Date: December 10, 2014
One of the greatest lessons I learnt about money was something that I discovered purely by chance as a young schoolboy. It is something that has guided me throughout my adult life.
From an early age, I recognised the importance of properly allocating the pocket money that I had been given. Admittedly, it was only a few bucks a month. But it was important to me.
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I quickly realised that allocating funds was probably one of the best ways of creating wealth. After all, saving (and its beautiful cousin, investing) is effectively delayed spending. If we spend our money today then we will probably have less to spend tomorrow. Saving and investing is, therefore, not really about making painful sacrifices. Instead, it should be seen as putting away something today so that we could have more to spend tomorrow. But delayed-spending only works if we put our money to work properly. Failing to do so could result in our money being eroded by rising prices. That brings us full circle back to allocating resources. Some of us like to keep our money in savings accounts. Some of us might prefer sovereign or corporate bonds. Both investments are considered safe places to store our money. But the price we pay for safety could be returns that might be insufficient to maintain the buying power of our money. A better option could be to put our money into more productive assets such as shares. Ideally, these productive assets should have the ability to deliver products and services that can retain their purchasing-power value too. Put another way, the companies should be able to raise prices without too much fuss. Buffett once said: “If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business”. Do companies with pricing power actually exist in Singapore? The short answer is yes, they do. And real estate could be a good example of an asset that could retain its purchasing-power value. Naturally, most of us can’t afford to buy an entire office block in the Central Business District (CBD) or a whole shopping mall along bustling Orchard Road. But there are other ways we can get exposure to property assets, namely through Real Estate Investment Trusts (REITs). Currently there are a couple of dozen REITs listed on the Singapore market. They cover a gamut of property types that include industrial, retail and residential properties. For instance, Mapletree Logistics Trust is an industrial REIT, while CapitaCommercial Trust focuses on offices. On the face of it REITs might not appear to be the most thrilling of investments. But as Peter Lynch once noted: “Investing is fun, exciting, and dangerous if you don’t do any work.” I can do with less excitement in my life. That is why I look for businesses that can prompt people to exchange what they produce for what the companies produce at a price that would preserve their purchasing-power value. In the case of REITs, some have the ability to raise prices without having to hold a “prayer session”. The key for us private investors is to identify the ones that can, which generally boils down to location, location and …location. So, keep your eyes peeled as you wander the streets of our Garden City. And that is why I love investing – good businesses are staring us in our faces, if we just stop and look. To your investing David Kuo This article is contributed by The Motley Fool Singapore The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned. |
