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.


  1. There are trainers who are obviously targeting retirees or near retirees. We can see many seniors attending preview seminars.

    May be they are easy targets as they don't have much time left to learn through books. They need "proven sure win" method and community is there to re enforce each other. Many are mislead by testimonials.

    1. When faced with business pressures, I won't be surprised many trainers will target the easy victims and not the suitable customers.

      I fear some of the retirees who attended the preview seminars are those who do not have enough to retire. Not having enough money actually makes them more vulnerable to sales talk. Sigh ...

      "Proven sure win" method will NEVER be taught publicly in a course. Those who know will keep it to themselves to extract maximum profit from the markets. Sharing it will dilute the gains. Renaissance Technologies will never reveal and sell their secrets in a course because they can make more money trading their strategy, not teaching it. Many of the mathematicians who worked in Renaissance Technologies have an academic background and are used to sharing their knowledge. The fact that they are so secretive about their trading strategy tells you something.

    2. There's a new book about Jim Simons, the founder of Renaissance Tech. It was a result of 2 years of investigation & 10 hours of interviews with the man, and seems to be a very detailed study of the investor & his methods.

      Returns are mind blowing --- 66% annual compounded returns for 30 years from 1988 till 2018 for his flagship Medallion Fund! (and likely still going strong)

      The fees are damn expensive though ... 5 and 44, as opposed to the more common 2 and 20.

      But even after the cut throat fees, the compounded returns are still 39% p.a.! Beat Warren Buffett hands down.

      CW8888 may like to update his list of best investors & their returns with this Jim Simons fellow. :)

    3. Hi Anonymous (Saturday, November 9, 2019 at 2:10:00 PM GMT+8)

      Good book recommendation. I'm reading the book now :) Do you have an identity instead of Anonymous? A nickname is still better than Anonymous.

      Money aside, don't ignore Jim Simons' mathematical achievements. His work on geometry has been applied to the development of string theory in modern Physics. Ironic that his math specialisation is in pure math which is impractical if the goal is to make money.

    4. Article on Marketwatch by the book's author ... nice 6-point summary for the time or attention-challenged.

      Simons' methods are more of short-term trading ... not quite HFT but definitely within the realm of day trading. And the win rate of his computerised trades is barely 50% :O

      Definitely some huge take profit/cut loss ratio going on there!

    5. Hi AnonymousSunday, November 10, 2019 at 8:27:00 AM GMT+8,

      I have finished the book. James Simons' results actually improved in terms of gain and consistency after his fund switched to short-term trading from long-term trading based on fundamentals. Different strokes for different folks. What works for George Soros and Warren Buffett doesn't work well for James Simons but all of them are masters in the same field despite using different methods. All of us have to find a method that suits ourselves best.

      I see the attraction of short-term frequent trading of James Simons' methods. If a strategy can generate a thousand signals per day with win rate of barely 50%, law of large numbers dictates that he will most likely be positive at the end of the day. Imagine being consistently profitable everyday. It solves the problem and mental anguish of going through drawdowns! Value investors and long-term traders going through years of drawdown are full of envy for these successful short-term traders. One disadvantage to short-term trading is it is less scalable than longer-term approaches. Hence, James Simons had to cap the size of his Medallion Fund, though it is still large compared to other hedge funds.

  2. Insurance can be protected against creditors & bankruptcy if under trust nomination. Some business people buy wholelife & long-term endowments for this purpose. In addition to topping up own & family members' CPF. Agent commissions & effect of deductions taken as "protection fee" against creditors.

    1. Good point about insurance being protected from creditors in the event of bankruptcy.

      Instead of buying wholelife and endowment plans, cheaper term insurance can be used for this purpose. Claims made on insurance should any mishap happens, whether term or whole-life, is protected against creditors.

      If the purpose is to protect savings, the person can simply gift his children or wife a sum of money. Transfer the money to their names. I don't see any advantage in using wholelife/endowment plans. Please enlighten me if I miss out anything.

    2. It's more to protect savings rather than family liabilities (where term is the way to go). Also has advantages if family members are not savvy about managing large sums of transferred money and/or the business person wants to retain some control (before bankruptcy anyway).

    3. Thanks for your insight. I've updated my blog post to reflect this advantage of using wholelife/endowment plans to protect savings from creditors.

      There're some risks, though. One has to trust family members who are nominated as beneficiaries.

      If the nominated beneficiary is wife, then the husband better make sure he doesn't do things that antagonise the wife, like fooling around with mistresses. Even if the man behaves properly, he'd better pray he didn't marry a gold-digger.

  3. When they first started, the trainees may still have a heart. However after some time, when the $$ reality sets in, many will change.

    Just like Google's "don't be evil"

    1. Then let's hope the more decent ones don't forget their original mission. They should know best themselves.

      For the really evil ones, there's such a thing as retribution. Buddhists call it karma. Christians call it Judgment Day. 善有善报,恶有恶报;不是不报,时辰未到。