About Me

When not at work with students, I spend my time in my room either reading, calculating something using pen and paper, or using a computer. I read almost anything: from the pornographic to the profound, although my main interests are mathematics and physics. "When I get a little money I buy books; and if any is left I buy food and clothes." -Erasmus

Tuesday, June 2, 2015

Of reading and calculating there is no end

I spent the last few days reading the prospectuses of three PSEi based index mutual funds. I was mostly interested in the expenses of each fund, since all three should be doing exactly the same thing: buying a portfolio of representative stocks that constitute the PSEi. Since they're all doing exactly the same thing, their returns (fees excluded) should be the same. This means if one wants to maximize the returns from an index fund, one should buy shares from the fund with the lowest expense ratios.

All this, because I've decided to start putting my retirement plan into action. I've calculated the assets that I would need, and it comes to PhP 6 million, or around USD 140000. For a good margin of safety, I estimate about PhP 12 million.

The biggest factor that I need to control while on the way to this amount is emotions. I'm planning on a buy and hold strategy; this means having the necessary willpower to buy and forget, even if the market declines so much that my investments go down to half the peak of its market value. (I won't actually be doing the buy and totally forget, since I will be tracking the money that goes in, just to make sure that I can avoid things like fraud, for example.)

The good news is I don't have any outstanding debt. The bad news is my net worth right now is low: about three to four months of living expenses. I can expect money to start flowing in by November because that would be the season when demand for a physics tutor will start to rise. I also have a writing gig that supposed to start mid-June. Meantime, I need to ensure that I live with very low expenses.

To help keep things in perspective, I'm rereading my favorite investment related books: Benjamin Graham's The Intelligent Investor, Burton Malkiel's A Random Walk Down Wall Street, and Robert Schiller's Irrational Exuberance. No "technical analysis" books for me. These are popular books, with some math (meaning simple arithmetic). They suit my taste because I like to calculate things, and I often use their discussions to start my own calculations and math models. It's more fun for me that  way, just to see if I can reproduce some of the results in finance and investment books like Brealey and Myers' text.

I've also intsalled R, because I'm studying probability and statistics, so that I can include it in my portfolio of teachable subjects. Right now, what I do have of probability and statistics are loose ends gathered from my various statistical physics subjects. So there is a need to study it in more detail.  

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