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.