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Archive for the ‘Financial competency’ Category

A delusion? PAP confident it regained lost ground

In Financial competency, Political governance on 20/10/2014 at 5:41 am

Surely not when S’poreans in their 20s and 30s and their parents have difficulties in the PAP’s version of paradise? If these two groups have problems how can the PAP expect to hold the line at 60% of the popular vote? Let alone improve it to 65-66%*.

Speaking at a seminar organised by the Singapore Exchange and SIM University sometime back, one Mr Kevin Scully (who has been around in financial services so long that I wonder if he is related to Dracula) puts it: “You cannot rely on your children for financial support because they probably have more debt and cashflow problems than you. My daughter is getting married, and she needs $700,000 to pay for her flat.”*

http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={489390965-20577-4829937219}

As the SunT writer put it very succinctly, “My generation has enjoyed the Singapore miracle, so to speak, when big-ticket items such as HDB flats cost a fraction of what they are worth now. If we have difficulties financing our retirement, the next generation will have an even rougher ride.”

And their parents while benefiting from asset appreciation (or inflation, if one is a die, die anti PAP cyber warrior) have a problem, illustrated also by Kevin Sculley:

the costs of food and health care have vastly outpaced the six- and 12-month fixed deposit rates over the past 10 years.

“We need to get returns of at least 3 to 5 per cent on our investments just to stand still. Clearly, this will not come from bank deposits.”

As the SunT writer puts it

He flagged another problem for those of my generation – people in their 40s and 50s – namely, the likelihood that many of us may run out of money during retirement because of inflation.

It was a sobering thought for those of us at the seminar organised by the Singapore Exchange and SIM University.

So how can this be true? [T]he People’s Action Party (PAP) was confident it had regained lost ground since the 2011 general election. Its confidence stemmed, it was said, from a huge survey that it had been conducting over the past few months …  http://atans1.wordpress.com/2014/10/17/fts-then-1970s-now/

But then S’poreans could be like the victim in a long-term relationship with an abusive partner. A bit less abuse, a bit of tender loving care and the victim is ready to accept more abuse in future.

*I’m assuming that the PAP believes that it needs a clear, biggish majority to ensure that it retains the “moral” right to continue paying PAP ministers their relatively huge salaries while not doing too much to deserve the money (think RI boys Hng Kiang and Yaacob). If it doesn’t, it could resort to very serious gerrymandering so that the 35% core vote (die, die must have PAP) keeps the PAP in power, with the help of egoists Tan Kin Lian (and Goh Meng Seng, his PE 2011 adviser), s/o JBJ and Tan Jee Say, who are more than happy to split the Oppo vote.

We [Barisan Socialists] won thirteen seats at the elections, averaging 15.000 votes to each seat. The PAP won thirty- seven seats, averaging 7,000 votes to each seat. The United People’s Party, whose function was to split the left-wing votes, campaigned on a programme that was somewhat similar to ours but more extremely put. Only their leader, Mr. Ong Eng Guan, was elected. We received 201,000 votes (35 per cent) and the PAP 272,000 votes (47 per cent). The difference is only 70,000 votes out of a total electorate of nearly 500,000. The UPP took away 49,000 votes (8 per cent), causing us the loss of seven constituencies (apart from Mr. Ong’s), and saved four PAP Ministers from defeat.

http://archive.spectator.co.uk/article/29th-november-1963/23/the-situation-in-singapore

http://atans1.wordpress.com/2014/07/21/want-a-pekatan-here-its-disunited/

 

 

 

 

 

SMRT is dysfunctional, still/ Why unaffordable CoEs should make S’poreans happy

In Financial competency, Infrastructure on 15/10/2014 at 4:52 am

What was SMRT thinking?

SMRT said on Monday it had decided against making a takeover bid for Addison Lee, London’s biggest minicab operator after

Britain’s Sky News reported over the weekend that SMRT was planning a £800m (S$1.6bn) for Addison*.

It shouldn’t have even tot of bidding because SMRT’s market capitalisation of S$2.3bn was only 30% more than reported bid price.. It’s finances are not in great shape either. At the end of its last financial yr, cash flow was negative and gearing stood at 65%, while it also suffered its first loss in its fare business.

It also has operational problems here.

So what were the ex-scholar and his fellow ex-SAF officers thinking?

Plenty of things to do in S’pore (including more reliable service) and it doesn’t need any distraction abroad,”

And going abroad in a political nightmare for the govt and SMRT: if it loses money, S’poreans will be screaming (rightly) that the public is subsidising their failure overseas.

The investment bank that brought a proposal to SMRT to bid should have been sent packing immediately, not entertained enough so that a staff member would leak that SMRT was planning to bid.

Happinness is taking public tpt

It’s ’cause commuting by public transport makes people happy.

No this isn’t ST propoganda for the the PAP govt, LTA, SMRT or ComfortDelgro/ SBS.

But a study in the UK where cars don’t cost a fortune, and where the public are unhappy with expensive and crowded public transport.

The University of East Anglia study surveyed 18,000 passengers and found that even when other factors that may affect wellbeing were taken out of the equation commuters who travelled to work on public transport were happier (that is, scored lower on feelings of worthlessness, unhappiness and sleeplessness) than those who drove. Key to it all is what public health experts call “active travel”. Drivers are choosing a “non-passive travel mode” requiring constant concentration. This can be boring, isolating and stressful. Active travellers, on the other hand, have time to relax. The simple walk to and from the station appears to have intrinsic value. As the UEA economist who led the study put it: “It appears to cheer people up.”

While we’re putting things simply, apparently the people who chose to take public transport were around half a stone lighter, too – the bodyweight benefits were found to be on a par with cycling. I don’t wish to do down the car, and perhaps I’m unusual in some ways – my commute is often the only hour in my day that is truly my own, which must go some way to making it special. If I had all day to read and listen to podcasts and radio programmes, perhaps I’d feel differently. But who has all day to do those things? Moreover, who wouldn’t feel better if they added half an hour or so of moderate exercise to their daily routine?

http://www.theguardian.com/lifeandstyle/2014/sep/28/why-commuting-public-transport-makes-you-happy-lauren-laverne

The LTA and our constructive, nation-building media missed a PR trick when they disn’t highlight the UK study (The Guardian is the kind of paper that only Maruah-type people and economic illiterates like Roy read) when trumpeting, The number of bus services that were crowded during peak periods has fallen substantially over the past two years, following the addition of 450 buses under the Government’s Bus Service Enhancement Programme (BSEP).

‘Giving an update on the programme, the Land Transport Authority (LTA) said the number of bus services carrying passengers at more than 85 per cent capacity during peak hours had fallen from 96 before the implementation of the BSEP to 38 in July.

The S$1.1 billion BSEP was launched in 2012 to boost connectivity and bus-service levels. Under the programme, a total of 1,000 government-funded buses will be added to the public transport network by 2017. [CNA]

The media went ape reporting the joy of commuters at the extra buses.

Locals can still afford CoEs

So we learnt last week that FTs didn’t cause CoE prices to (only 13% went to foreigners, Wonder waz the PR %? As usual not given.

———————

*Addison Lee is being put up for sale by its private equity owner, Carlyle Group, which paid £300 million for a majority stake in April 2013. Carlyle has decided to start an auction process after receiving unsolicited offers for the business.

Private equity firms BC Partners, CVC Capital and Charterhouse were reportedly among those making bids.

 

 

Integrated Shield Plans? Waste of money? Cont’d

In CPF, Financial competency, Financial planning on 19/08/2014 at 4:30 am
When TRE republished my piece on S’pore overinsuring their healthcare that pointed out, But seven in 10 armed with IPs that target Class A wards in public hospitals chose to stay in lower ward classes when hospitalised. Only one in 10 from the same group chose private hospitals.Echoing a similar trend were those with IPs that target private hospitals – six in 10 chose lower ward classes in public hospitals. The committee noted twice in its report that many Singaporeans want medical treatment beyond that provided in Class B2/C wards but have “over-stretched themselves to buy the most expensive product for higher protection”.,
two responses stood out, one rubbishy (but which I suspect explains why many gold plate and gem encrust their Medishield plans) and the other sensible.
But both imply that because the money’s there in the Medisave a/c so spend it leh (a major point of my piece was that the ltd uses of Medisave “encouraged” gold plating and gem encrusting medical insurance. Btw, an actuary tells me that insurers don’t really make much money from such plans, but admits that it could be because they are inefficient.):
Ace:

This analysis by Cynical Investor is too simplistic. There are many consideration for buying a medical insurance.

In an emergency, for example if you faint at Tanglin Shopping Centre, the nearest hospital is Gleneagles Hospital which is a private hospital. If you are NOT covered under the highest plan and you go to Gleneagles Hospital, you will need to pay much higher out of pocket. You can of course go to SGH where you can be fully reimburse for the charges but it is further away and you may not have the luxury of time in an emergency.

For non-emergency cases, you can plan which hospital to be admitted but the fact is that the waiting time for admission to B2 or C wards for such cases can be as long as up to 9 months. Can you take the pain for so long and do you want to wait?

Hence most people would opt to buy the most expensive plan when they are young since the full premium can be paid by Medisave. When you are older, you can still downgrade to a lower plan if premium is an issue.

Singaporeans are not as stupid as the report make us up to be. We may be Kiasu but we are definitely not DAFT.

 

spiny dogfish:

One reason why people buy the most expensive plans is because of the very rapid escalation of hospitalization costs. That and the fact that the insurer has an obligation to renew your plan but is NOT obligated to allow you to upgrade.
When i bought my first shield plan the benefits were enough for a private hospital. When i got hospitalized this year the benefits had not changed as i had naively not upgraded my plan for years. The benefits were only marginally enough for B1 ward. The benefits do not change but the costs keep rising.
And i was told that had my conditon been a chronic one like say cancer or heart disease, it was possible that should i wish to upgrade my plan i would either suffer loading or that very condition would be excluded. BUT i could renew my plan, no problem.

After that you bet i’ll take the highest plan i can afford. In 5 years who knows what this plan will be good for. Just take it as front loading. The real issue is rising medical costs. Dealing with the insurance is treating the symptoms not the disease.

Importance of incentives (e.g. ministerial) & financial courses/ Dangerous to buying for yield

In Financial competency, Financial planning on 18/08/2014 at 4:40 am

Actively managed funds generate more fees for brokers which could explain a large part of their popularity. I’ve never once had a broker recommend a passive strategy and they look very disappointed when I mention it. Incentives matter.”—on “Practice makes imperfect”, August 9th 2014

Reminds me that tying ministers’ and senior civil servants, bonuses to GDP growth is problematic. The Chinese  have in principle stopped making GDP growth a KPI. They found that it skewers officials actions towards environmental degradation and urban sprawl because promoting heavy industries and building housing are the “betterest” ways to get GDP growth.

Crediting the classroom
New research shows that courses in finance at school can help reduce the harmful repercussions from taking on too much debt later in life

Danger of buying for yield alone

Even Neil Woodford, a star UK fund manager, has put the shares [HSBC] into his new income fund – it is the only bank in his top 60 holdings.

But the 12 per cent share price fall over the past year has wiped out more than double the value of dividends paid in the same period. That shows how dangerous it can be to hold shares for the dividend alone.

(FT’s Lex)

Will PM, tonite, give peace of mind on CPF Life Standard?

In CPF, Financial competency on 17/08/2014 at 4:26 am

(Or “Numbers don’t lie — the CPF default plan, is awfully bad“)

I doubt it. [Update on 18 August 4.30am: He didn't touch on it. If S'poreans bitch, bleat, kpkb maybehe'll fix it in next yr's NatDay Rally speech. Remember GE coming.]

Further to my non-quantative rant on CPF Life, two number-crunchers have worked out how nasty and expensive the standard CPF Life plan is. I’m surprised that Roy ngerng has not got round to calling this “criminal misappropriation” yet. Probably, he is waiting for Uncle Leong to explain the numbers to him. Roy may be gd with words, but he is worse than me when it comes to quantative finance, let alone basic maths and stats. At least he wasn’t in finance. (Btw, I would like to point out to Woody Goh that a gd parent would not have devised such a unfair default standard plan, or cPF Life in general. Btw2, since when has govt become our parents? Juz because PAP been in power since 1959, doesn’t mean it has become our parents.  Even the CCP doesn’t regard itself as the parents of China. Woody Goh, we are not living in N Korea. You’ve been reading the ST, I assume.)

 Seriously, a financial planner, who is no second hand car or life insurance salesman, in a tie,  told me, “Someone asked me, why is the default option the worse one? I told him, yah that’s precisely why its the default option” when he sent me this link showing how
bad the standard plan is: http://www.ifa.sg/cpf-life-standard-is-the-worst/ (Warning very chim).
The author concludes, I speculate that the ‘poor’ returns of CPF Life Standard is due to the fact that all of the CPF RA is being invested into the common insurance pool while only a small amount of CPF RA under CPF Life Basic goes to the insurance common pool. The seemingly poor return is probably due to the ‘penalty’ of early exit from the pool in order to help subsidise the remaining in the pool who live too long. This is how insurance works through risk pooling. Unfortunately, we do not know whether this risk pooling is efficient as there is no further benefit illustration available.

Nevertheless, the present values gap between CPF Life Standard and CPF Life Basic is too large to ignore. It is difficult to determine what are the ‘fine prints’ for such a large discrepancy between CPF Life Basic and CPF Life Standard as there is no policy contract available unlike a traditional annuity plan available from private insurance company.

(my emphasis)

In TRE, someone working in finance posted this less technical explanation, coming to the same result:

Here is a comparison between the default CPF Life Standard Plan payout for the writer meeting the minimum sum of $155,000 and the example of Mr. Tan in the CPF Life Handbook, who has $100,000, below the minimum sum, property pledge required. The writer’s payout is derived from the CPF Life Estimator. Mr. Tan’s given in the handbook. The assumed investment rate is 3.75%, the low end of the assumed investment rates for CPF LIFE.

  Chris K Mr. Tan
RA at 55 155,000 100,000
Monthly Payout from 65      1,215        822
Bequest at 65 187,263 108,505
Bequest at 75   41,829   11,909
Bequest at 85             0             0

At 55, CPF deduct half the minimum sum, $77,500 the first premium instalment from both the writer and Mr. Tan. The remainder of both RAs earned 4% with an extra 1% on first $60,000. This will be on combined balance, including the first premium which earned rate of 3.75%. At age 65, the remaining RA pays for the second premium instalment. The writer calculates the accumulated capital at age 65 and then amortised against the CPF Life estimated payout. Here are the numbers (CPF does not reveal its calculation so the writer use the default common sense approach)

  Chris K Mr. Tan
RA at 55 155,000 100,000
Monthly Payout from 65     1,215        822
Accumulated Capital at 65 225,453 147,171
Residual Capital at 65 225,453 147,171
Residual Capital at 75 149,529   93,412
Residual Capital at 85   39,689   15,638
Capital depletion age 88 years old 86.75 years old

The first thing that jumps out is the disparity between the estimated bequests and the residual capital after drawing the monthly payouts.  At age 65, without a single payout, the bequest is $187,263 against accumulated capital of $225,453. As an annuity plan, the difference can be explained as those who expired earlier providing the reserves for those who lived longer on the basis of risk pooling.

However, the next thing that jumps out is the capital depletion age which is when the accumulated capital is completely drawn down: 88 years for the writer and 86.75 years for Mr Tan, both well in excess of the 82-83 years life expectancy. The government in effect made triple provisions for those who lived beyond the life expectancy:

1) the excess over the bequests of those who expired earlier

2) stretch the monthly payout well beyond life expectancy and

3) to a smaller extent having those who met the minimum sum compensate those who did not, which then begs the question why should anyone want to meet the minimum sum.

If that is not enough, legislation has been provided to wind up CPF LIFE in case the Plans are insolvent.

The Basic Plan

To avoid a long article, the writer provides a brief summary of the Basic Plan which is predicated on drawing most of the monthly payout from the RA while the annuity only kicks in at age 90. As such, the Basic Plan provides a larger bequest from the RA and over a longer time frame but with lower monthly payout compared to the Standard Plan.

At age 55, the first CPF Life premium instalment equal to 10% of the respective RA is deducted. At age 65, the second instalment equal of 10% of the accumulated RA balance is deducted. The writer draws $1,098 per month from his RA as the payout under the Basic Plan while Mr. Tan draws $737. At the age of 90, the remaining balances in the RAs will be completely depleted. Then, the CPF Life annuities start providing their respective payouts. If both expire before age 90, here is the unused accumulated capital in their respective CPF LIFE annuities and if they live, the capital depletion age.

  Chris K Mr. Tan
Annuity accumulated capital at 90 86,384 61,896
Annuity capital depletion age 96.75 years old 95.5 years old

When the government said a third of Singaporeans who are 65 today will live beyond 90, then two thirds of them will not see a single cent paid from the CPF LIFE annuity. Again the government has built in triple provisions 1) the payout from the RA is stretched well over life expectancy 2) annuities kicking in well beyond life expectancy, guaranteeing massive reserves to pay for those who live beyond 95 3) to a smaller extend, those who meet the minimum sum mitigating those who do not.

Conclusion

The writer does not accuse the government of deliberately profiting from the financial risks of longevity.  However, the triple provision, triple redundancy or in the strictly local parlance “kiasu, kiasi, kiabo” of absolutely ensuring not a single cent is spent on retirement funding, can only mean that there will be excess money left from CPF LIFE which reverts back to the government.

Some may call this conservative financial management but there is a very thin line between such conservative financial management and indolent financial management which arises from coercion and monopoly over retirement savings. Undoubtedly, the usual price of not getting more from their retirement funds is paid by you and me.

(My emphasis)

Chris K

* Chris K holds a senior position in a global financial centre bigger than Singapore. He writes mostly on economic and financial matters to highlight misconceptions of economic policy in Singapore.

Fyi, I was lucky enough to be under the old system and I didn’t opt for any of these plans. If I live too long, I’d die financially if the CPF was all I had. The good concept but as usual messed up by the PAP govt in its meanness: The Standard plan offers an annuity scheme similar to what retirees in Britain opt for. The Basic plan is commonly adopted by US retirees.

Reminder, the Basic plan is closer to the Minimum Sum scheme that is no longer available.

If MOM correct about CPF, why need FTs, growing population? Cont’d

In CPF, Financial competency on 15/08/2014 at 4:23 am

Someone claiming to be a civil servant (and ex-reporter) replied to an article of mine on the above, As he has some good points, I tot I’d share it. My comments follow.

I’ll answer briefly the two questions you posed.

Firstly, why we need a larger population if each individual saves for his own retirement. Strictly speaking, we don’t. What we need is a larger *working* population because only those who have active incomes pay taxes. The taxes collected is used to run the country. It is simply not tenable nor sustainable to run a country with *both* a shrinking pool of tax revenue and a growing proportion of retirees.

For instance, even with steady population numbers, we expect the size of our law enforcement to maintain its strength (if already adequate). Our law enforcement staff is mainly supported by tax payers. Retirees generally enjoy their services but do not pay for the police. With waning tax revenues, it would be reasonable to cut funding and strength of our law enforcement agencies. And it stands to reason that crime rates would go up.

The same reasoning can be applied to health care, defense, or education expenses. Retirees don’t pay for these (other than a token co-payment).

Secondly, why the need for minimum sum and CPF Life. In my opinion, the Government is trying to be tactful in stating their reasons. I’d be more blunt here. Simply stated, the minimum sum is a proxy for your financial acuity throughout your working life. Financially savvy individuals would, by the time they retire, have a nest egg many times the minimum sum. Folks like you would be in that category. The Government does not have to worry for these folks.

Conversely, if you hadn’t even been able to save the minimum sum, what basis does the Government have to believe that you will be able to manage your own money to sustain you till death and not burden the rest of the population? If someone hadn’t been financially successful during their most productive years, would you believe that he is more likely to multiply his retirement account, or if given a chance, misspend or “mis-invest” his money. What then? What if they have no children or their children couldn’t support them or are themselves retired. Are you willing to support these folks for the rest of their life?

You yourself mentioned that life expectancy is much greater than before. That means whatever savings a retiree has would have to last for a longer time. If someone hadn’t sufficiently planned for his own retirement, what makes you think he could plan for his sustenance till death?

The views expressed here are mine and mine alone.

Whatever it is, it ain’t brief. So there goes his/her “briefly”.

Absolutely correct on first point though. My question was aimed at hopefully drawing out this answer.

This answer shows the BS (OK “incompleteness”, “economy with the truth”) that is the govt’s explanation here:

..a pension system. They collect taxes or get citizens to contribute to a social security fund. This pooled monies is then paid out to citizens who reach a certain age. However, many of these systems are facing challenges, because those who are young are now paying for the old. As most countries age, there are fewer and fewer young people paying for more and more aged people …
In Singapore, we have the CPF. Rather than pool all our monies together, every individual saves for his own retirement via his personal individual CPF account.
(Emphasis is mine)
Whether the Western system or ours, there is a need for “shared services’, MOM conveniently ignores.
It’s this kind of “answer” that gets me annoyed. S’poreans deserve better explanations.
On the second point, chap’s very cocksure: I’d be more blunt here. Simply stated, the minimum sum is a proxy for your financial acuity throughout your working life. Ever heard of the fickle finger of fate? “The Moving Finger writes; and, having writ,
Moves on: nor all thy Piety nor Wit
Shall lure it back to cancel half a Line,
Nor all thy Tears wash out a Word of it.”
Seriously, he has a point. Recently FT reported
Behavioural economist Dan Ariely, meanwhile, says it is “illusory” to expect education to lead to better financial outcomes. He points to a 2014 meta-analysis of 201 prior studies on the subject that found financial education had virtually no effect on subsequent financial behaviour. This is largely because most people forget what they have learnt within 20 months.

Mr Ariely therefore recommends a degree of compulsion. People should have to buy some insurance against longevity risks just as they are required to buy a basic level of car insurance, he says.

The problem is the govt’s solution, CPF Life. We juz don’t know if it’s any gd: black box calculations and no protection against default (yr CPF Life, it dies, you die). Sometime soon I’ll give blog further on these points.

As to Kee Chui’s *Population figures – nobody knows” comments last week: This is what the moderator at the event where he spoke (and a respected economist) posted on Facebook Chan Chun Sing, this is what

As an economist all I can say is that it’s not a very helpful answer.

A final population of below 4 million implies a drastic collapse of the economy not seen even in the Great Depression

10 million implies an impossibly crowded, highly unequal, socially divided society.

That we want to look after our citizens, or provide good jobs for our young is an independent truism.

No comment on an issue that is a key determinant of long term well being for future generations?

Gau Siam!

 

 

 

If MOM correct about CPF, why need FTs, growing population?

In CPF, Financial competency on 05/08/2014 at 4:53 am
One message we always get from the govt and the constructive, nation-building media is that an aging population and the refusal of married S’poreans to do NS when having sex means we need FTs to grow the population so that S’pore can finance the needs of an aging population.
But another message is that in our CPF system, we finance our personal retirement needs (see yesterdays ad in ST),
unlike the ang mohs who have a pay-as-you-go system. The Manpower Blog from MOM describes it thus, ... a pension system. They collect taxes or get citizens to contribute to a social security fund. This pooled monies is then paid out to citizens who reach a certain age. However, many of these systems are facing challenges, because those who are young are now paying for the old. As most countries age, there are fewer and fewer young people paying for more and more aged people …
In Singapore, we have the CPF. Rather than pool all our monies together, every individual saves for his own retirement via his personal individual CPF account.
(Emphasis is mine)
So my question is why do we need to worry about an aging population? MOM says that we oldies don’t depend on younger S’poreans to pay for our pensions? It’s our money that is funding ourselves.
So why need population 6.9m by 2030? Or is it now 10m? Juz excuse to import FTs by the A380 cattle-class?
But then MOM also says CPF monies is S’poreans money, even when govt tells us how we can spend it: sounds like
“War is peace.
Freedom is slavery.
Ignorance is strength.” .
“All animals are equal, but some animals are more equal than others.”
And then there is this rubbish
When the British introduced the CPF scheme in 1955, we could withdraw all our savings at 55. Do we remember what our retirement age was then? It was 55. What was the life expectancy in 1955? It was about 60. Hence, what you withdrew at age 55 would have to last you for just a few years.
Today, the retirement age is at 62 and we could be re-employed until 65.And life expectancy is at least 82 and rising fast. For those turning 65 years old today, 1 in 2 will live beyond 85, and 1 in 3 beyond 90. What would happen if we withdrew everything at age 55? Or even 65? Would we ourselves be able to manage our monies for two decades or more? 
Well there are many other solutions other than forcing Minimum Sum and CPF Life down our throats at age 55. Ask the SDP about one possible solution. and the ang mohs too have ideas. Related post on ang moh view supporting PAP’s stance  

Why financial research is “noise” not value add

In Financial competency on 04/08/2014 at 5:30 am

It’s not every day that an analyst concedes that the bulk of financial research in existence is merely “noise”, with not much intrinsic value. But Stefano Natella, Credit Suisse’s head of equity research, is not your typical analyst.
With a penchant for existential questions – “I like that philosophical question (about) why research exists” – Mr Natella is keen to change the way clients view, seek out, and pay for financial analysis.
“I’m very candid (about this) – I don’t think there’s a lot of value in making comments on earnings. Or the value (expires) two minutes after it has been reported,”  …
He uses an example from the telco sector: “If you give me the press release of SingTel’s quarterly earnings, I can write you two pages of a research report saying (its performance was) slightly ahead of market (expectations), and it looked very good in this area, and clients paid (this amount) of fees, and so on. I may know very little about SingTel, but I (could do it reasonably well).

This appeared in BT few months ago

Desperately seeking “core plus” or “value add” Reits

In Financial competency, Property, Reits on 29/07/2014 at 5:37 am

When it comes to Reits, I’m almost like Pussy Lim saying the PAP is doomed (since 1990s), though she recently nuanced her remarks and Roy on the govt “stealing” (my take on what he is claiming, not his word) CPF. Same old messages.

Here’s a variation on my Reits tale. I’m looking at a Reits’ strategy to guard against the effects of likely interest rate rises*. I’m looking at a“core plus” or “value add” strategy: Reits that buy underperforming assets, for example a building with empty space, and focuses on improving returns, for instance by increasing occupancy.

Or Reits outside traditional core commercial real estate include student housing, medical offices, storage and even social housing. I’ll be looking at the Jap Golf Reit.

If I find Reits that are executing this “core plus” or “value add” strategy competently, I’ll switch to them even if their yields are lower. Let you know my conclusions after I do the switches.

BTW, Bank of S’pore, OCBC’s private bank, is recommending Reits and other income plays.

Sounds like what I’ve been doing, suggesting the last few yrs. Maybe I can be Bank of Singapore’s strategist?

Singapore equities will remain range-bound for the short term, but dividend plays will continue to attract interest, said BoS’s CIO on July 3.

“… certain interesting themes in the Singapore market, and one of which … there are many opportunities in the dividend yielding sector, ‘REITs’, some of those Temasek-linked companies** do give you a very nice yield in the context of a very low yielding environment in the world,” said Chief Investment Officer Hou Wey Fook.

BOS says the impact of a slowing Chinese economy on Singapore’s growth will likely be offset by the pick-up in the developed economies. This combined with the steady performance of emerging economies will deliver the best global economic outlook in 2014, since three years ago. (BT report)

BoS, like me, says it prefers equities to fixed income due to falling bond yields and soaring stock market indices. It also expects the improving growth momentum to spur companies into increasing their capital expenditure and M&A activities.

——-

*Keep an eie on the junk bond market. It’s going through a serious correction that could turn into a collapse given that many say the junk bond is a bubble.

**http://atans1.wordpress.com/2013/10/03/temaseks-fab-5-spore-blue-chips/

Medishield: Totful tots on loss ratio to determine premiums

In Financial competency on 14/07/2014 at 5:26 am

With regards to the use of  incurred loss ratio to determine the level of premiums, I don’t like it for a few reasons:

  • A lot of premiums is collected upfront and Medishield ends up having a lot of money to invest, which might not be its core expertise.
  • It is not easy to determine future liabilities and brings another uncertainty to the calculation of the loss ratio.
  • With Medishield Life going to be a compulsory scheme, there is even less of a need to collect too much surplus as it is possible to adjust the premiums accordingly whenever overall claims go on a sustained uptrend. As a nationwide scheme, the pool is also huge and total claims will be less volatile and predictable.
  • Private health insurance that has a smaller pool will have claims that are more volatile and cannot easily raise their premiums without the risk of their customers leaving and making their pool even smaller.

http://www.martinlee.sg/medishield-reserves-loss-ratio/

From an honest financial planner. Feel safe to buy second-hand car from him. Smart guy too. Given that he has a masters in engr from NUS, I once asked him why was he wasting his time selling insurance. Never got a gd reply.

Check out his other articles explaining Medishield. Under insurance, healthcare.

Daft Sinkies? Dishonest insc agents? Or Medisave sucks?

In CPF, Financial competency, Financial planning on 08/07/2014 at 4:29 am

I was shocked to read in BT on Saturday that the MediShield Life Review Committee highlighted something that should never have been allowed to happen by a truly nanny govt or a govt that cares for its people:

 [O]ne issue has stuck out like a sore thumb: the overbuying of Integrated Shield Plans (IPs).

In the clearest indication that something is amiss, the committee’s report released last Friday stated that about three in five Singaporeans covered under MediShield purchased IPs.

But seven in 10 armed with IPs that target Class A wards in public hospitals chose to stay in lower ward classes when hospitalised. Only one in 10 from the same group chose private hospitals.

Echoing a similar trend were those with IPs that target private hospitals – six in 10 chose lower ward classes in public hospitals. The committee noted twice in its report that many Singaporeans want medical treatment beyond that provided in Class B2/C wards but have “over-stretched themselves to buy the most expensive product for higher protection”. (Emphasis mine)

So S’poreans fork out premiums to stay in the best (OK most expensive) wards, but then don’t use them ’cause no money? Presumably the insurers are laughing when they see their bank statements.They pay out less than what they are prepared to pay for.

Shumething is clearly wrong.

BT as part of the constructive, nation-building media tries to avoid blaming S’poreans. insurers and their agents, or Medisave.

Having said that, it qualified that this typically happens during the working years, when premiums can be paid entirely or mostly through Medisave, the national medical savings scheme used to foot hospital bills, among other things.

A quick comparison of the IPs offered by the five insurers – AIA, Prudential, Aviva, NTUC Income and Great Eastern – showed that premiums for the first 40 years of an individual’s life were priced suitably low to gain market share.

For example, existing private IPs for Class B1 in public hospitals range between $78 and $207 annually, according to the comparison provided by the Ministry of Health’s website. The amount payable doubles to about $297 to $410 when the consumer is between the age of 41 and 50. It rises to between $425 and $921 for those aged 51 to 65, and for those who are 66 to 90, the yearly costs go up to between $888 and $4,245.

It calls for more education rather than pointing out that Medisave nudges S’poreans towards over-insuring despite describing the process of nudging (for the daft: the last three preceding paras).

While information is relatively accessible and most people understand that they have to pay more as they get older, only a small number of people truly realise the exponential spike in IP premiums from age 60 onwards, not to mention the accumulated lifetime costs.

All these point towards a poor comprehension of the workings of IPs – a point that the committee also made sure to reiterate throughout its report. This is why there is a pressing need for the government to educate the wider public of its entire healthcare financing system, as well as the things to look out for in choosing an IP if required, so that the individual can make an informed decision.

But it ignores the T Rex in the ward, Medisave: this typically happens during the working years, when premiums can be paid entirely or mostly through Medisave, the national medical savings scheme used to foot hospital bills,

The answer to the title of this rant?

All three with Medisave the catalyst. It worsens the stupidity (or financial incompetency) of many S’poreans and the dishonesty of agents, by nudging via skewed incentives money in Medisave cannot be touched except for illnesses and medical insc premiums, so might as well buy the more expensive coverage)). It’s our money in MediSave, but we can only spend it in the right ways, one of which leads to bigger profits for insurers..

 

 

Time to sell? New, inexperienced punters rushing in?

In Financial competency, Property on 03/07/2014 at 6:28 am

(Or “The bull SGX is spinning?”)

Serious mkt correction on the cards based on SGX’s boast that more than 68,000 new Central Depository accounts were opened last year as the largest number of new retail investors in the past five years “ventured into the stock market in the face of an uncertain property sector”? (For those seriously challenged for time, skip right to the end for my take.)

The number of accounts is a big jump from the year before, when about 51,000 new accounts were created. At a press briefing last week on Singapore Exchange’s ongoing retail initiatives, SGX’s senior vice-president for retail investors, Lynn Gaspar, said that about half of all CDP accounts or a record-high 844,000 actually held some shares.

BT reported earlier this week:

“Subscription to SGX’s My Gateway’s e-newsletter over the past 12 months has risen 21 per cent to 187,000 and the increase in unique visitors to our website has been 45 per cent over the same period,” she said.

However, she added that, notwithstanding the increase in interest, the proportion of Singaporeans who invested in the stock market is still low when compared with other markets.

“Only about 8-10 per cent of the population is in stocks, compared with 20-25 per cent in Hong Kong and 15-20 per cent in Australia,” said Ms Gaspar. “If you assume the potential retail investor population to be about three million people, only about one third has some direct involvement in stocks while 62 per cent has never been in the market. Of these people, about 400,000 are interested in getting into the market. Based on a survey we conducted in 2012, we found that the barriers to entry for these people are they don’t know how to start, don’t know where to start and don’t have the time or money.”


To help interested but inexperiened retail players gain some insights into the stock market, SGX has partnered local firm TradeHero, which offers a mobile market trading application that can be downloaded onto phones.

The exchange is also offering up to $198,000 in prize money in its StockWhiz contest which is open to Singapore residents aged 18 years and above, the aim of which is to allow the public to learn to trade with virtual money.

“TradeHero allows investors to trade using real-time prices,” said Ms Gaspar. “We feel this is a great chance for the public to gain risk-free experience on how to trade.”

Bull on stocks vis-a-vis property?

Today reported her as saying:“In an emergency, the ability for you to liquidate property takes a longer time. So, the stock market is a good alternative for people to be able to come in and invest in a higher-yielding asset, not without risk … But you can see the value of the asset you are investing in, you can make those decisions and there’s also liquidity,”

Whatever, given that SGX’s CEO and COO are FTs, and so are many of its senior executives, it’s ironic that SGX is boasting that it’s attracting local punters back. It’s the same Mgt that drove them away.

Now the solution to regenerate a dying, irrelevant regional mkt is to grow the retail mkt? Takes FTs to do this?

“T” stands for “Trash”? Juz look at the IPO mkt and the secondary listing of Gazprom, a dog with fleas if ever there was one.

Coming back to whether market is set for serious correction? Well volumes remain depressed*, so the accout-opening and education, doesn’t translate into activity. The little people are inactive. So the rush to open accounts is not a sign of trouble yet. Watch the volume (not $ value but shares traded).

The only reason to be wary is that with residential property prices expected to fall another 20% next yr, the prices of developers may not yet reflect this expectation. As UBS pointed out recently, the stock mkt is influenced by property prices and it affects more weakness in that sector.

——

*Update at 9.30am: Figures juz reported show that in June daily average value of securities traded on the SGX fell by 40% on the same month last year, to just S$978m.

 

Linking why staple food agribiz is a gd bet & why the 2.5% CPF rate sucks & a constructive, nation-building suggestion

In CPF, Financial competency on 26/06/2014 at 4:32 am

Change in price

So investing in agribiz that are connected with stapled foods makes gd sense and why recent inflation rates should not have surprised

  • 2010 – 2.8%
  • 2011 – 5.2%
  • 2012 – 4.6%
  • 2013 – 2.4%

It’s largely about the rising cost of staples (and oil at around US$100). Tuesday’s BT reported

Last month’s moderation in core inflation was due to lower contributions from food items and services. Food inflation came in slightly lower at 3 per cent in May compared with 3.1 per cent in the previous month, reflecting a smaller increase in non-cooked food prices.

Services inflation edged down to 2.5 per cent from 2.7 per cent in April, as holiday travel costs and health insurance premiums rose more moderately.

But Barclays and CIMB economists believe the reprieve will be short-lived. Said CIMB economist Song Seng Wun: “Services inflation is going to go up as a result of domestic cost pressures – and firms are likely to pass these on to consumers.”

MAS and MTI reiterated that core inflation is projected to “stay elevated” at 2-3 per cent in 2014, while headline inflation is expected to come in at 1.5-2.5 per cent.

So time for govt to increase the basic CPF rate? After all in the not so distant past, one reason it gave for the rate, was that it was above inflation of around 1%.

As to the excuse of low the yield on govt bonds are, well the govt is already paying more than the yield on govt bonds. It knows that cutting the rate would seriously damage its credibility with the 35% swing voters. So increasing the yield by another 0.5% should be considered.

After all Temasek and GIC, as savvy investors, should have been buying agricultural land in the West. The govt can use the profits from these investments to fund an increase to 3%.

 

CPF: The cock that Swee Say talks

In CPF, Financial competency, Financial planning on 25/06/2014 at 4:43 am

The best way for Singaporeans to prepare for retirement is to use less of their Central Provident Fund (CPF) money when they are young. Mr Lim Swee Say, Minister in the Prime Minister’s Office, said this will ensure the current level of CPF payout can be maintained over time and not be eroded by inflation.

Mr Lim, who is also the labour chief, made that point when speaking to reporters on the sidelines of the closing of the Singapore Model Parliament yesterday. (23 Jan 2014). He later issued a clarification saying “that housing, healthcare and education for the children” were excluded from his spending comments, saying the constructive, nation-building media had misreported him.

Even with the clarification, he was talking rubbish, showing how clueless the nTUC minister was with the life of his ordinary members.

For starters, as TRE pointed out

Using less CPF money means leaving the money with CPF board, which in the case of OA, will earn only 2.5%. Inflation rate for the last few years already exceeded 2.5% (except last year, which barely covered the 2.4% inflation rate) [Link]:

  • 2010 – 2.8%
  • 2011 – 5.2%
  • 2012 – 4.6%
  • 2013 – 2.4%

Next after his clarification that he was talking of CPF spending other than for “housing, healthcare and education for the children”, one is left wondering if he doesn’t realise that other than for these things, CPF cannot be used for other than retirement. Is he so out of touch? Or another example of his special status, like once a month CPF statement?

The more impt issue, if no use CPF, how to afford “affordable” public housing? Public housing is only “affordable” because of 20-yr mortgages that use CPF monies to finance the loans.

At the moment 36% of a S’porean’s wages are locked up in the CPF because of this Hard Truth

[Without the CPF], Singaporeans would buy enormous quantities of clothes, shoes, furniture, television sets, radio, tape recorders, hi-fis, washing machines, motor cars. They would have no substantial or permanent asset to show for it.

  • Asian Wall Street Journal, Oct 21 1985 quoting one LKY.

Our money, but can only be spent on the “right” things: uniquely S’porean.

But it was an ang moh’s idea in the first place: In February 1940, one Keynes published How to Pay for the War. He advocated that interest rates should be kept low and that compulsory saving (thereby deferring pay) should be used as a mechanism to prevent the inflation that occurred during World War One. A portion of everyone’s income would be automatically invested in government bonds. Then, when the war was over, and the economy was in dire need of savings, the money would be released. The plan was too revolutionary for the British government.

In the S’pore version, the payout got deferred and deferred.

“The rule is, jam to-morrow and jam yesterday – but never jam to-day.”
“It must come sometimes to ‘jam to-day’,” Alice objected.
“No, it can’t,” said the Queen. “It’s jam every other day: to-day isn’t any other day, you know.”
“I don’t understand you,” said Alice. “It’s dreadfully confusing!”

(Through the Looking Glass and What Alice Found There)

CPF Life: Shumething for “Free my CPF” protestors, anti-PAP cyber warriors to reflect on

In CPF, Financial competency, Financial planning on 24/06/2014 at 4:50 am

The OECD has criticised the UK government’s recently announced plans to end the obligation to buy an annuity at retirement.
Anyone aged 55 or over will be able to take their entire pensions savings pot as cash from next April instead of buying an annuity that would guarantee an income for life.

Pablo Antolin, chief economist and head of the OECD’s private pensions unit, said he was concerned the UK government’s proposals would lead to pensioners running out of money in old age.
“An annuity is the only instrument that provides complete protection in retirement and which safeguards individuals against the danger that they exhaust their savings before death,” he said.

Mr Antolin said the proposed UK reforms were driven by the high costs of buying an annuity, but he argued that savers were unlikely to achieve better incomes in retirement simply as a result of scrapping mandatory annuitisation.
Mr Antolin is expected to say at the Investment Innovation & the Global Future of Retirement conference in New York on Monday that partial annuitisation should be encouraged as an integral part of direct contribution retirement plans offered to savers across the OECD.

 With investors likely to be faced with an environment of low yields and low investment returns for some time, the only way to ensure adequate income in retirement is for workers to save more for longer, said Mr Antolin.

He also criticised private pension providers for marketing annuities as investments, rather than insurance products.

“Buying fire insurance is not an investment. That is how an annuity needs to be looked at, as insurance against outliving one’s resources,” he said.

The above was reported by FT on Monday. Apologies to FT for such a long extract. But it’s for a noble cause, educating S’poreans and showing that the PAP govt has conventional wisdom on its side, on this issue as on the immigration and growth issues.

But as one totful reader pointed out, the ministers expect million-dollar salaries to follow conventional wisdom?

Related article: http://atans1.wordpress.com/2014/06/03/cpf-life-what-sucks-which-is-closest-to-minimum-sum-scheme/

I’ll end with a constructive suggestion to those TRE posters who keep posting there that I’m a PAP, WP, ISD mole whenever TRE republishes something of mine (got three pieces there now). Rather than getting frus and abusive, why don’t they start a petition asking TRE not republish me. I have no issues about not appearing there. Let the readers decide.

Not damaged CD like Cat Lim: Still holding Reits and dividend stocks

In Financial competency, Reits on 23/06/2014 at 4:53 am

Yes but saying I’m still invested in reits and dividend paying stocks, I know I’m sounding like Msian Cina New Citizen Pussy Lim playing her broken record or CD  of “The PAP are doomed” (first version 199o something) and repeated at regular intervals. BTW she’s the best ad for the Malay ultras and their slogan “Apa lagi Cina mahu?”. The PAP govt gave her citizenship and a cushy job teaching teachers (She bitched or catted at fellow lecturers: once asked students if fellow lecturer, a scholar, was gay. This was in the 80s and could have ruined his career: it didn’t as students reported her actions, and she was warned to stop) and she see how she repaid the PAP: sliming PAP.

Sorry, back to reits and dividend paying shares.

Defensive leh. No-one knows why things are the way they are

The world of finance is ensnared in a triple mystery: falling bond yields, falling inflation and rising debt. The ignorance is dangerous.

(The first two implies deflation, the last implies inflation as defaltion increases the debt durden: ask the Japs)

Investors and lenders are equally at a loss. They might want to prepare for deflation. But it is always possible that they should be preparing for a new mystery: the long-delayed return of inflation.

http://blogs.reuters.com/breakingviews/2014/06/17/triple-financial-mystery-remains-unsolved/

Or as the chief investment strategist at BofA-Merrill Lynch puts it. “The ‘fire’ of zero interest rates and central bank liquidity continues to be doused by the ‘ice’ of deleveraging, regulation and deflationary technology innovation.”

Or is possible that financial markets are simply adjusting to reflect this new economic reality, rather than being complacent?

Edward Hadas, economics editor at the commentary website Breakingviews, believes that the world economy is in unchartered territory – so no one really knows what might happen.

“We are dealing with something we have never seen before: very low volatility in such uncertain economic times,” he says.

Low volatility is supposed to imply calm and confidence. But he sees no evidence that investors are not aware of the global economic risks. In the media and among the commentariat in the City, there are plenty of warnings that challenges remain.

Mr Hadas wonders if the low volatility is due to more mundane factors: the banks that provide most of the funding for traders are under capital pressure.

“The result is less activity, less volatility and a greater correspondence of markets with reality,” he said.

But he warns: “Sadly, the calm is probably temporary. Traders will re-group and become more active once they adjust to the new funding environment. And whenever economic reality does change sharply, investors can be counted on to overreact.”

http://www.bbc.com/news/business-27920419

A clue I do not have.

So I’m playing safe. I avoid bonds and buy shares and reits that I think can continue paying decent payouts, and I bank the payouts, not reinvest them. And I keep my spare cash in CPF. At this point in time, CPF pays the best risk adjusted S$ returns. Not saying much, though.

BTW experts were saying last Dec and in Jan that bonds and reits were history. They outperformed.

 

Tot S’poreans are honest, honour honesty? Think again

In Corporate governance, Financial competency on 18/06/2014 at 4:29 am

I was shocked as a user of financial statements to read this in BT last week:

More than one-fourth of senior executives in Singapore feel it is justifiable to misstate financial performance in order to survive an economic downturn. The staggering statistic was one of many in EY’s 13th and latest Global Fraud Survey.

The exercise, which involved 2,719 interviews with senior decision-makers in the largest companies in 59 countries – conducted between November 2013 and February 2014 – looked at the perceived levels of fraud, bribery and corruption across the world in current times.

It found that financial statement fraud risk is still prevalent. Aside from Singapore’s response, EY’s survey found that – across the globe – 6 per cent of respondents said that misstating financial performance is justifiable in order to survive an economic downturn. This is an increase from 5 per cent two years ago.

EY noted that this is driven by responses from emerging markets where, in some jurisdictions, a significantly higher proportion of respondents stated that they could justify such actions. Compared with Singapore (28 per cent), 24 per cent in India and 10 per cent in South Africa felt misstating financial performance was justifiable.

(BT 12 June: Emphasis is mine)

We are miles away from the global benchmark (6%) and worse than India (where few yrs ago there was a major accounting scandal at a giant Indian IT co), a country where corruption is so common.

How to trust any co’s financial statements? Blame education system, PAP govt or S’pore society?

Wrong to blame our society?

Juz think about it. Roy Ngerng who claimed his research into the CPF system showed that the govt had stolen the monies, and who when sued by the PM for defamation, readily and cheerfully admits that the govt didn’t steal the monies but like a true blue S’poreans wants to avoid coughing up money (BS is cheap, money is another thing) is a heloo among the chattering classes.(think Maruah) and the born losers.

This is what his lawyer released yesterday: “The defendant …  had publicly apologised to the Plaintiff and acknowledged that the allegation about which the Plaintiff complained was false (in wording, and in a manner, required by the Plaintiff), who had given undertakings not to publish such an allegation, and who had agreed to remove material to which the Plaintiff had objected. 

My take has been that the the only original thing about his CPF articles is the accusation that the govt steals our CPF monies. http://atans1.wordpress.com/2014/06/11/roy-missed-his-calling-in-life/

As long ago as 2007, the intricacies of CPF were spelled out by an NMP in parly http://siewkumhong.blogspot.sg/2007/09/speech-on-ministerial-statement-on-cpf.html. Check out the references in speech. And Uncle Leong, Roy’s sifu has been active too.

So what has Roy added to the debate? Juz the accusation (now retracted) that govt stole the monies: an accusation he now readily admits is BS.

And he is a heloo to Maruah etc?

And nothing is wrong with the moral and ethical value of at least some highly paid, professional S’poreans?

Something is very wrong with us when a significant number of S’porean professionals are prepared to lie for their employers, paymasters, or when a self-declared liar is a hero to many S’poreans (number unknown).

BTW, I make no comment on whether PM is right morally, ethically, PRwise to sue because the issues are not as clear cut as the PAPpies, anti-PAP activists and ordinary, decent-minded S’poreans who dislike bullying think. It’s a complex problem that even game theory cannot help find an answer. I don’t know whether PM was right or wrong to sue.

Coming back to the issue of the willingness to lying, the PAP govt must take a lot of the blame for this. It has been in power, micro-managing and social engineering S’poreans since 1959, and has put collective responsibility and duty (calls it constructive nation-building) above all else, especially the conscience of the individual. Surely, some could have taken this to mean that it’s OK to lie for employer, paymaster?

Benchmark performance against peanut eaters?

In Financial competency on 16/06/2014 at 5:45 am

Gd performance in managing money is a matter of luck. So whether Ho Ching is qualified to run Temasek or not is irrelevant: is she lucky? And paying peanuts or millions of $ is irrelevant, at least in managing wealth.

[C]omputer programs run by Cass Business School that have randomly picked stocks using data from the past 43 years. Their performance was then compared to stock market index trackers, and in every decade bar the 1990s the “monkeys” won out.

Cass professor Andrew Clare – co-chief executive of “Simian Asset Management” alongside the monkeys – says: “We programmed a computer to randomly pick and weight each of the 1,000 stocks in the sample; we effectively simulated the stock-picking abilities of a monkey. We found that nearly every one of the 10m monkey fund managers beat the performance of the market-cap-weighted indices. One of the implications of our work is that we should perhaps be benchmarking our fund managers against monkeys rather than against a cap-weighted index.” (From Observer)

This too …

“A BLINDFOLDED monkey throwing darts at a newspaper’s financial pages,” wrote Burton Malkiel in “A Random Walk Down Wall Street”, his 1973 bestseller, “could select a portfolio that would do just as well as one carefully selected by experts”. Many investors took issue with Mr Malkiel, an economics professor at Princeton University. Some researchers have also contested his prediction, but not because they think that he exaggerated the power of randomly picking stocks; rather that he was too modest. Simulating a dart-throwing monkey has resulted in portfolios that would not just beat many investors, but also outperform the market.

In a study Robert Arnott and his co-authors picked 100 portfolios, each with 30 equally-weighted stocks from the 1,000 largest American stocks by market capitalisation. 94 of the 100 “dartboard portfolios” did better than a market cap-weighted portfolio of all the 1,000 stocks. Similarly, in another study Andrew Clare, Nick Motson and Steve Thomas randomly picked American stocks to construct ten million indices. An additional twist to their experiment was that the stocks were also randomly weighted. Nearly all of the ten million “monkey indices” delivered “vastly superior returns” compared to a cap-weighted index.

But

“financial knowledge does appear to help people invest more profitably” and that this may be a reason to “enhance financial knowledge in the population at large”.

This study, while compelling, does not necessarily contradict the superior performance of dartboard-equipped monkeys. The most knowledgeable respondents in the survey were found to hold 11.5% more stock in their portfolios than their least knowledgeable peers. It could thus simply be the case that more financially literate individuals hold more stocks rather than being better at picking them. While the authors speculate that the estimated positive effect of financial knowledge on returns could be even stronger if investors face a more complex set of choices (the particular institution in this study offered a menu of mostly index funds), the opposite is also plausible if financially illiterate individuals were to be found to make more random stock selections.

http://www.economist.com/blogs/freeexchange/2014/06/financial-knowledge-and-investment-performance

 

GIC, Temasek laughing all the way from Alibaba’s cave

In Financial competency, GIC, Private Equity, Temasek on 10/06/2014 at 4:47 am
FT reported a few moons ago on how Alibaba is likely to be valued in a coming US IPO:
Would-be buyers of Alibaba’s unlisted shares and convertible bonds have recently been making offers that value the group at $120bn-$150bn*, according to bondholders and others involved in the market …

That is a sharp contrast with 2012, when Alibaba issued the $1.6bn convertible bond to a small group of investors including Singapore’s Temasek and GIC.

At the time, Alibaba was valued at less than $40bn, two people with direct knowledge of the situation said. Under the terms of the deal, the bond will convert into equity upon completion of an IPO.

($= US$)

Temasek haters like Chris Balding and Heart Truths must be feeling sick. The bonds are worth 3 times the price that Temasek, GIC paid for them. Even at the low end valuation valuation of US$80bn, the bonds would have doubled in value. Keep on cursing Heart Truths and Chris Balding (and TRE posters). GIC, Temasek are like Sith Lords, they do well when you keep cursing them. LOL

Never mind, these rabid haters can bitch about the failure of an IPO where Temasek among other shareholders were trying to flip less than a yr after they went in. http://www.reuters.com/article/2014/04/30/wh-group-ipo-idUSL3N0NL2OL20140430. Investors tot they were too piggy in a pig farming IPO.

*Another view: Alibaba’s valuation, which a Breakingviews calculator estimates at $113 billion

 

HPL: More than “fair and reasonable”?

In Corporate governance, Financial competency, Property on 09/06/2014 at 4:38 am

The second revised buyout offer for Hotel Properties Limited (HPL) is considered to be “fair and reasonable” by the independent financial adviser to HPL. 68 Holdings, a consortium led by tycoon Ong Beng Seng and Wheelock Properties, had raised its bid a second time to $4.05 per share last month.

CIMB’s opinion on the offer is unchanged from its earlier report issued after the consortium first raised its offer price from $3.50 a share to $4. The updated report by CIMB was released in a supplementary letter to shareholders by HPL’s board of directors yesterday.

On the second revised offer of $4.05 a share, CIMB’s recommendations to HPL shareholders are also unchanged. (BT last Fri)

Given that the first offer was already “fair and reasonable”, shouldn’t this be an offer that is “more than fair and reasonable”?

Or the first one should have been “neither fair nor reasonable”? It was a low ball bid?

In 2002, the independent adviser to the board of Optus had come out with the opinion that far from paying too much, the offer is actually “unfair”.Independent adviser, Grant Samuel said the SingTel offer was “unfair”, but recommended the offer and says “while it is not fair, it is reasonable”. As a result, the directors of Optus recommended the deal to shareholders.

The M&A boutique said the deal was unfair based on valuation techniques, but said it was  reasonable because if there wasn’t an offer, Optus’ share price would be trading at lower levels: “In assessing the fairness of the offer, Grant Samuel indicates that its judgement of fairness is at the margin, and that while the Singtel offer is not fair, it’s only just not fair.”

Well, many S’poreans tot, at the time, that that the price paid was unfair and unreasonable to SingTel investors (self included0). Turns out we are right even today, it seem. If it wants to float Optus today, there would be a small gap of a bn or so A$ between its purchase p-rice and valuation of Optus today: small change leh.

Coming back to the HPL offer, CNA reported last week in relation to another takeover offer, “Minority shareholders are becoming increasingly disillusioned with boilerplate advice from independent financial advisers (IFAs) and are questioning their usefulness, the head of the Securities Investors Association of Singapore (SIAS) said on Friday (June 6).”*

To which the retort from bidders and IFAs would be, “They would say that wouldn’t they? They want unfair and unreasonable prices to be paid for their shares.”

*Cont’d

The remarks by SIAS President & CEO David Gerald came in a statement noting the dissatisfaction on the part of minority shareholders over a buyout offer for LCD Global, a hospitality and investment company, at S$0.17 a share.

“SIAS notes that while the IFA report has indicated that the offer is fair, based on a historical perspective, the offer does represent a discount to NAV at S$0.27,” …

 

CPF Life: What SunTimes left out

In Financial competency, Financial planning, Media on 05/06/2014 at 4:37 am

One merit about CPF Life is that it is run by the Government. That removes the big worry of retirees as to whether their insurer is financially strong enough to withstand the next global financial crisis in order to keep making the monthly payouts, is what a SPH reporter wrote last Sunday http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={838399526-20200-2041240930}.

Those who read this blog a few days ago will know that he is being constructive, and nation-building.

There is a provision in the law governing the CPF Life Plans which states that payouts are contingent on the Plans being solvent. This is because premiums that are paid in to get the annuities are pooled and collectively invested. If the plan you chose doesn’t have enough money to pay out, you die. This is unlike the [Minimum Sum] scheme, where account holders are legally entitled to the monies in their CPF accounts …

(http://atans1.wordpress.com/2011/12/03/best-cpf-life-plan/)

The government has said the provision on solvency is only a precaution unlikely ever  to be used. If so, why have it? This is a peace of mind issue. It was Gan who made this assurance when he was MoM.

He should have told us the fact that the govt refuses to “protect” CPF Lifers from fund failure, despite CPF Lifers having to participate.

If one cannot trust a SPH journalist to give us the relevant facts on a non-political issue, how can we rely on any SPH (and MediaCorp journalist, for that matter) to analyse or report political issues? After all our local media is proudly constructive and nation-building?

BTW, how does this refusal to “protect” CPF Lifers square with what PM said last week? “We want to enhance [the CPF’s retirement-annuity scheme] so that the payouts can keep pace with the cost of living,” and “We also want to provide stronger assurance in retirement for the lower-income groups.”

But the article made one gd point, The Standard plan offers an annuity scheme similar to what retirees in Britain opt for. The Basic plan is commonly adopted by US retirees. Reminder, the Basic plan is closer to the Minimum Sum scheme that is no longer available. For more: http://atans1.wordpress.com/2011/12/03/best-cpf-life-plan/

Swiss cost of living in S$ terms

In Financial competency, Financial planning on 04/06/2014 at 5:39 am

A few weeks ago the BBC published

Swiss monthly living costs

  • One-bed city centre flat: 1,800 francs                                     S$2520
  • Utilities: 100-200 francs                                                              S$140- 280
  • Health insurance: 300-400 francs                                           S$420- 560
  • Public transport: 50-70 francs                                                    S$70- 98
  • Restaurant meal for two: 100-150 francs                               S$140- 210

(http://www.bbc.com/news/business-27459178)

As you can see I’ve put the S$ equivalent beside the Swiss amounts.

Now you have an idea of the Swiss cost of living. As to their wages, the median wage there is the equivalent of S$8574 a momth.  Ours is S$4358 or S$2789 after deducting CPF.

 

CPF Life: What sucks/ Which is closest to Minimum Sum scheme

In CPF, Financial competency, Financial planning on 03/06/2014 at 5:25 am

The CPF system is in the news what with the President’s Address, which had hinted at further tweaks to the CPF system to enhance the retirement adequacy of Singaporeans, and Roy Ngegng’s claims* that the CPF system amounts to theft, something I’ve pointed out even before the PM threatened to sue him for defamation. Now we have an expert on Orchard Rd being sovereign territory where Pinoys cannot trespass, writing on the topic.

Well I never tot all this would happen when a  long time ago, I’ve blogged on the flaws in CPF Life.

Black box/ No benefits illustration

Various people (self included, a retired senior bank executive, and a scholar working in a GLC ) who have the choice of choosing between the CPF Life Plans and the Minum sum S scheme, have opted for the latter because the CPF Life Plans’ calculations are in a black-box. As a financial planner pointed out, “The CPF Life Plans come without a benefits illustration, something the law requires insurance agents and financial planners to show life insurance buyers”. The plans could be better, but we just don’t know.

(http://atans1.wordpress.com/2011/12/03/best-cpf-life-plan/)

Our money but CPF Life solvency is our problem

There is a provision in the law governing the CPF Life Plans which states that payouts are contingent on the Plans being solvent. This is because premiums that are paid in to get the annuities are pooled and collectively invested. If the plan you chose doesn’t have enough money to pay out, you die. This is unlike the [Minimum Sum] scheme, where account holders are legally entitled to the monies in their CPF accounts …

(http://atans1.wordpress.com/2011/12/03/best-cpf-life-plan/)

The government has said the provision on solvency is only a precaution unlikely ever  to be used. If so, why have it? This is a peace of mind issue. It was Gan who made this assurance when he was MoM.

BTW, the above link analyses which CPF Life Plan is closest to the Minimum Sum scheme in terms of payouts. It’s the basic plan which is a deferred annuity plan.

And here’s a constructive, nation-building way of using yr CPF (if you disagree with Roy Ngerng that CPF is theft by govt). Using yr CPF account as a savings account http://atans1.wordpress.com/2011/12/05/using-yr-cpf-oa-as-a-savings-account/. I’m sure Roy can get for his parents better rates than the 4% and 2.5% available from CPF , but I can’t. So i leave my surplus cash with the CPF Board.

——-

*Here’s what an ex senior EDB man with progressive tendencies posted on Facebook: My impression is that quite a number of us have learned to avoid sharing stuff by sites such as STOMP, Heart Truths, and TRS after having been embarrassed by their ridiculous accusations afterwards (myself included). I think that these fringe views have actually caused serious readers to become more discerning.
To take legal action, as this post points out, is double edged. Ironically, it confers a certain ‘legitimacy’. I used to take bus 36 to work, and an obviously mentally ill man would get on around Esplanade. He would complain loudly about many of our politicians and mutter to himself his plan to deal with them. Most people avoided eye contact. I always just tried to get off the bus without provoking him further. Nobody ever tried to debate him.

Roy’s thesis that the govt steals our CPF is an example of para-facts, nuggets of pseudo-truth, edited, wrenched from context, or simply invented from whole cloth. People like Uncle Leong (and self) have described how the CPF system works long before Roy did.

I once even wrote wrote, One noted local economist has said that the government is effectively pocketing the difference between the returns it gets from investing abroad and the returns it pays on our CPF accounts: a carry trade arbitrage. Borrow low and invest for higher returns. http://atans1.wordpress.com/2010/11/02/how-we-fund-our-swfs/ He never got sued even though it was said publicly.

 

 

 

 

 

 

 

 

Even rich face non-transparency when buying bonds

In CPF, Financial competency on 22/05/2014 at 4:18 am

(Yes, I’m taking a break from posting on FT-related topics. Normal FT ranting will resume tomorrow.)

ST recently pontificated on the need to make it easier for the “little people” to buy bonds (where in theory only $250,000 is needed for a minimum trade, though the usual dealing size is millions of $). Shortly thereafter, this letter appeared in Forum (BTW, I worked with him when we were both in the central bank. Glad to see that that he is still filthy rich. He went into stockbroking and ran into a rough patch here during the mid 1980s, but recouped his fortune in Perth, I was told).

But before I reproduce the letter, those anti-PAP paper activists who hate the CPF scheme (I’m thinking of you Half Heart Truths) should tell the truth on  CPF returns vis–a-vis govt bonds.  My Facebook Avatar posted this on Siow Kum Hong’s Facebook page (He had praised the 4% but not the 2.5% interest rate)

Don’t be greedy. 10 yr govt paper is less than 2.4%, while 15 yr is 2.7%. Of course investing in Reits a lot higher 5%+. But gd chance of having to retyrn it all via rights issue when there is a recession.

There was once a time when CPF acct holders were screwed (about the time Half Truths was saying rates were 7%). But now it’s a different story. GE coming )))

Now back to the problems very rich face when trying to buy S$ bonds:

Opaque fee structure for secondary bond market
Published on May 13, 2014

I recently bought a sizeable amount of Olam bonds and perpetual notes.

I discovered that bonds in Singapore and abroad are traded over the counter and was shocked by what I learnt about pricing in the secondary market.

While the direction of Olam bond prices was in line with my expectations, the quotations of bid and offer prices were extremely wide. Different banks and stockbroking houses also quoted different bid-offer spreads ranging from 0.75 per cent to 1.25 per cent over a 10-minute period.

Also, these institutions had opaque fee structures. Some banks incorporate their fees in the bid and offer prices, while others charge an additional fee of 0.25 per cent to 3 per cent over and above the spread.

Dealers told me of wealth management and advisory firms charging unsuspecting retail clients up to 3 per cent transaction fees on bonds.

Over one morning, I was given differing quotes from the various departments of a principal bank.

Comparing quotes between major investment banks is another nightmare.

If the Singapore Exchange and investment service practitioners wish to further develop the bond markets here and in Asia, they must come up with a more transparent system of secondary market pricing for retail investors.

The current structure lacks transparent guidelines and uniform fee structures.

Chua Wee Meng (Dr)

- See more at: http://www.straitstimes.com/archive/tuesday/premium/forum-letters/story/opaque-fee-structure-secondary-bond-market-20140513#sthash.ihCRqFWc.dpuf

Why Alex Fergurson is a financial genius

In Financial competency on 15/05/2014 at 4:16 am

Sir Alex Ferguson, who retired as Manchester United’s manager last year, was remarkable in his outperformance: over 19 seasons his teams gained 15 points more on average than would have been expected given the amount the club spent on wages. These margins matter. Had he been an average manager, he would have won just one title. Instead, he won eleven. 

http://www.economist.com/blogs/graphicdetail/2014/05/daily-chart-6

No wonder the Jewish owners worshiped him enough to allow him to choose his successor, another thrifty Scots who did better than the stats would predict. Too bad the successor was promoted beyond his ability and failed to win games.

What I don’t understand is why he changed MU’s training regime, annoying players and staff. It was a well oiled machine.

 

When do you need to use financial adviser that charges fees

In Financial competency, Financial planning on 13/05/2014 at 4:50 am

The UK has a regime whereby advisers are charged a fee for financial advice from investment advisers: no more commission-based income.

Fidelity caculated that sterling 61,000 was the minimum amount when it made sense to use fin adviser. This works out to about S$128,000.

Anything less, it is cheaper to take the risk of getting taken for a ride by yr insurance agent or financial planner who gets commissions from the manufacturers of the products that he or pushes?

Asiasons: Hero to Zero to …

In Financial competency, Private Equity on 08/05/2014 at 5:13 am

I looked at it when it fell to 40cents. But decided to give it a miss as its financial statements didn’t help me understand the company. A few weeks ago, I tot of buying a few hundred thousand shares at 5 cents on the premise that nothing could go wrong given that chairman and one of the controlling shareholders  Mohammed Azlan Hashimwho is also a director of Malaysian sovereign wealth fund Khazanah. Mohammad Azlan is also the former executive chairman of the Kuala Lumpur Stock Exchange*.

I also had a lot of respect for the guys behind the co based on their actions: see above link.

But I was in no hurry: didn’t see the stock going anywhere. I’ll let yesterday’s BT take up the story:

Asiasons Capital shares have suffered much pain but, unlike many of its penny stock cohorts, the private-equity firm and its top executives are not being investigated by Singapore’s white-collar crime buster for possible breaches of securities laws.

After getting battered to a low of 3.8 cents on Monday, Asiasons shares gained some ground yesterday, ending the day some 5 per cent higher at four cents, still a far cry from the high of $2.83 it hit last October days before the stock came crashing down.

Amid the penny stock controversy surrounding trading in its shares and investigations into several firms linked to it by the Commercial Affairs Department (CAD), one of Asiasons’ founders and chairman, Mohammed Azlan Hashim, has called it a day at the firm.

On April 28, the firm said the 57-year-old, a prominent corporate figure in Malaysia, had volunteered to retire as non-independent and non-executive chairman, a post he had held for seven years.

He now only has a 3.8%  direct interest in Asiasons. Previous in addition to this he had deemed interests of 50% (along with others) via other vehicles. Ng Teck Wah,  one of the joint MDs too is resigning, though he retains his deemed interests.

This leaves only Datuk Jared Lim Chih Li is a co-founder and Joint Managing
Director of Asiasons Capital Limited and also a director of
Chaswood Resources Holdings Ltd. Datuk Jared was formerly
a Non-Executive Director of ISR Capital Limited and he
retired on 25 April 2013.
Datuk Jared is the visionary behind the setting up of an
Asian-owned and Locally-grown private equity fund and
conceptualized Asiasons’ investment model of combining
traditional value enhancing exercises with branding, design
and online strategies.
Prior to the formation of the Asiasons Group in 2007, Datuk
Jared was an investment banker with Avenue Securities and
was responsible for the setting up of the corporate finance
unit, eventually building it up to a 40 man strong unit with a
strong track record in Equity offerings, Restructurings, M&A
and Bond Issues. Datuk Jared built a niche in Malaysia in cross
border equity offerings involving PRC enterprises, which
eventually led to his conviction that it was timely to start an
Emerging East Asian private equity model.
Datuk Jared is also a successful entrepreneur and is the
Chairman of the privately owned Be Group in Malaysia. The
Be Group is a boutique style Property and Lifestyle Group
comprising award winning properties and award winning
lifestyle brands in food and beverages and Wellness.
Datuk Jared has a Bachelors degree in Economics and
Accounting from the University of Bristol and obtained a First
Class in Masters of Finance from the University of Hull and
the Chartered Financial Analyst (CFA) qualification.
(From 2013 annual report)

Is he worth a punt?

——

*Dato’ Mohammed Azlan is the co-founder and Chairman of
Asiasons Capital Limited and also the Chairman of Chaswood
Resources Holdings Ltd. He is the senior statesman in the
Asiasons Group and is an established corporate figure with
interests in Malaysia and Singapore. He is instrumental in
building Asiasons’ relationships with government authorities
and large corporates across the region and provides Asiasons
with strong governance credibility given his previous tenure
as Executive Chairman of Kuala Lumpur Stock Exchange and
current quasi governmental roles.
He has extensive experience in the corporate sector
especially in financial services and investment management.
Aside from his tenure as Chairman of the Stock Exchange
in Malaysia, he also served as Group Chief Executive of
Bumiputra Merchant Bankers, Group Managing Director of
Amanah Capital Malaysia Berhad.
Dato’ Azlan is currently a Board Member of various
government and government related organizations including,
Labuan Financial Services Authority, Khazanah Nasional
Berhad (the investment arm of the Government of Malaysia).
He also serves on the Investment Panels of Employees
Provident Fund of Malaysia and the Malaysian Government
Retirement Fund Incorporated. He is also currently Chairman
of various public listed entities in Singapore, Malaysia, and
United Kingdom, including D&O Green Technologies Berhad,
SILK Holdings Berhad, Aseana Properties Limited, Scomi
Group Bhd and Deputy Chairman, IHH Healthcare Berhad.
A Chartered Accountant by profession, Dato’ Azlan
graduated with a Bachelor of Economics from Monash
University, Australia. He is a Fellow Member of the Institute
of Chartered Accountants, Australia, Malaysian Institute
of Directors, Institute of Chartered Secretaries and
Administrators, Member of Malaysian Institute of Accountants,
and Honorary Member of Institute of Internal Auditors
Malaysia.

 

Exotic world of US-listed EFTs — What S’poreans are missing

In ETFs, Financial competency, Financial planning on 04/05/2014 at 10:29 am

Of course Mah Bow Tan http://www.tremeritus.com/2014/05/01/netizens-agog-at-mah-bow-tans-fortune/and other millionaire ministers (present and retired) are not among these ‘lesser mortals”..

EFTs are created in the US to enable individual retail investors the ability to access hedge funds, long-short strategies and other areas of the market previously off limits. Here are some of the best picks.

The $700 million IQ Hedge Multi-Strategy Tracker ETF (NYSE:QAI) could be an interesting starting point. As one of the oldest alts ETFs, the fund is basically a hedge fund in one ticker. QAI hopes to replicate risk-adjusted returns of hedge funds using various hedge fund investment styles. It does this by using other liquid ETFs. Current top holdings include the Vanguard Total Bond Market (NYSE:BND) and PowerShares Senior Loan (Nasdaq:BKLN). So far, QAI has managed to provide consistent returns since its inception. Another broad hedge fund style ETF choice could be the ProShares Hedge Replication ETF (NYSE:HDG).

The biggest category of alts fall under the managed futures banner. These strategies take advantage of price trends across different futures contracts including commodities, currencies and stock index derivatives. The WisdomTree Managed Futures Strategy (Nasdaq:WDTI) tracks the Diversified Trends Indicator- which is the benchmark managed futures index. So far, performance for WDTI has been pretty poor as commodities have fallen by the wayside and stocks have rallied. However, that highlights WDTI’s non-correlated status.

Finally, market neutral or absolute return strategies could be winners as volatility returns to the market. The new First Trust High Yield Long/Short ETF (Nasdaq:HYLS) goes long on junk bonds while shorting treasury bonds to profit from the spread and reduce interest rate risk, while the Credit Suisse Merger Arbitrage ETN (Nasdaq:CSMA) uses M&A to profit. CSMA seeks to gain from the spread between when an acquisition is announced and the final purchase price is made. Both funds won’t “hit it out of the park,” but will deliver consistent returns for portfolios.

http://www.investopedia.com/stock-analysis/040714/dose-alternatives-may-do-your-portfolio-some-good-qai-hdg-wdti-rly.aspx?utm_source=basics&utm_medium=Email&utm_campaign=Basics-4/11/2014

Buying dividend stocks: downsides

In Financial competency on 03/05/2014 at 9:19 am

From FT

However, fund managers warn against simply picking stocks with the highest dividends.

“High dividend yields are a factor when picking stocks,” says Romain Boscher, head of equities at Amundi. But there are other important reasons for choosing a company, such as cash flows, to check the sustainability of a high dividend.”

Dividend cover, which calculates the ratio of earnings to dividends, has been improving as although companies have been increasing dividend payouts, earnings have been growing faster.

Even so, Mr Stout points out that some pension funds are reluctant buyers of equity. “It is a Hobson’s choice. Equities offering relatively high dividend yields are not necessarily investable for funds governed by perceived low-risk criteria. They do not have a proper choice as buying gilts offers a negative real return.”

Will Low, head of equity at Scottish Widows Investment Partnership, warns that shares are still considered risk assets and may not provide the answer in a worst-case scenario of a reversing, deflationary world economy.

He says: “We do not expect deflation, but it is a possibility. In such a scenario, the safest assets are government bonds. Equity income funds and companies offering high dividends are a better bet in equities, but they are not a guaranteed bet, particularly given this is now a more widespread consensus view.”

If Mr Rockefeller was alive today, he would no doubt, like some asset managers, draw hope from rising equity dividends. However, he would also likely be one of the first to admit that they are not necessarily the panacea in an uncertain world.

Investment myths or facts?

In Financial competency on 02/05/2014 at 9:12 am

(On auto-pilot until Monday. Financial competency stuff in the meantime)

Exposed: Wall St’s secret 18.79% investment plan

http://www.moneynews.com/MKTNews/wall-street-secret-calendar-investments/2014/01/08/id/546008/?PROMO_CODE=16366-1

Wimmin are not better investors than men

Indeed the notion that risky behaviour is a particularly male trait is quite new, as Josephine Maltby and Janette Rutterford argue in “The Oxford Handbook of the Sociology of Finance”. In the eighteenth century speculation was considered an inherently feminine indulgence. Financial markets, from the time of the South Sea Bubble, were compared to female flightiness, unpredictability and dependence on “self-generated hysteria”. This changed in the nineteenth century, as investment came to be seen as a masculine, rational activity, of which whimsical women were incapable. Since then the view has prevailed that women are naturally wary.

The Merrill Lynch report found that both men and women are subject to strong emotional influences that can affect their investing habits for good or ill. Such influences do not in themselves predict failure or success …

Unsurprisingly, the bank suggests that a good way to do that is to seek help from a financial adviser.

Expenses matter

men and women make similar investment decisions, but that women’s returns are better because they don’t buy and sell shares as often, so incur fewer fees.

Related posts:

http://atans1.wordpress.com/2013/11/14/costs-savings-in-airlines-every-little-bit-counts/

http://atans1.wordpress.com/2011/11/30/still-relevant-today/

PM, police chief, Kirsten Han, Heart Truths are aliens?

In Economy, Financial competency, Humour on 01/05/2014 at 5:07 am

Here via UFO Meng Seng?

This funny take on a recent scientific finding* http://www.tremeritus.com/2014/04/11/pap-makes-use-of-oxytocin-to-manipulate-us/ provoked the usual “PAP will be defeated in the next GE” BS.

Well after the next GE, when the PAP wins (albeit hopefully with only 51% of the popular vote, and a GRC or two falls to the SDP, and the WP retains their seats), I wonder if the same TRE posters who proclaims victory in the next GE will blame the PAP for for putting oxytocin into the water supply? They might as well start blaming VivianB now?

After all these TRE posters who say the PAP will be defeated in the next GE belong on the same planet as the PM**, police commissioner (he excluded NS men from his calculations of police to people ratio http://trulysingapore.wordpress.com/2014/04/08/inaccurate-police-force-to-resident-ratio-figure/)***, Kirsten Han (who thinks that S’poreans can have a dialogue with the govt on its pro-FT policies) and Heart Truths ****.

Their reality of S’pore is different from that of mine, and I suspect of most ordinary S’poreans (esp the 35% whose minds can be changed by rational arguments), Their reality is only slightly different; but juz enough to tell us that they are aliens from an alternate S’pore, in a different time and space, who came here on a UFO piloted by one Goh Meng Seng, assisted by his buddy Tan Kin Lian.

My serious point is that no-one group has a monopoly of saying or thinking irrational, stupid things. We are all stupid. It’s juz that are more stupid than others, and don’t realise their stupidity.

Good long weekend.

————————————————

*Members of a group are more likely to lie after they inhale the “love hormone” oxytocin, a study has found.

This hormone is known to be released during close bonding between groups, and mothers also release it during childbirth and breastfeeding.

The results suggest that individuals in closely bonded groups are more likely to lie when it benefits the group than when it only benefits the individual. http://www.bbc.com/news/science-environment-26771703

**Singapore’s economy has fared better than expected over the last decade, but the country’s success also brought about its own set of challenges.  PM Lee made this point in a wide-ranging discussion with regional newspaper editors  recently.

He said the country had paid the price of this fast growth, as infrastructure wasn’t able to keep up with the rapid development.

Mr Lee was asked about Singapore’s success during his time as Prime Minister and if anything exceeded his expectations.

He said yes, the country had done economically better than expected and grown faster — attributing it to favourable conditions.

As investments poured in, the government had put in resources and brought in foreign labour needed to grow. As a result, developments at the Marina Bay area sprung up in within a decade, instead of the expected 20 to 30 years.

He said that in terms of infrastructure, the country had not been able to catch up and had paid a price, and added that the government had been working hard over the past three to four years trying to come back up to speed.

He said that if the government had been able to foresee the outcome, it would have acted sooner.

But that, he said, was with the benefit of “20-20 hindsight”.

“We succeeded more than we expected, and so in terms of the infrastructure, we were not able to catch up — our public transport, building houses,” said Mr Lee. “And we paid a price.”

“We have spent the last three, four years working hard to try and come up back to speed. I wish we had been able to foresee this outcome, and then we would have acted sooner.

“But that’s 20-20 hindsight.”

Mr Lee also emphasised that it’s important for Singaporeans to feel they have a sense of belonging to the country — and that is something that is still a work in progress.

But Mr Lee acknowledged that this growth had come with a cost.

CNA extract

Success what success? Real wages grew by only 0.4% while GDP grew by 5.9% . while the prices of public housing apartments went up in a recession.

And belonging? What belonging? When FTs can hold events in public spaces, and S’poreans are ghettorised in Hong Lim?

***Wonder what the ratio would be like if  Cisco officers are included (they still wear uniforms that look like police uniforms) are included. I tot of calculating the ratio but there doesn’t seem to be any information available via a google search.

****On govt stealing interest from CPF http://sonofadud.com/2014/04/04/cpf-and-hdb-10-real-dirty-tricks/

And on CPF contributions being a tax and CPF being theft despite this study ranking S’pore’s CPF system as the  7th best out of 20 pension systems analysed http://www.investopedia.com/articles/personal-finance/042914/top-pension-systems-world.asp?utm_source=newstouse&utm_medium=Email&utm_campaign=NTU-4/30/2014

Property prices: Valuations are irrelevant/ It’s all about credit

In Financial competency, Property on 29/04/2014 at 5:00 am

The availability of credit, or is the case, now, the non-availability of credit.

And it’s not Heart Truths screaming this out loud; Roy Ngerng sadly prefers to teach anti-PAP S’poreans to suck eggs in ever more complicated ways.. It’s the constructive, nation-building local media that are screaming it out loud that it’s credit that matters.

Private home price decline accelerates as curbs bite (Today 26 April)

... in the first three months of the year, with finalised data from the Urban Redevelopment Authority (URA) confirming that the price decline had picked up pace amid persistently weak sentiment.

Private home prices slipped 1.3 per cent in the first quarter of the year from the previous three months, unchanged from the preliminary estimate released earlier this month and accelerating from the 0.9 per cent fall in the fourth quarter of last year, the URA said yesterday,

 Analysts said the multiple sets of property market cooling measures introduced by the Government, especially the Total Debt Servicing Ratio (TDSR) framework imposed last June, have been effective in curbing demand and runaway prices.

They expect the measures to remain for now, suppressing demand and probably leading to further weakness in home prices in the following quarters.

“Market exuberance for private homes was very much tempered by the existing property cooling measures and the TDSR … The various government measures have effectively curtailed demand from most groups of home buyers,” said PropNex Realty’s chief executive Mohamed Ismail.*

Shophouse deals continue to languish (14 April)

Shophouse transaction volumes continued to languish for the third consecutive quarter, as demand took a hit following the introduction of the Total Debt Servicing Ratio (TDSR) framework in late-June last year. However, prices have continued to hold – due to a limited supply of shophouses and most owners taking a longer-term horizon and having holding power.

CBRE’s analysis of caveats data shows that 26 shophouses changed hands for a total $118.4 million in the first quarter of this year, down from $149.3 million in Q4 last year and $197.2 milion in the preceding Q3. In Q1 and Q2 last year the figures were $463.7 million and $458 million respectively, reflecting the buoyant market pre-TDSR. CBRE’s analysis covered only shophouses on sites zoned for commercial use.

Shophouse transactions weakened to $346.5 million in the second half of last year from $921.7 million in the first half – resulting in a full-year figure of $1.27 billon, down from $1.38 billion in 2012.

Besides TDSR, which has tightened lending for property purchases across the board, another key reason for the sharp slowdown in shophouse transaction volumes is that prices have risen in the past few years to levels beyond the affordability of most potential buyers, said Knight Frank executive director Mary Sai.

It’s all about the Total Debt Servicing Ratio (TDSR) introduced last June.

Why did it take so long to introduce this measure? Heart Truths should be asking this question

So now you know why

Some are giving big discounts, while others are going on marketing blitzes — property developers are pulling out all the stops to boost sales which have been hit by cooling measures.

Statistics from the Urban Redevelopment Authority (URA) on Friday showed a 1.3 per cent decline in prices in the first quarter of this year. It is the largest drop since the second quarter of 2009, when prices fell by 4.7 per cent.

The Interlace condominium was launched in 2009 and some residents have since moved in.

However, the project by CapitaLand still has 183 unsold units as of March 2014.

Over at Whampoa East Road, the Eight Riversuites condominium has 205 unsold units. However, the 862-unit project was one of the top sellers last month, when it sold 44 units.

It was the project’s highest sales volume in a single month since June 2013, when the government tightened property loan rules. Under the Total Debt Servicing Ratio framework, home buyers can only loan up to 60 per cent of his or her income.

The units were sold at a median price of about S$1,100 psf — almost 20 per cent lower compared to when the project was first launched some two years back, when it was sold at S$1,340 psf.

Property watchers … said developers may be under pressure to cut prices in order to boost sales.

Nicholas Mak, executive director at SLP International Property Consultants, said: “If a certain residential project has been launched for quite some time and still has substantial unsold units, and this project is quite near to its completion date, the developers may be under some pressure to increase sales.

“Because if let’s say the development is completed and there is still quite a number of unsold units, they (the developers) could also be facing competition from other developments that could be newly-launched in the vicinity.”

Jones Lang LaSalle’s national director of research and consultancy Ong Teck Hui said: “Since the TDSR was introduced in June 2013, the number of unsold units in launched private residential projects has increased significantly by 19 per cent from 5,243 units in Q2 2013 to 6,247 units in Q1 2014.

“This is reflective of the slower take-up of units at new sales launches, resulting in the build-up of unsold units.”

Besides cutting prices, developers are also trying other tactics.

Sales for the Sky Habitat project at Bishan Street 15 picked up in April, after a marketing blitz. In a statement issued on Friday on its first quarter earnings, developer CapitaLand said 106 units were sold in April — after more than six months of single-digit sales volume, according to URA’s figures.

“Another strategy that some developers may embark on is to increase the sales commission for agents,” Mr Mak added.

“For example, a one percentage point reduction may not be that attractive to buyers. However, if developers were to raise the commission by one percentage point of the price, that absolute amount will give a lot more incentive to the property agents to work harder in attracting buyers.”

The competition is expected to intensify with close to 15,000 units, including executive condominiums, to be completed for the rest of the year. This brings the total number of units to be completed in 2014 to almost 20,000 — higher than the some 14,400 units in 2013. (CNA 28th April)

——-

* More: Both the primary and secondary markets suffered sharp slowdowns in buying activity. Developers launched 1,964 new private homes from January to March and sold 1,744 units, fewer than the 2,631 launched and 2,568 sold in the previous three months. In the resale segment, transactions dropped from 1,206 units to 899 homes, the URA said.

Prices fell across all segments of the private housing market in the first quarter, with condominiums in the Rest of Central Region (RCR), or city fringes, leading the decline at 3.3 per cent. Those in the Core Central Region (CCR), or city centre, dipped 1.1 per cent, while the Outside Central Region (OCR), or suburbs, registered a slight 0.1 per cent fall.

Ms Christine Li, head of research and consultancy at property agency OrangeTee said the bigger declines in the CCR and RCR could be due to developers focusing on trying to sell houses from previous launches.

“Most of the homes sold in the first quarter are from existing property launches, where prices could be more attractive as developers have dangled more incentives and discounts to move sales in a slow market,” she said.

Ms Li added that prices in the RCR could see some support in the second quarter as more “attractively located” projects are expected to be launched during this period.

“Three of the highly anticipated projects — Commonwealth Towers, The Crest and Highline Residences — are expected to be launched in the current quarter. These projects are also expected to fetch a higher median price than what’s been achieved in the first quarter.”

And while prices of mass market homes are likely to stay relatively stable, the odds seemed to be stacked against the high-end CCR segment, analysts said.

Ms Chia Siew Chuin, director for research and advisory at real estate consultancy Colliers International, said: “Domestic demand has been weakened by the loan curbs while interest from foreigners, who traditionally form a large demand base for high-end properties, has diminished in view of more favourable investment options in the recovering foreign markets.

“On the supply side, developers of high-end properties may feel the heat to meet the Qualifying Certificate deadline.”

The analysts estimated that overall prices could fall between 4 and 8 per cent by the end of this year, as the property measures are likely to remain.

“As long as borrowing costs stay low, the Government is unlikely to reverse the earlier anti-speculation measures … Under such an environment, we expect price weakness to persist,” said Mr Ismail.

 

Is MU right to sack Moysie?/ Long ball is betterest

In Financial competency, Financial planning, Footie on 23/04/2014 at 4:43 am

Yes say I: The choice facing the owners (Jewish and Zionists and mortgaged to their eyeballs) BTW) was stark

Would they really back Moyes for the long term by handing him a transfer kitty worth as much as £100m to invest in rebuilding the squad?

Or would they decide giving all that money to him was too big a risk?

Would anyone sensible trust Moysie with that kind of $ based on this season’s performance which was the mother of nightmares? BTW, I waz happy he was the Chosen One. What was or went wrong: everything http://www.bbc.com/sport/0/football/27109742

No, say the stats and SAF’s cardinal rule of footie mgt.

Ter Weel analysed managerial turnover across 18 seasons (1986-2004) of the Dutch premier division, the Eredivisie. As well as looking at what happened to teams who sacked their manager when the going got tough, he looked at those who had faced a similar slump in form but who stood by their boss to ride out the crisis.

He found that both groups faced a similar pattern of declines and improvements in form.

While Ter Weel’s research focused on Dutch football, he argues that this finding is not specific to the Netherlands. Major football leagues in Europe, including England, Germany, Italy and Spain also bore out the same conclusion – teams suffering an uncharacteristic slump in form will bounce back and return to their normal long-term position in the league, regardless of whether they replace their manager or not.

And his theory seems to work if you look at what happened to other clubs in the English Premier League last season. The same week in March which spurred Sunderland to change the personnel in charge, Aston Villa were sitting at 17th in the table, struggling against relegation.

In the same way that water seeks its own level, numbers and series of numbers will move towards the average, move towards the ordinary.”

David Sally, co-author of The Numbers Game

(http://www.bbc.com/news/magazine-23724517)

In finance, this is called reversion to the mean.

This what AlexF said on the opening night of Ferguson’s book tour, on an October evening at the Lowry theatre, and what he told his audience about the management profession. “It’s a terrible industry. When clubs sack a manager there is no evidence it works. But there is evidence, and it’s hard evidence, that sticking with your manager does work. This is an important issue and it is something I believe in, very strongly. Sacking a manager does not help.”

Well obviously MU isn’t listening. Some serious money (borrowed I may add) is at stake.

Related article: Long ball is betterest:

His data suggested that most goals were scored from fewer than three direct passes, and he therefore recommended the widely-despised “long-ball” game.

In other words, the ugliest type of football imaginable. Hoof the ball forward, hope you get a lucky break, and poke it into the net.

“Unfortunately it kind of brought statistics and football into disrepute,” says Chris Anderson, author of The Numbers Game, an analytical and historical look at the use of data in football.

Now, behind the biggest football teams in the world, lies a sophisticated system of data gathering, metrics and number-crunching. Success on the pitch – and on the balance sheet – is increasingly becoming about algorithms.

The richest 20 clubs in the world bring in combined revenues of 5.4bn euros ($7.4bn, £4.5bn), according to consultancy firm Deloitte. And increasingly, data is being seen as crucial to maximising that potential income by getting the most from football’s prized investments – the players.

http://www.bbc.com/news/business-26771259

Looking for value for $ when studying in US?

In Financial competency, Financial planning on 13/04/2014 at 5:48 am

Check out this link http://www.economist.com/node/21600212

It tells you which colleges offer US students the best, worse returns for the fees they pay. While not directly applicable for S’poreans, some sign-post is better than none. Check out Harvey Mudd, a liberal arts college of science, engineering, and mathematics. Seems to offer bang for the buck.

Whether or not it is worth paying depends on who you are, what you study and where. PayScale, a research firm, has done a big survey of graduates and used it to estimate the financial return on degrees from different American colleges and universities. Our interactive chart below shows the total cost of a degree after financial aid (the beginning of the coloured bar) and the return over 20 years (the end of the bar). The return is defined as the amount that a graduate earns, minus what someone who did not attend college would earn, and minus the cost of attending college. Thus, a wider bar is good. The chart can be sorted by cost, return (annualised and over 20 years) or alphabetically.

PAP govt and S’poreans no ak degrees in arts and humanities, US data shows why:

Unsurprisingly, engineering is a good bet wherever you study it. An engineering graduate from the University of California, Berkeley can expect to be nearly $1.1m better off after 20 years than someone who never went to college. Even the least lucrative engineering courses generated a 20-year return of almost $500,000.

Arts and humanities courses are much more varied. All doubtless nourish the soul, but not all fatten the wallet. An arts degree from a rigorous school such as Columbia or the University of California, San Diego pays off handsomely. But an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his education. Of the 153 arts degrees in the study, 46 generated a return on investment worse than plonking the money in 20-year treasury bills. Of those, 18 offered returns worse than zero.

- See more at: http://www.economist.com/news/united-states/21600131-too-many-degrees-are-waste-money-return-higher-education-would-be-much-better#sthash.cJdJZ7Xp.dpuf

Unsurprisingly, engineering is a good bet wherever you study it. An engineering graduate from the University of California, Berkeley can expect to be nearly $1.1m better off after 20 years than someone who never went to college. Even the least lucrative engineering courses generated a 20-year return of almost $500,000.

Arts and humanities courses are much more varied. All doubtless nourish the soul, but not all fatten the wallet. An arts degree from a rigorous school such as Columbia or the University of California, San Diego pays off handsomely. But an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his education. Of the 153 arts degrees in the study, 46 generated a return on investment worse than plonking the money in 20-year treasury bills. Of those, 18 offered returns worse than zero.

- See more at: http://www.economist.com/news/united-states/21600131-too-many-degrees-are-waste-money-return-higher-education-would-be-much-better#sthash.cJdJZ7Xp.dpuf

Unsurprisingly, engineering is a good bet wherever you study it. An engineering graduate from the University of California, Berkeley can expect to be nearly $1.1m better off after 20 years than someone who never went to college. Even the least lucrative engineering courses generated a 20-year return of almost $500,000.

Arts and humanities courses are much more varied. All doubtless nourish the soul, but not all fatten the wallet. An arts degree from a rigorous school such as Columbia or the University of California, San Diego pays off handsomely. But an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his education. Of the 153 arts degrees in the study, 46 generated a return on investment worse than plonking the money in 20-year treasury bills. Of those, 18 offered returns worse than zero.

- See more at: http://www.economist.com/news/united-states/21600131-too-many-degrees-are-waste-money-return-higher-education-would-be-much-better#sthash.cJdJZ7Xp.dpuf

Unsurprisingly, engineering is a good bet wherever you study it. An engineering graduate from the University of California, Berkeley can expect to be nearly $1.1m better off after 20 years than someone who never went to college. Even the least lucrative engineering courses generated a 20-year return of almost $500,000.

Arts and humanities courses are much more varied. All doubtless nourish the soul, but not all fatten the wallet. An arts degree from a rigorous school such as Columbia or the University of California, San Diego pays off handsomely. But an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his education. Of the 153 arts degrees in the study, 46 generated a return on investment worse than plonking the money in 20-year treasury bills. Of those, 18 offered returns worse than zero.
– See more at: http://www.economist.com/news/united-states/21600131-too-many-degrees-are-waste-money-return-higher-education-would-be-much-better#sthash.cJdJZ7Xp.dpuf

So taz why so many FTs teaching here in arts and social science?

 

Unsurprisingly, engineering is a good bet wherever you study it. An engineering graduate from the University of California, Berkeley can expect to be nearly $1.1m better off after 20 years than someone who never went to college. Even the least lucrative engineering courses generated a 20-year return of almost $500,000.

Arts and humanities courses are much more varied. All doubtless nourish the soul, but not all fatten the wallet. An arts degree from a rigorous school such as Columbia or the University of California, San Diego pays off handsomely. But an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his education. Of the 153 arts degrees in the study, 46 generated a return on investment worse than plonking the money in 20-year treasury bills. Of those, 18 offered returns worse than zero.

- See more at: http://www.economist.com/news/united-states/21600131-too-many-degrees-are-waste-money-return-higher-education-would-be-much-better#sthash.cJdJZ7Xp.dpuf

Unsurprisingly, engineering is a good bet wherever you study it. An engineering graduate from the University of California, Berkeley can expect to be nearly $1.1m better off after 20 years than someone who never went to college. Even the least lucrative engineering courses generated a 20-year return of almost $500,000.

Arts and humanities courses are much more varied. All doubtless nourish the soul, but not all fatten the wallet. An arts degree from a rigorous school such as Columbia or the University of California, San Diego pays off handsomely. But an arts graduate from Murray State University in Kentucky can expect to make $147,000 less over 20 years than a high school graduate, after paying for his education. Of the 153 arts degrees in the study, 46 generated a return on investment worse than plonking the money in 20-year treasury bills. Of those, 18 offered returns worse than zero.

- See more at: http://www.economist.com/news/united-states/21600131-too-many-degrees-are-waste-money-return-higher-education-would-be-much-better#sthash.cJdJZ7Xp.dpuf

Annualised return of 8.4% using CPF*

In ETFs, Financial competency, Financial planning on 01/04/2014 at 4:34 am

(*Terms and conditions apply)

Only problem is that most of it is via capital appreciation i.e. must sell to get the income.

Straits Times Index EFTs getting an annualised 8.4% over the past 10 years.

While our CPF ordinary account is getting a miserly 2.5% that is getting beat by inflation.

Although we can invest amounts above $20,000 in the CPF ordinary account into approved stocks and unit trust, this rule puts a damper on everyone’s CPF accounts, especially those who are starting to work, or those whose pay is low and those who are not investment inclined.

More important is the fact that just the average dividends given by the STI ETF alone will have beat the 2.5% given by the CPF.

The reply by our government that the interest rate is low because our currency is strong is pure hogwash. If you are using the CPF funds to invest all over the world and boasting that you are getting investment returns that is on par or beat that of Warren Buffett’s Berkshire Hathaway, that explanation is laughable.

So why not just put all the CPF funds into STI ETFs, get dividends higher than 2.5%, have a more than even chance of getting capital returns with dividend as high as the 8.4% achieve over the last 10 years?

This is one example of the nanny state trying to be too clever.

http://www.financialfreedomsg.com/2014/03/why-dont-we-get-84-on-our-cpf.html?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+FinancialFreedomSg+%28Financial+Freedom+SG%29&utm_content=FaceBook

 

Finnish education system aimed at creating unemployment?

In Casinos, Economy, Financial competency, Uncategorized on 26/03/2014 at 4:38 am

S’poreans who laud the Finnish education system may want to think again. Look at the unemployment figures in this chart. Look st the Finnish the S’porean figures. Finnish education better than ours leh? Our system not that bad leh? worse for rapid PAP haters, govt is promising change. LOL

Here’s another inconvenient fact for those who want us to be more Finnish. A S’porean studying there tells me that slot machines are everywhere: in convenience stores, shopping centres etc.

On gambling on per capita basis and because of our casinos, we juz behind the Ozzies. Restrictions for locals? What restrictions? Only restricted if cannot pay and pay. OK, OK, terms and conditions even then apply. Finland is a distant third.

http://www.economist.com/blogs/graphicdetail/2014/02/daily-chart-

Coming back to education, the fact that PISA ranks China (OK Shanghai as tops) in education, doesn’t deter wealthy Chinese parents from wanting a posh, private British education (think s/o JBJ). No they want potatoe speaking, half Chinese, half ang moh sons: they want a better education for their kids.

My serious point, is that education is a very complicated topics. And we shouldn’t trivalise a debate on education with throwing data willy nilly to support an ideological position, even if one LKY (the PAPpy haters tremble and cross their hearts at the mere mention of his name) does it. Remember his remarks about the kids in neighbourhood schools that gave the govt grief?

In fact, data has to be analysed, not used as sticking plaster to support or denounce any given position on any issue. There are no “right” facts, juz facts.

 

Focus on dividend growth, not yield

In Financial competency, Reits on 11/03/2014 at 4:25 am

Here’s some gd advice from the FT when buying dividend stocks:

However, experts warn investors should not be lured by high dividend payouts from individual companies, as this can entail risk. Instead, they note that dividend growth can result in much higher returns.

“Chasing a high dividend is a risky strategy; the yield might look attractive, but the risk is the dividend gets cut and the share price falls further,” said Adrian Lowcock, senior investment manager at Hargreaves Lansdown.

“The share price may have already fallen to reflect expectations the dividend will be cut – meaning the yield would then have risen,” he added. “We saw this in 2008/09 when the banks all had high yields but were not going to be paying dividends for many years.”

Investors should instead look for growing income, as these companies are likely to be financially more robust, growing their capital base.

So maybe time to think about SMRT http://atans1.wordpress.com/2014/03/04/smrt-only-now-meh/?

And here’s a gd BT article on evaluating Reits: http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={651562920-19895-7719950079} High yields do not mean a Reit is an attractive buy, however. Yields are related to risk and growth potential, as investor Bobby Jayaraman pointed out in his 2012 book on Reit investing, Building Wealth Through Reits. The safer the Reit and the higher its growth potential, the lower its yields will be. This is because high demand from investors for these assets pushes up their price, thus lowering yields.

If you want to know more about the Reit structure http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={651939829-19894-8559931515}

Got money to retire on after paying 30-yr HDB loan for 99-yr lease?

In Financial competency, Financial planning, Political governance on 06/03/2014 at 4:28 am

Further to this, I tot readers would be interested in the findings of a study commissioned by MoM and conducted by NUS academics. What do you think of the assumptions? Are they reasonable? Yes, I know they assume 30yrs (while 25 yrs is max period), but that make’s it more conservative when thinking of retirement funds.

About half of Singaporeans currently meet the minimum sum to qualify them for the above payout. But most young Singaporean wage earners today will be able to meet the minimum sum by the time they retire, provided they buy property within their means, the government has said.

An independent study on retirement was also commissioned by the Ministry of Manpower and conducted by National University of Singapore professors Chia Ngee Choon and Albert Tsui. It found that young workers today can replace their income upon retirement at rates similar to developed countries.

One major assumption is that a couple of the same income percentile marry, with the male at age 30 and female at age 28. They buy an HDB build-to-order (BTO) flat with a 30-year mortgage, with the 30th, 50th and 70th percentile members buying a three-room, four-room, and five-room BTO flat respectively. The couple do not upgrade to a larger home.

In the study, a male at the 50th percentile earns $2,500 a month at age 25 (or $3,300 at 70th percentile) and is assumed to reach his peak earnings close to age 55, at $3,860 (or $6,800 at 70th percentile). The 50th-percentile male can replace 70 per cent of his age-55 income after he retires at age 65, the study said (63 per cent for the 70th-percentile male). The numbers for females are slightly lower.

Upon retirement, the median male is thus assumed to get a monthly income of around $2,700, and the 70th percentile male, $4,300. This presumes the entire amount of their retirement savings in the CPF is converted into a life-long annuity, instead of up to the Minimum Sum, as is the current practice. Otherwise, income replacement rates fall drastically.

Thus, the study’s authors said that CPF members with savings above the minimum sum cannot withdraw the lump sum and spend extravagantly. If they want to be able to replace a higher proportion of their income, “they must invest their CPF savings above the minimum sum wisely so as to generate a stream of retirement income to supplement CPF Life payouts”.

http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={157655219-19765-9502481817}

Here’s the perspective of a flat buyer http://sgyounginvestment.blogspot.sg/2014/02/how-much-money-does-couple-need-to-earn.html

The risk Reit buyers bear

In Financial competency, Property, Reits on 25/02/2014 at 4:09 am

CapitaMall Trust recently sold retail bond offering paying 3.08% annually.

Its units trade at a yield of 4.55% as yet yesterday’s close.

The percentage difference (48%) between the two numbers is the willingness that holders of the units are willing to accept (whether they realise it or not) for the higher (but not assured) payout. If Reits, reduce their payouts, the price falls to compensate for the reduced yield. Even if the payout remains constant, high yielding shares are only a good investment if a falling share price does not undo the yield return.

As there are many other Reits that have better yields, reit investors should be mindful of the risk they are assuming in chasing higher yields.

FYI, I’m still a holder of Reits.

Relared posts:

http://atans1.wordpress.com/2014/01/09/why-owning-reits-in-a-rising-interest-rate-environment-may-make-sense/

http://atans1.wordpress.com/2013/11/14/where-reits-can-go-wrong/

CapitaMall Trust launches retail bond offering paying 3.08% annually – See more at: http://sbr.com.sg/retail/news/capitamall-trust-launches-retail-bond-offering-paying-308-annually#sthash.pEWiNljc.dpuf

Buying, renting or the Korean way?

In Economy, Financial competency, Property on 18/02/2014 at 4:23 am

Recently, the FT carried a commentary (behind pay-wall) on why a leading UK architect was renting, not buying (UK has a home-purchasing culture which one LKY imported and made S’porean for reasons explained below).

Here are two gd responses to the article:

– “People are obliged to borrow to buy property because they need a roof over their heads when they retire and do not want to be at the mercy of a landlord, who will increase the rent annually and reserve the right to serve notice three months after signing the annual shorthold tenancy agreement.” (a reader)

–“As everyone knows, buying property used to be like standing in front of a fruit machine that was jammed on three cherries. Wealth came pouring out. And as everyone also knows, that machine has now stopped dispensing cash. You can’t buy a house that will change your life like my grandmother did, nor buy a flat that makes you rich, like I did when I was only 23. Most people can’t afford to buy anything at all.” (Lucy Kellaway, an FT columnist)”

She also reminds, “It has nothing to do with money, and everything to do with culture, emotion and family.” The very reason why the PAP govt wants S’poreans to own their homes, never mind that most of them are buying 99-yr leases.

At the end of the day as she points out, buying “is a wise move” when property prices go up, “renting is smarter” when prices go down. So long as S’pore is a one-party state with the PAP in charge, property prices may keep on rising*. With WP or SDP in charge, what do you think?

—–

In Korea, there is an unusual rental system, known as jeonse, does not involve monthly rental payments. Instead, tenants provide landlords with a deposit, typically between a quarter and half of the property’s value, to invest for the duration of the lease. Property owners keep the returns and then repay the lump sum at the end of the tenancy … Tenants’ deposits financed landlords’ properties, interest-free, while pushing renters to pool savings: over time, the deposit would become their own home-purchase fund. For decades, monthly rental was synonymous with poverty.

Yet interest rates and property prices have sunk since 2008. To earn a decent return on their investments, landlords have been raising jeonse prices.

(http://www.economist.com/news/finance-and-economics/21596566-landlords-are-having-ditch-century-old-rental-system-lumping-it)

Related article: This S’porean bot http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={157655219-19866-5631219744}

Related posts

http://atans1.wordpress.com/2014/02/10/bring-back-super-mah/

http://atans1.wordpress.com/2014/01/16/why-banks-tested-for-50-plunge-in-property-prices-and-other-wonderful-tales/

http://atans1.wordpress.com/2014/02/11/property-khaw-must-be-doing-shumething-right/

———————————————

*But not in 2014:

DBS Bank chief executive Piyush Gupta expects home prices to fall by 10-15 per cent this year – more than the 10 per cent forecast by property consultants – but says that this decline would not make a material impact on the bank’s loan book. Speaking at DBS’s Q4 results briefing, he said it is likely that the prices of high-end homes will slide 15 per cent, and that for lower-end ones, by 10 per cent.

As for the higher interest rates expected with the shrinking of monetary stimulus policy by the US, he said he was not expecting it to have any effect on DBS. “The Singapore portfolio is really driven on income considerations . . . As I’ve said before, the pressure will likely start coming when unemployment rises – more than when property prices change.” Singapore’s unemployment rate is now at a low 1.8 per cent.

Mr Gupta said: “All our stress tests in the past have shown that we can easily withstand a 20 per cent reduction in Singapore property prices without material impact on our portfolio. We stress-test (for a) 20 (per cent fall in property prices), but don’t expect it to happen; our stress tests are always calibrated to go off the charts. My own sense is that there will be a correction of 10-15 per cent.”

He noted that the market was already stabilising and that the froth was running off, but that if this continued, the government would roll back some of the macro prudential measures. Sales of new mortgages have plunged 30-35 per cent at DBS, and by 40-50 per cent at OCBC Bank as a result of the stricter loan rules.

Mr Gupta likened the Singapore property market to that of New York and London, where prices held up even during the financial crisis between 2008 and 2012. While prices in the rest of the US fell by about a third, prices in New York slipped by only 10 per cent. It was a similar situation in London, another city where the demand is not dependent on the state of the domestic economy.

Mr Gupta said he expects regional money buying properties here to also put a floor under prices. With the slower sales, DBS’s $49.1 billion mortgage book is likely to grow by $2 billion to $2.5 billion this year, down from $3.5 billion last year and $5 billion the year before that, said Mr Gupta.

OCBC Bank chief operating officer Ching Wei Hong said of the new mortgage sales having declined across the board: “That’s expected, given all the cooling measures that have been imposed. We’ve built up a healthy inventory level. The inventory drives the growth of (the loan) book, going into 2014 and 2015. Beyond 2015 H2 and 2016, if conditions remain the same, we’ll see a bit of tapering in that period.”

(BT article last Saturday)

Cost benefit analysis: PAP govt underestimating the value of human life?

In Economy, Financial competency, Political economy, Political governance on 12/01/2014 at 6:27 am

I came across this in the latest copy of the Economist in the letters section:

Petty’s cash ledger

SIR – You credited William Petty with inventing economics in the 17th century, but did not do full justice to his cost-benefit calculations (Free exchange, December 21st). The good doctor estimated the value of a person to be somewhere between £60-90 and in “Political Arithmetick” he suggested these values could be used “to compute the loss we have sustained” from the plague and war. In 1667 he argued that given the value of an individual and the cost of transporting people away from the plague in London and caring for them, every pound spent would yield a return of £84 as the probability of survival increased. (He also suggested that an individual in England was worth £90, and in Ireland £70.)

In a lecture on anatomy in 1676 Petty argued that the state should intervene to assure better medicine, which could save 200,000 subjects a year and thus represented a sensible state expenditure. Today’s economic estimates are more refined and the data are more exact, but the arguments presented by Petty still resonate in public policy.

Rashi Fein
Professor emeritus of the economics of medicine
Harvard Medical School

This set me thinking that since the govt is forever touting the importance of costing out the benefits of any spending proposal (something I agree with), maybe it should tell us how much it values a S’porean in monetary terms? Esp since the PM has just said that that more social spending does not mean better results http://www.tremeritus.com/2014/01/11/like-a-war-zone/

As pigs are likely to fly first maybe the SDP RI brains trust (Paul A, Wee Nam, Ang -Drs three- etc) can  “force” the govt to do so by coming up with their own SDP valuation, and what they calculate is the PAP valuation.

As to the co driver doing something? They wearing white?

http://atans1.wordpress.com/2013/12/13/why-a-2015-ge-is-now-more-probable/

Why owning Reits in a rising interest rate environment may make sense

In Financial competency, Property, Reits on 09/01/2014 at 4:46 am

When ST talks down Reits, as it has been recently, because interest rates are rising, it’s time think again. Remember its big-balls up when Reits were at their (with hindsight) their peak in May last yr?

Here’s some stuff that appeared in reference with US Reits but is applicable here: While REIT investors did an about-face following the Fed’s tapering announcement, some industry experts say all the attention surrounding interest rates and REITs is unfounded. “Ever since May 22, there’s been this discussion about the role of interest rates in REIT returns – and it’s a very strange discussion,” said Brad Case, VP of Research with the National Association of Real Estate Investment Trusts (NAREIT) in a recent interview with CoStar News. “Because the truth is, when interest rates go up, it usually means the economy is strengthening. That’s good news for REITs and means that returns will be strong.” In support of this statement, Case pointed out that REITs have performed well in 12 out of 16 periods of interest rate increases since 1995.

But be prepared that they underperform other types of “shares”

While there is controversy regarding the degree to which interest rates affect REITs, Affleck pointed out that investors need to consider more than just how REITs perform when interest rates change. “The relevant measure is not whether REITs have done well during interest rate increases, but how they performed relative to the broader market,” Affleck said. “On that count, the data are definitive – REIT performance relative to the broad market is inversely related to interest rate movements.” Affleck added that REITs outperformed the broad market – gaining 27% compared to a 20% gain for the S&P 500 – when interest rates fell from 3.5% in March 2011 to 1.5% in April 2013.

Juz take the payouts and bank them. But remember that Reits, unlike shares, pay out most of the income they get.When things go wrong (higher borrowing costs, lower rents), payouts suffer. No buffer, unlike comnpanies dividends. In the worse case, can end up having to subscribe to rights issues because Reits don’t have reserves to draw on in hard times.

Related post: http://atans1.wordpress.com/2011/12/12/primer-on-yields-of-reits-biz-trusts/

2014: Advice for Oppo, activists and investors

In Financial competency on 01/01/2014 at 6:41 am

My X’mas, New Yr  pressie to readers: 2 quotes that will serve them well as investors in 2014. The second one will also serve the Oppo and kay pohs well.

… fairly conservative investor, strongly believing in the combination of traditional valuation methods and charts – always looking at the balance sheet first and then analyzing the charts over 20, 50, 100, and 200 days.

http://pinkerspost.com/post.php

“The only way that individual investors can be heard in a situation like this* is to collaborate and try to get attention. There are so many other interested parties trying to get their points across that it’s the only way they can have a voice, ” says Mark Taber, a British individual investor, who has led three successful campaigns against banks.

(But I doubt asking SIAS to get involved amounts to collaboration.)

And collaboration applies to the Opposition and kay pohs too, though sadly the WP is very clear that it’s the PAP’s co-driver not part of any coalition against the PAP govt. Though I am willing to give Low, Ah Lian and Muhamad Faisal bin Abdul Manap that they don’t have ministerial ambitions unlike PritamS. As to Auntie and Show Mao, one senses they think they are meant for better things than juz MPs.

As for attention, the kay pohs should think again of their attention-seeking attempts. I often feel that there is too much aping of Western PR techniques. I plan to go into detail later this yr, but here’s the essence: Western HR PR tactics are premised on the assumptions that:

– the public knows and cares about the causes of the PR effort. In S’pore this may not be the case. Take the case of migrant workers arrested for “rioting”: while the kay pohs focus on “due process” and poor working conditions; the posters on TRE focus on being anti-PAP even while supporting deportation for alleged rioters, and low wages for manual workers.

– changing opinion (esp among the chattering classes) can have an effect: govts do listen. In S’pore govt hasn’t ever listened, even when votes are at stake (OK, this is a bit of an exaggeration). NatCon double confirms this view of an unlistening govt.

BT inflation headline talks sucks, really sucks

In Economy, Financial competency, Holidays and Festivals, Media on 24/12/2013 at 6:28 am

I recently blogged that the PAP should approach mrbrown to help PAP MPs in particular Baey and Tharman. Looks like BT needs his help in getting the facts “right”.Let me explain.

I waz planning to take a break from nasty, vicious blogging as it’s the time of peace and gooddwill towards men.

Happily for my inner Grinch , I read this

Core inflation inches higher, forecasts up
Economists point to higher inflation for next year with pressure from wages, business costs, COEs
… Inflation rose to 2.6 per cent year-on-year in November, from 2 per cent the previous month, with private-sector economists forecasting higher inflation for next year. In a statement yesterday, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) said core inflation – which strips out accommodation and private road transport costs – also picked up pace to 2.1 per cent in November, compared with 1.8 per cent in October.Based on the above, core inflation was up 16.7%. Taz’s “inching” in a month?

Trying to spin gold out of bull dust? Or is shumeone seriously drunk or mathematically challenged? BTW, inflation was up 30% in a month.

Santa, I want for Christmas “Headlines from a Mathematically Literate World”

Our World: Unemployment Rate Jumps from 7.6% to 7.8%
Mathematically Literate World: Unemployment Rate Probably a Little Under 8%; Maybe Rising, or Not, Can’t Really Tell

Our WorldFirm’s Meteoric Rise Explained by Daring Strategy, Bold Leadership
Mathematically Literate WorldFirm’s Meteoric Rise Explained by Good Luck, Selection Bias

Our WorldGas Prices Hit Record High (Unadjusted for Inflation)
Mathematically Literate WorldGas Prices Hit Record High (In a Vacuous, Meaningless Sense)

Read more

http://mathwithbaddrawings.com/2013/12/02/headlines-from-a-mathematically-literate-world/

And if interested on why core inflation was up 16.7% (can’t help think of “ponding”)

A higher headline inflation figure in November – marking the first time since March that inflation has risen beyond the 2 per cent level – was generally expected as it had been flagged by MAS and MTI previously.

The biggest driver was higher accommodation costs, which rose 3.3 per cent year on year from 1.9 per cent in October, when service and conservancy charges rebates to HDB households had kept housing-related costs down.

 

TRE readers are illiterate in economics and finance

In Economy, Financial competency, Property on 19/12/2013 at 4:51 am

Or at least many are. Let me explain.

TRE posted this piece of mine on Reits.

It provoked a long rant* from someone called Armchair Anarchist. His or her basic grumble against the govt was that interest rates should have been raised a few back to curb various ills including rising property prices. It received huge positive ratings. And there are no dissenting views, not one.

Last yr around this time, I met an old friend at a function. He was an ISD detainee (short while and it seems ’cause dad was Barisan partisan)) and a strike leader. He later got a MA in Econs and was in admin service (taz meritocracy at work in S’pore, TRE readers, at least 30 yrs ago) before becoming a wheeler-dealer.He was, and is a proud S’porean. No S’pore hater he.

We were discussing what Tharman would do in 2013 to control inflation and property prices given that he couldn’t use interest rates, and the policy of strengthening the currency slowly was not working to control inflation or property prices.

We knew that raising interest rates would only make things worse. Given that everyone (except TRE, TOC and TRS readers) think that S’pore is a safe haven, raising interest rates will result in more foreign money pouring in to take advantage of the better yield here. The currency will be pushed up and exports and services will become uncompetitive. Prices of  most properties (and other assets) will rise. FTs will be willing to accept lower wages, ’cause S$ worth a lot more in their home currencies.

The result: a recession, unemployment among locals, deflation and rising asset prices (except possibly for HDB flats and low end condos: S’porean PMEs default ’cause they lose jobs to FTs). He and I and others with access to credit would make a killing buy low-end condos and renting them out to FT PMEs.

Is this what TRE readers want for Christmas and Chinese New Year?

Are they that deft?

—-

*Armchair Anarchist:

S-REITs payouts lean towards the high side of the global REIT market (e.g. average dividend yield of around 6+% compared to less than 5% in Japan and Germany, 6% UK). If dividends are cut by 20-25%, the yield is still relatively attractive given the dearth of high yielding instruments in Singapore.

But I do find MAS’s warning rather strange. If they are indeed worried about such things as REITs and the health of the Singapore financial sector in face of a potential rise in interest rates, the MAS ought to have engineered such a rise in rates at least 2 years ago and taken the froth out of REITS, the property market and reduced the risk in Singaprean banks’s balance sheets. Why issue warning now that the Fed may begin to taper when the MAS ought to have acted long ago? The easy financing for real estate speculation and the rise in inflation are not new. These had been with us for a few years now and are clear warning signs that interest rates are too low and liquidity too plentiful in Singapore. Look at bank deposit rates and CPF ordinary account rates: we suffered from negative real interest rates when adjusted for the underlying inflation rate (CPI is too crude, PCE deflator is a better indicator). When real rates are negative, the ordinary savers suffered as the value of their savings are inflated away. But it is great for speculators and big companies because it provides a very cheap source of debt financing.

Seems to me, the MAS is probably basking in the reflected glory of superior GDP growth while sleeping on the job in terms of forecasting the real threat to the economy. Another bunch of over-paid, incompetent elites?

Rating: +25 (from 25 votes)

Armchair Anarchist:

I like expand a little bit more on MAS caution regarding rise in interest rates.

My view is MAS left it rather late in the day to caution and to act if necessary. Certain sectors will be hit, not least real estate which had several adrenalin shots that propel values ever higher. But, for our savings and long term investments, it is no bad thing if interest rates are going up. It is my conviction that not just exercising political repression, the govt also exercise financial repression. I said before our AAA-rating is absolutely great for GLCs and big companies but a total disaster for ordinary citizens who have to save and invest for retirement and the rainy day. The Govt incessant extraction of revenues from all sorts of economic activity (tax, COE, surcharges etc)result in persistent budget surplus because in their anti-welfare extremism, the govt do not spend much on social, health and infrastructure programmes. Therefore, our bond yields are artificially low because the govt do not really need to borrow. The govt actually pretend that our CPF rates are pegged to market but in effect the govt control the levers of the bond markets giving themselves a low financing rate. The effect is that we received bugger-all out of bank deposits, CPF and bonds. Singapore company dividends are lousy because whatever crap they pay is still higher than CPF and bond yields.

So let interest rates go up. At least it reverse the equation slightly in favour of the man in the street rather than have the Govt, the GLCs and the big companies indulged themselves in winner-takes-all.

Rating: +20 (from 20 votes)

Well timed warning for merry hols, going into 2014

In Financial competency on 03/12/2013 at 6:42 am

I have never seen the sell-side predict a recession. There are a number of reasons for that but key among them is the personal career risk of calling a recession and being wrong. Both the sell-side and the buy-side tend to do much better when the economy and markets are doing well so who wants to be a party-pooper.

(Perpetual but respected bear)

He and another have gd points on why a recession is coming. Pls read http://www.economist.com/blogs/buttonwood/2013/11/economics-and-markets-1 if thinking of cheonging market esp reits or when reading broker reports or ST stories about 2014 prospects.

For S’pore; remember first half of 2014 is the last possible time PAP govt can make us pay and pay and not suffer the consequences in next GE: http://atans1.wordpress.com/2013/11/30/2014-last-chance-for-govt-to-increase-prices/

And here’s a great quote from the Economist that applies to Tharman as he tries to keep inflation under control while keeping a lid on property and COE prices: THE role of central bankers is often compared to that of a sober adult who has to take away the punch bowl just as the party starts getting a little too rowdy. But what happens when the party as a whole is pretty glum apart from a small group of hooligans in the corner? Take away the booze then and you ruin the party for everybody else. Instead the answer is to pay particular care to who gets another drink.

The Economist was talking about the British situation where the economy is slowly recovering (faster than even the US) but residential property prices are flying again.

Costs savings in airlines: every little bit counts

In Airlines, Financial competency on 14/11/2013 at 7:21 pm

Singapore Airlines (SIA) has reported a 78% rise in net profit for its second quarter*.

This reminded of a story in the New York Times, some time back, that Delta Airlines by slicing an ounce off its on-board steaks saved US$250,000. It even calculated that removing a single strawberry from its First Class salads would save US$210,000.

Talking after looking after the pennies, and the dollars will look after themselves.

In investing, John Bogle, the founder of indexer Vanguard, keeps stressing the importance of buying funds that charge low fees. The expenses saved when compounded over time adds to performance. Besides most active fund mgrs underperform the market., so they mare a waste of money. Indexers charge very little in comparison with active managers.

Related posts:

http://atans1.wordpress.com/2010/01/01/the-perils-of-indexation-revised-and-updated/

http://atans1.wordpress.com/2010/02/16/even-the-rich-should-use-index-funds/

http://atans1.wordpress.com/2011/01/07/rebalancing-can-lock-in-profits-trim-losses/

 

——–

*Asia’s second biggest carrier was boosted by the sale of aircraft, spare engines as well as increased passenger traffic.

The firm posted a total net profit of $128.6m (£80.9m) for the quarter, up from $72.1m a year earlier.

But it warned it was facing tough competition and a strong Singapore dollar. (BBC report)

Indications that time to cheong mkt?

In Financial competency on 31/10/2013 at 4:33 am

So based on patterns in the past, in so far as companies’ earnings are not artificially propped up by low interest costs and barring any structural change in the economic environment, investors who enter the market at current levels have a good chance of earning satisfactory returns from the stock market over the next five years.

(ex BT reporter, now in fund mgt, wrote on 13 October 2013 in SunT)

She argues

Consider the price of the Singapore market, relative to the 10-year average of its earnings per share, as calculated by Thomson Datastream. This is measured by the so-called Graham and Dodd price-earnings (PE) ratio.

In the past 30 years, the highest the market price has gone up to was 33.5 times its 10-year average earnings. That was in August 1987 just before the October 1987 Black Monday crash. The lowest the market has plunged to was 10.3 times its 10-year average earnings. That was in February 2009, the darkest point of the recent global financial crisis.

In the past 30 years, when the Graham and Dodd PE fell below 16 times, the returns of the three portfolios five years later tended to be substantial.

They averaged 15.2 per cent a year for the entire market; 25.4 per cent a year for the low (price-to-book) PB portfolio; and 13 per cent a year for the high PB portfolio. The five-year period starting from the lowest point on our PE chart, i.e. February 2009, has not ended yet. But already, those who entered the market at that point are sitting on, or had made, outsized returns.

There was only one instance when buying into the market at the Graham and Dodd PE of 16 times or below did not pay off handsomely five years later. That was in July 1997, at the onset of the Asian financial crisis. Five years later, in August 2002, the market was still trading at similar levels as it struggled to climb its way out of the dot.com bust and the 2001 terrorist attacks in the United States.

The higher the Graham and Dodd PE, the lower the return five years later. Investors who entered the market at a PE of 26 times or higher had seen a miserable 1 per cent average return a year in the following five years for the market portfolio, 7 per cent for the low PB portfolio and minus 2 per cent for the high PB portfolio.

At that market entry level, chances of an investor suffering capital loss are also elevated. Based on monthly numbers in the past 30 years, the probability of loss five years later (at Graham and Dodd PE of 26 times and above) was 42 per cent for the market portfolio, 12 per cent for the low PB portfolio and a whopping 70 per cent for the high PB portfolio.

Finally, where is the Graham and Dodd PE for the Singapore market now? It’s at 14.1 times as at end September. This compares with the average of 20.8 times in the past 30 years.

In the past three decades, there were 25 different months when the Graham and Dodd PE traded between 14 and 16.5 times. For those 25 different months, the market portfolio returned an average 15.5 per cent a year over the next five years. The low PB portfolio averaged 24.8 per cent a year, and the high PB portfolio 14.3 per cent a year. The probability of capital loss for those periods was 1-in-25 for the market portfolio, and 3-in-25 for the low PB as well as the high PB portfolios.

http://www.cpf.gov.sg/imsavvy/infohub_article.asp?readid={412728214-19447-2216721772}

Remember what Warren Buffett said about expenses, “Investors should remember that excitement and expenses are their enemies.” He goes on, “And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.”

Asiasons: 2 bull pts

In Financial competency, Malaysia, Private Equity on 24/10/2013 at 4:46 am

Firstly, controlling shareholders are gd financial engineers. I had bot into Integra 2000 for its planned massive dividend in 2007 which I believed that the market had not appreciated because it was conditional on deals getting thru. It then started flying cum dividend. I had expected to sell the shares at a slight loss from the cum di price when it went ex-dividend. Instead I made a profit. Later I learnt that these guys had bot into the shares cum dividend. They must have used the pending dividend to finance the purchases. Financial engineering at its best.

(FYI, BT on Tueday quoted an unname broker, “He believes Asiasons’ “true” value could settle in the region of 30 to 40 cents, while LionGold’s could lie between 40 and 50 cents as it has a higher book value.”. Don’t know what he means, but will explore.)

Secondly, these guys willing to spend dollars trying to look gd. Blumont and LionGold selling controlling shareholders have gone to ground. But still, like Asiasons, their share prices have flown.

It was a masterstroke of Asiason’s PR/ IR team that got ST to carry a story entitled “Were not a bunch of comboys” on Saturday 19th October, juza before relisting on Monday. In it we learn,

– about the sparsely furnished office of Asiasons Capital in China Square Central [Frugal, serious people]

“The share price volatility has absolutely no link or association with Asiasons’ operations,” said chairman Mohammed Azlan Hashim, a prominent corporate figure in Malaysia who sits on the boards of sovereign wealth fund Khazanah Nasional and IHH Healthcare. [Not a nobody]

– Asiasons has a fund management portfolio of about US$300 million (S$372 million) and counts Malaysia’s deep-pocketed state-owned funds such as Ekuinas and government pension scheme Kwap as clients.[Gd, solid connections]

– At current price levels, Mr Azlan admitted that the shares are hovering near the level they were at in 2007 when he and his two partners took control of Asiasons, then a human resources technology firm called Integra2000 and shifted its business focus to private equity investment … three also reiterated that none of them have sold “a single share” in Asiasons over the past six years.  [Long term greedy] That’s quite a contrast from what has been taking place at LionGold and Blumont, which have seen significant trades recently involving insiders, particularly disposals and forced selling involving directors.

– “This so-called web of cross shareholdings makes it appear as if we are in cahoots in this whole thing,” said Mr Lim. “We are our own men and no one else is influencing us.” Asiasons owns 9 per cent of LionGold and has a 27 per cent stake in ISR Capital which it plans to eventually divest.

Mr Azlan reiterated that there are no other connections to the other firms. “We have absolutely no relationship with these other firms, including Blumont. The only relationship there is Jared, a director, and his wife but that’s not related to Asiasons per se,” said Mr Azlan.

Clearwater Developments, which is linked to Mr Lim’s wife Dian Lee, owns a 7 per cent stake in Blumont. That investment, Mr Lim said, came about from an “innocent transaction” a few years back when Blumont, then called Adroit Innovations, was scouting around for some properties in Malaysia.

“She went ahead and made the decision herself and it was a small investment which involved shares. Now she and her partners are looking to sell their stake as it was purely an investment and not part of their business,” said Mr Lim. [Not connected with ...]

– The three founders also categorically denied another topic hot in the market rumour mill that Asiasons is connected to well-known Malaysian stock investor and businessman Soh Chee Wen. [Not connected with ...]

Watch out for the “bowl” consolidation, if thinking of buying. Let you know if I buy some after I buy some.

Why economic forecasters underperform fortune tellers

In Economy, Financial competency on 20/10/2013 at 5:23 am

(Taz all the more reason to stick to stocks that make can make sustainable (we hope) good payouts. Check Temasek’s Fab 5 out: they have consistently made gd payments but the prices reflects this i.e. better yields available elsewhere but at greater risk.)

[A]n advance estimate showing the city-state’s economy shrank 1.0 percent on quarter in the July-September period, better than expectations for a 3.6 percent contraction, but a significant deceleration from 16.9 percent growth in the previous three months.http://www.cnbc.com/id/101109030

Opps wrong again. And govt isn’t that gd either at forecasting. A few months ago: The Republic’s economy is expected to do better this year than previously expected, with the growth forecast raised to between 2.5 and 3.5 per cent, Prime Minister Lee Hsien Loong said yesterday.

The previous official forecast was between 1 and 3 per cent. [Today]

In both cases, in percentage terms, the changes are significant: a fortune teller would lose his credibility with such forecasts. All finance ministers, their advisers, economists, central bankers and analysts always get their forecasts wrong: nothing uniquely S’porean.

In addition to the general reasons I gave here, here are two more reasons for them being sotong in the post 2008 environment.:-

– The experts are lost because the conventional model of how the financial system interacts with the real economy has evolved too little since the huge and largely unexpected financial crisis. Now as then, there is too much debt in the world for either monetary or fiscal policy to have the effect that the textbooks say.

The stimulative efforts of governments and central banks help the highly leveraged financial system stay afloat, but only a small portion of the funds actually reach the real economy. In such an unconventional financial world, the conventional wisdom is likely to stay wrong. Expect more of the unexpected.

http://blogs.reuters.com/breakingviews/2013/08/05/markets-central-bankers-face-strange-new-world/

– Economics is an inexact science, with exceptions to almost every pattern of behaviour that economists take for granted. For example, economists predict that higher prices for a good will reduce demand for it. But students of economics will no doubt remember an early encounter with “Giffen goods”, which violate the usual pattern. When tortillas become more expensive, a poor Mexican worker may eat more of them, because she now has to cut back on more expensive food like meat.

Such “violations” occur elsewhere as well. Customers often value a good more when its price goes up. One reason may be its signalling value. An expensive handcrafted mechanical watch may tell time no more accurately than a cheap quartz model; but, because few people can afford one, buying it signals that the owner is rich. Similarly, investors flock to stocks that have appreciated, because they have “momentum”.

The point is that economic behavior is complex and can vary among individuals, over time, between goods, and across cultures. Physicists do not need to know the behavior of every molecule to predict how a gas will behave under pressure. Economists cannot be so sanguine. Under some conditions, individual behavioral aberrations cancel one another out, making crowds more predictable than individuals. But, under other conditions, individuals influence one another in such a way that the crowd becomes a herd, led by a few.

Unfortunately, many of these methods [to get clear-cut evidence of causality. If high national debt is associated with slow economic growth, is it because excessive debt impedes growth, or because slow growth causes countries to accumulate more debt? cannot be applied to the most important questions facing economic policymakers.] So the evidence does not really tell us whether a heavily indebted country should pay down its debt or borrow and invest more.Moreover, what seem like obvious, commonsense policy solutions all too often have unintended consequences, because a policy’s targets are not passive objects, as in physics, but active agents who react in unpredictable ways. For example, price controls, rather than lowering prices, often cause scarcity and the emergence of a black market in which controlled commodities cost significantly more.

http://www.theguardian.com/business/2013/aug/08/raghuram-rajan-economic-paranoia-uncertainty

 

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