts, share my viewpoints, and more importantly, hopefully getting useful contributive comments.