Saturday, January 30, 2010

Pro-investor Champions

Three participants played all the way to Level 9 and reach the status of Champion. They have shared their experiences under Champion tab. They can reset to Level 1 and play again. All the best. You can try the simulation game here. Learn the skill of stock picking. This is especially important for students studying investments, with the ambition of entering the fund management industry.

Speeches from the White House

I am impressed with the way that the Obama Administration is communicating with the people, not just President Obama but also Vice President Biden. That is true, democratic leadership. Watch the videos here.

Working together

President Obama reaches out to the Republican members of Congress and have a dialogue with them, to try and find ways to work together. This is a good example for all leaders - to find solution, they need to have dialogue with the people and their elected representatives. Watch this video.

Buying consumer goods on installment payment

A furniture store advertised several products, e.g. television, notebooks, computers, furniture, cameras for sale on cash or weekly installments over 48 years.

Here is an example:
Notehook: cash price $1,299
Weekly installments over 4 years (i.e. 208 payments) of $11.87

Here is my calculation of the interest charges:
Total  payment over 4 years: $2,469
Cash price: $1,299
Interest charge: $1,170
Annualized interest rate: 36%

Using installment payments, the customer has to pay almost twice of the cash price. The interest charge is almost as much as the cash price. The same formula is applied consistently on all of the products offered on weekly installments

By saving in advance and paying cash, the customer can save a lot of interest charges. It is important to save and pay cash, rather than buy consumer products on installment payments.

Tan Kin Lian

Practice your skill in stock picking

Many students attend courses on financial analysis, but they do not have the chance to put the knowledge into practice.

Pro-investor has been developed to give this practice. How do you pick the right stocks based on trends in the country, industry and market segment? Do the earnings per share (EPS) or price earning ratio (PER) give you an indication about the growth and overpriced stocks? What about the price trends in recent years?

Go to Pro-Investor and put your knowledge into practice. Register an account. Read the Guide. And Play the game. Practice many times, until your reach Level 9 and register to be a Champion.

High housing price in Singapore

Dear Mr. Tan,

Singapore's current leaders, instead of owning up to a bad performance, attempts to do their job using the cheapest instrument - words.

They insist repeatedly that housing is affordable on one hand, against everyone's common sense,
and yet they also claim that the rapid climb in Singapore's housing prices is a positive and purposeful result of PAP's good work in growing our economy and that is where your wealth and your kids' future wealth will come from.

And to top it off, Lee Kuan Yew put forth the assumption that should Mah Bow Tan be ousted from Tampines GRC, everyone should sell their flats because it will become worthless?

Abolish the Financial Advisors Act?

Comment posted in TKL Blog

I have a radical suggestion and that would be to scrap the FAA. The FAA is one hell of a bible that I can bet that not a single financial adviser rep has read and understood it from cover to cover. What it does is raise entry barriers to new FAs. I'm not exactly well-versed with the FAA but I believe one such instance is that FAs must have a capital of a certain minimum sum. This prevents FAs with an "ethical" culture from thriving as they won't have that kind of capital in the first place. It is a known fact the "unethical" reps "earn" more than "ethical" reps for their principal.

Another problem in the FAA is under training and competency. Anyone and everyone should be allowed to hold a license. This way, where's the "information assymetry" now? These "part time" brokers can act as the "direct channel" that has been dreamed of for such a long time. They have full time jobs and just act as "form fillers" who knows the drill and won't stuff any products down your throat since they don't live on that anyway. The FAA restricts such "neutral" brokers as the FA has to spend resources to train them to satisfy CPD hours. Without the FAA breathing down FAs to train their brokers, FAs will be more than happy to have "inactive" brokers who do nothing but help friends and relatives fill forms. They know what's going on behind the scene, the commission, the exclusions etc and won't lose too much dough sharing with his "prospect" for the lack of a better word. Honestly, the training for CPD hours is nonsense. How does holding a party at Expo or Suntec count as 5 hours of skills or knowledge?

The professional consultants who do real financial planning can still carry on with their usual rounds, but as many have pointed out, "the probability of finding an ethical and upright financial sales staff is 0.01%."

People always draw analogies between financial "consultants" and doctors. There is a stark difference here. Financial planning is voluntary, and can be managed by yourself provided you read TKL's good book and do research. In fact, you would make the most objective decisions this way as there is 0 conflict of interest. Medicine however requires years of study and training and medical services demand a high price due to this exclusivity to only the brightest and most determined of the population. If fiancial services were to become such (given even higher entry barriers), people will avoid them altogether due to the high charges and simply read TKL's book instead.


Friday, January 29, 2010

Wages and purchasing power

According to this article, Singapore has the lowest wages and domestic purchasing power among the Asian Tigers.

Improved version of Pro-Investor

An improved version of Pro-Investor has been uploaded. The summary and stocks are sorted in descending sequence based on the latest year's yield. The investor can identify the categories (i.e. country, industry sector and market segment) that performed best during the past year. It is likely that these categories will continue to perform better than average during the following year. The sorted figures make it easier for the investor to pick the stocks based on this strategy.

Practice makes perfect. Try this simulation game many times and learn how the prices are affected by the trends in the country, industry sector and market segment. This is suitable for students learning fund management to practice their stock picking skills, and get a feel of the practical environment.

Although this simulation game is based on its internal model, it still give the challenge to the player to identify the strategy to pick the right stocks. The strategy will have to be changed in the real world environment, but the skill remains the same. Try this simulation now. Read the Guide. Register an account and Play.

Tan Kin Lian

Housing prices and cost of living

If a family lives in a rented home and there is an increase in the rental charge, it results in a higher cost of living.

The purchase price of a home is the discounted value of the future rental. If the purchase price increases, the monthly installment to pay the loan also increases. This is almost the same as paying a higher rental.

If housing prices continue to increase, the owner will benefit as the cost is already fixed at the time of purchase. This was the case in the past, where the cost of property represents a low percentage of the average income, i.e. when housing was inexpensive..

In recent years, the housing prices has increased to a high proportion of the average earnings. It is not possible for housing price to continue to escalate, as the people cannot afford to these prices, when their earnings have stagnated.

The high housing price will be a burden for the future generation. They pay a high price and has to service the loan using a higher proportion of their earnings. The prices will not continue to escalate, after it has passed the "affordability" mark.

It is better to have a system where the housing prices is not left to speculation in the market. The housing prices to be controlled, and kept within a reasonable proportion to the average income. .

Tan Kin Lian

Stabilize the price of new HDB flats

I suggest that the Government should set the prices of new HDB flats based on a multiple of the average earnings, rather than on the prices of resale flats. The prices for new flats could serve as a benchmark for the prices of resale flats, rather than the other way round.

If the HDB publishes the prices of new flats and is ready to build more flats to meet demand, it would help to create a stable market for the new and resale flats. This would be better for the economy and for the people who need a place to live in.

A person's home should not be subject to speculation or for asset enhancement. The prices of the home should be kept at an affordable level, relative to the average earnings.

Thursday, January 28, 2010

The Political System in America

The American political system has its strengths - the elected leaders represent the will of the people and spend their full time in communicating with their voters and considering legislation and policies that govern the future of their country.

It has several weaknesses, that are outline by President Obama in his State of the Union address to Congress on 27 January 2010. These weaknesses are:

- gridlock, i.e. inability to govern effectively due to the separation of powers and difficulty in getting tough decisions to be taken
- power of the lobbyist in influencing the decisions by the members of Congress
- elected leaders spend too much time worrying about getting re-elected, rather than in governing

I hope that with the right leadership, these issues can be addressed and that the system can be made to operate more efficiently. It is better than an autocratic system that is adopted in many other countries. All the best to America in overcoming these challenges and setting a good example to other countries.

Tan Kin Lian

Funny financing

I am quite puzzled by the following situation. The US Government lent money to banks at very low interest rate, through the easy monetary policy. This funding was meant to make it easy for the banks to lend to small businesses and get the economy moving. The banks took this money but were not keen to lend to small businesses (or the small businesses were not keen to invest in a weak economy). The banks decided to use the money to buy US Treasuries, i.e. they lend the money back to the Government and pocket the margin.

The US Government is now considering to lend the money directly to small businesses. What then, is the role of the banks?

Investing in properties for rental

You have to be careful before you buy any residential, commercial or industrial property for rental. The developer or the marketing agent will usually release the available units in batches and they will try to push up the price by created a perceived scarcity of supply. They will pressure the buyer to commit to the purchase through a combination of the following techniques:

- pretend to get a special price from the developer
- ask the buyer to submit a cheque to book the unit
- tell the buyer that someone else is waiting to submit a cheque to book the same unit
- tell the buyer about the current market rental and that the property represents an attractive yield.

The market rental indicated by the property agent or consultant is likely to be exaggerated. It could be the highest market rental for a recent transaction, but the average rental from several transactions could be much lower.

The buyer may also overlook to consider other cost of purchasing or renting the property, such as stamp duty, legal fees, GST, agent's commmission (to secure a tenant) and other costs. After deducting these expenses and taking the actual market rental (and not the exaggerated figure), the rental yield is likely to be more modest.

It is better to invest in a REIT (real estate investment trust) to earn the yield on properties, rather than bear the hassle of being a landlord and having to deal with property agents. I found that REITS are able to provide an attractive dividend yield of 6%to 8% at current market prices.

Tan Kin Lian

Wednesday, January 27, 2010

SCMP:Regulator 'could have avoided minibond fiasco

27 Jan 2010
The Lehman Brothers minibond mess could have been avoided had the Securities and Futures Commission imposed the measures needed to properly vet their sale and suitability to investors, a former senior manager with the regulator said.

Harold Ko Ping-chung, the commission's former head of insurance-related policies and products, told lawmakers that he believed different standards used by the commission's investment products and corporate finance departments, and lax supervision and staff inexperience contributed to the Lehman minibond fiasco.

Minibonds were handled by the corporate finance department, which only required that necessary product information be disclosed, and not the investment products department, which looked at whether the various parties involved in the product were suitably qualified.

Since leaving the commission about five months ago, Ko has been keen for lawmakers to hear his evidence. He testified publicly yesterday for the first time before the Legislative Council subcommittee investigating what went wrong. He also met the subcommittee last week behind closed doors.

The collapse of Lehman Brothers in September 2008 left holders of minibonds linked to it virtually worthless. Minibonds are not corporate bonds, but are high-risk, credit-linked derivatives. They are marketed as a proxy investment in well-known companies.

Ko spent much of his two decades with the commission vetting investment products. His deep understanding of the regulator's work in authorising Lehman minibonds is seen as invaluable as lawmakers prepare to summon banking representatives to testify.

Ko is no stranger to politics. In the 1990s he was a core member of United Ants, a grass-roots human rights group. He also ran unsuccessfully for a seat in Legco in 1995.

Redemption of Pinnacle Notes

Dear Mr. Tan
I picked this up from Den of the Lion Investor. They are redeeming Pinacle Notes at 3% to 5% of the orginal value.


A Healthier, Happier, Fitter New Year

Hi Tan,

I just posted an article on my blog entitled “100 Painless Resolutions for a Healthier, Happier, Fitter New Year”   In n case you thought it interesting enough to drop a quick mention on your site about it as I’m trying to increase readership of my blog.

Jeanne Peterson

Pricing of new HDB flats

The HDB now sets the price for new flats based on the market for resale flats. But, the market for resale flat is subject to temporary supply and demand factors and speculation. It is also fueled by greed and fear, and iinformation can be manipulated by property agents at the expense of the consumers.

It would be better for HDB to set the benchmark for the pricing of their flats. The prices can be set at a multipole of the annual earnings of the ordinary workers. If earnings increase, the prices can move up. If it falls, the price can stay stagnant until the earnings recover.

HDB should publish the prices of all the available flats in advance, to set the benchmark not only for new flats but also for resale flats. The prices of individual units can vary according to location, floor level, facing and distance to MRT station and amenities, but the average should price reflect the average wage level.  If there is strong demand for a specific unit, the unit can be balloted.

This transparency and pricing policy will remove the fear of escalating prices. The stability of the prices, albeit reflecting the average earnings, will remove the speculation of capital owners and property agents. If there is increased demand, HDB can build more flats. In the meantime, those on the waiting list can rent their accommodation or stay with their parents.

It will be a more transparent and fairer market, and will actually reflect the true market forces.

Tan Kin Lian

Affordable flats

What is the affordable price of a HDB flat?

In my book, Practical Guide on Financial Planning, I suggested that the flat should represent 4 to 5 years of the combined family income (after deducting the cost of employing a maid). If the combined family income is $5,000 and the cost of the maid is $800, an affordable price for a flat is $4,200 X (48 to 60) = $200,000 to $250,000.

The monthly repayment should be within 25% of the family income and the loan can be repaid within 25 years or before reaching age 55.  If the monthly repayment is more than 25% of the income, you are paying too much for your flat (or private housing).

If you have used CPF or personal savings towards the down payment for your flat, your monthly repayment should be reduced proportionately below 25%, as you need the difference to be saved to restore back the savings that have been used for the down payment.

Tan Kin Lian

Enhanced SingPass

For the past decades, Singaporeans has enjoyed the convenience of a common NRIC that is used for many personal transactions. This has since been extended to the SingPass, which is used for identifying the person for many transactions with Government departments.

It is time to enhance the SingPass system, to be used more widely in the online world. Some suggestions:

- Make SingPass available to use with private organisations and websites
- Allow the SingPass owner to be linked to a 2FA token, i.e. the token that is used for internet banking
- Allow the registration of an e-mail and mobile phone
- Allow the registration of a unique user name to complement the NRIC.

This enhanced infrastructure will facilitate the adoption of online transactions in the public and private sector and improve national efficiency. Many websites can use this common login, rather than create a separate password to be stored in each website.

Tan Kin Lian

Secret in picking the right stocks

After trying the Pro-Investor simulation game more than 100 times, I managed to find a secret that work well for this game. I click on the tab "Pick:" and sort the stocks in descending order of the column "Yield - 1 year". This sorting is done by clicking on the heading of the column. I pick the top 4 to 7 stocks in this list. I usually pick all of them, but may exclude 1 or 2 stocks. I found this method to yield quite good results based on the simulation formula used in the game.

The prices are generated based on a formula that reflects random changes for the country, sector (industry) and type of company. These prices will be random, but reflect certain underlying trends. If you adopt a certain formula, you may get good results on some occasions, but disappointing results on other occasions. But, I found the above strategy to work quite well. This strategy works on the concept that the best performing stocks in one year is likely to perform better than average during the following year (but may not be at the top), as the underlying trends is likely to persist for more than one year.

Try it here. You have to register an account to play the Pro-Investor game. You can read the Guide for a better understanding of the underlying concepts behind this simulation game.

The Wheel of History will Move Forward

Read this article.

Tuesday, January 26, 2010

Improved user interface for Pro-Investor

The user interface has been improved. It is now easier to select the stocks and learn from the results. Read the Guide to get the tip on how to sort the stocks for easy selection. Click here.

In the next upgrade, we will include a Tab to record the Champions who have reached Level 9.

Stuyvesant Town, Manhatten

The Government Investment Corporation of Singapore (GIC) invested in a Manhatten project called Stuyvesant Town.

Survey: Educating the Young

I have updated the survey results with 63 replies.
My personal views on this topic are expressed here.

Password security

The experts have advised on secure passwords, to prevent hacking, as follows:

- at least 8 characters long
- does not contain all or part of one's name
- mix of upper and lower case characters
- does not have repeated numbers or characters side by side
- password must be changed every 3 months

It is easy to write these exotic rules, but they are not practical. Most people have to keep more than 20 passwords to log into various sites. If every website has their own exotic rules, it would be impossible for the user to remember all these passwords.

We need to exercise common sense. Many of these websites do not contain critical information. I consider that telephone number, address and e-mail to be public information and are not sensitive. So what, if someone knows my e-mail? It is available in my blog anyway. So what, if they know my mobile phone and call me? They do anyway, and I know how to deal with unwanted callers.

We only need secure passwords for bank accounts involving transfer of money or for e-mail accounts that are accessed daily. In most other cases, there is no need to secure passwords. There are millions of accounts, and there is no purpose in spending the time to hack them, unless a specific person is being targeted. If this is the case, the targeted person can take legal action against the hacker for theft or invasion of privacy.

Tan Kin Lian

Singapore's declining birth rate

Singapore's birth rate continued to decline in 2009. The Prime Minister blamed it on the economic crisis. But, the birth rate has been falling in good years as well. The various incentives introduced by the Government during the past two decades failed to work.

My "common sense" observations and talking to ordinary people tell me that families are having less children due to the following reasons:

- High cost of living
- Insecurity of jobs
- High cost and burden of educating the child
- No fun for children to take the pressure of childhood

The complicated incentives, to give different benefits to different child according to birth order, year of birth, status of mothers and many other factors did not help.

We should not blame this situation on the modern lifestyle. While the birth rate is falling in other developed countries as well, the situation in Singapore is among the worst in the world. We are seeing the outcome  of our social and economic policies.

To improve the birth rate, I would prefer to implement the following measures:

- Have the cost of raising two children in each family to be borne by the state, and not be a financial burden for the family
- Change the education system to avoid the competition to be top, but to educate our young to be literate, numerate, have social skills and character and to play.

Tan Kin Lian

Facebook Fan page for Tan Kin Lian & Associates

My staff has created this Facebook Fan page to promote my blog and the services offered by Tan Kin Lian & Associates. You are invited to join his Fan page. Please help to get other people you know to join as well.

The Singapore Recalcitrant

This blog has many well written articles about the social and political situation in Singapore.

Monday, January 25, 2010

Why I joined the Opposition - Gerald Giam

My friends in the PAP tell me that it is more effective to change Singapore from within the PAP than from outside.

I believe that changes to the 
finer details of policies are possible from within, but fundamental changes to the way the country is governed can only come if the top echelon of leaders in the party either radically change their mind, or are replaced.

Neither is about to happen anytime soon.

Quality of Life Index

According to this report, Singapore ranked 70th in the Quality of Life Index by International Living. Singapore needs to improve its ranking to be a good place to live in, for its citizens.

France topped the list, followed by Australia, Switzerland, Germany and New Zealand. This is explained here.

Market correction?

Read this report.

China based Singapore listed firms

Read this report about the S-chips.

Social studies - a compulsory subject

The Ministry of Education is making social studies into a compulsory subject. This is helpful in getting our young to be more social responsible and less self-centered (or selfish).

I suggest that a more important step is to reduce the competition in the school to go for the top places and win scholarships. This competition is unhealthy and brings negative consequences. My views are elaborated here.

I believe that a better approach is to educate our young to be literate, numerate, have social skills and character. We can find the leaders after they start work and solve real life problems. This view is shared by many people in this survey.

Ethical financial consultants

There are ethical consultants and bad consultants in the financial services field. The ethical consultants offer advice and products that are in the best interest of their clients. The bad consultants think of their own benefit and offer products that give bad value to their clients.

The tied consultants can only offer the products that are available to them to be sold. If they work for a financial institution that offer ethical products (i.e. transparent and fairly priced), they can earn a honest living. However, if the financial institution designs products that are meant to deceive or mislead the consumers, the consultants face a dilemma. Do they act ethically, in the interest of their clients, and avoid these products? Alternatively, do they sell these products, as they are "bribed" with attractive commissions?

It depends on the ethical and moral values of each individual consultant. Some are upright, but others are not. In our current market environment, it is more likely to find an bad consultant - but there are good ones around.

Some consumers will trust consultants that they know personally. However, there are many cases of such consultants betraying the trust and taking their friends for a ride. If you are not able to differentiate between an ethical or bad consultant, it is best to avoid them altogether.

Tan Kin Lian

Sunday, January 24, 2010

Talk at NLB: Financial Planning in Time of Crisis

The talk at Yishun Library was successful. More than 60 people turned up. Due to the limited capacity, I had to carry out two sessions at 3 pm and 4.30 pm. The second session was for those that turned up late and could not be accommodated. Apologies for the inconvenience.

The talk was stimulating and enjoyable. The participants asked a lot of questions, relating to the topics and outside the topics.

FISCA (Financial Services Consumer Association) will be organising more talks in collaboration with National Library Board, to be held in the Head Office in Bras Basah Road  and in other community libraries.

Many participants expressed interest in attending a 12 hour course on financial planning (covering 8 topics in more detail). More details will be released later.

Successful start to Pro-Investor

Nearly 40 participants have registered to play Pro-Investor during the past 2 days. One participant log in 7 times and played around 30 games. Another participant achieved Level 9 - which is the top level.

I have created a new entry under Guide to share my personal experience about playing this simulation game on stock selection. I have given some tips on how you can find a technique that can reduce your learning curve. You can experiment with variations of this technique to get better results.

Picking the right stocks in the real world environment is a matter of experience and learning. There is no single magic formula that you can use, as the environment keeps changing. What you can learn is the secret of watching the right trends and making the right choices - and hope to be right 60% of the time or better. Pro-Investor aims to give you this chance to learn through experience, and to acquire a lifetime of experience within a few days.  I hope that you enjoy this learning experience.

Tan Kin Lian

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