Saturday, November 9, 2019

Keeping the mind open. Seeing the good on some unpopular financial products

It is a good habit to keep an open mind and see things from the other side of the fence. When people disagree with you, the value of their information content is higher. It is uncomfortable emotionally, but essential to arrive at the right decisions.

I have been personally affected negatively by insurance agents selling high-commissioned insurance products, financial training courses and Multi-level Marketing (MLM). It is hard to keep an open mind on issues that impact a person negatively on a personal level. Nevertheless, I will try to see the other side of the coin. It is a good habit to cultivate.

Insurance products
I bought whole-life insurance plan before. It was an expensive plan for achieving my goal of protection. Since then, I have always advocated term insurance over savings-related, investment-linked plans that insurance agents love to sell because of the high commission. Insurance is for protection. Period. Don't mix them up with investment and savings products.

For people who have a past history of mis-managing cash on hand, financial products that force them to save can be a life-saver, even if substantial portion of the money goes to commission. Lottery winners are twice as likely to file for bankruptcy every year than the general population. So, if your spouse happen to strike Toto and you know him/her to be one of those who cannot manage money, it is better that he spends most of his winnings on financial products peddled by insurance agents than go on a spending spree, gamble it away in the financial markets, invest in speculative ventures by friends/relatives ...

EDIT: One more advantage of whole life and long-term endowment plans is to protect your savings  from creditors in the event of bankruptcy provided you put the plans under trust nomination. Credit for this insight goes to an Anonymous commenter (Saturday, November 9, 2019 at 12:07:00 PM GMT+8)

It is not without risk. You have to trust your family members. If a person is nominating his wife as beneficiary, please don't sabotage yourself by fooling around with mistresses. Keep your eyes open before marriage that she is not a gold-digger.

Financial training courses
I had family members who went for these financial training courses. One of them was a retiree. Outcome was bad (let's leave it at that). This is why I am angry and biased against expensive courses, particularly those that sell false hope.

This is a thread (Link) that warns about financial training courses. It provides good advice on what to watch out regarding the tricks used by the financial trainers and a list of the more controversial trainers in the industry. However, some of the language and labels (such as scammers) that were thrown on the financial trainers in the thread have gone overboard.

I had online correspondence with some financial bloggers in the past who later on became financial trainers. I'm pretty sure they are decent people. They are certainly not scammers. They are now running a business and face the normal pressures to feed the employees and their own family. If I were in their shoes, I will also try to maximize profits by charging as high as the customers can take. Which business-man will not do that?

I only hope these financial trainers will target the right customers, not the vulnerable victims. Definitely not retirees who can't afford to lose big in financial markets!! Don't touch my family.

There are many ways to make money from the financial market. For DIY investors, we need to go through a trial and error process to find the way that suits our unique strengths and personality. The DIY investor can learn by attending several courses to finally find what suits him. Even if your trainer is sincere and competent, what works for him may not work for you. Furthermore, if each course is going to cost thousands, then it makes the task of building the capital more challenging. This is why I've always recommended using cheap books and online resources to learn investing/trading because it keeps the cost of learning the investment craft low. The most important factor to success in investing/trading is size of capital. So, always try to keep your cost low to build up your capital.

I'm aware that not everyone learns well through books. There may be some people who learn better in a classroom, interactive environment compared to books. For young people (NOT retirees) who are hungry to learn but find books and websites/forums are not the channels for them, then perhaps paying up for these courses may be more effective. These are the right customers for the courses, not retirees!

When retirees' finances are badly injured, the financial contagion spreads to their children who are the sandwiched generation.

Multi-level marketing
A friend tried to recruit me into MLM. I was not interested. Perhaps I will talk about it in a later post.

Saturday, May 25, 2019

How I respond to financial product promoters on train stations

As a buyer of consumer products, one observation I made : when a product needs to be sold aggressively by salesmen, it probably isn't a good one. The best products sell by itself without help from aggressive commission-based salesmen. This is especially true for financial products. The best financial products I bought are usually not promoted by salesmen.

It is getting common to be stopped by financial promoters at train stations nowadays. This is my usual responses when approached by financial promoters at train stations.

Response to insurance products promoters
"When buying insurance products, my main prority is protection. Please don't sell me insurance products that mix savings and investments with insurance. Sell me term-insurance products because they provide the most bang for the buck when it comes to protection."

On hearing this, the financial promoters will move on to selling other financial products such as savings/retirement products. Very few will actually promote term-insurance products even though I express my preference for term insurance products. No surprise because term insurance products pay poor commission to insurance agents.

Response to savings/retirement products promoters
"You mention your savings product pays X% interest income for Y number of years. How much of the interest is guaranteed? How much of the interest is projected? I'm wary of projected figures because they carry no contractual obligation. How does your savings product compare with Singapore Savings Bonds (SSB)? SSB is liquid and the interest rate is guaranteed. I can withdraw all the funds in SSB within one month without penalty. How long does my money need to be stuck in your savings product before I can start withdrawing with little or no penalty? How much penalty do I have to pay if I need to withdraw early for emergency reasons? I can also buy and sell conveniently bond ETFs on stock exchanges which offer similarly good interest rates as your savings products. How is your savings products superior to these bond ETFs, given that these bond ETFs come with low fees, probably lower fees than your savings products?"

Projected returns carry no contractual obligation and can be abused by aggressive financial promoters. I'm careful about making financial decisions based on projected numbers, especially when they are dangled by aggressive salesmen.

Financial promoters like to compare the much higher interest rates of their savings product with bank deposits. That is not the right comparison. I use Singapore Savings Bonds(SSB) as a benchmark when comparing with savings products. It is liquid, super-safe guaranteed by AAA-rated Singapore government and comes with very good interest rates for the liquidity. Besides SSB, I can also buy fixed-income investment-grade and high-yield bond ETF on stock exchanges as an alternative to the savings products.

When the financial promoter finally decides I am not keen to buy their savings and insurance products, they will move on to promoting their investment products.

Response to investment products promoters
"How much are the management fees charged by your investment fund? Why should I buy your actively managed fund when passive index funds have much cheaper management fees and have demonstrated superior long-term track record of outperforming most active investment funds? Is your investment fund cheaper than passive fund? If no, does it have superior long-term track record of outperforming cheap passive index funds?"

Index funds and ETFs are usually cheaper and better than most actively managed investment funds. I can easily buy and sell passively managed funds conveniently through ETFs on the stock exchange.

Incentives drive human behaviour. Bad incentives drive humans to behave badly. I don't blame financial promoters for behaving badly. I blame the bad incentives. If I were a financial promoter, I will also focus on selling the best-commission product. No need to be hypocritical about that. One reason I have deep trust for the engineering profession is that it is much harder for engineers to get away with bad behaviour. It is not that engineers are most honest or more moral than financial Wall-Street folks. If the engineering work is inferior, short-cuts are being taken causing the product to work poorly, customers will know. Conformance to specifications can be tested objectively. Engineers cannot hide behind the disclaimer like "All investments carry risk" when performance fails and still get paid handsome fees in a down year. I have the deepest respects for fund managers who do not charge management fees, given that it is the industry norm to transfer investment risks to clients because of the disclaimer "All investments carry risk".

Based on my experience as a consumer of financial products, I have come to the conclusion that good financial products are bought, bad financial products are sold. Good financial products are bought independently by knowledgeable financially literate consumers and they tend not to be promoted. Bad financial products are sold aggressively by commission-driven salesmen to financially ignorant consumers. So, is fee-based financial advice the solution? Sadly, not for the masses. The fees of fee-based financial advisers are usually so high that it makes financial sense only for the rich to engage them. If you are not rich, their fees will suck up a high percentage of your savings.

When it comes to money, it is best to rely on ownself. Help your own money or risk others helping themselves to your money.

Tuesday, November 27, 2018

Learning through cheap books/internet versus expensive training courses

I have never attended any trading/investment courses before. Not even free ones which are usually sales preview. I declare upfront that I am personally biased against training courses that charge more than $1000 and last only a few days, since I used cheaper alternatives such as books and internet to pick up financial knowledge. I cannot make fair comments about the quality of these courses since I have never personally attended any myself but one thing I can say objectively is that they are certainly much more expensive compared to books and internet resources. My financial education was mostly gained from free books borrowed from the library, free educational materials from the internet and online interaction with other investors/traders. I have benefited from many kind people on online forums who have generously given their time free of charge to share their knowledge without personal hidden agenda. So far so good using this cheaper approach.

In the past, I have written a positive review free of charge on a 1-day investment course based only on its course content as I did not attend the course in person and it was priced at SGD98. Short courses that are priced above $1000 are more expensive than even expensive MBAs on an hourly basis. Maybe some people learn better in a class setting instead of reading but do be mindful of the price you are paying versus the value you are getting.

If a person is prepared to pay thousands to go for a short course to learn how to invest in the financial markets, it means he is serious to become a DIY(do-it-yourself) investor. He has to answer this question first "Does it make sense to DIY? Are you financially better off buying cheap passive equity index funds/ETFs such as Straits Times Index instead of managing money yourself?" Most professional fund managers perform worse than cheaper passive equity indices. What makes you think you can outperform the equity index when professional fund managers with more time, more resources and more knowledge are unable to do so? A DIY investor has to spend a lot of time if he is serious about it. He will surely fail if he is not willing to put in the time. He will still face high odds of failure even if he is willing to put in the time since most full-time professional money managers underperform the indices. Time is a limited resource. When you spend lots of time on DIY investing, you have less time for your career and family. You may miss that promotion and bonus because you got distracted by DIY investing. You may end up making less money despite putting on a lot of hard work. Your family relationships may suffer as well. I believe most people should not be DIY investors in the financial markets. Having said that, I am a DIY investor myself. This is because I saw bleak prospects in the industry that I worked in when I started out (turned out to be correct) and I love the process of managing my own money. If I do poorly as a DIY investor, I will view it as expenses for indulging in a hobby I like. If it turns out well, the skills acquired can serve as a backup protection for my family finances in case I get retrenched as a middle-aged engineer. This was my reasoning when I started out as retail market player.

Among the people who attended the expensive short courses, one commonly cited reason is that short courses speed up their learning process. They say reading books take too much time. If that is the attitude, then they will most likely fail. A person cannot expect success if he is unwilling to sacrifice the time to master a craft. No short-cuts to success. If they are willing to put in the time, then they should ask themselves the question if it makes more financial sense to use cheaper alternatives such as books and internet resources instead of expensive courses.

If Renaissance Technologies is willing to open up their money-making formula in the Medallion Fund in a 3-day training workshop, I am more than willing to pay a fortune for the short course. These are proven strategies that cannot be found in books and internet. But would any money manager with secrets to produce consistently high returns yearly like Renaissance be willing to teach their secrets to outsiders? I am personally skeptical of trainers who claim to have wonderful track records and want to reveal their secrets because it is their passion to help people reach financial freedom and they want to give back to society. If a trainer boasts about high, consistent returns that matches top hedge fund managers, please ask for his brokerage statements that show his past transactions. Make sure the statements are not from a demo account! The past transactions must include all the losers and preferably long enough to cover 2 boom-bust cycles. If he wants to teach for a fee, it is reasonable to ask for evidence to verify his claims. Know your rights as a customer.

The financial training (and money management) business has a wonderful business model in the sense that the salesman can make empty promises about future returns without behind held accountable. The financial salesman can hide behind the standard disclaimer "All investments carry risk. We cannot be held responsible for losses incurred." Human psychological weaknesses like greed and fear are magnified when it comes to money issues. A skillful salesman, without the shackles of being held accountable for his sales talk and mastery of human psychological weaknesses, can do wonderful manipulation work on his victim. The force is strong in them to manipulate your minds. So, be careful. One way to guard against manipulation is to ask for facts, numbers that cannot be manipulated which shows his past track record for what he is truly worth.

A close friend shared his experience about a financial trainer who tried to portray himself as someone sincere about helping people reach financial freedom through his courses. He felt his intelligence was insulted and I absolutely agree. If someone is really sincere about helping people reach financial freedom through education, there are cheaper ways like sharing their insights on forums, websites, youtube videos, self-published ebooks which can be accessed free of charge. Why charge a four-digit sum for a short course and claim it is your sincere passion to help other people reach financial freedom? It is absolutely fine for a businessman to charge whatever price he wants for his product/service. He is running a business and it is fair to expect him to charge the optimum price to maximise his profits. I will do the same if I were in his shoes. However, please do not use noble-sounding reasons like I am doing this to help you reach financial freedom so that you can quit the job you hate. Customers should be on their guard when someone claims he wants to help people reach financial freedom but charges a exorbitant price for doing so, given that there are cheaper alternatives. As for the chances of reaching financial freedom through the markets, most people are better off not touching the financial markets themselves anyway. I wish potential customers of these financial courses are peppered with realistic warnings and not sold to unrealistic hope before they seek their riches in the financial markets. This is particularly so for financial courses where students are taught to use leverage. Failure could mean financial destruction and following that, family falling apart.

Not every action taken is driven by money. I have been touched by the kindness of experienced traders/investors on online forums who sincerely shared and helped without expecting any payment. The late Dr Michael Leong, founder of was one of them and there are others too. In Dr Leong's words,

For those of us who make money directly from the markets, we know how difficult it is for the novice investor to start investing. The least we can do is to show you the ropes free of charge. We will never want to take any part of your savings just to show you the ropes. This money is needed by you to start off your investment journey. Hence, my conscience will certainly not allow me to take such money. I rather share freely, or not at all.

It is not hard to spot these rich and kind people. They are usually people who have made enough from the markets and have gone full-time because it is their passion. They spend most of their time trading/investing and not training. Indeed, when a financial player spends most of his time training instead of trading, where do you think he makes most of his money? Businessmen will gravitate towards the activity that generates the most money. When someone spends most of his hours training instead of trading/investing, he probably makes most of his money from training.

Ray Dalio said he has reached a stage in life where he feels the responsibility for passing on his knowledge. He does not sell expensive courses. You can download his latest book "Big debt crises" free of charge. I truly believe his sincerity. On the other hand, if average nobodies like me say the same thing, you had better be skeptical.

PS: I understand there are people in the financial training community who will be unhappy with this post. If I make unfair comments in this post, please convince me I am wrong and I will edit accordingly. This post was motivated by bad experiences suffered by people close to me.