Saturday, June 02, 2007

High property prices in Singapore

I worry about the escalating property prices in Singapore.

Although it started with the properties in the prime districts, it has moved to the fringe districts. It will raise the prices of HDB properties in due course.

The increase in property values will not benefit owners who have a single property. They cannot realise the gain as they have to buy another property at a higher price, unless they choose to downgrade to a smaller property.

The higher prices will be a burden to the younger generation. They will find it more expensive to afford a property.

It is better for Singapore, if the property prices are kept at a modest level, and not allowed to escalate out of control.

Traffic in Jakarta

The traffic in Jakarta is congested. It moves slowly most times of the day. It takes a long time to travel a short distance.

Most managers have a driver. The salary of a driver is less than USD 100 a month. Although they have to spend a longer time on the road, the managers are able to discuss business in the car or to prepare for their meeting.

Jakarta has a system of bus-ways. They run on dedicated lanes. There are a few routes that run from north to south, with a circular line to connect them. To move from one place to another, the commuter may have to change to another line. It is easy to understand the system and to move from one part of the city to another part.

I hope that Jakarta will build a mono-rail system to take large number of commuters. They can follow the system of the bus-ways, as it is easy to understand.

Manchester United: A lesson in leadership

I am amazed at the speed by which Manchester United signed up for their top players for the next season.

The top leaders at Manchester United (i.e. the owner, team manager and chief executive) are able to work together. The trust the leadership provided by the team manager, Alex Ferguson.

It has not been easy for Manchester United. They had two lean years, in which they did not win any major trophy. By sticking to their experienced manager, they have rebuilt their team to win the English Premiership.

We read about the disagreement between in Chelsea, between the team manager and the owner. This makes it difficult for the team manager to win the matches in the football field.

Lesson: In the corporate world, the battle has to be fought in the market place. To win the battle, you need to have knowledgeable people who knows the market, and are not hampered by their owners.

Insurance Agent

Mr Tan

Is it better for me to buy my insurance directly from the company or go through an insurance agent. What is your advice?



You can read my views in this FAQ.

Family Insurance Plan

Hi Mr Tan,

I really enjoy reading your blog. It is simple to read and at times, amusing, as you write about your own observations on everyday experiences.

I wish to ask about the differences between the Protection plan and Family Insurance plan offered by NTUC Income. The descriptions and explanations are not clear.



A protection policy is a whole life policy. It covers you for the whole of life and pays the sum assured and bonuses in the event of death or permanent disability for all causes.

The family insurance policy allows you to insure yourself and members of your family under several coverages, for example, term insurance, accident insurance, medical insurance. You can vary the amount of coverage for each person.

Normally, you will have to take a different policy for each type of coverage and for each person. Under the family policy, you can put these coverages under 1 policy and not under many separate policies.

I suggest that you read the FAQ in these two web-pages:

Family Insurance

Invest in Government Bonds

1. How can you invest in Government or Corporate Bonds?

* go through a stockbroker
* go to DollarDex or FundSupermarket

2. What is the yield?

Issuer Tenor Rating YTM
Sp Govt 4.8 yr AAA 2.48%
Sp Govt 7.1 yr AAA 2.67%
Sp Govt 9.3 yr AAA 2.78%
Sp Govt 13.3 yr AAA 2.91%

HDB 3.8 yr AAA 2.73%
Jackson Nat Life 3.8 yr AA 2.97%
HK Land 3.3 yr BBB+ 2.99%
Household Fin 6.7 yr AA 3.37%

Friday, June 01, 2007

Pinnacles Notes Series 7

Dear Mr Tan

What are your views about the Pinnacles Notes that has recently been advertised in the newspapers? Is it safe to invest in these Notes? Do they give a good return?



1. Tranche B (in SGD) pays interest at 5% p.a. for the first 5 1/2 years with a return of the principal on maturity and possible payment of an equity bonus coupon of of 4% p.a. All the payments are subject to conditions.


The equity bonus coupon is payable if several conditions are fulfilled, including the need for the average closing price of the ordinary share of each "Basket Company", on 3 observation dates to be equal or above 110% of the initial spot price. If any one Basket Company fails, then the bonus is NOT payable. The advertisement did not identify the Basket Companies, but ask you to read the Prospectus for details.

What is the chance of receiving the bonus? I suspect that it is very, very slim.

3. The interest payment of 5% p.a. appears to be attractive. But, the FINE PRINT says:

"The Notes are not principal guaranteed. Payment of interest and repayment of 100% of the principal amount at maturity, may not occur in all circumstances. In particular, upon the occurrence of a Credit Event, a Mandatory Redemption Event, an Event of Default .... you could lose all or substantially or of your investment in the Notes".

What is the chance of any of these events happening? What is the amount that could be lost?

Frankly, I do not know. I am an actuary (and quite knowledgeable about calculations). I know that it is impossible for any investor to calculate the odds.

4. The issuer has the right to exercise the Call option and redeem the Notes. This right can be exercised to the detriment of the investor, if interest rate has dropped. In this case, the Issuer pays back the principal and the investor has to re-invest the money to earn a much lower rate.

5. There is a statement that the Notes are secured by US Dollar demonimated Synthetic CDO rated AA or higher at the time of investment. This type of investment carries credit and currency risks.

6. The advertisement ask the investor to read the Base Prospectus, Applicable Annex, Pricing Statement and supplements. The investor is required to understand all the points that are written in these documents (which comprise many dozens of pages writtenin a confusing manner.)

7. My advice: There are too much uncertainty and risk. This product is too complicated. Do not invest in these Notes.

Thursday, May 31, 2007

Dispute on third party claim

Dear Mr Tan

I have a third party motor insurance policy with NTUC. I greatly appreciate that you had led NTUC to reduce fradulent claims and thereby bring down the premiums.

I have a specific case. I agree that NTUC should compensate to the third party, but I dispute the quantum. How do the surveyors determine the damage that is caused due to the accident?

I followed up after 6 weeks and found that NTUC had paid the compensation to the third party claim against my policy.

NTUC requested that I sign and return a statement to dispute any of the damages from the photographs. What will happen after I sign this statement?

I thought NTUC has a team of professionals to ascertain the damages caused, why NTUC need me to sign and return the statement to dispute part of the damages ?

I was told over the telephone that there is a team to assess and award claims. How can I meet this team in person to discuss this claim ?



I have passed your feedback to the general manager in NTUC Income. He will reply to you.

Bus to Kuala Lumpur

I learned from my travel agent that it is possible to take a bus to Kuala Lumpur.

The seats are like business class seats on an airplane. The journey taks 5 hours. The return fare is about SGD 110 (compared with SGD 420) by air.

If you consider the waiting time at the airport and the travel time from KLIA to the city, the journey by air is 3 hours.

I shall try the "business class" bus in the future.

Visit to Jakarta

I am now in Jakarta.

My friend told me that Indonesia has a population of 230 million, of which 10 million (about 4%) are Chinese.

There are more Chinese in Indonesia than in Malaysia (35% of the population) or in Singapore (75% of the population).

This is the magic of large numbers.

Tuesday, May 29, 2007

Expensive Taxi Ride

I took a taxi from UIC building (Shenton Way) to Carlton Hotel (Bras Basah Road). The journey took 30 minutes (due to heavy traffic) and cost $7. It is quite expensive. The distance is actually quite short.

We need to provide better and cheaper form of public transport, including taxis.

More trains for a comfortable ride

I took the MRT train at 9.40 am this morning. This is the off-peak period.

The train arrive at intervals of 7 minutes. It was packed all the way from Yio Chu Kang station to Raffles City station. I had to stand all the way.

During the peak period, the train run at intervals of 3 minutes. I can understand that it is difficult to put more trains due to safety issues.

During the off-peak period, it should be possible to run more tains (say 1 train every 5 minutes), so that the train is not so crowded and more commuters have the chance of a comfortable ride.

I hope that SMRT will take this factor into consideration, and run more trains during the off-peak hours.

Switch 50% of investments into the Balanced Fund

Dear Mr Tan,

The global equity markets, and in particular China, have hit new records in the last few months. There is an increasing risk of the so-called "bubble bursting" especially in China, where valuations are simply unsustainable.

I have a substantial holding of the "growth" combined fund. Given the state of the equity markets today, would it be advisable to switch to more defensive funds and if so, what you would recommend.



Recently, my wife and daughter decided to switch 50% of their investment from the Singapore Equity fund (100% in Singapore equities) to the balanced fund (50% equity, 50% bond). I decided to keep my investment in the growth fund (70% equities, 30% bonds).

Pick your choice.

Yield on Single Premium Endowment

Name: UOB Life Maxi Dollars
Started: 28 June 2002 $30,000
Matured: 28 June 2007 $35493.09
Key feature: Capital guranteed

Yield: 3.42%

This is a single premium endowment. The yield is quite satisfactory.

Make the chemistry right

Getting the chemistry right with materials in the laboratories is a far easier exercise for a chemist to do than getting the chemistry right in real life situations with human beings.

Nevertheless there are many similarities between the Nature of Matter and the Nature of Man. If we can apply this knowledge appropriately we can make many things happen for our good which we thought could not be done before.

Read some of the examples Dr. Lee Kum Tatt gives in his article on this subject in his blog.

Monday, May 28, 2007

Business Simulation Training

I presented the Business Simulation comuter software(BEST) to 20 participants from the three organisations in Kuala Lumpur. This simulation game teaches the participants on how to run an insurance company.

The participants enjoyed the game. They were surprised that it gave an interesting insight into the market environment, economic trends, competitive situation, and how they impact on the business strategy.

More details of this game is shown in my website. It can be applied to many businesses, such as insurance, banking, hotel, airlines and retail.

I plan to introduce this software to many organisations in Singapore and Malaysia for their managers to learn about business strategy and entrepreneurship.

Public Transport in Kuala Lumpur

I finished a meeting at the International Center for Islamic Finance in Kuala Lumpur. They are located next to the office of Bank Negara.

My host took me to a LRT station a short walk from the office. He said that it is difficult to call a taxi during the peak hour, and on a rainy day.

I took the LRT for 2 stops to KL Sentral station. I changed to the KLIA Express to get to the airport. The entire journey took 45 minutes. It was easy and comfortable.

This is the advantage of a good public transport system. It beats taxis and private cars.

Sunday, May 27, 2007

Selecting winning funds

In his book, John Bogle said that it is difficult to select the winning funds.

He analysed 355 funds that existed in 1970. By 2006 (36 years later), the results are:

* 223 funds did not exist anymore (in most cases, the investors left the fund)
* 60 performed worse than market benchmark by more than 1%
* 48 performed within 1% (plus or minus) of benchmark
* 15 performed 1% to 2% better than benchmark
* 9 performed more than 2% better than benchmark

It is difficult to pick the 24 funds out of 355 funds. Most of these funds performed well when they were small. When they became big, their performance dropped.

There is no certainty that these 24 funds will perform well in the future. In fact, it is likely that they will not.

Lesson: invest in low cost, indexed funds.

Repay loan on a HDB flat

Hi Mr Tan,

I've been reading your blog for a few weeks now. I really appreciate that you're sharing your experience.

My father bought a 5 room flat about 10 years ago for over $500k. It is probably worth 300k+ today. He has difficulty to pay the loan. It will take another 25 years to pay off the outstanding loan.

I'm about to graduate from the university. Is there anything I can do to help the situation? We have a few tenants. I'm thinking about moving to a 3 room flat to reduce the loan quantum.



If your family can afford the repayment, it is better to keep the current flat. If your loan is with HDB, your pay interest at a very low rate.

With the current boom in the property market, there is a chance that the value of the HDB flat can recover. You can sell it later, when the price has recovered.

As you are renting out some rooms, it should give you a good rental to help with the repayment.

Invest in a single premium endowment

Dear Mr Tan,

I'm a working mother. I wanted to buy an insurance policy for my retirement, maybe in 10 years' time. I intend to invest $100,000 using my CPF.

My sister asked me to buy an endowment plan for 10 years. Does NTUC income has such a plan? What would you recommend?



If you buy an endowment plan using a single premium, you should be able to get a return of 3 to 4% per annum over 10 years from NTUC Income.

I will ask X to send a quotation to you. You can compare it with the plan offered by your sister.


Jubilee Series Link Earner Notes

Hi Mr Tan,

Would like to seek your advice on the recently offered Jubilee Series 3 - LinkEarner Notes. Is it a Safe Investment?

A copy of the propectus is attached for your reference. I do not understand the clause "your investment will be secured with portfolio credit-linked notes, (synthetic collateralised debt obligations".

I am on the verge of my retirement. In 9 months times I will be reaching 55 yrs old. I will have some cash from my CPF.



This is a structured product. I have not found any structured product that make sense to the investor. Please read my FAQ in

I shall try to look at this product and give you my detailed comments later.

Tip: Never invest in a product that you do not understand.



Credit linked notes look to be a good deal on the surface. The drawback is that if interest rates decline, the notes will rise and the company will call them -- (buy them back). Then you are left to invest your cash at a lower interest rate.

Second, most credit linked notes are not a unit trust or ILP -- and therefore do not disclose their expense ratio.

These are the two drawbacks -- (and they are big ones).

Fair Dealing

When I met John Bogle in Vanguard, he told me that NASDAQ requires all products traded through the exchange to pass the test of "fair dealing".

If any product is not designed to be "fair", then NASDAQ will not allow the product to be traded.

I like this concept. I hope that a similar concept should be adopted in Singapore.

In recent years, many structured products were introduced in the Singapore that were, in my opinion, not fair to consumers.

For example there was a capital guaranteed product that earned a return of only 2.1% over 5 years (or 0.4% per year) for the investor.

If the investor had invested in government bonds (which are guaranteed by the government), the investor would have earned at last 15% for the 5 years.

According to the product structure, the investor could have earned more than 2.1% under certain conditions. It was impossible for the investor to know the chance of earning more than 2.1%. The chance must be extremely slim.

In my view, such a product could not have passed the test of "fair dealing".

Wrong trade entered into SGX

I read that a wrong trade was entered into SGX, which caused the ST Index to drop by 400 points.

The traded wanted to sell DBS warrants at 27 cents. Instead, the trade was entered under DBS (which was traded at $24.00). The trade was done.

This problem could have been avoided by a simple check in the SGX computer system. Every trade should be checked against the last done price. Any difference of more than 5% (say) should be highlighted for the trader to confirm the trade.

If the difference is more than 10%, perhaps a second re-confirmation should be required.

Building A Great Society

Everybody wants a role to build a Great Society. Here are some of Dr. Lee Kum Tatt’s experiences on this matter and how this can be achieved even now.


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