Saturday, November 28, 2009

Payout under CPF Life

Dear Mr Tan
In the CPF-Life form they ask two questions (which I feel is irrevelant):
- annual assessable income
-annual value of house.

I am doing some part-time job with provides an irregular income and may downgrade to a smaller flat later on. I do not know if the CPF will pay me more, less or the same amount in the future, due to my change of circumstances.

I intend to put $75000.00 into my retirement account to join this scheme. Should I go ahead or put my money here or go elsewhere?

The CPF ask you for the annual assessible income and the annual value of your house to determine if you quality for the full amount of the L-Bonus of $4,000, or a partial bonus or none at all. Apart from the L-Bonus, the monthly payout from the CPF Life will not be affected by your income or housing.

In my view, the CPF Life is attractive to the members as it is run operated as a non-profit and on mutual principles (i.e. all the members share the experience of the scheme fairly), has low expense ratio and earns an attractive interest rate of around 4%.

The annuity plan offered by the insurance companies, will not be able to offer this attractive payout.

Family Income Benefit

A family income benefit is a life insurance policy that pays a monthly income to the family following the death of the life assured. The income is payable for the remainder of the term.

I consider this type of insurance to be the most suitable policy for a person to take care of the financial needs of the family. It is more suitable than a term insurance policy.

Take the example of a male aged 30 with a monthly income of $3,000 and young children. He can buy a term insurance policy to cover $300,000 for 25 years and pay an annual premium of $720. For the same premium, he can buy a family income benefit to pay $3,000 a month from death until the end of 25 years.

If death occurs during the first year, the total payout is $3,000 X 12 X 25 = $900,000, but paid monthly over 25 years. This is 3 times the amount payable under level term insurance. If death occurs at end of year 15, the total payout is $3,000 X 12 X 10 years = $360,000, which is still more than the payout under the level term.

The monthly payout is better to meet the family needs, as the spouse does not need to worry about how to invest the lump sum.

Unfortunately, the insurance companies in Singapore are not keen to sell the family income benefit. Most of their sales are made through the agent, who wants to sell other life insurance policies that pays a higher commission to them. The agent will try to convince the customer to buy a policy that gives a return on the premiums, although the return is rather poor and is usually less than 2% per annum.

Some companies offer family income benefit, but they loaded up the premium to a much higher rate, to give a high profit and expense margin. The premium could be two times of what it should be.

To get a competitive rate, the customer should ask a few insurance companies to quote for a family income benefit to pay $X a month for a term of 25 years. If several companies are willing to quote the rate, they are likely to offer a more competitive rate, that reflects the actual cost of claims plus a fair margin for expenses and profit.

I hope that life insurance companies will offer this plan to be sold directly to customer through the internet.

Tan Kin Lian

Keep cash, and be safe

Someone asked for my views on how to invest money at this time. It is a difficult question.

I think that it is better to keep cash, i.e. put in a bank to earn 0.5% per annum. This may be a poor return, and does not cover inflation, but it is safer. I do not like the stock market as it has been inflated due to cheap money from the government stimulus packages around the world.

The underlying problems of the global economy has not been solved, as there is still high unemployment and lower consumer demand. People will be unwilling to spend, if they are not sure about the security of their jobs and incomes. When people spend less, more people will become unemployed. This leads to a depression.

While the global economy remains gloomy, and the underlying problems are not solved, it is better to keep cash. Some people rushed into gold and commodities, but their prices may be too high now.

I would be more confident when the governments around the world start to adopt Keynesian principles, i.e inflate the global economy by creating more jobs funded by the state. This will cause inflation a few years later, but will have the impact of reviving the global economy. At that time, I will start to invest in the stock markets. If the bond markets gives a higher yield (better than inflation), I may invest in bonds also.

Tan Kin Lian

New immigrant's loyalty to Singapore

Dr. Wong Wee Nam disagrees with Mr. Goh Chok Tong. Read this article here.

Someone ask, "Who is Dr. Wong Wee Nam?" You can learn more about him here.

An alternative to the free market economy

Many people dream of being a multi-millionaire. They love the free market economy, as it gives them the opportunity to pursue their dream. Let us stop chasing this dream for a while and reflect on what this issue is all about.

At any time, there is a limited number of assets in the world. These assets have to be shared by the people. If some people are multi-millionaires, other people have to be poorer to allow the rich to own more of the limited assets. This leads to income and wealth inequality.

It is possible for the world to produce more assets to be owned by more people. However, the over-production has lead to a depletion of the natural resources, damaging the environment and leaving less resources behind for the future generation. Is this what we really want? Do we really want to work hard to accumulate more assets than is really necessary? What about spending more time for family and friends?

Many people do not have the choice. They have to work hard to keep a job. Other people gets unemployed, so they have to offer their labor at lower rates to compete for the same jobs. This allows the business owners to make more profit and be richer.

This is what has been happening during the past two decades with global competition and the free market. It has lead to wide disparity of income and poorer living conditions for many people, while a few becomes super rich.

My observation is not new. It has happened in history. I am bringing the great philosophers of earlier times, such as Confucius and Karl Marx. Spend time to read about their teachings.

These philosophers tell us that there is an alternative system to the free market and competitive business environment. Do not be misled that the free market environment, that we are used to in recent years, is the only way or the best way to prosperity and a happier life.

Tan Kin Lian



Confucianism is a "code of conduct" to live this life, and it has had a tremendous impact on how the Chinese live their lives... with a great influence in Chinese government, education, and attitudes toward correct personal behavior and the individual duties to society.

Confucius wanted to be a politician, even a Prime Minister, but he failed... and dedicated to preach good moral conduct... after his death he is the Chinese most influential in the history of China, and had all the honors he never had in life: The Government ordered the "worship of Confucius", and named him the "Co-Assessor with the deities of Heaven and Earth". His precepts and principles were incorporated into the Chinese Law in 210 BC.

His way to please God or the gods is through a "good conduct" with your family, neighbors, and society... if you are a good person, God is going to like you.

Some say that Confucianism is no religion in reality, because Confucius is a philosopher, moralist, statesman and educationist, but no religionist. They say that the thoughts and teachings of Confucius are ethical philosophy, political and educational principle, but not religious philosophy.

The "Jen": The essence of all his teachings may be summed up under this one word ‘Jen’. The nearest equivalent to this difficult word is "social virtue". All those virtues which help to maintain social harmony and peace like benevolence, charity, magnanimity, sincerity, respectfulness, altruism, diligence, loving kindness, goodness are included in Jen.

His "Golden Rule" is: "What you do not want done to yourself, do not do unto others". "The injuries done to you by an enemy should be returned with a combination of love and justice".

The "universal virtues" are: Wisdom, Benevolence, and Fortitude... Asked about what is "Benevolence", he answered: "It is to love all men"; what is "knowledge?: "It is to know all men"... The "perfect virtue": "Gravity, generosity of soul, sincerity, earnestness, and kindness".

Confucius laid great stress on the cultivation of character, purity of heart and conduct. He exhorted the people to develop a good character first, which is a priceless jewel and which is the best of all virtues.

The nature of man, according to Confucius, is fundamentally good inclined towards goodness. Perfection of goodness can be found in sages and saints. Every man should attempt to reach the ideal by leading a virtuous life, by possessing a very noble character, and by doing his duty unselfishly with sincerity and truthfulness. He who is endowed with a good character and divine virtue is a princely type of man. The princely man sticks to virtue, and the inferior man clings to material comfort. The princely man is just while the inferior man expects rewards and favours. The princely man is dignified, noble, magnanimous, and humble while the inferior man is mean, proud, crooked, and arrogant.

His teaching was largely concerned with the problems of good government. He said, "The Ruler himself should be virtuous, just, honest and dutiful. A virtuous ruler is like the Pole-star which, by keeping its place, makes all other stars to evolve round it. As is the Ruler, so will be the subjects."

Confucianism is lived in syncretism with any other religion in China... any Confucianist would be very happy to become a Christian!.

Friday, November 27, 2009

Pension planning

Here are some tips for the retirees.

Economic problems of Ireland

Read this article about Ireland. Is there a lesson for Singapore?

Dubai is unable to repay its debts

Someone posted a blog about the speech made by Mr. Lee Kuan Yew concerning Dubai. It is reported here.

Dubai is now facing difficult in repaying its large borrowings that were used to develop its visionary facilities.

I first went to Dubai in 2006 and was also impressed with the bold and visionary steps that were taken to develop Dubai. Few could have foreseen the collapse of the global economy at that time. I did not.

Tan Kin Lian

Ideals of communism

I like the theory of communist as taught by Karl Marx. I believe that the people in a society should take care of each other, rather than compete fiercely for selfish ends. I also like the concept of common ownership of property that are made available for use by the people. Many limited resources are actually owned by the state, and they can be put to better use.

I saw a history documentary in TV about China. I was surprised to learn the Confucius taught the people to live in harmony, rather than to compete against each other. This lead to a harmonious society, which did not make much progress, but give a happy life to its people. This concept of community purpose, rather than selfish purpose, actually occurs before Karl Marx.

I asked a Russian couple whether life was better in Russia under Communism or the free market. The woman, who was a school teacher, preferred the previous Communist era, as life was more predictable. The man, who was a small entrepreneur, prefer the present free market era.

In recent history, Communist states failed because the leaders worked only for their own ends, and were oppressive in seeking to retain power. This desire to retain power occurs in democratic societies as well. The leaders changed the election boundaries (i.e. gerrymandering) and the election rules to ensure that they can be re-elected. This practice occurs even in America, a society that aims to champion the cause of democracy.

In some "democratic" countries, the political leaders assassinate their rivals. In other countries, they find other ways to fix their rivals.

We should not associate communism with oppression. According to Karl Marx theory, the decisions on the priorities for society has to be carried out by democratic means. The members of society decide what they want.

Tan Kin Lian

Communism - theory and practice

Source: Wikipedia

Communism is a socioeconomic structure and political ideology that promotes the establishment of an egalitarian, classless, stateless society based on common ownership and control of the means of production and property in general.

Karl Marx posited that communism would be the final stage in human society, which would be achieved through a proletarian revolution and only becoming possible only after a socialist stage develops the productive forces, leading to a superabundance of goods and services.

"Pure communism" in the Marxian sense refers to a classless, stateless and oppression-free society where decisions on what to produce and what policies to pursue are made democratically, allowing every member of society to participate in the decision-making process in both the political and economic spheres of life.

In modern usage, communism is often used to refer to Bolshevism or Marxism-Leninism and the policies of the various communist states which had government ownership of all the means of production and centrally planned economies. Communist regimes have historically been authoritarian, repressive, and coercive governments concerned primarily with preserving their own power.

As a political ideology, communism is usually considered to be a branch of socialism; a broad group of economic and political philosophies that draw on the various political and intellectual movements with origins in the work of theorists of the Industrial Revolution and the French Revolution.[6] Communism attempts to offer an alternative to the problems with the capitalist market economy and the legacy of imperialism and nationalism.

Marx states that the only way to solve these problems is for the working class (proletariat), who according to Marx are the main producers of wealth in society and are exploited by the Capitalist-class (bourgeoisie), to replace the bourgeoisie as the ruling class in order to establish a free society, without class or racial divisions. The dominant forms of communism, such as Leninism, Stalinism, Maoism and Trotskyism are based on Marxism, but non-Marxist versions of communism (such as Christian communism and anarcho-communism) also exist.

Karl Marx never provided a detailed description as to how communism would function as an economic system, but it is understood that a communist economy would consist of common ownership of the means of production, culminating in the negation of the concept of private ownership of capital, which referred to the means of production in Marxian terminology.

Thursday, November 26, 2009

Misleading arguments by life insurance agents

Life insurance agents are trained to present strong arguments to get the unsavvy public to buy life and investment-linked policies that pay high commission to the agents. Here are some of the arguments put forward by them against term insurance:

a) Term insurance is for a certain period. After the period is over, you will not have any more life insurance cover.

b) Term insurance covers a fixed sum, which does not keep up with inflation.

These arguments are misleading and do not present an honest picture. Here are the reasons:

a) You only need life insurance cover when your children still depend on you financially. After 25 years, they have grown up. During this period, you would have accumulated sufficient savings to surpass the sum insured and will not need life insurance any more.

b) If your term insurance covers a level sum, the accumulated savings will be more than adequate to compensate for the effect of inflation. Actually, a decreasing sum insured may be adequate for most people.

The greatest danger of inflation is not on the death benefit, but on the savings in a life insurance policy. A net yield of 2% provided by a life insurance policy is not sufficient to cover inflation. It is important for a policyholder to invest the savings more wisely to get a higher return (say 4% or more) to cover inflation. A life insurance policy does not provide a fair return, due to the high charges for commission and profit.

Many agents know the facts, but they are dishonest in presenting misleading arguments, in the chase for the lucrative commission.

Tan Kin Lian

Watch out for signs of a bad financial adviser

Dear Mr. Tan,

I am a fan of your blog. It is very informative and has tons of information.

Sometime this year,I started to watch a show on CNBC called "The Suze Orman Show".
Although it is targeted at American, I think some sections work for foreigners as well. Recently,she made a list of warning signs of a bad financial advisor and below is the website:

Review of existing life policy

A young person sought my advice on her life insurance policy. Her father bought the policy for her many years ago and now wished to transfer the policy to her. The cash value is lower than the total premiums that were paid. She asked for my advice on whether to continue or terminate the policy. She asked the insurance company to give a projection of the future cash value, but they declined, citing that the future bonus is uncertain.

I advised her as follows:

a) Ask for the projected cash value for each of the next 10 years, based on the guidelines given in this FAQ.
b) Insist on getting a projection of the cash value, even though some part of the projected value is not guaranteed
c) To pass the projection to me, for a review.

It is the duty of the insurance company to give the requested information, so that the customer can review the existing policy and see if it is appropriate to continue the policy. I will ask a volunteer in FISCA to carry out the review for future cases, after the process has been establised.

Wednesday, November 25, 2009

SCMP:Objections to new rules on minibonds look flimsy

23 November 2009
Hong Kong's banks are preparing to fight back against new regulations proposed following the Lehman minibond fiasco.

But although the forces at their disposal are impressive, their tactical position looks weak.

Towards the end of September, the Securities and Futures Commission published its proposals for stricter rules to govern the sale of unlisted structured products to the investing public. Interested parties have until the end of next month to comment.

Most of the proposed rule changes look eminently sensible. For example, the SFC wants to tighten up advertising standards. It wants to ban banks from offering "free gifts" to their customers as inducements to invest. And it plans to force banks to let buyers know if the value of their investment subsequently plunges because of adverse market conditions.

That all sounds reasonable enough, as does the SFC's suggestion that banks should check to see if their customers understand the products they are buying.

But two of the SFC's proposals in particular have raised hackles among Hong Kong's smaller banks: that they should be required to disclose exactly how much commission they stand to earn from the sale of each product, and that they should grant customers a minimum "cooling off" period after buying an investment in which they can change their minds.

Although it is still early days for the consultation period, Hong Kong's banks are already pushing back against the proposed rule changes, complaining that they are unfair, overly complicated and too expensive to implement.

Resistance to commission disclosure is coming from three angles. First, some banks are complaining that full disclosure would enable investors to shop around for the best deal. That, they fear, could lead to unhealthy competition, with banks attempting to undercut each other in order to win business, which they say would erode profits and undermine the stability of the banking system.

The second argument against disclosure is that it would unfairly tilt the investment playing field against banks and in favour of insurance companies, which are under no such obligation to come clean about their own commissions.

The final objection to commission disclosure is that it is simply too difficult. Where banks both structure and sell investment products, the banks claim it is impossible to separate income attributable to the structuring process from value added by the sales force. As a result, they say, they can't disclose their earnings from product sales.

Similarly, the banking sector is raising two major objections to the proposal for a cooling-off period, which is designed to protect impressionable investors against high-pressure sales techniques.

First the banks say the proposal would introduce a perilous element of moral hazard into investment decisions by allowing customers to back out of purchases if the market moves against them or if they decide they can get a better offer elsewhere.

Second, the banks argue that if they buy structured products back from their clients, they will be forced to unwind their hedges in the underlying instruments, which in illiquid markets is likely to be both a lengthy and prohibitively expensive process.

On examination, these objections look unconvincing. On commission disclosure, it is ludicrous to argue that improved transparency could cause unhealthy competition. Heightened competition would only benefit the customer, which is a very healthy thing.

Similarly, complaints that requiring banks to disclose their fees and commissions would unfairly penalise them relative to insurance companies don't stand up. Insurers will face the same requirement under the government's new regulator for the sector.

And contrary to what the banks say, deciding what proportion of income is attributable to origination and what to sales is straightforward. Banks should already do it internally on their departmental profit and loss accounts. If they don't, it is simple enough to determine, based on the commissions paid to third-party distributors.

Objections to the proposed cooling-off period look equally flimsy. If they want to back out, investors will have to pay an administration fee, so there will be little question of moral hazard. And complaints about the difficulty of unwinding hedges are nonsense.

Any cooling-off period is only going to be a matter of days, so it is highly unlikely the banks would actually invest the money raised from a structured product offer until the cooling-off window had closed.

In reality, the banks are opposed to greater transparency because it would reveal internal conflicts of interest.

If a bank salesman were pushing one investment product particularly aggressively compared with another, customers would only have to check which one would pay the more lucrative commission rate to find out whether the salesman was acting in their interest or solely in his own.

And the banks object to the cooling-off period idea simply because they are afraid that on sober reflection without a salesman breathing down their neck, customers may change their minds about buying structured products like minibonds and demand their money back. That would force the banks to surrender their commission income, something they are extremely reluctant to do.

As a result, the banks are preparing to fight back, mobilising their forces to resist the proposed rule changes. Whether they succeed or not will say a great deal about the state of investor protection in Hong Kong.

Over reliance on ratings

Over reliance on rating is a major cause of the financial meldown.

Tax burden around the world

Read this article.

Denmark 48.3%
Sweden 47.1%
Belgium 44.3%
Italy 43.2%
France 43.1%

UK 35.7%
Japan 28.3%
USA 26.9%

Singapore - not listed, but way below 20% (not counting ARF, COE, ERP and costly HDB flats).

Level the playing field

Life is difficult for young people. Jobs are hard to find and wages are low. The cost of living is high, especially the cost of housing. If they have studied in university, they have to repay a hefty study loan.

If they come from a poor family, they start life with $0. If they have to borrow, they pay a high interest rate, that goes towards the large profit of the banks. Those who come from wealthy families do not have to face this burden, as they can get the starting funds from their parents.

I have been toying with the idea of giving every young person a good start in life. Each person should be allowed to get access to credit, up to a certain limit, from the state at a low rate of interest, say 2.5% per annum. The credit should be for specific purposes, such as to meet living expenses during unemployment, unexpected medical bills, marriage or childbirth expenses. This limit can be set at one or two years of the average annual earnings.

The access to this credit will avoid the need for people to borrow money from loan sharks and pay exorbitant interest. Borrowing from the banks at 2% per month is not cheap either. Someone said that it is loan sharking by another name.

There are risks of abuse, but they can be managed and prevented. The benefits can outweigh the risks. Such a credit facility should only be given to citizens. This will give a level playing field to the people from poor families.

Tan Kin Lian

Survey: EPL matches on Pay TV

What are your plans to watch EPL matches on Pay TV next year? Participate in this survey.

Here are the survey results.

Quality of service

Someone sent to me a letter written by a 86 year woman complaining about the impersonal treatment provided by her bank. The sender asked for my comments.

I visited London, Paris and Canterbury recently and observed that the quality of service is generally better than Singapore. The situation is rather bad in Singapore due to the following:

a) Strong emphasis on keeping cost low, leading to overworked and highly stressed staff
b) Employment of foreign workers who are not familiar with the local setting
c) Low wages leading to high turnover and lack of accumulated experience
d) Complaints by customers are generally ignored

This observation applies to the business sectors and to the public service. There are some examples of excellent service in Singapore, but they tend to be occasional rather than systemic.

I dislike the automated system adopted in most large organisations in Singapore. They waste a lot of time for customers and makes it difficult for the customer to speak to a person. It does not reduce the cost for the organisation, as most customers need to speak to a person anyway, rather than get the reply from the pre-programmed automated responses. The people who designed these automated systems do not think about the needs of the customers. They only want to introduce expensive technology to "look good".

The quality of service can only improve if there is general respect for the customer or the public. Sadly, this lack of respect is quite systemic in Singapore, due to the elitist culture promoted by our leaders.

Tan Kin Lian

Tuesday, November 24, 2009

Loss of human touch

Hi Mr Tan,

The email below may be amusing, but this is also happening in Singapore in the name of efficiency and productivity. I found this to be cold and the banks and government departments have lost their human touch for the customers and people.

I would like to read your comments or suggestions on this matter in your blog as matter of public interest.

Shown below, is an actual letter that was sent to a bank by an 86 year old woman. The bank manager thought it amusing enough to have it published in the New York Times.

Dear Sir:
I am writing to thank you for bouncing my check with which I endeavored to pay my plumber last month. By my calculations, three nanoseconds must have elapsed between his presenting the check and the arrival in my account of the funds needed to honor it.

I refer, of course, to the automatic monthly deposit of my entire pension, an arrangement which, I admit, has been in place for only eight years. You are to be commended for seizing that brief window of opportunity, and also for debiting my account $30 by way of penalty for the inconvenience caused to your bank. My thankfulness springs from the manner in which this incident has caused me to rethink my errant financial ways.

I noticed that whereas I personally answer your telephone calls and letters, when I try to contact you, I am confronted by the impersonal, overcharging, pre-recorded, faceless entity which your bank has become.

From now on, I, like you, choose only to deal with a flesh-and-blood person. My mortgage and loan repayments will therefore and hereafter no longer be automatic, but will arrive at your bank, by check, addressed personally and confidentially to an employee at your bank whom you must nominate.

Be aware that it is an offense under the Postal Act for any other person to open such an envelope. Please find attached an Application Contact which I require your chosen employee to complete. I am sorry it runs to eight pages, but in order that I know as much about him or her as your bank knows about me, there is no alternative. Please note that all copies of his or her medical history must be countersigned by a Notary Public, and the mandatory details of his/her financial situation (income, debts, assets and liabilities) must be accompanied by documented proof. In due course, at MY convenience, I will issue your employee with a PIN number which he/she must quote in dealings with me.

I regret that it cannot be shorter than 28 digits but, again, I have modeled it on the number of button presses required of me to access my account balance on your phone bank service. As they say, imitation is the sincerest form of flattery.

Let me level the playing field even further.

When you call me, press buttons as follows:

#1. To make an appointment to see me.
#2. To query a missing payment.
#3. To transfer the call to my living room in case I am there.
#4. To transfer the call to my bedroom in case I am sleeping.
#5. To transfer the call to my toilet in case I am attending to nature.
#6. To transfer the call to my mobile phone if I am not at home.
#7. To leave a message on my computer, a password to access my computer is required. Password will be communicated to you at a later date to that Authorized Contact mentioned earlier.
#8. To return to the main menu and to listen to options 1 through 7.
#9. To make a general complaint or inquiry. The contact will then be put on hold, pending the attention of my automated answering service.
#10. This is a second reminder to press * for English. While this may, on occasion, involve a lengthy wait, uplifting music will play for the duration of the call.

Regrettably, but again following your example, I must also levy an establishment fee to cover the setting up of this new arrangement. May I wish you a happy, if ever so slightly less prosperous New Year?

Your Humble Client
(Remember: This was written by an 86 year old woman)

Lending to small businesses

During the financial crisis, banks withdrew credit to small businesses, as they do not wish to see bad debts. The governments had to step in to provide cheap funds to the banks, so that they can continue to lend to small businesses, as these businesses create jobs.

The banks took the cheap funds, but did not lend to small businesses. Instead, they use the cheap funds to invest in the stock market and earned a big profit, on the inflated asset prices.

Is there a better way for the government to provide credit to small businesses, instead of relying on the banks, which are profit driven - and are not concerned about helping small businesses to create jobs.

I can think of two ways:

a) The cheap funds from government has to be tied to actual lending by the banks. If the banks do not lend to small businesses, they cannot get the cheap funds. This lending can be backed by partial guarantees by the government. (If I am not mistaken, this is the approach adopted in Singapore).

b) The government create another agency to provide the lending to small businesses, which is tied to the number of people employed, The entrepreneur is personally liable for the loan, but can have access to low cost credit. This should provide control over moral hazard, and serve the purpose of giving credit to small businesses, which in turn creates jobs.

Tan Kin Lian

Monday, November 23, 2009

Zero interest rate

The global stock markets are strong because interest rate is near zero. When interest rate starts to move up, the stock markets will correct by a lot. The current levels of the stock markets are unsustainable and quite risky. I have decided to reduce my holdings of stocks.

Common Sense Investing - John Bogle

Investing is all about common sense. Owning a diversified portfolio of stocks and holding it for the long term is a winner's game. Trying to beat the stock market is theoretically a zero-sum game (for every winner, there must be a loser), and after the substantial costs of investing are deducted, it becomes a loser's game.

Common sense tells us, and history confirms, that the simplest and most efficient investment strategy is to buy and hold all of the nation's publicly held businesses at very low cost. The classic index fund that owns this market portfolio is the only investment that guarantees you with your fair share of stock market returns.

"Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees." Warren Buffett

"A low-cost index fund is the most sensible equity investment for the great majority of investors. My mentor, Ben Graham, took this position many years ago, and everything I have seen since convinces me of its truth." Warren Buffett

Credit card bills

Be aware about the charges that can appear on your credit card bill. Read this blog.

Recession and opportunity to change

The recession gives an excellent opportunity to recreate a new environment for business. Read this report. Our Government should also be thinking about change.

Excellent train service in UK

I like the train service in the UK. There is something that Singapore can learn. Read here.


Source: Wikipedia
An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). The word is derived from the Greek oligoi 'few' and poleein 'to sell'. Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms. Strategic planning by oligopolists needs to take into account the likely responses of the other market participants. This causes oligopolistic markets and industries to be a high risk for collusion.

Firms often collude in an attempt to stabilize unstable markets, so as to reduce the risks inherent in these markets for investment and product development. There are legal restrictions on such collusion in most countries. There does not have to be a formal agreement for collusion to take place (although for the act to be illegal there must be actual communication between companies) - for example, in some industries, there may be an acknowledged market leader which informally sets prices to which other producers respond, known as price leadership.

In other situations, competition between sellers in an oligopoly can be fierce, with relatively low prices and high production. This could lead to an efficient outcome approaching perfect competition. The competition in an oligopoly can be greater than when there are more firms in an industry if, for example, the firms were only regionally based and did not compete directly with each other.

Question: Is banking in Singapore similar to an oligopoly?

New York Times to Goldman Sachs

The New York Times editorial slams Goldman Sachs for its role in creating the global financial crisis. What a brave newspaper who is willing to speak the facts honestly.

Low interest rate

Interest rate has been low for the past few years. It will continue to be low for a long time, partly due to supply and demand. There is low demand for loans due to the global economic downturn. There is too much money due to stimulus spending of governments.

But there is another factor. The banks are keeping large spread for themselves. They charge a high interest rate on their loans, especially to small businesses, but offers a low interest rate to their savings. They make a large profit.

In a competitive market, the banks should be competing among themselves to pay higher interest rate to get savings to give out as loans. Their access to cheap government money reduces the need for paying competitive interest rate. There are just a few banks and there could be some "tacit understanding" among the banks that they do not need to compete for savings in this environment. This is an oligopolistic situation.

For interest rate to raise, we need a new arrangement for businesses to get loans at cheaper rates, and for savers to get a higher interest rate. This is a challenge for the governments and economists to rebuild a more competitive environment for the financial sector. The old "free market" did not work well.

Tan Kin Lian

Motley Fool

This is an excellent website to educate the public about investments.

Better citizens

We need better citizens to improve the future of a country. Read this.

Bailout of AIG

Read this report. The counter parties should have been forced to take a haircut, rather than get paid in full.

Sunday, November 22, 2009

Full employment and welfare state

Winston Churchill was the Prime Minister of Great Britain during the Second World War. His outstanding leadership was the key factor in winning the war for Great Britain, against a stronger Germany. He was called "the savior of our nation".

Towards the end of the war, an election was called in Great Britain. Churchill was the leader of the Conservative Party. The Labour Party campaigned on a platform of full employment and a welfare state, and won the general election. Churchill lost, in spite of the gratitude of the people for his leadership. The people were looking towards the future and wanted a government that could deliver full employment and welfare.

Charity and the retrenched

Mr Tan,
What exactly is the legal definition of "Charity"? I am somewhat confused by the "We Are One" campaign which is enjoying an unprecendented TV coverage, to solicit public donations.

Why are retrenched people who can't find jobs, being lumped with the traditional Charity recipients, as in, chronic sick, aged, infirm, homeless, destitute. Is this legal? Surely a lot of retrenched people get at lease some retrenchment benefits whilst those really in dire need e.g. kidney patients, poor sickly aged people, are actually more deserving of :charity: money?

Why are "those affected by the economic downturn" now being sanctioned by the government as charity recipients?

Who isn't affected by the economic downturn, it is a question of the "degree". How do you qualify to get this charity money? Who is the judge? this is very important. Everyone would like to say he is affected terribly by the economic downturn!

I went to "weareone" website to find outmore. The FAQ just tells you how to donate, not telling how the money is administered, who qualifies to get it, how, when, who, zilch!

The website, as in the tV clips, said that the donation is for those "affected by the economic downturn". this is a very vague statement for me to part with my donation money, which could also be given to a kidney patient in financial trouble.

I am quite traditional, i still think that if retrenched people cannot find work and is in financial trouble, it is the Government's duty to generate jobs, or have a system to cushion the impact.

Is it a shift in the policy to pass the burden of supporting jobless people to the rest of the people with jobs, and the government will wash half its hands off the burden of generating jobs, by putting the jobless on charity? I wonder if the small boy on tv who felt proud of contributing the lego bricks, does he know wht he is doing?

In summary, I don't feel comfortable at all constantly being bombarded by the media in the last few weeks, and not getting any wiser going to their website.

What does everyone here think? Tell me, am I being selfish, oversensitive and unreasonable?


Marketing of Portals

I wish to look for marketing associates who are interested to work from home to market the portals. Details are shown here. If you are interested, send an e-mail to

Law Society - Speech by Michael Hwang

Read this speech by President Michael Hwang of the Law Society. He made reference to the Minibond saga.

Yield on a Life Insurance Policy

Microsoft Excel has a function to calculate the yield on a life assurance policy. You can get this function using Insert > Function > Financial > Rate.

Policy taken for 18 years
Monthly premium of $50
Surrender value at end of 18 years is $12,800
What is the yield?

You have to enter the following values in the RATE function:
NPER - number of periods: 18
PMT - payment: $50 X 12 = $600
PV - present value: 0
FV - future value: -12,700 (show as negative as the money is being received)
TYPE: payment type: 0.5 (for monthly payment)

This returns a value of 1.68%

The Big Squander

Paul Krugman wrote this article about the bailout of the banks during the financial crisis of 2008. The government should have insisted that the banks take a haircut on the credit default swaps that were bought from AIG. They did not. The banks obtained 100% payout on the CDS, which were funded by the tax payers. Now the banks can pay multi million dollar bonuses again. What a corrupt world.

Wonderful scenes of Paris

I just visited Paris. Here are some wonderful scenes of this beautiful city.

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