12 lessons Steve Jobs taught Guy Kawasaki.

Twelve lessons Guy Kawasaki learnt from Apple's Steve Jobs. These lessons I feel are not only applicable to entreprenuers but are also useful for any employee who constantly want to improve at how they think and function at work. Anyone can think and feel like an entreprenuer no matter an employer or employee. Any work that one do is likely to be involved in dealing with providing goods and services to people. Even an employee working in an organisation is providing service to his employer, his fellow colleagues across various departments and also their customers (even back end support staff who think that dealing with customers is not their job is in fact providing indispensable support to their front end colleagues who deal directly with customers).

Twelve inspiring lessons from one of the World's greatest entreprenuer Steve Jobs that can be applied for everyone who wants to improve at how they think and feel in their work, enjoy!

Summary of the 12 lessons:
1. Experts are clueless. 
2. Customers can't tell you what they need. 
3. Biggest challenges beget the best work. 
4. Design Counts. 
5. Big graphics, big fonts. 
6. Jump curves, not better sameness. 
7. If it works or doesn't work, that's all that matters. 
8. Value is different from price. 
9. A Players hire A Players. 
10. Real CEOs can demo. 
11. Real entrepreneurs ship. 
12. Some things need to be believed to be seen.

How much money does one need to reach financial freedom?

In my earlier post "So you want to retire in Singapore?" under the label "Financial Planning", I did an estimation of the amount of money needed to retire in Singapore. The estimation of the retirement amount varies depending on the current age of the person. However, a conservative estimate runs in the likes of retirement funds of at least one million Singapore dollars to retire comfortably. Not many people will be able to reach this amount upon their retirement. I see around me many retirees who are on family retirement support meaning they are supported financially by their children. It comes as no surprise as not many people can have a decent amount of savings upon retirement to depend upon. Thus, the burden of retirement will have to rest upon their children.

It is good and well for children to support their parents financially in their retirement years since their parents have put in their sweat and toil to raise up their children. This is the tradition of many Asian families having their children support their parents' financial needs during their retirement years. However, wouldn't it be great if the parents do not require any financial support from their children in their retirement years? It will mean that parents have no financial worries since they are self-supporting and their children will have no financial burden to support their parents. I am not saying this to mean that children do not have the responsibility to care for their parents, but rather that it will be truly beneficial to everyone if there is no financial worry to both parents and their children if elderly parents have no need for any financial support.

Therefore, it is important for everyone to work towards becoming financially free. One will no longer have the worry of earning the next paycheck in order to survive another day of living. Working can then become a matter of choice and perhaps enjoyment, and not just one of necessity for the income that work brings. One can live a life of choices having the time to do the things that one likes to do when one becomes financially free. One can choose to engage in a work out of passion rather than necessity for the earned income. Aside from the choice to continue to work, one can also engage in meaningful activities that are beneficial for oneself as well as others. Afterall, one has only one life to live and our time is limited. Live a meaningful life. 

For me, living a meaningful life means living a life for God. One does not need to be financially free in order to live a meaningful life. Financial freedom is just a platform to allow one to have extra time on one's side to make the choice to live a meaningful life.   

After knowing the objective of becoming financially free is to have the choice to use one's freed up time to engage in meaningful activities for meaningful living, the golden question to ask is "How much money does one need to reach financial freedom?". In my reading, I found out a guideline that one can use. The amount of money to reach financial freedom can be estimated to be around twenty times the annual expenses of a person.

For example, if Albert lives in Singapore and spends a total of SGD$24000 in annual expenses, he will need an estimated sum of SGD$480000 to become financially free. One may raise the question of how this is possible. Afterall, if one requires a total sum in savings of at least one million Singapore dollars to retire in Singapore, how can half the amount at SGD$480000 make one financially free?

This is where the difference in having investment knowledge kicks in. The estimated sum of SGD$480000 is not going to work miracles if it is not invested and providing passive income. Due to inflation and spending, this amount is not going to last very long. However, if this amount can be invested at an annual yield of 8%, it will provide a passive income for Albert that will fight inflation and allow him to be perpeptually financially free if he maintains his current lifestyle in annual expenses without increasing his financial expenditure.

How does the SGD$480000 work out in terms of fighting inflation and still providing enough passive income for Albert? For a yield of 8%, Albert will receive $38400 annually in passive income. He must not spend all these money or else inflation will erode away his subsequent years' spending power since the price of goods and services has increased due to inflation. Instead, if Albert is financially wise and disciplined, he will set aside 3% out of total 8% annual yield religiously every year for reinvestment into his original capital sum. This reinvested amount will keep growing his original capital sum in order to receive more passive income in every subsequent year to fight the effects of inflation (assuming long term annual inflation rate at average of 3%). 

The remaining 5% out of total 8% annual yield then works out to be exactly what Albert requires to meet his annual expenses. So, the magic numbers are a capital sum of twenty times one's annual expenses to be invested at an annual yield of at least 8% and 3% out of 8% annual yield is to be reinvested every year leaving only 5% out of 8% annual yield in any year to meet the annual expenses. Thus, financially freedom can be met if the magic numbers are observed. However, this is just a theory which may not work out in real life as the annual yield on one's investment may vary every year. If one can truly invest at a constant yield of at least 8% per annum, one is not very far away from the realities of financial freedom should one be able to accumulate a capital sum of twenty times one's annual expenses to be invested at such annual yield. 

Of course, it does not take an intelligent mind to appreciate that if one requires less annual expenses to meet his lifestyle needs, one can become financially free faster. A person with an annual expenses of $12000 only needs a capital sum of SGD$240000 to become financially free in Singapore if the above magic numbers are observed. There again, is it possible to survive in Singapore with an annual expense of $12000 which works out to be approximately $1000 monthly expense? This is probably wishful thinking if not impossible to survive with such meagre monthly expense in a state of financial freedom. Who knows? Maybe there are already people who are financially free on a low living expense?

There are two choices. 

Control money to reach financial freedom 

or let money control oneself never to reach financial freedom.

Dividend reinvestment program (DRIP)

Recently, one of my invested real estate investment trust (REIT) has announced a dividend reinvestment program (DRIP). This triggers the question as to whether DRIP is a good thing and should investors take up the DRIP. Before we delve into the advantages and disadvantages of such a program, we can look at what is a DRIP.

DRIP is a way for investors to receive the dividends from an invested company in the form of new shares or units (in the case of REITs). In a DRIP, an investor can choose to participate in it fully or partially. When an investor chooses to participate fully in DRIP, he is opting to receive fully all his cash dividends in the form of new shares/ units. When an investor chooses to participate partially in DRIP, he will elect to receive only part of the cash dividends in the form of new shares/ units while the remaining dividends is still disbursed to him in cash.

In calculating the number of shares or units an investor will receive, he will need to know the exercise price per share/ unit under the DRIP. For example, ABC company has announced a DRIP in which new shares are issued at the price of $1.95 per share. If an investor is receiving a cash dividend of $1950, he can opt to participate fully to receive approximately 1000 new shares in place of his cash dividend of $1950. Of course, he may also opt to receive partially his dividends in new shares and remaining dividends as cash. He may even choose not to participate in the DRIP in which case, he will still receive his dividends fully in the form of cash.

Advantages of a DRIP

1. It allows an investor to reinvest his dividends directly in a company as he is opting to receive new shares/ units in the company instead of cash dividends. By doing so, an investor can save on brokerage fees as he will need to pay brokerage fees should he buy new shares in the same company through a brokerage firm instead of participating in DRIP to receive new shares equivalent to the amount of his cash dividends.

2. A DRIP encourages investors to have a long term investment mindset towards a company. By giving investors a chance to participate in DRIP, some investors (especially those who choose to participate in DRIP) may stay invested with the company for longer term. This encourages price stability in the share price of a company when more investors are holding the shares of the company for longer term instead of actively trading the shares of the company.

3. A DRIP benefits the company as it can conserve its cash earnings to use it to further the growth and expansion of the company since some dividends are disbursed in the form of new shares instead of cash. Warren Buffet's Berkshire Hathaway Inc. has been known not to give out dividends to its investors but instead conserve its cash earnings to keep investing in growing and expanding its businesses. By doing so, it is able to expand its businesses and future earnings. In return, long term investors in Berkshire are rewarded by the capital gain from their shares which comes up to a substantial amount of returns over a few decades which will not be possible had Berkshire disbursed part of its earnings in dividends to its investors instead of using its earnings to grow and expand its businesses.

Disadvantages of a DRIP

1. A DRIP has its disadvantage as sometimes, an investor may not receive his amount of dividends fully for an equivalent amount of new shares/ units of the company. This is because any fractional new shares/ units under the DRIP are rounded down and disregarded. For example, the exercise price of a DRIP is $1.943 and an investor is opting to receive fully his dividends of $1950 in the form of new shares in a company. His amount of new shares equivalent to the amount of cash dividends of $1950 is approximately 1003.6 new shares. In this situation, he will only receive 1003 new shares instead of 1003.6 new shares as fractional shares are disregarded. However, this is only an insignificant amount as he only loses around $1.16 of cash dividends for that puny 0.6 fractional new share he lost.

2. Another disadvantage of DRIP is that an investor usually lands up with odd number of shares. In the above case, an investor opting fully for the DRIP will land himself with 1003 new shares. Assuming he has existing 11000 shares in the same company, he will now have 12003 shares after the DRIP. When he decides to exit fully his shareholding in the company in future, he will have difficulty selling the extra 3 shares on top of the 12000 shares. In order to do so, he will need to sell his odd number of shares through his brokerage firm on a different market catering to odd lot shares which will incur higher brokerage charges compared to selling the usual number of shares on the normal market.

3. The exercise price of a DRIP may not be attractively priced compared to current traded share price in open market and intrinsic value per share. If the existing shares of the company participating in a DRIP is traded at $2.00 per share in the open market and the exercise price of the DRIP is at $1.98 per share. As such, an investor will be better off with receiving the dividends in cash and wait until the traded share price is below $1.98 to buy new shares in the open market at a lower price than the exercise price of the DRIP. If the traded share price of this company should become lower for example at $1.93 per share in the open market, the investor may even save some money (after factoring in brokerage costs) if he purchases new shares in the open market instead of participating in the DRIP at a higher exercise price of $1.98 per share. Such swings in traded share price is not unusual within a short term period given the volatility in the stock market. Also, if the exercise price of the DRIP is higher than estimated intrinsic value per share determined by the investor, there is no margin of safety in participating in the DRIP as an investor will be receiving new shares through the DRIP which are not attractively priced. Thus, does one wait to buy at lower share price or participate in the DRIP? Let the investor decides for himself since the exercise price of the DRIP is not attractively priced.

Conclusion

In considering whether to take up a DRIP, one has to look beyond the advantages and disadvantages of a DRIP. As Benjamin Graham, the father of value investing puts it, "Investing is most prudent when it is most business-like". How an investor should approach DRIP is from assessing the business behind the listed company. 

Questions to ask include:

1. Does this company have a competitive moat?  

2. What is the future growth prospects of the company?

3. How is the management of the company? Are they trustworthy and capable?

4. How is the financial track record of the company? How are its performance in growing its revenue, managing its expenses, profit margins, cashflows, debt levels (is it precariously over leveraged) and short term/ long term liquidity?

As one can see, the focus is not whether a DRIP is good or bad for the company or its investors. A DRIP actually brings one back to investigating the fundamentals of the business behind the listed company. DRIP for a gem or DRIP for a rock. Let the investor decides whether the fundamentals of the business behind a company offering DRIP points to the company being a gem or a rock. As always, one should seek to purchase shares at undervalued or fair valuations. That includes reinvesting in new shares through DRIP only at fair valuations.

Water the right plants (participate in reinvesting in good companies through DRIP) that will grow to produce much better yield through time. A caveat to note that not all companies are even good to invest in, much more consider their DRIP.