Buy index funds, but if you insist on trying our stock trading for yourself, read this.

I'm prompted to just tell investors to buy ETFs or index fund. But I realized not many investors are aware of the basics and still believe they can beat the market. So here's a simple 101 of stocks.

You own a business when you own a stock

Every stock represents part of a business, and when you buy stock you’re actually purchasing a share of the company. So in the same way that entrepreneurs can own a business outright or split ownership with other partners, as a stockholder, you can own shares of a company.

But while entrepreneurs and partners work day in, day out to manage their business, as a shareholder you don’t have any responsibility for managing the company and can sell your shares whenever you want.

So stocks are effectively pieces of a company, and many companies make their stock available to the public. This is a strategic decision that depends on the size and financial needs of a company. Every business relies on financing, but some entrepreneurs use their own savings while others come up with the initial capital by asking family and friends like the founders of Google did.

As a company grows, its funding often needs to grow with it. Eventually, the company can become so big that it only has two options for how to raise the massive amounts of capital needed to run its daily operations and make investments

1.        They can borrow money from a bank just like an average person would do to buy a car or a house.
2.        They can sell ownership of the firm for money.

Take emotions out of the equation

Financial news can create distress. Investing is about keeping calm and going for the long term.

In fact, one of the best times to buy stocks is when investors’ emotions drive down financial markets. Market panic is the best tool to get cheap stocks. Don’t feel a sense of “missing out” when your peers make, let 20%, and you sat out of the deal. There is nothing to panic! Investments is best done when you are calm, and your only counterparty is the market.

Don’t invest an amount you cannot afford to lose. Fear can drive people to make irrational choices.

• When looking at a stock, it’s best to act like a five-year-old and keep asking why.
• Why do people like or need the company’s products in their lives?
• Why do they consume its products?
• How is the company making money?

If you don’t know the answers to these questions, its better off buying the entire index through index funds of ETFs.

Today, financial markets are prone to drastic drops and spikes. These changes can be caused by mood swings prompted by over-excitement and disappointment.

Don't make decisions when you are stressed.

Adult humans are naturally unsettled by things they don’t understand. Light ambiguity can be amusing or intriguing, but more extreme cases of ambiguity can induce us to make rash decisions.

Ambiguity will always be a part of our lives. It’s important to be able to cope with it, especially in key situations in life.

Don’t make important decisions when you’re stressed out. Don’t quit your job just because you’ve had a bad day at work. Wait until you’ve calmed down before making any big decisions. If you’re feeling anxious about some kind of ambiguity, you’re not thinking straight.

Millionaires don't all lead luxurious lifestyles. Your goal may be wrong

Many of us want to be millionaires to lead a luxurious life. Yet, I know many millionaires who become millionaires by avoiding flashy lifestyles. They prefer to be financially secure and independent.

Financial independence simply means you can avoid work and lead a credible lifestyle - travel, have fun, mean just below your means.

Many people prefer a lifestyle they cannot afford. They drive cars, drink wine, gamble, go for expensive holidays. They stress over how to afford their lifestyles. The alternative is to consume lesser and you can immediately be richer. Rich is a relative term when you compare what you have to how much you need.

Productivity at work and at home. Develop habits, stop multitasking and say no more often

When you make something into a habit, doing it becomes painless and effortless. Consider your daily habits. Perhaps you make yourself a cup of warm tea right after you wake up. If you have done this for years, it becomes a habit and it is painless. If something is important to you, make it into a habit. At first, you have to do it conscientiously and repeatedly. One day, it will be automated. 

Multitasking is a waste of time. Imagine you are using a water host to clean the floor. You need to focus on one source and you need high pressure. If you split the source into a few hosts, the effect of cleaning is weakened. Give that one thing you do undivided attention. Move on after you completed the one thing.

Say no more often than yes. Pick what you agree to do carefully. A simple rule is to make "no" your default answer. Do only the most important things in life.

What happens when you fail to spot blurring of lines between sectors and market segments

A technological innovation disrupts. Before the 2000s, Dell was a market leader and enjoyed massive profit margins. After that, Apple introduced tablets which ate into the market share of laptops and computers.

It may not be easy to spot trends ahead of time, but leaders must try to navigate hints and signals. Nokia didn’t act on the series of patents that Apple was filing secretly over the years.

You need to find talent that can spot developments early in an industry, and develop a taste for cross sector analysis. Disrupt happens when one industry crosses into another. Think about the implications of mobile phone technology and the financial sector. Major changes to take place soon. The same will happen in other industries when sectors merge.

Intelligent investors understand the importance of stock-market history

This is an excerpt of a summary of the Intelligent Investor. You can choose to read the article or simple read these next 3 words to save your time and pain – buy index funds.

Looking back through history reveals that the stock market has always been defined by regular ups and downs. Often, these fluctuations can’t be foreseen. The unpredictability of the market means that investors need to be prepared – financially and psychologically.

Economic crises, like the Wall Street crash in 1929, are a fact of life, and happen from time to time.

Thus you need to ensure that you can take a big hit and survive. This means that you should have a diverse stock portfolio, so your investments don’t all get hit at once.

What’s more, you should be mentally and psychologically prepared for crisis. Don’t sell everything at the first sign of danger. Remember instead that, even after the most devastating crashes, the market will always recover.

And while you can’t predict every crisis, looking at the history of the market will give you a better idea of its stability.

Once you’ve determined that the market is stable, focus on the history of the company in which you’d like to invest.

Look, for example, at the correlation between stock price and the company’s earnings and dividends over the past ten years. Then consider the inflation rate, i.e., the rise in prices generally, in order to see how much you’d really earn, all things considered.

For example, you calculate a 7-percent return on investment within one year, but if inflation is at a 4-percent rate, then you’ll earn a return of only three percent. Think carefully about whether it’s worth the effort for only a three-percent return!

When it comes to shrewd trading, a knowledge of history is a fine weapon, so be sure to keep it sharp.

The first thing you should do before you invest isn’t to look at a stock’s history. That’s important, sure, but what’s more important is looking at the history of the stock market itself.

Work Email Tips

When you are working on a document, don't leave the email open. Deal with work one thing at a time. Distraction is painful. You take twice or more time to go back to what you were working on.

Read your email aloud or in your mind before sending. There will almost be always silly mistakes. You want to look professional.

Keep emails short. Try to rewrite them so that you can your points delivered the shortest possible way.

If you bcc someone, do it because you don't want to get that people flooded with replies. But always tell the rest of the group who is bcc-ed. You don't want the embarrassment when the person in bcc replies.

I find that changing the title to focus on the new key points is important. Helps you find the content you need quickly.

Writing as simply as you can

Writing is simply talking without being interrupted. You have all the time to think and you have all the time to deliver the message. Writing is also efficient because the writer does not need to repeat the message.

One thing I learnt about writing is the beauty of simplicity. Simplicity in terms of sentence structure and the type of words used.

Keep your thoughts clean. Write to tell your readers what's on your mind. The shorter the sentence and the entire piece, the better.

Where possible, blog on a platform with minimal scripts. Don't use advertisements. Don't use wordpress.

Start today.

Inflation and your pay

I would like to address the demand for cash balances. How much you will keep in your cash balance is a function of price levels.

If prices fall by 1/3, people will need 1/3 less money in their wallets. In the same way, if prices increase, people will need more money in their wallets.

Wallets is merely a simpler way to address liquidity. The more they need their money, the more liquid they need their savings to be.

Prices of money are determined by supply and demand of money
Purchasing power of money is merely the inverse of price levels. As prices rise, the purchasing power of money falls.

If someone uses fake money to purchase goods and services, the supply of money increases and the new price level will increase. The value of each existing dollar is diluted by the new dollar. This is similar to the inflation process. If the government releases more money into the system, the value of your money decreases.

In other words, if you did not have a pay increase this year, the value of your pay package would have decreased by the level of inflation.

Which is a more dominant force in changing prices? It is the supply of money. Government and financial institutions can collectively employ looser monetary policies to increase the supply of money. Theoretically, they could print money, drop it into your mailboxes and decrease the value of money. They could also lower interest rates to increase lending.

I hope all these are clear. But if there is one thing I would like to stress, it is that the value of your money is determined by the supply of money and the demand for money. The value of your money decreases when there is inflation. Pay increases matching inflation is not an employee benefit. It is to ensure the value of your pay remains the same as the year before.

Websites that disrespect consumers should be made irrelevant

Using too many plugins and scripts? Didn't optimize your images? If you don't respect the pockets of consumers you really don't deserve many viewership.

Consumers can collaboratively boycott these sites. Create your own content. What can you do to generate sustainable content for the Internet? 

1. Use simpler words. Don't embed scripts if you want to tell me your Twitter username, type it. Don't embed the code. 

2. Use plain html. You don't need to customize CSS in a Wordpress environment.

3. Optimize images or don't use images at all.

4. Make impactful content. If they are not impactful, use a social platform.

Website Obesity

As a minimalist, it pains me to see how websites have become "obese", overloaded with information and pictures unnecessarily.

What's taking up so much space? Besides pictures which I feel are necessary for visual impact, the biggest reasons are scripts, advertisements and social sharing functions. Merchants and website makers now feel the feel to overwhelm our websites with dynamic content.

We need to strike back. This is why I dislike Wordpress and have moved most of my blogs back to simpler platforms like blogger.

Who gets hurt when website content gets more "obese"? It is us, the consumers. As we consume more data on mobile phones, we will suffer as websites become more bloated.

Here's what we can do to tackle #websiteobesity

1. Blog on simpler platforms

2. Boycott scripts

Working from home - creating value with lesser footprint

I have been thinking about work. Work is the processing of creating value for society and in return, the worker gets remunerated for the value he or she creates. But in cities, many people travel to office for "work". Work becomes a routine to appear somewhere else. They don't necessary give their best because work is not always motivating. They may not like their bosses, their team or even the work they do.

I am clearer now after observing working styles across Europe, China, Australia, Taiwan and Singapore. People appear to be self motivated when they commit time to work on things they love to do. While this is simple, it's often underrated. Working on something you love creates unspeakable value for yourself - as you created, you have fun. No amount of money can replace this feeling. Bosses and workers are equally responsible for ensuring workers love their work. Without joy, they will come to office late, they will be unhappy every night and look forward to the weekends. This is definitely not what man is made for.

Neither do I advocate that everyone takes on online trading and blogging. Most of these are just eye catchers and don't bring in sustainable income. I'm advocating that everyone be open to take a pay cut to find work nearer to your home and to do something you like. In many circumstances, you may find that you like to bake, make clothes, host friends. Be adventurous and be honest with yourself. You can start a bakery from your home and you can start a B&B if you live in a private apartment in Singapore.

A simpler way is to initiate a pay cut to work lesser hours. Take the hours you saved to think about a new business. The new business does not have to be an online venture, it can be brick and mortar. I own a rather brick and mortar business of tailoring. Anyway, the lines between online and physical sales is blurred. Revenue collection online is now far more convenient.

I advocate that you escape from the 9 to 6 pm lifestyle. Do not work on anything that you don't enjoy. Find that spot that you love and work hard on it. This is not new at all. In the early 1960s and 1970s in Singapore, we used to do household chores for income. My mother was a tailor and my relatives sold products door to door.

How to buy Index Funds in Singapore

I felt this post was necessary to give Singaporeans a no nonsense guide on buying index funds. I'm not paid for this post, so you can be sure this is objective. I was the President of the Society of Financial Service Professionals, Singapore and am a CFA Charterholder.

I won't address why you need index funds again.Going straight to the point, there are 3 ways

1. POSB $100 min a month investment in Singapore Equity and Bond ETF. Search POSB ETFs and you will see a monthly investment plan. There is a sales charge apart from the monthly fee.

2. You can buy ETFs off the exchange. To do this, you need an account with a local broker. You will always need to pay the minimum transaction fee of $25++ per trip.

3. You can buy ETFs off the exchange with Standard Chartered Bank. Note that they will be your custodian, not the CDP. There is no minimum transaction here.

Other ways - you can buy from Fundsupermart, but I am a strong believe of going direct to buy from the exchange, never from an intermediary. 

Important Note on Insurance

The Short Story

Buy term life insurance and critical illness insurance because you will regret if you do not.
The Long Story

Many don’t appreciate insurance. Most regret only during the occurrence of risk events. When these events occur, accidents and prolonged illness can deplete your savings rapidly.

Many may delay the purchase of insurance because it is just to justify the returns from the expense. This is also why investment linked policies seems emotionally easier to sell.

A survey by LIA in 2007 found that the average policyholder is under-insured by as much as $362,000.

Plans that are bundled with savings and investments such as whole life and investment linked products seem to be more popular. The focus on cash value always undermines the importance of protection.

It is hard to price protection. That’s why it takes so much effort to convince someone to buy the protection only product. If agents sell a plan coupled with savings and investments, the product seems more attractive.

Premiums for whole life plans can be much more expensive than a simple term policy. The savings component can be easily parked somewhere else.

To determine the amount of insurance you need, it is good to start with a needs analysis. An advisor will have to understand your circumstances to ascertain how many years of income is needed should a risk event occur.

Many planners do not take into account the required household Cashflow. When planners are more concerned about their own earnings, their clients may suffer from a lack of Cashflow.

It is also not coincidental that the least sold insurance and the cheapest for customers, term, has the least commissions. Term is flexible in terms of coverage horizon. Logically, you may not require life coverage after your retirement because you have no or little earnings power and you should be able to save enough for bequeathing needs. Insurance works best to cover the risk of losing income so that your dependents will not suffer.

Delay the purchase is not a wise decision. If you are struck with some conditions, insurance companies may not admit you into their plan?

Please do not switch plans because there will be an underwriting process. If your health has deteriorated, you may be faced with higher costs or lower coverage.

Truth about insurance

Investment Linked Policies and Wholelife policies are very expensive.

For the first few years, your agent will receive up to half of the premiums you pay. Do you want to enrich someone else or yourself? The better choice will be to invest in Term Insurance which is the cheapest option. Better still, do it yourself. Compare prices online and get the cheapest!
Plain is better than complex.

Some insurance products have multiple critical illness claims. These are very complicated options. Why would anyone claim a partial amount for the first occurrence of cancer and claim the rest during the second? Product originations will do all they can to create weird products. Please just buy plain term products.

Buying direct is better than buying through an agent.

Try not to use agents. They call themselves planners but most of them are not specialists in wealth management. They take some exams and meet the minimum bar to sell products. To trust your money with a stranger, you will really need someone who at least, is a CFA Charterholder or a qualified money manager. Planners do not go through the rigorous quantitative training of financiers. There are simple rules to follow for insurance. If you really need help, find a CFA Charterholder or find an adviser with decades of experience, at least.

Yes, you need Death coverage but up to the extent to cover your income.

Your family should not profit from your death. Just estimate your future earnings and cover up to 10 years of your income. Your family members just need a lump sum to tie over while they recover from death of a relative. The purpose of insurance is to mitigate risk, not for gains.

The Giffgaff effect in Singapore for mobile plans

It’s coming. Myrepublic has hit the pain point. Customers are on the brink of being released from costly data plans. It does seem like the 4th telco understands the need to alter the existing value system. In this era, we use mobile for everything.

Mobile data helps alleviate the pain for travel on public transport and helps Singaporeans execute complex tasks that used to be physically troublesome (pay fines, banking, shop etc).

Hardware has caught up. Our iPhones and new android machines have the same if not more computing power than PCs 5 to 10 years ago. But Singaporean data plan providers have chosen to be milk customers instead of rethinking their value proposition.

Our business models have not caught up. We are still trap with the minimum 300 mins and 1000 sms. Those are base fees that force you to commit $15 dollars for nothing. Hardly anyone uses calls and sms. Above that, they layer prohibitive fees for data — especially if you exceed the amount of data you contracted for. That’s not pay per use. That’s a fine.

The government has generally stood by these telcos because frankly they are local champions. They employ a lot of Singaporeans and higher profitability means good pay and good returns to Singaporean workers and investor. But the lack of competition prohibits innovation.

We badly need cheaper mobile data plans. Kids and students need to consume more data. We don’t want to micro manage what they do with it. But we want kids to be at the forefront of technology. Be exposed. That’s the first step. We also need every Singaporean to be mobile ready so we can implement smart nation initiatives. We could possibly be using mobile phones to tap on MRTs, we could mass adopt smarter payments systems and we could help formulate better policies with data.

The current pricing model is unsustainable. The Giffgaff effect has arrived. We will see a telco serve an entirely different segment (I believe this is the new majority) of customers who want cheaper mobile data and little or less other value added service. It’s a battle of pricing model. Check out our peers in Taiwan, Japan and even the medieval UK.

One day we will see no frill plans like this

• 10 gb, 15 mins talk time, 100 sms — $60
• Unlimited data — $80 to $100

If you read this, share it or respond so our politicians know what we want and can reflect this in parliament. Takes too long for our conglomerates to understand the shifting grounds globally. Perhaps they already do, but they prefer you be exploited.

BreadTalk and Trust

We recall how Bread Talk represented that the soya milk they sold were fresh. But we later found out it was Yeo's soya milk. Arguably, not as fresh as they want it to sound. Post this incident, I have hardly purchased anything from Bread Talk.

Businesses that can win the trust of consumers develop competitive advantages. Consumers are happier to be associated with the brand and they are prouder to share their purchases with their friends in person and on social media platforms.

A firm needs to build moral capital in order to lead effectively in their respective sector. Moral leadership gives legitimacy for the firm to transform their businesses. Especially in Asia, a virtuous company must understand that it cannot pursue profit at the expense of its customers.

The basic elements of a virtuous organisation comprises courage, perseverance and discipline. In recent news, BreadTalk seems to lack all three of these elements. They lack the courage to come clean about your mistakes, they show a clear lack of perseverance and discipline to grow their business the right way.

I am skeptical about the future growth of a firm that chooses to lie about their products to their customers. I am skeptical about BreadTalk as a symbol of success in Singapore.

Change or be changed

Singapore must take a leadership role in so-called disruptive technologies like third-party apps such as Uber and GrabCar. If we do not innovate and create disruptive technologies, we may not be well placed to react to global trends in time, to our detriment. We have seen how Uber disrupted the taxi industry. Years earlier, data-based messaging services such as WhatsApp disrupted the SMS business. Paypal and mobile payment systems eroded the retail businesses of banks.

Some countries with more resources and a larger domestic market may be able to withstand such blows, and mitigate these effects of disruption at later stages. Singapore does not enjoy such luxury. We must be at the forefront of these disruptive technologies. In the case of Uber for example, it would be very much in line with our economic strategy to persuade Uber to move its Asian headquarters to Singapore.

Some still hold the view that we can resist such technological disruptions, such as through regulatory legislation, in order to protect local interests. We would only be creating inefficiencies, and allow the world around us to move ahead.

The process of technological disruption will be painful. Admittedly, disruption may threaten some jobs. But if we can lead the way, we create for ourselves more time to mitigate the effects of any such negative socio-economic situations. This is a crucial learning process helps to boost our resilience towards potentially catastrophic changes, which are beyond Singapore’s control anyway.

The next frontier for disruption would be the service industry, especially within the F&B sector. Eatsa, a high-tech fast food restaurant recently opened in San Francisco. Eatsa revolutionaries the dining experience with full automation of almost all processes in a F&B business, especially in serving food and cashiering. With the exception of a few kitchen staff, there is not a human in sight. The restaurant has received good reviews. This marks a new era — technology has begun disrupting the low skilled service industries.

Singapore’s service industries currently requires a considerable low-skilled labour force. This has all sorts of political ramifications with regard to debates on immigration, which sometimes borders on xenophobia. Disruptive technologies like what Eastsa is pioneering is therefore the natural way forward.

Policy makers cannot shield Singaporeans from these changes. Singapore and Singaporeans will be worse off, if we over-regulate such technological innovations. It makes more sense for us instead to adapt to such changes. Beyond adapting to changes, we will also need to take the lead in the disruption of established industries.

Regression to the mean

I want to talk about regression to the mean because this will transform the investment industry.

Look at the table above. Well performing funds do not stay at the top. They revert to the mean. This implies if you had bought a fund simply because it made good results in the past, you are more likely to lose. Simply put, if you came first, overtime you will underperform to emerge somewhere in the middle (the mean).

I get it that many professionals tell you they have insights. They print beautiful brochures. Anyone can report good results. Think about it this way, you came in 20th in a class of 40th. How do you show you did well? Well, you can say you were top 5 of those who went to the same club as you did. You could also say you were first in the entire neighborhood you stay in. These could be facts. But it does not take away the fact that you only came in 20th.

• Fund performance is hypothesized to be random
• Cost and fees are everything. Buy the cheapest that gives you the broadest diversification
• Please buy funds yourself, direct, not through advisors. They take a big cut

Con men and cheaters who teach you how to trade for a lot of money

Many errant businessmen are selling trading courses. No one with a working formula will reveal their “magic formula” for a few thousand dollars. The efficient market hypothesis states that any formula that takes, if released into public hands and if adopted by the public, will result in the nullification of the effects of the formula.

But the case is different if the formula is one based on simple probability. 50% of the time it works, 50% of the time it does not work. You sell the formula for thousands, show the cases when it works, find a reasons when it does not. Offer advice on hindsight, give many caveats for future looking tips. This is an old business. People have sold gambling tips over centuries. Today, the same con men are legitimizing this trade by dealing with regulated instruments like stocks.

Let me unveil the business model. They get you in to attend a free course, hype you up, sell a 3 to 4 day course for thousands. At the end of the course, they sell you more courses and formulas and unique programs. You get sucked into the program. Just when you think this is it, there’s more. You signed up with one of the brokers they brought. Every trade you make, they make a fee, or at least, they earned an introductory fee.

If you want to learn how to trade FX or stocks, read a proper textbook. There is no short cut. Keep a few honest financial blogs. There’s not many.

Is MP Desmond Lee right about our crime status in Singapore?

Is MP Desmond Lee right about our crime status in Singapore?

MP Desmond Lee said that Singapore achieved low crime rate with a lean police force comprising 9,400 regular police officers. He added that this was low compared to other cities such as London, New York and Hong Kong. However, he did not indicate whether crime rate had increased or not.

The mid-year crime statistics released in August 2015 (16,575 cases) was 6.7% more than that of last year during the same period. In the previous year, crime in 2014 increased by 7.4% from 2013. Does the MP think that as long as we have an efficient police to crime rate, Singaporeans can tolerate crime increases?

In a Parliamentary reply in February 2014, we found out that we have about 6000 auxiliary police officers. Perhaps our police force is not so lean after all. 

Secrets to buying insurance

Should I buy from a friend or direct?

Try not to buy from an adviser because insurance commissions can be very high. Yes, it can go up to 50% for your entire first year’s premium. This is why you should go online to get one yourself. Simply Google “Compare Insurance” to find out portals that can help you spot the cheapest coverage.

How do I shop for insurance by myself? I don’t even know what is needed?

There are just a few categories of insurance.

• Health insurance mitigates the risk of falling sick – I recommend to upgrade to cover private hospital expenses
• Life insurance – I recommend to cover your projected income until the age of retirement. By retirement you won’t need insurance because your savings is supposed to take over. Frankly, if your family is wealthy enough to survive should you pass on, forget about this.
• Critical illness – I like this. Buy this because you don’t want to be a drag to your family when you are critically sick. Note that both euthanasia and suicide is illegal in Singapore
• Buy term insurance. They are cheaper. Do not buy wholelife or ILP. There is, however, a special case for ILP where you can choose to maximise coverage and use the rest of the remaining units to invest (very little).

Honestly, the products that an adviser sells you won’t be able to help you retire well. You need to seek higher income and, perhaps, work harder. 

Technical and Fundamental analysis can be different but both helps the investment process

Technical analysis and fundamental analysis are two different schools of thought. There are polarizing. In an efficient market, technical analysis should add no value.

Technical analysis is based on the belief that the market is not efficient. Technical analysts use indicators that are independent of the company’s financial condition. Fundamental analysts focus on the financial health of companies. Fundamental analysis chooses stocks to buy; technical analysis chooses when to buy for analysts who use both. Proponents of strong form efficient market theory and technical analysts are at opposite ends of the philosophical spectrum. – CFA Magazine

But I think there are times when the market is inefficient. This is when technical analysis is useful. More fundamental analysts are checking their charts. Charts provide a good overview of the markets.
Technical analysis is related to stock price and volume, whereas quantitative is statistically based, using excess return forecasting and fundamental indicators such as earnings, earnings trends estimates. Quantitative analysis assumes that an investment philosophy can be expressed as a statistical model.

Don’t fall for the tricks of advisors, buy the index fund

I hope to simply the process of investing among individuals. The investment sector is filled with fraud. As long as you buy or sell, someone makes money from you. And the world is consistently asking you to buy or sell. No one ever tells you to buy and hold forever, even though that’s the best strategy to induce the least cost.

I’m going to sure a few tips that you will find boring. But it’s going to save your life.
First, invest in an index fund. Never ever buy any collective instruments if possible. Any active managed fund will cost you an arm and a leg compared to a passive index fund. Run from anyone who tells you you can beat the market. No one can. If there is actually a fund with a superior strategy, it’s never going to last long before the market neutralizes it. Most likely you earn normal returns after cost.

Do not fall for simulated results. Be aware that most fund houses present results from a pool of funds they select – we call it survivorship biases. No one ever beats the market. There are great investors who existed in the past. But after taking their returns, adjusted by risk, the risk adjusted return also cannot beat the market over the long term.

Just buy the index fund. Please do not fall for tricks and sweet talkings.

Run from advisors who tell you they can beat the market!

I hope to simplify the process of investing among individuals. The investment sector is filled with fraud. As long as you buy or sell, someone makes money from you. And the world is consistently asking you to buy or sell. No one ever tells you to buy and hold forever, even though that’s the best strategy to induce the least cost.

I’m going to sure a few tips that you will find boring. But it’s going to save your life.
First, invest in an index fund. Never ever buy any collective instruments if possible. Any active managed fund will cost you an arm and a leg compared to a passive index fund. Run from anyone who tells you you can beat the market. No one can. If there is actually a fund with a superior strategy, it’s never going to last long before the market neutralizes it. Most likely you earn normal returns after cost.

Do not fall for simulated results. Be aware that most fund houses present results from a pool of funds they select – we call it survivorship biases. No one ever beats the market. There are great investors who existed in the past. But after taking their returns, adjusted by risk, the risk adjusted return also cannot beat the market over the long term.

Just buy the index fund. Please do not fall for tricks and sweet talkings.

Smart Beta are faddish. Go back to Index Funds

These years we are seeing a proliferation of smart betas. The intention of smart betas is to create alternative weighting schemes beyond value / market weighting. Smart betas can be weighed according to their risks or any other characteristics that the fund manager chooses. For example, if we believe that smaller firms outperform larger firms, a smart beta fund can simply inverse weight the firm –  a small firm gets a large weight, a big firm gets a smaller weight.

To me, a smart beta is simply an active management instrument simplified. In the past, managers can decide which stocks to be included in their fund based on stock characteristics. But a smart beta stock uses algorithms to weigh each stock according to the fund manager’s assessment. Because it is rather automated, the fees are lower than traditionally managed active funds.

But they fact is that these smart beta funds trade too much to re balance according to these “novel” factors. A value weighted index re balances just once or twice a year. These factors used to develop smart betas are decades old. They are typically the same factors known to the public comprising value, momentum, quality and size. It is challenging to understand why anyone would pay anymore money to smart beta funds to get exposed to these factors when there are much cheaper value weight indexes out there. For example, if you wanted to have exposure to smaller firm index, do not use a smart beta fund. Simply long a value weighted index that is made up of smaller firms.

Let’s go back to the basics of portfolio management – minimize risk per unit of return. The best portfolio is one that lies on the capital market line which the entire market in one portfolio. Perhaps you can read this article. If you wanted higher returns the simpler method would be to invest in the market index fund and use leverage to enhance the return. It is clear that the smart beta fad will be a passing one. Investors must continue to follow what John Bogle says – just invest in the simplest cheapest index fund.

Wealth management is a complex process

Should you invest in ETF?

Wealth management is a complex process of defining the client’s needs and designing a portfolio that is rightly exposed to meet the client’s requirements over a very long time. Most may confuse the definitive of wealth management and wrongly consider wealth management as stock selection. The latter has a scope too narrow and can be dangerous.

There is a huge ecosystem of professionals support the wealth management industry. Wealth managers are a critical person in the process. They determine the investment objectives and finalize the weighting targets for the individual portfolio’s targets. This process of finding the right instrument is carefully led by the pre-determined investor’s IPS — investment policy statement.

Determining the IPS is the first and most important step. A good IPS will mitigate the risk of the portfolio. Imagine the IPS as the parameter of your house. You draw clear parameters to ensure your family members do not cross over the line and be exposed to danger. A fund manager may have multiple interesting investment opportunities, some of them may possess unique risks that cannot be easily diversified in the context of your portfolio. A group of random collections, all promising high returns spell danger and volatility.

Investors have unique characteristics and different IPS. A retirement fund may have a time horizon of 20 years and prefer income to capital gains. A growth portfolio may have a longer time horizon of 50 years to fund the young executive’s savings. The growth portfolio will require a mix of high risk products. The same investment prospect cannot be equally considered for two different portfolios.
Given the complexity, the first goal of the investor is to select a highly skilled and persistent wealth manager. This is not a straight forward task. More than 80% of managers do not beat the market. An investor that prefers the cheapest investment strategy that outperforms most fund managers will be automatically attracted to the index fund investing. Index funds replicate the performance of benchmarks and do not make an attempt to outperform. Given the non-discretionary decision to replicate the market, professionals label this strategy as passive management. The benefits of passive are clear. Firstly, this strategy is simple and does not require complex selection of managers and determining of IPS. Secondly, the simplicity implies cheap fees since managers are not paid exorbitant incentives to outperform he market.

Investors need to make an informed choice between two options.

1. Adopt a more active process to select managers and to determine the investor policy statement and 

2. Invest in a non-discretionary equity index fund.

Annuities and Retirement Planning — Longevity Risk

A closer look at annuities and retirement planning in the context of Singapore

Annuities get very little respect because they are portrayed as expensive and loaded with sales fees. However, a rapidly aging demographic and declining real wages has jeopardised the current projections for government led pension plans. It is not easy to supplement retirement with private wealth management plans because the state cannot mandate how much citizens save beyond the scope of pension policy.

Life annuities are crucial because they hedge against longevity risks and medical expense risk. In fact, annuity payments should be inflation indexed. Life annuities have monthly payouts. The stream of cash flows can be replicated by a mix of bond payments. It does seem like bond yields may no longer be able to match up with the required annuity yield. To meet the annuity payouts over a longer time, annuity managers may need to introduce risky products like equity index funds into the portfolio. But it is unclear if citizens are open to endure the high risk.

In Singapore’s context, I am less sure if Singaporeans are preparing for longevity risks. Should they expect to systematically live longer, to say, 90 year old, the consumption save must reduce tremendously. Practically, a young professional who expects to live till 100 will need to start investing in equities as soon as he starts work.

It is incorrect to think that life annuities are expensive products if we assume Singapore is a competitive market for annuities. In a competitive market, we can assume that longevity risks and recent demographic trends are priced into these financial products.

There are ways to reduce premiums for annuities. The larger the insured pool, the lower the premiums. For one, the fixed costs will be reduced. The pooled risks approach a normal probability curve. This implies that Singapore government’s mandatory annuity policy is in the right direction from a policy point of view. But the policy makers should introduce the annuity programme with a softer approach. Perhaps annuities need not be made mandatory right at the start. In fact, the government can communicate the benefits of annuities and highlight the financial risks of not subscribing to an annuity.

Risks of the ETF in the near future

There are fears that ETFs will be the key contributor to the next financial crisis. ETFs now take up a huge percentage of retail and pension investments. Some suspect that the ETFs will lead the market instead of mirroring it. Lack of liquidity within ETFs may cause rapid selling of ETF units, destabilizing the general stock market.

Another concern is how over-levered some ETFs are. There are also complex ETFs that are leveraged, synthetic and inversed. It is not clear yet that the impact of these instruments on the overall markets when prices become unstable. For far too long, ETFs have been the cool kid on the street. Investors have ignored the voices of some who share the adverse side effects of ETFs. It is well known that the ETF structure is unique, requiring units of ETFs to be created and to be tracked according to the market. The creation and marking to market of the ETF is a constant arbitrage exercise. Not every ETF is liquid and simple. Some ETFs mirror complex markets like junk bonds, loans and less familiar municipal indexes.

Finally, ETFs when leading the market is a representation of herdish behaviour. Afterall, every ETF investor invests in the same market within the same ETF product. For some, they have preferred index funds over ETFs precisely for fear of the ETF structure.

Little known truths about the investing community

Net return received by investors is net of cost. There are many types of costs. Some are clear, some are hidden. Our financial system is complex. There are too many middlemen, the leftover returns for the common man can be too little to sustain savings. Investors (you) becomes the bottom of the priority list.

Investors commit money and get exposed to risk. If the market moves in your direction, the hedge fund manager takes a large chunk of your wins. If the market moves against your direction, the manager is insulated from losses. He still takes a fee from you.

Benjamin Graham said that anyone can design a strong portfolio with just stocks and bonds that are representative of the market.

A do nothing policy is always better than an active strategy. As long as you make a decision to move money, someone charges a fee. If I may summarize, always invest with the lowest cost instrument - index funds.

Disruption is necessary in businesses

We must disrupt ourselves in businesses. Otherwise, others will disrupt us. The process of disrupting ourselves will be painful. Sometimes, new process will threaten our cash flows. But this learning process helps to “boost” our “immune system” to catastrophic changes.

O2 in the UK launched GiffGaff. They provided cheap prepaid data plans. There will be some cannibalization effect on postpaid plans. But this was necessary given the technology developments.

Banks should also relook at their fee heavy businesses. Can traditional banks build virtual banks without physical touchpoints to lower costs? Will they do that by themselves before others take away their businesses?

I think we should explore technologies, disrupt ourselves. This should happen concurrently as we exploit existing technologies.

Disruption to Service Industry

On the 1st September 2015, Eatsa, a high tech fast food restaurant opened near San Francisco’s Embarcadero. Eatsa revolutionaries the dining experience with full automation of all processes besides cooking and eating. With the exception of a few kitchen staff, there is not a human in sight. The restaurant has received good reviews. This marks a new era — technology has begun disrupting the low skilled service industries.

Technologies have always disrupted industries. And disruptions are not always friendly. When personal computers became affordable, many processes were made more efficient. Less workers were required. The same happened within manufacturing over the last few decades. Today, the number of workers required in an automobile factory is a fraction of the number required 30 years ago.

But why is this development unsettling for Singapore and our region? Eatsa marks a tipping point because entrepreneurs have finally commercialized this automated solution. It no longer remains in the scientific repositories of institutes.

Our service industries provide a lot of low skilled jobs that were harder for machines to replace. Unlike the jobs of welders and technicians, it was harder to replace the work of waitresses. Within the next decade, this technology will become cheaper. Owners of F&B outlets can access this technology. Needless to know, low skilled Singaporeans must brace themselves for change.

Policy makers cannot shield Singaporeans from these changes. It will be worse for Singapore or any country to regulate such technologies. In fact, it makes more sense to adapt to such changes quickly.

Rough economic seas call for leaders with proven track records

Singapore has 5.5 million people, a tiny if not negligible domestic market. Other economies are significantly bigger: China has 1.36 billion people; Indonesia has 253 million.

Some argue that our purchasing power is higher. But it is mathematically impossible, in dollar terms, to consume as much as China or most of the rapidly growing nations in the region.

We will never be the natural top choice of operations for top firms, no matter how rich we become.

Some of us think the Association of Southeast Asian Nations (ASEAN) will be Singaporeans’ hope. They believe ASEAN countries can form a common market as the European Union did. Unfortunately, ASEAN nations have very different characteristics and political interests.

While I believe ASEAN nations will be more cohesive with the ASEAN Economic Community 2015, Singapore will not be the Frankfurt equivalent in the EU. In fact, in the long run, it may be more palatable for each member to bypass ASEAN’s complex interests and deal with larger economies such as China and the United States individually.

This means Singapore has no alternative but to open our financial markets to the international community. We must also be the trading hub for this part of the world for as long as we are relevant.

Today, we are integrated with the world. Based on World Trade Organization data, our trade to gross domestic product ratio from 2011 to 2013 was 366.2. To put it simply, our economy will always be volatile and linked to global markets.

Notably, we were among the first to enter a recession in 2008 and among the first to enjoy great growth rates in later years.

Our interconnectedness requires us to select the smartest leaders of the lot to govern Singapore and help us survive on the rough economic seas. Many believe that the global economy will become more cyclical.

This implies that changes will happen quickly. In future, more Singaporeans will lose their jobs overnight. Industries may be wiped out by disruptive technologies.

We need ministers with the uncompromising courage to identify and make policy changes. Singapore has no buffer against failure. If we were Malaysians, we could fail and return home from Kuala Lumpur. We would still own some land and go on with life.

If Singapore fails, investors would exit; they are not beholden to Singaporeans. And we have no hinterland. Some argue that we should focus largely on supporting local firms, but we do not innovate as Israeli entrepreneurs do.

Our local firms complain about the tighter quota on lower wage foreign workers, who have lower wage bills, but Singaporean employees want higher wages. These are tough questions. It is no wonder that almost 70 per cent of the electorate voted for the proven party with an economic track record.

Relationships that drain your life

Most relationships are a waste of time. Some friends like to exaggerate, lie and show off. Others are negative and dull. These friends occupy your time and they affect your mental health.

Do not form relationships out of convenience. Do not fear rejecting friends or loved ones. Keep relationships light. Keep friends who share wisdom and can offer alternative views.

This does not mean you cannot be friendly and smile at co-workers. It just means being superficial and guarding your heart. Some older relationships are no longer useful. Let them go.

All relationships drain us. Cut off those who plays victim. They are a pain to be with. They keep us from feeling fulfilled. Keep sceptical people, they help to diversify your views.

You should simplify relationships at all costs and minimize burdensome relationships. Shallow relationships lasts longer because they are not draining.

Singapore Elections Experience

It all starts with filling in the nomination form correctly. You will need to find a commissioner of oaths and a couple of ascentors. Ascentors must live in the estate you are competing in.

Once the administrative matters are done, you should start campaigning. You will need to print your manifesto for the estate and voting cards that help nudge voters the right way. Be mindful that the messages must be written in 4 national languages. Tamil is really tough.

You will also need posters on wooden boards. You must be able to find volunteers to distribute the brochures and voting cards. Some volunteers should also help you put up the flags. Your election agent must make sure all these collateral are licensed and approved by the elections department.

You will also need help to put up at least 500 posters for one SMC or part of a GRC. Getting volunteers is a tough exercise because you may not be able to afford to pay them. As a candidate, you probably have used up most of your money on the deposit (more than 10k SGD) and on the collateral.

If you belong to a small party, your party may not be featured on the political broadcast. You will also have less opportunity to speak at rallies. You will also have to pay for the stage during your rally. The sound system will not come cheap too. Beyond payment, you will also have to find good and credible speakers to help you win votes.

Before the polling day, you will need to find dozen of polling agents who will station themselves at the polling centre. You will need to appoint an EA (this happens right at the start) to help brief them on relevant procedures. You will need some counting agents to help monitor the counting process. Both polling and counting agents need to be sworn in by a commissioner of oaths. This can cost up to $20 per person.

Things get messy on the polling day. You and your election agent should make sure your polling agents and counting agents have sufficient food. The polling hours can be very long.

No matter the outcome, you will need to speak to the media that day, to concede or to thank supporters for the victory.

Strategy: summary of Michael Porter’s work

Constant improvement is necessary but not sufficient. Best practices diffuses quickly. Competitors can quickly imitate management techniques, new technologies etc

Strategic position is not sustainable unless there are trade-offs with other positions. Trade-offs occur when activities are incompatible.

Positioning trade-offs are pervasive in competition and essential to strategy. They create the need for choice and purposefully limit what a company offers.

While operational effectiveness is about achieving excellence in individual activities, or functions, strategy is about combining activities.

Strategic fit among many activities is fundamental not only to competitive advantage but also to the sustainability of that advantage. It is harder for a rival to match an array of interlocked activities than it is merely to imitate a particular sales-force approach, match a process technology, or replicate a set of product features. Positions built on systems of activities are far more sustainable than those built on individual activities.

I prefer simplicity for my social media tools

Sometime ago, I left Facebook. My Facebook friends were posting rubbish and I was, unfortunately, addicted to consuming rubbish. I no longer saw the need to connect to acquaintances through Facebook.

I focused on Twitter and reduced my followers from more than 2000 to less than 100 active users. I also started posting my thoughts in a concise manner. Twitter forces everyone to produce short content. There are many users who simply tweet useless sentences, so I actively unfollow them. I see Twitter as a way to broadcast my thoughts. Sadly, it is true that content on Twitter is seldom curated and the number of users seem to be falling.

I also questioned the use of social media. Social media is like a weak network of relationships that is used for gossip and showing off. To catch up with my friends in real life, I go back to simple tools like sms and Whatsapp. I love Whatsapp for its simplicity. It does nothing except facilitate exchange of information. Where anonymity is important, I use Telegram because I can initiate secured conversation: messages are deleted automatically.

I also love to read the views of strangers. Medium serves as the perfect platform where writers take blogging more seriously compared to their counterparts on Tumblr and Blogger. Most blogs are rather inactive. Some still swear by Wordpress. But Wordpress is too complicated. Ownership of your own URL is no longer necessary. We live in a world of systems within systems. Rather than owning their URL, grow your presence in Medium.

The need for curated content

Everyday, we read content from social media platforms. The quality on social media content is low because there are no editors to check for the accuracy of the content and for the correctness of the language. This is akin to consuming junk food. Junk food keeps us happy and we get addicted to junk food.

It’s time to use your time wisely. Focus on highly rated essays on Medium as a start. Subscribe to a good news service provider like Financial Times or the Economist. You can be surer about the content and the information is more trustworthy. Enhance your productivity this way.

Your life, the Toyota Way

Minimalism is trending. But the concepts are embedded in the Toyota system.

First, avoid overproduction. Do not overwork. Do not do or speak more than necessary.

Second, do not accumulate waste at home. Throw what you don’t need away and clean up your workspace.

Third, do not procrastinate. Take rest as often as you need. Lie in bed, clear your mind or meditate as you wish. But do not procrastinate.

Fourth, place everything in the right order. If you need to exercise, place your treadmill in the most visible area.

Fifth, think before you move. Where would you like to go? What would you like to accomplish? Plan ahead.

Sixth, do everything perfect the first time. Rework is waste.

Seventh, meet standards. Meet requirements. If you need a 30sqm home, do not buy something larger. If your client requested for a 5 course meal, deliver the perfect 5 course meal.

We can also use the 3M model. Muri: avoid overburdening your machines, workers and yourself. Muda: reduce waste as we have explained above. Mura: prefer consistency to uneven operations.

If we apply these principles to our lives, we would have achieved minimalism.

7 simple rules to de-clutter your life

1.Avoid owning a car: Car ownership is expensive in cities. Think about the parking fees, cost of petrol and the interest on loan

2.Aggressively getting rid of things: You only use 20% of the things in your room in any one time. So it is important to get rid of them to free up distractions in your life.

3.Reduce the number of hobbies: Hobbies take up time and increase the likelihood of expenditure. Do a few things exceedingly well.

4.Read from curated news sources: Avoid using social media as news feeds. You might prefer insights from Financial Times or the Economist

5.Do one time at a time. No one can effectively multitask

6.Adopt a minimalist mentality at home and keep less furniture. Avoid distraction. Keep spaces clean and open so you get to focus quickly on important things

7.Have as few electronic devices as possible. These days, the process of updating and upkeeping devices can get complex

Singapore’s innovation policy

While I believe there are occasions justifying government’s role in innovation policy, Singapore government’s intervention is not always as successful as their counterparts in the United States.

The US government rewards those who deliver results. But Singapore funds those who generically address societal challenges and often, well packaged promises.

In Singapore’s case, if we still want to believe in the effectiveness of research agencies like A*Star, we need to find a group of civil servants who are able to take risk and to be accountable for results and to be technology experts. As I understand, most civil servants in charge of innovation policies are neither technology experts nor risk takers.

Perhaps it is time for an alternative innovation policy.