Thursday, October 15, 2009
Coffee House Investor
I am reading a book called the “Coffee House Investor.’ It’s a simple and down to earth investment book written by a financial adviser. I like the tone and style of this work. It’s plain common sense and removes all the delusions that I may have. Basically it gives a simple prescription on how to grow wealth. It says the same thing such as asset allocation, diversification, matching the stock market average and saving. Its good advice to follow. I have traveled his same path and I understand what he is talking about. The goal is really to focus in order to achieve good results.
I think the underlying assumption is that the stock market is the best option to grow wealth. But investing in the stock market has many paths. I have been trying to follow the Warren Buffet method but realistically I will never have his skill. There are 3 ways to invest in the market:
1. stock picking common stocks
2. managed mutual funds
3. low cost index funds
I have invested directly in common stock focusing on high cap, high dividend criteria, REITS and a China stock based on corn. I did some sort of triangulation wherein stock that fall in high growth, high cap, high dividend at a good P/E price at low cost was a defensive play for me. I ended up with shipping stocks, food company (since sold) and REITS. The price has gone down recently but I have been receiving modest dividends during the years. All of these stocks are so-called emerging market stocks since they are traded in Singapore stock exchange.
I have also traded in mutual funds focusing on country funds such as Malaysia, Japan and the Philippines. I also bought other mutual funds focusing on Asian countries and bonds. These are all emerging market funds and I have re-invested my dividends towards buying additional shares. So the power of compounding is working here. The country funds have gone down in the recent crisis and I guess I may be losing based on the management fees that are deducted. Since I am a long term investor, I hope the value will increase 10-20 years down the road.
According to the book, the best option is to invest in index funds. So I plan to invest in the US market to further diversify my portfolio. I think I have a good 10-20 years more before I retire. I think this will remove my delusions of being a good stock picker like Buffet although this experience will increase my exposure and maybe one day I will have that knowledge. But still the philosophy of owning an index fund is better for one’s peace of mind because I don’t need to constantly monitor the market and watch show like MSNBC to learn about the latest trends.
This focus will remove any requirement in my part to study individual stocks and spend time researching. I guess this is the best way to achieve things. Recently I completed my annual medical check up and the next step is to make a health plan for next year. I narrowed down my goals to lowering my cholesterol and losing weight. I had a lot of ideas in my head such as learning to meditate, doing a marathon, hiking and learning to ski and so on. But all these are still OK as a means to achieve my goal. I guess the annual health plan allows one to focus on the essentials and losing weight and lowering cholesterol are my essential goals. So focusing on specific health goals like focusing on specific financial goals like investing in index funds is a good way for me to remove all unnecessary thoughts from my brain.
Learning to focus is also important for me to limit my almost insatiable desire to borrow so many books and DVDs and music CDs from the library. So I am constantly reading and watching movies so I can return these materials in time before paying any penalty. Sometimes it is almost promiscuous to be so open and keep accepting anything that attracts you. So one needs to scale down and focus on the essentials. I don’t think I need to read everything that is out there so I can have the confidence to be a writer. I guess I have to work with what I have and just move forward. This is the good thing about focusing on the essentials which is what one can learn reading ‘Coffee House Investor.’