Let's continue to part 6 of my story today where we travel to 2008.
Part 1 is here.
Part 2 is here.
Part 3 is here.
Part 4 is here.
Part 5 is here.
It was early 2008, i had just sold my first condo for a handsome profit and was sitting on a pile of cash. The feeling was good because i had shared with you that i lost at least $100k during my first foray into the property market back in part 1.
With the benefit of hindsight, actually, i didn't make a lot of money. It was probably slightly around $450,000 before stamp duties and broker's commission. As i shared with you previously in part 5, the reason why i felt the pinch about the broker's commission is because it represent almost 5.8% of my profits!.
Brokers commission = 2% x 1,218,000 x 1.07 (gst) = $26,065.
Profit before stamp duties and commission and loan termination = $450,000
% brokers' commission = 26/450 = 5.8% !!!
As i shared with you in Part 5 of my story, learn to negotiate the commission with your real estate agent. As you can tell, i never use her thereafter.
Now you will be interested to know what I did with my new-found wealth. I promise to be truthful and you will be quite disappointed. hahaha.
After spending for a nice holiday in December, buying some nice watches for ourselves, i then blow it on my dream car! I upgraded myself from an entry level Japanese car to a German continental car. Still can't run away from the chase of material pursuit. :P
Lesson Learnt - Man always want to show off. It is in our nature. It was my dream car and i just have to buy it. Maybe we men have a weakness for cars? But the truth is..... I have never regretted buying it. :P
So here you go. $160,000 gone towards a nice car. While i wish to tell you that i had utilize the money wisely, i am sorry to say that this hasn't been the case. The "model" answer should have been i have used the $160,000 wisely and invest in stocks and properties during the downturn but this was not to be. :-P However, as i told you, i have never regretted buying the car, so the "atas" feeling over this 5 years was probably worth it. hahaha.
I also invested $50,000 of my cash into a pre-IPO Chinese company. I will tell you what happen to that investment in another story. But here you go, now you know my risk profile? There is no "lesson to share" here because i went in with my eyes open so i am prepared to lose this $50,000. On hindsight, this is a risky investment but i guess being flushed with cash can cloud one's judgement? (I am not saying this investment is a bad one). So here you go.... almost half my profits gone.
Lesson Learnt - It is easy to spend money. No one need to teach you how to spend money. You can just easily blow it on nice holidays, cars, bags, watches and frivolous stuff.
Above is the 5 year chart of BMW and LVMH. If i have invested $160,000 into the 2 stocks back in Q1 2008 and sell it today, I will probably get a return of 71% = $273,600. However, Euro has depreciated from 2.11 to 1.58 against the SGD. So the returns will probably be lowered by 25%. The returns in SGD after accounting for forex movement will be $204,875. So in spite of the depreciating Euro rate, it is still a worthwhile investment to park money in the stock market of the worst region of Europe.
Lesson Learnt - It is always good to invest in good quality companies during the crisis.
A few major things happened in 2008. The Lehman Bros went bankrupt in Sep 2008 and AIG was bailed out by the government. The sentiments were extremely bearish and people start to wonder which will be the next company that will go bust. In addition, Singapore government also started several initiatives to boost the local economy.
As you can see the property prices in Singapore started to correct as well. I intentionally cut off the chart at Q1 2009. This is because we are always at the right side of the chart. We never know what will happen next. The property market has effectively "crashed" in Singapore due to the bearish sentiments.
There are a few things to share at this juncture and i will end my post shortly.
- A market crash is always swift and when it comes tumbling down. You have no time to react. Given that the chart above is a "lagging" indicator, i can probably say that i got out at the peak.
- At Q1 2009, there were 2 schools of thoughts in the market. Will this be a U shape recovery of a V shape recovery? The answer is no one knows! You have to decide for yourself.
- Sentiments play an important role! Prices only started to drop when sentiments become bearish and genuine sellers start to appear! This is the reason why i say that for our market to drop, we need to see some bloodshed in the market. Otherwise, it is probably impossible.
However, always be prepared for a crash. I shared with you an old posting of mine made in 5 Oct 2008. I advised readers not to miss the boat again when the prices drop to the 140 levels and this is exactly what had happened. Prices dropped to the 140 levels in Q1 2009.
Lesson learnt - always be prepared and when the time comes, don't hesitate....?
I will share with you my property hunting journey in 2009 in my next posting and how it ended in a disaster.
Have a good week ahead.