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Posts Tagged ‘Financial competency’

Another reason not to buy a structured product

In Banks, Financial competency on 13/02/2012 at 7:13 am

(Or “Another reason not to trust yr bank”)

“Exactly how did Wall Street price the loans that it bundled into securities and sold to investors?”

Answer: There is evidence that “prices on some of the loans … were artificially inflated at the time of purchase”.

http://www.nytimes.com/2012/02/05/business/an-investment-wipeout-that-didnt-have-to-happen.html?_r=1&ref=business&nl=business&emc=dlbka35

How is an IPO valued?

In Financial competency on 11/02/2012 at 4:43 am

Some very basic pointers.

http://www.investopedia.com/articles/financial-theory/11/how-an-ipo-is-valued.asp#axzz1lqwa7DA8

PM’s salary in 1970 and in 2012

In Financial competency, Political governance, Property on 01/02/2012 at 7:07 am

(Or “PM’s salary in 1970 and today using a terrace hse’s price as a reference point” or “Fooling around with numbers: Can prove anything with numbers”)

According to this, LKY’s annual salary in 1970 was $42,000 a year. The value of my parents’ home was then $35,000  based on a neighbour’s transaction if I recollect correctly). So LKY could have bot the house and have $7,000 spare cash left over (17% of his annual salary).

His son now gets under the revised salary scheme a yearly salarly of $2.2m (assuming he gets his bonuses). My parents’ house now is valued at $1.5m (based on a neighbour’s 2010 transaction). The PM can buy the house and still have $700,000 in his pocket (32% of his salary). And this after a 36% pay cut. At his 2010 salary, he could have bot the house and have $1.5m (50% of salary) spare change.

Bottom line: LKY had a bad deal relative to that his son gave himself, and the one he has now accepted.  Even taking into account inflation, our PM is earning much more than his dad. In fact, the PM’s pay rose a lot more than the sum of the inflation rate, and rate of the appreciation of the terrace house’s value.

And unlike dad, who allowed ministers to earn more than he did, our PM is the top earner in the cabinet.

On how much David Marshall was earning (see this), I’ve been told that he could be wrong to claim he was getting $8,000 a month when he was Chief Minister in the late 1950s. When he gave the interview that mentioned that figure, he made several mistakes that were corrected before publication. This could have been one mistake that went uncorrected.

Will keep readers informed as this $8,000 figure had been widely (and unthinkingly) used to beat up the PAP: bunch of greedy pigs. As I’ve tried to show, it “proves”, if anything, PAP ministers are grossly underpaid using Marshall’s numbers. Juz as today’s example ‘proves” that our PM is overpaid.

My wider point is that numbers can be manipulated to support any view. There is no “truth” in numbers per se.

Finally, maybe Marshall was not mistaken over his $8,000 monthly salary because LKY was earning $3,500 in 1970. When he came into power in 1959, he slashed civil servants’ and ministers’ salaries by about half. And given the economic and political problems of the 1960s, he might not have dared to give himself a raise.

For that thank the Communists and their fellow leftists. They kept LKY on the straight and narrow,’cause he knew their power to cause trouble. If they were unhappy, they got protestors onto the streets, not mobilise anonymous grumblers on the Internet.

Finally on the performance bonuses.  The way the bonus scheme  is drawn up, esp how easy it is to achieve the targets (see here somewhere),  reminds me of the Caucus-race in Alice in Wonderland (a favourite book). This was a race where the runners all started in different positions, ran for as long as they liked and stopped in different places. Then everyone got a prize.

“Well-off bear biggest brunt of the price increases”

In Economy, Financial competency, Media on 26/01/2012 at 6:13 am

Taz part of a headline in today’s ST.

In the text of the story, it said “the top 20 per cent … were hit by … rate of 5.7 per cent — much higher than the 4.7 per cent for the bottom 20 per cent”.

(ST’s Breaking News reported, “The lowest 20 per cent income group experienced a lower increase in consumer prices at 4.7 per cent, compared to the middle 60 per cent and highest 20 per cent income groups, which experienced CPI inflation of 5.1 per cent and 5.7 per cent respectively.”)

The editors and the two reporters Aaron Low (Econs correspondent) and Melissa Tan obviously don’t know their maths.

Say a poor S’porean is earning $12,000 a year: a 4.7%  inflation rate means he had $564 less to spend in the year on other things. For a rich S’porean earning $600,000, he has $34,200 less to spend.

Whose standard of living or savings rate is affected more? Obviously the poor S’porean, yet ST blithely writes, “Well-off bear biggest brunt of the price increases”.

What can I say?

Think Like a Poker Player

In Uncategorized on 20/01/2012 at 5:50 am

As it’s almost time to take out the cards, mah-jong or backgammon set or dice, I tot that a posting abt investing and poker will be good start to celebrate the start of this festive break (back on Che San). Gd fortune, feasting, and health. Drink or drive, not both.

The Gambler

The wisdom of the late two-time champion world poker player Puggy Pearson offers our last set of rules to follow. “Only three things to gamblin’,” Puggy once said, “knowing the 60/40 end of a proposition, money management and knowing yourself.” Well, those rules apply to investors too.

Here are Pearson’s all-encompassing rules:

Knowing the 60/40 end of a proposition

Understanding the odds of drawing a winning hand is essential to poker. The 60/40 bets are those that offer the best chance of winning given all the options available. If you only play hands that have these odds or better, the statistics are on your side.

As investors, we should strive to put the odds in our favor with every trade. Finding the best 60/40 opportunities takes time and research, as there are many ways to find good candidates. These can be identified through individual stock selection, top-down or bottom-up approaches, technical or fundamental analysis, value-based pricing, growth-oriented, sector-leaning or whatever approach works best for a particular investor. The point is that investors must be constantly working toward finding and recognizing opportunities as they present themselves. Once you have been dealt the right cards, it’s time to take the next step.

Money Management

Managing money is an ongoing process. The first tenet is to minimize losses on each opportunity. Fortunately, investors do not have to ante up to play, as in poker, though investors must work hard to find good opportunities. Once you have a good hand, it is time to decide how much money to commit to the opportunity.

While much is written on this topic, let’s keep it simple. Basically it is a risk-reward decision. The more money you commit, the greater the possible reward and the higher the risk of losing some of that money. However, if you do not play, then you cannot win. (For more on this, see Determining Risk And The Risk Pyramid.)

Basically, when the best opportunities present themselves, it is usually wise to make a significant commitment. For good (but not great) opportunities, committing smaller amounts makes sense as the potential reward is less. As in poker, most of an investor’s money is made in small increments with the occasional big win coming along every once in a while. This requires that an investor evaluate each opportunity compared to others that have shown themselves in the past. Experience is an excellent teacher. Finally, investors can use a stop-loss strategy to mitigate greater losses should their assessment of the opportunity prove to be wrong. Too bad gamblers don’t have such a tool! (To read more, see The Stop-Loss Order – Make Sure You Use It.)

Knowing Yourself

The last gambling rule, knowing yourself, means doing everything you can to stick to your discipline. Everyone wants to get on with it to make the next trade, but if that opportunity does not fit within your measure of a good 60/40 opportunity, then you must force yourself to pass. While you will miss some good gains, this will also save you from some hefty losses. Following your discipline is essential for success as a gambler as well as an investor. You must be extraordinarily patient in your search for the right opportunities and then aggressively go after the best ones.

Think like Warren Buffett and a great trader.

Read more

Why PM had three accountants on his pay review committee?

In Accounting, Financial competency, Wit on 19/01/2012 at 5:39 am

There were three trained and highly experienced accountants (the chairman included) on the eight person ministerial salary review committee, the most from any single profession.

Maybe the reason is that accountants can do magic with numbers? At least that is how it appears to us “lesser mortals”?

Example: The accounting profession can make a sum of money appear as US$4bn for the co that is paying out the sum and as US$6bn for the company receiving it.

http://dealbook.nytimes.com/2011/12/20/att-and-t-mobile-whats-2-billion-among-friends/?nl=business&emc=dlbkpma22

And there is the old joke that the best accountant is one that will ask you, “What answer do you want?” when you ask him, “What is 2+2″?

He traded contracts for differences

In Financial competency, Financial planning on 18/01/2012 at 6:19 am

Ex-billionaire made bankrupt.

Fermanagh businessman Sean Quinn has been declared bankrupt in the Republic of Ireland.

The High Court in Dublin heard the bankruptcy application made by the former Anglo Irish Bank. It was not opposed by Mr Quinn.

Last week, the bank, now Irish Bank Resolution Corporation (IBRC) succeeded in having Mr Quinn’s bankruptcy status in Northern Ireland annulled.

The Republic of Ireland has a more onerous bankruptcy regime than the UK.

Contracts for Difference (CFD) were Quinn’s undoing. They are financial products which allows someone  to bet on shares without having to own the shares. They are derivatives  because they derive their value from the underlying shares.

He tot he was clever.

CFDs have three main advantages:

Privacy – your name does not appear on the share register

Tax – you don’t have to pay stamp duty as you would if you bought the shares

Leverage – As you are not buying the shares you don’t have to put down the full amount of the money. You can ‘lever- up’ with borrowings.

But with leverage always lies danger.

Quinn was betting that the price of the shares would rise and he would profit from the difference between the price at which he bought the derivative contract and the new price. Hence ‘contract for difference’.

But when the Anglo Irish Bank share price nosedived Quinn was in trouble. He was hit with a series of ‘margin calls’ which meant he had to keep putting up more and more of his money.

Eventually things got so bad he had to crystallise his losses by buying the shares outright – which he did by borrowing the 2bn euros from the Anglo Irish Bank.

And it’s due to those borrowings that he’s bust.

BBC Online reports

Volatility: What is it?

In Financial competency, Uncategorized on 09/01/2012 at 5:59 am

 Last yr, we heard a lot about this word. This year will be even more volatile. This article explains the term

http://www.investopedia.com/articles/mutualfund/03/072303.asp?partner=basics121511#axzz1gqnpdw71

Maths not strong point of Gerald Ee and friends

In Financial competency, Political governance on 06/01/2012 at 7:08 am

Taz my impression after seeing via the Internet Table A of the Recommendations and u/m from statement by RP. Funny that a commitee where there are two* trained and very, very senior accountants (Gerald Ee and Ms Fang Ai Lien) can make these elementary maths errors. Wonder what other errors of maths and logic, there are? Check this out.

 

Instead of making assumptions abt how much the office-holders would be paid (including bonuses) under the new scheme vis-a-vis their take home pay in 2010 (including bonuses), why not give their basic salaries (less bonuses) in 2010 and compare it to their new basic salaries? No need to make assumptions on the bonuses that will be paid.

Doing it the way the committe did it could give rise to the suspicion (reasonable) that the bonuses are “guaranteed”.

Basic misunderstanding of median calculations
We … would like to draw attention to a fundamental beginner’s mathematical error made by the committee. According to today’s report by CNA,

“The committee said that with the discount, the pay is actually closer to the top 1,400th earner.”

Wrong! The median of the top 1000 is the mid-point between the 500th and the 501st earner. Applying a 40% discount to the amount earned by the 500th earner does not mean that the resultant salary would necessarily be close to that earned by the 1,400th earner or even the 700th earner (which is what 40% more than 500 comes to ). It would depend on the distribution of incomes between the 500th and the 700th earner. A reasonable inference resulting from this kind of elementary statistical mistake leads one to doubt the quality of the statistics used by the committee to underpin the pegging of the salaries and the Key Performance Indicators for bonus awards. We cannot believe that the committee would deliberately be disingenuous or mislead the public with such an erroneous statement so we must assume that this kind of fundamental error is merely indicative of the ‘top talent’ that the government attracts.

A committee that cannot calculate the median of the top 1000 is either deliberately misleading the public or incompetent is the very emotional personal response by KennethJ, son of the late JBJ, a man of strong passions.

———-

Update on 6 January 2012 at 7.12pm: Seems Po’ad Mattar is also a very senior accountant. So three accountants and committee can still goof when it comes to maths. Sigh or LOL take yr pick.

Strategy for 2012: Same as in 2011

In Financial competency, Financial planning, Investments on 05/01/2012 at 5:54 am

Go buy stocks that pay good, sustainable dividends http://atans1.wordpress.com/2011/08/12/a-broker-who-almost-got-it-right/

BTW same as for 2010 http://atans1.wordpress.com/2009/12/31/investment-strategy-for-2010/

Also read

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

http://atans1.wordpress.com/2011/01/02/investing-in-reits/

http://atans1.wordpress.com/2010/11/10/high-yield-low-pay-out-stocks-are-best/

http://atans1.wordpress.com/2010/08/24/buying-for-dividends-know-the-cos-balance-sheet/

http://atans1.wordpress.com/2010/06/30/buying-for-dividends-diversify-too/

“LIES, damn lies and statistics” and two local examples?

In Economy, Financial competency on 03/01/2012 at 7:36 am

Example 1?

So a reasonable interpretation of the minister’s comments below are that the inflation numbers as far as they affect HDB residents and non-car owners are a lot of rubbish because they are not affected. So why not construct an additional index that excludes these costs? The reason that this is not done could be that then other costs have to be included, such as a great weightage for public transport costs, and the cost of public housing. And this could outweigh the costs of rentals and car ownership? Better to talk in general terms, than create a rod to break the PAPpies back?

While Singapore’s economy is headed for a slowdown, Mr Lim noted that inflation is somewhat “persistent” due to factors such as global commodity prices, “particularly fuel and oil prices”. Other causes include the Government’s domestic policies on housing and car ownership, he added.

Reiterating that core inflation is “not unusually high”, Mr Lim said: “So if you are an owner of a HDB flat, the housing prices don’t affect you, and if you are not buying a car, the car prices also don’t affect you.”

Example 2?

 The chart is misleading because the tariff axis is over-extended … the fluctuations in the electricity tariffs are not clearly depicted and it gives a misperception that the electricity tariffs are not rising as much or as fast a rate as the fuel oil price.

To show a better comparison between the electricity tariff and the fuel oil price, I suggest the tariff axis to range up to 35, to just cover the maximum tariff (30.45 in Oct 08).  This will show the fluctuations of the electricity tariff vis-a-vis those of the fuel oil price better, graphically.

Must read: The ugly reality is that anyone in the know can present statistics so as to create the desired impression, rather than the truth. As usual, you need to know whether the source is credible and honest or not. Recommendations, double checking, second opinions and if necessary, hiring an expert, can all be helpful. One is never totally safe from this kind of falsification, but viable controls are possible. And the more you learn and are aware of the dangers, the safer you are. http://www.investopedia.com/articles/financial-theory/11/lie-with-financial-statistics.asp?partner=ntu11#axzz1fElSc8tZ

 Update at 7.20 pm on 3 January 2011: http://theonlinecitizen.com/2012/01/confused-over-u-save-rebates/ gives many more examples of possible misuse of stats.

Ghosts haunting Citigroup this Christmas

In Banks, Financial competency on 27/12/2011 at 6:01 am

(Another piece in an occasional series wondering why anyone would want to be a Citi customer. No, never had any account with Citi, nor ever sought one.)

1. Another soured deal that it did with a wealthy client

Saudi businessman Ghazi Abbar, who claims in an affidavit he lost $383 million of his family’s fortune on investments with Citigroup Inc., was sold one of the transactions even though the bank questioned his ability to properly manage them, according to an internal memo.

http://www.bloomberg.com/news/2011-11-30/citigroup-saudi-deal-haunts-pandit-as-family-claims-383-million-wipeout.html

2. Bloomberg reports, Part of the New York-based bank’s retail business will be suspended for 30 days by the Japanese Financial Services Agency, said one of the people, who asked not to be named because the matter isn’t yet public. Citigroup’s trading unit will be suspended from selling products tied to interest rates for 10 days and its head, Brian McCappin, may resign, the person said.

Citigroup Chief Executive Officer Vikram Pandit is trying to restore the bank’s reputation in Japan. Regulators punished the company twice in seven years after finding fault with its private-banking operation and a lack of internal controls.

The trading unit will be banned from selling certain products in Japan tied to the London and Tokyo interbank offered rates, or Libor and Tibor, the person said. These are rates at which banks are willing to lend money to each other. Citigroup employees tried to improperly influence Tibor to the firm’s advantage, two people familiar with the matter said earlier this month.

Related posts

http://atans1.wordpress.com/2011/07/01/behind-yr-payments-to-citi/

http://atans1.wordpress.com/2011/04/09/citi-owe-it-money/

http://atans1.wordpress.com/2010/11/06/citigroup-wins-life-or-death-fraud-case/

http://atans1.wordpress.com/2011/08/06/why-do-people-like-being-citi-clients/

Financial Competency: What TKL is gd at

In Financial competency, Financial planning on 30/08/2011 at 7:26 am

Hopefully after losing his deposit, he will focus on what he is very gd at.Teaching S’poreans especially the young on how to plan for their financial future.

Examples

http://tankinlian.com/admin/file.aspx?id=553

http://tankinlian.com/admin/file.aspx?id=434

5 easy ways to ruin yr financial life

In Financial competency on 26/05/2011 at 9:11 am

According to this, we can unthinkingly wreck our finances by

– having insufficient or too late insurance cover

– getting a criminal record

– having kids without thinking of the cost

– getting into excessive spending and debt

– being a bad employee.

Anyone of these could destroy you. All five, and you are dead.

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