My Portfolio

1st Investment

I start invest in 2014 and choose a value stock to keep. In that time, the share price is $0.59.

Before I invest my money into this stock, I study their financial statement, their year-to-year income, future planning, etc. I found that they have constant earnings even in that time the economy is in slow pace, have certain specialty in their business, better management. Based on these, this stock can be said have certain “value”, and I decide to invest in this company (UMS).

During holding this stock, the price is up & down each day. But at that time when I bought, the price is higher, which means the capital I invest loss. But since I know this share is valuable, I decide to hold. In the mean time, this company also issue dividend to us, including special dividend. Means I have certain passive income. The passive income value is depending on how many shares that you purchase. The more you purchase the more passive income you get.

As the timepass, the share price increasing. So my capital also increasing as well. My returns have finally come. In 2017, the price is $1.00, which mean I have unrealized gain of 41%. The share price can be refer to graph below.

But should I sell this share at this price? Maybe still need access their financial report again to value their performance.

Income Statement - Revenue

From the example of income statement below, we will focus on the “revenue”, where the money come into the company. Revenue is the income generated by selling its products or services.

However, it is insufficient to tell us that this company is earning or losing money. Then we will look into the expenses, where the money go out from the company on material purchasing, employee salaries, depreciation, etc. to maintain the company operations.

By deducting the expenses from the revenue, we will obtain the “Profit”, where showing the company is earning or losing money. This is important when choosing correct company before investment to be done. 

Sample of Income Statement from listed company

INCOME STATEMENT

In searching of good company, we will look through on the “Income Statement”, which reveal the company’s operation results for a set of period of time. It can be reported for each three month period and at the end of year which call “annual report”. Annual report normally will be audited by external party before published to the public.

In the income statement, there will be three items we can look for, which is “Revenue”, “Expenses”, and “Profit”. The profit obtained after we subtract the expenses from the revenue. Quite simple. A company with good profit that increase every year and consistently showing that this company is durable. We won’t buy any shares from company that its profit is not stable and sometimes will lose money. Would you buy this kind of company? Definitely no. Besides, increasing of profit in consistently will bring the market share price increasing also. This would mean that your capital will be increase together with dividend issue by the company! Sometimes the company can issue “special dividend”, sound good!

We need to bear in mind that when we look through the income statement, we need to get their annual report in a series of years to see the profit trend. This can let us know how good the company perform in these years. Normally 4 to 5 years will be nice. You can plot your graph and analyze the trend of profit if you tend to.

Financial Statements Reveal Durable Company

Financial statement can reveal whether the company that we interested in will generate money to us consistently. When we looking in the financial statement, we looking on the “consistency”. Will this company able to generate income with high gross margin consistently? Will this company able to maintain the expenses consistently. Will this company able to generate the earnings consistently?

This consistency is important to us for long term investment.

When we look into the financial statement, there always have 3 statement which named as income statement, balance sheet and cash flow statement. Each statements provide us important information on the company that we interested in.

Income statement reveal how much the company has earned during its operation. This statement will be released every 3 months period by accountants and the whole fiscal year. Info can be get from this statement are company’s margin, return of equity, its consistency earnings, etc.

Balance sheet reveal how much the company has the money in the bank and how much it’s owes. The net worth of the company can be known after deduct all the debts from their account. The balance sheet was generated every 3 month period which called as quarter and at the end of the accounting or fiscal year.

Lastly, the cash flow statement track the flow of the cash either in or out of the business. We can know how the company spend their capital in their improvements. 

Where we going to start finding the company that will make us rich

The company that will make us rich will always durable and with competitive advantage. These companies always have a unique product or a unique service, low capital or provide services or product that the public will consistently need.

If the products or services have a piece of customer’s mind, customer will never change their mind in changing the product. This will let the company produce more and sell more of their product which can be reflected in the financial statements. There were different kind of services and products being offered by the listed companies. We can find or observe what kind of product or services that normally used by the public within the street, your working area or even in your house.

Would you buy any shares from certain company which provide their services or product that seldom used by public, or even you don’t use it? When the consumer has low intensity to purchase the product or services, the profits generated will be lesser. A company with low profit will hardly or never to issue dividends to shareholders.

Start to find and observe any kind of products or services that always appear around you. Find the company that provide the services or product and run through their financial reports before invest any of your hard earned money.

What should I do after I achieve Sufficient Savings?

What should I do after I achieve Sufficient Savings?

After achieved sufficient savings for about 3 months that can cover your daily life in case you lose your income, now we can proceed to the investment. But you need to bear in mind that this saving is to serve as emergency reserve only. It can’t be used as investment funds.

Previously we have discuss on the idea of saving money from your income based on the concept of “budget” in each category that you spend. Now, let’s take a look on the pie chart below again:

From the chart above, what we can observe that the budget for the savings has been replaced by investment category. The remaining categories still with the same budget. You command the money in investment category works for you, to generate more money. This investment category play a role call offence, while the savings achieved previously will be serve as defense. Offence & Defense!

While you still in the saving stage or begin to accumulate money to invest, the first thing to be invested is your knowledge! Without knowledge while investing is to be gambling!

Ideas to Save Money from Your Income

Previously we have mention that saving is a must before investment because the money which has been used in investment shall not be disturbed in long term. The money in the saving named as Emergency Reserve shall be used only during emergency case and should cover your daily expenses for 3 months.

Function of Emergency Reserve

Let say Andrew is very concern on the investment as it’s highly return. He use most of his salary to do investment but didn’t plan to have a saving as the interest from the bank is low. One day, he meets an incident that requires $10k immediately, but he found out that he doesn’t have a saving which reserve for emergency use. He plan to sold the shares, but realized that the funds obtained will be less than the capital that he put in the investment after deducting the broker commission fees and actual share price. This making him losing money as investment only returns money in long term. From this case, we should realize the important of Emergency Reserve.

How to Save Money from Income?

From now on, we should record every daily expense at end of each day. This is important as we will know where our money are heading from pocket. You can create a spreadsheet to record every expense at the end of the day. You can make a comparison to view which category that you expense a lot. 

After deducting your fixed expenses from income, the remaining will be your “available budget” for your daily expense. Based on this available budget, you must reserve part of it as your saving first, let say 15%, while the other 85% will be served for your individual use. You may refer to pie chart as below. In other terms, you will act as financial minister that monitor how your budget is being allocated, since this is your money. The lesser you spend, the balance can be shifted to the “saving fractions” at end of the month. The 10% for entertainment is required as you need this money to release your stress. If you didn’t consider this 10% entertainment budget, you will lose control due to stress and eventually consume a lot from your hardly save money just to enjoy and release your stress.

Nowadays, there is lot of apps that can be downloaded to your phones, and I also using one of them. The apps can record the daily expenses and also set the budget that you have allocated in each category, so that you wouldn't exceed the budget.

Hopefully this article can give you some ideas on how to save more money and to control the way your money being used.