Have you ever harboured the dream of going full-time into investing?
Imagine:
No more mad rush on the trains. None of the drudgery of pushing paperwork and clearing project deadlines. Not having to be at the beck and call of your boss or suffer the wrath of angry customers.
Instead, you get to wake up later each morning, spend a little time catching up on news and overnight markets, decide on your playbook, key in the orders and then head off to enjoy what life has to offer.
At the end of each quarter, you rake in the dividends, take profit on a few winners, cut loss on others as you contemplate the next vacation destination.
A wonderful lifestyle, right? So what is stopping people from pursuing it?
If you are like me (and the average Joe on the street), it is because we are short of one crucial ingredient:
Capital.
Investing is a catch-22 situation - You need money to make more money.
And if you want sufficient profits to cover your expenses, you will need a pile of moolah big enough to trade significant positions in the markets.
Invest peanuts and we can only expect grain sized returns.
Accumulating capital for investment is never an easy task, even for the professionals. A large part of a startup hedge fund manager's time is spent meeting potential investors and marketing his or her strategy. The entire process can take 6 to 7 meetings and 12 to 18 months before the investor says "yes" [
article].
Outside the financial industry, only a select few do not have a problem with capital shortfall.
There are those born with a silver spoon in their mouths. The fortune is already made by their forefathers, and all that is needed is to manage it. This is the secretive domain of family offices. There are between 250 and 300 family offices based in Singapore and Hong Kong, as estimated by UBS [
news].
Then, there are the entrepreneurs who have built a successful empire of their own. Think of the Mark Zuckerbergs and Pony Mas of the 21st century. Their hard work and streak of luck manifested into a lifetime free from financial worry. According to a 2018 study by HSBC, nearly half of Singapore's millennial millionaire entrepreneurs are self-made [
news].
Finally, there is the C-suite. The CEOs and Chief-
insert-alphabet-here-Officers with million dollar pay packages and stock options deep in the money. A golden retirement is almost guaranteed. This is the sort of clientele favoured by private bankers. There is even a private gym in Singapore specially catered to these senior executives [
news].
For the rest of us - freelancers, small business owners, civil servants and ordinary wage slaves of the corporate world, raising capital will likely be a challenge. There is only one route to accomplish this feat:
To earn more than we spend, and to spend less than we earn.
In other words, make sure what comes into your pocket is always more than what goes out.
Simple arithmetic, yet it is surprising to see how many people fail to obey this principle.
Now I am not advocating to pinch money on every expenditure, or be a scrooge when it comes to important expenses such as health insurance.
But I do believe having the proper money habits is every bit as important as picking the right stocks.
A good investor ought to be a good money manager.
For a role model, look no further than Warren Buffett. Buffett still stays in the same house in his hometown of Omaha, Nebraska that he bought in 1958. The house is worth 0.001% of his total wealth [
article].
"If you buy things you do not need,
soon you will have to sell things you need."
- Warren Buffett
If superstar investors are out of your league, take inspiration instead from Ronald Read, a Vermont-based janitor and gas station attendant. At the time of his death in 2014, Read had quietly amassed an US$8 million fortune based on nothing more than frugal spending habits and smart investing [
news].
Granted, socking away savings to invest is a dreary process. Some enterprising peeps swing for the other extreme - they max out personal credit lines and unlock equity in their properties [
news]. They borrow to the hilt to get a headstart.
In the current environment of ultra low interest rates and beaten down stock prices, this sounds like a winning strategy.
Do be warned however, leverage is a double edged sword. Amplified bets mean you can lose more than the shirt on your back. Just ask the holders of SocGen 5x Short SIA DLC (daily leveraged certificate). Their entire wager was wiped out when SIA stock price plummeted 20% post ex-right pricing [
news].
Plus, there is nothing worse than debt collectors knocking on your door as the market gets stuck at rock bottom. And you do not know
WHEN it will happen.
Be it inherited, saved or borrowed money, it is an undeniable fact that without adequate capital, any meaningful form of investing will always be an illusion.
So take time to ponder on your war chest.
When the reminder pops up to renew your non-C-suite, run-of-the-mill gym membership, consider shifting your exercise routine to the park instead.
While the dollars saved may not seem much, they can become valuable bullets in your arsenal for lifelong investing.
Who knows, that dream of being a full-time investor may be achievable after all.
