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The Value of Value Investing

Benjamin Graham, the father of “Value Investing”, has made a profound impact on my view of investing. 10 years ago, when I started the financial advisory business, I was only focused on one thing; to help my client make MONEY in the SHORTEST possible time. In essence, I was a TRADER, rather than an INVESTOR. I told people that I am an investor, but in actual fact, I was speculating the financial markets in the effort to make quick gains for my clients.

After the 2008 financial crisis and being a decade in the financial industry, I am convinced that there is only one true way of investing, that is VALUE investing. Essentially, value investing does not take into account the unpredictable future of financial markets. Rather it invests in the intrinsic value of the business and determines whether it is overpriced or underpriced in the markets.

Value investing does not just apply to buying businesses and stocks, even though it started from securities and equities valuation. I personally use it for valuing mutual funds. For mutual funds/unit trusts, I will go to online websites, eg. Dollardex or Fundsupermart in Singapore, do a comparison of all the funds in a particular sector or region, focusing on a few fundamental factors.

  1. Sharpe Ratio: This is the amount of return (alpha) the investor will receive when it undertakes a unit of risk, i.e. return/risk reward ratio. The higher the Sharpe Ratio, the greater the potential of the fund generating decent returns while being resilient to market downturns.
  2. Price/Earnings (P/E) Ratio: If the price over earnings is high, it means that the fund is oversubscribed. The ability of the fund to increase further in price will be diminished. To find out the price of the fund is very easy. However to determine the earnings of the fund/sector/region will be more difficult. You can go to Bloomberg to find out the information, or take the overall earnings of the companies that are in the fund. Usually, funds only disclose the top ten holdings of the fund. So the earnings calculated will only be a rough estimate. But nonetheless, P/E ratio is still a good gauge of whether a particular fund is cheap to invest in.
  3. Consistency of returns: Understanding and successfully applying the power of compounding will help our portfolios grow at exponential rates. Thus consistency of returns becomes a crucial part in determining whether a fund is attractive to invest. I would rather accept a consistent lower rate of return than a return that is high but volatile. Over the long term, portfolios which do the best are those with a CONSISTENT decent rate of return.

This factor also determines the superior skills set of the fund manager who is overseeing the portfolio. A skillful fund manager will select quality investments for his fund which can withstand market downturns and yet achieve consistent returns. He will also need to foresee shorter term fluctuations and adjust the portfolio accordingly, even though it is not the main factor why his portfolio is generating consistent returns. His main skill set is quality investment selection over the long term.

Thus for investor who do not have much time and resources to learn and access quality investments, hiring a trusted professional money manager will be of value to his portfolio. It will be best to engage a fund manager by referral from a friend who you can trust. If you understand the principles of value investing, you can screen any potential fund managers and select competent ones. And you can also better work alongside with the fund manager to create an optimal portfolio.

Aaron G. Tay, Certified Financial Planner

father as leader

Father as Leader III

A father is called to set the culture and principles of the family. We, with the support of our wives, can be empowered and systematically grow the culture of our families. Our children, growing up in this environment, will have a greater chance of becoming individuals with strong confidence and character.

The first 12 years of a child’s life is the most important time to impart knowledge, values, security and confidence to the child. Being a father, trainer and family life educator, I saw that children are like “sponges”. They absorb nearly everything they see, hear and feel!

This is the reason why we as parents need to be thoroughly involved in our children’s lives. No one can replace the role of a father and mother in the child’s life. In the 1st twelve years, a child’s entire world rests on his parents. How a father leads his wife and family will have a great and permanent impact on his children’s life.

Boundaries need to be set in the household and children need to adhere to it. For example, I believe that during dinnertime, it should be a time of fellowship and quality time with family members. So I will enforce that the television be switched off. Also mobile devices are not allowed. So if my children use an iPhone or watches TV that time, he is crossing boundaries and discipline will be enforced. And the boundaries need to be clear and discipline needs to be consistent.

Discipline needs to be carried out in a spirit of love, not punishment. Every day, we need to communicate love to our children. In this environment of love, our children will feel very secure, loved and strong in their spirits. When discipline needs to be enforced, the children will know that daddy does it out of love for them.

I believe as we are clear about our values and convictions, love our wives and be of ONE mind with them, love our children and set CLEAR boundaries for them, our children will be obedient and submit to our leadership as fathers.

There is only ONE way of leadership, that is ROLE MODELLING.

Aaron Graham Tay, Certified Family Life Educator

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Father as Leader II

How do we practically lead our families as fathers?

From my experience, it really takes a conviction of our own principles and values as an individual. Even though leadership textbooks state that there are different “styles” of leadership, but I believe there is only ONE style of leadership – ROLE MODELLING.

As men, we can first clarify of own values deep in our heart. These values, eg. humility, integrity, honesty, prioritizing family relationships, etc, needs to be EVIDENCED by our LIFESTYLE. Just lay our calendar in front of us. How much time, energy and resources are used to develop these values in our lives? When we begin to align our lives with our values, that is when we have power in conviction in our leadership, be it leading ourselves, our families, our companies.

Next will be our relationship with our wives. Do we as married couples have ONE mind in these matters of values, principles and convictions? As 2 different individuals who grew up in different environments, my wife and I have very different perspectives on the same matter. How we spend our money, our time and how we relate to friends and family are all so different! For example, my wife believes in having a few close friends and spending quality time with them. As for me previously, I love to hang out with many people and I regard them as all my friends. Every weekend, I will bring my wife to different social gatherings to build “relationships” with different friends. In the end, my wife felt that it does not coincide with her values and she feels tired and meaningless hanging out with so many friends. I was offended and felt that she does not understand my values. So how do we resolve it?

Eventually we settled the issue and become of ONE mind in this one matter. But there were so many of such differing values and opinions that we have to take TIME & ENERGY to resolve issues. The end result was that we became of ONE mind in our MARRIAGE. This sets the CULTURE of our family before our children were born.

We are still pursing this track of being one mind as husband and wife. And I believe as men, husbands, and fathers, this is the only true example of leadership we can show to our wives, children and families.

Aaron Graham Tay, Certified Family Life Educator

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Father as Leader

Fatherhood is the highest calling which is a man can respond to. When I was willing to accept the full responsibility of being a father, my entire heart started to change. No longer was I thinking about myself, my career ambitions, the size of my bank account, my car, my toys and gadgets, etc. These things, which I so favored in the past, gradually lost its luster over time.

I started to care about very different things.

  1. How do I want my child to grow up?
  2. What values do I want to impart to them?
  3. How do I impart these values and practices into their hearts and lives?
  4. What culture do I want to build for my family?
  5. How am I role modeling for my children?

After 2 years into fatherhood, I realized that fatherhood is so fulfilling, yet it is a daunting task. We cannot do it alone. We need a band of brothers, fathers who truly care about their families to gather and support one another. A man can father a child by making his wife pregnant who will give birth to a child. But to FATHER a growing child in its truest sense is a totally different endeavor.

A father is called to lead his family, together with his wife. It is not about male chauvinism. Every father in himself cannot effectively bring up his family and children. We men need our wives. And the best gift a father can give to his child is not an education, but the security that daddy and mummy love each other.

However, a father is RESPONSIBLE for how his family and children turn out. He must not be absent; he must not shrink from his responsibilities, he MUST lead and show his children how to live with character and principles in this time and age.

Aaron Graham Tay, Certified Family Life Educator