Latest stock market news from Wall Street -

Thursday, April 24, 2014

Singapore a 'canary in the gold mine of globalisation'

Published on May 24, 2014

Republic testament to how countries can reap success from free trade

By Andres Martinez

 You land at Changi Airport after flying for what seems a lifetime, and you're naturally disoriented, even before you hit the customs booths that feature bowls of mints, dire warnings about the death penalty for those bringing in drugs, and digital comment cards asking if the service was to your liking.

Duck into a public restroom and you'll be exhorted to aim carefully and to "flush with oomph" for the sake of cleanliness. Outside, it's tropical sticky but impeccably clean, in a city that is inhabited by Chinese, Malays, Indians and a multiplicity of guest workers from around the world - all speaking English.

Singapore is an assault on one's preconceptions. Singapore calls itself the Lion City but it would be more accurate to call it the Canary City - the canary in globalisation's gold mine.

Arguably no other place on earth has so engineered itself to prosper from globalisation - and succeeded at it. The small island nation of 5 million people (it's really just a city but that's part of what's disorienting) boasts the world's second-busiest seaport, a far higher per capita income than its former British overlord and a raft of No. 1 rankings on lists ranging from least-corrupt to most business-friendly countries.

On the eve of celebrating its 50th anniversary next year as an independent nation, Singapore is proof that free trade can and does work for multinationals and ordinary citizens alike. So long as globalisation continues apace, the place thrives.

Singapore's defining achievement is summed up in the title of its former prime minister Lee Kuan Yew's memoir, From Third World To First.

When it split from Malaysia a half century ago to become a separate nation of dubious viability, Singapore had little going for it, other than a determination to become whatever it needed to be - assembly plant, container port, trustworthy banking and logistics centre, semiconductor hub, oil refinery, mall developer, you name it. But the brilliance of its founding fathers - OK, it was mostly one father, Mr Lee - was in realising that the precondition for any and all of this to happen was good governance. Over a recent week of meetings and briefings with Singaporean business and government leaders sponsored by the non-profit Singapore International Foundation, two offhand remarks bore this out.

The first was a statement by one business leader that he has never had to pay a bribe in his lifetime. To an American audience, that may seem like a fairly modest boast but as this speaker noted, it'd be a difficult claim to make in neighbouring South-east Asian countries (or developing nations anywhere).

Growing up in Mexico, my dad, a businessman who'd never set foot in Singapore, would often go on and on at dinner about how our country needed a Lee Kuan Yew. I had a vague sense of what dad meant but only now do I get the vehemence behind his sentiment. You couldn't get by in Mexico back then without paying bribes, constantly.

Like Americans, Singaporeans worship the concept of meritocracy. Unlike Americans, Singaporeans entrusted their society to an all-knowing one-party technocracy, a civil service that has delivered the goods across two generations, including affordable, publicly built housing for a majority of the population, and a system of private lifetime savings vehicles that are the envy of policy wonks the world over.

Society's cohesive glue, in addition to English, is a collective form of the "Singlish/Chinese" term kiasu, which roughly translates into a fear of losing or being left behind.

Kiasu usually refers to the extraordinary lengths to which people - individually and collectively - have gone to ensure success. And the motivating anxieties are not hard to discern in a nation-state so small it must rely on other countries for the water it drinks and the space to train its armed forces.

What if China and some other Asian state go to war over disputed islands? What if Shanghai or Hong Kong leverage their domestic markets to overshadow you as Asian financial hub? What if the Malaysians cut off your water? The brutal Japanese occupation during World War II and the recent heart-wrenching dip in trade during the financial crisis of the last decade are stark reminders of how quickly things can sour for a vulnerable canary in a gold mine.

Even now, at the height of its success, Singapore doesn't get much love from the legions of foreigners who avail themselves of its First World amenities.

It's almost obligatory for Westerners visiting or residing in Singapore to complain about the "sterility" of the place and joke about the carefully manicured boulevards and pristine shopping malls - contrasting Singapore unflatteringly to the grittier authenticity and "character" of nearby Cambodia and Vietnam. It's indeed easy to mock Singapore if you haven't lived in a poor country, and it's a form of colonial prejudice to begrudge Singaporeans their lack of Third World "charm". We prefer our tropics to be exotically chaotic, thank you - not tidier and more efficient than the Swiss.

But the interesting wrinkle here is that Singaporeans themselves seem to be joining in the second-guessing about the price of development. Opposition parties are gaining some ground in parliamentary elections, capitalising on unhappiness with strained public services, soaring prices and an influx of super-wealthy foreign investors that resulted from the Government's openness to rapid growth.

Having taken care of its population's basic needs and then some, it must be galling for Singapore's relentlessly pragmatic leadership to see a surge of yearning for rooted authenticity. The few older neighbourhoods that have not been demolished - including the first generation of public housing complexes - are now heralded as historic landmarks, and Singaporeans treat their old botanical gardens as sacred ground. At the Singapore Government's world-renowned scenario-planning futures think-tank, one analyst confided that she is looking into the uptick of nostalgia and what it might mean for policy.

This ill-defined sense of nostalgia - presumably an irrational sentiment in a place that's gone from Third World to First in record time - reflects the tensions inherent in globalisation.

You can leverage all of your comparative advantages to succeed in the global marketplace, and transform yourself accordingly, only to end up feeling some unease at having your distinctive sense of place eroded.

Until recently, Singapore was among the most welcoming places to outsiders, with one out of every three residents born elsewhere. But with fertility rates dropping, the country opened the floodgates to immigrants to ensure continued growth and prosperity, turning immigration into a lightning rod.

This being policy-wonk heaven, one of the triggering events to a national debate on the issue was a government White Paper discussing the target of reaching a population of 7 million. A more spontaneous event was a modest riot late last year in the city's Little India quarter.

This was the subject of the second offhanded remark that struck me most during my recent week in Singapore, when a government official, off-script, said with some relish: "Imagine that, we had a riot: We must be a real place."

A general unease about Singapore's identity and concerns about overcrowding (the price of a Honda Accord is set at more than US$100,000 or S$125,000, in what has to be the bluntest form of congestion pricing anywhere) have forced the Government to slow down its intake of immigrants and taper its growth projections. The move was a testament to how responsive Singapore's system can be to its citizenry's needs and desires, without being terribly democratic.

It was a testament, too, to how perfect Singapore and its paternalistic, technocratic cosmopolitanism is for an age of interdependence that prizes connectivity over a sense of place.

There are many cautionary tales to globalisation's downside but no better canary in the gold mine of globalisation's tenuous triumphs than Singapore.

The writer is the Washington editor of Zocalo Public Square and vice-president of the New America Foundation.

This article is taken from
Zocalco Public Square, a project of the Centre for Social Cohesion at Arizona State University, is a not-for-profit "ideas exchange" that blends live events and humanities journalism.

Sunday, April 20, 2014

Getting the hang of reading annual reports

Published on Apr 20, 2014

Be alert to big drops in sales and/or profits, jumps in debt levels and queries from SGX

By Goh Eng Yeow, Senior Correspondent

Like thousands of other investors, I have found my mail-box cluttered and overflowing with annual reports in the past few days.

Most of these reports are mailed in the form of CDs but there are a handful of companies that still take the trouble to send me the printed copy.

I try to make the effort to go through the annual reports when I find the time. Most are from companies whose shares I have held for years and reading their reports reinforces my belief as to why I bought them in the first place.

But I am more the exception than the rule in this respect. Few investors bother to even glance at the reports sent to them. In fact, most people I know toss them away unopened, even though the companies might have spent a lot of time painstakingly piecing the information together.

The problem may have become more acute in recent years because the reports come in CD form. Trying to manoeuvre through a report on a laptop can be an ordeal compared to flipping through the printed copy.

That said, I understand the need for companies to be environmentally friendly and save the forests by using less paper since most of the reports end up in the bin unopened anyway.

When I ask friends why they fail to look at the annual reports of the listed firms they invest in, the same excuse crops up again and again: They don't have the time and they don't know what to look out for anyway. They also rely on their brokers to tell them if anything is amiss.

That is a pity. Unlike buying a house that you can see and touch, holding listed shares is a peculiar form of ownership in a company. You have no direct control over the firm's assets and you reserve the right to walk away at the drop of a hat by selling your shares.

So, next to attending the company's annual general meeting to size up its management and form an impression of where its business is headed, the next best recourse is to take a stab at its annual report.
But the problem is that annual reports are not exactly easy-to-read documents to start with. Most of them are dense and dull, run to a few hundred pages and are filled with lots of off-putting numbers. Some do not bother to have pictures to liven up the grey pages.

However, it is important for a long-term investor to try and understand how the business of the stock you own is performing, and one of the best ways to do that is by going through the annual report, whether you like it or not.

I have some suggestions on what to look out for if you have only a few minutes to spare:

What is the management saying?
There is nothing that beats reading the top dog's take on the company. In most cases, the chairman's statement is merely a bland overview of the company's past performance - with highlights of any achievements, such as an increase in dividend payouts.

However, if an investor owns shares in a particular company long enough and he takes the trouble to scan the annual reports, then the tone of the chairman's letter and management discussion will be a good pointer to how the core business is running.

If the management starts making excuses or talking in jargon, that should ring alarm bells.

Sales, cash flow and debt levels
You do not have to be a sophisticated investor to know that a big drop in sales and/or profits is a sign that all is not well with the company. Other red flags would be a sudden drop in the cash flow a company gets from its operations. I usually also check to see if there is any big jump in the company's debt levels.

What you should also do is to check the Singapore Exchange's (SGX) website to see if it has raised any queries with the company after it issues its annual report.

The additional information the company has to disclose following an SGX query will often give you a handle on how its business is performing.

Auditing the auditors' take
A listed firm must hire an independent auditor to run his eye over the financial numbers it releases in its annual report.

For most companies, it is routine to get a clean bill of health from their auditors, but there have been instances of auditors flagging their concerns over a company's financial conditions which an investor needs to be aware of.

If a company is changing its auditors, that may also be a cause of concern. You can check the disclosure the company would have made to the SGX for the reason for the change.

At the end of it all, the money is yours to lose if you fail to keep abreast of developments in the company whose stock you own. So those few minutes checking out the report could turn out to be the best investment you make.

How to win at a winning game

Published on Apr 20, 2014

Consistently invest in diversified stocks, don't bail out in bad times, minimise cost

By Teh Hooi Ling

It is a fact. A lot of novice investors in equities ended up losing money.

Consider the track record of Mr Peter Lynch who managed Fidelity's Magellan Fund from 1977 to 1990. He beat the S&P 500 Index in all but two of those years and averaged returns of 29 per cent a year.

That's mind-blowing. It means that $1 grew to more than $27. Had you invested as little as $37,000 with him in 1977, you would have been a millionaire in 1990.

You would imagine that most of the investors who put money in the fund would have made money. But guess what? Mr Lynch himself once said that he believed more than half the unitholders in his fund had lost money. It depended on when they had bought and sold Magellan.

Mr Martin Zweig, a market analyst and investment manager, commissioned Morningstar, the mutual fund research organisation, to track the cash flows in and out of the leading growth funds in the United States in the 1990s.

The contrast between the returns of the investments themselves and the returns of the investors was absolutely breathtaking: The 219 growth funds averaged an annual compounded return of +12.5 per cent for the five years ended June 1994.

But, the investors did much worse. They apparently didn't make any money at all; instead, they lost 2.2 per cent a year with the same group of growth funds!

Both of these findings point to the same conclusion, that is: As a group, investors do a rather poor job of deciding when to buy or sell their investment funds.

The chart on top shows the movement of the Dow Jones Industrial Average (Dow) in the US in the past 10 years. A typical inexperienced investor will probably behave as follows:

July 2005:The market has been quite steady and trending up for the past 21/2
years. All the market experts are saying that prices will continue to go up. OK, I'll invest $10,000 to test the water first.

April 2006: The $10,000 that I invested is now worth $10,816. That's a return of more than 8 per cent in one year. Not bad. Market looks firm. I think I'll invest another $50,000.

May 2007: My capital of $60,000 invested so far is worth $71,682. Wow, this definitely beats leaving my cash in the bank. OK, I'll transfer another $100,000 from my fixed deposit and invest in the market.

January 2008: What's all this news about the sub-prime market? Market is choppy. But it's OK, these investments are for the long term.

January 2009: Oh no! There doesn't seem to be a bottom to the market. Now people are talking about the possibility of another Great Depression. During the Great Depression, the Dow fell from a high of 386.17 on Sept 3, 1929 to a low of 40.56 on July 8, 1932. That's a plunge of some 90 per cent. The market did not recover to the 1929 levels until 1954, some 25 years later! Now my portfolio is down by about 35 per cent only. I'd better take out what I have left.

So the investor exited the market in early February 2009, and got back $103,730 of the original $160,000 invested. As it turned out, the investor withdrew his money near the bottom of the market. Just over a month later, in the second week of March 2009, the market hit bottom, and stock prices rebounded sharply from there.

If the investor had stayed invested and held on to his shares, his $160,000 would have been worth $211,308 as at March 1 this year. All the numbers above exclude transaction costs and dividends received.

Because of this emotional tug of war between greed and fear, many investors effectively manage to lose at a winning game.

So how exactly do we ensure that we win at this winning game?

First, understand that when you invest in a diversified basket of stocks, you are investing in a slice of the economy. As long as we need to buy and sell things - there is no question about this here because we can't possibly produce all the things we need ourselves - then there will always be a value to productive companies.

Second, don't exit the market when everyone else is rushing for the exit. Then, you will not get a fair value for the businesses that you own.

Third, all the more you should buy when you see businesses going on sale at a cheap price.

Now, let's see how someone would have done if he had kept investing in the stock market through the Great Depression. We know that the Great Depression was the worst period the stock market had ever gone through in history - it was many times worse than the recent global financial crisis and the Asian financial crisis. We know that the Dow lost a whopping 90 per cent of its value in the three years between 1929 and 1932 and it didn't climb back to its 1929 level until some 25 years later.

Did an investor who put money into the market during that period see zero or even negative return?

The chart at the bottom shows an investor, let's call her Mary, who started investing in the US market in early 1926. She put in $100 into the market every year. Her investment did well in the first four years. Then the crash of October 1929 happened, to be followed by the Great Depression. Mary watched in horror as her hard-earned savings shrank by the day. But she kept faith. She believed in the continued functioning of the modern economy. As long as companies are allowed to produce what people want and need, they will make money, and the stocks she has invested in will have a value, she told herself. So she kept investing $100 into the market every year.

By the end of 1950, Mary would have put $2,500 into the market. Her portfolio value as at December 1950 was $4,239. This, despite the Dow still being 38 per cent below its September 1929 peak.

Mary managed to grow her capital by 4 per cent a year by consistently putting money into the stock market even through the worst of times. She managed to beat the inflation rate of 1.3 per cent during that 25-year period. In other words, she generated for herself a real return of 2.7 per cent a year in the most adverse of situations.

So, to recap, the secret to winning in a winning game is:
One, consistently invest in a diversified basket of stocks that represents the real economy - especially when prices are cheap. (Some Asian markets are still relatively weak vis-a-vis the US market now. So it may not be a bad time to put some money into those markets.)

Two, don't bail out at the worst of times. All the more, if you can afford it, put in more money at the most depressed of market conditions.

Three, try to minimise your cost as much as possible when getting your equity exposure.

Keeping to these three golden rules will ensure that your savings will grow faster than inflation, and that you will tremendously increase your odds of meeting your financial goals.

The author, a CFA charterholder, is head of research in no-management fee value fund manager Aggregate Asset Management.

Finding the best strategy in share investing

Published on Apr 20, 2014

In the lead-up to The Sunday Times Invest Seminar on May 10, we are running a three-part series on how you can start on that investing journey. This week, a look at various strategies popularly used to buy shares.

By Jonathan Kwok

Higher returns come with higher risk
The stock market is often touted as an accessible way for beginners to grow their money, but there are plenty of traps for the unwary.

First the good news: You can get started for $1,000 or less, compared to possibly $1 million or more if you want a brick-and-mortar investment like a condominium.

The tricky part starts when you decide to take the plunge as there are many strategies to go about share investing.

The jargon does not make things easier - "value investing" and "dollar cost averaging" probably sound like Greek to most people.

The Sunday Times examines some of the more common strategies used to decide what shares to buy, and when to buy or sell.

Value-investing strategy
This aims to buy "cheap" companies by estimating their value and buying if the price is below this figure.

The most famous proponents are billionaire investor Warren Buffett and his late mentor Benjamin Graham, who is considered the "father of value investing".

Unlike many before them who viewed shares as pieces of paper to be bought and sold for a quick buck, Mr Buffett and Mr Graham stressed that shares should be viewed as what they are - documents that give you part-ownership of a company.

So investors should think of themselves first and foremost as company owners, they argued.
Value investing is used alongside "fundamental analysis" - the study of a company's health and profitability.

Fundamental analysis studies the management and competitive advantages of companies, their competitors and markets, and their strategies to thrive.

A major component is an analysis of the company's financial statements - and the possible forecasting of future profits and cashflow.

The investor can then derive a figure of what the company's share price should be valued at. Value investors will buy in if the market price is lower than this by a certain "margin of safety".

"The focus of this strategy is the value of the firm and how the firm creates such value," says Mr Roger Tan, chief executive of Voyage Research, a Singapore-based stock research firm.

Value investing applies more to firms with a track record, rather than new companies or those boasting a turnaround strategy.

There is a lot of academic literature that investors can rely on when attempting fundamental analysis, so valuations can be treated with some confidence, say advocates.

However, it is time-consuming to learn fundamental analysis and apply it. Because analysis is both an art and a science, you may be way off the mark in your valuation without even knowing it.

There is also the danger of the "value trap" - that good, undervalued companies remain cheap for a long time.

In this case, you won't be able to realise your profits.

Used By:
This method is famous thanks to big-name investors like the late Mr Graham and Mr Philip Fisher, best known as the author of Common Stocks and Uncommon Profits.

Mr Buffett, who runs his Berkshire Hathaway investment firm, is also credited as a great value investor.

But Voyage Research's Mr Tan says the trio simply implemented existing theories in economics and finance.

"Many of their methods and theories are derived from academia," he notes.
Some active fund managers use value investing. Their investment mandates may say that they aim to invest in "value stocks".

Ms Teh Hooi Ling, head of research at Aggregate Asset Management, is a believer.
"Value for us is paying just 60 cents for something that is worth $1," she says.

"We look at fundamental data about a company, the tangible assets within the company, be it cash, real estate, machinery or inventory.

"We want companies with a long track record that pay consistent dividends. And we don't like companies with high debt levels."

The firm manages the Aggregate Value Fund with 190 stocks in five markets - an unusually large number of stocks.

Ms Teh said this ensures that more stocks will deliver returns, compared with those that don't.

Suitable For:
Those willing to put in the time to learn fundamental analysis. It may also be suitable for people seeking regular income as it can identify undervalued, dividend-rich shares.

You will need to keep an eye on market prices, but far more attention should be spent tracking company developments and results announcements.

Growth-investing strategy
Growth investors buy shares of firms they expect will achieve above-average growth in the years to come.

As opposed to value investors, they don't care if the share price seems high on various indicators when compared to other companies.

Because of this, value and growth investing are often regarded as opposing ways to approach the stock market, but Mr Buffett has said that there is no theoretical difference between these two concepts.

"The two approaches are joined at the hip," he famously declared.
Growth investors also use fundamental analysis to check what companies and sectors are most likely to grow.

They may also make predictions about future value. Growth investors are more likely to put money in new companies in nascent industries than value investors who typically require some form of track record.

But growth investing got a bad reputation after the bursting of the bubble in 2000.
The years leading up to it were marked by feverish investments in any tech company, regardless of whether it was making money.

The expectations at that time were that these firms would grow exponentially in the years to come.
The lesson is a reminder that growth investors may get caught up in a huge speculative market bubble - and may suffer huge losses if it bursts.

Used By:
The late American investor Thomas Rowe Price Jr was commonly regarded as the "father of growth investing", and his firm T. Rowe Price still manages funds using this strategy.

Many other fund managers also have unit trusts with "growth" mandates.

Suitable For:
Those willing to put in the time to study companies. If you plumb for growth companies with no operating history, it may be higher risk than value investing.

You can diversify and reduce risk by owning a portfolio of shares or investing in a unit trust.

Dollar cost averaging
This method has been gaining popularity in recent years, but it is more of a way to buy into the market rather than to choose stocks.

After you have identified a long-term investment opportunity, possibly from fundamental analysis, it may make sense not to throw in your money all at once, says Mr Tan of Voyage Research.

Rather, investors may put aside a set amount to buy the shares, either once a month or once a quarter.
"In this case, you will buy more units of the investment when prices are low and fewer when prices are high," he adds.

"The result is that the long-term average cost would tend towards the lower end of the price spectrum."

Mr Vasu Menon, vice-president of Singapore wealth management at OCBC Bank, says that dollar cost averaging is a good way to invest in volatile markets, and upcoming global events mean that markets are going to be volatile.

"If we wait to try and catch things at the bottom, we may miss the boat," he says. "I would recommend dollar cost averaging."

Some people who don't want to analyse companies might use dollar cost averaging to buy low-cost index funds like exchange-traded funds (ETFs).

These track a stock index, like Singapore's Straits Times Index, by buying the index's underlying shares, allowing you to diversify your holdings.

OCBC Bank, POSB Bank and brokerage Phillip Securities offer investing plans utilising dollar cost averaging.

Used By:
Not many active fund managers use dollar cost averaging because you are, after all, paying them for their ability to pick shares and time the market.

But there are some experts who advocate this strategy for retail investors, such as American financial adviser and television host Suze Orman.

Suitable For:
Investors who don't want to monitor the stock market. Use dollar cost averaging to buy individual shares if you have done some research and are confident about the stock.

Otherwise, buy ETFs or actively-managed funds like unit trusts.

Other strategies
There are several other strategies in the market, such as "momentum trading".

This involves identifying patterns in price or volume charts of shares, a field known as technical analysis.

"The theory is that consistent patterns exist and if such patterns are identified, a market timer can foretell how prices would move next," says Mr Tan.

In general, each strategy of approaching the stock market has its proponents, who often stubbornly believe that theirs is the best way.

Stocks are considered a high-risk asset class, especially when compared to bonds.

But within this asset, dollar cost averaging is seen as a lower-risk strategy, followed by value investing, with growth investing and momentum trading considered higher risk.

A high-risk strategy normally promises higher returns and vice versa. Whichever strategy you choose, this should be the one rule of thumb you must remember.

Wednesday, April 16, 2014

A Practical Approach for the Time-Challenged Layman Investor

by Eric Kong of Aggregate Asset Management
16 April 2013

I notice that most laymen try to follow the Warren Buffett approach. The Warren Buffett approach to investing is time consuming and requires a lot of hard-work and not to mention a very high IQ.

Nobody will admit that they have an average IQ, everyone thinks that their IQ is higher than average – then who is average? There lies the danger – ourselves! In investing, we take heed of the wise words of Pogo: “I have found the enemy, and it is us!”

We cannot invest like Buffett, or all the other gurus. We have got kids to fetch, careers to take care of, the MBA project to do, the required exercise to do to fight the 3 diseases of civilization (hypertension, diabetes and cholesterol) and frankly, most of us are just plain tired from living and excelling in this tiny, crowded and noisy island.

Let me give you an approach that works. I cannot prove that it will work in the future – I have used it for myself for the last 15 years, both for myself and in my career as a fund manager, and I have observed from value investing colleagues in both Singapore and overseas – and it works. Of course, I have adapted and modified it for the layman investor here, such that albeit its simplicity, it still works.

The overall plan is simple:
 First, save as much money as you can. Cut all unnecessary expenses. For example, don’t drink lattes, drink water. Don’t drive -walk or cycle. Don’t eat out, cook at home. Save every cent.

 With your savings, go and buy a stock. If it is not enough, save another 2-3 months. Buy equal dollar amounts every period regularly.

Which stock to buy?
Don’t listen to your broker, friends or troll the internet for stock ideas. Doing that will guarantee you will fail in a spectacular manner.

Stock ideas must be generated independently. That is the secret of success. Learn how to use a stock-screener. Just run it and choose stocks that are selling below book value and have been paying dividends for the last 5 years. Choose any one that strikes your fancy – and buy it! Only look at it when it has gone up by 50%. (Usually, it won’t happen in a day or week or month or year). If you cannot wait, you don’t deserve to be rich.

You can then decide to sell it or hold it, it really doesn’t matter. Don’t ask me when to sell – it is more important that you have bought it. If it goes down, ignore it. If you sell it, use the money to buy another stock.

Repeat this step every time you got spare cash. Do not buy the same stock. Make sure each time it is a different stock. Remember Noah’s ark – a pair of each animal? Just do that. Diversification will protect you against yourself.

If you do this monthly, at the end of 5 years, you should have about 60 stocks in your portfolio, and the capital gains would be a tidy sum, not counting all the dividends. Reinvest your dividends – it is not free money for shopping. Aim to have about 100 stocks in your portfolio, with each one having equal weightage of 1% each.

A word of warning: Beware of stock market euphoria. When the market is euphoric – do not suddenly pump in large amounts of money into stocks. 99% of the people do this. Our egos will be inflated, because we have been diligently accumulating stocks and seeing their market values rise stratospherically, and all our self-congratulations will spur us to add in more money. Don’t! Stick to the plan.

Second warning: If the stock market plunges by more than 50% (eg. the financial crisis in 2008) - do not sell your decimated stocks, just hold on, take a deep breath, and keep adding. Stick to the plan.

When to stop? When your dividend income from your portfolio can fund your expenses – then you have earned you retirement!

Article Contributed by Eric Kong of Aggregate Asset Management.


Monday, April 7, 2014

Why you should worry about disappearing jobs

S'poreans hit as middle-skilled jobs vanish and other sectors at risk

Posted on Apr 7, 2014 12:00 PM
By Toh Yong Chuan

My 16-year-old son wants to go to university and be a banker or economist after he graduates.

As a father, all I could do without dampening his enthusiasm is to encourage him to study hard for his O levels this year.

The jobs, I said, will come when they come.

But in my mind, I would prefer him to be a journalist than an economist or banker.

And it is not just because of the satisfaction of seeing my son follow in my footsteps. A journalist has better job security than the economist, according to an Oxford University study published six months ago.

The study found that there is a 0.43 probability of economists being replaced by computers in the next two decades. Journalists have better odds - 0.11.

Last week, The Straits Times looked at how some middle-skilled jobs are already disappearing here and what jobs are at risk of vanishing in the future.

In the report, a former marine mechanic explained why he quit to become a taxi driver, as his pay had stagnated at just below $2,000 a month.

The report drew mixed reactions. A reader blamed the Government for letting foreigners snatch jobs from Singaporeans.

Another said the newspaper should not have given the impression that driving taxis is a secure job. The reality is, we will never know which jobs are safe.

Taxi drivers may well disappear when driverless cars hit the roads. Indeed, the Oxford study puts the probability of that happening in the next 20 years as 0.89, which is very high.

But for the taxi driver interviewed, it provided a way out of wage stagnation - for now.

Economists call the trend of the shrinking middle-skilled workforce "job polarisation".

According to Deputy Prime Minister Tharman Shanmugaratnam who sounded the warning bell last month, Singapore has been spared the effects of the trend because of the tight labour market. That is, displaced workers have been able to find jobs.

Still, there are at least five reasons why we should be worried.

First, large numbers of Singaporeans are affected.

A close look at the composition of the resident labour force showed that there are now 48,000 fewer production craftsmen and semi-skilled factory workers than 13 years ago.

This happened even as the resident labour force grew by more than 470,000 workers.

Second, chunks of whole sectors in other countries have disappeared.

Labour economist Randolph Tan of SIM University pointed out that most of the eight million Americans who lost their jobs in the 2007-2008 global financial crisis are not getting their jobs, or jobs with the same pay, back.

"The evaporation of most of those jobs was the loudest warning that the polarisation would change the entire landscape of jobs in a big way," he warned.

Third, the displaced workers may not be able to do the jobs that survived or fill the new vacancies created.

Take, for example, what is happening in banking.

Recruitment firm Hays said in its latest annual salary guide that the demand for risk and compliance professionals here is so high that pay hikes of 20 to 25 per cent when they change jobs are common.

But the skills are so specialised that not everyone, including existing bank officers, can do the job of compliance officers.

Fourth, and even if the jobs do not disappear, they may not pay as well as they used to.

The number of technicians and junior professionals in the resident labour force jumped to 422,700 in 2012, from 281,200 in 2001.

Their monthly gross median pay was $2,642 in 2001, higher than the median of $2,387 for the resident labour force as a whole.

But by 2012, their $3,183 median gross monthly salary had fallen behind the resident labour force's median of $3,480. These workers did not enjoy the extent of wage hikes seen by their peers.

Fifth, the pace of change is chilling.

When I started working in 1994 with a newly minted university degree, professionals and managers made up about one in five in the labour force. Now, it is one in three.

The room is now more crowded. And the competition does not just come from other workers.

The Economist predicted in a special issue this week that the jobs destroyed by robots may outweigh new jobs created.

"If automation absorbs jobs previously reserved for young people, who have not yet had time to build up skills, it will stop them from acquiring those skills, and its destructive effects will reverberate down the years," it wrote.

Mr Tharman said in the Budget debate round-up speech last month: "No one knows for sure what jobs are going to be around in 20 or 30 years."

But it is not entirely a grim picture in Singapore. There is cause for some optimism.

The Government is bent on creating jobs in growth areas such as advanced manufacturing and social services.

There is also a visible shift in the education system to prepare students for life, not just to pass exams and land jobs.

This is done through character building and instilling values and skills such as having an inquisitive mind, interacting with and respecting others. Mr Tharman called these "obsolescence-proof" skills. These skills will help future workers, like my son, land jobs that may not even exist today.

Even for vocational training, it is obvious that the emphasis is on teaching students transferable skills.

Last week, I met a 17-year-old boy who was excited about his new course at the Institute of Technical Education (ITE).

The boy passed his N levels, but it was not good enough for him to move on to O levels.

So he enrolled in a two-year ITE course on laser and tooling technology which, I learnt from ITE's website, will teach him how to "perform laser cutting to produce precision parts for aircraft, automotive and medical devices".

He will have a bright future if he can master the skills to find a niche job in precision manufacturing.

He might even have a better chance of surviving the onslaught of robots in the job market than those with master's degrees in business administration.

The Government has not neglected working adults. The continuing education and training model is being overhauled.

Over the next few years, the Singapore Workforce Development Agency is expected to roll out major skills upgrading programmes, including a one-stop job and training portal to help working adults choose training courses.

We cannot look to the Government to solve all our problems.

But when it comes to job creation, education, creating training opportunities and avoiding the crippling effects when jobs vanish, the Government must take the lead, which it has.

For it is not just jobs and livelihoods, but also the future of generations of Singaporeans that is at stake.

This article was first published in The Straits Times Saturday Section Page D5 on April 5, 2014.

Sunday, April 6, 2014

Buy insurance policies you can afford in old age

The Sunday Times
Goh Eng Yeow

Recently, I visited my 104-year-old aunt in Hong Kong again.

Except for a slight wobble when she walks, she is as fit as a fiddle. She can read the newspapers without reading glasses and still keeps abreast of current affairs by watching the nightly news on TV in the nursing home where she lives.

It is an Olympian feat to live to such a great age. But the big blessing for my aunt is to be able to still undertake the daily activities that we take for granted, such as eating and walking unassisted.

In contrast, my 83-year-old mum - 21 years younger - is confined to a wheelchair after suffering two strokes which left her partly paralysed. There is a maid to attend to her daily needs, but I sense her frustration at not being the active person she once was.

Given the choice, I would like to live the life of my aunt who worked till she was in her late 80s.

But the sad fact is that many of us will suffer the same fate as my mum when we are old and infirm, whether we like it or not.

As such, it is not surprising to find that health care is our top concern as we see our parents ageing before our eyes.

It is with this in mind that I recently took a hard look at my insurance coverage to try to plug the gaps.

But just as with investing where I buy stocks which I'm comfortable holding for the long term, I would buy insurance coverage whose premiums I would have no problems paying years from now.

One shortfall I identified is coverage that offers a steady income if I find myself disabled.

So I called my friend, a Great Eastern Life agent, to sign up for ElderShield - the severe disability insurance package giving basic financial protection to those who need long-term care.

Singaporeans and permanent residents with Medi-save accounts are automatically covered under ElderShield when they turn 40. They get life coverage on ElderShield if they continue to pay their premiums up to the age of 65.

But when ElderShield was launched in 2002, I had opted out because I felt that the monthly payout of $300 for up to five years was too small a sum covering too short a period to be of any use. For long-term invalids like my mum who suffered her first stroke 12 years ago, the monthly payouts would have run out long ago.

That means that if I want a monthly payout of, say, $1,600, I would have to supplement ElderShield with other coverage.

My agent friend suggested adding two other policies - ElderShield Comprehensive which offers a monthly payout of $300 on top of the basic ElderShield plan, and a LifeSecure policy which comes with a monthly payout of $1,000.

The only snag is that premiums for both policies have to be paid till the age of 80 to get life coverage. That means even in my old age, I must have sufficient cash to continue paying for them.

Together, the three policies cost me $1,909 a year - a sum which is still within my means even if I only live off my savings and passive income.

Currently, my company's insurance scheme covers my bills if I am hospitalised, but what happens when I stop working?

To take care of the out-of-pocket hospital expenses, I have a Safra Living Policy which offers a lump sum payout of $100,000 for critical illnesses covering me till I am 65. The premium is only $420 because it covers Singaporeans who served National Service.

What happens after I turn 65? My agent friend tried to sell me another critical illness plan offering a $200,000 lump sum payout, but the yearly premium was a hefty $7,000. That may give me cashflow problem if I stop working. A better option is to set aside the same sum every year while I work.

Like two-thirds of Singaporeans, I am on an Integrated Shield Plan, or IP, which offers higher hospitalisation coverage than the basic MediShield plan run by the Government to help defray the bills for subsidised wards in public hospitals.

But I did not opt for the most expensive IP which would have covered me for treatments in private hospitals. My mum had been treated at Changi General Hospital and the quality of care she received there reinforced my faith in the public health system.

I believe I made the right choice. Last year, my IP premiums went up about 20 per cent after changes were made to MediShield benefits, while older friends on the most expensive IPs found that their premiums had almost doubled.

Worse, the payment on the "rider" to ensure that their medical bills would be paid entirely from insurance had shot up as well.

This makes them worried that once MediShield Life - the universal health insurance coverage for Singaporeans - is implemented, their medical premiums may escalate so much that they will not be able to afford their current coverage.

I empathise with their concerns since my IP premiums are likely to rise too. But even based on the current IP premiums,they may still be forced to downgrade in their old age.

The table from my insurer shows that annual IP premiums for the most expensive plan jump from $1,909 at age 65 to $8,566 past the age of 100. Now, even if I live to 100, I may have a problem paying that kind of premium when I have no income.

So sticking to an IP whose premiums I can afford to pay in my old age will mean big savings which I can then use to cover any expenses arising from an illness.

Some will argue that it is better to trim spending in other areas to foot the premiums for the most expensive IP in case we need it, just to get the best medical help which money can buy.

But I believe that rather than try to insure against every conceivable medical risk, the better option is to eat healthily and exercise regularly. My 104-year-old aunt is living proof of that.

Background story

Long-term view

Health care is our top concern as we see our parents ageing before our eyes. It is with this in mind that I recently took a hard look at my insurance coverage to try to plug the gaps. But just as with investing where I buy stocks which I'm comfortable holding for the long term, I would buy insurance coverage whose premiums I would have no problems paying years from now.