General – Page 4 – CFP, representing Financial Alliance

The similarities you didn’t know exist.

As I was reading the quote from my previous post (You cannot produce a baby in 1 month by getting 9 women pregnant.), I got the idea that perhaps, investing is actually really more like pregnancy and parenthood than we imagine. Here’s why.

In the first trimester // When you first Invest

Many mothers experience the most anxiety in their first trimester. This is when they are the most careful, as they may fear harming the baby. First time mothers have it worse as they have no prior experience and do not know what to expect, some may be in a constant state of anxiety. In view of this, most mothers turn to the internet/advice/books to learn more about parenthood. Some may become experts in the field, while others may end up following superstitions that are unhelpful or if not, completely false,

This is the same for many first time investors who can be unsure of how their investment would fare. Would they lose their capital? How should they manage their investment? Like mothers, investors turn to the internet for information or seek advice from others in such times of uncertainty.
The same pitfall applies – because it is easy to be misled by one-sided information. Like motherhood, it is important for investors to be receiving good and relevant advice.

Continue reading The similarities you didn’t know exist.

Some things just take time

Quite a few of my clients asked about the market recently, fearing potential technical correction, partly in view of the run up and in part because of the Portugal banking crisis … After all that has been said and done, the pullback was minimal, if any at all for some markets.

But such a quote comes in handy to keep ourselves grounded in times of uncertainty. some things just take time – You cannot produce a baby in 1 month by getting 9 women pregnant.

What you treat with devotion, grows.

Recently, I have been becoming more curious about people’s attitudes towards money & life in general. And I think I came across a phrase that sums it all up – What you treat with devotion, grows.

In fact, whatever you treat with devotion grows. And while devotion is technically a noun, I think it also represents as a verb. It is what you put into action until eventually, one side of the spectrum wins.

Most people understand this concept for relationships. We know that when we treat relationships with devotion (time & effort), it flourishes. But the thing, this really applies for most other aspects in life too- business, career, education and money (financial well being) too.

Take for example, if you have a low devotion towards money and do not treat it with care, you are likely to spend more or be more careless on spending it. At the end of the day, you may find that there has not been much growth in your wealth.

If you have a high devotion towards earning money, you are likely to navigate yourself on course for that. You grow, your ability grows, your earning potential grows.

If you have a low devotion towards investing your money, then of course your portfolio is unlikely to grow. In fact, it would be more likely that you lose your capital.

If you have a high devotion towards financing/donating money, then you would always find your position to give. And those whom you give and treat with devotion? They grow.

The sunk cost fallacy

The one thing that stuck with me from my biz module back in NTU was the concept of sunk cost, and the sunk cost trap.In economic/business terms, a sunk cost is a cost that has already been incurred and thus cannot be recovered. And the sunk cost trap is about the psychological need to protect these past choices (and protect our prior monetary/emotional commitment). Here are some examples of this sunk cost fallacy.

1. Imagine you go see a movie which costs $10 for a ticket. When you open your wallet or purse you realize you’ve lost a $10 bill. Would you still buy a ticket? You probably would. Only 12 percent of subjects said they wouldn’t. Now, imagine you go to see the movie and pay $10 for a ticket, but right before you hand it over to get inside you realize you’ve lost it. Would you go back and buy another ticket? Maybe, but it would hurt a lot more. In the experiment, 54 percent of people said they would not. The situation is the exact same. You lose $10 and then must pay $10 to see the movie, but the second scenario feels different. It seems as if the money was assigned to a specific purpose and then lost, and loss sucks (www.youarenotsosmart.com)

2. On the same example of movie ticket, let’s assume you have bought a non-refundable ticket for the evening. When evening arrives, you realise that you no longer feel like watching the movie – but you still drag yourself to the theater because you have already paid for the tickets. It doesn’t really make sense because the money has already been spent. The real choice was a) be happy by staying at home b) put yourself in a worse mood by going for the movie.

3. Now imagine you are a business owner who have invested a substantial amount to build a factory. Due to unforeseen circumstances, the company will need to pump in more money to complete the construction. It is easy to justify the additional capital because without it, the initial investment and plans would go to waste. However, the more important question is if the future income will justify that additional capital. If not, the loss would simply be bigger

4. Of course, the same trap often happens in investment decisions. Time to time, I come across investors who would adamantly stick to their initial investment choices so as to avoid locking in losses (sometimes, even when it is just paper loss). This is in part due to the emotional commitment to the investment itself. But truth is, If you are holding on to a sinking stock, it would be much better to get out fast and get into another asset class/stock which is better positioned for recovery.

5. The sunk cost fallacy also happens in relationship. Imagine this: You are now 30 years old and have invested 7 years of your life to the man/woman you used to love. Both of you have gone through various experiences together and have invested much time and emotions to each other. Then at some point, you start getting the feeling that he/she may not the one you want to spend the rest of your life with… But you stay in the relationship anyway. Because of the aversion of loss – you do not wish for that 7 years to ‘go to waste’. Though in reality, what is really at stake is not the 7 years that have passed but the 50 years ahead.

It’s not easy to avoid the sunk cost trap.., But if we are able to, we would consistently be making better financial, business and life choices for ourselves and hence, likely to be much happier 😉

Happy Mother’s Day – Filial Piety from a Financial Consultant’s perspective

This write up first appeared on La Confiance’s monthly lifestyle articles (Business with a Heart), but I thought I would just put it here too and elaborate a little further

My elder sisters are 7 and 10 years older than me and because of the huge age gap, I have always joked that it feels like I have three mothers instead of one. A blessing, really. But I have never really understood what it meant to be a mother, or how much a mother gives to her child until I see both of them become mothers themselves.
The arduous journey from pregnancy to giving birth – the late nights, physical discomfort, the careful diets, the worries, the crazy level of awareness and careful movements, even while watching concerts. Then comes the mad period after giving birth – furnishing of the baby room, the breastfeeding, the search for a nursery room in a huge shopping mall (yes, even simple things like that), the frequent “Is it 2 hours already? I need to feed/cook/ change the diapers etc etc”.

It is a constant process of giving – from giving to, to giving in to giving up of personal time, hobbies and sometimes even friends.

“So much is asked of parents, and so little is given.”

Indeed. The truth of this quote makes me feel a little guilty. Guilty for not spending enough time with my own, for not being a little more considerate, thoughtful and loving. For my occasional tantrums simply because I was feeling tired; for not appreciating the amount of hard work and fatigue that my parents must have gone through to bring me up. Continue reading Happy Mother’s Day – Filial Piety from a Financial Consultant’s perspective