Step-By-Step Company Analysis

This is an expansion of a previous post on how to do a detailed company analysis.

Company CheatSheet

The zero-th step for company analysis is actually a quantitative stock screen. Poems have a good system to come up with a list of stocks. As for what criteria to use, the post mentioned above has a list which I would recommend pple to use. The screen should include both company specific financial ratios and valuations.

So you put in the criteria, the the system churns out a list of companies. Then you can select any co. that has a nice sounding name or maybe it is in a good industry and study it. It will probably take you 3-4 days (if you have a full-time job and can only spare limited family time to do this ECA) to read the annual report and broker's reports try to understand its business.

Ratios: when doing the screen, you would have included a few financial ratios, but the trick is to actually look at all other ratios, if something bothers you, ie this co's interest coverage ratio or asset turnover is too low. Then perhaps its not wise to invest in the stock.

Next is to focus of qualitative stuff. Some things that I would look for are:
1) Whether the company is in the right regional markets / right industry ie places where there is still a lot of growth, less competition and co. has pricing power.

2) Market share of its products, it is better to be either No.1 or No.2 in its field bcos anything else, it has no pricing power nor the competitive edge over its competitors. Of course, all industries are different, sometimes, the market is such that there is no mkt leader and can never have one.

3) Its business moat / competitive advantage / barrier to entry of its business, the company needs to have that edge where no one can ever get close to them. For Toyota the edge is its manufacturing capabilities, it can make a cheap, reliable and fuel efficient car targeting the mass affluent, and no one else can do that. But the European cars fight with another edge: branding and image. Think Porsche, Ferrari, Lamborgini.

4) Its management, their compensation scheme and their past actions. Has the mgmt been friendly towards shareholders? Have they issued options or other means to dilute shareholders' stake indiscriminately? Any directors resigned?

5) Clarity of its annual report. Sometimes, the annual report of the company can be very flashy but it does not tell you the impt things. ie. the company is trying to hide. It then pays to avoid these co.s.

Of course, the list goes on and on. And as you gain experience as an investor, you refine your thinking, and know what to look out for: the warning signs, the best practices, the business moats and whether the businesses are sustainable.

There are really so many things that you should look out for and even after that it pays to let things cool for a while, re-visit the company after some time, or after when the stock has fallen a lot. Especially in the Ra-Ra markets of 2006-2007.

So when I have decided that this is a company that I should own, I will wait for a good time to buy. When valuation gets cheap enough. Usually I only look at PER. So if the sustainable forward PER is cheap enough, I will buy. This is the most important step as a wrong entry price will decide if this stock is a 10 bagger or just a 1.5 bagger (after 10yrs).

It's not easy but it's rewarding when you get it right.

Mr Market and the ice-cream machine

Global stock markets are technically in a bearish mode, defined as falling 20% below the previous peak. The other well-known technical indicator is 2 consecutive quarters of negative GDP growth equals recession. Guess most pple know this one right?

In this kind of market, it is natural that most participants feel very down. Especially those who don't have a clue about stocks, trading, investing and entered the markets hoping to make a quick buck bcos their friends/colleagues did just that. Or maybe they heard stories of how pple made quick bucks buying COSCO, hold it for a few weeks and made a couple thousand dollars.

Well, now the stories become how pple loss 50% of their portfolio in one month and in absolute terms translate to $15,000-$30,000. They are in so much pain that they cannot eat, cannot sleep, don't want to hear anyone mention sto.., sorry you are not allowed to finish the word. Ok, if you know any of these people, ask them to come here and this blogger shall play Uncle Agony today.

Buffett and his predecessors like to use this term Mr. Market to describe the stock market. For more info on Mr. Market, click the hyperlink. Well the point I want to make here is that Mr. Market, or rather the stock market is like the Hokkien auction coordinator. He keeps shouting prices day in day out. And the prices are dictated by his emotions and they are usually not rational ie. they do not reflect the true value of the stocks.

For now, let's digress a bit. Let's say you bought this ice-cream machine that makes you fantastic vanilla ice-cream that you can sell for $5 per ice-cream, for many many yrs. Then someone comes over today and tells you, "Hey your ice-cream machine is only worth 50 cent, sell me now!", what do you do? Of course you ignore this mad guy right? Then suddenly next day he appears and again tells you, "Hey your ice-cream machine is worth $10,000, sell me now!" In fact, he will come everyday and quote you a price. So should you go happy like a bird when he says it's $10,000 today, and go appetiteless, sleepless, depressed when he says it's 50 cents tomorrow?

Well if you didn't know what you have bought and couldn't care less and the only thing in your mind when you bought it is that you think you can sell it few weeks later at a 15% profit, then, you should be appetiteless, sleepless, depressed bcos now you can only sell it at 50% lower than the price you pay.

But the good news is, if you hold on to it long enough (like 20 years), it's got a good chance that it may cross your buying price. Bcos the average return for stocks is 5-10% per year, so even if it dropped 50% this month, in a worst case scenario, say if the stock only goes up for 5% per year for the next 20 years, it will rise by 100% and reach your buying price. Meanwhile you can decide if you should be appetiteless, sleepless, depressed for the next 20 years. So that's consolation from Uncle Agony. Doesn't help much I guess, hehe.

But if you took pain to calculate how much your ice-cream machine is worth. And took pain to do research, to wait for a good price to buy the machine. Even if conditions are bad today and you can only sell your machine for less than its true worth, you know it's ok. Bcos you know some day, its value will be recognized.

Of course, humans cannot escape from emotions. Even the most experienced value investors feel the pain when their stocks decline 50%. However it is the philosophy that is important here. When the market is shouting that you are wrong, your stock is worth 50 cents, it doesn't mean that you have to be depressed. Re-look into your analysis and see if there is any truth. Usually there isn't, so be resolute and ignore the noise. It is your ice-cream machine, your stock, you don't need someone to tell you how much it's worth. It make take years to prove your point, that's investment, that's the stock market. You have to live with that in order to play this game.

Free Cash Flow Yield or FCF

One advanced but quite useful financial ratio that has not been discussed on this blog is the Free Cash Flow Yield. This no. tries to determine how much return can an investor expect after the company has made its money and invested what it needs for future operations. It also gives an indication of how much the dividend yield could be.

This ratio is not called an advanced ratio for nothing. For those who think investment is easy, well sorry, you have to read maybe 5-6 posts on this blog in order just to understand this one. I have added the links on all the keywords. Anyways, here's the basic.

A company generates cashflow based on its day-to-day operations. Eg. a hawker selling bar chor mee gets money fr his customers. This no. is called Cashflow from Operations.

Next, he needs to spend some of this cashflow on equipment to maintain its operations (bowls, knives, noodle cutting machine etc.) This no. is called Capex which is the short-form for capital expenditure.

When you deduct Capex from Cashflow from Operations, you get a no. called the Free Cash Flow. Basically, that's what's left that can be distributed to shareholders or to pay down debt. If the company has no debt, it's basically money that can be paid to the shareholders.

Next we try to compared Free Cash Flow or FCF with the stock price. So you divide FCF by no. of shares. You get the Free Cash Flow per share. This is similar to dividing Net Profit by the no. of shares to get the EPS.

And finally, you divide the FCF per share by the stock price to get the FCF yield. This is similar to EPS divided by stock price to get the earnings yield, the inverse of the all-famous PE ratio. So we all know, the higher the earnings yield, the better, bcos it means more return of investors. Similarly the higher the FCF yield means more money back to investors.

Empirically FCF yield of 5-8% would indicate that the co. is quite good in terms of managing its cashflow and capex. If you get lucky you may find co.s with 10-12% FCF yield. What this means is that this business keeps churning out cash and yet you need not invest in a lot of new stuff to keep it going. This is the kind of businesses that value investors like. See's Candy would be an example that Buffett would place here. In Singapore, I think Vicom would be a good example. No. of cars keep increasing, but not much new investment needed to check more cars.

Sadly, I would guess that 30-40% of all listed co.s would have a negative free cash flow yield, bcos most businesses require a lot of capex just to keep going. The prime example would be semiconductor and/or tech businesses. Every few yrs, technology advances and companies just have to keep investing just to stay competitive. 6" wafers to 8" then to 12". Everytime to inch size changes, all the eqmt have to change. Is it a wonder why Chartered cannot make money?

So that's FCF yield, a good indicator of whether the co. is good or bad at generating cashflow for investors. But it's quite troublesome to calculate this and usually stock screens don't have this ratio easily available although it's on Bloomberg.

To Cut or Not To Cut

In Value Investing, you NEVER cut losses. If you have analysed the company and have determined that it is a good buy, and you bought it. If it goes down, you should be buying MORE of the stock. Since it is cheaper now. Well, that's provided everything is still the same since the time you did your analysis.

But for most novice investors, including this blogger, our analysis is usually flawed. There is probably something that we missed. Remember the market is not stupid. In fact we all know the saying don't we, "The market is always right." If you bought a stock, and it falls 20-30%, chances are something is wrong with the company, at least in the next few mths (well the market is very short-term focused also). And it pays to redo your analysis.

Well if you are willing to wait out the storm (which may take years), then all is well, it may go down 20-30%, but eventually it will come back, and it will surpass your cost price, in time. If you are a true blue value investor, and you think the co. fundamentals have not change when you decided to buy it back then, and if you got the GUTS, then BUY MORE of it.

For those not so true blue value investors, well you may want to follow some trading rules, ie to cut loss at a certain level. Some recommend 10%, some 15% below the price you bought, depending on how much pain you can endure. Hehe. But remember the tighter the cut loss level, the easier it gets triggered and the easier you get whipsawed. Btw whipsaw means you sell after the stock tanked 15% and then it goes to rally 100% and you go and bang your head on every wall you see.

Cutting loss is actually also rational in some ways bcos you can buy more of the stock at a cheaper price. If the stock is now $10 and you used $1000 to buy 100 shares. It drops to $5. And you use another $1000 to buy 200 shares. So you have 300 shares.

But if you cut loss when it drops to $8. You get back $800. It drops to $5 and you use the original $800 plus another $1200 you get to buy 400 shares! In both cases, you spend $2000 but if you cut loss and buy back at a lower price, you get more shares!

Having said that, it is not easy to cut loss bcos of the psychological factor. This is well studied in behaviour finance. People tend to hold on to their losses far longer than they should. And they take profits too early. Bcos if they cut loss, they have to admit they were wrong, realized their mistakes. But if they simply hold on, it's not realized, there is still HOPE that it will turn around. Vice versa, for profits, once they locked in, they would have proven a point, they got it right. And the right to brag about it later on. So pple always take profit too fast. It is in the wiring of our ape evolved minds. A seasoned investor tries to overcome this malfunction and makes the money.

Of estimates and consensus thinking

I attended an investment session where the instructor asked the class (of around 20 pple) to estimate the size of Thailand vs Singapore. Was it 50x bigger? Or 100x bigger? Or 500x or what?

He wanted to prove a point. The true answer will lie in the range of everybody's estimate. Bcos someone was bound to get it right. Well his point was quite valid, in the end, the answer did lie within the range of everyone's estimate.

But what was more striking to me was that most estimates are wrong and some VERY WRONG. For those dying to know how big is Thailand vs Singapore, well it's actually 73x. The closest estimate was 50x. And only one guy got that close. Some had it 10,000x. My estimate was 400x.

This made me think very deeply about the nature of estimates. And more specifically, estimates of future earnings of listed companies. We know that the sell-side or brokers have their army of analysts to forecast listed companies' earnings for next yr, or 2 yrs out. Maybe, just maybe the analysts' estimates on a listed company's EPS that we, and most investors rely on, might usually be wrong as well. And it's logical that they should be wrong. Bcos estimates, by virtue that they are estimates, are usually wrong!

Of course, you may argue that analysts have access to information since they get to talk to industry people, competitors, company management etc. Well the analogy with Thailand vs Singapore may not be quite right today, since we have Google and Wikipedia.

But imagine if it were the Stone Age and the class was given 1 yr to walk Thailand and Singapore and come up with an estimate, how likely is it for the class to get it right? Probably as likely as the analysts to get next yr's EPS right, right? Which implies that estimates based on some info but INCOMPLETE info is not much help and that's the way it should be.

So consensus thinking and crowd thinking, by logically extending the argument, can actually be usually wrong. This can be quite scary bcos most of us (well some of us) usually follow others' action thinking that they did their homework so we are safe. E.g. I will go for a stall with a respectable queue in front of the shop at an unfamiliar hawker centre. As for financial markets, there is this thinking that even if we are wrong, so would most others and so it shouldn't be that bad.

Now based on the recent poll, I guess most pple would agree that Singtel is a bad investment since most pple thought that Singtel gave back 0% return since IPO. But guess what, the actual answer is more than 44% return since IPO, which is at least 3%pa based on the price of Singtel when the poll started (around S$3.60). Bcos Singtel gave back lots of dividend and capital back to shareholders during the 15 years it was listed. Since then, Singtel reached a new high of S$4.00 or so. That's another 10%. So again, most people are wrong. Ok you may argue 3%pa is not very attractive, esp after putting your money there for 15 yrs. Well its better than fixed D, and the point here is actually estimates are usually wrong, just a reminder.

Also it's a mere 15 years since Singtel IPOed. Statistically, it's not really that significant yet. Yes in order to be of statistically significant, the track record has to be 18 yrs or more! If you hold on to Singtel for the next 3 yrs or more, maybe the annual return will converge 8%pa or something.

So I guess the moral of the story here is this: Don't trust what most people do, they are usually wrong. Do your own homework and come up with the logical conclusion. Or you can visit this blog (which tries to post accurate logical conclusion on most stuff) more often.

The Efficient Market Revisited

There has been a lot of debate since the 1950s whether markets are efficient or not. Btw, if you are asking what the heck is an Efficient Market, you can read this posts first.

Label: Modern Portfolio Theory

Ok Efficient Market. Essentially, some academics came out with this theory that nobody can earn a superior return than the market return (ie average investment return) over an extended period of time bcos markets are damn bloody efficient. ie if there is an inefficiency (or a discrepancy between price and value), eg a stock is worth $5 but is only trading at $3, people will simply keep buying the stock until it is fairly valued. So no matter how hard you try, you can only earn the average index/market return if you invest in stocks/bonds whatever, which is about 8%pa.

As with academics, they made it complicated. So they came up with three forms of Efficient Market which I have forgotten what they are. But the message is nobody can beat the market whether you use fundamental analysis, or technicals or whatever intelligent tools you can come up with. So even if you managed to spot one inefficiency, you are just lucky and you won't be able to do it over and over again. The academics dare you to prove them wrong man! They really do! And sadly I think they are winning. Not 100% but quite close.

Having said that, actually there is a flaw in the EMH, or Efficient Market Hypothesis. The flaw is that the markets are not efficient to begin with. It becomes efficient bcos the market participants are constantly taking out the inefficiencies. Imagine 1 million investors/speculators in the market and everyone just managed to spot 1 price/value discrepancy, then the market will be quite efficient already right?

So the markets become efficient bcos there are lots of participants taking out the inefficiencies all the time. The thing is that most participants can probably pick out 1 or 2 inefficiencies during a certain time frame but not a hell lot over long periods. Hence in general, markets are quite efficient to any one person.

But what if they are those who can consistently spot inefficiencies and earn the difference between price and value? Does that mean that the market is not efficient? In my opinion, the markets are still efficient it's just that this group of people have superior tools to enable them to pick out more inefficiencies than others. Of course for those still blur blur one, we are talking about value investors.

One reason why value investors can do this is bcos of their investment philosophy and investment horizon. Most pple nowadays go for instant reward, taking quick profits. They are not interested in owning businesses, waiting for its value to grow over time. They want profits NOW. Hence although a lot of people may know about value investing, they either

1) don't believe it works; they just don't believe in the owning business thingy
2) may not want to practise it bcos it takes too long to see the fruits
3) they think they are practicing value investing but they still buy and sell stocks like oranges or mobile phones or cars

So those Superinvestors for Graham and Doddsville patiently buy businesses while the world revolves around trading stocks like oranges or mobile phones or cars and Voila! They beat the major indices flat with their 30 yr track record of 25-40%pa. But sad to say, there are probably only a handful of these people and they don't really have a strong statistical argument against the Almightly Efficient Market.

Conclusion: The markets are not 100% efficient but they are efficient enough such that you don't get a free lunch if you don't work hard enough for it. Work hard = read books / annual reports, do a lot of macro, industry, company analysis etc.

Barriers to Entry

To determine whether a company has a business moat ie whether it can defend its turf when competitors come in, we look at what is called Barriers to Entry, one of Porter's 5 Forces. I have identified a few common barriers but I must point out that the list is not exhaustive. Other barriers exist and it takes experience and knowledge to identify them. Again, investing is about life-long learning and hard-work. It is not about get-rich-quick.

Market share
This is the most basic edge a company can have over its competitors. When a company is the No.1 or No.2 in its field, it is simply much more difficult for the laggards or any newcomers to try enter their market. Esp if there are only 2 or 3 big players in the market. This is bcos standards are set and relationships have already been established, and the laggards and newcomers don't have the resources or time to beat the leaders.

Technological edge
This edge can be manifested in several ways. It can be simply authentic technological capabilities, like Toyota with its hybrid technology which it was the first to developed and remain the leader today. Or it can be superior manufacturing technology which allows the company to make stuff cheaper yet have similar or better quality. Like Samsung's LCD TVs.

High initial investment cost
Some businesses require very high start-up cost and this naturally deters competition. Oil/mineral exploration, wafer fabs, a telco network etc. It is simply not business that any Tom, Dick, Harry can start. Sometimes, it can only be started by the government. So when a business can earn a good return and its in one of these high start-up cost sectors, hmm, maybe it can be interesting.

Brand
This is one of the best barriers a company can ever build. Buffett prides his See's Candy, commenting how people will always buy See's Candy even when it keep raising prices. Great brands like Coca Cola, Louis Vuitton, Rolex and our beloved Ipod are simply immune to competition. No matter what the competitors do, people will still buy Coke to drink, LV bags, Rolex watches and the Ipod over Creative Mp3 players.

Regulations
This is the most tricky barrier. Sometimes it works very well for the company in question, but sometimes it simply screw things up. The investor has to become a political analyst to get this one right. Eg. oil fields in Indonesia and Russia. Although major co.s like Shell etc negotiated for rights to sell the oil in these fields some years ago with the respective govts, the contracts were void since oil prices shot through the roof. In the case of Russia, the rights were forced to be sold back to Russian co.s. Suck thumb right? Some value investors stay away from highly regulated sectors altogether.

So, as mentioned, there are other barriers and it takes time and experience to identify them. But when you know the company has got a good business moat, earns a good return, and reward shareholders, then go for it. In Singapore, some co.s that comes to mind would be your mass transport stocks, newspaper, telcos etc.

Index Investing vs Stock Picking

Our guru, Warren Buffett doesn't really like the idea of buying indices bcos it is not really investing per se. He thinks most pple stand a better chance if they follow simple investment rules like those governing Value Investing. But not everyone can be like him.

Another reason why some prefer stock picking is: index fund investing simply takes all the fun out of investing. It is like skipping the appetizer, the soup, the main course and going straight to the dessert. Investment is about pitting your wits against the market right? What's the point of just parking some money in some indices that move only 1% each day?

Well for most folks who really have no time to read up and study but yet want to say they are doing investments, it would be better for them to go buy index funds rather than spend the money on some structured pdts or unit trusts recommended by ignorant / totally unethical bankers that will probably give them poorer or even negative returns.

But for those reading this blog, well, we are different right? We are here to learn to pick stocks and beat the index. Sad to tell you the truth, chances of that happening is roughly 10%. This is a very well documented result and there is even a book that argues if you give darts to some monkeys and they simply throw the darts on some newspaper with all the stock quotes to "pick stocks", the resulting portfolio will do as well as the average fund manager's portfolio.

Nevertheless, the valiant shall not be discouraged. There is Value Investing and there are those Superinvestors fr Graham and Doddsville that made it right? Why not me? Well there are probably tens of millions of golfers around the world, why are we not like Tiger, Vijay or Phil? It takes years of hardwork to be good at anything. Value investing and/or stock picking is no exception.

But having said all that, stock picking is simply too fun to give up for many, including this blogger. Bcos even when you get just one stock right, it's more than enough satisfaction even though you may get another 10 stocks wrong hehe! It is like having kids, I guess. You lose sleep for 10 nights, there are the wailings, the worries when the baby is sick, worries when the baby is too fat, too thin etc. But in the end, that one smile is all it takes to make those sleepless nights and worries worthwhile. Emotional dividend yield 1000%, hehe!

So back to stock picking, although the chances of picking the 10 bagger is pretty slim, we can enhance our chances by sticking to the right investment philosophy. Well the tried and tested method that worked is of course *drumrolls* value investing lah. But it doesn't mean you studied all the literature about value investing then you will make money. Ah Beng knows the golf strokes and theory, but can he beat Tiger? Value investing just increase your chances. Of course, other investment philosophy may work too. After all it's a free market and there are pple who made millions out of day trading.

Maybe the trick is to have a certain % of your portfolio in indices and the rest in stock picking. That way you get to enjoy the best of both worlds. The index part of the portfolio will ensure you earn a good average return of 8-10% and the stock picking gives you the kick you want. So work hard, Tiger is not as high up as you think!

And how to tackle private bankers?

The private banking industry is booming in Asia and more so in Singapore. Hence we see banks like Citi, UBS, HSBC hiring bankers by the truckloads. They hope that their legions of private bankers will be able to capture AUM (Asset Under Management) and then they can churn their clients to collect lots of fees. Btw, that won't be the official stance, the official stance would be to help HNWIs (high net worth individuals), manage their wealth, do tax planning, investments etc. Sadly, 99% of them (my own guess) will fail to do their jobs.

Traditionally the private banking industry has done good segmentation and actually the name, "private banker" is only reserved for those in the highest hierachy, ie bankers that serve the richest clients, the UNHWI (ultra high net worth individuals, whoa, that's a cool acronym right? Go tell your wife/gf that you will become a UNHWI someday, hehe).

But now, everyone wants to call themselves private bankers, so even those behind the counters whose jobs are to con aunties and uncles into buying some crazy pdts by offering them free umbrellas call themselves private bankers.

Anyways, the job of the private banker is to help clients manage their wealth. But their commission is based on two criteria. 1. How much money they can con their clients to put with the bank. 2. How many pdts they can con their clients to buy.

The second criteria is what makes it most unethical bcos they must continuously sell clients new pdts in order to hit their tgts. ie like maybe 10 pdts per mth or something. And next mth, it's another 10 pdts. So they have to ask the client to buy pdt A today, sell pdt A next mth, then buy pdt B and sell B next mth and buy back pdt A etc. But we know that investments can only generate good return over the long run right? Btw long run means 10 to 20 yrs hor. If you buy and sell stuff mth in mth out, you are just generating comission for the banker, which is what they want and will not help you build your retirement nest egg.

So what is the best way to tackle the private bankers and the best way to do investment? The short answer is you don't have to talk to private bankers.

For most people, the best way to invest would be to buy index funds that have the lowest fees. Index funds are funds that try to mimick the performance of an index, like the STI, Hang Seng, Nikkei, S&P500 etc. They don't employ fund managers who claim that they can beat the benchmark, they just buy whatever is inside the index and hence most of these funds have no sales charges and minimal mgmt fees.

In Singapore, MAS has made some regulations on unit trusts/funds that cap the sales charge at 3% or something. That's actually still too high bcos investment on average only give you 8% per annum. So you pay on 3% on your first year of performance, you are left with 5%, that's a mere 2% better than fixed D! Imagine buying a PC and you need to pay the salesman 20-30% ie $200-300 of commission! On top of them, you pay 1% mgmt fee every year, usually for fund managers that will underperform the benchmark. So my own personal policy is to refrain from buying unit trusts whenever possible. But sometimes, unit trust can help you gain access to some sub-sectors that are not easily investable, eg. environment/green stocks or energy stocks etc.

Look for index funds that have 0% sales charge and probably 0.5-0.8% mgmt fee per year. Lower fees mean higher return back to you. One of the biggest index fund seller in the world is the Vanguard Group. It may be hard to get their pdts in Singapore though. That's when you get the help of the private banker, ask them to source all the index funds available. If they are any good in the first place, they can help you. My guess is: it's more difficult than striking lottery.

After you buy the fund, just leave it there. Don't be bothered by the daily or weekly or even monthly fluctuations, over the long run, all indices will go up, if history is any accurate, you will earn 8-10% per annum, ie you double your money every 6 to 8 yrs. When you have more money to spare, you should just buy more of the same. Of course, you can exercise some judgement and buy indices of growing economies, like China, India etc. Or diversify globally, ie. have some of these hot economies, but also of US and Europe and Singapore.

That is the simple truth about investment, just buy index funds, and you will do ok. Disappointed huh, why so much hype around financial advisers and private bankers right?

But what about stock picking? Next post!

So how to tackle the insurance agents?

I thought maybe I should provide some (even though still imperfect) answers to my questions in the last post.

On insurance, if the agent cannot help you then who can? For my own journey, I talked to other agents, then I talked to friends, and find out more from the net and newspaper and talked to experienced folks to try to get to the truth.

At first I thought surely there would be some good agents out there. After all, some agents do earn big bucks by selling insurance right? Sooo, I called up pple, asked for appointments, but soon realized that they were all the same. They are TRAINED to sell you the useless stuff, and TRAINED to "taiji away" the difficult questions.

Whenever I asked about term insurance, they would say,

"Oh, but they only cover you until 60 you know?"
"But after 60, my kids are grown up, I don't need too much insurance." I say.
Then they change topic, "But if you buy this life plan, it's like a savings plan, you still get your money back, plus 3-4% per year."
"But meanwhile I pay $2,000 per yr for the next 20 yrs to earn 3-4%? And get covered for $50,000?"
"$50,000 coverage will grow to $50,512 over time! Ok what about this investment link product, it is very good blah blah blah"
What the heck...

I even got one agent who claimed to have advised millionaires on how to buy insurance and still give me stupid recommendations. So in the end, I gave up. I started talking to friends and read up. And here are some conclusions that I gathered.

Use less than 10% of your annual salary on insurance, I recommend 5%. But agents will quote you 20%, saying its MAS regulation. I find it hard to believe. I don't spend 20% of my annual salary on ANYTHING, not even mortgage! 20% on insurance? WTF!

But for 5% you have to try to maximize coverage, it has to be at least 5 times your annual salary to be meaningful. So this is tough job for 99.999% of all insurance agents. Try to find one who can do that, someone young, willing to work hard and help you. My experience: no agent can, so you gotta do it yourself. And that is to buy SAFRA insurance, one of the cheapest around.

Don't get swayed by the agents. They try to bend your rules, like 5% is not enough! Or you cannot see it that way, bcos this 20% will go to your savings blah blah. They should follow your rules, not the other way.

Don't buy investment linked products, usually you overpay for commission and stuff. If you want to do investment, do it separately.

Agents like to blackmail emotionally. Like if you die, your family how? Your kids so young how? And they will say, "I know one friend, cancer, no insurance, pay $200,000 etc". Stop them. I KNOW it's a disaster to die without insurance. But tell me the facts. The premium, the coverage etc. And Get me the cheap value-for-money policy, damn it!

So the ideal scenario, if your annual household income is say $60,000, spend $3,000 on insurance, buy minimal life (you need life policy to get term), say $20,000 and get lots of term, say $250,000. So you spend $3,000 to get insured for $270,000. That's probably an ok deal.

Not sure if most rational people are doing this. Pls comment ok!