My favorite credit cards in Singapore

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

5. Any cards that offer useful free gifts. Cash is best.

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

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

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

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

Choosing a broker for trading Singapore stocks

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

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

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

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

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

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

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

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

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

Fears of a new Black Swan in Singapore General Election 2011

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

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

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

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

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

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

Fears of a Black Swan in Singapore General Election 2011

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

Source:

"So I think a lot of investors have plugged in very lofty expectations because over the last three GEs the PAP has only lost two seats so far, and given these are lofty expectations, should the opposition win more than that I think the markets will get slightly hit, but that will only be for a short while."

Given such high expectations, the market may suffer a backlash if the PAP loses 1 or 2 GRCs. I am not so worried about PAP losing one or two GRCs and losing plenty of money when the market opens. I think this may even be a good thing as it may make PAP listen harder to the people. My primary worry is the PAP losing power. That is the black swan event (unexpected with extremely damaging consequences) which will immediately devastate investors' portfolio and risk the long-term prospects of Singapore.

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

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

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

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

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

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

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

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

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

What Singapore can learn from the US financial crisis of 2008

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

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

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

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

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

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

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

Choosing a broker for trading US stocks

Update: I have switched to Interactive Brokers away from E-trade. The choice of E-trade as recommended in this post is no longer valid. What can I say about Interactive Brokers as a customer in comparison? Customer support is on par. Everything else is better.

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

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

Interactive Brokers is amazingly cheap. I do not use Interactive Brokers and shall refrain from further comment.
http://www.interactivebrokers.com/en/p.php?f=commission

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

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

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

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

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

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

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

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

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.