Today is a sad day for me. Something unexpected happened at work and it didn't feel good to talk about it. Anyway, life is so unpredictable. Look at the market today. Who is talking about last year's crisis anymore? Now, people are talking about the bullish property market, high COE car prices and booming stock market. If you still remember the Asian Financial crisis, SARS crisis or Dot.com crisis, they are nothing but bad memories now. Countries are keeping huge reserves but they are issuing even larger amount of debts and printing even more money to service these debts. After the busting of the Dot.Com bubble, we have another crisis in the supper bubble created by the booming US housing market within 10 years. Now what? We wait. It will be just a matter of time before another crisis hits. This is for sure.
Despite all these crisis, have we learnt anything? I doubt so. After every crisis, you have so many accounting standards to cover loopholes here and there. So what? As long as there is greed for more and fear of losing, this will be never ending. In gist, it is important for your survival to learn to expect the unexpected.
During good times, please prepare for the worst. And, during bad times, please get ready for good times to come. Some people call this contrarian view. To me, this is common sense.
Wednesday, March 31, 2010
Friday, March 26, 2010
Currency: Where is Euro heading and how does it affect us?
Everyday, we are hearing about problems in Greece. But, why should their problems affect asian countries like us when our stock market and property market are booming like no tomorrow? Anyway, Greece's GDP is only US$300 to 400 billion. That is about the size of both Malaysia's and Singapore's GDP added together. So, imagine problem in Singapore and Malaysia is going to rock the whole world. Impossible, right!
Now then, why is the stock market so worried? This is because the problem is more than meets the eye. Greece is just the beginning. You may have heard about PIGS - "not pigs" but Portugal, Ireland, Greece and Spain. The financial markets are worried that these countries may not be able to pay their debts that are going to due soon. Their combined GDP is about US$2.5 trillion. That is almost the size of UK's GDP. If they fail to repay their debts, investors will lose confidence in Europe and the Euro currency will definitely take a major hit.
So, who or what will benefit from this? USD !! USD will shoot to the roof because of uncertainty. Without Euro, USD will also be the only effective liquid reserve currency remaining in the world.
We are in Asia. This is between US and Europe. So, why worry? No, our stock market and property market have been driven up by liquidity and cheap money all these while. Money has been flowing from overseas into Asia because they have no other place to park and invest it. Japan is having recession, so is Europe. The only reasonable place to invest will be Asia and a large part of these money are borrowed in USD at very low interest rate. We called that carry trade. Imagine what will these investors do if USD were to appreciate suddenly to sky high level. Since they have borrowed in USD, they will have to repay in USD. In order not to suffer substantial losses due to unfavourable exchange rate, they will liquidate their holdings in stock market and property market. There will be bloodbath.
So, now, you see. Everything is inter-related. One thing can lead to many things. That is why the world is so big and yet so small.
Now then, why is the stock market so worried? This is because the problem is more than meets the eye. Greece is just the beginning. You may have heard about PIGS - "not pigs" but Portugal, Ireland, Greece and Spain. The financial markets are worried that these countries may not be able to pay their debts that are going to due soon. Their combined GDP is about US$2.5 trillion. That is almost the size of UK's GDP. If they fail to repay their debts, investors will lose confidence in Europe and the Euro currency will definitely take a major hit.
So, who or what will benefit from this? USD !! USD will shoot to the roof because of uncertainty. Without Euro, USD will also be the only effective liquid reserve currency remaining in the world.
We are in Asia. This is between US and Europe. So, why worry? No, our stock market and property market have been driven up by liquidity and cheap money all these while. Money has been flowing from overseas into Asia because they have no other place to park and invest it. Japan is having recession, so is Europe. The only reasonable place to invest will be Asia and a large part of these money are borrowed in USD at very low interest rate. We called that carry trade. Imagine what will these investors do if USD were to appreciate suddenly to sky high level. Since they have borrowed in USD, they will have to repay in USD. In order not to suffer substantial losses due to unfavourable exchange rate, they will liquidate their holdings in stock market and property market. There will be bloodbath.
So, now, you see. Everything is inter-related. One thing can lead to many things. That is why the world is so big and yet so small.
Friday, March 19, 2010
Currency: Impact of Yuan appreciation
If you go to Supermarket or any shopping centre today, you will find a lot of goods that are made in China. Like it or not, China is now the manufacturing firm of the whole world. So, what will happen if yuan were to appreciate?
Although Yuan is pegged to a basket of currency, it is relatively running a fixed exchange rate policy with USD forming the majority of the currency basket. Unless, your currency is pegged to Yuan, the likely effect is that yuan will rise against your currency -- the resulting effect will be increased import prices of Chinese goods. In an open economy, we may source the goods from other countries if the cost of getting certain goods from a certain country becomes less competitive. But, given the fact that it takes months or years to shift production facilities and also the fact that there are relatively very few countries that can match China in terms of production capacity and cost competitiveness, the likely effect that we will see from yuan appreciation is inflation.
Although Yuan is pegged to a basket of currency, it is relatively running a fixed exchange rate policy with USD forming the majority of the currency basket. Unless, your currency is pegged to Yuan, the likely effect is that yuan will rise against your currency -- the resulting effect will be increased import prices of Chinese goods. In an open economy, we may source the goods from other countries if the cost of getting certain goods from a certain country becomes less competitive. But, given the fact that it takes months or years to shift production facilities and also the fact that there are relatively very few countries that can match China in terms of production capacity and cost competitiveness, the likely effect that we will see from yuan appreciation is inflation.
Market: Where is it going?
I just spoke to a few people who are closer to the market in the last few days and the feeling that I get is that the market is getting cloudier each day. VIX index is near May 2008 low and this implies that there is certain level of complacency in the market. However, it does not mean that market will be going bear any time soon. To me, it simply means that it is getting harder to see the market direction beyond a couple of weeks.
While we are seeing more positive numbers coming out from our economy as well as those from the G8 (or G20 now), we still have potential problem in many areas notably sovereign debts. We may also have issue with Euro because of the problems in the European region. Then, there is problem with US ever growing debt, and the Treasury bonds and etc, etc and etc.
What does this mean? In short, it means we will see more volatility. We always have this Chinese saying "Opportunity comes with crisis". In times like this, there are potential in other areas such as VIX index, etc, etc. Or, maybe, be a crouching tiger and strike at the right time during these volatile times. There is never lacking of opportunities - just make sure you have enough "bullets" when opportunity comes.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
While we are seeing more positive numbers coming out from our economy as well as those from the G8 (or G20 now), we still have potential problem in many areas notably sovereign debts. We may also have issue with Euro because of the problems in the European region. Then, there is problem with US ever growing debt, and the Treasury bonds and etc, etc and etc.
What does this mean? In short, it means we will see more volatility. We always have this Chinese saying "Opportunity comes with crisis". In times like this, there are potential in other areas such as VIX index, etc, etc. Or, maybe, be a crouching tiger and strike at the right time during these volatile times. There is never lacking of opportunities - just make sure you have enough "bullets" when opportunity comes.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
Saturday, March 13, 2010
Lesson Learnt: FerroChina
Yesterday, FerroChina was delisted from SGX. A once leading galvanised steel producer is now history. Before it went burst, it was still growing leaps and bounds. The growth figures were beautiful and full of promises. But, it is now buried under millions of debts.
I have lost my investment in this company. It's painful. Even though I have done my homework analyzing this company, reading its financial reports and following the analysts' reports, nothing actually prepares me for this. Before it went burst, it was still reporting 194% increase in gross profit for 1H FY08 compared to 1H FY07. The net debt to equity was just 55.7%. So, how did a company with such impressive results and financials go belly up? *Sigh* I don't know.
On hindsight, I think I have believed too much in its financial reports, and I have focused too much on how well this company can grow and forgotten to look into the details of its debt. This company is practically growing and living on debts. Even without this financial crisis, the amount of debt and repayment would have buried it 6 feet under. In the pursuit of growth, financial prudence and risk management have been put aside. To me, this is a good lesson learnt.
I have lost my investment in this company. It's painful. Even though I have done my homework analyzing this company, reading its financial reports and following the analysts' reports, nothing actually prepares me for this. Before it went burst, it was still reporting 194% increase in gross profit for 1H FY08 compared to 1H FY07. The net debt to equity was just 55.7%. So, how did a company with such impressive results and financials go belly up? *Sigh* I don't know.
On hindsight, I think I have believed too much in its financial reports, and I have focused too much on how well this company can grow and forgotten to look into the details of its debt. This company is practically growing and living on debts. Even without this financial crisis, the amount of debt and repayment would have buried it 6 feet under. In the pursuit of growth, financial prudence and risk management have been put aside. To me, this is a good lesson learnt.
Tuesday, March 9, 2010
Cost of quality : Toyota
The recent issue with the Toyota cars makes me wonder whether we understand the true cost of quality - the quality of work or product or service, etc. I was quite fortunate to study the TPS (Toyota Production System) during my masters study many years ago. Frankly, I am fascinated by the Toyota Way. The concept is wonderful and the Kaizen standard is really unbeatable. Practically, everybody in the company is responsible for the continuous improvements that we see in the Toyota cars today. The quality that you see in the Toyota cars comes from years of research and commitment from everybody in the company.
Unfortunately, the recalls and negative news have cast negative spotlight on the company recently. I am not sure what has happened to their standard of quality. But, these issues have caused much negative publicity and will cost them dearly. Many companies have failed because of bad quality products. Now, for Toyota, the cost of quality would be everything. It will either make or break the company.
Unfortunately, the recalls and negative news have cast negative spotlight on the company recently. I am not sure what has happened to their standard of quality. But, these issues have caused much negative publicity and will cost them dearly. Many companies have failed because of bad quality products. Now, for Toyota, the cost of quality would be everything. It will either make or break the company.
Sunday, March 7, 2010
Unit Trust : How do you select one?
As I have explained in my earlier posting, buying unit trusts is no different from buying stocks. To start off, you may want to take the top-down approach.
1) First, look at the global economy. If the economic indicators are not doing so well at the global basis, likelihood is that the return of your investment will not be so fantastic.
2) Then, focus at the region or country or industry that you are interested in. For example, if the economy is recovering, the commodity market should start to pick up because the economy will need more resources to satisfy growth.
3) After you have done the above studies and decided what to invest, you will then look at the fund managers that are providing this type of fund. Track records are very important for selecting the right funds. Similar to stocks, buying a newly launched fund is equivalent to buying an IPO stock. It is better to select fund managers who have been in the market for a certain period of time in order to have enough information to assess their performance(my personal preference is at least 5 years).
4) Compare the returns of the funds and the performance of the fund managers. There are a number of websites such as fundsupermart that provides very detail analysis of these funds as well as their performance over time. In addition, you may also want to look at some of the ratio listed below to evaluate the funds.
Expense Ratio
As a rule of thumb, you should look for funds with low expense ratio. This is the cost of managing the fund. Given equal performance, the fund with the higher expense ratio will give a lower return compared to one with lower expense ratio.
Sharpe Ratio
It is the excess risk adjusted return. Given two funds with the same investment strategy, the one with the higher sharpe ratio will give you more return over time.
The above is just one of the many ways to select a fund. After selecting a fund, you should also have a strategy to buy into the fund. This will be discussed in future posting.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
1) First, look at the global economy. If the economic indicators are not doing so well at the global basis, likelihood is that the return of your investment will not be so fantastic.
2) Then, focus at the region or country or industry that you are interested in. For example, if the economy is recovering, the commodity market should start to pick up because the economy will need more resources to satisfy growth.
3) After you have done the above studies and decided what to invest, you will then look at the fund managers that are providing this type of fund. Track records are very important for selecting the right funds. Similar to stocks, buying a newly launched fund is equivalent to buying an IPO stock. It is better to select fund managers who have been in the market for a certain period of time in order to have enough information to assess their performance(my personal preference is at least 5 years).
4) Compare the returns of the funds and the performance of the fund managers. There are a number of websites such as fundsupermart that provides very detail analysis of these funds as well as their performance over time. In addition, you may also want to look at some of the ratio listed below to evaluate the funds.
Expense Ratio
As a rule of thumb, you should look for funds with low expense ratio. This is the cost of managing the fund. Given equal performance, the fund with the higher expense ratio will give a lower return compared to one with lower expense ratio.
Sharpe Ratio
It is the excess risk adjusted return. Given two funds with the same investment strategy, the one with the higher sharpe ratio will give you more return over time.
The above is just one of the many ways to select a fund. After selecting a fund, you should also have a strategy to buy into the fund. This will be discussed in future posting.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
Saturday, March 6, 2010
Chartist View: Property
The number of articles in the newspapers and the recent highlights on the property market is really giving me some adrenaline rush to find out where we are in the property cycle. Just like property stocks, I believe private properties are cyclical in nature as well, meaning there will be ups and downs.
If you refer to the PPI in URA website , I think we are not far away from the previous peak in 2008 and 1996. From chartist's point of view, we are near resistence level. When you are near resistence level, you need more buyers to help to push the price past the previous high. The next few quarters should be quite interesting for property market.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
If you refer to the PPI in URA website , I think we are not far away from the previous peak in 2008 and 1996. From chartist's point of view, we are near resistence level. When you are near resistence level, you need more buyers to help to push the price past the previous high. The next few quarters should be quite interesting for property market.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
Wednesday, March 3, 2010
Update: Insurance charges
In today's Strait Times, there is an article regarding MAS request for more disclosure on insurance charges. If you are interested, you could also request for such information from your insurance companies. This will give you information on whether the proposed cash value is realistic at the end of the day.
Unit Trust : Is it worth buying?
By now, I am pretty sure that you have come across many people who tell you that you should buy unit trust or mutual funds if you are passive investors and you do not have time to monitor your investments. There are professionals out there who will take care of your money and leave you to do what some of us do best: eat, play and sleep (Don't worry, you are not one of them since you are spending your precious time reading my blog). Blunt and crude, maybe, but let me give you this piece of advice. There is no free lunch in this world. If you do not take care of your money, somebody will.
I will share my opinion regarding unit trusts in the following FAQ.
1) Is there any difference between investing in stocks and unit trust?
No. You are still required to understand what you are buying. To do that, you need to read the prospectus, annual and semi-annual report of the unit trust. You will need to know the fund manager and understand their investment strategy. You will also need to evaluate their performance. Basically, there is no difference between buying stocks and unit trust.
2) Why do I need to monitor my investment when there are professional being paid to do all these?
Professionals are still human. Sometimes, their actions may deviate from the strategies that they preach. And, yes, they also lose money (sometimes, more than what you wish). You should read the book called 'Beating the Street' by Peter Lynch. In the book, he described how a group of little children beat the professionals in stock picking. So, if you do not invest the time to understand what you are buying and the performance of the funds, you may and will lose money.
3) If that's the case, why do I invest in unit trusts?
This is because :
a) your few thousand dollars will not get you anywhere if you want to buy the expensive blue chip stocks. But, it should be enough for you to participate in a fund that invests in these companies.
b) the professionals are closer to the market and they are trained to pick stocks with a disciplined approach.
c) you do not access to certain market e.g. overseas stocks, etc.
If you are still interested to know how I evaluate these unit trusts, please read my next posting.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
I will share my opinion regarding unit trusts in the following FAQ.
1) Is there any difference between investing in stocks and unit trust?
No. You are still required to understand what you are buying. To do that, you need to read the prospectus, annual and semi-annual report of the unit trust. You will need to know the fund manager and understand their investment strategy. You will also need to evaluate their performance. Basically, there is no difference between buying stocks and unit trust.
2) Why do I need to monitor my investment when there are professional being paid to do all these?
Professionals are still human. Sometimes, their actions may deviate from the strategies that they preach. And, yes, they also lose money (sometimes, more than what you wish). You should read the book called 'Beating the Street' by Peter Lynch. In the book, he described how a group of little children beat the professionals in stock picking. So, if you do not invest the time to understand what you are buying and the performance of the funds, you may and will lose money.
3) If that's the case, why do I invest in unit trusts?
This is because :
a) your few thousand dollars will not get you anywhere if you want to buy the expensive blue chip stocks. But, it should be enough for you to participate in a fund that invests in these companies.
b) the professionals are closer to the market and they are trained to pick stocks with a disciplined approach.
c) you do not access to certain market e.g. overseas stocks, etc.
If you are still interested to know how I evaluate these unit trusts, please read my next posting.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
Tuesday, March 2, 2010
Insurance : When do you buy insurance policy?
You should always buy an insurance policy before the risk in consideration has already occurred. For example, if you have a car, you should buy an auto insurance before you start driving the car. In fact, many of you will say that this is a "common sense' answer because no insurance company in the right mind will be willing to insure you after you are already involved in a car accident. True indeed.
Unfortunately, this answer becomes unclear when we start to talk about life insurance or health insurance. A lot of us carries this false sense of security that insurance is not really necessary when you are still healthy. However, no matter whether you like it or not, tomorrow is always a mystery. You should buy an insurance policy when you need it least because the price to pay for it will always be highest when you need it most.
In my next posting, I shall discuss about unit trust.
Unfortunately, this answer becomes unclear when we start to talk about life insurance or health insurance. A lot of us carries this false sense of security that insurance is not really necessary when you are still healthy. However, no matter whether you like it or not, tomorrow is always a mystery. You should buy an insurance policy when you need it least because the price to pay for it will always be highest when you need it most.
In my next posting, I shall discuss about unit trust.
Monday, March 1, 2010
Insurance : Comparing term life insurance and wholelife insurance
In Singapore, there are a few low cost term insurance plans that may be worth looking. You may want to look at some of the policies available for SAFRA members or NTUC members. Although these are group policies and it requires you to be a member of the respective organisations before you can take up these policies, the total cost (premium + membership) is still comparatively cheap.
Take SAFRA Living Care insurance policy for example. The premium is $289 for a 35 year old male with a sum insured of $100,000. For an equivalent wholelife insurance policy, you will be looking at an annual premium rate that is a few times more than this.
So, how do you decide whether it is a better option to go for term life insurance or wholelife insurance? As explained in my earlier postings, the purpose of insurance is to mitigate or transfer risk. Taking a wholelife insurance will normally introduce a new risk - the risk that you may not get back the cash value that you desire.
Let's assume that annual premium for the equivalent wholelife policy for the 35 year old male is $2000. With a projected return of 5.25% per annum (the best estimate for long term investment return rate set by Life Insurance Association, Singapore) for 25 years, the projected return will be around $70k to $90k depending on your life assurance cost and other insurance expenses. However, please note that this return is not guaranteed and hence it carries an unknown risk.
Now, let's do the same with SAFRA living care policy (Refer to SAFRA rates at ). It will cost the same man a total premium of ($289x10 + $416x10 + $808x5) = $11,090 for 25 years. That's an average of $445 per year. Assume that he puts the difference in premium that he saves ($2000 - $445) in CPF special account, the guaranteed return of 4% for CPF SA will earn him $65k after 25 years. The $65k comes risk-free. Of course, if he is less risk averse, he could improve his return by investing some money in other financial products such as stocks or high-yield bonds. Similarly, he can increase his sum insured by paying more premium and reducing the investment return.
From the above example, you can see that term insurance gives you more control over your finances as well as the amount of protection that you need. In a way, it allows you to manage your risk more effectively.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
Take SAFRA Living Care insurance policy for example. The premium is $289 for a 35 year old male with a sum insured of $100,000. For an equivalent wholelife insurance policy, you will be looking at an annual premium rate that is a few times more than this.
So, how do you decide whether it is a better option to go for term life insurance or wholelife insurance? As explained in my earlier postings, the purpose of insurance is to mitigate or transfer risk. Taking a wholelife insurance will normally introduce a new risk - the risk that you may not get back the cash value that you desire.
Let's assume that annual premium for the equivalent wholelife policy for the 35 year old male is $2000. With a projected return of 5.25% per annum (the best estimate for long term investment return rate set by Life Insurance Association, Singapore) for 25 years, the projected return will be around $70k to $90k depending on your life assurance cost and other insurance expenses. However, please note that this return is not guaranteed and hence it carries an unknown risk.
Now, let's do the same with SAFRA living care policy (Refer to SAFRA rates at ). It will cost the same man a total premium of ($289x10 + $416x10 + $808x5) = $11,090 for 25 years. That's an average of $445 per year. Assume that he puts the difference in premium that he saves ($2000 - $445) in CPF special account, the guaranteed return of 4% for CPF SA will earn him $65k after 25 years. The $65k comes risk-free. Of course, if he is less risk averse, he could improve his return by investing some money in other financial products such as stocks or high-yield bonds. Similarly, he can increase his sum insured by paying more premium and reducing the investment return.
From the above example, you can see that term insurance gives you more control over your finances as well as the amount of protection that you need. In a way, it allows you to manage your risk more effectively.
Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.
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