Father Sez

From and to parents - parental advice to our children on personal financial management and life.
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Taking out loans to invest in ASB – is it worth it?

Friday, January 30th, 2009

ASB, which stands for Amanah Saham Bumiputra, is part of the Malaysian Government’s efforts to alleviate the financial standing of Bumiputra’s. ASB is in the form of a unit trust, except that the principal is guaranteed by the Government. The scheme also pays relatively generous dividends, 8.55%, 9.00% and 8.75% for the years 2006, 2007 and 2008 respectively. This dividend is made up of a dividend portion and what is called a bonus portion.  

Recently a friend asked me if it was worthwhile to take out a loan (which some banks readily give) to invest in unit trusts? This is an interesting question. I have always been a great fan of this opportunity. In fact, I have always told the younger Bumiputra staff in the organisations that I have worked for that this ASB scheme should, in fact, be one of the best schemes in the world.  

Some banks give 100% ASB loans with a MRTA thrown in. The spreads between the interest paid on the loans and the dividend income can vary. If one does not take out the dividends and bonus earned and there is a negative spread of, say, 1.5% between the income and the repayment (principal + interest) outflow, the ball park computations would be as below for the two most likely possibilities: 

ASB Investment: RM100,000 

Tenure: 20 years 

Interest Rate:     7% p.a. 

Option 1 

Paying 10% downpayment and borrowing RM90,000. 

Monthly payment for loan:    RM 698 per month 

1st year :            Pay RM698 per month for 12 months.

2nd year onwards:        Pay the differential between the ASB income and the loan instalments. Assume to be about RM1,400 per annum. 

To get RM100,000 at the end of 20 years (which is what you would get), your 1st year payments and the yearly differentials would have been compounding at a rate of almost 8% per annum. 

Option 2 

Borrowing 100%, i.e. RM100,000

Monthly payment for loan is : RM 775 per month 

1st year:             Pay RM 775 per month for 12 months

2nd year onwards:        Pay the differential between the ASB income and the loan instalments. Assume to be about RM1,500 per annum. 

To get RM100,000 at the end of 20 years (which is what you would get), your 1st year payments and the yearly differentials would have been compounding at a rate of almost 7.5% per annum.  

These are rates of returns that should not be sneezed at. Discipline would be needed for not withdrawing the ASB dividends and for making the yearly differential payments. But then is there any investment that doesn’t call for discipline?   

I think it is a great opportunity just for the taking for so many of the Bumiputras in our country. Lots seem to have been written about the pros and cons of taking a loan to invest in ASB. My view is based on what we pay as opposed to what we get.

The only negative may be inflation. At the end of 20 years, the RM100,000 may not have the same purchasing power as RM100,000 today. But then this problem is applicable for EPF savings and almost every other kind of savings.  

Unlike in the US, where they have inflation adjusted Treasury Bonds.

My family’s agricultural bonds – an update

Monday, January 12th, 2009

I have written about my investments in gaharu trees or Aquilaria malaccensis, for the more scientifically inclined. 

The tiny tots that we bought in June 08 had grown a bit by August, so we attempted to transfer the trees to bigger polybags. The plan was to let the trees grow to about 4’ high or so and then transplant them in our rubber smallholding.


The gaharu tissue cultured seedlings that we bought from FRIM. The picture was taken in June 08. 


After 2 months in our nursery, before the polybag “transfer exercise”.

Alas, this transfer process was an unmitigated disaster. Out of the 100 tissue cultured tiny tots purchased from FRIM, only about 25 survived our transfer process. Since then I have been told that the polybags that I thought were too small would have handled the trees until they grew to about 2’ or so. Whilst this was a setback, it has not swerved us from continuing our journey into gaharu. 

We have bought another 150 trees, this time about 2 feet in height. These were bought from a private tissue culture farm and cost us about RM 1,000 in total. 24 of these trees will be planted in the rubber smallholding this coming week and we’ll check the survival rate before planting the rest. 

If the survival rate works out for the 150 trees, the next plan is to increase the 150 to 1,500 trees.  The trees do not need much tending to after they have grown for a couple of years. I saw some approximately 5 year old trees in FRIM where some of them were being “innoculated” for the trees to generate the resins. 


5 year old trees in FRIM


The trees being “innoculated”. 6 ” deep holes have to be drilled in a spiral round the tree and a type of virus innoculated through the holes. This was gathered from just casual conversation. I still have some time to find out the details. 

My faith that this investment is a lucrative deeply discounted bond still holds. God Willing, in eight - ten years, the Fathersez family will be able to cash in on these bonds and roll in the mullah!!!


The pictures shown of the “innoculation” and the 5 year old trees were taken by Ms. Naa, a young Ghanaian lady who was on attachment or secondment to FRIM. I was very happy to meet someone from Ghana, the country which holds such good memories for me.

I hope her stay in Malaysia was as enjoyable and pleasant as mine was in Ghana. 

There are a silver lining to this financial mess going on around us….for me anyway

Monday, November 10th, 2008

Amongst the mantras of successful stock market investing is to buy when there is blood in the streets or when everyone else is fearful.  

I have gone through a number of such periods in Malaysian stock market history. The famous October 1987 crash, the 1993 steep drop, the 1998 Asian Crisis, the 2001 dot-com crash (which affected us too) and now what seems to the grand daddy of them all, the worldwide financial crisis. 

Though I have a finance background, I never quite learnt to take advantage of these splendid opportunities. I was more influenced by the “end of the world is nigh” theory and did nothing. Then I bought during the times when everyone was buying and as usual, in the words of my wordsmith friend, Jeya, got a royal kanda up my “you know what” when the market inevitably crashed.  

I read a nice post by Newly Corporate on 5 ways this economic downturn could help us. One of the 5 mentioned was the opportunity to learn from a full business cycle. Truly experiencing the flow and the ebb of business and learning from this. 

One of my avowed goals in imparting some personal financial management knowledge to my children is that they should start early and that careful investment in stocks, shares and unit trusts are a great way to accumulate wealth. And included in the list of lessons is the method that I used, i.e. dollar cost averaging and the recommended ways to choose good stocks and unit trusts.  

Another intended lesson is on buying during times such as now, when there is such an aversion of stocks that the good get hammered together with the bad and the ugly.  

And what better time to talk about this to my elder two girls than now? 

I clearly remember that I had no interest in saving or investing whilst I was their age. It was only after the two girls were born that I started. As we are not really a business minded family, I strongly suspect that my two girls may choose the path I followed and start on their own savings and investments only after the need becomes essential.     

I have not succeeded in getting them to regularly read pf blogs. They tell me that they have no time whilst they spend hours chatting with their friends. I have to walk carefully here and create some interest, not turn them off.  

Maybe I should form a joint account with them and work together on selecting stocks. I am not sure if the girls would like investing with imaginary money( as has been suggested), though it may work on my younger children.

The Financial Meltdown – What should we do?

Friday, October 17th, 2008

No one (unless he /she is living under a coconut shell) can say that they are unaware of the major brouhaha that is currently going on all over the financial world. Banks closing, banks being taken over, stocks plunging, commodities plunging, fortunes lost etc. are daily headline news in almost all newspapers and news portals. 

What should we do about our holdings in the stock market?  

The conventional wisdom seems to be to just sit this through. And history seems to be in favour of this. I think for this wisdom to work, two important assumptions should be in place. One is that we made our stock picks very wisely in the first place and the second is that we have a long term time horizon on our stock investments. 

See PTMoney’s posting of a video of Mr. John Bogle seeking to calm our nerves and to stay the course. 

Another equally compelling school of thought says that we should never go against the major trend. So if the major trend seems to be down down (like what it seems now), we should just get out and stay out till the coast is clear. After all, no matter how much we are losing now, we’ll lose more if the decline continues.

I am one of the luckier ones who does not face this predicament today. Not because of adroit investing skills but because I cut my losses (horrendous ones, if I may add) earlier in the year.

So I am presently free of any stockholdings, except for the investments in unit trusts that I continue to dollar cost average monthly (These are meant for the younger kids’ education, so there is a pretty long time horizon attached). 

I am continuing because as the chart in the link below shows, far worse has happened before and we rebounded. I also remember the dark days of October 1987 when we thought the end of the world had come….and it didn’t.  

 The Kuala Lumpur Composite Index So what should we do?

Only you can answer this.  

Our deeply discounted bonds are dy/dx closer to maturity

Wednesday, August 13th, 2008

In June, I wrote about adding some deeply discounted bonds to our investment portfolio. 

They were seedlings of the gaharu tree, which we bought from the Forest Research Institute of Malaysia (FRIM).  It’s been about two and a half months since we got the seedlings.

We have been keeping them in a small makeshift nursery at our goat farm before transplanting them at our rubber smallholding. So far they are looking good.  We intend to transplant them only when they have reached a good height (about my chest height). Otherwise the local goats that somehow manage to get into our rubber smallholding might make a meal of our “bonds”.


The seedlings seem to be outgrowing their present tiny polybags. So now, we are going to transplant them into much bigger polybags. I also have to check with the people of FRIM from whom we bought the seedlings.

Perhaps I can just point them to my blog and see if the picture is good enough for them to do an overall health assessment. 

I’ll keep you posted.    

We have just added some more “deeply discounted bonds” to our investment portfolio

Monday, June 9th, 2008


Deep discount bonds are those which are sold at a big discount to their par values because they are zero coupon bonds (bonds that pay no interest), bonds with bad credit or suspect ability to pay, or a longer bond with a very low coupon requiring more yield in the form of a lower price.

The bonds that we have bought are of the 1st variety, i.e. bonds that do not pay any income/ interest but have a thundering maturity value. My family has chosen these bonds in the form of gaharu trees. 

Last Thursday, we collected 100 trees from the Forest Research Institute of Malaysia (FRIM) where they grew these trees using a tissue culture process. They had thousands of these little plants growing in small plastic bags in a number of greenhouses. We were informed by the research folks at FRIM (and this is also confirmed by Wikipedia) that these trees (when they are around 5 years of age) have to be inoculated with a parasitc ascomycetous mould, Phaeoacremonium parasitica, a dematiaceous (dark-walled) fungus. (All these are still rocket science to me. I have to find out more over the next 5 years.)

As a response, the tree would produce a resin high in volatile organic compounds that aid in suppressing or retarding the fungal growth. While the unaffected wood of the tree is relatively light in colour, the resin dramatically increase the mass and density of the affected wood, changing its colour from a pale beige to dark brown or black. High quality resin comes from a tree’s natural immune response to the fungal attack. It is commonly known as agarwood #1 (first quality). An inferior resin is created using forced methods where aquilaria trees are deliberately wounded, leaving them more susceptible to a fungal attack. This is commonly called agarwood #2.The “trees” (as the picture shows, they are still teeny tots), are 10 months old now. We cannot transplant them in our rubber smallholding as they would be eaten or stepped upon by the local goats that somehow find their way into the smallholding. 

We have decided to build a small shelter for the trees at a corner of our goat farm and nurture them there for another few months or a couple of years if need be. (I am not sure of the growth rate of the trees.) Once they reach about my height, then they can be comfortably transplanted. We have been assured by the FRIM research people that soil that is good for rubber trees would be great for the gaharu trees.

Harvest time should be in about 9 years.  

The Malaysian Business, one of Malaysia’s premier business magazines wrote in December 2007, that a kilogram of the tree could fetch a price of about Ringgit 3,000 – Ringgit 25,000 (approximately USD900 – USD7500 at current exchange rates) depending on the grade.  

These trees, if properly looked after, should give us a good return. I am not sure of actual figures, but I think it’s safe to assume that one tree should easily yield more than a kilogram. 

I think these trees are as good as any deep discounted bonds that are in the market. Since there are 100 trees, they can be compared to diversifying our risks amongst 100 companies, though they are all in one industry.  

Each time my family visits the goat farm (which should be very often after the planned launch date of the 22nd June), I would be able to show the trees to my children.

Hopefully these trees will repay our care and love for the next nine years or so in the form of super duper returns.

Our rubber smallholding – considering growing some Gaharu trees

Tuesday, May 20th, 2008


Picture Credit: My son. The tall scrawny looking trees are the 1.5 year old rubber saplings. 

Yesterday, my son and I visited our rubber smallholding. 

The rubber saplings are growing well. They still have about 3.5 years or so, before they can be tapped for their latex. I have mentioned earlier that the land is hilly and we have cut terraces on which the rubber seedlings were planted. We originally planted about 2,100 trees. About 200 trees have died and new ones have been planted in their place.

The latest “census” indicates that another 300 trees can be planted in the spaces available. The walk around the smallholding was quite a tiring one, but the spectacular view from the top made the whole thing worthwhile. I had a deep feeling of satisfaction when I reflected back on the work that has been done on the land since mid 2006 (when my wife and I sighted the land for the first time.) 

And though this was not the first time, my son has climbed up this hill, somehow I felt a stronger sense of belonging and responsibility from him. 

Recently some friends of mine have talked about planting gaharu or agarwood trees. These trees are prized for their resin which is used in the manufacture of perfume. 

Some additional information on the tree is shown here.

Our Forest Research Institute of Malaysia (FRIM) sells these seedlings. I talked with one of the research scientists at FRIM and he mentioned that they had a waiting list for the seedlings till 2010!!! 

He also mentioned that the trees should be inoculated (wow!….I’ll find out about this later) when they are 5 years old, and they can be harvested when they are 7 years and later. And he also mentioned that the later the better. 

It seems that commercial planting of gaharu trees is a big business in Malaysia. So there are also a number of private planters from whom we can buy the seedlings.  

I’ll discuss this with my wife and then craft out a plan to buy and to plant the trees. And then I’ll follow up with an investment appraisal. For now, we’ll just plant for fun.

What should I do with my Timeshare?

Wednesday, April 30th, 2008

During my younger and much more financially and life ignorant days, my wife and I purchased a Timeshare 

Then, the logic sounded good. For this one time payment + another yearly payment, my family had a choice of 7 or 8 properties in Malaysia where we could go for family holidays. As a large family we usually had to take 3 or even 4 hotel rooms. The Timeshare offered facilities like kitchen, a hall and 2 – 3 rooms. Perfect…it seemed.  

Alas! That was then! 

Now I think about the opportunity cost of the capital invested. This plus the yearly maintenance fee could pay for much more than what I was getting. 

Now I think about the resorts being booked solid during the times when my family would want to use it the most, i.e. school holidays, festive seasons and during other National holiday seasons.  

Now I think about how silly I was to have bought the Timeshare in the first place. 

Now I think about it being no wonder why there are so many ads for selling Timeshares at discounted and often deeply discounted prices. 

My wife has started renting out the Timeshare to her friends and other family members who may want to use it. The money received is used to defray the yearly maintenance charges.  Though the whole process is also quite cumbersome, at least part of the yearly outflow is being taken care off. 

We have often thought of selling off the Timeshare. Our local classifieds often have advertisements of these for sale. There are also some international web sites that claim to sell or rent Timeshares.

This situation of having to pay the yearly outflow whether we use the facilities or not is clearly an unnecessary financial pain. Something that is not in line with my present thinking of eliminating outflows that do not add any value. Something that should be taken care off immediately. 

I am going to advertise our Timeshare for sale. After all my investment is already sunk, if I can stop the continual bleeding, it should be enough. 

I have no back up plan.  However there seems to be an option to be able to donate the Timeshare.

My wife and I may donate this and hope that the recipients make more productive use of this Timeshare. 


If any of my readers out there have any interest in a discounted and deeply at that,   Timeshare, please get in touch with me.   

Is this the Law of Attraction of Work or has my friend found his switch?

Tuesday, March 11th, 2008

CL and I were colleagues for a few years. We used to exchange views on our personal financial positions. He had no investments, besides the house he stayed in, which had a very manageable mortgage. 

All his plans for providing for his family and his old age, was by way of insurance. He had endowment policies that he was contributing to. These policies would pay a lump sum of money should anything untoward happen to him. His idea was that so long as his children’s education was provided for, it should be okay. He used to complain that he had no money left over for savings. 

I used (with the little knowledge I had on pfm) to advise him that he should:- 

-         draw up his current net worth statement,  

-         set a goal that he would increase his NW by at least 5%,   

-         then think and come up with ways to earn or to save that extra 5%,  

-         that he should set all these in writing. 

-         And that this little victory would soon him set him on the way to keep improving his NW. 

(This was way before, I discovered pf blogs.) 

We met up for lunch last week to celebrate the birth of another colleague’s first child.  I was surprised, when he asked our mutual friend on his plans for savings for the child.

One thing led to another, and soon he was talking about his recent investment. He had bought an investment house in a locality well populated by private colleges. He had increased the number of rooms and bathrooms. And he was renting them out to students at a rate that was giving him a healthy positive cash flow monthly. 

This property had been fully let out within a couple of weeks and on top of that, he had a waiting list of interested tenants. And the house was about 25 minutes from where he lived, making the job of checking up on the property very easy. 

In addition he also had investments in Unit Trusts.  

All these were done in a period of about 8 months or so since our last meeting. 

I was impressed! What a turn around! 

I asked him what made him start. He told me that he had been thinking about investing for quite a while, and then it just happened. Of course, he had also done research, looked at a number of properties, talked to various banks on financing options etc. 

Is this the Law of Attraction at work?  Or has he learnt to do things in the certain way promoted by the 1910 book, The Science of Getting Rich.(not an affiliate link). Or has he found his wealth creation switch? 

It does not really matter. I am just happy that I have an additional friend in my peer group whom I can talk to on growing our wealth.  

The goat farm is coming up nicely

Sunday, February 10th, 2008

My wife and I dropped by the farm earlier today.

Whilst the goat shed is almost completed, there are still a number of items to be done. The fencing, the planting of geti and petai belalang trees, the store room, water tanks, electricity connections and general cleaning works should round it up.

The Napier grass will be planted next week and should be ready for harvest once the first intake of goats arrive.

The geti and petai belalang trees are in a nursery now and will be transplanted all around  the farm where bunds have been built. The leaves provide a rich source of food the goats love. (I could not find any web references for the geti trees. Both are local generic names).

So far the target date of 5th April 08 for the thanksgiving / opening “kenduri” appears to be on track.

The development budget for the farm has been exceeded. I am not that concerned, as none of the people involved, Zai, my wife or myself have ever set up a farm in our lives. I always had this contingency in mind from day one.

Operating expenses have been budgeted at a base of 1000 per month. Our cash breakeven would be selling about 5- 6 goats per month, something that we feel can be reasonably easily done.

In my mind, more important than this financial target are the operating targets. Like setting up and adhering to clear cut and understood systems for bringing in the goats, feeding them, tending them when sick, tending to pregnant goats and deliveries, looking after the young, maintaining goat records per goat and maintaining farm daily records.

And of course, marketing, logistics and sales.

I am using my Ghana experience as a benchmark. Despite all our initial studies, we still got taken in by a number of small issues that most people would overlook in doing feasibility studies. Like all payments to be in cash and not by cheques. Like payment for house rental one year in advance. As our ground knowledge increased, so did our ability to negotiate better and much more reasonable terms.

The rest of the year from 5th April 08 shall be dedicated to honing our skills in these activities.

We are intending to bring in only 20 - 30 females and 2 males to start with, whilst our learning process is going on.

To ramp up capacity once we are comfortable should be relatively easy to do. 

The side or non monetary benefit of the farm is that all, or rather, most children like visiting farms and playing with young animals. Today, our son, Abang came with us for the visit and we are sure the younger two girls will also join us from time to time.  At least this takes away their attention from video games and such and allow them additional outdoor activities.

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