Thursday, December 8, 2011

Retrenchment hits me

A recession is when your neighbor loses his job. A depression is when you lose yours. Depression has hit me. I have just been retrenched.

For many, retrenchment is not just economic depression. It is also emotional depression, self-worth depression and a humiliating depression. For me personally, it is even more embarrassing because I have been known to bring work home and reject invitations to go out and play over the weekend. Perhaps some people are having their last laughs now.

Retrenchment leaves a person with plenty of time to think. Don't waste the experience. He needs to be brutally honest with himself. In my case, I cannot honestly say it was mainly my fault. It was the free market at work, fair and square. I work in the Electronics industry in Singapore. Although electronic gadgets(iPhones, e-books, smartphones) are still changing our lives for the better, fellow Singaporeans who work in the same industry will know that electronics in Singapore has been on the decline for more than a decade. The big companies (foreign MNCs) are moving out, there are no big local companies to take their place and the smaller companies which usually service the big ones are dying away. It is not just high labor cost. Land (especially land), transport and energy costs also make us uncompetitive. These are infrastructural costs which the government can do their part to keep low. If these infrastructural costs are kept low, then our wages can have more room to move up without hitting our competitiveness.

If the company cannot grow, my immediate supervisor cannot be promoted. If he cannot be promoted, how can I be promoted? This time round, everyone lost their jobs including my boss. One consolation was that I got a "diligent and honest worker" in my appraisal before the retrenchment. Hopefully, this is not just a parting gift just to be nice.
I am tempted to lament on how unfair life is. However, this is useless to me and readers who could not care less until the same thing happens to them. Rather, it is more useful to think about the practical measures to cope with retrenchment.

The first thing that comes to mind is to cut down on all unnecessary expenses. Unnecessary expenses refer to expenses incurred beyond keeping one alive. Eat the simplest, cheapest food. As long as it fills your stomach, it is good food. Try to eat at home. Don't eat out. The rental cost in Singapore is so high, why pay for them by eating at expensive restaurants?

Entertainment expenses should be cut mercilessly. I do not subscribe to the theory that good things must come with a price. A lot of good things in life can be very cheap or even free of charge. A person can go to the library and borrow wonderful books free of charge. Get entertained and be educated free of charge. There are plenty of quality documentaries on Youtube. Again, one can get entertained and be educated free of charge. Use the spare time for learning at low or no cost.

There are certain expenses which must not be cut. This is allowance to parents and parents-in-law. The first response from parents is to cut or stop their allowance upon learning of their children's retrenchment. I have never heard of parents stop providing for their children when they are out of a job. Therefore, why should children stop providing for their parents when they become jobless? People who stop their parents' allowance are making a gross miscalculation. Their own children will do the same thing to them when they grow up. They will not feel a pang of guilt because their own parents did the same thing to their own parents. Setting a good model example to the children is the most effective and yet, least time-consuming way to educate them. Much better than spending so much time giving them tuition yourself and yelling at them. They either end up resenting you or hating the subject.

The standard advice from government help bodies is to get retraining or some educational certificate to make your resume look good. While these people have good intentions, take their advice with a pinch of salt because you know your personal situation better than them. Is your personality suitable for the type of job you are retraining for? Will employers be willing to hire you even after you have earned a certificate because of certain discriminatory practices? (Age, hiring their own kind)

I am not willing to invest in higher education to make the resume look good because the education fees is too high today and the investment returns do not look good. Too many people with higher education but are there enough jobs requiring such higher education? In fact, after spending a bomb for that piece of paper, a person may even get discriminated during job interviews because he is overqualified or the interviewer feels threatened.

Finding a job is not the only option. One can think about his personal strengths. Think about his hobbies. Can he turn them into useful products/services to sell to people? If one can successfully do this, he can be a very happy person instead of slaving for people whom he has been yearning to say "fuck off".

Quite a number of retrenched people will be thinking of investing in the financial markets to make a living. On the surface, it looks like an easy way out. Psychology plays a very important role in successful investing. Retrenched people should be self-aware of their own weakened psychology as market participants. Given the heightened volatility in the financial markets today, weak psychology can lead to bad decisions because it is easier to be tricked by the high volatility to buy high and sell low given the weaker state of mind. Investing is a fun game for me (on a part-time basis only) and I am reasonably good at controlling my losses in terrible times. But, I have to take my own advice and be self-aware of my new deficiency from now on.

Sunday, November 27, 2011

Market commentary 27 Nov 2011 - European debt crisis dominates

Individual stock picking has not been effective since August 2011. Market movement is dominated by events related to the debt crisis in Europe. When markets make big moves up and down, the source of the news is almost always traced back to Europe. In such a backdrop, macro-analysis makes more sense than bottom-up investing in individual stocks.

The Straits Time Index, along with most global stock indices, bottomed on 5 Oct 2011. A new rally began the next day, topped on 28 Oct 2011 after which it started its decline. From the STI chart, the market went into correction on 18 Nov 2011. It was a short-lived rally.

What happened near 28 Oct 2011 which marked the start of the decline? Global markets anticipated a European rescue plan which explains the rally which started on 6 Oct 2011. After the rescue plan was announced on 27 Oct 2011, global stock market began its descent again. The rescue plan was not enough to reassure the markets. On the day of announcement, global stock indices actually made a massive rally. Then, it looked like the rally that started on 5 Oct was here to stay. On the next day, new worries emerge when Italian 10-year bond yields tops 6%. On Nov 25, 10-year Italian bond yields reached 7.23% despite mighty ECB buying the bonds. This is serious because (1) Italian bond market is the 3rd largest in the world. A disaster there is highly contagious. (2) Greece, Ireland and Portugal were forced to seek financial rescues when their bond yields reached around 6.5%. Italy today is worse (3) Italy has high debt(118% of GDP) and slow economic growth. How can Italian bond investors be confident that their debts can be repaid in full? Besides, further austerity (demanded by Germany) may slow down growth further or even tip country into recession.

One feature of the rescue plan was that investors who bought CDS (credit default swaps) on Greek debt as insurance will not be paid because the deal agreed to was voluntary. Now, investors who hedge their sovereign debt risks using CDS are scared. If investors cannot reduce credit risk by buying CDS as insurance, then they have to reduce credit risk by demanding higher bond yields. I think this is a major reason European bond markets came under increasing attack almost right after the rescue plan was announced.

In the past weeks, every time European bond yields go up, global stock indices will go down. In the coming weeks, European bond yields should be the key indicators to observe for equity investors.

I am waiting for something to happen for global stock markets to have a solid rally. This something is Germany agreeing to print money. Printing money is the least painful way to repay debt. I am not sure whether money printing is a good economic solution because there are side effects like inflation. However, I am highly confident that once Germany agrees to money printing, a global rally in equities lasting months will follow. See what happened in 2009 after massive money printing by the Fed.

The alternative to money printing is austerity. It is by no means superior to the money-printing solution. When debt levels are too high (like the PIGS countries) and requires strong future economic growth to pay down debt, then austerity actually worsens chances of paying off debt by weakening the economy. Furthermore, austerity dampen domestic consumption by cutting spending and raising taxes. Therefore, economic growth must come from strong exports. Problem for Europe is, export to who? If everyone else is   tightening their belts for austerity, who is going to buy the exports? Germany? The great export-machine of Europe to transform into a big import-sucker? European demographics worsen the problem. Too many old people, too few young people is bad enough for growth. Protective labour laws and culture further worsens the situation by protecting the old workers who are hard and expensive to fire at the expense of young workers, many of whom are on contract work, don't get good training opportunities or simply unemployed. Today, Spanish youth unemployment is a whooping 21.2%. When corrective economic measures are too painful, it may cause social riots. The situation can be highly unpredictable and chaotic. The last time a great nation was subjected to great economic pain, the people elected a madman into power. That mad-man was Adolf Hitler.

Of course, the best solution is economic growth from the creation of real productivity from real products/services of high social utility and not financial engineering techniques like printing money. However, you need plenty of good engineers for that. Engineers have bore the brunt of retrenchments in recent recessions. I know because I am an engineer. This time round, I will not be spared. I have received notice I will be retrenched. Today, there are very few students who want to study engineering and many of the best engineers have switched lines to work in banks.  In fact, many engineering students went straight to the banks after graduation without ever working as an engineer.

Eventually, I think Germany will allow money-printing to ease the European debt crisis because austerity is doubtful to be effective. I cannot think of other solutions that politicians can depend on now.

Saturday, November 12, 2011

Get risk-free SGD160 from credit card application. Offer valid till 30 Nov 2011

It has often been said that there is no such thing as a free lunch. If something is too good to be true, it often is. Now, I am sharing something which is worth several free lunches and too good to be true. Unfortunately, I am not being paid any commission.

There is a wonderful offer from Standard Chartered that credits SGD80 into your credit card account once it is approved. I applied for two credit cards from Standard Chartered and received SGD160 in total. I just saw SGD160 in my account on internet banking. So, it sounds not only too good to be true but really true indeed.

This offer is valid till 30 November 2011. It is an offer that one simply cannot refuse. At least, I cannot think of a good reason why one should not take up this offer. Can you?

Some may wonder why Standard Chartered Bank is behaving so stupidly. Giving free money away? No, the people working there are smarter than most of us. We should not direct our thanks to SCB. We should thank the people who used their credit cards to spend money which they do not have, pay only the minimum sum on their monthly statement and roll over their credit card debts. Being a selfish man, I urge these people not to follow the advice in the link below, even though I am absolutely in love with the writer.

I dedicate the following song to the invisible credit-card friends who have made this wonderful offer possible. Pay attention to the lyrics.

Sunday, November 6, 2011

My favourite life insurance plan in Singapore - Aviva SAF Group Insurance for NSmen

4 Nov 2012: A new update for this plan has been written.

My favorite life insurance plan in Singapore for family protection in the event that I can no longer serve as a breadwinner for the family is the SAF Group Insurance for NSmen from Aviva. I am a policy-holder for several years already.

It is the best deal in Singapore that I know of that fits my criteria. It offers the best value for money per dollar for protection. For an annual premium of about SGD920, you are covered up to SGD600k. The coverage extends to high-risk activities like military training which I do not think is covered by other insurance policies.

There is an advance payment of 50% (limited to SGD100k) if the insured is diagnosed with a terminal illness. There is even a daily hospital cash benefit which pays up to SGD10 for every SGD50k assured. One thing I like about this policy is the partial cash rebate of the annual premium during good years. I know of no other policies that have a similar feature.

For parents with sons who are going for National Service soon, it is a policy worth considering. To my knowledge, it is the only policy that covers mishaps during National Service.

For more details, please visit and read the footnotes and the clauses yourselves. My brief summary cannot cover all the restrictive clauses that all buyers should be aware before buying.

If you know of a better deal, please tell me. I am confident none exists.

Please note that there is no savings or investment component in this insurance plan. In other words, you do not get back any money at the end of the day. This is why it is so much cheaper than the endowment, whole-life or investment-linked policies that insurance agents like to sell. It is a pure protection plan which is almost never recommended by insurance agents because it pays very little commission. So, if you want to buy this policy, do the agents a favor. Don't expect them to visit your home for this policy. If they do, it is reasonable that you will have to put up with sales talk for the higher commission products like the endowment, whole-life or investment-linked policies. Submit the application form yourself.

As a general rule, I never liked insurance products that mix investment or income. If I want income, I will go for fixed-income products like government bonds or fixed deposits. Insurance plans that offer income come with projected returns which cannot be relied upon. Ignorant customers can be easily taken in by the aggressive projected returns to lure them into buying. It is easier to analyze fixed-income products with guaranteed returns than insurance plans with projected returns. The insurer actually has an incentive to use unrealistic projected returns to boost sales. Consumers should be aware of this risk when assessing these kinds of insurance products.

Saturday, October 29, 2011

Is it risky to put bulk of savings in small, foreign banks?

On a previous post which I talked about my favourite bank account (CIMB StarSaver), a reader commented it was too risky to put the bulk of my savings into a small, foreign bank. It is safer to put our money in a big, local bank.

It may well be true that the bigger, local banks are safer. However, bear in mind that the first SGD50k of your deposit in any bank is guaranteed by the Singapore government (Deposit Insurance Scheme). So, to reap maximum interest gain on your savings without compromising safety, you should put at least SGD50k into the highest interest-paying savings account which tends to be the smaller, perhaps riskier banks. In fact, if you want to play safe, spread out your savings across several bank accounts, each not exceeding SGD50k. This way, most or all of your savings is under the protection of the Singapore government.

Another advantage of owning several bank accounts is that you can shift your savings around to whichever account pays the most interest. Banks love fresh funds and they punish loyal customers by giving preferential treatment to fresh funds. It pays to be disloyal customers to the banks, so you should play the game by shifting your money around to whichever bank offers the highest interest. Now and then, banks will come out with promotions to attract new deposits. Just put your money there until the promotion ends. Capital is mobile. Take advantage of its mobility and move it around to wherever yields the highest income. The first SGD50k is insured by the government and therefore risk-free anyway.

I am not too worried about putting most of my savings in a small, foreign bank. All the banks in Singapore I know of are listed on a stock exchange. This is useful because the stock prices provide useful information on the safety of the banks. In 2008, one could tell which financial institution is the next in line to fall just by looking at their stock price (who is falling the most and the fastest?). It is so much easier than reading financial statements. Due to personal limitation, I find banks' financial statements unanalyzable (much subjected to management discretion) and prefer to rely on their market price as a proxy to their safety. Unlike fraudulent S-chips, banks do not suspend trading or go bankrupt overnight. There will be ample warning signs in their stock prices and news media before they go belly up. The moment the stock price drops more than 10% on consecutive days, pull out your savings and get the hell out! Do ensure that a chequebook is available for the account which holds most of your savings so that you can transfer your money out as quickly as possible.

Some will accuse me of being irresponsible by dishing out advice that will cause a systemic failure in the financial system during a panic. Regulators who discourage such panicky behaviour may well be advising the same thing to their closest relatives in 2008. Don't blame me. Blame the design of the banking system. This is a weakness in the fractional reserve banking system. Once confidence is lost, even the healthiest and most prudent bank will fail.

Wednesday, October 26, 2011

Saving money by bypassing middlemen

Lucky Tan is one of the most insightful socio-political bloggers in Singapore. A lesser known side of him is that he is also a financial-savvy operator. Today, he made a post on how Singaporeans can save money by bypassing the middlemen. With his permission, I am reposting his article on my blog.


In the book Freakonomics, the authors did a study of prices of homes sold by property agents for their clients and compared it with the price of homes when the property agent is acting for himself i.e selling his own home. They found that the property agents sold their own homes at a price significantly higher than the homes of their clients. The property agents' interest is to earn a commission and to do that they try to make sure transactions go through by persuading sellers to lower their selling price and buyer to up their bid. Many Singaporeans are not aware of this but you can sell your home quite easily without a property agent - the paper work is relatively simple. My father sold his HDB more than 20 years ago without an agent and it is easier to do it now because of the Internet which enables sellers to put up ads for free at various websites. (here is a forum on people sharing their experience of selling their HDB without an agent amd HDB itself conducts a regular seminar on how to sell your home without an agent[Link].

If you walk around the town central of a HDB estate, say Toa Payoh Central, what you will see is one 2nd hand phone dealer after another. Sometimes within an area of 50 meters by 50 meters, you can count up to 20-30 of such small shops. They exist because new hand phones models are introduced by manufacturers every few weeks and your iPhone 4 becomes yesterday's model when the 4S is released. Singaporeans get rid of their old phones through these middle men. The other day I was standing by one of these shop and a young men sold his relatively new phone for $80 to the dealer. I was very familiar with the model as I was thinking of buying one for myself and it was changing hands in the bazaar[Link] at about $140 or higher. Without much hassle, the seller could have gotten an extra $60. People sometimes sell the stuff at Cash Converters or pawn shops because they need money quickly - the problem is they are actually throwing money away because they get far less than what they can get for their goods at a time when they need money badly. The lesson is not to get into a desperate situation when you have to "fire-sale" your belongings.The proliferation of pawn shops like Money Max [Link] perhaps tells us that more Singaporeans are getting into financial situations where they need cash quickly....and this is exploited by the numerous 2nd hand phone dealers, money lenders and pawn shops.

On History Channel, there is a TV show called Pawn Stars[Link]. The show follows the going ons in a Las Vegas pawn shop operated by a family. Given the subject matter, the show is surprisingly successful and has a large following since its debut in July 2009. The show sometimes gives you a hint of the economic malaise in USA as some of the people were pawning away their family heirlooms passed from one generation to another to make ends meet. People were selling their belongings to raise money for medical treatment, rent and so on. The Harrison family running the pawn shop makes a good living buying and selling....they are all overweight from sitting around in their shop's a clip from the show:

A woman walks into the pawn shop asking $2000 for a Fabergé brooch. Mr. Harrison being a man of conscience knowing the real value of the brooch offers to buy it for $15,000. The truth is this :if the brooch is genuine Fabergé , it is worth something in the region of $80,000-$250,000. Either the woman walked in with a fake and cheated the pawn shop or the pawn shop just made something like $100K from a $15K sale. So even a middle man with conscience like Rick Harrison of Pawn Stars is not averse to making excessive profits off people who are ignorant and too lazy to double check the value of what they are selling. Next time think twice before you go to a middle man to sell something specially if you don't know how much it is worth!

Even if you are rich and don't need to squeeze every dollar from the 2nd hand stuff you're selling, you might want to consider selling it direct to're doing a favor for them and yourself. If your price is good (still higher than what you can sell to the middle men) many buyers are willing to drop by your house to pick it up and that is more convenient than bringing it down to cash converters or to a 2nd hand phone dealer.

Websites on the Internet where you can offer your 2nd products for sale:

EBay :
Hardware Zone: Market Place :
Phing :
Gum Tree:

Saturday, October 22, 2011

Favourite bank account in Singapore - CIMB StarSaver account

Starting 14 Oct 2011, Singapore's largest banks DBS and POSB are cutting savings interest rate for the first SGD100k from near zero(0.125%) to almost zero (0.05%). (Source) It cannot get worse.

Don't be too quick to condemn the bankers as greedy and all out to squeeze profits out of small depositors. Big banks like DBS/POSB which are flushed with cash deposits are not as keen to attract more deposits as the smaller banks. Understandably, too much cash can be burdensome to the banks if they are not able to allocate the huge cash deposits into investments with returns that beat the savings rate. Therefore, it is a win-win situation that we depositors allocate more of our savings to the smaller banks who not only offer higher interest rates but also do a better job at putting our savings to better use because capital allocation is easier when capital size is smaller.

Currently, my favourite bank account is the CIMB StarSaver account. It simply beats the competition hands-down. It is a no-brainer to open this account with CIMB. The lowest savings interest rate start at 0.5% which is already 10 times more than DBS's 0.05%. Depositors enjoy up to 0.8% rate if they make regular deposits of SGD500 monthly. Please go to the website for details.

There is no fall-below fees and no minimum deposit requirement unlike most other bank accounts I came across.

Another feature that makes it superior are the free cheque books provided. The other banks I know of charge SGD2 a month (SGD24 annually) for maintenance and SGD15 for each new cheque book. If someone knows of a better deal, please inform me. A cheque book is a necessity for people who need to withdraw substantial sums of money from time to time. These are usually the people who make their own financial investments.

With the highest savings rate and the free cheque book, I keep the bulk of my savings in CIMB StarSaver account.

There are disadvantages with this bank account to take note. CIMB has very few ATM machines and only 2 branches in Singapore as of today. So, it is not convenient to withdraw money and do face-to-face banking with them. You can still do internet banking with them. To work around this problem, I put the bulk of my savings with CIMB but keep a smaller amount of money in the local banks to make use of their vast network of ATMs and branches. On this aspect, our local banks are superior to the foreign banks in Singapore.

Sunday, September 25, 2011

Update on market commentary on the stock market collapse that began on 2 Aug 2011

This is an update to

I made a post on 14 Aug 2011 of my belief that a strong rally will come before the market collapses further due to the huge amounts of cash sitting on the sidelines, insider purchases and strong earnings despite the market rout. I acted on my belief and deserved the painful consequences. Based on recent market action, I have been proven wrong and suffered losses. From 12 Aug 2011 to 23 Sep 2011, the Straits Times Index has fallen more than 5%. This is the criteria which I use for being wrong. In investing, I regard losing money as equivalent to being wrong. No point in using excuses like "I am a long-term investor" (as if the stock will surely bounce back later), "The market is irrational" (as if everyone else is stupid except myself), "Short-term fluctuations do not bother me" (self-deception? Losses always hurt)

The global financial markets have grown too dependent on money-printing from central bankers like drug addicts. When QE1 (quantitative easing) neared its end around middle of 2010, global markets slumped like a drug addict as the drug effect wore off. Then, Bernanke administered a fresh dosage in QE2. Global markets rallied in September 2010. The drug effect wore off again after the middle of this year. Come QE3, also known as Operation Twist. Unfortunately, the drug dosage is not enough this time because the appetite of drug addicts grows with every dosage. The immediate negative market reaction is evident of this fact. The bullishness of the precious metals market is a measure of the amount of central bankers' money-printing activities. Look at how Gold and Silver crashed after Bernanke announced Operation Twist.

Operation Twist aims to lower the interest rates of long-term debt by selling short-term Treasury securities and buying the longer-term ones. What else can the Federal Reserve do? The short-term interest rates of US Treasury securities is already near-zero. How to lower the short-term rates further? This is why Bernanke could only work on longer-term interest rates this time. I am not quite sure how to interpret the market's reaction to Operation Twist. Should one interpret the recent market crash as the Fed not doing enough or the Fed has lost the ability to do anything to stimulate the economy? When short-term interest rates are near zero, monetary policy has clearly lost much of its power as an economic tool. Therefore, the US economy has to look towards fiscal policy for stimulation. The recent US debt-ceiling crisis shows that political bickering has paralysed fiscal policy. When one party says taxes are too bloody low and the opposing party says spending is too bloody high, stimulative fiscal policy is impossible because taxes cannot be cut and spending cannot be raised. Actually, the rich world does not have much room to stimulate the economy using fiscal policy given high government debt levels and persistent budget deficits. Austerity is the only way out. If austerity is chosen, the near-term prospects for financial markets will be terrible and uncertain in the longer-term. If fiscal austerity is abandoned in favour of the more political palatable monetary money-printing, then inflation will follow. In this scenario, the financial markets will do well even if fundamentals are poor. When you have too much money chasing too few assets, asset bubbles will be formed. Holding cash in such a situation will be disastrous. Seeing the American politicians in action during the debt-ceiling crisis point towards money-printing being the preferred option.

Indeed, Operation Twist may boost speculative activities, particularly in the property market, by reducing longer-term mortgage rates. Already, the loose monetary policy in the US is being exported to Asia and creating bubbles in our property market. In 2008, we had the US banking/real estate crisis. Come 2011 and 2012, we will suffer a full-blown European sovereign debt crisis. The nightmare scenario is that in 2014-2015, it may be Asia's turn to suffer a financial crisis when the property market bubble burst in China, Hong Kong and right here in Singapore.

There is an even darker nightmare. It is the social instability that persistent high inflation and unemployment will bring. This is chaotic and totally unpredictable. High inflation in China in the late 1980s created the conditions for the Tiananmen protests that led to the massacre. Hyperinflation in Germany gave us World War II because the German people voted Hitler into power out of anger.

Most of what I wrote will probably turn out to be empty worrying. It is a habit borne out of worrying about the downside before investing. By the way, I will still be buying stocks however pessimistic. As the macro-picture worsens, it is likely that even good stocks will go down further. However, the chance of permanent impairment (go down and never recover) is quite low when buying in times of recession/depression.

Standard Chartered XtraSaver Master Debit Card - maximizing cash rebates

Update: From 1 Apr 2013, Standard Chartered has revised the cashback. Cashback on NETS payment has been removed totally. Cashback on Master card payment has been reduced to 1% from 2%. The benefits mentioned in the post below is no longer valid. Please compare with your other credit cards as there may be better deals around.

The Standard Chartered XtraSaver Mastercard debit card can be a great money-saver by offering cashbacks on all your basic expenditures. Combining it with other credit cards have maximized my monthly cash rebates from these cards.

I get 2% cash rebate on all expenses paid with this card. This card can also be used as a NETS card with the added advantage that all NETS transactions enjoy a cash rebate of 0.5%. You can enjoy rebates on NETS transactions up to SGD3000 per month (monthly cap of SGD15). Total monthly cap on rebates for all types of transactions is SGD300.

I use other credit cards like the SMRT card for paying my groceries when I shop at Sheng Siong, Carrefour because the cash rebate is around 5% (higher than using XtraSaver card). When I make payment for these credit card bills, I use the XtraSaver card as NETS to enjoy a further rebate of 0.5%. By using other credit cards which offer higher cash rebates and then using Xtrasaver as NETS to pay the bills, the cash rebates I enjoy with these cards will be maximized. I use the XtraSaver card for most transactions to enjoy the 2% cash rebate.

The Standard Chartered Xtrasaver card is a debit card. A debit card does not allow the card-holder to spend money which he does not possess. To use the card, you must have sufficient cash balance in the bank account linked to this card. It is similar to NETS. This is a good thing for those who fear they lack the discipline to check on their credit-card spendings. It is also suitable for those who have a bad habit of forgetting to pay their credit card bills on time.

To enjoy these cash rebates, you have to place at least SGD6000 in the XtraSaver account with Standard Chartered. The bank account also functions as a checking account. The first 2 years are free after which SGD15 will be charged annually. This is still cheaper than the local banks who charged SGD2 monthly (SGD24 annually) for their checking account. However, the minimum deposit in the checking account of the local banks is much lower than the SGD6000 required in the XtraSaver account.

For further details, please visit the link

Saturday, August 20, 2011

Presidential Election 2011: Letter of appreciation

Come next week on 27 Aug 2011, Singapore will be holding the hottest contested Presidential election in its short history.

This blog is about financial literacy. Naturally, it will support the candidate who has contributed most to financial literacy.

About a year ago, I wrote a letter of appreciation to Mr Tan Kin Lian. At that time, I did not know that he will be running for the President of Singapore on 27 Aug 2011. I wish him all the best on 27 Aug 2011.

Here is the contents of my letter of appreciation;

18 Jul 2010
Dear Mr Tan Kin Lian,

I would like to write a letter of appreciation to express my respect and admiration for your efforts in imparting financial literacy to Singaporeans and defending the victims who were bullied by the financial sharks.

I have been following your blog from time to time since the Lehman Brothers Minibonds collapse put you in the public eye. Although I am not a victim, this financial fiasco fascinates me as managing my own money has been a hobby of mine for the past 7 years.

I respect you for standing up and using your financial expertise to speak up for the victims. It is not merely an extension of help to needy people as you have to take on the risk of antagonizing powerful people with links to the mighty banks. I also thought it was extraordinary of you to educate the public and expose the tricks of the insurance industry given that you are likely to make enemies and lose old friends in an industry which you have worked all your life.

As an investor in Singapore stocks, one can easily observe that someone of your background should be sitting on the directorships of several public-listed companies. By taking on the path that you took, I am not surprised that these high-paying cushy part-time jobs are closed to you. Hence, I think you have made tremendous sacrifices in sticking out your neck for your principles. In general, people would speak out for themselves if they were wronged, but very few would speak out for strangers when one has much to lose and little to gain. My calculative mind tells me it is not wise to do what you have done. However, I cannot help but admire and respect your actions. You certainly put the self-serving yes-men to shame. To be honest, you put me to shame as well because being a selfish person, I would not have done the same thing as you did.

Selfish as I am, I am not going to be so selfish as to encourage you to keep up the good work because I do not think it is in your interest to do so. Do not get me wrong. I am not someone from the financial sector with an interest to see your mouth shut. I even have my own blog that shares what I know to educate the public on financial literacy. 

It is with these reasons that makes me respect someone from the industry coming out to educate suckers and warning them against the sharks whom he used to rub shoulders with.

Yours Truly,
An anonymous, secret admirer
18 Jul 2010

Sunday, August 14, 2011

Market commentary on the stock market collapse that began on 2 Aug 2011

The recent global stock market collapse began on 2 Aug 2011. As of today, the Straits Times Index has dropped more than 10%. As of now, I do not have a significant position in the market to bias my opinion on the market. Differing opinions are most welcome.

Even if the global economy is headed for recession, I am actually quite confident that we will at least have a strong rally before the Singapore stock market heads down further (assuming it does). I don't think the Singapore market will continue its decline at this point.

In the week before 2 Aug 2011, I was surprised by the resilience of the Singapore market in the face of weaknesses in the European and US markets. Compare the price charts of the Straits Times Index with the European and US markets to appreciate its resilience. I suspected foreign fund inflows into the Singapore market to explain our market's resilience. The negative swap offer rates complained by UOB reinforced this suspicion.

There are plenty of cash on the sidelines. In fact, there is so much cash hanging around that the Bank of New York Mellon is charging fees on big deposits instead of paying interest.

The market needs cash to feed a rally. Otherwise, expressions of optimism are just empty talk that cannot be translated into action. At this moment, there is plenty of cash in waiting to jump in once the market stabilises and rationality comes back.

In the past 2 weeks, I observed several SGX announcements on insider purchases. Meanwhile, there are still several stocks on the watchlist with valuations which allows one to buy with peace of mind. In the US, CEOs have been buying back their stock in the past two weeks.

Hence, I am quite confident that we will at least have one more strong rally even if a global recession is impending. I do not think the Singapore market will continue its decline at this point.

My preferred end-of-day SGX price/volume data vendor

There are 2 types of analytical toolboxes available to investors - Fundamental Analysis (FA) and Technical Analysis (TA). Some investors rely on financial statements only for their investments (FA) and some traders rely on price/volume charts only for their trading (TA). I think it is wise to rely on both. You need TA because it provides useful market information like whether the stock you are buying is in an uptrend or downtrend, the strength of the buying and selling, how it reacts to corrections, whether a climax buying or selling is happening ...  You use FA because it is common sense to read financial statements before buying a stock since you are buying part of a company. In the long-term, it is the financial performance of the company that drives the price.

You need data for both types of analysis (FA and TA). Financial statements are basic data for FA and the price/volume information is data for TA.

This post is about the best price/volume data vendor I have found for SGX stocks and indices. Please note that you will still need a Technical Analysis software like Metastock, Amibroker, TradeStation to present the data in a chart and analyse the data using technical indicators.

The best value-for-money bargain that SGX price/volume data is DataFolio.

It is the cheapest in town. Other data vendors charge annual subscription of more than SGD100. For DataFolio, there is no annual subscription. You just pay a one-off SGD88. In terms of price, it is a no-brainer.

The data quality is superb. Its data source comes from SGX website itself, so I do not question its accuracy.

Prices for individual stocks are auto-adjusted for corporate events like stock-splits, rights and dividends. These auto-adjustments are needed so that awkward price gaps that distort analytical results are removed. However, I noticed that not all stocks are adjusted, at least not in a timely fashion.

Some may argue that this is not a good recommendation because there are free data vendors around like Yahoo. Although Yahoo provides price/volume data for free, it is not suitable for SGX stocks. Yahoo provides price data up to 2 decimal places. This is inadequate for the majority of SGX stocks which are penny stocks and require price data up to 3 decimal places.

DataFolio provides historical price/volume data all the way back to 1987.

ChartNexus is also a good product for Technical Analysis. However, I prefer the flexibility of specialized TA software like Metastock or Amibroker which gives me the power to write my own proprietary indicators and algorithms. This is my edge as an engineer and it makes sense to make use of one's strengths to beat the competition.

I recommended DataFolio to a relative. He praised Mr Cho Sing Kum for his excellent technical support. Mr Cho is the creator of DataFolio. I do not have first-hand experience of his technical support service because being an engineer, I have a tendency to figure things out and solve problems myself. However, when I asked question on the ChartistUnited forum whom Mr Cho frequents, his response speed is simply incredible.

By the way, if you do buy DataFolio, please keep your password in a safe place. Mr Cho is quite sick of people asking for passwords. This is actually what prompted me to write this post to lend him support.

I am not paid to do advertisement for DataFolio. Mr Cho does not know who I am. I am just a grateful customer for a product that gives me value-for-money.

Lastly, this is a Singaporean product created by a Singaporean that beats all foreign competition hands-down. As a Singaporean, what is there not to support?

Friday, July 8, 2011

Investment advice as a newbie

Many years ago, I started a thread entitled "Investment lessons learnt this year and advice for newbies" on a now-defunct investment forum called WallStraits. I thought it was lost but I retrieved some of the posts which I wrote 6 years ago on another blog (

It is quite embarrassing to talk about my own performance in my first year as a retail investor. The year was 2004 and I suffered stomach-rending losses in a year when the Straits Times Index rose 17%. To lose money was bad enough. To lose money when everyone else seems to be making it made it far worse. To top it off, the losses came in a year of extreme hard work with great passion. I had to really question myself ... am I stupid?

Below were my thoughts written 6 years ago to fellow newbies as I pondered over my failure in my first year of investing as a newbie. The losses were caused by a large, concentrated position due to repeated averaging-down in a China S-chip stock.

Investment lessons learnt this year and advice for newbies
When I just started investing late last year, this was the first investment website I stumbed upon. I was greatly influenced by its FA bent and the eloquent arguments from fellow forummers.
I have some advice for newbies from personal experiences as a newbie.
There are certain practices advocated by FA(fundamental analysis) proponents that newbies need to be careful of. (If you are a grandmaster like d.o.g or Sage, you can ignore the warnings below. I need your advice more than you need mine. This post is more for the benefit of newbies)
The first one is with regards to averaging down. FA proponents like to say when the share price of one of your holdings goes down, you should buy more because it has become cheaper. So, when prices are depressed, you should be happier because you can buy more of the same good thing more cheaply.
You could try that if you have sufficient grounds to be so confident of your investment. But if you are just starting out as a newbie like me, please cut your losses and don't compound your mistake. You make a purchase, the share price goes down -> probably you made a mistake. Who are you, little junior, to argue against the market? If you are a newbie, assume you are an idiot waiting to pay school fees and don't average down. Cut your losses!!

Perhaps the most valuable advice that I have received from FA proponents is to know your investments very well and avoid those which you only vaguely understand. If you know your investments with the depth that Warren Buffett has with his, then you can average down with less worry.

One of my mistakes was to make investments based on superficial understanding. True, I read prospectus, annual reports and even taught myself accounting so that I could understand financial reports better. Most of my investments were made based on favorable financial ratios without a deep understanding of the business nature. I did not try out the company's goods and services. I don't know if the company's customers, employees, suppliers are satisfied with it.
My main fault as a newbie was to be over-confident. I thought after reading and learning so much, I was ready. I thought I could be as good as the masters and followed one of their strategy -- concentrate your eggs in one basket and watch that basket carefully. Once again, I reiterate that such a strategy is meant for the masters. If you are an amateur, it is safer to assume that you are an idiot and to protect yourself from stupidity, please diversify. By putting all your eggs in one basket, you may have fatally injured yourself by catching all the falling knives with one hand.
Some FA practitioners do not have a stop-loss policy. They use a similar argument - if a good thing becomes cheaper, I should buy more instead of selling it away.

The TA(technical analysis) approach "Cut your losses and let your profits run" is worth considering. It is a safe way to protect your capital. Sell after your losses reach 10% of the intial capital outlay no matter what. After all, he who fights and runs away may live to fight another day. In fact, by adopting such an approach, you could protect yourself against CAO (China Aviation Oil), Informatics and Auston.
Unfortunately, I did not follow the advice above. I waited until fundamentals have clearly decayed before thinking of selling. In the meantime, I continued to average down as the price slided down. When the financial report was out, fundamentals did look bad but ALAS!!, it is too painful to sell now.
This is one of the problems with FA. You can only make decisions an a quarterly or half-yearly basis which by then, the price may have slid to a psychological unacceptable level to sell.
FA proponents like to say making decisions based on price movement is nonsense. Say, the management has been trying to hide important fundamental data from the financial reports for as long as they can. The silent accomplices - auditors and independent directors - who are on their payroll prefer to close one eye or both eyes as long as they have ready excuses to plead ignorance and other disclaimers when the situation implodes.

The poor FA practioner will continue to average down, thinking that he is profiting at the expense of the foolish irrational market. Meanwhile, the insiders are selling the stock down to the sucker - that foolish guy averaging down.

In such a situation, the TA practioners will be safe. Having observed that the price has been in a downtrend caused by insiders selling down, they would have already sold out before the bombshell explodes. In the cases of CAO, Informatics and Auston, the price chart has shown an obvious downtrend before the explosive truth was out.
Are there any other advice and warnings fellow forummers can share with future newbies?
PS: I do not want to get into a TA vs FA debate. If any FA proponent thinks I am wrong, please point it out objectively without making personal remarks. I am still learning and am considering using a mixture of both FA and TA at the moment.

Saturday, June 11, 2011

Standard Chartered Online Shares Trading Brokerage in Singapore

Update (21 Jul 2012): Clients lose their voting rights in shareholders' meetings when their shares are held in the SCB nominee account. I came to know about this when I was not able to vote against the takeover of Nera Telecommunications by ST Electronics. I felt bad about this after calling upon fellow shareholders to vote against the takeover but was not able to act on my own call.

This week, Standard Chartered has announced a new online trading with a pricing structure which will shake up the brokerage industry in Singapore. The cheaper pricing will be good for retail investors and SGX as it will stimulate trading volume. To paraphrase the Jedi Masters, I sense a disturbance in the Force.

The easy part in evaluating this new platform is finding what is good about it. The promoters will blare out their strengths with a loudspeaker. The difficult part is finding out the things to watch out for beneath their strengths. For this, you have to dig hard and ask questions to get answers which are not readily available.

Since I have a personal interest in getting the best offers from brokers, I have been digging for information this week. I will share what I found here. I will pay more attention with what makes me not so comfortable because it is more important as discerning customers to know what is not so good rather than what is good. However, I will state upfront that I am very pleased with what I learn so far with the new online platform from Standard Chartered bank. Even though my account is still not activated yet, I would like to express a big thanks to the new online SCB(standard chartered bank) trading platform.

Commission rates for the SCB platform are highly competitive versus the other brokers. For the Singapore market, SCB commission rates are 0.18% of traded amount if you are a priority banking customer and 0.2% if you are not. 0.18% matches the DBS cash-upfront account which I earlier recommended. In fact, for trading Singapore stocks, its closest competitor is the DBS cash-upfront account.

The SCB platform beats the DBS cash-upfront account on some aspects. Firstly, the 0.18% commission applies for both buy and sell transactions. In contrast, DBS cash-upfront can only be used on buy transactions. After the shares are deposited into CDP, 0.18% does not apply (unless you sell within 3 days before the shares reach CDP).

If you cannot qualify as priority banking customers, DBS cash-upfront is still cheaper. To qualify as priority banking customers, you have to put in at least SGD200k with SCB. I have checked with SCB that shares held in their nominee account can also be counted as assets to qualify as priority banking customers. Otherwise, it will be a problem after customers become fully invested.

Like the DBS cash upfront account, you have to deposit cash upfront to be able to buy stocks. In other words, no contra-trading.

The major pricing advantage SCB has over all other Singaporean brokerages is NO MINIMUM COMMISSION. 'No minimum commission' is a wonderful thing for small, young retail investors who cannot afford to trade in reasonably large amounts to minimize brokerage fees as a percentage of the investment. It will save money for small and disciplined investors who practise dollar-cost-averaging in the Singapore market. The minimum commission has been a sticking point for Singaporean retail investors who want to buy illiquid penny stocks (some of them can be neglected, value stocks). Sometimes, I end up paying the minimum commission of SGD25 on a tiny SGD200 transaction of an illiquid penny stock. This works out to more than 10% of the investment.

On first look, SCB commission rates charged for foreign markets look like a winner compared to the other brokers. Don't jump to conclusions yet. One has to factor in the currency exchange rates. From my experience, the exchange rates offered by brokers are much better than banks. If SCB uses the bank rates, then it is no longer as cheap as what it appears. I cannot confirm on the exchange rate until I start using the account (not activated yet). Anyone knows better out there?

One advantage of SCB platform compared to other Singaporean brokers for foreign markets is that a nominal interest is earned in the settlement account. I have checked with SCB that the interest rate is 0.1% for all currencies (even for the Aussie dollar). This is low but still better than the other Singaporean brokers that I know who pay zero interest. However, compared to other US brokers like Interactive Brokers, it is not as good. For example, click here to find out what Interactive Brokers is paying on the various currencies in their accounts. To enjoy better higher interest, one way is to open foreign currency accounts with SCB and shift your idle funds from the settlement accounts to the foreign currency accounts which enjoy higher interest rate during periods when you want to stay out of the market. This is important for the Australian market as the Aussie dollar currency enjoys one of the highest interest rate in the developed world.

Another advantage of buying foreign shares using SCB is that there are no custodian fees to be charged on the shares held in the nominee account unlike most other Singaporean brokers with the exception of  DBS Vickers.

On pricing, SCB is considerably cheaper for the Australian, Japanese and European markets compared to the other Singaporean brokers. If the currency exchange rate is reasonably good, then it is a no-brainer to use SCB online brokerage (among the Singapore brokers) for trading foreign equities. I will still use a US broker for trading US stocks.

Singapore shares bought using SCB platform are stored in a nominee account unlike the rest where shares are deposited into our CDP account. There are some risks to consider;

1. You can only sell your shares using SCB because shares are not deposited into the CDP account. One may face the risk of not being able to sell out on a high-volume panicky day because the IT system fails due to heavy traffic. Traders hate to be stuck in their positions, particularly when they want to sell. Compared to the US brokers, Singapore brokers still have much room for improvement in terms of the stability of their IT infrastructure on high-volume trading days. Experienced Singaporean investors will know what I mean.

I called up the SCB hotline and the customer officer told me that in such an event, customers can phone the bank and execute their trades. The commission will still be the same rate as online trading if it is their system's fault. However, it is highly doubtful if the phone service will be able to take in the traffic should their website break down on a high-volume day.

By the way, the hotline number is 1800 242 5333. Don't call their general helpline number because the customers officers manning that line are not knowledgeable on online trading matters.

2. Are clients' assets protected if SCB becomes bankrupt? Are they segregated into a safe, untouchable account in which the custodian cannot use it for their own purposes? The hotline officer told me that SCB cannot touch our shares in the custodian account. The chances of SCB becoming bankrupt is remote. There are those who argue that Barings bank, Lehman Brothers, Bear Stearns have gone bankrupt. Never say never. However, big banks do not go bankrupt overnight. There will be ample warnings signs in the newspapers to signal us to get our money out. Besides, SCB is a big bank and their big size gives me confidence. The events of 2008 has shown us that in the banking industry, the Darwinian rule survival of the fittest does not apply. Survival of the fattest (too big to fail) is what matters.

3. Can clients still exercise their voting rights as shareholders when their shares are kept in a nominee account? How about charges for corporate actions? I was assured that by the hotline officer that there will be no charges for corporate actions. However, clients will lose their power to vote in shareholders' meetings. Therefore, the SCB brokerage account is suitable for small-time retail investor but not suitable for the big players who are accumulating shares for control.

One thing I like about a nominee account is that the risk of a accidental short-sell is removed. The system knows exactly how many shares you own and should prompt you if you try to sell more than you own. This is what happens with my US broker and I expect the same thing for SCB platform. The SCB platform does not permit shorting.

The usual disclaimer applies: Do your own due diligence before believing my words. I am not paid to advertise or advise. So, don't hold me responsible for bad advice. I will be grateful if readers can correct factual mistakes or unintended misconceptions.

Saturday, May 21, 2011

My favorite credit cards in Singapore

This post has been updated with a new post on the Standard Chartered XtraSaver Master debit card which allows me to maximize on my cash rebates using credit cards.

Credit cards have been denigrated as a financial evil. I used to have a friend who was a part-time financial adviser and he refused to own a credit card because of the harm done to some of his clients. Credit cards are not inherently evil. They are simply tools in our financial toolbox and if used properly, they can serve rather than harm us.

Credit cards are my favorite financial tool to help me save money. Here are some of my favorite cards in Singapore;

(Note to readers: I don't get paid for advertising these cards. Neither am I paid as an adviser for recommending these cards. So, please do your own homework and don't blame me if my recommendations do not suit you or I got my facts wrong. I only know they suit me well for my lifestyle. )

1. CIMB Platinum Master Card
The favorite feature that I look for in a credit card is cash rebates. It is like getting discounts on all your purchases with the card.

The CIMB Platinum Master Card offers 0.5% cash rebate on all local spending. It offers 1% cash rebate on all foreign spending with no monthly cap. This is useful for people who make purchases from overseas (recently, I made an online foreign purchase but there was no cashback. Is the 1% rebate still valid? Anyone who knows better?). Unlike some other cards, there are no monthly minimum expense to enjoy the full rebates.

The rebates are automatically deducted every month. You do not need to wait for points to be accumulated nor take the trouble to redeem the points.

Another great feature of this card is that there is no annual fee for life. You can save yourself the effort each year to call up the bank to waive off the annual fee as well as the risk of forgetting to do so and being charged the annual fee. I always assume that I will become unemployed eventually in some point of my life. Once the banks know you are unemployed, there is no guarantee that banks will waive off the annual fee because an unemployed person assumes a higher risk profile to the bank. Having a free-for-life card saves me that worry.

One reader told me about the UOB One card. The cashback rate is up to 3.33% but I am not sure if there is a minimum expense in order to enjoy the rebate. I do not own this card, so I better not comment further.

2. Standard Chartered Manhattan card (newly updated)
I just got this card a few weeks later after a kind reader alerted me to it. The cashback rate is better than the CIMB Platinum card - 0.5% for SGD1-SGD999, 1% for SGD1000-SGD2999 and 5% for SGD3000 and above on your monthly statement. The cashback is credited every 3 months. Given the superior cashback rate compared to CIMB card, it makes better sense to spend using this card.

Unlike the CIMB card, this card is not free for life. So, I will still keep the CIMB card as a backup in case the free annual subscription fee waiver is not granted. It is actually quite stupid to pay annual subscription fees on your credit card because all it takes to get a waiver is a phone call.

3. SMRT Citibank card
This card can be used like an ez-link card which we use for public transport. It gives you 2% rebate on each ez-link topup which is the same as shaving 2% off your public transport expense.

Please take note that you are charged SGD0.25 for every topup. Therefore, it makes sense to maximize the top-up amount (SGD50) to reduce the frequency of top-ups to save money.

Because of my thrifty lifestyle, I prefer cards that offer high rebates on basic unavoidable expenses to cards that focus on luxury spending. One helps us to save money, the other tempts us to spend money. It is a matter of lifestyle choice. Just spend if it makes you happy.

The SMRT card offers high rebates on grocery shopping which are necessary household spending. You can get good discounts from the major supermarkets in Singapore like Giant, Carrefour, selected NTUC outlets etc

So far, I cannot find another card with rebates that covers so many supermarkets. Another kind reader has pointed out that the Maybank Family and Friends card offers 5% rebate for some supermarkets as compared to the SMRT card which offers 4.7% unless you spend more than SGD600 per month. By combining both cards, we can get better deals at the supermarkets. 

4. POSB Everyday Card
I use the POSB Everyday Card to pay for my utilities bill which is an unavoidable basic expense. I get 1% off my utilities by using this card. This is the only card I found in Singapore that can be used to pay utilties bill. Again, if you know of a better card, please share.

5. Any cards that offer useful free gifts. Cash is best.
The rare occasions when retail customers can make money off the banks (and not the other way) is through credit cards. The banks dangle free gifts and sometimes even money to get people to sign on their cards. If the gift is useful one,  I will probably take the card. If cash is being offered, I will surely take the card. 

Recently, Citibank gave me a free USB speaker for my computer. Thank you, Citibank. Not to forget Maybank and Standard Chartered, thank you very much for your free cash. 

This finishes the list of my favorite cards. There may be better credit cards out there. I can't know all of them and new cards keep springing up. Please share if you have good recommendations that I have missed out. 

Credit cards can be a good financial friend. Just don't owe money on your credit card but if you do, the top financial priority should be to pay them off. NEVER ROLL OVER YOUR CREDIT CARD DEBTS. Nobody can be rich if they have to carry debt at 20% compounded. Even a small amount can kill.

Saturday, May 14, 2011

Choosing a broker for trading Singapore stocks

Latest update: This post has been obsoleted by a new kid on the block. Standard chartered online trading brokerage has stormed into the Singapore brokerage industry with a whole new pricing. Here is my update.

One of the favorite questions asked by newbies to the stock market in Singapore is "who should I use as my broker"?

This is what I did for myself. I use DBS cash-upfront account primarily for buying Singapore stocks. The price comparison is compelling. DBS cash-upfront charges 0.18% of invested amount or minimum SGD18. This is way cheaper than (0.275% or minimum SGD25) charged by the rest. DBS cash-upfront is 35% cheaper than all the other brokers. 

Why so much cheaper? Where is the catch? The key lies in being cash-upfront. You have to deposit cash upfront into an account with DBS Vickers to buy stocks. DBS Vickers is able to charge lower commission rates because the risk of customer not paying up for his share purchases is zero.

Please note that you cannot buy on contra (buy now, pay 3 days later. Uniquely Singapore) with cash-upfront. That is the catch. However, I hardly think this is a disadvantage. So far, I have never seen a consistent winner in the Singapore stock market using contra. Conversely, I have encountered and read about several market participants getting burnt using contra. It is hard enough to be a market timer. To get your timing right to an accuracy of 3 days is even harder. It is possible to make good profits in one or two occasions using contra. Who doesn't have luck on his side sometimes? But to be profitable consistently by playing contra? I think you will have better chance of getting rich by working hard at your day job.

After shares have been deposited into your CDP(Central Depository) account which occurs 3 days after purchase, they cannot be sold using the cash-upfront account (they can still be sold within 3 days using cash-upfront). So, for the sale of shares, you are free to use other brokers but will have to incur the higher commission rates of 0.275%. If you are a big customer, you can pressure your existing broker to charge you cheaper rates by using the cheaper cash-upfront rates to bolster your bargaining position. Congratulations if you are successful. However, please be very careful when you are using one broker for buying and another broker for selling. It is easy to become confused during periods of active trading and you may accidentally do a naked short-sell. The penalties for naked short-selling in Singapore is hefty. In the worst case, it can be a minimum of SGD1000 or 5% of trading value.

I have accounts with several brokers. This is because of the bad experience with the inadequate reliability of the online trading platform of Singapore brokers, especially on days when trading volume is high. By having several brokers, if you cannot log in on one particular online account, you can still try the others.

Having said that, it is best to keep your trades to one broker, at most two. The buy/sell limits granted by the Singapore broker depends on the volume business he gets from you. If you need more firepower, you have to fire more shots using the same broker.

By using one broker exclusively, you can use that broker to track your portfolio accurately and keep good trading records. A good online platform should update the portfolio automatically. Trading records are vital to traders who want to become good traders. I doubt if any experienced traders reading this post will disagree with that.

Sunday, May 1, 2011

Fears of a new Black Swan in Singapore General Election 2011

In my previous post, I wrote about fears of a black swan event in the coming election. It is PAP losing power to an opposition which is still not ready to take over the reins. Admittedly, those fears were borne out of selfish reasons. I was afraid of losing lots of money from the adverse market reaction if PAP was thrown out of power on 7 May 2011.

Now, I have fears of a new black swan. It is the opposition losing all its seats in parliament.

It is amazing that the opposition has attracted high-quality candidates despite offering little or no money and plenty of risks. Look at what happened to some of the past opposition candidates and it is hard not to be fearful if you are an opposition candidate. By joining opposition, they have more to lose than gain. Otherwise, why do so many opposition candidates face family opposition to join the opposition?

If these people have the courage to take on the risks and make the sacrifices to stand up for the country for their beliefs, what kind of message are Singaporeans sending if they lose all seats in parliament this time? Will any more credible opposition candidates dare to stand up for us the next time?

It is not healthy for any entity, whether it is a business or government, to be a total monopoly. Freedom from competition will lead to complacency. Some competition will keep them on their toes and open their ears to the customers.

I hope none of the black swans feared will materialize. A middle ground will be the optimum outcome.

Friday, April 22, 2011

Fears of a Black Swan in Singapore General Election 2011

Singapore general election will be held on 7 May 2011. Investors' expectations are over-optimistic.

"So I think a lot of investors have plugged in very lofty expectations because over the last three GEs the PAP has only lost two seats so far, and given these are lofty expectations, should the opposition win more than that I think the markets will get slightly hit, but that will only be for a short while."
Given such high expectations, the market may suffer a backlash if the PAP loses 1 or 2 GRCs. I am not so worried about PAP losing one or two GRCs and losing plenty of money when the market opens. I think this may even be a good thing as it may make PAP listen harder to the people. My primary worry is the PAP losing power. That is the black swan event (unexpected with extremely damaging consequences) which will immediately devastate investors' portfolio and risk the long-term prospects of Singapore.

I strive to be pro-Singapore, neither pro-PAP nor pro-Opposition. The reason why I think it will be a disaster for Singapore if PAP loses power is that the opposition is still not ready to form a viable government at this point in time. Using a business analogy, if a customer (Singaporean citizens) is trying to switch supplier because there is great dissatisfaction with the incumbent supplier(PAP), it does not switch immediately to the alternate supplier (Opposition). It has to give time to cultivate the alternative supplier to achieve a reasonable quality before making the switch. In the mean time, if the incumbent supplier regains its edge because of competition from the alternate supplier, the business prospers. The customer may even stick with the incumbent supplier if he makes good improvements.

No business(citizens) with proper supply chain management will depend on only on one supply source (PAP). It is too risky. What if the sole supplier fails? Besides, without competition, the sole supplier will grow complacent and decline. The worst part of it is that the cost of the decline will be solely borne by the customer. The sole supplier(PAP) will simply squeeze the customer(Singaporean citizens) by raising prices (raise GST, ERP, government fees etc). The customer can cry foul and bang his fists on the table but can you really sympathize with the customer? We should blame the customer (citizens) for not cultivating an alternative supplier (opposition) to compete against the sole supplier (PAP). Meanwhile, we cannot blame the sole supplier (PAP) to make an all-out effort to destroy his competition (opposition). Do you want to be a shareholder of a company that does nothing about competition and destroy the competition?

In the coming election, the opposition has been able to attract high-calibre candidates like Chen Show Mao. A credible "alternative supplier" has emerged. Do cultivate them as a check on the incumbent one. However, this is not a time to switch supplier completely because the the "alternative supplier" is simply not ready to take over. In my humble opinion, give the "alternative supplier" (opposition) some time to prove itself and another chance for the "incumbent supplier" to recover its footing, for the sake of the country.

An investment operation functions best when the investor thinks like a business owner. Similarly, a democracy functions best when each voter thinks like a stakeholder. Rational voters who think like stakeholders do not treat political elections like a beauty contest (PAP Tin Pei Ling against NSP Nicole Seah).

On one extreme, I have read vitriol comments on the internet like "I will vote out PAP even if a cockroach contests as an opposition candidate". On another extreme, there is a climate of fear "I will vote PAP because there will be consequences if PAP finds out." Both are irrational. A more desirable approach is to simply think like a stakeholder. Assume that you and your children are going to live in this country for a long time to come to face the consequences of the polling results.

If you think the PAP candidate will bring a better future to you and your children, give him your vote.
Likewise, if you think the opposition candidate can do a better job, vote for him.

Different people will reach different conclusions despite having the same objectives. This is fine as long as the decision process is taken rationally like a stakeholder.

It is in fact more important for the middle to lower income groups to think like stakeholders than the upper-income. The rich will be able to migrate to greener pastures when the country crumbles while the middle-income and below will be stuck here to face the consequences. In a globalized economy, it is ironic that the asset-rich actually has less stake in the country than the asset-poor.

I am a middle-class person with 1 HDB property, middle-class salary and always worried about job security. I will be stuck here to face the consequences. I will certainly think very carefully on this issue from today onwards till 7 May 2011.

Saturday, March 26, 2011

What Singapore can learn from the US financial crisis of 2008

Wall Street has always been able to attract the best minds from all over the world because Wall Street pays the highest salaries in the world. Wall Street drives its people very hard. They work very long hours. Wall Street people are by nature highly ambitious, driven and self-motivated. With unparalleled intelligence, diligence and energy, you would expect such an organization to be unparalleled in performance. Yet in 2008, instead of scoring an unparalleled success, Wall Street screwed up big-time and its failure was unparalleled in history. Wall Street failed so spectacularly that it almost brought down the whole world.

Many people have attributed the cause to evil Wall Street bankers full of greed who do not hesitate to cheat the financially illiterate public of their hard-earned savings in pursuit of big bonuses. I do not think that Wall Street people are evil by nature and this is not because I am one of them. If you were rewarded to be evil, would you become evil over time? To cut a long story short, Wall Street folks were rewarded to take excessive risks because when things turn out well, they scoop up the gains but when things turn out badly, other people pay for their mistakes. If you work in Wall Street, wouldn't you behave the same? This system of perverse incentives reward bad behavior. Over time, even good people become bad, not to mention the people who are already rotten. How do you expect highly driven, ambitious individuals who are used to winning in school since childhood to behave otherwise? Do you think they are willing to perform poorly?

At the risk of oversimplification, Wall Street collapse was caused by a combination of high intelligence/energy and perverse incentives that drove the system to self-destruction at the hands of its own people. All other problems stem from this fundamental flaw. The world would have been a safer place if Wall Street had hired stupider people. At least, they would not have been so intelligent bringing about destruction to their employer, transferring the cost to taxpayers and becoming fabulously rich in the process.

The Singapore civil service is able to attract the best minds in the country because it pays very well with very good job security. There is nothing wrong in paying well to attract smart people in the government. Indeed, one of the causes for the 2008 US financial crisis was that the US government was not able to attract regulators who were smart enough to deal with much higher-paid, smarter Wall Street folks who ran circles round the lower-paid, mediocre regulators. Paying high salaries to government workers is a good policy to be continued. However, one has to acknowledge that there is a limit beyond which people start losing respect for the government. Effective but painful policies that are hard for the people to swallow become much harder to implement because the message will get lost if delivered by a messenger who is not trusted by the people.

Having smart people(civil servants) working for you (me and my fellow citizens) can be a double-edged sword. If you drive them with the wrong incentives, they will drive you faster down the road to destruction. This is where my worry comes in. In terms of brainpower and paypower, our Civil Service holds similarities with Wall Street. If you mix that with perverse incentives, the combination will be lethal to our country. I hope our government pays particular attention to this risk when they set KPIs (Key Performance Indicators) that determine the bonuses and promotion of their civil servants .

What concerns me is when government puts in place incentives for their people that are at conflict with the interests of the Singaporean people at large. For example, the Government collects more tax revenue when more people go to the casinos. By pegging their own salaries to GDP growth, there is a tendency for policies to overheat the economy leading to a rising cost of living for ordinary folks. To carry this point to the extreme, an unscrupulous government can simply print money to grow GDP while the ordinary people suffers under inflationary conditions. Of course, this is not happening in Singapore based on the strength of the Singapore dollar. (I am losing big money in my US investments just by sitting on cash alone. ) However, there is a risk that policy-makers are taking the easy way out to hit their KPI to grow GDP by opening the floodgates to foreign labour. While foreign immigration is necessary given the low birth-rate in Singapore, it should not be done in a manner which creates another problem - raising the emigration rate and killing the loyalty of local Singaporeans. In a crisis, Singapore requires a core group of rooted Singaporeans to stay behind to fight for its survival.

The risk of self-destruction caused by perverse incentives is very real. Let us learn something from the US debacle and prevent it from happening to us.

Saturday, January 1, 2011

Choosing a broker for trading US stocks

I have encountered several inquiries on internet forums on choosing a suitable broker for trading US stocks. I would like to share what I know and have done based on my own research gathered sometime ago when I hunted for a broker for US stocks. If you are a Singaporean looking for a suitable broker for US stocks, please read on.

If you are a Singaporean wanting to trade US stocks, then using a US broker will compare favourably with our local brokers. The trading fees charged by our local brokers are much more expensive compared to US brokers. US brokers commission fees range from USD9.99 to USD19.99 per trade. Unlike our Singaporean brokers who charge a percentage of the trading principal, the US brokers charge a fixed commission per transaction regardless of size. This can result in huge savings if your trading principal is large enough.

Interactive Brokers is amazingly cheap. I do not use Interactive Brokers and shall refrain from further comment.

Local brokers charge extra fees like custodian fees and handling fees (dividends, rights, splits etc). When your broker act as a custodian for your shares (holds your shares on your behalf), you incur the counterparty risk of losing your money in your brokerage account should your broker go bankrupt. The USD in your local broker account does not earn interest. USD held in your US brokerage accounts (E*Trade, Interactive brokers) pay interest. The SIPC( Securities Investor Protection Corporation) insures up to USD500k of equity, including up to USD250k in cash if your US broker goes bankrupt.

Singapore brokers will charge you GST (currently at 7%) taxes on the commission paid. You do not have to pay GST when using US brokers. This is no small sum if your trading frequency is high.

The hassle of using a US-based broker lies in transferring funds to the foreign brokerage account. In this aspect, E*Trade has done a good job. You can write a USD cheque to the E*Trade Singapore office and the funds will be transferred within a few days. No extra charges in the form of telegraphic/cable charges from the bank. One downside is that you have to open a USD current account so that you can get a USD chequebook. The minimum deposit sum is USD1000 for OCBC and DBS. This is a sum of money that you have to leave idling. Take note of the bank fees when transferring money from your US brokerage account back to your Singapore USD bank account (known as inward remittance). Choose the bank that charges the least inward remittance fees or does it for free. As of today, DBS does not charge inward remittance for its USD current account. OCBC used to do it for free in the past but recently started charging for this service. In fact, OCBC even started charging for chequebooks in SGD current accounts when it was free in the past. I shall be closing my OCBC USD current account and open a DBS account soon.

I do not want to sound like a salesman for US brokers. Using local brokers have their advantages. You do not have to deal with the hassles of opening a USD current account and leaving idle money there to meet the minimum deposit requirement. The greatest advantage lies in the favourable currency exchange rate compared to those charged by the banks. When you buy US stocks using a local broker, the currency exchange rate is quite good. If you compare it to that charged by the local banks, the banks are ripping you off. I do not have a solution to this rip-off. I shall be most grateful to anyone who can suggest a cheaper avenue where I can get a favourable exchange rate.

There are important things to note on the tax aspects of investing in US stocks. Taxes on US stocks held by foreigners are subjected to 30% withholding tax. As a foreigner, if your dividends on a particular stock is large enough, it may make sense to sell your holdings the day before it goes Ex-dividend. Then, on the day it goes XD, buy back your stock after it falls at the price to reflect the dividends paid. Due to the hassle and my small US portfolio, I have not tried this. But, I think it makes good sense to go through this hassle if your dividends are large enough to make a difference.

Foreigners are subjected to estate taxes on the amounts in the portfolio exceeding USD60k. It is advisable to create a joint account with your spouse so that she does not take a hit should you leave this world unexpectedly. It is not so much of a concern if your portfolio falls below USD60k. Even then, it will be easier for your spouse to withdraw your money upon your death if the account is a joint account.

I use E*Trade as my US broker. While E*Trade is cheaper compared to local brokers, it is more expensive relative to other US brokers. However, the advantage is that it has a Singapore office and is registered with MAS. If there are problems with the broker, you can just drop by the Singapore office. If you use a US broker with no office here and not registered with MAS, it is harder to get disputes resolved. Emails can be ignored conveniently. I also like the convenient fund transfer facility E*Trade has for its Singaporean customers.

Disclaimer: Due to bad experience on sharing advice regarding money, I wish to state upfront that I shall not be responsible for factual mistakes because I am not paid for sharing these information in the first place. However, correction to factual errors or better suggestions done in a polite manner are most welcome.