Saturday, December 24, 2011

Risk and uncertainty into 2012

The Star Online > Business
Saturday December 24, 2011
Risk and uncertainty into 2012


FOR most investors, 2011 must be an annus horribilis a year of losses for most except the short-sellers.

After a year of losses, you can almost believe anything. According to the Mayan calendar that ends 5,125 years on 21 December 2012, cataclysmic events will occur one year from now. Chinese astrologers believe that the Year of the Water Dragon is a year of fundamental change. If you believe euro-sceptics, the euro will collapse next year and a new order will emerge.

Christmas is a time to slow down for reflection. It is a time to get away from daily Blackberry emails to a world where life seems timeless.

Every year, my wife and I go backpacking somewhere East of Bali. Indonesia is an archipelago of 17,500 islands, exotic cultures and the world's fourth populous country. Here, we travel by local buses, shop in the rural markets, speak only Malay and just wander where our spirits take us.

Indonesia is one country where the Blackberry is still growing in usage, although amongst the more affluent, the iPhone4 is in. Inflation seems to have set in everywhere, but even in remote provinces, hot money has poured into gold and coal mines and building construction is ubitiquous. Indonesia is clearly on the move.

My scenarios for the next year are always defined by what books I bring along to read and reflect on questions I missed this last 12 months.

Why did the financial markets behave so dismally in 2011?

For this, I delved into Benoit Mandelbrot and Richard Hudson's 2008 book on The Misbehaviour of Markets A Fractal View of Risk, Ruin and Reward. The late French mathematician Mandelbrot worked all his life in IBM and invented “fractal geometry”, defined as rough or fragmentary geometric shapes that can evolve into great complexity.

In the late 1960s, Mandelbrot started applying his mathematics to the study of markets. The founder of the widely used Efficient Market Hypothesis, Eugene Fama, was in fact a doctoral student of Mandelbrot.

He argued that stock price movements are unpredictable and follow a random walk. His Hypothesis assumes that prices are independent and are normally distributed, namely, they follow the Bell curve.

In contrast, Mandelbrot, who studied the cotton market, argued that market prices are not independent of each other. Their evolution goes through periods of quiet and then extreme volatility. He felt strongly that power laws (curves with long tails) are more common in nature than “normal” statistical bell curves.

The violent market movements since 2008 suggest that Mandelbrot was more right than mainstream finance theory. The Nobel Laureates that founded the hedge fund LTCM (Long-term Capital Management) never expected market movements of more than four times standard deviation, but the Russian crisis in 1998 moved markets so much that LTCM ran out of liquidity before prices reverted back to normal. The lessons of LTCM were forgotten by market players and regulators alike in the run up to 2008.

How do we use Mandelbrot's insights to look into 2012?

First, markets are far more risky than standard theory teaches us. Second, big gains and losses concentrate into a small period of time. We may be exactly in that window of time when the markets are swinging wildly. No one is certain what is the right direction of the market. Third, prices often leap, rather than move smoothly. We see this in the foreign exchange markets they remain stable for a while, but then adjust dramatically. Fourth, bubbles are inevitable.

The fundamental challenge to central bankers and the public alike is whether there is going to be deflation or inflation.

With advanced-country central bankers printing money at near zero interest rates, many people think that inflation is inevitable. At the same time, inspite of the massive monetary creation, the greater fear is that we are entering into a worldwide depression of slow growth and rising unemployment.

Who is right?

Mandelbrot's work has challenged us to think very differently about time, scale and value. Human beings love to have stability, but nature moves in cycles, some short, some long.

Time has different meaning for different markets. Since companies report results quarterly, management behaviour tends toward short-term responses. The 4-5 year election cycle forces politicians to take short-term policies to gain popularity.

We know that 2012 will be an election year for the US, France, Germany, Hong Kong, Malaysia and perhaps India. We have already seen major transitions in Iraq, North Africa, Myanmar and North Korea. At a time where climate changes are adding to volatility, politics and debt deleveraging has become a heady brew for risks.

Strolling through the markets in Bali, the street chatter is about floods, inflation and traffic jams. Even here, there is a mood, even anticipation, of change.

Mandelbrot's true contribution to our understanding of markets is that intrinsic value is meaningless in a world of ever changing prices.

At the height of a bubble, the astronomical prices transacted bear no relationship to replacement cost. After a tsunami, what was valuable real estate had no buyers. Financial markets operate through arbitrage of different prices that can deviate hugely from the average.

Thus, what we want and value is not what everyone wants, but what we judge to be important at the point of decision. Our value systems are determined by our culture and that is today more determined by mother nature, technology and forces that we do not understand.

The volcanic islands in Indonesia provide rich soils for fertile agriculture, but earthquakes, tsunamis, flood and drought are part of the cycle of nature.

What we know for certain is that 2012 will be a year of major change. As Mandelbrot the scientist said, we can forecast the intensity and path of a hurricane, but we cannot predict how much damage it will do.

We have reached an inflexion point when technology no longer has all the answers to our future.

Crisis has a habit of throwing up new leaders who emerge as heros, whilst others are condemned by history as failures.

Be prepared for both in 2012.

Tan Sri Andrew Sheng is president of the Fung Global Institute.

Thursday, December 22, 2011

Buffett Got Burned on Bank of America

Is Bank of America a Value Trap at below 5.50? In Nov 2006, the stock was being traded at a high of 54.85. It was lasted traded at
5.23. Here's an interesting article by Jeff Reeves:

Buffett Got Burned on Bank of America, and There’s No Bottom in Sight
BAC is a value trap and only fodder for day traders
Dec 20, 2011, 11:35 am EST | By Jeff Reeves, Editor of
Bank of America (NYSE:BAC) is one of the most hated companies in America. Aside from past robo-signings, proposed fees and general shenanigans amid the financial crisis, the company continues to prove all of its critics right with continued missteps and ugly headlines. Its earnings can’t be trusted and its CEO, Brian Moynihan, is completely out of touch.

So it’s no surprise that despite briefly breaking below the $5 mark, nobody came out yesterday and labeled Bank of America stock as a bargain. An intraday low of $4.92 and a close of $4.99 marked the lowest levels for the stock since March 2009 — the bear market bottom that saw stocks rebound with a vengeance.

The S&P was at 676 — now it’s at 1,234. But while the major indices have doubled, Bank of America is just as ugly to investors now as it was during those dark days two-and-a-half years ago.

Very few stocks are at 2009 levels. Some of them deserve to be there — Eastman Kodak (NYSE:EK), for instance, which appears to be doomed for bankruptcy without extraordinary intervention. You simply can’t lose money and have debt that large and expect to stick around.

However, Bank of America is not like Kodak. Aside from a brutal second quarter in 2009 when it took some $20 billion in write-downs, it is nominally profitable. It trades for a paltry 0.25 price-to-book ratio — while Wells Fargo (NYSE:WFC) is at 1.0 and JP Morgan Chase (NYSE:JPM) is at 0.6!

So, BAC shares could be a bargain at $5, right?


Unfortunately, hardly anyone on Wall Street is buying that argument. It’s remarkable how few people came out of the woodwork yesterday and today trumpeting Bank of America’s bargain potential.

In fact, the biggest talking point I’ve noticed is about how Warren Buffett might be taking a bath on his risky play in Bank of America. BofA gave Buffett warrants to buy a whopping 700 million shares of common stock at $7.14 when the Oracle of Omaha plowed $5 billion into preferred shares of BAC stock. Obviously those warrants don’t really matter when shares are almost 30% under that strike price.

By some estimates, Buffett has lost $1.5 billion on the deal since that August buy-in, when shares were around $6. But don’t weep for Warren — his nice 6% dividend on his shares will keep paying him, and BAC stock has moved up from under $5 today and could keep rising.

But the fact that Buffett could ride in on his white horse with the “smart money,” buying Bank of America at $6 only to see shares hit $5 four months later … that’s enough to make every investor think twice.

As result, Bank of America should be seen as an extremely short-term play for only the most aggressive traders … akin to Sprint Nextel (NYSE:S), Sirius XM (NASDAQ:SIRI) or other big-name stocks that are super cheap and super volatile.

As for the buy-and-hold crowd, sit this out for now. Bank of America is the ultimate value trap.

Plenty of folks think Bank of America is getting what it deserves as some kind of karmic payback for its misdeeds. While there might be some cosmic justice here, the reality is that the only true recovery will see banks recover, too.

Here’s hoping Bank of America turns it around — not for shareholders, but because we simply can’t afford to see another financial behemoth go under.

Jeff Reeves is the editor of Write him at, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.

Tuesday, December 20, 2011

KSeng Cash Rich & Asset Rich

The bullish run of KSeng on the 14th & 15 Dec 2011 has dismayed many supporters of the stock. After hitting a high of 4.21, the buyers backed off and retreated. What happened? Obviously this question is best answered by the insiders. In my opinion, this retreat is likely to be short-lived.

The company is cash rich and asset rich as well. As at 30.9.2011, it has cash and short-term investment of RM722,422, 000; its total investments in quoted securities at cost = RM188, 271,000, but are now worth RM432,522,000 in market value.
Its land and landed properties in Johor, KL and Singapore are worth very much more than their book value as most of these properties were last valued in 1980.

The present ongoing development in the Iskandar region will greatly enhance the value of KSeng in the forseeable future.

Some key statistics of KSeng as at Sep 30, 2011 are as follows:

Share Capital: RM361,477,000
Par value: RM1
Current Assets: RM1,022,280,000 (Cash & Short-term investment RM720,422)
Total Assets: RM2,043,811,000
Total Liabilities: RM 139,766,000
Short-term borrowings and overdraft: RM39,645,000
NTA: RM4.90 per share

As can be seen from the above figures, KSeng has a very strong balance sheet. This, however, is no guarantee that it share price will move up. So, the best action is to wait until the chart shows some positive signals before you buy again.

If KSeng does not know what to do with its cash, it should return at least some of them to its shareholders.

Wednesday, December 14, 2011

KSeng on track for a Bullish Run

KSeng opened at 3.76 today with 630 lots traded. It commenced trading with a gap in the afternoon at 3.82. From then on the stock was in steady demand throughout the afternoon session. It closed at 3.97 for a gain of 17 sen. The stock appears to have woken up from its slumber. Now that its previous high at 3.86 is breached, the stock is likely to move up stongly. Resistance is seen at 4.20. Hold on to your shares in KSeng for a big new year anypow.

Tuesday, December 13, 2011

Households as clean, sustainable electricity producers

In the mid-1990s, there were only “big” boys in electricity generation such as YTL Corp, Genting Sanyen and Malakoff. They were popularly known as Independent Power producers' or IPPs and were looked upon with envy as it was alleged that they were making big bucks because of relatively high rates they received from TNB.
Fast forward 15 years. Now you and I can also be an IPP (the term “clean and sustainable electricity producer” is preferred) albeit a very much smaller one but with a difference.
Any owner of a link, semi-detached or bungalow house can now be, subject to approval, a small clean and sustainable energy producer by generating green electricity (as opposed to fossil-fuelled electricity by the big IPPs) and distribution licensee (such as TNB) is obliged to purchase it. What all this means is that if you have a solar photovoltaic (PV) generator at home, you can apply to connect this generator to the grid, and get paid for selling the electricity generated to TNB over the next 21 years.
Solar energy is clean, environmentally friendly and has zero emissions. There is no depletion of natural resources and it is one of the fastest growing energy sources in the world.
And yes the rates are very attractive for generating electricity using solar photovoltaic (PV) technology; it is about four times the normal domestic TNB electricity rates (at RM0.40 per kWh). All you have to do is simply to apply and obtain a feed-in approval from the newly-established Sustainable Energy Development Authority Malaysia (Seda Malaysia), sign a renewable energy power purchase agreement (REPPA) with TNB and install the solar PV system on your rooftop.
On the average, the bungalow is able to produce about 1,000 kWh of electricity per month (based on 10kW installed PV capacity). Given this, the owner may earn about RM1,200 per month (based on FiT rate RM1.20 per kWh if the PV system is commissioned by 2012) and recoup his investment within eight to nine years. The earnings may be even higher if the house owner meets other bonus criteria such as installing as a building-integrated PV system. The current cost of 1 kW solar PV system ranges from RM12,000 to RM14,000.
The interesting thing is that for your average household needs, you purchase the electricity from TNB at between RM0.33 to 42.6 per kWh but when you produce the clean electricity, you can sell it at between RM1.20 to RM1.70 per kWh depending on the installed capacity and the qualifying bonus criteria for solar PV.
The longer the sun shines, the more one can “export” electricity to the national grid during daylight hours (when power is urgently needed) and earn income. The downside and risk is that during cloudy days, the income can be reduced significantly when the sun is not shining. If you apply now, you can lock in these premium rates for the next 21 years!
Unlike the huge IPPs which use natural gas or coal as feedstock to generate electricity, the household does not need to pay for any raw material or fuel because sunshine is free. For as long as the sun is shining, the solar PV panels will generate electricity. Another advantage of solar power is that no extra space is required because the panels can be installed on the rooftop. (Suddenly rooftops have income potential. Many factory owners are now contemplating installing solar PV panels on their rooftop to earn extra revenue while others are approaching factory owners to rent them their roofs.)
On Dec 1 2011, Seda Malaysia invited the public including households, small and not-so-big IPPs (maximum size is 30 MW but only 5 MWp rated capacity for solar PV) to apply and book the amount of green electricity they intended to produce to sell it to the distribution licensee. There are fixed quotas for each of the four renewable energy sources namely biomass (including solid waste), biogas (including landfill), small hydro and solar PV. There was overwhelming response to solar PV especially for the non-individuals.
The good news is that bookings are still open for individuals and households intending to install solar PV systems as there is still available capacity for this category. As at Dec 7, Seda reported that the total unfulfilled quota for solar PV is 6,650 kW; 1,650 kW to be commissioned by the first half 2013, 2500 kW each for second half of 2013 and first half of 2014.
Translating these figures into households, it would mean that about 665 bungalow owners can avail themselves to the remaining capacity (assuming their average capacity is 10 kW). If all of the remaining capacity is taken up by semi-detached owners, the number will increase to 1,330 assuming their installed PV capacity is 5 kW. The figure for typical link houses, assuming an installed capacity of 3 kW, is 2,217 households.
The price guarantee for 21 years has been made possible by the Feed-in Tariff (FiT) scheme implemented by Seda Malaysia. This scheme will be financed by the newly-established Renewable Energy (RE) Fund, to which all electricity users (except for those domestic customers consuming less than 300 kWh per month) will be required to contribute an additional 1% of their electricity bill.
House-owners who do not participate in solar PV electricity generation should not begrudge the payment of the additional 1%. Instead they should view it as one of their contributions to a cleaner and healthier environment. This is their social contribution for cleaner air. The public and community must also share in undertaking this heavy responsibility with the Government.

The article above is by Dr Pola Singh who is a board member of the Sustainable Energy Development Authority (Seda), Malaysia. The views expressed are his own. The public can apply for the feed-in approval via and more information can be obtained from Seda's official portal at

Saturday, December 10, 2011

Silver Mining and Exploration Hotspots

November 14, 2011 @ 3:23 pm In Feature Articles,Silver Articles

By Michelle Smith-Exclusive To Silver Investing News [1]


Silver mining is a diverse affair as the metal is extracted around the globe from a long list of countries. But, despite the number of sources, there are three nations which are silver hotspots because their production volumes exceed the others by great lengths and there are no apparent threats that they will be robbed of their top ranking statuses.


Dr. Thomas Chaize, a raw materials specialist, described [3] Mexico and Peru as the two pillars of world silver production. He stated that the countries are to silver what South Africa is to gold [4]and Saudi Arabia is to oil [5].

Of them, Mexico has now become the dominant pillar. The nation's silver production surpassed that of Peru in 2010 according [6] to Sergio Almazan Esqueda, Director of the Mexican Mining Chamber.

Last year's figures [7] credit Mexico with the production of nearly 129 million ounces of silver. In the first half of 2011, Mexico's silver output had reportedly [8] already surpassed 66 million ounces, showing that production has grown and providing support for projections of further growth.

Fresnillo [9] (LSE:FRES [10]) is recognized as a playing a prominent role in the expansion of Mexican silver mining. The company opened the Saucito mine this year, which it now operates in addition to the Fresnillo silver mine, one of the world's largest.

Mexico is considered a location ripe for further growth in silver production. It has an impressive record of attracting foreign investment, especially from Canadian interests. Between 2010 and 2012, over $13 billion in mining investments is expected and a significant portion is projected to be spent on silver mining projects.


Despite being stripped of its heavyweight title, Peru's silver mining sector would have to experience a severe, almost unimaginable, decline for it to lose its silver hotspot status. Last year, the nation produced 116 million ounces of the white metal. From January to August of this year, Peru's production was reported [11] at approximately 71 million ounces.

In conjunction with being a silver-rich nation, Peru is considered a mining friendly nation, with a pro-mining president, Ollanta Humala. The recent declines in silver mining have been blamed on factors such as bureaucracy, labor strikes and community outlashes against miners. The government recognizes the positive contributions of the mining sector and has announced [12] its commitment to cracking down on violent protests.

Declines were also attributed to reductions from Volcan [13], a mining major, which was busy implementing an optimization program. In post-Q1 2011 correspondence, Volcan said [14] the outcome of these efforts, designed to lower costs and boost efficiency, and the company's investments in production growth were good. Volcan said volume reductions were compensated by higher grades and greater recovery. And, the company also claimed the title of the first Peruvian silver producer to exceed output of 20 million ounces.

Despite the difficulties, Peru has seen healthy investments in mining and optimism for the future appears well warranted. The Engineering and Mining Journal says [15], that in addition to the world class operators that have already been attracted to Peru, others are following developments closely. The publication also says that companies continue to harvest the results of the dollars put into exploration.


Feng Jucong, a chief analyst for Beijing Antaike Information Development Company, said [16] China's silver production, including mined, by-product output and recycled material, grew by an average 14.9 percent every year from 1990 to 2009.

By 2010, China was credited with producing over 99 million ounces, making it the world's third largest producer of mined silver. The nation is considered a silver hotspot because in addition to its production growth, its appetite for the white metal has grown so large that China has converted from a net exporter to a net importer of the metal.

Silver is produced in China largely as a by-product of other mining efforts and as they grow silver production is also likely to grow. For example, CPM Group predicts [17] that Jiangxi Copper [18] (SHA:600362 [19]), which produced 14.8 million ounces of refined silver last year, may supply 15.6 million ounces this year, a production rate exceeding 8 of the top 20 silver producing nations.

There are also projects that are expected to come online in the next few years that will boost China's silver production even further. However, given the size China's appetite for silver products ranging from medals to investment bullion, it's unlikely that the nation's production will gain pace with its demand in the near future. CPM Group says China's production could total nearly 105 million ounces in 2011. However, fabrication demand this year is projected to exceed 177 million ounces.

Thursday, December 08, 2011

China Our Biggest Client

Malaysia's biggest palm oil client is China.

During his second official visit to Malaysia in April 2011, China Premier Wen Jiabao promised Prime Minister Datuk Seri Najib Razak that it will continue to buy big quantities of Malaysian palm oil.

As the largest vegetable oil consumer in the world, China makes up 15 per cent of global palm oil consumption. Palm oil is the second most consumed there, after soyaoil.

In the last few years, Shahrir noted that China has started to import more soyabeans instead of soyaoil. This is because the Chinese government wants more crushing activities domestically and more soya meal to feed its pig, cattle, dairy and poultry farms.

"Although we see this situation prevailing, we're not too worried. China has a big appetite for palm oil," he said.

Shahrir was speaking to reporters after the opening of the Palm Oil International Congress (Pipoc 2011) by Plantation Industry and Commodities Minister Tan Sri Bernard Dompok here yesterday.

In the first 10 months of this year, China bought 3.34 million tonnes of palm oil, about 13.5 per cent more than the same period last year.

"Also, India has bought 1.35 million tonnes, 33.6 per cent more from the same 10 months of last year," Shahrir added.

Click here to learn more.

Friday, December 02, 2011

The 10 Commandments of Wealth and Happiness

The article appended below is worth every second of your time reading it. It is by Stacy Johnson of MoneyTalksNews

1. Thou shalt live like you’re going to die tomorrow, but invest like you’re going to live forever.
The ease of making money in stocks, real estate, or other risk-based assets is inversely proportional to your time horizon. In other words, making money over long periods of time is easy – making money overnight is the flip of a coin.
Money is like a tree: Plant it properly, care for it every so often, then wait patiently. Stare at a newly planted tree for 24 hours, and you’ll be convinced it’s not growing. Fixate on your investments the same way, and you could miss out on a game-changer.
The biggest winner in my IRA is Apple stock. I don’t remember exactly when I bought it, but I’m guessing it was in 2002 or 2003. My split adjusted price is around $8/share: As I write this, Apple’s trading at around $300/share, for a gain of 3,800 percent. Had I been listening to CNBC or some other “news” outlet that promotes constant trading, I almost certainly wouldn’t still own it.

Patience is certainly a virtue when it comes to investing. I invested a bunch of money and built my online portfolio when the Dow was hitting generational lows back in spring 2009. I had no idea where the market was going next. I was every bit as scared as the next guy.
But having lived through similar times before – I was a stockbroker during the market crash of 1987 – and since I’m only in my mid-50s, I was confident the economy would rebound sometime before I died. While the stock market has come back quite nicely since then, in many parts of the country, housing prices haven’t. That’s why I’m now looking for real estate investments. Are you?
In short, enjoy your life to the fullest every day – live like you’re going to die tomorrow. But since you’re probably not going to die tomorrow, plant part of your money in quality stocks, real estate or other investments; then hold onto them. Don’t ignore your investments entirely – sometimes fundamental things change that indicate it’s time to move on – but don’t act rashly. Patience pays.

2. Thou shalt listen to thine own voice above all others.
My job as a consumer reporter has included listening to countless sad stories about nice people being separated from their money by people who weren’t so nice. While these stories run the gamut from real estate deals to working at home, they all start the same way: with a promise of something that seems too good to be true.
And they all end the same way: It is. Just last week, I helped someone who was about to lose money by applying for a government grant.
If someone promises they can make you 3,000 percent in the stock market, they’re either a fool for sharing that information or a liar. Why would you send money to either one? When you hear someone promising a simple solution to a complex problem, stop listening to them and start listening to your own inner voice. You know there’s no pill that’s going to make you skinny. You know the government’s not handing out free money for your small business. You know you can’t buy a house for $300. Stop listening to commercials and start listening to yourself.

3. Thou shalt covet bad economic times.
Wealth is realized when the economy is booming, but that’s not when it’s created. Wealth is created when times are bad, unemployment is high, problems are massive, everybody’s freaking out, and there’s nothing but economic misery on the horizon.
Would you rather buy a house for $400,000, or $200,000? Would you rather invest in stocks when the Dow is at 12,000 or 7,000?
Obviously, nobody wants one in 10 Americans to be out of work. But the cyclical nature of our economy all but assures that this will happen periodically. If you’re one of the 90 percent who still has a job, this is the time you’ve been saving for. Stop listening to all the Chicken Littles in the media: The sky isn’t falling. Get busy – put your cash to work and create some wealth.

4. Thou shalt not work.
MSN Money’s Liz Pulliam Weston recently wrote a great story called Pretend You Won the Lottery. She asked her Facebook fans to describe what they would do if they won the lottery. From that article:
Most of the responses had a lot in common. People overwhelmingly wanted to:
Pay off all their debts.
Help their families.
Donate more to charity.
Pursue their passions, including travel.
Note that these goals are largely achievable without winning the lottery. And that was her point: Listing what you’d like to do if money were no object puts you in touch with the way you’d really like to spend your life.
My philosophy takes this concept a step further: When it comes to work, you should try to do something that you regard as so fulfilling that you’d do it even if it didn’t pay anything. In other words, the word “work” implies doing something you have to do, not something you want to do. You should never “work.”
I’ve chosen to spend nearly all of my adult life in warm climates – I lived in Arizona for 10 years and have now lived in Fort Lauderdale for nearly that long. Why? Here’s what I’ve always said: “You already spend a third of your life sleeping. Why spend another third of it freezing your tail off?”
No offense to you Northerners. I realize some people enjoy the cold. The point is that if you’re going to spend a huge part of your life working, don’t fill that time with what makes you the most money. Fill it with what makes you the most fulfilled. I made more money in 1990 managing a branch office for a Wall Street investment firm than I will this year. But I feel a lot less slimy (no offense to stockbrokers) and lot more fulfilled. You can’t put a price tag on that.

5. Thou shalt not create debt.
I’m always getting questions about debt. “Should I borrow for this, that, or the other?” “What’s an acceptable debt level?” “Is there such a thing as good debt?”
There’s way too much analysis and mystery around something that isn’t at all mysterious. Paying interest is nothing more or less than giving someone else your money in exchange for using theirs. Rule of thumb: To have as much money as possible, avoid giving yours to other people.
Don’t ever borrow money because you want something you can’t afford. Borrow money in only two circumstances: when your back is against the wall, or when what you’re buying will increase in value by more than what you’re paying in interest.
Debt also affects you on a level that can’t be defined in dollars. When you owe money, in a very real way you’re a slave to that lender until you pay it back. When you don’t, you’re much more the master of your own destiny.
There are two ways to achieve financial freedom: Have so much money that you can’t possibly spend it all (something exceedingly difficult to do) or don’t owe anybody anything. Granted, since you still have to eat and put a roof over your head, living debt-free doesn’t offer the same level of freedom as having more money than you can possibly spend. But living debt-free isn’t a matter of luck or even hard work. It’s a simple choice, available to everyone.

6. Thou shalt be frugal – but not miserly.
The key to accumulating more savings isn’t to spend less – it’s to spend less without sacrificing your quality of life. If going out to dinner with your significant other is something that you enjoy, not doing it may create a happier bank balance, but an unhappier you – a trade-off that is neither worthwhile nor sustainable. Eating an appetizer at home, then splitting an entree at the restaurant, however, maintains your quality of life and fattens your bank account.
Finding ways to save is important, but avoiding deprivation is just as important. In short, diets suck.
Whether they’re food-related or money-related, if they leave you feeling deprived and unhappy, they’re not going to work. But there’s a difference between food diets and dollar diets: It’s hard to lose weight without depriving yourself of the foods you love, but it’s easy to reduce spending without depriving yourself of the things you love.
Cottage cheese isn’t a suitable substitute for steak, but a used car is a perfectly acceptable substitute for a new one. And the list goes on: watching TV online rather than paying for cable, buying generics when they’re just as good as name brands, using house-swapping to get free lodging, downloading books from the library instead of Amazon… No matter what you love, from physical possessions to travel, there are ways to save without reducing your quality of life.

7. Thou shalt not regard possessions in terms of money, but time.
You go to the mall and spend $150 on clothes. But what you spent isn’t just $150. If you earn $150 a day, you just spent a day of your life.
Almost every resource you have, from physical possessions to money, is renewable. The amount of time you have on this planet, however, is finite. Once used, it can never be replaced. So when you spend money – especially if you earned that money by doing something you had to do instead of what you wanted to do – you’re spending your life.
This doesn’t mean that you should never spend money. If those clothes are all that important to you, by all means, buy them. But if it’s really not going to make you that much happier, don’t. Think of it this way: If you can live on $150 a day, every time you forgo spending $150, you just get one day closer to financial independence.

8. Thou shalt consider opportunity cost.
This is related to the commandment above. Opportunity cost is an accounting term that describes the cost of missing out on alternative uses for that money. For example, when I said above that not spending $150 on clothes puts you $150 closer to independence, that was a gross understatement. Because when you save $150, investing those savings gives you the opportunity to have more savings. If you’re earning 10 percent, $150 invested for 20 years will ultimately make you $1,000 richer. If you can live on $150 a day, ignoring inflation, you can now retire nearly a week sooner, not just a day.
One of the exercises in my most recent book, Life or Debt, is to go around your house and identify things you bought but probably didn’t want or need. A quick way to do this is to find things you haven’t touched in months. These were probably impulse buys. Add up the cost of these things, multiply them by 7, and you’ll arrive at the amount of money you could have had if you’d invested that money at 10 percent for 20 years rather than wasting it.
And when you do this, consider the stuff in your closet, the stuff in your garage, the rooms of your house that you heat and cool but don’t use, the new cars you’ve bought when used would have worked. The truth is that most of us have already blown the opportunity to achieve financial independence much sooner. Maybe now’s the time to stop.

9. Thou shalt not put off till tomorrow what thou can save today.
Shortly after I began my television career in 1988, I went on set with a pack of smokes, a can of soda, and a candy bar. I explained that these things represented the kind of money most of us throw away every day without thinking about it – at the time, about $5. But compound $5 at 10 percent for 30 years, and you’ll end up with about $340,000. That’s why learning to save a few bucks here and there and investing it is so important.
Fortunes are rarely made by investing big bucks, nor are they often made late in life. Wealth most often comes from starting small and early.
In short, there are limited ways to get rich. You can inherit, marry well, build a valuable business, successfully capitalize on exceptional talent, get exceedingly lucky – or spend less than you make and consistently invest your savings over time. Even if you’re on the road to any of the former, why not do the latter?

10. Thou shalt not covet thy neighbor’s stuff.
If this commandment sounds familiar, that’s because it resembles the Biblical 10th commandment:
Thou shalt not covet thy neighbor’s house, thou shalt not covet thy neighbor’s wife, nor his manservant, nor his maidservant, nor his ox, nor his ass, nor any thing that is thy neighbor’s. (Exodus 20:17)
Envy may not be the root of all evil, but it is the root of much wasted money. As I’m fond of saying, you can either look rich or be rich, but you probably won’t live long enough to accomplish both. I’ve lived both ways, and trust me: Being rich is way better than using debt to look rich.
We’ll all admit that when on the verge of making a purchase decision, we’re often thinking of what our friends will say when they see it. Normal human behavior? Sure, but it’s not in your best interest, or theirs. Making your friends feel jealous isn’t nice, and feeling envy for other people’s possessions is silly. Possessions have never made anyone happy, nor will they.
Decide what really makes you happy, then spend – or not – accordingly. When your friends make an impressive addition to their collection of material possessions, be happy for them. One of the stupidest expressions ever coined was: “The one who dies with the most toys wins.” When you’re on your death bed, you won’t be thinking about the things you had – you’ll be thinking about the times you had.

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Source: Money Talks (