Someone sent an e-mail to me, arguing that some of the investors are knowledgeable and wanted to jump on the bandwagon to claim for compensation.
I asked him to call me by telephone. He did, and we had a chat. I realise that he was not aware about the details of the structured product. He was arguing from a "thereotical" angle.
I explained that there is no way for any knowledgeable person to invest in the structured product, if he has been properly informed about the risk. The return of 5% is not worth the risk.
He still did not accept my point.
I hope that other people who claimed that the investors were "greedy" should meet and talk to them, before forming this opinion.
Tell him that if GIC 's team of analysts rejected this product because they could not understand what makes him think he can.
ReplyDeleteGet his head examined
ReplyDeleteI was able to get FD interest of btw 3-3.5% from Fin Company (with promotion) at abt that time. Why shd I take risk if I know the CLS is risky?
ReplyDeletePl understand money is very difficult to earn for us, we would not risk our money unnecessary.
5% return is not being greedy! Even the RMs do not understand their product fully such as the failure of one payment will trigger a credit event. If they did they would not recommend it.
ReplyDeleteThe issue is about misrepresentation, miselling and the like. The issue is that the regulator doesn't check enough the product. The issue is about the product is sold to the investor who is not a suitable person for the product.
ReplyDeleteNevertheless, in economy context, it is 'Opportunity cost'. 1 to 2% higher than the 3% FD. In comparision with a structured product, a bond which is a safe product offers bond rate 4 to 5%. A structured product, similary to a safe bond, but is attached with an enormous high risk, shall easily command a return of 12 to 15%. It is again the 'Opportunity cost' but the investor shall get 12 to 15% return instead of a low 5% which suggest a bond in actual. So it is CHEAT not GREED. If the investor is paid 12 to 15% return he is deemed to consent to the risk that he will lose his entire capital but not the 5% he is deceived to be a bond. If the investor gets a 12 to 15% return, U may be right that it is the GREED driving him to the game but a low 5% it is CHEAT (as the larger part of the pie - 7 to 10 % goes to issuer and distributors).
If let's say the Minibonds were only paying out 2% interest and Lehman went bankrupt. Are the investors stupid and greedy at the same time?
ReplyDeleteGreed is a very subjective thing. One amount for someone isn't considered greed relative to someone else.
So unless the person is comparing many financial products before making the statement, that statement is worthless.
Read this:
ReplyDelete================
Given the times, at least three local town councils expect lower investment returns on their sinking funds this year.
But losses will be mitigated thanks to prudence and a new rule that kicked in last December they say.
A still substantial kitty does not mean however that the freeze on service and conservancy charges will be extended after next March.
938live's Geraldine Soh reports.
***
Last December, the National Development Ministry capped at 35 percent the portion of sinking funds town councils can use to invest in higher-risk instruments.
This, following the move by many councils to seek higher returns for their funds invested.
The decision rationale was obvious then.
On hindsight, far-sighted too.
Dr Teo Ho Pin, Co-ordinating Chairman of the 14 PAP-run town councils, and Mayor of Northwest District says, more town councils have since been moving their funds from equities to safer government bonds and fixed deposits.
"Generally, the investments have given good yields, around maybe 3 - 6 percent returns per annum. But if they choose to invest in other instruments like equities then we can expect lower investment returns. At the end of the day, it must be a net plus."
For his town council, Dr Teo says only about 2 to 3 percent of his funds are now invested in equities, down from 10 percent
At Ang Mo Kio-Yio Chu Kang Town council, Chairman and MP for Ang Mo Kio GRC Inderjit Singh says they've not invested signficantly in the likes of Lehman Brothers.
Half of their roughly 150 million dollars in sinking funds are in fixed deposits and cash - equities make up only a 'small percentage'.
Will they be reviewing their portfolio?
"We take a long term view of things. Right now it's so uncertain, no one has clarity of anything it's the worst of times to go and switch. "
MP and Chairman of Marine Parade Town Council Dr Ong Seh Hong took pains to explain how only about 25 to 30 percent of their 100-million-dollar plus sinking funds are left in the hands of fund managers.
Of this, less than 30 percent are in equities; in other words, the funds are safe.
Dr Teo again:
"I think residents can rest assured that sinking funds are in good hands. The town councils are working hard to maximise the returns on those investments. "
So losses are inevitable, but they won't be substantial.
Can they help to subsidize service and conservancy fees for residents then? Currently, fees range from 18 to 85 dollars monthly.
The sinking funds are mainly set aside for cyclical maintenance such as repainting, re-wiring. Operating fund is mainly for routine maintenance services. I don't know what kind of tender prices will crop up when we renew our various contracts. Our conservancy contracts have gone up by 15 percent over the last six months.
All 16 town councils here manage over 1 billion dollars worth in sinking funds.
As for extending the freeze on the fees to beyond next March, Dr Teo said the town councils have not discussed this yet.
Meanwhile, Mr Inderjit says he and his colleagues have suggested the government convene a special group to look into helping Singaporeans through this period.
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Town councils also "jump on bandwagon" as our friend suggested?
"Generally, the investments have given good yields, around maybe 3 - 6 percent returns per annum. But if they choose to invest in other instruments like equities then we can expect lower investment returns. At the end of the day, it must be a net plus."
Generally, a safe bond may give a good yield of up to 6%. The CLS gives out only 5%, where lies the GREED. The CLs should easily command 12 to 15% return to capital. What I wish to say is that it is a CHEAT and not a GREED, becos when an educated people at average is offered the high yield for what he deserves in the high risk investment (ie. he should be offered 12 to 15% coupon rate of the CLS instead of 5%) he will sense something fishy and begin to ask and continue to ask more and when the FULL FACT is disclosed the deal will not be closed. So do U see the MISREPRESENTATION or U still do no?
Just wonder what the Town coucil rate the risk factor of this investment??
ReplyDelete