6 August 2012
Editor, Forum page
Straits Times
I agree with Mr. George Lim "Wrong to encourage heartlanders to
play the stock market" (ST 6 August) that heartlanders should not speculate
in the stock market. However, I wish to point out that there is a difference
between speculating and investing for the long term.
Research studies have shown that the investing in equities produce a higher
return, over the long term, compared to investing in bonds or in bank deposits.
The risk of the stock market can be mitigated through diversification,
investing for the long term (to average out the good and bad years) and
dollar cost averaging (i.e. investing in small amounts over a long period of time). For
the long term investor, the daily fluctuation in the stock prices does not really matter.
The difficulty of selecting the right stocks can be overcome by investing in an
indexed fund, such as an exchange traded fund (ETF) that is available through the
Singapore Exchange. However, investors should learn about the different types
of ETF and choose an indexed ETF that has lower risk.
The low interest rate environment in Singapore has forced savers to look for better
alternatives to provide a modest return. Equities and property trusts should be considered
as they are likely to give a return that is better than inflation rate over the long term.
I discourage investing in life insurance policies as they do not provide an adequate long term
rate of return, due to the high charges and do not provide the flexibility in cash flow that may
be needed. However, it is all right to buy low cost term insurance to provide
life insurance coverage.
I support the effort taken by the Singapore Exchange and the investor's association to
educate heartlanders about investing in equities and investments in general.
Tan Kin Lian
President
Financial Services Consumer Association
President
Financial Services Consumer Association
8 comments:
Agree with TKL. Investing and speculation are world's apart, stock investment is better than making our 2 casinos rich with your losses.
Off course stick with the blue chips and mundane boring dividend second liners, and time your entry into the market,
follow the great American investment guru, enter when others fear to tread, and avoid when everyone rushes in.
Take FB and Shengxiong as a mirror to watch. E.g, during the last Asian Financial Crisis astute investors who picked up APB at around $5.80, would now see their investment grow by leaps and bounds now, and the Company is selling a boring commodity, Tiger beer, which investors may have noticed even sold in North Korea. Just visit this Communist country and open eyes to see what is on their supermarket shelves.
Critics of SIAS and SGX's action in the heartlands are confusing even themselves, and need education as well.
Stock is not as risky as some financial products push by the banks.
I agree with Yu Juan's comment. The best is you have a good mentor in stock selection, they could be your father, mother or uncle because they can teach you patience and the many reasons to have it.
While I do agree in principle with Mr Tan’s approach to stock investments for average Singaporeans who know little about financial markets, a few practical realities give pause to me in fully supporting SGX and SIAS’s push to increase retail participation.
To start off, there is no universal definition to differentiate investment from speculative activities. The formers sounds learned while the latter concords negative images of a gambling addict. As a result, most participants define their market participation as investments rather than punting. General rules of thumb like the time frame of holdings, the practice of fundamental and/or technical analyses, concentration on “blue chips” (whatever that means) are woefully inadequate to come out with a set of coherent identifiers that separate investments from speculations. Most laymen do not have the required knowledge to make the distinction and may end up speculating in the market heavily all the while thinking they are “investing”.
It is also important to note that SIAS in general does not advocate the sort of consistent, broad based and mechanical approach that Mr Tan is advocating. Most of their activities and materials are focused on market timing, technical analysis, fundamental ratios etc. The underlying educational theme of SIAS is to help investors pick the right stocks at the right time. A relatively small proportion of their time is devoted to ETFs and even when they do, the focus is more on picking the “right” ETF based on analysis on market conditions. This is of course contrary to what Mr Tan is advocating.
Then there is also the SGX’s irreconcilable conflict of interest where their clearing fees depend on trading velocity, i.e. it is in their interest to encourage people to leverage up and trade actively as much as possible as opposed to Mr Tan’s recommendation to make relatively small purchases every few months consistently.
To sum it all up, the general direction of SGX and SIAS to increase awareness and knowledge in the financial markets is a step in the right direction, but its execution is fraught with moral hazards and potential mischief. The whole exercise requires closer supervision by the relevant authorities to keep things in check than what is being practiced now. One only needs to briefly read through postings in a few popular local forums like CNA, HWZ or Valuebuddies to see that a sizable group of laymen neither know the distinction between investments and speculation nor care about the subject.
Investing in stock market is not Rocket Science. It can be learned if we are willing to put in enough time and effort to learn it.
"For the things we have to learn before we can do them, we learn by doing them." - Aristotle
I agree with Micheal. There is conflict of interest between SGX and the heartlanders.
Trading and investing are worlds apart.
SGX wants you to trade
This means an in/out activity
Investing is usually just in only.
Investing is simple:
Buy a stock that pays a dividend that is better than leaving it in the CPF.. that means a return of more than 2.5% and better still above the inflation rate of 5% per anum
Trading is also simple:
Buy & sell within 3 days or 14 days just to earn the difference in the price. But each time you buy or sell SGX charges you fees and commission, stamp duties and GST.
It is actually gambling. I rather go to the casino with my $1000, pay the entrance fee.
I couldn't agree more.
Nice Blog,
No matter if you are stock market trader or investor, You need to be very careful while dealing in share market. Stock market offers huge returns but many less people are able to stay in profit just think why? Is it because of lack of share trading knowledge? Well let’s discuss this in this nice blog and see what everyone has to say about it. Come one let’s start a discussion which will benefit lot of stock market traders and investors.
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