Basic Rules of Investing

I posted this at some group in 2006, and thought it would be a good idea to post it here as it is still useful relevant article. Enjoy my revised 2006 word of wisdom. :p

There are many choices of investment available these days within single click away. Many people never realize what they are putting their money on. They just follow what other people do or advice and in the end lose all their money.

So, the first MOST important rule is,

"Never ever invest in something you don't understand"

Many people just look at the gain, without realizing what are the risk involved. These cause them to easily wipe out their investment. If you don't know anything about investing, the possibility of someone cheating your money is high. Take "Pyramid Scheme" for example. Many people didn't understand what it is all about, but yet they still invest on them. In the end they not only lost
their money, but lost their good relationship with their friends and family as well for introducing them into the scheme.

So, the solution is...

"Understand what you are going to invest on"

Yup. Learn, study about them. Ask all sort of questions. Find out whether it is legal or not. Try to get REPUTABLE 3rd party opinions. Reputable mean, someone who knows inside out about investment. Don't get influence by the figures they show you. Find out all the risks
involved. Think rationally and make a move, whether to invest or not. Most importantly, make sure you will be financially stable if you lost all your money in the investment.

"The greater the return, the greater the risk"

Find out the risk involved and study whether you can take such risk or not. One way to find out how much risk you can take, (especially for stock market), try to invest a small amount of money (make sure this is not your life savings) by buying some stock. See if you can sleep soundly in the night or not. If even a 1 cent drop gives you sleepless night, then definitely its not for you.

"Learn to minimize the risk/loss"

Many people do not know just when to stop their losses. They always keep on hoping that the loss will be temporary, but the truth is you will never know. It could become worse, if you don't get out as soon as possible. To learn to minimize a risk or loss is not easy, but it can be learned through experiences. Read books on risk management. It could help you out to understand and get new ideas on how to manage it.

"Learn from mistakes"

Everybody do make mistakes, but don't let the mistake haunt you. Learn from it, and use it as a powerful tool of wisdom. I have seen many people, who keep on repeating the same mistake over and over again. The only good habit they have is they never give up, but its useless if you still repeat the same mistakes. Also, the earlier you do a mistakes, the lesser it will impact you. But, it doesn't mean you must do a mistake to gain experience. Another away is learn from other people's mistakes, they are abundant.

As for Stock/Derivative Market (Which can also be applied to other sort investment), many books or people says there are 2 important rules,

1. Don't be greedy.
2. Get rid of fear.

but I would add another 2 and make it 4 important rules, they are:

1. Don't be greedy.
2. Get rid of fear.
3. Never ever regret.
4. Don't be too hopeful.

That's all for now. I hope this would help to enlighten many future and current investor to
prepare themselves before they start to invest.

Happy investing.

Money.. Money.. Money..

Why money is causing so many problems to people? Is it because money is root of all evil? Is it because it corrupts people’s mind? Is it because money diverts people away from spirituality?

The answer is money is not the problem at all. The problem is YOU, YOU & YOU…

Yup, that’s the one and only truth. Perhaps, you might have come across many articles and books on personal finance and they all talk about the same thing. To make more money, you have to change yourself first.

“Oh no, another site talking rubbish, instead of telling us anything useful”, some voices of irritated reader who are in deep financial crisis. Hold on there for a second. Let me tell you why it is important to change yourself first and how changing yourself can make more money for you.

Changing yourself or more precisely your mindset about money, you’ll start to see abundance of opportunities of making money outside there. How is it possible just by changing your mindset you’ll start to see the opportunity?

Let say you are a diehard football fan, anything which you came across related to football, you’ll notice them.When you flip your daily newspaper, you’ll able to notice anything related to footballs, no matter how small is the article, even every single advertisement related directly or indirectly to football. That’s because your mindset had been tuned to the football frequency.

“Does that mean I have to stop tuning my mindset to football and start to only think about money?” a confused reader start to ponder.The answer is no.

Only thinking about money without a purpose is like a body without a life aka robots. I have came across people who destroyed their entire life just because of chasing money without a purpose.

“Haha.. See money can destroy people’s life, so it’s indeed evil to have too much money”, a reader start to accuse baselessly.

Money is just a tool. A tool can be used for either good or bad deeds. For example, a hammer can be used to build your shoe rack, and it can also be used to knock people’s head. Does that mean the hammer is evil because it’s used for hurting someone? Of course the answer is no. It’s the user who decides the purpose of the tool.

Same goes for money; it is you who decide how you are going to use it. The choice is yours. You can use it to live up your dreams and do some good deeds or destroy yourself and do something bad.

Remember this, without money, church, temple, mosque or any worship places can’t be build. Without money, health care centers, old folks home, foster house can’t be build. Without money, foundations couldn’t be formed. Without money, there won’t be any charity. Think about it. How are you going to contribute effectively without money?

Okay, let’s not talk about charity. Let’s talk about your dreams. Let’s take the die hard football fan for instant. I’m sure he’ll be wishing to watch every single match in the season, live. But can he do that, for an average Joe, it’s not possible. He needs money to travel around, to buy the best seats as well to support himself and his family. Aside of money, he need time to do all of that. If he is on a good paying job where he can afford to watch all the games, but might not have time. He has to trade his time for money. If he takes a long break, how is he going to earn for living.

So now he has a reason to change his mindset to make money, by making his dream as his burning desire. But remember not to make it as a desperate desire. When you are desperate, you’ll tend not to see all the opportunity and could end up losing your money in bad investment.

Having money is also to ensure that you don’t have to worry about your child’s education, your retirement, your vacation, and whatever you want to do for you and your family.

Imagine this, you were walking around a shopping complex, and you came across a beautiful diamond necklace which you really want to buy for yourself (If you are a man, then imagine you want to buy for your wife), but you found out the cost, $5,000. Unfortunately, you don’t have the money and you could only wish for, and you go back home with disappointment. You could have paid using your credit card,but have to suffer paying them later. Now imagine that you have the money, $5,000 here I come. Yup, you don’t have to think twice.

Now let’s imagine a second scenario. You are watching your favorite news, and they were showing a story of a young brilliant kid who is suffering some rare disease and need fund to support her treatment which cost $100,000. The kid’s parents making a plight through the news. You could only feel sorry for the kid and wish you could help her out. But unfortunately, you don’t have money for yourself. You end up feeling sorry for her.Now, imagine you are a multimillionaire; you could easily help the kid and be proud of yourself being a Good Samaritan.

“But, when you have more and more money, you’ll get stingy, just like all those evil rich people out there”, again some dissatisfied souls start to condemn.

The reason you might be accusing the rich as evil is because of our human mind always tend to remember negative things a lot deeper than positive things and blindly make conclusion based on our negative perspective. Just give yourself some time, think of one rich person you have met who is humble or generous. I’m sure you could name at least one. Don’t stop there, try to recall as many people you have met or heard of.I’m sure you can list at least 5 people. Some of the generous famous rich people are Bill Gates, Warren Buffet and John D. Rockefeller.

Another reason we always accused the rich as selfish, evil and so on because of jealousy. We also tend to believe that they should share out their fortune with us. But isn’t it’s selfish to think like that. They worked hard (or smart) for the money they have accumulated and just like that we hope they would share their money. They deserve to be rich for their effort. Some of us just sitting around and condemning others for being rich. Of course these people don’t deserve to be rich, as they are not putting any effort at all.

Ben Franklin once said, “God helps those who help themselves”. And I would further add,
“God help people who want help themselves regardless of what religion or race they are from.”

By looking at the positive side of money and the desire to achieve your goals and dreams, you will find a way. You will see almost every single opportunity passing in front of you. Knowing one is an opportunity is not enough. You got to take the action, make the first step to grab the opportunity.

To sum up all in one,


Look out for my next few articles near future discussing on 'Dream', 'Desire', 'Postive Money Thought' and 'Action'. Until then, enjoy looking for new opportunities.

The unbelievable Islamic banking loan

Almost every bank today in Malaysia have Islamic financial/banking section. Is the popularity due to the demand of customers or there is some hidden agenda behind it? That's what we are going to look at in this article. Many would be surprise once the truth is revealed.

Today we could see many are talking about Malaysia being the No.1 Islamic financial hub in the world. It is something we all should be proud of. Yet, many still do not know how it actually works. Many assumes since its Islamic, it means the rates should favor the people and not the bank. Many thinks it's a pure form of investment. Yet, there are something in it which everyone should be watching out for which could diarrhoea your money. Here is why?

Conventional loan uses principal or balance reducing method to calculate your interest. This means that the interest is charged based upon your principal balance every year. The principal will reduce whenever you make a payment. Every time you make a monthly payment, you are actually paying interest and reducing the principal with whatever left after paying interest. So, making extra payment to your loan at any times would definitely reduce the total interest charged as your principal is reduced.

Islamic loan is calculated exactly like your car hire purchase loan. The interest (even thou that's not what they are calling it;they call it profit rate) is charged on the borrowed principal amount times the number of years up front. What does this mean? It means you are paying a lot more interest on your loan. Not just that, paying any additional payment amount will not reduce your total interest as it's already charged up-front, even thou they have some rebate when you have finish paying your loan earlier. But, the rebate is useless as the bank have already charged most of the interest at the beginning. I will write another article on this in near future and how to deal with it.

Here are some illustrations to compare conventional loan and Islamic loan.


Check out this table to make comparison between conventional loan and Islamic loan.


No wonder all banks, including those foreign origin such as HSBC and Standard Charterted are rushing to open Islamic financial service. The amount of profit they could earn is unbelievable. They could earn double compared to conventional loan. This is really unfair to the people. By right they should be charging less than 5% for Islamic loan to make it equivalent to conventional loan. Let's see what is the true effective interest rate for the Islamic loan. Hope nobody will get heart attack after looking at the figure.

A 5% interest (profit rate) for a 10yrs Islamic loan is equivalent to.... Roll the drum...
Yes, my friend. There's nothing wrong with your eye. It is 29.97%. FYI, just like a hire purchase loan, the shorter your loan tenure the lower the effective interest rate, and the longer the tenure the higher the effective interest rate. So, just imagine those who have taken Islamic housing loan 30 years. They would be paying through their nose.

Who's fault is it? Is it the religion itself at fault? No, my friend. It have nothing wrong with the religion. It's the greedy corporate trying to suck all the money out of you by showing innocent faces at you. There is nothing wrong with the concept. They just need to charge a lower profit.

So, is all Islamic loan have disadvantages? There are some advantages of Islamic loan. But, the disadvantages outweigh advantages. Here are the advantages:

1. If your payment overdue, there are no late payment penalty charges.
2. Even if you overdue, there are no additional interest charged on the overdue amount. They would only charge accordingly.

Btw, there was another disadvantages until the court overruled it in Affin Bank Bhd vs Zulkifli Abdullah case. Check out this links for more details:

Call For More Transparent Islamic Banking Documents
Affin Bank Bhd vs Zulkifli Abdullah

How about from tax planning point of view? Islamic loan is still at disadvantage, as they are calling it as profit rate and not interest rate. So, too bad if you have invested in a property by securing an Islamic loan. You can't do any interest rate deduction from your rental income.

So, friends.. Until the profit rate is reduced to a acceptable rate, Islamic loan is a big NO NO.

Malaysia heading towards recession!!!?

"Hang on there.. Your first posting on money & finance, and you are talking about some bad news already", some impatience readers started to feel restless.. Well, don't worry.. Remember that whenever there is a crisis there is an opportunity. Just open your eye wide and you might be able to see it, sitting right at some corner.. Alright, lets go to the main topic of the day.. Enjoy...

Malaysia government have been saying that Malaysia is well insulated from the current global financial meltdown. How far is it true? Is it just some political agenda? Or is it they are just living in their own world? Perhaps, the impact won't be seen immediately, but recession is right at the corner, and here is why.

Many multinational companies around the world have announce job cuts, and we are not spared either. Just recently, Dell announced worldwide job cut which includes one of our Penang plant shutdown. So, how many jobs will be lost? Thousands. Foxconn is about to cut jobs in Penang as well. Samsung is going to shutdown 1 of their 3 plants in Malaysia. And many more unheard by people. But for sure, many companies have frozen their hiring. So, how will fresh graduates and and those who have lost their jobs going to find a job for living. Furthermore, some companies have announce no pay rise for the year 2009 such as Agilent.

All these will definitely lead to less spending power. Less spending power equal to slower economic growth and would lead to recession. Let's look at a simplified diagram below:


Well, of course what really happens is more complicated than this, but this would give you all some rough ideas. There are many indicators which can be used to see where Malaysia is heading towards. Problem with Malaysia is that, they are not transparent enough to let know the public of current situation. US financial market have so many indicators which could signal us of what's coming in the future. Two of the simple indicators are car sales and property sales.

When you see car sales and property sales are dropping, it shows there are more supplies than demands. Even thou we don't have such indicator widely available, if we open our eye and make more detailed observation, we could see something is going wrong.

The car and housing sales have been dropping since last year...

"You must be out of your mind. My friend just purchased a car a month ago. My uncle just bought a house two months ago. There are still demands out there, you idiot..", some smart @$$ start to show off...

When I said demand is dropping, it means there are still demand but not at the rate it used to be. The exact rate, I can't give because there are no published statistic available openly on these. At least for car sales, they did mention from time to time in the newspaper but not as a main topic, but rather a secondary quarter page column news. Thats the best news on car sales we can get. Yet, logically when the car interest rates goes up, there would be less people who could afford a car.

For housing market, you have to go out and have a look. There are so many unsold properties around us. It's taking longer time to sell of a property. The seller have to markdown the price just to attract buyers. Some are still being ignorant and never reduce the price thinking that the property market is still doing fine. To prove this, somewhere beginning of last year, I was looking around for property to purchase. I came across few properties and guess what, its going to be almost 2 years and they are still around unsold. One of the property owner have cut his price by more than 10%, but the property is still growing weeds.

Remember, this is just the beginning. Many more concrete indicators would pop-up, but it might be too late by then. Anyway, it doesn't mean it's the end of world. Always remember this...

"When there is a crisis, there is an opportunity"

When the economy is down, the stock market will be down. The same things goes for property. It means it would be time to buy, buy and buy. It's an opportunity within a crisis. But, the only question is when is the right time to buy. To answer this is not so easy. One must make a lot research and gain some experience before that person could roughly time the market. The keyword here is "roughly". No one could ever time the market exactly. Some might get lucky. Some would buy at a slightly higher price. But, whatever it is, you will be still buying at the lower than average price, that's what matters the most.

What's eminent is recession is on the way or perhaps have already started without realizing it. No matter what's happening, remember that when there is a crisis, there is an opportunity arise from it. In my many to come postings I'll explain more on the opportunity and how to identify it. Until then, enjoy the stock market falls, as there is an exciting opportunity awaiting us.