Many retail investors have been caught up in the panic selling caused by the Covid-19 virus scare. REITs and local banks are popular among retirees and FF(financial freedom) seekers for their dividends. Several REITs fell 50% within the last 20 days. Naturally, many retail investors will panic sell at recent lows. Last Friday (20Mar2021), some REITs made monstrous gains as much as 20% intraday. Those who panic-sold at recent lows may be having a miserable weekend regretting their bad sell.
During panicky time like now, here are some standard investment advice you hear;
- Our worst enemies are ourselves because of our emotions
- Fear and greed drives humans to buy at the highs and and sell at the lows.
- Panic is bad.
- Be cool as a cucumber. Don't lose your head while others lose theirs.
I can't argue against these standard investment advice. They are standard because they are mostly right but in investment, there is no absolute right. It's not a STEM topic. Based on personal experience, it's ok to "panic". It's why I'm still surviving in the financial markets. The key is to panic early with a sense of proportion. Easy to say, not so easy to execute, though.
My personal favourite proprietary market timing indicator on when to get out as the market gets jittery is the lao-sai(diarrhea) indicator. When I start to shit too many times a day because of a bloody market, I sell and cut my risk exposure to the point when I can resume my normal shitting of once per day. George Soros has similar timing indicator. He gets backache while I shit more often. My shitting has served me well and is key to my survival in the financial markets. If your portfolio is affecting your body and mind, then sell to the point until the risk exposure no longer affects your body and mind.
Some people would say this is proprietary and cannot be copied. I would argue that fear is a basic instinct of human beings. Nature has blessed all of us with this basic fear instinct which is key to survival of the human race. You don't have to copy. It's in all of us. Don't try to suppress your fear by pretending to be a cool cucumber. Use the Force!
Having said that, do try to sell with a sense of proportion. Don't sell until the baby is thrown out with the bathwater. I can't go into specifics here. I don't like to write articles as if I sound like a guru. Frankly speaking, I don't know what the market is going to do tomorrow or which stocks are going to make money with a high level of certainty. When I get fearful, I don't read other people's articles/opinion pieces for assurance. Often, these financial articles are biased. If the writer has a huge position on, he will be bullish and talk up his stocks. If the writer just sold off his position, he will be bearish and talk down stocks. The bias can be subconscious with no ill intention if the writer is not paid. Now, if the writer is paid, I won't say he has ill intention but he has got to do whatever he is paid to do. The paid financial analyst/salesman can wax lyrical on whatever stance he is paid to promote. In investment, you can always find data to support whatever stance you want to make. If you don't know about the topic, you are a sheep waiting to be fleeced.
So, don't rely on others, especially when it comes to money matters, because there's a lot of hidden agenda. Better rely on yourself. Nobody knows your own unique situation better than yourself.
If I were still an amateur with no systematic process to deal with an unprecedented market sell-off, then what I will do is to get in tune with my own body signals. For example, my lao-sai indicator. Be myself and listen to myself, not others. Use the Force, Luke. It's in all of us.
If you happen to be one of those who panic-sold and the stock you sold one day ago shockingly rise 20% the next day, don't feel bad. I think you did the right thing to survive. If you stay put or even double-down and the stock subsequently crashes another 50%, rest in peace. Nobody knows for sure how the stock will turn out but I would rather be the person who fights and runs away, so that he shall live to fight another day.
In financial markets as in everything else in life, you don't have to win all the time but you damn well have to survive all the time.
Sunday, March 22, 2020
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.
I have been personally affected negatively by insurance agents selling high-commissioned insurance products, financial training courses and Multi-level Marketing (MLM). It is hard to keep an open mind on issues that impact a person negatively on a personal level. Nevertheless, I will try to see the other side of the coin. It is a good habit to cultivate.
Insurance products
I bought whole-life insurance plan before. It was an expensive plan for achieving my goal of protection. Since then, I have always advocated term insurance over savings-related, investment-linked plans that insurance agents love to sell because of the high commission. Insurance is for protection. Period. Don't mix them up with investment and savings products.
For people who have a past history of mis-managing cash on hand, financial products that force them to save can be a life-saver, even if substantial portion of the money goes to commission. Lottery winners are twice as likely to file for bankruptcy every year than the general population. So, if your spouse happen to strike Toto and you know him/her to be one of those who cannot manage money, it is better that he spends most of his winnings on financial products peddled by insurance agents than go on a spending spree, gamble it away in the financial markets, invest in speculative ventures by friends/relatives ...
EDIT: One more advantage of whole life and long-term endowment plans is to protect your savings from creditors in the event of bankruptcy provided you put the plans under trust nomination. Credit for this insight goes to an Anonymous commenter (Saturday, November 9, 2019 at 12:07:00 PM GMT+8)
It is not without risk. You have to trust your family members. If a person is nominating his wife as beneficiary, please don't sabotage yourself by fooling around with mistresses. Keep your eyes open before marriage that she is not a gold-digger.
Financial training courses
I had family members who went for these financial training courses. One of them was a retiree. Outcome was bad (let's leave it at that). This is why I am angry and biased against expensive courses, particularly those that sell false hope.
This is a thread (Link) that warns about financial training courses. It provides good advice on what to watch out regarding the tricks used by the financial trainers and a list of the more controversial trainers in the industry. However, some of the language and labels (such as scammers) that were thrown on the financial trainers in the thread have gone overboard.
I had online correspondence with some financial bloggers in the past who later on became financial trainers. I'm pretty sure they are decent people. They are certainly not scammers. They are now running a business and face the normal pressures to feed the employees and their own family. If I were in their shoes, I will also try to maximize profits by charging as high as the customers can take. Which business-man will not do that?
I only hope these financial trainers will target the right customers, not the vulnerable victims. Definitely not retirees who can't afford to lose big in financial markets!! Don't touch my family.
There are many ways to make money from the financial market. For DIY investors, we need to go through a trial and error process to find the way that suits our unique strengths and personality. The DIY investor can learn by attending several courses to finally find what suits him. Even if your trainer is sincere and competent, what works for him may not work for you. Furthermore, if each course is going to cost thousands, then it makes the task of building the capital more challenging. This is why I've always recommended using cheap books and online resources to learn investing/trading because it keeps the cost of learning the investment craft low. The most important factor to success in investing/trading is size of capital. So, always try to keep your cost low to build up your capital.
I'm aware that not everyone learns well through books. There may be some people who learn better in a classroom, interactive environment compared to books. For young people (NOT retirees) who are hungry to learn but find books and websites/forums are not the channels for them, then perhaps paying up for these courses may be more effective. These are the right customers for the courses, not retirees!
When retirees' finances are badly injured, the financial contagion spreads to their children who are the sandwiched generation.
Multi-level marketing
A friend tried to recruit me into MLM. I was not interested. Perhaps I will talk about it in a later post.
Saturday, May 25, 2019
How I respond to financial product promoters on train stations
As a buyer of consumer products, one observation I made : when a product needs to be sold aggressively by salesmen, it probably isn't a good one. The best products sell by itself without help from aggressive commission-based salesmen. This is especially true for financial products. The best financial products I bought are usually not promoted by salesmen.
It is getting common to be stopped by financial promoters at train stations nowadays. This is my usual responses when approached by financial promoters at train stations.
Response to insurance products promoters
"When buying insurance products, my main prority is protection. Please don't sell me insurance products that mix savings and investments with insurance. Sell me term-insurance products because they provide the most bang for the buck when it comes to protection."
On hearing this, the financial promoters will move on to selling other financial products such as savings/retirement products. Very few will actually promote term-insurance products even though I express my preference for term insurance products. No surprise because term insurance products pay poor commission to insurance agents.
Response to savings/retirement products promoters
"You mention your savings product pays X% interest income for Y number of years. How much of the interest is guaranteed? How much of the interest is projected? I'm wary of projected figures because they carry no contractual obligation. How does your savings product compare with Singapore Savings Bonds (SSB)? SSB is liquid and the interest rate is guaranteed. I can withdraw all the funds in SSB within one month without penalty. How long does my money need to be stuck in your savings product before I can start withdrawing with little or no penalty? How much penalty do I have to pay if I need to withdraw early for emergency reasons? I can also buy and sell conveniently bond ETFs on stock exchanges which offer similarly good interest rates as your savings products. How is your savings products superior to these bond ETFs, given that these bond ETFs come with low fees, probably lower fees than your savings products?"
Projected returns carry no contractual obligation and can be abused by aggressive financial promoters. I'm careful about making financial decisions based on projected numbers, especially when they are dangled by aggressive salesmen.
Financial promoters like to compare the much higher interest rates of their savings product with bank deposits. That is not the right comparison. I use Singapore Savings Bonds(SSB) as a benchmark when comparing with savings products. It is liquid, super-safe guaranteed by AAA-rated Singapore government and comes with very good interest rates for the liquidity. Besides SSB, I can also buy fixed-income investment-grade and high-yield bond ETF on stock exchanges as an alternative to the savings products.
When the financial promoter finally decides I am not keen to buy their savings and insurance products, they will move on to promoting their investment products.
Response to investment products promoters
"How much are the management fees charged by your investment fund? Why should I buy your actively managed fund when passive index funds have much cheaper management fees and have demonstrated superior long-term track record of outperforming most active investment funds? Is your investment fund cheaper than passive fund? If no, does it have superior long-term track record of outperforming cheap passive index funds?"
Index funds and ETFs are usually cheaper and better than most actively managed investment funds. I can easily buy and sell passively managed funds conveniently through ETFs on the stock exchange.
Incentives drive human behaviour. Bad incentives drive humans to behave badly. I don't blame financial promoters for behaving badly. I blame the bad incentives. If I were a financial promoter, I will also focus on selling the best-commission product. No need to be hypocritical about that. One reason I have deep trust for the engineering profession is that it is much harder for engineers to get away with bad behaviour. It is not that engineers are most honest or more moral than financial Wall-Street folks. If the engineering work is inferior, short-cuts are being taken causing the product to work poorly, customers will know. Conformance to specifications can be tested objectively. Engineers cannot hide behind the disclaimer like "All investments carry risk" when performance fails and still get paid handsome fees in a down year. I have the deepest respects for fund managers who do not charge management fees, given that it is the industry norm to transfer investment risks to clients because of the disclaimer "All investments carry risk".
Based on my experience as a consumer of financial products, I have come to the conclusion that good financial products are bought, bad financial products are sold. Good financial products are bought independently by knowledgeable financially literate consumers and they tend not to be promoted. Bad financial products are sold aggressively by commission-driven salesmen to financially ignorant consumers. So, is fee-based financial advice the solution? Sadly, not for the masses. The fees of fee-based financial advisers are usually so high that it makes financial sense only for the rich to engage them. If you are not rich, their fees will suck up a high percentage of your savings.
When it comes to money, it is best to rely on ownself. Help your own money or risk others helping themselves to your money.
It is getting common to be stopped by financial promoters at train stations nowadays. This is my usual responses when approached by financial promoters at train stations.
Response to insurance products promoters
"When buying insurance products, my main prority is protection. Please don't sell me insurance products that mix savings and investments with insurance. Sell me term-insurance products because they provide the most bang for the buck when it comes to protection."
On hearing this, the financial promoters will move on to selling other financial products such as savings/retirement products. Very few will actually promote term-insurance products even though I express my preference for term insurance products. No surprise because term insurance products pay poor commission to insurance agents.
Response to savings/retirement products promoters
"You mention your savings product pays X% interest income for Y number of years. How much of the interest is guaranteed? How much of the interest is projected? I'm wary of projected figures because they carry no contractual obligation. How does your savings product compare with Singapore Savings Bonds (SSB)? SSB is liquid and the interest rate is guaranteed. I can withdraw all the funds in SSB within one month without penalty. How long does my money need to be stuck in your savings product before I can start withdrawing with little or no penalty? How much penalty do I have to pay if I need to withdraw early for emergency reasons? I can also buy and sell conveniently bond ETFs on stock exchanges which offer similarly good interest rates as your savings products. How is your savings products superior to these bond ETFs, given that these bond ETFs come with low fees, probably lower fees than your savings products?"
Projected returns carry no contractual obligation and can be abused by aggressive financial promoters. I'm careful about making financial decisions based on projected numbers, especially when they are dangled by aggressive salesmen.
Financial promoters like to compare the much higher interest rates of their savings product with bank deposits. That is not the right comparison. I use Singapore Savings Bonds(SSB) as a benchmark when comparing with savings products. It is liquid, super-safe guaranteed by AAA-rated Singapore government and comes with very good interest rates for the liquidity. Besides SSB, I can also buy fixed-income investment-grade and high-yield bond ETF on stock exchanges as an alternative to the savings products.
When the financial promoter finally decides I am not keen to buy their savings and insurance products, they will move on to promoting their investment products.
Response to investment products promoters
"How much are the management fees charged by your investment fund? Why should I buy your actively managed fund when passive index funds have much cheaper management fees and have demonstrated superior long-term track record of outperforming most active investment funds? Is your investment fund cheaper than passive fund? If no, does it have superior long-term track record of outperforming cheap passive index funds?"
Index funds and ETFs are usually cheaper and better than most actively managed investment funds. I can easily buy and sell passively managed funds conveniently through ETFs on the stock exchange.
Incentives drive human behaviour. Bad incentives drive humans to behave badly. I don't blame financial promoters for behaving badly. I blame the bad incentives. If I were a financial promoter, I will also focus on selling the best-commission product. No need to be hypocritical about that. One reason I have deep trust for the engineering profession is that it is much harder for engineers to get away with bad behaviour. It is not that engineers are most honest or more moral than financial Wall-Street folks. If the engineering work is inferior, short-cuts are being taken causing the product to work poorly, customers will know. Conformance to specifications can be tested objectively. Engineers cannot hide behind the disclaimer like "All investments carry risk" when performance fails and still get paid handsome fees in a down year. I have the deepest respects for fund managers who do not charge management fees, given that it is the industry norm to transfer investment risks to clients because of the disclaimer "All investments carry risk".
Based on my experience as a consumer of financial products, I have come to the conclusion that good financial products are bought, bad financial products are sold. Good financial products are bought independently by knowledgeable financially literate consumers and they tend not to be promoted. Bad financial products are sold aggressively by commission-driven salesmen to financially ignorant consumers. So, is fee-based financial advice the solution? Sadly, not for the masses. The fees of fee-based financial advisers are usually so high that it makes financial sense only for the rich to engage them. If you are not rich, their fees will suck up a high percentage of your savings.
When it comes to money, it is best to rely on ownself. Help your own money or risk others helping themselves to your money.
Tuesday, November 27, 2018
Learning through cheap books/internet versus expensive training courses
I have never attended any trading/investment courses before. Not even
free ones which are usually sales preview. I declare upfront that I am personally biased against training courses
that charge 4-digit figures and last only a few days, since I used
cheaper alternatives such as books and internet to pick up financial
knowledge. I cannot make fair comments about the quality of these courses since I
have never personally attended any myself but one thing I can say objectively is that they are certainly much more expensive compared to books and internet resources. My financial education was mostly gained from free books borrowed from the library, free educational materials from the internet and online interaction with other investors/traders. I have benefited from many kind people on online forums who have generously given their time free of charge to share their knowledge without personal hidden agenda. So far so good using this cheaper approach.
In the past, I have written a positive review free of charge on a 1-day investment course based only on its course content as I did not attend the course in person and it was priced at SGD98. Short courses that are priced above $1000 are more expensive than even expensive MBAs on an hourly basis. Maybe some people learn better in a class setting instead of reading but do be mindful of the price you are paying versus the value you are getting.
If a person is prepared to pay thousands to go for a short course to learn how to invest in the financial markets, it means he is serious to become a DIY(do-it-yourself) investor. He has to answer this question first "Does it make sense to DIY? Are you financially better off buying cheap passive equity index funds/ETFs such as Straits Times Index instead of managing money yourself?" Most professional fund managers perform worse than cheaper passive equity indices. What makes you think you can outperform the equity index when professional fund managers with more time, more resources and more knowledge are unable to do so? A DIY investor has to spend a lot of time if he is serious about it. He will surely fail if he is not willing to put in the time. He will still face high odds of failure even if he is willing to put in the time since most full-time professional money managers underperform the indices. Time is a limited resource. When you spend lots of time on DIY investing, you have less time for your career and family. You may miss that promotion and bonus because you got distracted by DIY investing. You may end up making less money despite putting on a lot of hard work. Your family relationships may suffer as well. I believe most people should not be DIY investors in the financial markets. Having said that, I am a DIY investor myself. This is because I saw bleak prospects in the industry that I worked in when I started out (turned out to be correct) and I love the process of managing my own money. If I do poorly as a DIY investor, I will view it as expenses for indulging in a hobby I like. If it turns out well, the skills acquired can serve as a backup protection for my family finances in case I get retrenched as a middle-aged engineer. This was my reasoning when I started out as retail market player.
Among the people who attended the expensive short courses, one commonly cited reason is that short courses speed up their learning process. They say reading books take too much time. If that is the attitude, then they will most likely fail. A person cannot expect success if he is unwilling to sacrifice the time to master a craft. No short-cuts to success. If they are willing to put in the time, then they should ask themselves the question if it makes more financial sense to use cheaper alternatives such as books and internet resources instead of expensive courses.
If Renaissance Technologies is willing to open up their money-making formula in the Medallion Fund in a 3-day training workshop, I am more than willing to pay a fortune for the short course. These are proven strategies that cannot be found in books and internet. But would any money manager with secrets to produce consistently high returns yearly like Renaissance be willing to teach their secrets to outsiders? I am personally skeptical of trainers who claim to have wonderful track records and want to reveal their secrets because it is their passion to help people reach financial freedom and they want to give back to society. If a trainer boasts about high, consistent returns that matches top hedge fund managers, please ask for his brokerage statements that show his past transactions. Make sure the statements are not from a demo account! The past transactions must include all the losers and preferably long enough to cover 2 boom-bust cycles. If he wants to teach for a fee, it is reasonable to ask for evidence to verify his claims. Know your rights as a customer.
The financial training (and money management) business has a wonderful business model in the sense that the salesman can make empty promises about future returns without being held accountable. The financial salesman can hide behind the standard disclaimer "All investments carry risk. We cannot be held responsible for losses incurred." Human psychological weaknesses like greed and fear are magnified when it comes to money issues. A skillful salesman, without the shackles of being held accountable for his sales talk and mastery of human psychological weaknesses, can do wonderful manipulation work on his victim. The force is strong in them to manipulate your minds. So, be careful. One way to guard against manipulation is to ask for facts, numbers that cannot be manipulated which shows his past track record for what he is truly worth.
A close friend shared his experience about a financial trainer who tried to portray himself as someone sincere about helping people reach financial freedom through his courses. He felt his intelligence was insulted and I absolutely agree. If someone is really sincere about helping people reach financial freedom through education, there are cheaper ways like sharing their insights on forums, websites, youtube videos, self-published ebooks which can be accessed free of charge. Why charge a four-digit sum for a short course and claim it is your sincere passion to help other people reach financial freedom? It is absolutely fine for a businessman to charge whatever price he wants for his product/service. He is running a business and it is fair to expect him to charge the optimum price to maximise his profits. I will do the same if I were in his shoes. However, please do not use noble-sounding reasons like I am doing this to help you reach financial freedom so that you can quit the job you hate. Customers should be on their guard when someone claims he wants to help people reach financial freedom but charges a exorbitant price for doing so, given that there are cheaper alternatives. As for the chances of reaching financial freedom through the markets, most people are better off not touching the financial markets themselves anyway. I wish potential customers of these financial courses are peppered with realistic warnings and not sold to unrealistic hope before they seek their riches in the financial markets. This is particularly so for financial courses where students are taught to use leverage. Failure could mean financial destruction and following that, family falling apart.
Not every action taken is driven by money. I have been touched by the kindness of experienced traders/investors on online forums who sincerely shared and helped without expecting any payment. The late Dr Michael Leong, founder of shareinvestor.com was one of them and there are others too. In Dr Leong's words,
For those of us who make money directly from the markets, we know how difficult it is for the novice investor to start investing. The least we can do is to show you the ropes free of charge. We will never want to take any part of your savings just to show you the ropes. This money is needed by you to start off your investment journey. Hence, my conscience will certainly not allow me to take such money. I rather share freely, or not at all.
http://pertama.freeforums.net/thread/77/real-investors#ixzz406iJZvsr
It is not hard to spot these rich and kind people. They are usually people who have made enough from the markets and have gone full-time because it is their passion. They spend most of their time trading/investing and not training. Indeed, when a financial player spends most of his time training instead of trading, where do you think he makes most of his money? Businessmen will gravitate towards the activity that generates the most money. When someone spends most of his hours training instead of trading/investing, he probably makes most of his money from training.
Ray Dalio said he has reached a stage in life where he feels the responsibility for passing on his knowledge. He does not sell expensive courses. You can download his latest book "Big debt crises" free of charge. I truly believe his sincerity. On the other hand, if average nobodies like me say the same thing, you had better be skeptical.
PS: I understand there are people in the financial training community who will be unhappy with this post. If I make unfair comments in this post, please convince me I am wrong and I will edit accordingly. This post was motivated by bad experiences suffered by people close to me.
In the past, I have written a positive review free of charge on a 1-day investment course based only on its course content as I did not attend the course in person and it was priced at SGD98. Short courses that are priced above $1000 are more expensive than even expensive MBAs on an hourly basis. Maybe some people learn better in a class setting instead of reading but do be mindful of the price you are paying versus the value you are getting.
If a person is prepared to pay thousands to go for a short course to learn how to invest in the financial markets, it means he is serious to become a DIY(do-it-yourself) investor. He has to answer this question first "Does it make sense to DIY? Are you financially better off buying cheap passive equity index funds/ETFs such as Straits Times Index instead of managing money yourself?" Most professional fund managers perform worse than cheaper passive equity indices. What makes you think you can outperform the equity index when professional fund managers with more time, more resources and more knowledge are unable to do so? A DIY investor has to spend a lot of time if he is serious about it. He will surely fail if he is not willing to put in the time. He will still face high odds of failure even if he is willing to put in the time since most full-time professional money managers underperform the indices. Time is a limited resource. When you spend lots of time on DIY investing, you have less time for your career and family. You may miss that promotion and bonus because you got distracted by DIY investing. You may end up making less money despite putting on a lot of hard work. Your family relationships may suffer as well. I believe most people should not be DIY investors in the financial markets. Having said that, I am a DIY investor myself. This is because I saw bleak prospects in the industry that I worked in when I started out (turned out to be correct) and I love the process of managing my own money. If I do poorly as a DIY investor, I will view it as expenses for indulging in a hobby I like. If it turns out well, the skills acquired can serve as a backup protection for my family finances in case I get retrenched as a middle-aged engineer. This was my reasoning when I started out as retail market player.
Among the people who attended the expensive short courses, one commonly cited reason is that short courses speed up their learning process. They say reading books take too much time. If that is the attitude, then they will most likely fail. A person cannot expect success if he is unwilling to sacrifice the time to master a craft. No short-cuts to success. If they are willing to put in the time, then they should ask themselves the question if it makes more financial sense to use cheaper alternatives such as books and internet resources instead of expensive courses.
If Renaissance Technologies is willing to open up their money-making formula in the Medallion Fund in a 3-day training workshop, I am more than willing to pay a fortune for the short course. These are proven strategies that cannot be found in books and internet. But would any money manager with secrets to produce consistently high returns yearly like Renaissance be willing to teach their secrets to outsiders? I am personally skeptical of trainers who claim to have wonderful track records and want to reveal their secrets because it is their passion to help people reach financial freedom and they want to give back to society. If a trainer boasts about high, consistent returns that matches top hedge fund managers, please ask for his brokerage statements that show his past transactions. Make sure the statements are not from a demo account! The past transactions must include all the losers and preferably long enough to cover 2 boom-bust cycles. If he wants to teach for a fee, it is reasonable to ask for evidence to verify his claims. Know your rights as a customer.
The financial training (and money management) business has a wonderful business model in the sense that the salesman can make empty promises about future returns without being held accountable. The financial salesman can hide behind the standard disclaimer "All investments carry risk. We cannot be held responsible for losses incurred." Human psychological weaknesses like greed and fear are magnified when it comes to money issues. A skillful salesman, without the shackles of being held accountable for his sales talk and mastery of human psychological weaknesses, can do wonderful manipulation work on his victim. The force is strong in them to manipulate your minds. So, be careful. One way to guard against manipulation is to ask for facts, numbers that cannot be manipulated which shows his past track record for what he is truly worth.
A close friend shared his experience about a financial trainer who tried to portray himself as someone sincere about helping people reach financial freedom through his courses. He felt his intelligence was insulted and I absolutely agree. If someone is really sincere about helping people reach financial freedom through education, there are cheaper ways like sharing their insights on forums, websites, youtube videos, self-published ebooks which can be accessed free of charge. Why charge a four-digit sum for a short course and claim it is your sincere passion to help other people reach financial freedom? It is absolutely fine for a businessman to charge whatever price he wants for his product/service. He is running a business and it is fair to expect him to charge the optimum price to maximise his profits. I will do the same if I were in his shoes. However, please do not use noble-sounding reasons like I am doing this to help you reach financial freedom so that you can quit the job you hate. Customers should be on their guard when someone claims he wants to help people reach financial freedom but charges a exorbitant price for doing so, given that there are cheaper alternatives. As for the chances of reaching financial freedom through the markets, most people are better off not touching the financial markets themselves anyway. I wish potential customers of these financial courses are peppered with realistic warnings and not sold to unrealistic hope before they seek their riches in the financial markets. This is particularly so for financial courses where students are taught to use leverage. Failure could mean financial destruction and following that, family falling apart.
Not every action taken is driven by money. I have been touched by the kindness of experienced traders/investors on online forums who sincerely shared and helped without expecting any payment. The late Dr Michael Leong, founder of shareinvestor.com was one of them and there are others too. In Dr Leong's words,
For those of us who make money directly from the markets, we know how difficult it is for the novice investor to start investing. The least we can do is to show you the ropes free of charge. We will never want to take any part of your savings just to show you the ropes. This money is needed by you to start off your investment journey. Hence, my conscience will certainly not allow me to take such money. I rather share freely, or not at all.
http://pertama.freeforums.net/thread/77/real-investors#ixzz406iJZvsr
It is not hard to spot these rich and kind people. They are usually people who have made enough from the markets and have gone full-time because it is their passion. They spend most of their time trading/investing and not training. Indeed, when a financial player spends most of his time training instead of trading, where do you think he makes most of his money? Businessmen will gravitate towards the activity that generates the most money. When someone spends most of his hours training instead of trading/investing, he probably makes most of his money from training.
Ray Dalio said he has reached a stage in life where he feels the responsibility for passing on his knowledge. He does not sell expensive courses. You can download his latest book "Big debt crises" free of charge. I truly believe his sincerity. On the other hand, if average nobodies like me say the same thing, you had better be skeptical.
PS: I understand there are people in the financial training community who will be unhappy with this post. If I make unfair comments in this post, please convince me I am wrong and I will edit accordingly. This post was motivated by bad experiences suffered by people close to me.
Sunday, December 10, 2017
My favourite charities as a selfish person
I am a selfish person at heart. My saving grace is that I am not hypocritical about it.
My number one favorite charity as a selfish person is buying term insurance. The lucky subsidizes the unlucky. The lucky ones are those who do not need to make claims because nothing unfortunate happened. The unlucky ones are those who met with some unfortunate events that cost a huge sum but were saved by the insurance claims. Without "charity" from the lucky ones, the unlucky ones will have to absorb the full financial cost of their bad luck. Nobody starting out in life will know how their luck will turn out later in life. So, I try to be selfishly charitable by donating to "charity" to help the unlucky ones in case I turn out to be among the unlucky ones later.
My number two favorite charity as a selfish person is investing in the shares of great companies which make plenty of money and create lots of social good along the way. If the "charity" turns out poorly and I lose all my money, fine. It is charity anyway. If the "charity" turns out wonderfully well, it is "charity" at its best. The "charity" makes money. The customers are happy to pay money because the value provided by the product/service is worth more than the money paid. Suppliers make money. The employees make money. (Isn't this better than simply giving money to the jobless poor who still remain jobless with shame and no dignity?) Most important of all, I make money :) Being charitable is good, particularly when it yields benefits to selfish people like me :)
Hopefully, my selfishness will wear off later in life. As a person grows wealthier, he actually becomes less selfish. No wonder the world's greatest philanthropist, Bill Gates, is also the world's richest man. The world's greatest capital allocator, at one time the world's second richest man, has decided to selflessly allocate the bulk of his wealth to the world's richest man's philanthropic foundation. These two selfless charitable donors really put selfish "charitable donors" like me to shame. I feel like a selfish bastard and rightly so. However, I assure everyone not to be wary of selfish people like me. If one day, I suddenly say things like "Money is not important. I just want to help people and make this world a better place. Helping people is my passion blah blah ...", then you really have to be wary of me. Be very careful of people who talk like selfless do-gooders and have yet to earn their big pot of gold.
One of the big social risks today in the world is the huge inequity in the wealth distribution of the population. Too much wealth in too few hands for those who don't need that much money while the many who need more are starved. We all start off as being selfish looking out for ourselves and family only. That is perfectly normal human nature. After some make it, it is also human nature that some of them will follow the shining examples of Mr Gates and Mr Buffett to give back to society. I hope I have the goodness in me to behave as well as these 2 gentlemen after I achieve 0.00X% of their wealth. If I am indeed that blessed but still stay like a selfish bastard, here is a gentle reminder to myself to read the history of the French Revolution and study what happened to the rich when the many who were poor revolted. I promise to let the poor eat more cake at my expense if I am blessed enough so that my head does not end up in the pike. Hmm ... being selfish again?
My number one favorite charity as a selfish person is buying term insurance. The lucky subsidizes the unlucky. The lucky ones are those who do not need to make claims because nothing unfortunate happened. The unlucky ones are those who met with some unfortunate events that cost a huge sum but were saved by the insurance claims. Without "charity" from the lucky ones, the unlucky ones will have to absorb the full financial cost of their bad luck. Nobody starting out in life will know how their luck will turn out later in life. So, I try to be selfishly charitable by donating to "charity" to help the unlucky ones in case I turn out to be among the unlucky ones later.
My number two favorite charity as a selfish person is investing in the shares of great companies which make plenty of money and create lots of social good along the way. If the "charity" turns out poorly and I lose all my money, fine. It is charity anyway. If the "charity" turns out wonderfully well, it is "charity" at its best. The "charity" makes money. The customers are happy to pay money because the value provided by the product/service is worth more than the money paid. Suppliers make money. The employees make money. (Isn't this better than simply giving money to the jobless poor who still remain jobless with shame and no dignity?) Most important of all, I make money :) Being charitable is good, particularly when it yields benefits to selfish people like me :)
Hopefully, my selfishness will wear off later in life. As a person grows wealthier, he actually becomes less selfish. No wonder the world's greatest philanthropist, Bill Gates, is also the world's richest man. The world's greatest capital allocator, at one time the world's second richest man, has decided to selflessly allocate the bulk of his wealth to the world's richest man's philanthropic foundation. These two selfless charitable donors really put selfish "charitable donors" like me to shame. I feel like a selfish bastard and rightly so. However, I assure everyone not to be wary of selfish people like me. If one day, I suddenly say things like "Money is not important. I just want to help people and make this world a better place. Helping people is my passion blah blah ...", then you really have to be wary of me. Be very careful of people who talk like selfless do-gooders and have yet to earn their big pot of gold.
One of the big social risks today in the world is the huge inequity in the wealth distribution of the population. Too much wealth in too few hands for those who don't need that much money while the many who need more are starved. We all start off as being selfish looking out for ourselves and family only. That is perfectly normal human nature. After some make it, it is also human nature that some of them will follow the shining examples of Mr Gates and Mr Buffett to give back to society. I hope I have the goodness in me to behave as well as these 2 gentlemen after I achieve 0.00X% of their wealth. If I am indeed that blessed but still stay like a selfish bastard, here is a gentle reminder to myself to read the history of the French Revolution and study what happened to the rich when the many who were poor revolted. I promise to let the poor eat more cake at my expense if I am blessed enough so that my head does not end up in the pike. Hmm ... being selfish again?
Sunday, November 12, 2017
In memory of Dr Michael Leong, founder of ShareInvestor
This is a very belated post. Dr Michael Leong died on 12Feb2016 after battling colon cancer for more than a year. I still remember him for his helpfulness to his online readers.
I have never met him in person but he was kind to an online stranger like me. When I was jobless in 2012, he sent me an email to extend help.
Hyom, I read about your retrenchment in your blog. I understand that you
are from the electronics industry and from the way you write, I assume that
***. Sometime back I was told that *** maybe
on the lookout for ***. If you are keen, do let me know and I
will try to put you in touch with them.
I was touched because he was a man of reputation in the business world. He puts his own reputation at risk when he makes a referral for someone whom he has not even met face-to-face. He could have looked like a complete idiot. I did not take up his offer because I already found a job. To this day almost 2 years after his death, I still remember him for his kind act. The least I did was to send him a wreath on his funeral wake, together with a group of grateful ShareInvestor customers who benefited from the community that his company ShareInvestor created.
It was in Dr Leong's DNA to share his investment insights freely and generously. He had no financial agenda in sharing. He had already achieved financial freedom through investing in the financial markets before he sold his successful company (Shareinvestor) to SPH. There was no need for him to make money in conducting investment courses. What better person to learn from as a novice? He was highly qualified with a long and successful track record, willing to teach, happy to teach and yet not asking for teaching fees.
God bless all the generous, rich investors who have been willing to share their insights to newbies like Dr Leong.
In Dr Leong's own words,
For those of us who make money directly from the markets, we know how difficult it is for the novice investor to start investing. The least we can do is to show you the ropes free of charge. We will never want to take any part of your savings just to show you the ropes. This money is needed by you to start off your investment journey. Hence, my conscience will certainly not allow me to take such money. I rather share freely, or not at all.
http://pertama.freeforums.net/thread/77/real-investors#ixzz406iJZvsr
This is not to say he was against trainers who charge for conducting trading/investment courses.
I still feel that one needs a different moral compass from mine if one charges thousands of dollars for a get rich quick scheme. Of course I am not against those who charge generally accepted rates for teaching. Put another way, an honest day's pay for an honest day's work.
I have blogged positively about investment courses that charge less than $100 for a day's work.
However, for courses that charge 4-digit figures, the student should consider free alternatives such as library books and online forums. I speak from personal experience that books and forums work just as well. I have never paid for any investment course or even attended a single free investment seminar. A budding novice should read all he can about all kinds of investment styles/methods while keeping an open mind, pay the necessary school fees to Mr Market and tweak his investment style to something that suits him personally as he progresses in the school of hard knocks. After experiencing at least 1 boom-bust cycle (5-8 years), there should be a long enough track record to assess if he is suited for this game. If he is not willing to put in the hard work which may not pay off anyway, passive index ETFs/funds are his best bets based on historical performance data. Even hiring expensive under-performing professional fund managers is better than investing on his own if he is someone who only loves the money but not the game.
While Dr Leong was generous and successful, I think some of his investment methods are not suitable for the majority. Dr Leong made a fortune from a concentrated portfolio and he once said "Put all your eggs in one basket and watch that basket carefully". It worked for him but this is dangerous for most. He had a unique background. He was a successful entrepreneur and his CEO position in Shareinvestor gave him access to the wisdom of other successful entrepreneurs. He was also highly intelligent given his medical background. His entrepreneur background gave him an edge in picking the right businesses to invest in. Concentration which worked for him will probably be harmful for most. I humbly admit I am not as good as him, so I did not follow him on this. I believe that most of us are better off with diversification and if you have no reason to think you should be better than most, stick with diversification.
Dr Leong's intial investment strategy which made him a fortune was similar to Benjamin Graham's net-net strategy. It is akin to buying companies selling at well below their liquidation value which is supported by solid, tangible assets such as properties, marketable securities and cash.
He later tweaked his strategy to invest in top entrepreneurs. He had bad experience investing in net-net companies run by entrepreneurs who did not treat minority shareholders fairly. He later changed his style to invest in top entrepreneurs like Elon Musk, not intelligent but conservative "care-taker" management executives. The Elon Musk type of entrepreneurs are less concerned with adding a few more zeros to their bank account and more interested in changing the world for the better with their products/services. "Care-taker" management, in my view, are more like "wealth managers" who invests in safe businesses, avoid rocking the boat, averse to taking big risks and not keen to see bad things happen under their watch. These people are usually very smart (surely smarter than me) but as a Singaporean, I hope to see more of our leading local companies led by trail-blazing "entrepreneurs" and not "care-taker" clever managers.
Again, I find Dr Leong's new strategy unsuitable for the majority of investors. This strategy suits his entrepreneurial background but it is very difficult to execute for the rest of us. His earlier net-net strategy was not only easier to execute but much less risky as well. What an investor need to execute the net-net strategy is the ability to read a balance sheet. This can be easily picked up by almost anyone willing to spare the time to learn basic accounting.
Even if a person has the good fortune to meet a helpful "mentor" like Dr Leong, he needs to have the humility to admit that what works for others may not work for him. Conversely, he also needs the "arrogance" to try and succeed at what most people failed if he thinks he has got what it takes. If a person thinks he can succeed with a concentrated portfolio and/or possess the sharp eye like Masayoshi Son to spot great entrepreneurs such as Jack Ma who had no business plan and revenue at that time, why shouldn't he give it a try?
Dr Leong was a devoted family man. I recalled that he remarked that the most stressful period of his life was when his son was hospitalized. Given that he was the founder of a successful start-up, I am sure he had very stressful periods in his life but his son's hospitalization topped it all. When I asked him how did he manage to find time for his family and yet have a successful career, he replied that he was lucky to have found a job with IBM that allowed him to work from home. He admitted there is no easy solution. I guess Dr Leong must have found a good wife who was a wonderful mother to his kids and also gave him the free time to focus on his business.
Although Dr Leong has passed away, the Shareinvestor business that he left behind is still making a difference to customers' lives. I have been a subscriber of Shareinvestor for > 10 years. His legacy has taken on a life of its own. I think the emotional satisfaction from being a successful entrepreneur is higher than a successful investor. Besides money rolling into the bank account, the entrepreneur gets additional satisfaction that his product/service is making a difference in his customers' lives, on top of the jobs created for his employees and sales for his suppliers.
Dr Michael Leong led a meaningful life. I am sure his family is very proud of him.
I have never met him in person but he was kind to an online stranger like me. When I was jobless in 2012, he sent me an email to extend help.
Hyom, I read about your retrenchment in your blog. I understand that you
are from the electronics industry and from the way you write, I assume that
***. Sometime back I was told that *** maybe
on the lookout for ***. If you are keen, do let me know and I
will try to put you in touch with them.
I was touched because he was a man of reputation in the business world. He puts his own reputation at risk when he makes a referral for someone whom he has not even met face-to-face. He could have looked like a complete idiot. I did not take up his offer because I already found a job. To this day almost 2 years after his death, I still remember him for his kind act. The least I did was to send him a wreath on his funeral wake, together with a group of grateful ShareInvestor customers who benefited from the community that his company ShareInvestor created.
It was in Dr Leong's DNA to share his investment insights freely and generously. He had no financial agenda in sharing. He had already achieved financial freedom through investing in the financial markets before he sold his successful company (Shareinvestor) to SPH. There was no need for him to make money in conducting investment courses. What better person to learn from as a novice? He was highly qualified with a long and successful track record, willing to teach, happy to teach and yet not asking for teaching fees.
God bless all the generous, rich investors who have been willing to share their insights to newbies like Dr Leong.
In Dr Leong's own words,
For those of us who make money directly from the markets, we know how difficult it is for the novice investor to start investing. The least we can do is to show you the ropes free of charge. We will never want to take any part of your savings just to show you the ropes. This money is needed by you to start off your investment journey. Hence, my conscience will certainly not allow me to take such money. I rather share freely, or not at all.
http://pertama.freeforums.net/thread/77/real-investors#ixzz406iJZvsr
This is not to say he was against trainers who charge for conducting trading/investment courses.
I still feel that one needs a different moral compass from mine if one charges thousands of dollars for a get rich quick scheme. Of course I am not against those who charge generally accepted rates for teaching. Put another way, an honest day's pay for an honest day's work.
I have blogged positively about investment courses that charge less than $100 for a day's work.
However, for courses that charge 4-digit figures, the student should consider free alternatives such as library books and online forums. I speak from personal experience that books and forums work just as well. I have never paid for any investment course or even attended a single free investment seminar. A budding novice should read all he can about all kinds of investment styles/methods while keeping an open mind, pay the necessary school fees to Mr Market and tweak his investment style to something that suits him personally as he progresses in the school of hard knocks. After experiencing at least 1 boom-bust cycle (5-8 years), there should be a long enough track record to assess if he is suited for this game. If he is not willing to put in the hard work which may not pay off anyway, passive index ETFs/funds are his best bets based on historical performance data. Even hiring expensive under-performing professional fund managers is better than investing on his own if he is someone who only loves the money but not the game.
While Dr Leong was generous and successful, I think some of his investment methods are not suitable for the majority. Dr Leong made a fortune from a concentrated portfolio and he once said "Put all your eggs in one basket and watch that basket carefully". It worked for him but this is dangerous for most. He had a unique background. He was a successful entrepreneur and his CEO position in Shareinvestor gave him access to the wisdom of other successful entrepreneurs. He was also highly intelligent given his medical background. His entrepreneur background gave him an edge in picking the right businesses to invest in. Concentration which worked for him will probably be harmful for most. I humbly admit I am not as good as him, so I did not follow him on this. I believe that most of us are better off with diversification and if you have no reason to think you should be better than most, stick with diversification.
Dr Leong's intial investment strategy which made him a fortune was similar to Benjamin Graham's net-net strategy. It is akin to buying companies selling at well below their liquidation value which is supported by solid, tangible assets such as properties, marketable securities and cash.
He later tweaked his strategy to invest in top entrepreneurs. He had bad experience investing in net-net companies run by entrepreneurs who did not treat minority shareholders fairly. He later changed his style to invest in top entrepreneurs like Elon Musk, not intelligent but conservative "care-taker" management executives. The Elon Musk type of entrepreneurs are less concerned with adding a few more zeros to their bank account and more interested in changing the world for the better with their products/services. "Care-taker" management, in my view, are more like "wealth managers" who invests in safe businesses, avoid rocking the boat, averse to taking big risks and not keen to see bad things happen under their watch. These people are usually very smart (surely smarter than me) but as a Singaporean, I hope to see more of our leading local companies led by trail-blazing "entrepreneurs" and not "care-taker" clever managers.
Again, I find Dr Leong's new strategy unsuitable for the majority of investors. This strategy suits his entrepreneurial background but it is very difficult to execute for the rest of us. His earlier net-net strategy was not only easier to execute but much less risky as well. What an investor need to execute the net-net strategy is the ability to read a balance sheet. This can be easily picked up by almost anyone willing to spare the time to learn basic accounting.
Even if a person has the good fortune to meet a helpful "mentor" like Dr Leong, he needs to have the humility to admit that what works for others may not work for him. Conversely, he also needs the "arrogance" to try and succeed at what most people failed if he thinks he has got what it takes. If a person thinks he can succeed with a concentrated portfolio and/or possess the sharp eye like Masayoshi Son to spot great entrepreneurs such as Jack Ma who had no business plan and revenue at that time, why shouldn't he give it a try?
Dr Leong was a devoted family man. I recalled that he remarked that the most stressful period of his life was when his son was hospitalized. Given that he was the founder of a successful start-up, I am sure he had very stressful periods in his life but his son's hospitalization topped it all. When I asked him how did he manage to find time for his family and yet have a successful career, he replied that he was lucky to have found a job with IBM that allowed him to work from home. He admitted there is no easy solution. I guess Dr Leong must have found a good wife who was a wonderful mother to his kids and also gave him the free time to focus on his business.
Although Dr Leong has passed away, the Shareinvestor business that he left behind is still making a difference to customers' lives. I have been a subscriber of Shareinvestor for > 10 years. His legacy has taken on a life of its own. I think the emotional satisfaction from being a successful entrepreneur is higher than a successful investor. Besides money rolling into the bank account, the entrepreneur gets additional satisfaction that his product/service is making a difference in his customers' lives, on top of the jobs created for his employees and sales for his suppliers.
Dr Michael Leong led a meaningful life. I am sure his family is very proud of him.
Monday, August 10, 2015
More Singaporeans need to be entrepreneurs but ...
I have always respected entrepreneurs. Even more if they are fellow Singaporeans. They dare to execute on their dreams despite the high odds of failure. How to not respect? I am glad to be of assistance to give free product reviews of fellow worthy entrepreneurs on my blog in the past.
I recently stumbled on an article which lamented that Singaporeans are not risk-taking enough and that this is bad for the country because the country needs more entrepreneurs and more workers to join risky entrepreneurial start-ups to create value. The writer, Mr Devadas Krishnadas, is an entrepreneur with a shining career history in the civil service. He earns my admiration to have the courage to quit a high-paying and stable job to become an entrepreneur. He walks the talk. However, there are some points which I do not agree with the article from the perspective of a salary worker and investor.
Job seekers should not be expected to take risks. Otherwise, they would have become entrepreneurs. What is troubling on a national scale is that we do not have enough talented Singaporeans who have a higher chance of success as entrepreneurs but choose to remain as salary workers. Singapore needs more people like Mr Devadas Krishnadas who resigned from a good job to create risk-driven value as an entrepreneur. However, can we blame most Singaporeans, including myself, for not being like him?
Some reasons I can think of why there is a serious shortage of entrepreneurs in Singapore. I am not qualified to comment as an entrepreneur. I write from the angle of a salary worker.
A worrisome trend has been developing in the Singapore economy in recent years. Some big MNCs are moving out. This explains the government's generous moves to support local SMEs in the form of grants and innovation support. Singapore has got to build our own indigenous big companies to replace these MNCs. Fortunately or unfortunately, I believe there will be more entrepreneurs as a result of the MNCs moving away. Mid-career professionals who got retrenched by the MNCs may start thinking of becoming entrepreneurs because they have lesser to lose now. Besides, their chances of success is higher due to the long experience and network built working in industry. Unfortunately, I believe most of the concentrated local talent in the civil service will remain locked in the public sector because the risk-reward ratio is simply too compelling to stay.
If a person just wants to be rich, please don't become an entrepreneur. He will surely give up later. He has a better chance at becoming rich by slogging as a high-level big company executive or government scholar earning a high-paying, stable salary. If he holds a middle-class job that pays around the national median-income, he still has a fair chance of becoming comfortably well-off by keeping to a simple lifestyle, patiently saving and investing for at least a decade.
Just don't be an entrepreneur if your sole objective is to be rich.
Most young, energetic Singaporeans have taken up huge loans to buy property. This cannot be helped. In the Singapore context, they probably have to in order to get married. The girlfriend and future parents-in-law may disapprove if the man cannot afford a HDB. Unfortunately, some middle-aged Singaporeans who have otherwise accumulated enough savings to take on the financial risks to become an entrepreneur have taken up even larger loans to invest in a second property. A person in huge debt cannot afford to take on the financial risks of an entrepreneur. His interest expense comes due every month. Without a salary job that generates a stable cash-flow, the risk of financial ruin is not low. This issue indirectly affects me not because I invested in a second property (I prefer stocks and avoid huge debt to keep my options open for entrepreneurship), but because I am not able to find peers as potential entrepreneurial partners. I have personal weaknesses and I hope to find partners who can complement and make up for my weaknesses before taking on this risky path. However, if I want to become an entrepreneur, I do not want a heavily indebted partner who is forced to be in a hurry to make money. From my investing experience, those who are in a hurry to make money end up making less or lose money. I believe it will be even worse for entrepreneurs who are in a hurry to make money. They may end up not only losing money but their reputation as well by short-changing customers and their investors. I can afford to lose money but not my reputation. Emotionally, I find the latter extremely depressing whereas I am numb to losing money. As an investor, you have got to get used to losing some $$$ now in order to make more $$$ later.
Fellow financial blogger Christopher Ng has suggested that a fertile soil to cultivate potential entrepreneurs are kids from rich families. I will add one more group - middle-aged workers who have accumulated enough savings and investments to weather the storm. I agree with Christopher and will not repeat the details on the how. I will talk more about the why. Given that most start-ups fail, would-be entrepreneurs better be able to afford failure. Rich people can afford to fail. In fact, this may even help narrow the wealth-inequality social problem if losses from failed start-ups are concentrated to the rich. On the other hand, out of the few who will succeed spectacularly, no one will begrudge them for getting even richer if they create value to their customers, employees and suppliers as entrepreneurs. The poor will not begrudge the rich if the wealth-inequality is caused by value-driven entrepreneurial activity. If those who cannot afford to fail rashly choose to become entrepreneurs, there will be social problems when enough of them fail and most of them will.
Singaporeans have been complaining about job discrimination in our own country. The foreign PMET (Professionals, Managers, Executives and Technicians) workforce has gained critical mass in Singapore labor market, giving rise to the foreigner-hire-foreigner complaints. It is only human nature that people tend to feel comfortable working with people similar to themselves and hire according to these in-built prejudices. To be fair to the foreigners, they could complain the same about Singaporean employers preferring to hire Singaporeans. I am confident our government is able to solve the infrastructure-overload problem given the talents employed in the civil service and the money they can throw at the problem. However, I am doubtful the rising PMET unemployment problem attributed to unfair discrimination can be eased. It is a problem that money and intelligence cannot solve. It is a social problem that involves changing people's behavior and this will take lots of time. Furthermore, even if this problem does not exist in Singapore, foreigners can still take away our jobs without coming here. Foreign MNCs are already moving out of Singapore to cheaper locations. Instead of complaining and waiting for solutions from the government, unemployed PMETs who can afford to take risk should partner each other to start their own companies. Create jobs for yourselves. You have lesser to lose financially when you are jobless. Having said that, I admit I lack the moral authority to encourage entrepreneurship. I am hiding behind a full-time salary job on weekdays and a part-time investment job on weekends/public holidays. As an investor, I do not feel as socially useful compared to entrepreneurs. I mean no offense to fellow investors but entrepreneurs do create much higher social value. (*I take a deep bow to all the entrepreneurs in Singapore*)
I recently stumbled on an article which lamented that Singaporeans are not risk-taking enough and that this is bad for the country because the country needs more entrepreneurs and more workers to join risky entrepreneurial start-ups to create value. The writer, Mr Devadas Krishnadas, is an entrepreneur with a shining career history in the civil service. He earns my admiration to have the courage to quit a high-paying and stable job to become an entrepreneur. He walks the talk. However, there are some points which I do not agree with the article from the perspective of a salary worker and investor.
The young woman sitting across me was being interviewed to join my firm as a consultant. Well-travelled, highly qualified and poised, she spoke eloquently on why she wanted to join the firm - indigenous, small but growing.The attitude of the job applicant makes perfect sense and not at all troubling even if we expand it to the national scale. When a SME asks for a loan from a bank, the bank charges higher interest rate compared to a big company because of the higher risk. Similarly, for someone applying for a job at a SME, it is absolutely reasonable to ask for higher compensation because of the higher risk. It will be very troubling if a bank does not expand this risk-management practice on a national scale. The country's financial system may face systemic risks due to too much bad debt later. Likewise, given the very low odds of success for start-ups, several families will be in financial trouble if there are many Singaporeans who are not compensated enough when they lose their jobs working in start-ups.
Having gone through several stages of recruitment, we were finalising her appointment. She suddenly said she wanted a much higher compensation than the range discussed.
When prompted as to why, she replied that it was a great risk to work for a small local firm. I asked her to expand on her logic. She said her best option was to work for the civil service or a multinational company and that she was, in effect, doing the firm a favour by joining, and thus merited a market premium.
This attitude towards risk is disappointing individually, but troubling when we expand it to the national scale. It suggests that the young generation value the payoff for their education in terms of occupational safety. While at one level rational, such an attitude may help explain why small and medium-sized enterprises (SMEs) have great difficulty engaging the best talent.
- See more at: http://news.asiaone.com/news/asian-opinions/why-safe-job-risky-business-spore#sthash.ZqdDOsYw.dpuf
Job seekers should not be expected to take risks. Otherwise, they would have become entrepreneurs. What is troubling on a national scale is that we do not have enough talented Singaporeans who have a higher chance of success as entrepreneurs but choose to remain as salary workers. Singapore needs more people like Mr Devadas Krishnadas who resigned from a good job to create risk-driven value as an entrepreneur. However, can we blame most Singaporeans, including myself, for not being like him?
Some reasons I can think of why there is a serious shortage of entrepreneurs in Singapore. I am not qualified to comment as an entrepreneur. I write from the angle of a salary worker.
- It does not make financial sense for Singapore's best minds to become entrepreneurs
A worrisome trend has been developing in the Singapore economy in recent years. Some big MNCs are moving out. This explains the government's generous moves to support local SMEs in the form of grants and innovation support. Singapore has got to build our own indigenous big companies to replace these MNCs. Fortunately or unfortunately, I believe there will be more entrepreneurs as a result of the MNCs moving away. Mid-career professionals who got retrenched by the MNCs may start thinking of becoming entrepreneurs because they have lesser to lose now. Besides, their chances of success is higher due to the long experience and network built working in industry. Unfortunately, I believe most of the concentrated local talent in the civil service will remain locked in the public sector because the risk-reward ratio is simply too compelling to stay.
If a person just wants to be rich, please don't become an entrepreneur. He will surely give up later. He has a better chance at becoming rich by slogging as a high-level big company executive or government scholar earning a high-paying, stable salary. If he holds a middle-class job that pays around the national median-income, he still has a fair chance of becoming comfortably well-off by keeping to a simple lifestyle, patiently saving and investing for at least a decade.
Just don't be an entrepreneur if your sole objective is to be rich.
- Cannot afford to take the financial risks of an entrepreneur
Most young, energetic Singaporeans have taken up huge loans to buy property. This cannot be helped. In the Singapore context, they probably have to in order to get married. The girlfriend and future parents-in-law may disapprove if the man cannot afford a HDB. Unfortunately, some middle-aged Singaporeans who have otherwise accumulated enough savings to take on the financial risks to become an entrepreneur have taken up even larger loans to invest in a second property. A person in huge debt cannot afford to take on the financial risks of an entrepreneur. His interest expense comes due every month. Without a salary job that generates a stable cash-flow, the risk of financial ruin is not low. This issue indirectly affects me not because I invested in a second property (I prefer stocks and avoid huge debt to keep my options open for entrepreneurship), but because I am not able to find peers as potential entrepreneurial partners. I have personal weaknesses and I hope to find partners who can complement and make up for my weaknesses before taking on this risky path. However, if I want to become an entrepreneur, I do not want a heavily indebted partner who is forced to be in a hurry to make money. From my investing experience, those who are in a hurry to make money end up making less or lose money. I believe it will be even worse for entrepreneurs who are in a hurry to make money. They may end up not only losing money but their reputation as well by short-changing customers and their investors. I can afford to lose money but not my reputation. Emotionally, I find the latter extremely depressing whereas I am numb to losing money. As an investor, you have got to get used to losing some $$$ now in order to make more $$$ later.
- Majority of people do not have the temperament to be entrepreneurs
Fellow financial blogger Christopher Ng has suggested that a fertile soil to cultivate potential entrepreneurs are kids from rich families. I will add one more group - middle-aged workers who have accumulated enough savings and investments to weather the storm. I agree with Christopher and will not repeat the details on the how. I will talk more about the why. Given that most start-ups fail, would-be entrepreneurs better be able to afford failure. Rich people can afford to fail. In fact, this may even help narrow the wealth-inequality social problem if losses from failed start-ups are concentrated to the rich. On the other hand, out of the few who will succeed spectacularly, no one will begrudge them for getting even richer if they create value to their customers, employees and suppliers as entrepreneurs. The poor will not begrudge the rich if the wealth-inequality is caused by value-driven entrepreneurial activity. If those who cannot afford to fail rashly choose to become entrepreneurs, there will be social problems when enough of them fail and most of them will.
Singaporeans have been complaining about job discrimination in our own country. The foreign PMET (Professionals, Managers, Executives and Technicians) workforce has gained critical mass in Singapore labor market, giving rise to the foreigner-hire-foreigner complaints. It is only human nature that people tend to feel comfortable working with people similar to themselves and hire according to these in-built prejudices. To be fair to the foreigners, they could complain the same about Singaporean employers preferring to hire Singaporeans. I am confident our government is able to solve the infrastructure-overload problem given the talents employed in the civil service and the money they can throw at the problem. However, I am doubtful the rising PMET unemployment problem attributed to unfair discrimination can be eased. It is a problem that money and intelligence cannot solve. It is a social problem that involves changing people's behavior and this will take lots of time. Furthermore, even if this problem does not exist in Singapore, foreigners can still take away our jobs without coming here. Foreign MNCs are already moving out of Singapore to cheaper locations. Instead of complaining and waiting for solutions from the government, unemployed PMETs who can afford to take risk should partner each other to start their own companies. Create jobs for yourselves. You have lesser to lose financially when you are jobless. Having said that, I admit I lack the moral authority to encourage entrepreneurship. I am hiding behind a full-time salary job on weekdays and a part-time investment job on weekends/public holidays. As an investor, I do not feel as socially useful compared to entrepreneurs. I mean no offense to fellow investors but entrepreneurs do create much higher social value. (*I take a deep bow to all the entrepreneurs in Singapore*)
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