Simple case study of an asset play

An asset play is a stock which is a good investment because of solid asset backing. If the company were liquidated today, the money recovered from its assets will reap shareholders a satisfying profit after paying down all its liabilities. In other words, the liquidation value is way above the market capitalization traded on the exchange.

Stocks with assets composed of intangibles and inventories are not suitable as asset plays. In fact, when the situation is dire enough to warrant liquidation, the value of such assets can collapse to near zero.

The most suitable candidates for asset play are those with assets that are easy to value and hard to defraud - cash, marketable securities (traded on public exchanges where prices are transparent) and real estate properties.

Tuan Sing is a straightforward case study of an asset play which is composed of these sort of easy-to-value and hard-to-defraud assets. As of 29 Oct 2010, it has a market capitalization of SGD281m. After divesting one of its investment property (Kallang Mall), it has a massive cash hoard of SGD207m which is >70% of the market capitalization. This cash cushion allows one to sleep well even if the 2008 credit crisis returns.

On top of this cushion, its crown jewels are the investment properties like Robinson Towers, International Factors Building which are worth SGD261.65m. These properties are in located Singapore. You can physically see and touch these assets. There is no room for fraud.

Its subsidiaries consist of companies like Gultech and SP Corp which are publicly listed on the Singapore exchange. You can obtain the asset values of these listed companies on a real-time basis.

Below is a breakdown of the assets backing this company worth SGD281m. Assets like inventories, intangibles, plant and equipment whose value will be deeply marked down in the event of liquidation are ignored (assigned a value of zero). To provide for a comfortable margin of error, we shall halve the value of assets whose values cannot be ascertained with comfortable certainty like cash and marketable securities. This is the reason why certain asset values will look significantly lesser than what is stated on the latest balance sheet (2010Q3)

Cash holdings: SGD207m
Subsidiaries: SGD157m
Investment properties: SGD262m
Trade and other receivables: SGD26m
Development properties: SGD55m
Total assets: SGD707m

Total liabilities: SGD281m

Liquidation value = Total assets (conservatively estimated) - Total liabilties = SGD426m

The market cap of SGD281m is only 48.6% of the conservatively estimated liquidation value. This is adequate margin of safety for a risk-averse investor like me.

For a good asset play, the assets alone should already provide adequate backing for the price you are paying. Therefore, as long as there are no future losses, it is okay for the asset play to have no future profits. Zero profit growth will not endanger the margin of safety. Any profit growth is viewed as a desirable bonus.

Tuan Sing's profit growth in 2009 and 1st 9 months of 2010 is a big bonus. Profit in 2009 is more than 16 times higher than 2008 (actually an indication of how bad 2008 was, not how good 2009 was). 2009 earnings were good enough to reduce the PE ratio down to a only 6.1

For the first 9 months of 2010, profit grew 53% compared to same period in the previous year. Last quarter earnings were disappointing. Again, earnings growth is not a major consideration for asset plays. Of course, profits are always good to have.

Dissenting views are most welcome.

Disclaimer: I am not a qualified financial adviser. I have no formal training in any finance-related course. It is highly possible for me to make analytical errors, even factual errors which I will be grateful if readers help to correct. I am just an ordinary engineer dipping into the world of investment. The writer has vested interests in the analyzed stock, therefore readers should be wary of non-objective analysis.

Womanizing - things to avoid to preserve your wealth

This post is about women and money. It is written from the perspective of a man and is not relevant to women readers.

I do not want to approach this topic of womanizing as a moralist because I am not qualified to do so. I cannot guarantee to behave like a gentleman should a stunning temptress throws herself freely onto my lap. Rather, I would like to approach this topic from the financial angle.

Womanizing is extremely costly to a married man. Depending on the laws of the country, the woman who sues for divorce can grab half the man's assets plus a chunk of his future income as alimony. The richer the man, the more expensive it is. This is the price you pay to your wife for womanizing.

Even if the wife does not discover your philandering, you still have to pay for the most expensive pets a man can ever keep - mistresses. Mistresses cost much more than a car in Singapore. It is easy to give in to them. It is sad fact of life that men spend more on their mistresses than on their wives. They are more willing to buy expensive jeweleries to please their mistresses than their wives. This is unfair to the wife who made sacrifices to the family for bringing up the children and taking care of the old folks. This is irrational to the pocketbook because if the jewelry had been spent on the wife, it could at least be pawned when the family falls into hardship.

The expensive pets can quickly turn into even more expensive pests when the man tries to disown them. Men, especially men of status, are subjected to blackmail from their mistresses when they fall out. This can be a bottomless pit for your pocket.

The cost of womanizing drops exponentially for bachelors. For men who suffers from sex addiction, it is much cheaper to indulge themselves as swinging bachelors than as cheating husbands. Tigerwoods who reportedly has a sex addiction problem has to pay USD750 million to settle his divorce. For that price, he can hire a high-class prostitute every night to indulge his wildest sexual fantasies till the day his machinery wears off.

When a bachelor womanizes, he might even be respected among his circle of men friends for his conquests. When a married man womanizes, he will be condemned universally. It is a pity so many prominent public figures who could have gone on to do more social good have been destroyed by such scandals.

While the cost of womanizing for bachelors is lower, it is nevertheless an expensive lifestyle to maintain and should be discouraged. The optimal financial scenario for your romance life is to marry the first woman you kiss. Money spent on girlfriends who do not become your wife offers zero returns. If you change girlfriends several times, you have to write off a substantial sum of money spent on useless relationships. It can be worse than useless as former lovers can become sworn enemies if the fall-out is not handled properly. Having too many girlfriends before marriage can be an emotional baggage for the marriage. I would not advise my sister to marry a man with a history of womanizing. Few fathers would want such a man for their daughters unless they are betting on a lucrative divorce settlements.

The most money-saving outcome is to have your first girlfriend become your wife. However, it is better not to marry at all than to marry the wrong one because of the huge cost of getting it wrong.

When my son grows up and seeks advice on such matters, this is what I would tell him;

Take your relationships seriously. Enter into one only if the woman is of marriage material. After marriage, keep your eyes to your wife exclusively. Roving eyes for a married man are simply not affordable, even for the rich.

As a father, I hope to set a living example for my son to follow. One should not womanize out of love for the wife and money. Should one womanize, one runs the risk of losing both wife and money. What happiness is there left?

Relying on fund managers

I started out in the world of investing about 7 years ago. Thinking that it was wiser to get a professional to manage my money rather an amateur like myself, I started off using unit trust fund managers. Being an engineer with no formal financial training, I thought I had better steer clear of the financial markets because I have relatives who got seriously burned. Later, the more I knew about the investing business, the more I steered clear of them. I have nothing against fund managers. I sincerely believe the average IQ of mutual fund managers to be higher than mine and the bottom 5% of hedge fund managers to be much higher than mine. I also do not think they are a untrustworthy group of people. I think they are just normal people who will not place their clients' interests high on the list if the system does not reward them for doing so.

What makes me uncomfortable is that the nature of the money management business has conflicts of interests that put their clients at a disadvantage.

The annual fund management fees provide an incentive to grow the size of their asset under management. It is easier to make an investment returns of 20% on SGD200k than SGD200million. The universe of applicable investment ideas diminishes as the portfolio size grows. Liquidity becomes a greater problem. It is harder to find an investment large enough to absorb your funds to make a difference big enough to move the performance needle when you get it right. On the other hand, if you get it wrong, it is much more expensive to get out due to the slippage and commission fees caused from liquidating a large position. A growing portfolio size is sure to dampen investment returns. An incentive to grow the asset size under management works against the clients.

Career risk distorts fund managers' investing decisions. It makes sense for fund managers to follow the crowd to reduce career risk. If they follow the crowd and get it wrong, clients are more forgivable. If they go against the crowd and get it wrong, they may lose their jobs. During the crazy dot-com bubble, several fund managers of the Graham-and-Dodd school of value investing lost their jobs. If I were a fund manager, I will not invest the same way as I will with my own money. Even hedge fund managers whose stated goal is absolute returns may unconsciously strive for relative returns because of the career risk of disagreeing with the crowd. This could explain why clients of hedge funds who were promised alpha (outperformance over benchmark) ended up with beta (correlation with benchmark). One might as well buy ETFs which I think is the best investing instrument for non-DIY investors. Why pay so much for hedge fund managers if they end up trying to match the benchmark index? One might as well buy cheap ETFs correlated with indices which outperformed most fund managers anyway. The high IQs of fund managers cannot be put to maximum use because they do not solely buy and sell on investment merit but on career risk considerations as well.

I think the best money managers out there are still the hedge fund managers. However, they are out of reach for most middle-class income people like me. If I were eligible someday for their service, I will go for fund managers with zero annual management fees with most of their net worth in their own fund. Their profits will come from outperforming a high watermark. With such a structure, there will be no conflict of interests. There will be no incentive to grow asset size. Career risk takes a backseat to investment risk because if they lose 1% of my net worth, they will lose 10% of their own.

I shall now stop dreaming of that day when I do become eligible. 

Cash becoming a risky asset class because of beast contest

Investing is like a beauty contest. You pick the most beautiful contestant and if the other judges share your opinion, you will make big money. In the stock market, you pick the best stocks with the best potential for capital appreciation and dividend income.

On the other hand, today's currency market is like a beast contest. All the contestants are ugly. Central bankers have disfigured the contestants with their quantitative easing knives and used printed money to bandage their faces. A currency investor tries to pick the least ugly contestant.

My knowledge in currency markets is limited. I do not invest in forex markets because I do not see how an engineer like me with no formal financial training and holding a full-time job can gain an edge over the big financial institutions who can afford to pay smarter minds and provide them with greater resources and time for the job. However, no one can totally ignore the currency markets because it will affect us whether we like it or not. All of us must have cash savings in the form of paper currency. The excessive money printing has render our cash savings increasingly risky as an asset class.

In the short-term, it is uncertain whether deflation or inflation will win out. The financial markets are giving out confusing signals. The gold market suggests that inflation is on the way. The bond market suggests that deflation is coming. In the short term, your guess is as good as mine. However, in the long-term, I will place my bet on inflation.

If deflation rears its ugly head, deflationary forces can be defeated by central bankers through money-printing which is politically acceptable. Alan Greenspan became a celebrated maestro by slashing interest rates to save financial markets whenever Wall Street cries out for help. Paul Volcker was universally hated when he raised interest rates to defeat high inflation in the late 1970s. There is an abundance of regulators who prefer to take the easy, populist route like cutting interest rates and becoming a Wall Street hero (highly rewarding when you join Wall Street later). On the other hand, there is a scarcity of regulators who have the integrity and courage to do what is right, especially if the career risk is not worth it personally.

If inflation rears its ugly head, inflationary forces may not be as easily defeated by central bankers because the country has got to be quite lucky to have another Paul Volcker. Even if the country does have a Paul Volcker reincarnated, he might not have the support of his political master. Debt level today is way much more as compared to the late 1970s. Massive debts have been built up by governments through quantitative easing. By raising interest rates on a huge debt, it is like committing financial suicide when tax revenues eventually cannot service the interest payments. In such a situation, it is politically impossible for the central banker to raise interest rates to kill inflation. What is politically acceptable then and more likely to happen is to allow inflation to kill the burden of debt instead. Besides, much of US debt is held by foreigners. I cannot imagine Obama making a speech to his fellow Americans to tighten their belts so that they can honor their debt to the Chinese. This is political suicide. In a democracy, no politician will antagonize their people who carry votes to appease foreigners with no votes. The easy way out for a politician is to allow inflation and currency debasement to ease the burden of debt to the locals by destroying the value of debt to foreigners. In this event, cash savings in USD will be devastated.

This pessimistic analysis applies for the US situation. However, all countries outside the United States cannot  ignore what happens there. The US dollar is the world's reserve currency. Much of global trade is done in USD. The world's raw materials are priced in USD. Whether they like the USD or not, corporations have to keep a USD bank account because their products or their raw materials are traded in USD. Impact from bad policies by the Federal Reserve will be exported out to the rest of the world.

Inflation is a politically convenient tool to solve sovereign debt problems. This is likelier to happen in highly democratic countries which tends to surrender to the popular vote than in dictatorial countries where politicians simply force unpopular policies down the voters' throats. This is one of the reasons that I think the Singapore dollar looks less ugly than the other beasts at the moment.

Smoking - Things to avoid to preserve your wealth

I have never smoked a single cigarette in my life ever. The purpose of this post is not to talk down to smokers like a parent lecturing his child on why smoking is bad for you. I am not qualified to do that. On an intellectual level, which smoker does not know smoking kills and is harmful to the family? I would like to list down the reasons why I avoid cigarettes the way I avoid the casino with a ten-foot pole.

- Smoking is particularly injurious to your pocket in Singapore.  

Like cars, Singapore is one of the most expensive place to buy cigarettes. Cigarette prices range between SGD8 to SGD15. I am not aware of other countries which sell cigarettes more expensive than Singapore. Smoking is a very expensive indulgence in Singapore.

- Easy target to be picked on by government to raise tax revenue

Smokers are the easiest target group to be picked on by the government to raise tax revenue. It is politically acceptable because most people are non-smokers and they are more than happy to see cigarette prices go up to discourage smokers from polluting the air. To appease the smoker, the government can offer the political viable reason that it is raising the levy for the good of the smokers themselves to stop them from harming themselves and their family.

All governments love to implement policies that can make money off the people while at the same time be seen as doing something good for the people.

Governments need not fear tax revenue from cigarettes will drop drastically due to price increases. In economist terms, cigarettes are price inelastic. This means that demand for cigarettes will hardly change despite price increases. Any product of an addictive nature enjoy the price-inelastic characteristic. A wonderful business will sell products with this kind of characteristic.

- More expensive insurance premium

Smokers have to pay more expensive premiums for their health insurance policies to compensate the insurer for the increased health risk they are undertaking. Smokers can lie to the insurer but they face the risk of being denied claims later. It is not worth the risk. Why risk buying an umbrella that cannot open when it starts raining?

- Increased risk of higher medical bill

Doctors can be highly damaging to your pocket. Unexpected medical problems is a commonly cited reason for middle-class families to slip into poverty. Smokers put themselves and their families (if they are breadwinners) at higher risk of slipping into poverty house.

In Singapore, the poor complains that it is better for them to die than to fall sick. While doctors can save you from a heart attack, their bills can send you another round of heart attack. Smoking brings you one step closer to the doctor. A cigarette a day ensures the doctor's pay (at the smoker's expense).

- Loss of health which impact earnings

Our greatest asset, as able-bodied people, is our ability to earning a living. A failing health will take this asset away. As advertised on every cigarette pack, smoking kills and harms your health. Otherwise, why would insurer charge the extra premium?

- Harmful to pregnant women and kids

Smoking is harmful to pregnant women and raises the chance of having babies with defects. Inhalation of smoke is also bad for the brain development of growing infants/kids. If you want to depend on your children to take care of you in old age, you have to ensure they grow up in a healthy environment.

- Non-smoking bosses do not like smokers

Smokers take breaks during work to smoke. Bosses frown upon the lost productivity from smokers although most keep quiet about it. Some smokers claim smoking helps them concentrate better and aids their memory. Don't say this to your non-smoking bosses. They will probably take this as some kind of bullshit. It is hard to quantify how career prospects are affected when appraised by a non-smoking boss.

- Smokers are not welcomed by non-smokers
Non-smokers do not like smokers who smoke in front of them. They are just being polite when they say ok to a smoker who asks if it is ok to smoke. My wife has made it clear to me that she would not marry me if I were a smoker. That would be a tremendous, unmeasurable loss personally.

Smoking, like the consumption of alcohol and other harmful addictive chemicals, is like spending hard-earned money to harm myself and my family. Therefore, it is not rational to smoke.

Minimum wage - not easy to get it right

The minimum wage has lofty goals of helping the poor. Prominent figures whom I deeply respect have voiced their public support on this policy. I am sure these people have the kindest of intentions. However, it is highly questionable whether the effect of the minimum wage is really beneficial to the poor.

If the minimum wage is set too high, it will create unemployment to people who are worth less than the minimum wage. No employer (unless he is your father) will pay a worker more than what he thinks the worker is worth. Anything more will be charity. It is not fair to expect charity from bosses because they set up companies to make money, not give away money. In a capitalistic economy, a minimum wage which is set too high will lead to higher unemployment among the young, the old and the unskilled. The young will be hit because they still have not accumulated enough work experience to be worth more than the minimum wage. The old will be hit because their market value has depreciated below the minimum wage over the years. The unskilled obviously do not have the skills to be worth the minimum wage. They will be condemned to permanent unemployment because they will not be employed in the first place. Not being employed denies them the opportunities to acquire useful skills on the job which can lead to higher salaries. At least exploitation gives the low-wage worker hopes of gaining useful skills which allows him to command a higher salary later. By protecting workers against exploitation with minimum wage, more potential damage is done. It is exploitation that allows low-paid workers to have on-the-job training opportunities that hopefully will raise their worth later on. They can job-hop to higher-paying jobs after getting enough experience, thanks to exploitation. I think if people recall their job history, some probably felt exploited during their younger days with low salary. But it was this exploitation that allowed them to job-hop to higher-paying jobs later on. Surely, temporary exploitation is better than permanent unemployment.


The most seriously hit will be the poor because they are the group with the most number of people whose market value falls below minimum wage. Instead of helping the poor, the minimum wage may end up raising unemployment among the poor. Given that social welfare in Singapore is near non-existent (due to low taxes), the consequences will be terrible for these people.


If the minimum wage is set too low, one might as well not have this rule in the first place. Why scare off investors and businessmen unnecessarily and create new administrative inconvenience? 

Even if the minimum wage is set optimally initially, it will not stay optimal for long. The optimum level will be fluctuating with economic conditions. It is impossible for government officers to adjust the minimum wage optimally with changing economic conditions. If they can be so in tune with the economy, they might as well speculate in the financial markets and make a bundle.

Because it is so hard to set the optimum minimum wage, I think we should leave wages to be set by the invisible hand of the free market than the well-intentioned but clumsy hand of bureaucrats.

Gambling - Things you must avoid to preserve your wealth

I hate to write a blog post using someone's misery as a starting point. However, I think the case of the Singaporean businessman who lost SGD26 million in 3 days at RWS casino can be converted into a good social cause. His predicament can serve as a useful lesson and reminder to Singaporeans on the danger of gambling. Dear Sir, your misery will not be in vain if this is of any consolation to you. I am sorry.

A businessman without proper risk management is subjected to high risk of failure when bad luck strikes. The gambler was a successful businessman who built up and grew his company over a few decades. So, he probably is armed with the proper risk management concepts. Had he applied his business training to gambling, he would not have sustained the heavy losses. This tells us something about the nature of gambling. There is something about human nature and our basic instincts that drive us to self-destruction once gambling become an addiction. An intelligent well-trained mind is no protection against this vice.

I have stepped into a casino only once and am no authority on it. Read on if you are still interested.

In all the games, the casino always has a winning edge. This is not surprising, otherwise the more visitors the casino receive, the more money it will lose. Although the odds of losing is higher for the gamblers, it does not mean that the gamblers will surely lose on every visit. However, every gambler must surely lose eventually if they play long enough with the odds against them. The mathematical law of large numbers guarantees that.

This is why the casinos intentionally set their house edge low. The purpose of the low house edge is to offer gamblers some hope of winning, thereby enticing them to play more and lose. If the house edge is too high, the gamblers will simply walk away or play less. Then, the law of large numbers cannot work its magic for the casino. You have to let the gamblers win sometimes to keep coming back. Mathematics ensures that gamblers will eventually lose with 100% certainty as long as they keep coming back.

The SGD100 tax that deters Singaporeans from visiting the casinos actually work against them once they are inside the casino. Once you pay SGD100, you will be tempted to stay longer to fully utilize that SGD100. The longer you stay, the more you play, the surer you will lose. The law of large numbers guarantees your loss.

Being a retail investor, I have given some thought to sizing one's bet. When your winnings odds are high, you bet big. When your winning odds are smaller, you bet smaller. In both cases, your winnings odds must be positive to your favor. If your winnings odds are negative against you, the optimal betting size is zero. If the odds are against you, you don't bet. In other words, you should never ever visit the casino. If you love money, please don't.

Even in the unlikely event that you make money from your casino visits, you will lose out in other ways. Your career prospects will be negatively impacted. No boss feels comfortable with an employee who likes gambling. Your boss will consider you a risk to the company if he learns of your regular visits to the casino. Will you embezzle company funds? Will you receive kickbacks from the suppliers? Even if your job has little contact with money (like my engineering job), your boss will still be worried that your performance will be affected by the distractions - distracted by the worries from the losses or distracted by the easy winnings and the greed to make even more. Either way, productivity suffers. All bosses hate that.

Some people think they can become professional gamblers and beat the casinos, drawing inspiration from the MIT card-counters. Making money in this way is possible in the short-term but not sustainable in the long-term. The casinos can simply bar you from entering once you become a consistent winner. Then, all your long hours of training become wasted. The odds of getting rewarded by working hard at your day job and doing something useful is higher than training hard to become a professional gambler.

If you have to visit the casino, set a pre-determined amount that you will lose. Once this amount is lost, leave the casino. The time to set this amount is before you enter the casino, not after. Once inside, one may be too carried away by the beautiful faces and colorful lights to make proper risk-management decisions. By following this practice, the casino becomes a place of entertainment minus the harmful social effects. At the same time, our fellow countrymen working at the casinos can keep their jobs. Treat the gambling losses as entertainment expenses. If you are lucky, you might even get paid for the entertainment.

As for myself, my personal policy is to avoid the casino totally. Some people think they are disciplined enough never to become addicted. They think they can keep their gambling trips as a source of entertainment only. It is like telling yourself I will try drugs just for the sake of experiencing new things but I will not get addicted to it. In the first place, why take the chance? Is there a meaningful gain in exchange for the risk? Hence, I do not even want to give myself a chance to get tempted by getting near to the casino. If smarter and more successful people like the SGD26m businessman have succumbed to this vice, what more for mere mortals like me?

Paying off credit card debts is the best investment you can make

If you have credit card debts on hand, the best investment you can make is to pay off the debts. Guaranteed!

The typical annual interest rate for credit cards is around 20%. If you pay off this high-interest debt, it is as good as making a sure-win investment gain of 20%. Even Warren Buffett cannot guarantee you such a performance.

If you prefer to let the credit card debts to rollover, please go back to school and study compound interest. At 20% compound interest, even a tiny amount of debt can wreak severe damage to your pocket over time. Don't believe? Use a spreadsheet and calculate the amounts you will have to pay over the years. This is the best way to appreciate the power of compounding.

A good understanding of compound interest has convinced me to avoid all high-interest loans like unsecured personal credit lines and credit card debts. On the other hand, I have been encouraged to save and invest hard to reap the power of compounding to my favor.

With rising public housing costs, don't depend on children for retirement

Children cost a bomb to raise. Major bombshells like tertiary education fees can be easily settled by having them borrow from the bank, not from your own retirement fund. Most people think they are free from the problems of rising housing cost if they already own a house. Not so if you have children.

Going by present trends of rising public housing prices and stagnant middle-class wage growth, by the time our children get married and are ready to settle down, there is a reasonable risk that they may come back to us asking for money to pay for their first house. This is possible even after maxing out the loans that they can take from the bank.

Even if they do not ask for money, what is clear is that parents can no longer rely on their children for financial support in old age if their own children are to be burdened with heavy debts of their own. In fact, parents should be thankful if their children do not transfer part of the debt burden to them by asking for help.

For the good of everyone, children should be educated from young that they should not expect bail-outs from parents when they are old enough to fend for themselves. In fact, they should not only fend for themselves but take care of us as well. Meanwhile, with accelerating inflation in basic foodstuffs and negligible interests rates for our savings, we should not forget our own aged parents who are suffering from rising expenses while at the same time being punished by negligible interest rates in their savings account.
Raise their allowance to protect them from inflation and cut the children's tuition expenses if you have to. This is how I would set my financial priorities.

People who spend a fortune on their children but neglect their own parents are making a gross miscalculation. When their children grow up, they will copy and treat their own children and parents the same way. Then, who's the biggest losers?

Preference shares

There was some discussion on preference shares on my favorite financial blog. Here are my thoughts regarding this topic.

Someone wrote: I read in Benjamin Graham's The Intelligent Investor that the best time to buy them is during market turmoil when prices are depressed. )

Yes, I remembered that Benjamin Graham did mention that preference shares are to be bought on a depressed basis. Preference shares have certain characteristics that make it even more necessary to buy them on a depressed price than common shares.

When bought at or above par value (SGD100 in Singapore's context), preference shares do not take part in the profitable growth of the company. The company can announce 50%-100% profit growth, but the price of the preference shares will move up only a little. If you bought the common shares, it is possible to earn capital appreciation of more than 20% with this kind of performance. To appreciate this point, compare the price charts of UOB shares and UOB 5.05% NCPS from Mar 2008 onwards.

However, if you bought on a depressed price well below par value, the preference shares do participate in the growth of the company until the price reaches par value (but rise slowly after this point). When you buy preference shares on a depressed price, you enjoy both higher dividend yield and capital appreciation if the company recovers.

The best reason for not buying preference shares at non-depressed levels (above par) is that they decline more in adversity but do not rise much in prosperity. The dividends from preference shares are discretionary, not obligatory as in the case for bonds. Discretionary expenses are usually the first to be cut when a company is struggling. Hence, when the company starts announcing poor financial results, the fear of dividend cuts can drive the price down significantly. In any case, it is most likely to fall below par value.

Look at the price chart of the bank preference shares in 2008 and early 2009 to appreciate this point. In investing, if the downside exceeds the upside, you don't invest.

Also, when the banks redeem the preference shares, they will redeem it at par. So, if you bought the preference shares above par, you suffer a guaranteed loss in principal upon redemption. The dividends can cover this loss provided you have at least held the preferences shares for some time and the bank did not redeem the shares. Please at least check the date from which the bank has the option for redemption. I would not buy a preference share above par near the redemption date.

Now that most preference shares are trading above par, I personally will not buy them. Unfortunately, I was not smart enough to buy them in 2008 and early 2009 on a depressed basis. So much for talk only.

Safer ways of building retirement nest egg

Whenever the topic of building a comfortable retirement nest egg turns up, investing is almost always mentioned. Personally, I would not put investing at the top of the list of recommendations to build retirement fund to the general public. It will be a disaster if your investment gets wiped out just when you are about to retire. In fact, this did happen and the person got so aggrieved that he suggested that CPF funds be banned for investment.

There are less risky ways which I highly recommend to achieve financial independence. They are slower but surer. However, they will not make you very rich but will allow you to retire with dignity and avoid becoming a burden to society. The methods are as follows;

1. Saving money

Unlike investing where luck plays a role (at least in the short-term), saving money is within anyone's control. A middle-income person with financial discipline should be able to set aside at least 10% of their salary per month. Assuming there is no extended period of unemployment, the person should be able to accumulate a respectable nest-egg by the time he retires. My next series of posts will be on saving.

2. Using insurance for protection

Saving money alone is not enough as an unexpected disaster can take them away. You can lead a frugal lifestyle and save lots of money. However, without insurance protection, you can still be bankrupted by unexpected disasters like medical illnesses or accidents that hits you with a huge bill and disables you from earning an income for an extended period of time.

Therefore, it is prudent to buy insurance to transfer such risks away.

3. Work hard at your job and be good at it

For the majority of us, our major source of income comes from our job. Not many of us can have investment income that exceed our salary. Hence, it makes sense to concentrate your efforts on doing a good job in your career rather than dream of the day when you can shake leg and solely depend on your passive investment income.

Many people have said that one cannot get rich being a salary worker. That depends on who you are talking to. Fund managers, bankers, proprietary traders will disagree. People who work in the highly competitive consumer electronics sector (like me) whose profit margins get squeezed and major companies moving out to China every year will agree. The lesson learnt is to join the right industry. The right industry is the one with the highest median salary.

Speaking from experience, I have seen mediocre people working in the right industry getting paid more than smart people working in a bad industry. If someone is in the right place at the right time, he can work less hard and be less smart and yet earn much more than someone who works very hard and is very smart.

Choosing the right industry is a matter of luck. My advice to fresh graduates is not to choose a job simply because it pays well and end up becoming miserable. I believe it is more important to choose a job suited to your personality and natural abilities so that you can perform well and even come to love it.

4. Arm yourself with financial knowledge to protect against the financial sharks

In a modern economy in which financial services have become dominant, it is important to be financially literate to protect yourselves against the financial sharks who work in this industry. The compensation of Wall-Street kind of jobs is so out of whack with reality that I have to wonder about the source of their income. One income source is the financially illiterate suckers that they prey upon. You can do the right things financially all your life - saving hard and working hard. Without adequate financial knowledge, one commission-minded financial adviser intent on sucking you dry will succeed in persuading you to part with your hard-earned nest-egg. Remember the Lehman Brothers Minibonds?

Financial literacy is the most effective shield against financial sharks

During the heights of the financial crisis of 2008, a recurring conversational topic were the financial sharks who got rich out of preying on the hard-earned savings of ignorant consumers.

I got some heat when I defended the young relationship managers hired by the banks to meet aggressive sales quota. I did not like the way people called them immoral and greedy. Abhorrent their behavior may be, how they behaved is similar to how the average person would have behaved given the same set of carrots and sticks.

The people at the financial institutions are the ones who are best armed with knowledge to teach financial literacy. However, the unfortunate reality is that they have the least incentives to teach financial literacy but every motivation to spread financial ignorance and even disinformation. When you think about the financial products they sell, maximum profit is made from the ignorance of consumers. It is hard to sell high commission products to a financially literate person. The most lucrative customer (or sucker)  is a rich, ignorant and greedy one. Hence, it is small wonder the retirees are an unspoken favorite target group of the financial sharks.

Ignorance is something all of us can improve on. You do not need to be highly intelligent to conquer it. Conquering it can at least protect the public from making basic financial mistakes like chalking up high credit-card debts to legalized loan-sharks. This is a fast route to bankruptcy. School teachers should use credit-card debts as an example to teach compound interest. This simple act might have saved some of their students from credit-card bankruptcy when they grow up.

It is more effective to work on one's ignorance than to blame "immoral" bankers who are being business-like in maximizing profits.

Another group that often gets the blame during the discussions are the regulators. On hindsight, deregulating the financial sector by Alan Greenspan and expecting the banks to self-regulate was a mistake. In my humble opinion (pardon me if you know better as I do not have a financial background), the mistake made was in expecting that it was in the interests of banks to self-regulate and not commit financial suicide. Actually, it was in the interest of the bankers to take excessive risks, earn excessive bonuses while the dancing carries on, then when the dancing stops, get taxpayers to pick up the tab and eject with a golden parachute (another round of excessive bonus). It was the smartest way to play the game and this is what you would expect when the brightest minds in the world move into the financial sector. This was clearly a case in which the free market fails. Regulators do have an important role to play in situations when the free market fails. Therefore, the solution to the financial crisis must come from the regulators, not bankers. More regulation, not less regulation.

Some victims of the Lehman Minibonds debacle insisted that the regulators should have protected them from the financial sharks. For practical reasons, I do not think it is wise for the public to depend on more regulation for protection.

There are powerful forces set against the regulators to legislate financial reforms. With the money that the financial services industry can muster, they can exert enormous political pressure on the regulators. Given the important role that bankers play in the economy, they will know powerful friends in high places. With their money, they might even have senior politicians in their pocket. They have many trump cards to play with. You can be sure they will play their cards very well as the excessive bonuses doled out will attract the finest minds in the world. Because of the much higher compensation, the regulators are up against superior minds. These problems are not as serious in Singapore as the civil service is known to be relatively corruption-free, fairly well-paid and therefore attracts its fair share of the bright minds in the country.
However, excerpts of this video (scroll to 0:56:34) show that even the most powerful, smartest politician of America with kind intentions to do good for her country has to eventually bow to the political might the financial sharks possess. The politician in context was none other than Mrs Hillary Clinton.

Certain hiring practices of the financial industry (in US) can "corrupt" even the best regulatory system designed with best practices to be incorruptible. By hiring regulators and paying them ridiculous sums of money to leave the job, bankers have carved out a most lucrative career path for the regulators. Existing regulators, consumed with envy and jealousy of the new-found wealth of their former colleagues, will see the bankers as their future bosses. Immense riches shall come to them once they too have successfully made the jump. They have to be careful not to set regulations that hurt the bank's profits because it is not in their interests to hurt their own future profits. In fact, it is in their interests to remove current regulations that crimp their future bosses' profits.  If this can happen in the US, it can happen in Singapore some day because human nature is the same everywhere. Can the people safely depend on their regulators to set policies that protect them?

Hence, the most effective shield the public can use to protect against the financial sharks is to count on themselves in acquiring financial literacy. One of our own regulators, the CPF board, has commendably been doing this job as a service to the public. Please visit their financial literacy website http://www.imsavvy.sg.

Another good site which I highly recommend is http://tankinlian.blogspot.com which requires no introduction for Singaporeans. He is a rare breed who speaks out for people at the expense of his own interest without fear of offending powerful forces related to the financial industry.

Importance of emergency cash reserves

I have a policy of keeping sufficient cash reserves to meet life's misfortunes. The common risks in life that I can think of are unemployment, medical illnesses, accidents. Risks such as medical illnesses and accidents can be transferred away through insurance. Insurance premiums are fixed costs, so they make financial planning easier as they bring more certainty to the specific risks. This helps one to reduce the size of the cash reserves to be set aside. Generally, when the risks are more uncertain, one has to set aside a larger cash buffer for protection.

In the event of unemployment, I set aside 6 months worth of cash to meet expenses which cannot be avoided. This includes basic living expenses, debt payments and parents' allowances. Although my parents will probably refuse to accept any money should I become unemployed, I think it is a good policy to set aside this money anyway.  Children have a greater chance of becoming filial when they grow up when the parents exhibit similar behavior themselves. Therefore, undisrupted payment of parents' allowances despite adversity is a good policy of securing one's retirement in old age because it nurtures filial children who provide retirement support.

As a person grows older, I think 6 months worth of cash will not be sufficient for protection. For the average worker, it is harder to find a job if he gets retrenched at an older age and even when he does, a pay cut is almost inevitable. Therefore, he should set aside at least 10-15 months worth of funds as he grows older depending on how confident he is in finding new sources of income soon.

Besides unemployment, there are other risks in life that cannot be insured away. One risk that presents particular headache to me is parents' and parents'-in-law medical bills as they near the end of their lives. It is very hard to estimate how much this will cost because it depends on how they die. If they were to die a slow death, organ by organ, the doctors will eat up my nest-egg. Because of the uncertainty, one has to set aside an out-sized amount. It is a burden that one has to carry to avoid the regret and guilt of causing the old folks' deaths by denying them medical care. The younger generations of Singaporeans will have to bear even heavier burdens as parents have fewer kids and their life expectancy lengthens. It is incumbent on every parent to start preparing for their retirement to prevent such issues from souring family relationships.

On top of the cash reserves that I set aside for the above considerations, I added another 10%-15% as a margin of safety to meet life's unknown or even unexpectable risks. I think this is reasonable because no one can think of all the possible risks ahead.

Those who invests in the stock market may be tempted to put the emergency cash reserves into it. Indeed, I was tempted when I started out in the stock market. Thankfully, I did not. Like most amateurs, I lost money. However, at no time did I put my family finances in danger because the cash reserves were untouched. An advantage of having ample cash backup is the psychological support it provides which gave me a cool head while others in the same predicament were losing theirs. This is very important in investing as the right psychology plays a big role in success. An investor who becomes disheartened by losses will not be able to recover his losses when the bull market returns.

Some newbie investor will ask "what if they do not have such a cash reserve"? Then, don't invest. My order of priority is to first, buy insurance for protection, then save hard to build up a sufficient cash reserve and finally, invest the rest which represents money that can be lost 100% without danger to the family's finances.

Handling financial product promoters

Lately, my phone has been bombarded with calls from strangers to promote financial products. I normally tell them "Sorry, I am not interested" and hang up the phone.

If the financial products are aggressively sold to me, I reject it outright. I do not want to spend any more time to learn about it.

If someone aggressively promotes a financial product, he is usually getting paid handsome commission for it. This commission comes out of your pocket when you buy the product. A good deal for the seller is usually a bad deal for the buyer. Good financial deals never come looking for you. You have to actively seek them out yourself. If somebody knows of a wonderful bargain, he is going to buy all that he can himself. The last thing he wants to do is to let the secret out. The next time you hear of a deal-you-can't-miss from a stranger, just walk away. He is somebody you better miss.

This is why I never buy products sold by the bank relationship managers. In fact, the sort of financial products they sell can be used as a contrarian indicator. In the early part of 2008, commodity investment funds were popularly sold by the banks. Commodity prices collapsed in the later part of 2008.

The next time you receive cold calls from strangers selling financial products, just hang up. Time is better spent hunting for the best deals yourself than expecting good deals from strangers.

When unsure, don't buy the cheapest

I am a cheapskate. I like to buy things on the cheap. However, this can be a dangerous practice if you do not know what you are doing, especially when it comes to insurance.

The risk of buying the cheapest insurance comes when you try to make claims but cannot because of certain clauses in the contract which the agent conveniently miss out to warn you. The cheaper the contract, the more exclusion clauses it includes and the more stringent are the conditions in which you can make claims. You do not want to buy an umbrella that cannot open when it starts to rain. In matters of life and death for your wallet, the consequences will be disastrous.

I have a general rule when it comes to buying things of vital importance to me. If you are not familiar with the merchandise but still insist on buying it because it is important to you, don't buy cheap. On the other hand, if you are familiar with the merchandise and able to gauge its quality on examination, go ahead to buy on the cheap.

Retirement nest-egg before children's college fees

It has been my experience that couples with kids will be aggressively sold financial products designed to help them pay for their children's education and college fees. My natural inclination as a parent is to buy these plans for my children out of love.

On second thoughts, I rejected these plans.

Firstly, I had to weigh my own retirement needs over my children's education fees. In developed countries, it is unlikely the child will lose the opportunity to get a degree because the parents cannot pay for it. There are many options in America that are cheaper for these children nowadays like taking college courses online or attending a community college. But if they want to go through a four-year university course, being young with decades ahead, he is a low-risk borrower to the bank. The bank will loan him money with little hesitation. I can be assured that there will be no lack of help from financial institutions to finance my kid's education.

However, what if I end up with little savings after sacrificing my retirement nest-egg to pay for my kids' education? No bank is going to help me. No bank is going to loan money to retirees with no income and no hope of paying back.

The reasoning is clear. If my children have no money for their education, they get help. If I have no money for my retirement, I get no help. Who should I help first? Myself, of course. I must build up a sufficiently large retirement nest egg before money is allocated for the children's education fees. Take note that once you pay for the first child's education, you got to do the same for the rest. Otherwise, the other kids will cry UNFAIR and this shall become a bone of contention within the family for decades to come. Therefore, if you want to pay for your children's education, then the money set aside must be enough to pay for ALL of them, not just the lucky first few.

Getting children to borrow to pay for their own education is not a bad idea too. A little debt teaches financial discipline. When totally unburdened, a young kid just starting out work may spend without restrain. He is like a teenage boy who just discovered sex. Some debt will check his spending habits.

Family insurance

I felt good after buying all the basic insurance as mentioned in my previous posts. The comfort was dangerously misplaced. I am not protected until all my loved ones are protected. Out of love and duty, it is expected of me to fork out cash to pay for unexpected medical bills faced by my family members.

It was too late to raise insurance cover for my parents and parents-in-law. At their age, the health problems which they are genetically predisposed have surfaced. Pre-existing conditions are either not insurable or insurable at prohibitive cost.

The lessons learnt is to buy medical insurance early when you have a clean bill of health. Hence, I bought the best health insurance plans that I can afford for my children while they still have a clean health record. Make sure the health insurance policies are guaranteed renewable. Otherwise, the insurer can cancel it when health problems surface later. It will be terrible to lose cover at a time when you most need it. Like bankers who take away the umbrella when it starts raining, insurers may do the same in the name of profit. Don't give them the chance to do it.

By the way, travel insurance saved my family's finances. My father had a heart attack during a vacation in US when I was still in university. The operation would have severely damaged my parents' retirement fund had it not been for the insurance. So, don't forget to buy travel insurance on family vacation trip.

Death insurance

Death is a risk that will not hit you when it happens, but it will hit your dependents. Buy death insurance if you are a breadwinner to protect your family. Do not buy death insurance for your children unless you intend to profit from their death. It is a waste of money for people without dependents to buy death insurance because nobody is worse off financially when they are dead.

Even if you have no children, do consider buying death insurance for the sake of your parents especially if they are highly dependent on your monthly allowances. After having children of my own, I realized that raising children for protection in old age is an almost sure-lose investment. I resolve to be at least a break-even investment for my parents in the worst case. Hopefully, I can be a multi-bagger investment to them. Hence, my interest in managing my own money

With the above considerations for my beloved ones, I maximized my death insurance coverage until I am worth more dead than alive. Too much death insurance can create new risks. However, I am lucky to have married a good woman. I have no fear that she will murder me. I believe my children love me enough not to rejoice by my coffin. I have absolutely no worries with my parents. Even very selfish people become selfless when it comes to their children.

Death insurance is the cheapest among all the kinds of insurance plans. So, it was not expensive for me to maximize my death coverage. You can even use them as a cheap form of insurance for family protection.

My subsequent paragraphs may be offensive to some. You are free to ignore if you disagree.

Death insurance can be used as a form of cheap disability/health plan to protect your family. If you are disabled at a young age or get diagnosed with a terminal illness that will cost a bomb to treat with low chances of survival, you may consider suicide but make sure your insurance covers suicide first! This way, not only do you avoid becoming a burden to your family, you can also provide a lump sum to support for their future living expenses. They sorely need it after losing a breadwinner. If it is honorable to die in war for your country (a group of strangers who can be unappreciative), then it is even more honorable to die for your family (people whom you love and love you back).

Medical and income disability insurance

After I have decided on term insurance plans, I still have to think about what term plans to buy. A starting point is to think about the risks that can happen in your life.

The types of insurance plans discussed here applies to the Singapore context. Foreign readers can skip this post. I will not discuss about specific plans. Everyone has to analyze their personal situation on their own and choose the best-fit plan. I will talk in terms of broad principles to get readers started. I am also not an expert on insurance. Experts out there, please point out any errors or mis-information that I make.

Falling sick with an illness that requires hospitalization and surgery is a very scary thing because doctors are so expensive. There is no point in being saved by a doctor from a heart attack, then suffer another heart attack on seeing his bill. You might consider dying in the second round.

Protection can be obtained through a hospitalization plan and a normal health plan with a co-deductible component. The latter can be bought using Medisave and I bought the best plan (most expensive). Since you cannot touch CPF money until retirement, you might as well use it to buy the best insurance that money can buy. In this way, you use untouchable money(CPF) to protect touchable money(cash) because the chances of forking out cash is reduced by better coverage.

I know of many Singaporeans who are covered for the 30 critical illnesses but not covered for hospitalization. This is unsafe as the chances of getting hospitalized is much higher than getting the 30 critical illnesses. Buy this first, then consider critical illness protection.

As a working adult, my most valuable asset is my ability to earn a living. Therefore, it makes good sense to insure against losing it.

I bought an income-disability plan which will pay me a percentage of my salary should I be unable to work due to accidents or disease. Even if this money is not sufficient to allow my family to live as comfortably as before, at least I will not become a burden to them should a disaster hit.

Insurance agents serve themselves first

Knowing the importance of insurance for protection is a start. Knowing what kinds of insurance to buy is the difficult part. The first insurance product I bought was a bad buy for me. Having zero knowledge, I was totally reliant on the insurance agent who was not incentivized to give good advice. He was paid on commission. Therefore, he will sell what pays him the most commission which may not be a suitable product for me. In fact, it probably will not be a good deal for me because the high commission will be priced into the insurance plan.

It is hard to blame the insurance agent. But I certainly blame the incentives that drove him to the bad behavior. He has to earn a living after all. I would have done the same if I were in his place.

My objective of buying insurance is purely protection. Insurance plans that mixes investment or saving with protection are not suitable buys for me because they substantially raise the premium. To maximize protection for each dollar spent, I should have bought term insurance plans instead of the whole-life plan (my first buy). Term insurance holds another advantage for a know-nothing like me then. If I had made the wrong choice (likely if one knows nothing), I can cancel the plan and go for another one without incurring penalty charges. Not so for the whole-life plan. I wanted to cancel that plan in 2008 when there was a "bank run" on AIA(subsidiary of AIG) in Singapore. I end up still paying for the whole-life plan to avoid heavy losses which I will incur upon cancellation.

I am not dismissing the whole-life or endowment plans. One thing bad about term plans is that they become more expensive when you grow old and stop at a certain age. Not so for the whole-life plans.

However, I will consider them if there is spare money left in my budget after I am covered with adequate protection from the term plans. This is especially important for people like me with limited budgets.

Based on my mistakes, this is how I would advise those who are getting started with insurance. Buy term plans to ensure adequate protection first. If there is spare money left in the budget, then consider the more expensive plans. Otherwise, you end up paying a lot and still suffer from inadequate protection. This is a not an uncommon problem given the combination of insurance agents without the right incentives to sell suitable policies and ignorant buyers who provide a ready pool of suckers (which I hope this post can reduce).

Insurance before everything else

When I just entered the workforce, one of the pleasant problems I faced when I received my first paycheck was what to do with the money. I chose to save it. Many would say that was prudent. However, on hindsight, I think that was wrong. I should have used it to buy insurance. In fact, I would go so far as to say that insurance should be the first item to spend on when one starts to have an income. Insurance before everything else.

Even if I had faithfully saved for the next five years, an accident or disastrous medical condition could have wiped out all my savings and plunge me into debt. Or worse still, drag the rest of my family members into debt. What is the point of saving all that money then? I should have used a small portion of the savings to buy some term insurance plan to protect against such disasters.

I used to have a colleague who does not believe in insurance because he thinks it is a waste of money. Most people do not gain from the insurance because the probability of the bad event happening is very low. While he was right about the probability, he completely missed the point. In insurance, one should not think in terms of probabilities. One should think in terms of consequences.

I would think of insurance as spending a small sum of money which I can afford to lose today to protect against disasters which I cannot afford to pay tomorrow.

I will not feel any sense of loss even if I shall never make any insurance claims. This is because I regard premiums spent on unclaimed insurance as charity. Insurance can be viewed as a tool that allows the lucky(no insurance claims) to help the unlucky (entitled to claims). In return, the lucky people of today will be assured of help should one day their luck turns.

Buying insurance is one of my favorite ways to do charity indirectly as I can help myself while helping others as well.

Choosing a profitable hobby

Everyone's got to have some hobbies to fill up their spare time. Most of us are willing to spend money on our hobbies. That is perfectly fine. But, I think it will make much more sense if I can earn money from my hobbies.

My hobbies are related to managing my own money - growing my money(investing), protecting(insurance) and maintaining(saving, spending wisely) it.

The most respectable way to earn money is to become an entrepreneur. He is someone who enriches himself while enriching the lives of others by creating new products/services for his customers, jobs for his employees,  business for his suppliers and wealth for his shareholders. It is hard to be jealous of the wealth of such an entrepreneur because of the value he creates to society. As of now, I will prefer to focus on the activities of managing my money.

Preparing for forced retirement

My analysis of the job market conditions in the sector that I work in is not optimistic. I am an engineer working in the consumer electronics industry - it is an industry which churns out products that are cheaper, better and faster every year. I am proud to work in this industry as an engineer.

The pace of technological change is very fast. In fact, that was one of the reasons that attracted me to work in this sector when I was a fresh graduate because I thought that was fun. It is still fun but it is bad economics. When the body of knowledge in your field of expertise changes too fast, the number of years of work experience do not count as much. Worse still, the experience becomes close to worthless if it is obsoleted by a superior technology. The value gap between someone with 2 years experience and 10 years experience is not that great if the technology/business landscape changes too drastically. Meanwhile, the salary gap between the 2-years and 10-years experience workers widens. When a deep recession hits, the older worker will have to live in fear of losing his rice bowl every day.

I have seen a distressed older worker getting emotional over such issues during meetings in my very eyes. I was a young man then and it was my first job. It disturbed me personally then and it got me interested in my own future social security.

(By the way, if you are interested what happened to that distressed older worker, he kept his job while I lost mine - my first job. Maybe I will talk about it in another post.)

Globalization is a phenomenon that worsens this problem. With globalization, a younger, cheaper worker in a foreign country need not migrate to your home country to take away your job. He can stay at home and still take away your job by attracting employers to shift work abroad.

When you talk to financial advisers, one common advice is to start planning for your retirement now. I think they are not keeping with the times. Planning for retirement is a luxury for me. I have to start planning for FORCED retirement, not just retirement. Forced retirement means losing one's job at an awkward age - old enough to be discriminated by employers but not old enough to retire in the eyes of the government (cannot collect pension, retirement savings like CPF ...)

Risk-averse as I am, I have to put my money at risk to grow it faster. Friends who know me are surprised that I buy stocks. I have no choice. I have to manage my money so that it grows fast enough before the day of reckoning arrives. Meanwhile, I shall save hard and work hard at my job.

Manage your own money yourself

The safest person to trust with your money is yourself. Yet, most of us choose to delegate the task of looking after our money to strangers. That's strange, when you come to think about it.

Most people I know do not love their jobs. Most do it for the sake of money. If we spend half of our waking hours slogging at a job which we do not like for $$$, then shouldn't we at least spend 10% of our remaining spare time learning how to manage it?

One reads about tragic cases of retirees who lost a big portion of their life savings in toxic investments in the financial crisis of 2008 - the most notable one in Asia being the Lehman Brothers Minibonds. During the heights of the Minibonds crisis in Singapore and Hong Kong, Tan Kin Lian's blog became my daily reading. In one of the comments to his blog, a Phd holder humbly admits that she and her spouse possess 2 Phds between them. Yet, they were duped into the toxic. These are people much smarter than me and the average man. If they had spend more time learning how to manage their money, they probably could have avoided it.

There are countless silent instances of retirees losing a big chunk of their life savings after enduring a lifetime on a job they dislike. It pains me when the victims are the elderly retirees who no longer have means to recover from the financial setback. They could easily have been my parents.

The reason so many people, including the conservative ones, got caught was that these structured financial products (Lehman Brothers Minibonds, DBS High notes) were sold by financial institutions they thought they could trust. While the banks were clearly in the wrong, it is not beneficial for the victims to put the blame entirely on them, however justified. As these events involve heavy losses, they offer valuable money lessons that are too expensive to waste. Don't waste the school fees by putting all the blame on the banks. To learn from something requires one to accept some amount of blame first. Of course, this is easier said than done as I was not a victim. I am sorry if you have been a victim of fraud.

Banks are supposed to be guardians of the people's hard-earned savings. Even if they cannot be trusted, they are still regulated by the monetary authorities. How could this happen? The immediate reaction is to blame dishonest bankers, incompetent regulators ... everyone else except ourselves. First and foremost, it is our duty to take care of our own money ourselves. The best person to trust with your own money is yourself.

This is my maiden post. I would like to attract like-minded people to share their ideas and experiences on this blog to help everyone, including myself, help themselves with their own money.