THE GLOBAL stock market meltdown and the pervasive bad news has made many of my peers and relatives worried and frazzled. Stories of retirees losing their life savings and people losing fortunes to the stock market all point to a lot more pain and suffering for the man on the street.
However, on reflection, a deep recession may actually be a good thing and it may not affect me as much as I previously feard.
Assuming the worst-case scenario where I lose ALL my money (erm, touch wood !) in "high-risk" and new companies such as Ezra, Swiber and Pacific Andes/China Fishery (high gearing); it will be about a 60% permanent capital loss in my portfolio. I view these companies as the highest risk of all the companies I own.
FSL Trust is likely to survive (in one way or another) unless very extreme adverse events such as bankers invoking of market disruption clause becomes common, issuance of massive amounts of additional shares due to DRIP or the bankruptcy of one of the lessees.
Boustead has a huge cash hoard which should tide it through the hard times. Being a 180 year-old company which has seen countless recessions and even one Great Depression helps it cope with the current crisis!
Tat Hong has similarly been through recessions and so far has emerged stronger and is a force to be reckoned with in Asia and the World. Thus, I don’t have too many worries about them going under.
Assuming the WORST, it will take me approximately 2 years to save and earn back all the capital which I would have lost. I normally save 40% of my take-home salary but this recession has caused me to increase the rate to 50%.
Assuming I still get a decent bonus this year but no bonus next year, I should be able to partially cover all debilitating losses if one of my companies collapse. Since I am still young (early-30's), I think 2 years is a short time frame to be able to earn back what I've lost. In the meantime, I will be:
a) Cutting down all expenses relating to food (eat out less, less restaurants);
b) Continuing to use my trusty bicycle for travelling short distances (no ERP and no petrol costs !); for further areas I will continue to use the MRT and bus and try to transfer to take the 40c rebate into account to save costs. A car to me is totally unnecessary and will just serve as a burden to my plan to accumulate wealth;
c) Save more aggressively by chanelling more of my salary into a "don't touch this account" savings account with slightly higher interest rates. This account is liquid enough so that I can transfer monies to invest in the market when I see bargains, and I have been using it for 3-4 years;
d) Be more frugal when it comes to purchasing essential items such as clothing, shoes etc. I shun branded goods. That way, I can save about 50% on a pair of shoes (about S$40-S$50) instead of buying branded ones (usually around S$100-S$120);
e) Saving and reinvesting passive income - this is dividend income from my investments which I still expect to receive. Right now, I would expect dividends to continue to flow from First Ship Lease Trust, Tat Hong, Boustead, Suntec REIT and China Fishery, despite the challenging global conditions. I am prepared, however, for a substantial cut in dividend or even no dividend in FY 2009 and FY 2010 should economic conditions deteriorate further, which is why point (a) about saving aggressively is so important;
f) Work towards retaining my job and remaining "useful" - hopefully, the upcoming retrenchments and lay-offs will not affect me (touch wood again). The most important thing in a recession is to be able to hold on to your job so that you still have a steady income. I can accept pay freezes or even a pay cut but am praying that I can at least retain my job;
g) Look for ways to earn side income - any suggestions will be appreciated from readers and I am willing to work long and hard to ensure financial stability for me and my family. Fortunately, I have a comprehensive insurance policy which also has a savings plan embedded in it.
I believe the above measures will ensure I can get through this recession, and hopefully relatively unscathed. Money lost can always be earned back, but your health and sanity and the love you get from your loved ones cannot be bought by money.
My lifestyle and habits are not excessive and I shun conspicuous consumption, so I think after all is said and done, I should get by OK. In the meantime, I should continue to think more positively and not let the doom and gloom affect my mind.
Christmas is coming up as is Chinese New Year - perhaps we can look forward to the good times shared with loved ones instead of worrying about money all the time? It's crises like these which make one understand the simple joys of being with loved ones and being content with what you have instead of always chasing for more.
It's my dream to be financially free, but that dream can wait. Now, it's time to survive. And survive I will, through my sheer hard work and determination !
This article is reproduced with the kind permission of Musicwhiz, whose blog can be accessed here.
30-something Musicwhiz works in the investment industry and adopts a value investing philosophy based on the teachings of Benjamin Graham, Warren Buffett and Philip Fisher.
