Sunday, December 28, 2014

2 Lessons From AK

After reading today's post by AK, I felt very enlightened and decided to write a short post about 2 things that I have learnt from his post.

1. Don't ask barbers if we need haircuts

I know it sounds like a silly phrase, but this is a mistake that a lot of people make. The problem of this isn't that the person you might be asking is not knowledgeable about the subject in question, the problem is that his/her interests are most likely contrary to yours.

I am glad that I did not talk to an insurance agent about insurance when I first started out my personal finance journey. Instead, I went to talk to one of my friends who had left the insurance industry and I learnt a lot from her. With her being out of the industry, along with a free meal treat from me, she was more than happy to give me good pointers and tips that no practicing insurance agent would dare openly talk about.

A few months later, after I had voraciously consumed so much information about insurance, one of my friends who had become a full-time insurance agent asked me out for dinner. Of course, the usual question by him about if I have insurance and started saving and investing eventually came out. After a long session of one-sided schooling (not two-way debate), he admitted that there is a lot that he doesn't know, especially when it comes to the investing portion of his insurance business.

This isn't to say that my friend is a con-man, but he's just peddling things that he doesn't understand because that was the way he was taught to sell these products. Sell an ILP, get the most commission. Not saying that ILP is a shitty product with no uses, but it is a shitty product to most people.

And this isn't just insurance agents, it's everybody selling everything. You need to figure out what do they want, for you to assess if they can help you get what you want. Too many people fall into the naive trap of believing in the good and kindness of strangers. When the situation involves money, all bets are off the table. People do silly things for money, we all know that.

2. Don't buy things that have uncertain events already "priced in"

Paying premium for a housing location might be warranted if an MRT station will be built at your doorstep. Paying premium for a housing location might be foolish if an MRT station "might" be built at your doorstep.

This isn't just housing, this again applies to so many things in life.
"Using our in-house proprietary work-backwords calculation formula, as long as this stock continues to grow revenues by X% and earnings by Y% over the next Z years, we recommend a STRONG BUY in this stock. The catalyst for this stock should come from the full operations contribution of expanding into ABC country, which is set to complete in the year 2xxx as long as they are able to raise the funds needed and get regulatory approval."
This isn't to say that growth investing is bad. If you are working on good probabilities that what you are forecasting will be right, or just a bit off if you are wrong, then sure, this approach works great.

However, I see way too many people make investments that have "priced in" a future event..... which does not materialize in the future.

Ever heard of the story of that guy that bought a new condo and car because he was sure he would was going to get a promotion? And then he got fired instead? Haven't we all.

I'm just saying, paying for what you get today, instead of paying for what you might not get in the future is the more sound action between the 2 choices.

2 comments:

  1. Replies
    1. Hi S-Reit System Investor,

      Yes, I must thank AK for his inspiring words of wisdom, haha! Happy Holidays!

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