Stress test shows that retirees need not park more of their funds in bonds and cash
By Teh Hooi Ling
Most statements in life, when repeated often enough, will be taken as the indisputable truth, especially so if our general, everyday observations sort of suggest that the statements are right.
Few will stop to question their validity; what are the assumptions embedded in those statements, who made those statements and to what purpose, and have robust tests been done to verify claims made in those statements?
In the field of finance, one tenet which is often purveyed is that of life-cycle investing.
The theory goes that young people should be more aggressive in their investments, namely that they should allocate a higher proportion of their portfolios to equities for the long-term compounding effect to take place.
But when they approach retirement age, they should cut their exposure to equities and hold more of their portfolios in bonds and cash.
This makes intuitive sense: Equity prices are more volatile than fixed-income instruments and, unlike the latter, there is no assurance of regular payouts from equities.
Therefore, it would be "safer" for retirees, who are dependent on their life savings for their daily expenses, to park their money in a less volatile portfolio.
What if a retiree had her entire life savings in equities, and saw her portfolio diminish to less than half during the global financial crisis in 2008? That would be a nightmare scenario, wouldn't it?
But here's the thing: The image of this scenario is likely to be most vivid when the stock market crash is at its worst.
At that point, we see in our minds retirees with their wealth halved compared with the pre-crisis level. "Poor things!" we'd think. "That's why retirees shouldn't put all their nest eggs in the stock market."
But you know what? Markets recover, even from the worst of crises.
As long as retirees don't panic and cash out their entire portfolios at the bottom of the market, there is a good chance that they will see their portfolios recover.
We did a stress test on an all-equities portfolio at each of the previous market peaks in the Singapore market going as far back as 1973.
Let's assume that there were seven retirees.
Each retired with $1 million and decided to put the entire sum into the stock market.
The bull markets at the time of their retirement gave them confidence that the stock market was a good place to keep their savings.
So each of them plonked their $1 million into the market at the beginning of 1973, 1982, 1984, 1990, 1997, 2000 and 2008.
And each wanted to withdraw 5per cent from that $1 million, or $50,000 a year, to pay for their living expenses.
As it turned out, the years that the seven retirees put their money into the market were the years of market peaks. Soon after, major crashes or market corrections took place.
Could the $1 million equities portfolio have lasted them until today?
Well, six out of the seven portfolios did.
The initial $1 million portfolios were worth between $824,000 and $3.4 million as of the end of last year, with one exception.
For the person who retired in 1982 with $1 million invested entirely in the Singapore stock market, her portfolio as of the end of last year was worth $3.4 million.
This was after she withdrew $50,000 a year from the portfolio for the last 31 years. The withdrawal amounted to $1.55 million in all.
For the person who retired on the eve of the Asian financial crisis, her portfolio as of the end of last year was worth $1.6 million. And in the intervening years, she had taken out $800,000 from her portfolio as spending money.
From the table above, you can see that the two who retired on the eve of the two most recent market crashes - the dotcom bubble burst in 2000 and the global financial crisis in 2008 - still had $824,000 and $842,000 in their portfolios respectively.
At a 5 per cent withdrawal rate, the lowest the six retirees' portfolios ever fell to was $429,000. That was for the person who retired at the peak of the dotcom bubble.
But as long as there is still money in the market, there is a chance of recovery.
The only retiree whose portfolio didn't survive was the one who put her money into the market during the massive 1973 bubble in the local market.
At that time, according to Thomson Datastream, the Singapore index was trading at a price-earnings ratio of 35 times. It was the time when OCBC was trading at $50 a share and Metro was at $26.
In other words, there was a massive bubble in the Singapore market.
At a 5 per cent withdrawal rate, her money was depleted by 1984. But if she had reduced her withdrawal rate to 3 per cent - taken out $30,000 instead of $50,000 a year to spend - she would have survived the numerous crashes that followed and would still have an equities portfolio of $1.6 million as of the end of last year.
For the above calculations, we used the Thomson Datastream calculated Straits Times Index as a proxy for how an all-equities portfolio would have performed.
Dividends were added to the portfolio. No transaction costs were taken into account. The portfolios were valued once a year on Dec 31 and withdrawals were done on that day as well.
So what are the main takeaways from the study?
It's that the chances of an all-equities portfolio being completely wiped out at a withdrawal rate of 5per cent a year are minimal under normal market conditions.
The exception is when someone buys into the market at the peak of a massive bubble, as was the case in 1973.
Readers who would like to stress-test their retirement funds over various cycles in the US going as far back as 1871 can check out the website www.firecalc.com
Another noteworthy point is that as long as the portfolio is not too decimated and as long as the money stays invested in the market, there is a good chance of recovery, given time.
Admittedly, the ride can be quite rough at times. The portfolio can plunge by half in a year. The key is to hang on tight.
So the upshot is that someone who has $1 million can relatively safely withdraw $50,000 a year to fund his retirement for as long as he lives, and yet still leave an estate for his children if he puts the entire sum in the equities market.
Time to say goodbye to perpetuals, annuities and bonds, which usually form the core of a retirement portfolio.
But there is one very important caveat here. The equities portfolio must be made up of a diversified basket of stocks of real businesses and purchased at a price which is unlikely to result in a significant permanent loss of capital to the investor.
Buying into stocks such as Blumont, Asiasons or LionGold, whose business prospects are uncertain, and at overvalued prices, is a sure-fire way for you to outlive that $1 million in the shortest possible time.
The writer, a CFA charterholder, is head of research at Aggregate Asset Management, manager of a no-management-fee value fund.
Sunday, December 15, 2013
Sunday, November 3, 2013
Herbal Supplements Are Often Not What They Seem
November 3, 2013
The New York Times
By ANAHAD O’CONNOR
Americans spend an estimated $5 billion a year on unproven herbal supplements that promise everything from fighting off colds to curbing hot flashes and boosting memory. But now there is a new reason for supplement buyers to beware: DNA tests show that many pills labeled as healing herbs are little more than powdered rice and weeds.
Using a test called DNA barcoding, a kind of genetic fingerprinting that has also been used to help uncover labeling fraud in the commercial seafood industry, Canadian researchers tested 44 bottles of popular supplements sold by 12 companies. They found that many were not what they claimed to be, and that pills labeled as popular herbs were often diluted — or replaced entirely — by cheap fillers like soybean, wheat and rice.
Consumer advocates and scientists say the research provides more evidence that the herbal supplement industry is riddled with questionable practices. Industry representatives argue that any problems are not widespread.
For the study, the researchers selected popular medicinal herbs, and then randomly bought different brands of those products from stores and outlets in Canada and the United States. To avoid singling out any company, they did not disclose any product names.
Among their findings were bottles of echinacea supplements, used by millions of Americans to prevent and treat colds, that contained ground up bitter weed, Parthenium hysterophorus, an invasive plant found in India and Australia that has been linked to rashes, nausea and flatulence.
Two bottles labeled as St. John’s wort, which studies have shown may treat mild depression, contained none of the medicinal herb. Instead, the pills in one bottle were made of nothing but rice, and another bottle contained only Alexandrian senna, an Egyptian yellow shrub that is a powerful laxative. Gingko biloba supplements, promoted as memory enhancers, were mixed with fillers and black walnut, a potentially deadly hazard for people with nut allergies.
Of 44 herbal supplements tested, one-third showed outright substitution, meaning there was no trace of the plant advertised on the bottle — only another plant in its place.
Many were adulterated with ingredients not listed on the label, like rice, soybean and wheat, which are used as fillers.
In some cases, these fillers were the only plant detected in the bottle — a health concern for people with allergies or those seeking gluten-free products, said the study’s lead author, Steven G.
Newmaster, a biology professor and botanical director of the Biodiversity Institute of Ontario at the University of Guelph.
The findings, published in the journal BMC Medicine, follow a number of smaller studies conducted in recent years that have suggested a sizable percentage of herbal products are not what they purport to be. But because the latest findings are backed by DNA testing, they offer perhaps the most credible evidence to date of adulteration, contamination and mislabeling in the medicinal supplement industry, a rapidly growing area of alternative medicine that includes an estimated 29,000 herbal products and substances sold throughout North America.
“This suggests that the problems are widespread and that quality control for many companies, whether through ignorance, incompetence or dishonesty, is unacceptable,” said David Schardt, a senior nutritionist at the Center for Science in the Public Interest, an advocacy group. “Given these results, it’s hard to recommend any herbal supplements to consumers.”
Representatives of the supplement industry said that while mislabeling of supplements was a legitimate concern, they did not believe it reached the extent suggested by the new research.
Stefan Gafner, the chief science officer at the American Botanical Council, a nonprofit group that promotes the use of herbal supplements, said the study was flawed, in part because the bar-coding technology it used could not always identify herbs that have been purified and highly processed.
“Over all, I would agree that quality control is an issue in the herbal industry,” Dr. Gafner said. “But I think that what’s represented here is overblown. I don’t think it’s as bad as it looks according to this study.”
The Food and Drug Administration has used bar-coding technology to warn and in some cases prosecute sellers of seafood found to be “misbranded.” The DNA technique has also been used in studies of herbal teas, which showed that a significant percentage contain herbs and ingredients that are not listed on their labels.
But policing the supplement industry is a special challenge. The F.D.A. requires that companies test the products they sell to make sure that they are safe. But the system essentially operates on the honor code. Unlike prescription drugs, supplements are generally considered safe until proved otherwise.
Under a 1994 law, they can be sold and marketed with little regulatory oversight, and they are pulled from shelves generally only after complaints of serious injury. The F.D.A. audits a small number of companies, but even industry representatives say more oversight is needed.
“The regulations are very appropriate and rigorous,” said Duffy MacKay of the Council for Responsible Nutrition, a supplement industry trade group. “But we need a strong regulator enforcing the full force of the law. F.D.A. resources are limited, and therefore enforcement has not historically been as rigorous as it could be.”
Shelly Burgess, a spokeswoman for the F.D.A., said that companies were required to adhere to a set of good manufacturing practices designed to prevent adulteration, but that many were ignoring the rules.
“Unfortunately, we are seeing a very high percentage — approximately 70 percent — of firms’ noncompliance,” she said, “and we are very active in taking enforcement actions against such violations.”
DNA bar coding was developed about a decade ago at the University of Guelph. Instead of sequencing entire genomes, scientists realized that they could examine genes from a standardized region of every genome to identify species of plants and animals. These short sequences can be quickly analyzed — much like the bar codes on the items at a supermarket — and compared with others in an electronic database. An electronic reference library at Guelph, called the International Barcode of Life Project, contains over 2.6 million bar code records for almost 200,000 species of plants and animals.
The testing technique is not foolproof. It can identify the substances in a supplement, but it cannot determine their potency. And because the technology relies on the detection of DNA, it may not be able to identify concentrated chemical extracts that do not contain genetic material, or products in which the material has been destroyed by heat and processing.
But Dr. Newmaster emphasized that only powders and pills were used in the new research, not extracts. In addition, the DNA testing nearly always detected some plant material in the samples — just not always the plant or herb named on the label.
Some of the adulteration problems may be inadvertent. Cross-contamination can occur in fields where different plants are grown side by side and picked at the same time, or in factories where the herbs are packaged. Dr. Gafner of the American Botanical Council said that rice, starch and other compounds were sometimes added during processing to keep powdered herbs from clumping, just as kernels of rice are added to salt shakers.
But that does not explain many of the DNA results. For instance, the study found that one product advertised as black cohosh — a North American plant and popular remedy for hot flashes and other menopause symptoms — actually contained a related Asian plant, Actaea asiatica, that can be toxic to humans.
Those findings mirror a similar study of black cohosh supplements conducted at Stony Brook University medical center last year. Dr. David A. Baker, a professor of obstetrics, gynecology and reproductive medicine, bought 36 black cohosh supplements from online and chain stores. Bar coding tests showed that a quarter of them were not black cohosh, but instead contained an ornamental plant from China.
Dr. Baker called the state of supplement regulation “the Wild West,” and said most consumers had no idea how few safeguards were in place. “If you had a child who was sick and three out of 10 penicillin pills were fake, everybody would be up in arms,” Dr. Baker said. “But it’s O.K. to buy a supplement where three out of 10 pills are fake. I don’t understand it. Why does this industry get away with that?”
The New York Times
By ANAHAD O’CONNOR
Americans spend an estimated $5 billion a year on unproven herbal supplements that promise everything from fighting off colds to curbing hot flashes and boosting memory. But now there is a new reason for supplement buyers to beware: DNA tests show that many pills labeled as healing herbs are little more than powdered rice and weeds.
Using a test called DNA barcoding, a kind of genetic fingerprinting that has also been used to help uncover labeling fraud in the commercial seafood industry, Canadian researchers tested 44 bottles of popular supplements sold by 12 companies. They found that many were not what they claimed to be, and that pills labeled as popular herbs were often diluted — or replaced entirely — by cheap fillers like soybean, wheat and rice.
Consumer advocates and scientists say the research provides more evidence that the herbal supplement industry is riddled with questionable practices. Industry representatives argue that any problems are not widespread.
For the study, the researchers selected popular medicinal herbs, and then randomly bought different brands of those products from stores and outlets in Canada and the United States. To avoid singling out any company, they did not disclose any product names.
Among their findings were bottles of echinacea supplements, used by millions of Americans to prevent and treat colds, that contained ground up bitter weed, Parthenium hysterophorus, an invasive plant found in India and Australia that has been linked to rashes, nausea and flatulence.
Two bottles labeled as St. John’s wort, which studies have shown may treat mild depression, contained none of the medicinal herb. Instead, the pills in one bottle were made of nothing but rice, and another bottle contained only Alexandrian senna, an Egyptian yellow shrub that is a powerful laxative. Gingko biloba supplements, promoted as memory enhancers, were mixed with fillers and black walnut, a potentially deadly hazard for people with nut allergies.
Of 44 herbal supplements tested, one-third showed outright substitution, meaning there was no trace of the plant advertised on the bottle — only another plant in its place.
Many were adulterated with ingredients not listed on the label, like rice, soybean and wheat, which are used as fillers.
In some cases, these fillers were the only plant detected in the bottle — a health concern for people with allergies or those seeking gluten-free products, said the study’s lead author, Steven G.
Newmaster, a biology professor and botanical director of the Biodiversity Institute of Ontario at the University of Guelph.
The findings, published in the journal BMC Medicine, follow a number of smaller studies conducted in recent years that have suggested a sizable percentage of herbal products are not what they purport to be. But because the latest findings are backed by DNA testing, they offer perhaps the most credible evidence to date of adulteration, contamination and mislabeling in the medicinal supplement industry, a rapidly growing area of alternative medicine that includes an estimated 29,000 herbal products and substances sold throughout North America.
“This suggests that the problems are widespread and that quality control for many companies, whether through ignorance, incompetence or dishonesty, is unacceptable,” said David Schardt, a senior nutritionist at the Center for Science in the Public Interest, an advocacy group. “Given these results, it’s hard to recommend any herbal supplements to consumers.”
Representatives of the supplement industry said that while mislabeling of supplements was a legitimate concern, they did not believe it reached the extent suggested by the new research.
Stefan Gafner, the chief science officer at the American Botanical Council, a nonprofit group that promotes the use of herbal supplements, said the study was flawed, in part because the bar-coding technology it used could not always identify herbs that have been purified and highly processed.
“Over all, I would agree that quality control is an issue in the herbal industry,” Dr. Gafner said. “But I think that what’s represented here is overblown. I don’t think it’s as bad as it looks according to this study.”
The Food and Drug Administration has used bar-coding technology to warn and in some cases prosecute sellers of seafood found to be “misbranded.” The DNA technique has also been used in studies of herbal teas, which showed that a significant percentage contain herbs and ingredients that are not listed on their labels.
But policing the supplement industry is a special challenge. The F.D.A. requires that companies test the products they sell to make sure that they are safe. But the system essentially operates on the honor code. Unlike prescription drugs, supplements are generally considered safe until proved otherwise.
Under a 1994 law, they can be sold and marketed with little regulatory oversight, and they are pulled from shelves generally only after complaints of serious injury. The F.D.A. audits a small number of companies, but even industry representatives say more oversight is needed.
“The regulations are very appropriate and rigorous,” said Duffy MacKay of the Council for Responsible Nutrition, a supplement industry trade group. “But we need a strong regulator enforcing the full force of the law. F.D.A. resources are limited, and therefore enforcement has not historically been as rigorous as it could be.”
Shelly Burgess, a spokeswoman for the F.D.A., said that companies were required to adhere to a set of good manufacturing practices designed to prevent adulteration, but that many were ignoring the rules.
“Unfortunately, we are seeing a very high percentage — approximately 70 percent — of firms’ noncompliance,” she said, “and we are very active in taking enforcement actions against such violations.”
DNA bar coding was developed about a decade ago at the University of Guelph. Instead of sequencing entire genomes, scientists realized that they could examine genes from a standardized region of every genome to identify species of plants and animals. These short sequences can be quickly analyzed — much like the bar codes on the items at a supermarket — and compared with others in an electronic database. An electronic reference library at Guelph, called the International Barcode of Life Project, contains over 2.6 million bar code records for almost 200,000 species of plants and animals.
The testing technique is not foolproof. It can identify the substances in a supplement, but it cannot determine their potency. And because the technology relies on the detection of DNA, it may not be able to identify concentrated chemical extracts that do not contain genetic material, or products in which the material has been destroyed by heat and processing.
But Dr. Newmaster emphasized that only powders and pills were used in the new research, not extracts. In addition, the DNA testing nearly always detected some plant material in the samples — just not always the plant or herb named on the label.
Some of the adulteration problems may be inadvertent. Cross-contamination can occur in fields where different plants are grown side by side and picked at the same time, or in factories where the herbs are packaged. Dr. Gafner of the American Botanical Council said that rice, starch and other compounds were sometimes added during processing to keep powdered herbs from clumping, just as kernels of rice are added to salt shakers.
But that does not explain many of the DNA results. For instance, the study found that one product advertised as black cohosh — a North American plant and popular remedy for hot flashes and other menopause symptoms — actually contained a related Asian plant, Actaea asiatica, that can be toxic to humans.
Those findings mirror a similar study of black cohosh supplements conducted at Stony Brook University medical center last year. Dr. David A. Baker, a professor of obstetrics, gynecology and reproductive medicine, bought 36 black cohosh supplements from online and chain stores. Bar coding tests showed that a quarter of them were not black cohosh, but instead contained an ornamental plant from China.
Dr. Baker called the state of supplement regulation “the Wild West,” and said most consumers had no idea how few safeguards were in place. “If you had a child who was sick and three out of 10 penicillin pills were fake, everybody would be up in arms,” Dr. Baker said. “But it’s O.K. to buy a supplement where three out of 10 pills are fake. I don’t understand it. Why does this industry get away with that?”
Saturday, October 26, 2013
Understanding price returns in share investing
The Straits Times
Geoff Howie
26/10/2013
INVESTORS generally invest for two reasons.
First, they attempt to cash in on the price returns, which are reflected in the rise in the market price of the specific share upon liquidation.
Second, they benefit from the potential earnings that are periodically paid out to shareholders, otherwise also known as dividend returns.
A good investment opportunity should entail both strong price and dividend returns. However, some investors tend to focus on potential price returns with little regard for dividend returns, or vice versa.
In this second issue of the Mind Your Money Series, we will look at the concept of price returns and the factors that drive the growth and decline of market prices of different stocks.
Next month, we will explore dividend and total returns.
•What influences price returns
From most investors' point of view, parting with cash to purchase a company's stocks serves one purpose: wealth accumulation in the future because the investors believe that there are potential price gains to be reaped.
So it follows that the price of a stock not only indicates a company's current value, but also reflects the growth that investors expect in the future.
An investor can choose to invest in blue-chip stocks, which are those of well-established companies with stable cash flows and strong management teams, as outlined in the Securities Investors Association (Singapore) Investment Guide Book.
Typically, blue chips pay regular dividends and would have had considerable long-term price returns in the past.
Otherwise, the investor can also consider growth stocks, which are shares of rapidly growing firms. Such companies typically plough back their earnings into the business, and hence their shares tend to experience more price fluctuations.
•What sort of price returns have Singapore stocks showed in the past?
Consider the Straits Times Index (STI).
Like every stock market in the world, Singapore's stock market has a key stock market index - the STI.
In the same way the consumer price index (CPI) measures how much prices of goods and services have moved during a certain period, the STI is a barometer of how much the Singapore stock market has moved over a certain time.
The CPI is made up of a basket of certain goods and services. Similarly, the STI is made up of a basket of stocks of 30 companies.
If one were to look at the current STI stocks that have been listed for at least five years, it is clear that many have performed creditably.
Of the 30 stocks comprising the STI, 27, or 90 per cent, were listed more than five years ago.
Over these five years, the 30 stocks have shown price movements ranging from a 5 per cent fall for Singapore Airlines to a 270 per cent rise for Genting.
If the price movements were arranged from the lowest to the highest, the median (or statistical middle) of the price moves of the 27 stocks would be a 68 per cent rise by Noble Group.
Do remember, though, that past price movements of stocks do not mean they will behave in the same way in future.
In other words, past performance is not a guarantee of future returns.
Suppose an investor wants to start investing in stocks. How can he start?
A good way is to undertake a regular and long-term investing strategy by using regular share savings plans, which was covered by this column last month.
•Using the Price-to-Earnings Ratio (P/E Ratio)
Apart from considering the price moves of a stock over time, investors also may want to review its price-to-earnings ratio, or P/E ratio.
The P/E ratio of a company is calculated by taking the price of one share and dividing it by the earnings per share.
The P/E ratio of a company can be compared with the P/E ratio of another company to determine whether one is higher- or lower-priced compared with the other if their earnings were the same.
If the P/E ratio of company A is higher than that of company B, then one may surmise that company A is higher priced than company B for their respective earnings.
The P/E ratio of an entire industry can be calculated by averaging the P/E ratios of all companies within that sector.
P/E ratios may vary vastly when comparing one market with another, or one industry with another.
While it is a useful measure, it is not the be all and end all when it comes to investment decisions. As investors, we should always try to obtain as much information as possible before investing.
The writer is a market strategist at Singapore Exchange.
Geoff Howie
26/10/2013
INVESTORS generally invest for two reasons.
First, they attempt to cash in on the price returns, which are reflected in the rise in the market price of the specific share upon liquidation.
Second, they benefit from the potential earnings that are periodically paid out to shareholders, otherwise also known as dividend returns.
A good investment opportunity should entail both strong price and dividend returns. However, some investors tend to focus on potential price returns with little regard for dividend returns, or vice versa.
In this second issue of the Mind Your Money Series, we will look at the concept of price returns and the factors that drive the growth and decline of market prices of different stocks.
Next month, we will explore dividend and total returns.
•What influences price returns
From most investors' point of view, parting with cash to purchase a company's stocks serves one purpose: wealth accumulation in the future because the investors believe that there are potential price gains to be reaped.
So it follows that the price of a stock not only indicates a company's current value, but also reflects the growth that investors expect in the future.
An investor can choose to invest in blue-chip stocks, which are those of well-established companies with stable cash flows and strong management teams, as outlined in the Securities Investors Association (Singapore) Investment Guide Book.
Typically, blue chips pay regular dividends and would have had considerable long-term price returns in the past.
Otherwise, the investor can also consider growth stocks, which are shares of rapidly growing firms. Such companies typically plough back their earnings into the business, and hence their shares tend to experience more price fluctuations.
•What sort of price returns have Singapore stocks showed in the past?
Consider the Straits Times Index (STI).
Like every stock market in the world, Singapore's stock market has a key stock market index - the STI.
In the same way the consumer price index (CPI) measures how much prices of goods and services have moved during a certain period, the STI is a barometer of how much the Singapore stock market has moved over a certain time.
The CPI is made up of a basket of certain goods and services. Similarly, the STI is made up of a basket of stocks of 30 companies.
If one were to look at the current STI stocks that have been listed for at least five years, it is clear that many have performed creditably.
Of the 30 stocks comprising the STI, 27, or 90 per cent, were listed more than five years ago.
Over these five years, the 30 stocks have shown price movements ranging from a 5 per cent fall for Singapore Airlines to a 270 per cent rise for Genting.
If the price movements were arranged from the lowest to the highest, the median (or statistical middle) of the price moves of the 27 stocks would be a 68 per cent rise by Noble Group.
Do remember, though, that past price movements of stocks do not mean they will behave in the same way in future.
In other words, past performance is not a guarantee of future returns.
Suppose an investor wants to start investing in stocks. How can he start?
A good way is to undertake a regular and long-term investing strategy by using regular share savings plans, which was covered by this column last month.
•Using the Price-to-Earnings Ratio (P/E Ratio)
Apart from considering the price moves of a stock over time, investors also may want to review its price-to-earnings ratio, or P/E ratio.
The P/E ratio of a company is calculated by taking the price of one share and dividing it by the earnings per share.
The P/E ratio of a company can be compared with the P/E ratio of another company to determine whether one is higher- or lower-priced compared with the other if their earnings were the same.
If the P/E ratio of company A is higher than that of company B, then one may surmise that company A is higher priced than company B for their respective earnings.
The P/E ratio of an entire industry can be calculated by averaging the P/E ratios of all companies within that sector.
P/E ratios may vary vastly when comparing one market with another, or one industry with another.
While it is a useful measure, it is not the be all and end all when it comes to investment decisions. As investors, we should always try to obtain as much information as possible before investing.
The writer is a market strategist at Singapore Exchange.
Monday, October 14, 2013
Paying for value in health care
The Straits Times
Loke Wai Chiong
14/10/2013
THE introduction of universal health insurance through MediShield Life is the Government's latest move to keep health care affordable and to provide peace of mind to Singaporeans.
However, there is concern in some quarters that rising costs will soon place medical care out of the reach of many if nothing is done to keep costs in check. Universal coverage may ease the financial burden of a serious illness when it strikes. But there is still silence on the broader issue of long-term affordability.
If health-care costs continue to rise uncontrollably, it will not be enough to increase medical savings or collect higher premiums when the insured person is younger. The fundamental challenge is to control costs.
Globally, there are four commonly adopted payment systems. The first is fee for service, where every individual activity is separately paid for. The second is the block grant or block budget system, which refers to a wholesale budget for a hospital. The third is episode-based payment through diagnosis-related groups. This system classifies inpatient and day surgery cases into one of hundreds of possible groupings according to the patient's diagnosis and treatment. The final payment system is called capitated general practitioner (GP) payment. This is a fixed, risk-adjusted sum paid by a patient (or for a patient) regardless of actual use.
In all these systems, hospitals are paid for treating a patient for a given condition and not for the results achieved.
By increasing volume, hospitals can increase their income, regardless of the quality or appropriateness of the care provided. In other words, delivering high-quality health care efficiently does not always generate higher revenues for hospitals or doctors.
In fact, there are perverse incentives for health-care providers willing to provide only mediocre care, since doing so can bring in even more revenue. For example, medical complications such as in-hospital infections can result in longer hospital stays, thus producing more revenue for the provider.
The current payment modes reflect and perpetuate the failures of existing health-care systems. We may be paying for disjointed, uncoordinated medical advice, when we should be receiving holistic care with an integrated outcome.
Singapore has tried the first three of the four payment systems listed above. Today, it operates a hybrid model suited to its health-care policy and needs.
There have also been early steps towards a system more focused on population health and treatment outcomes. These include the organisation and integration of services into Regional Health Systems, the opening up of Medisave for primary care of chronic diseases and the development of the Chronic Disease Management Programme for General Practitioners.
Globally, policymakers and insurers are considering the benefits of a value-based contracting payment system. This is a system in which patients pay only for good, effective and agreed-upon or contracted outcomes of care, rather than the processes that go into it.
However, it is not easy to implement such a system.
Most systems find it easier to reward process compliance. For example, doctors may focus on improving indicators which yield the most points, or which "check the boxes". This may involve complying with various processes such as calling for a blood test to be done biannually, rather than developing ways to improve outcomes.
Doctors, insurers and patients all have differing access to and understanding of medical information. This makes it difficult to determine what sort of care is appropriate and necessary, and can lead to providers gaming the system. For instance, providers can introduce unnecessary or more expensive tests, treatments and services to get higher revenue when it comes time for reporting and claiming payment.
In fact, it would seem almost too complex to put the patient's medical problem central in the payment system, given the broad scope of medical problems that patients may present with, and the challenge to define where care processes "begin" and "end". For example, does the care for a patient who has undergone hip surgery end when he leaves the hospital or when he is able to walk independently?
For a contracting value system to work, three building blocks must be in place. The first is to delineate care services into "units of care". This means paying only for integrated care services or products that lead to an effective final treatment outcome based on best available evidence, and which is agreed upon by both the patient and the doctor.
Payment could be on a per illness basis, such as treatment for an acute heart attack or a fracture. It could also be based on per year of care and continuous across primary (such as GP) and hospital care settings - for example, chronic diabetes care.
The second building block determines what and how to measure the core outcomes that patients and professionals aim to achieve. These must be both measurable and meaningful. These are easier to identify once the types of care are determined.
Take a patient's recovery from a heart attack. The measures to evaluate whether the hospital has done its job could include high rescue rate, low mortality and morbidity as measured three months after the heart attack.
For frail elderly people with multiple chronic diseases, measures could be based on the quality of life, low readmission rates, and the patient's sense of empowerment and self-management of the ailments concerned.
The third building block of a contracting value system is then to contract for desired outcomes. Payment for medical services is made when contractual terms are fulfilled.
These three building blocks will enable an environment which encourages care organisations to be holistic and innovative in delivering the best possible care to their patients.
In Singapore, the development of such integrated care outcomes and indicators is already under way, although time will be needed to work out all the necessary building blocks.
The day may soon come when payment by the Government or the insurer to the health-care provider is ultimately tied to the achievement of better health of the patient and the population.
Value-based payment or payment for outcomes may turn out to be the most important factor in ensuring that MediShield Life becomes a sustainable solution.
stopinion@sph.com.sg
The writer is director of Global Healthcare Centre of Excellence, KPMG in Singapore. KPMG is a network of professional services firms.
Loke Wai Chiong
14/10/2013
THE introduction of universal health insurance through MediShield Life is the Government's latest move to keep health care affordable and to provide peace of mind to Singaporeans.
However, there is concern in some quarters that rising costs will soon place medical care out of the reach of many if nothing is done to keep costs in check. Universal coverage may ease the financial burden of a serious illness when it strikes. But there is still silence on the broader issue of long-term affordability.
If health-care costs continue to rise uncontrollably, it will not be enough to increase medical savings or collect higher premiums when the insured person is younger. The fundamental challenge is to control costs.
Globally, there are four commonly adopted payment systems. The first is fee for service, where every individual activity is separately paid for. The second is the block grant or block budget system, which refers to a wholesale budget for a hospital. The third is episode-based payment through diagnosis-related groups. This system classifies inpatient and day surgery cases into one of hundreds of possible groupings according to the patient's diagnosis and treatment. The final payment system is called capitated general practitioner (GP) payment. This is a fixed, risk-adjusted sum paid by a patient (or for a patient) regardless of actual use.
In all these systems, hospitals are paid for treating a patient for a given condition and not for the results achieved.
By increasing volume, hospitals can increase their income, regardless of the quality or appropriateness of the care provided. In other words, delivering high-quality health care efficiently does not always generate higher revenues for hospitals or doctors.
In fact, there are perverse incentives for health-care providers willing to provide only mediocre care, since doing so can bring in even more revenue. For example, medical complications such as in-hospital infections can result in longer hospital stays, thus producing more revenue for the provider.
The current payment modes reflect and perpetuate the failures of existing health-care systems. We may be paying for disjointed, uncoordinated medical advice, when we should be receiving holistic care with an integrated outcome.
Singapore has tried the first three of the four payment systems listed above. Today, it operates a hybrid model suited to its health-care policy and needs.
There have also been early steps towards a system more focused on population health and treatment outcomes. These include the organisation and integration of services into Regional Health Systems, the opening up of Medisave for primary care of chronic diseases and the development of the Chronic Disease Management Programme for General Practitioners.
Globally, policymakers and insurers are considering the benefits of a value-based contracting payment system. This is a system in which patients pay only for good, effective and agreed-upon or contracted outcomes of care, rather than the processes that go into it.
However, it is not easy to implement such a system.
Most systems find it easier to reward process compliance. For example, doctors may focus on improving indicators which yield the most points, or which "check the boxes". This may involve complying with various processes such as calling for a blood test to be done biannually, rather than developing ways to improve outcomes.
Doctors, insurers and patients all have differing access to and understanding of medical information. This makes it difficult to determine what sort of care is appropriate and necessary, and can lead to providers gaming the system. For instance, providers can introduce unnecessary or more expensive tests, treatments and services to get higher revenue when it comes time for reporting and claiming payment.
In fact, it would seem almost too complex to put the patient's medical problem central in the payment system, given the broad scope of medical problems that patients may present with, and the challenge to define where care processes "begin" and "end". For example, does the care for a patient who has undergone hip surgery end when he leaves the hospital or when he is able to walk independently?
For a contracting value system to work, three building blocks must be in place. The first is to delineate care services into "units of care". This means paying only for integrated care services or products that lead to an effective final treatment outcome based on best available evidence, and which is agreed upon by both the patient and the doctor.
Payment could be on a per illness basis, such as treatment for an acute heart attack or a fracture. It could also be based on per year of care and continuous across primary (such as GP) and hospital care settings - for example, chronic diabetes care.
The second building block determines what and how to measure the core outcomes that patients and professionals aim to achieve. These must be both measurable and meaningful. These are easier to identify once the types of care are determined.
Take a patient's recovery from a heart attack. The measures to evaluate whether the hospital has done its job could include high rescue rate, low mortality and morbidity as measured three months after the heart attack.
For frail elderly people with multiple chronic diseases, measures could be based on the quality of life, low readmission rates, and the patient's sense of empowerment and self-management of the ailments concerned.
The third building block of a contracting value system is then to contract for desired outcomes. Payment for medical services is made when contractual terms are fulfilled.
These three building blocks will enable an environment which encourages care organisations to be holistic and innovative in delivering the best possible care to their patients.
In Singapore, the development of such integrated care outcomes and indicators is already under way, although time will be needed to work out all the necessary building blocks.
The day may soon come when payment by the Government or the insurer to the health-care provider is ultimately tied to the achievement of better health of the patient and the population.
Value-based payment or payment for outcomes may turn out to be the most important factor in ensuring that MediShield Life becomes a sustainable solution.
stopinion@sph.com.sg
The writer is director of Global Healthcare Centre of Excellence, KPMG in Singapore. KPMG is a network of professional services firms.
The big picture about bonds
The Business Times
Cai Haoxiang
14/10/2013
A FRIEND, upset at how his mother was sold a financial product, recently told me this story.
His mum was convinced by her banker to buy a complex product which involved the bonds of four foreign companies with coupons ranging from 3 to 5 per cent.
Now, 3 to 5 per cent sounds good. But if she knew how bonds worked, she would have asked what the yield of the bonds were.
In this case, her banker did not mention yields at all. Worse still, the product sold was just a derivative on the underlying bonds. The buyer has no legal ownership of the underlying bonds.
My friend cancelled the deal immediately upon finding out. It was unclear what kinds of gains could have come out of it. But it was clear that the bank would make a spread from selling such a product. The banker would make a nice commission. Meanwhile, the risks to the client are complex and might not justify the gains promised.
How do coupons factor into bond pricing? Are higher coupons good?
Before we answer these questions, we have to first understand how bond prices are affected by a major item: interest rates.
The inverse relation
If the US government defaults on its sovereign debt obligations in the coming weeks by failing to raise its debt ceiling, one of the first and most serious consequences will be a rise in interest rates.
This will happen if US Treasuries, previously thought to be the safest asset in the world, face a sell-off.
When investors are not willing to pay as much to lend money to the US government, the US government will need to pay a comparatively higher interest on the bonds it issues to attract investors back.
New bonds will thus yield more for investors. While this can be seen as a good thing, this situation arises because the investors are taking more risk. They are signing up to lend money for a long period of time to a government that might not be able to borrow more to pay them back.
The first relationship in the bond world that beginners learn is the inverse relationship between prices and yields.
When prices fall, yields go up. When prices rise, yields come down.
This can be hard to understand at first. Falling prices is not a good thing for the owners of any asset. So why then do falling prices come with improving yields - which is a good thing?
To figure this out, you have to decide whether you are a bondholder or a potential bond buyer. If you currently own bonds, then falling prices does not seem good because if you really need to sell your investment, you can get less for it.
But falling prices, which are caused by rising interest rates, should not bother you if you have money to reinvest.
After all, you have locked in some gains by buying the bond. You will keep receiving interest payments until the end of the bond's term, by which you will then get the original value of the bond, known as the par value, together with the final interest payment.
If interest rates rise, it just means that your current investment, locked in at an earlier yield, isn't as attractive compared to others now. You won't lose money if you don't sell the bond, assuming the government or company you lent money to does not go bankrupt.
Rather, you can invest more money in bonds at a better yield, now that interest rates are higher.
So while falling bond prices mean that you are sitting on a paper loss, you need not realise the loss, but can continue to hold the bond till maturity and collect the originally agreed-upon interest payments. Most people hold bonds to maturity and are not bothered by fluctuations in between.
Meanwhile, the higher yields that bonds are trading at, given higher interest rates, mean that you can lock in better returns on current investments as a potential bond buyer.
Similarly, rising bond prices are not a good sign for potential bond buyers, for this means that they are not able to get as good a yield on their investments.
But for current bondholders, this means they can sell their bonds for a profit, and reinvest the money elsewhere for hopefully better returns.
Coupons aren't everything
Now we bring in a common feature of bonds that confuse people: coupons.
Coupons refer to the interest payments that issuers of bonds give out, usually twice a year.
For simplicity, we will assume these payments are made once a year. Obviously, the larger the coupons are, the more one would pay for the bond. But if one has to pay a higher price, the bond is not as attractive.
A similar logic applies to how this bond is actually priced.
Let's say a company plans to issue a bond that pays a 10 per cent coupon out of every $1,000 lent to the company. It will borrow $1,000 for 20 years. The $1,000 here is called the face or par value of the bond. This represents the sum of money that the company will repay the investor at the end of the borrowing period.
At a 10 per cent coupon rate, an investor that holds this bond will get $100 every year (10 per cent of $1,000) for 20 years. At the end of the 20th year, he will get the final $100 coupon payment together with the $1,000 face value.
Without even going into the calculations, we can see an investor will get $2,000 worth of coupon payments over the lifetime of this bond.
A 10 per cent coupon thus sounds like a great deal. Right?
Here's the catch.
It usually will not cost an investor only $1,000 to buy this particular bond.
If prevailing interest rates were lower than 10 per cent, a bond with this 10 per cent coupon becomes very attractive. Investors would be willing to pay more to buy it.
The bond's price would typically adjust instantly to a price higher than $1,000. It will trade at a premium.
It will cost an investor way more than $1,000 to get hold of this stream of interest payments of $100 a year.
In fact, if such a deal came out today, and interest rates are 3 per cent - meaning that investors can only get a yield of 3 per cent in the market - this 20-year bond with a 10 per cent coupon will actually cost the investor $2,041 to purchase!
There is no way that the investor can get a yield of more than 3 per cent if 3 per cent was the prevailing interest rate. All bonds issued will lock in a yield of 3 per cent. If their coupons give a higher rate, their prices will automatically adjust upwards.
Thus, it is more accurate to say that investors are willing to pay $2,041 to get a cash flow of $100 a year for the next 20 years, getting back $1,000 in the final year, to get a yield of 3 per cent. This also assumes coupons are reinvested at 3 per cent. Getting the number $2,041 requires a financial calculator. You need to put in the coupon payments every year ($100), the number of years (20), the expected "future value" at the end ($1,000), and the expected interest rate or yield (3 per cent), before computing the "present value" to find out what this stream of payments is worth today.
The 10 per cent coupon rate is not as useful here.
Thus investors have to be wary of only being quoted the coupon rate. They have to ask what the yield of the bond actually is.
Larger coupons lead to lower price volatility
Larger coupons, however, are still useful to have. This is because having a larger stream of regular payments will be a comfort to investors if interest rates change suddenly.
If interest rates change, the prices of bonds with smaller coupons or no coupons will change the most dramatically.
Let's take the example of the previous 20-year $1,000 bond with a 10 per cent coupon, that was issued when interest rates were at 3 per cent.
Once bonds are issued, bond prices will depend on how many coupon payments are left, as well as the interest rate investors can get on other investments.
Ten years in, halfway through the life of the bond, ten $100 payments will have already been made. If interest rates are still at 3 per cent, meaning that investors still expect to yield 3 per cent from similar bond investments, this bond will be worth $1,597.
Now, let us say interest rates spike to 6 per cent. The value of this bond will drop to $1,294 - a 19 per cent drop. If the coupon was just $50 a year, meaning an original coupon rate of 5 per cent, the equivalent price drop will be from $1,171 to $926 - a larger 21 per cent drop.
If the coupon was even smaller, say $20 a year, the price drop will be 23 per cent.
Looking at the yield of a bond is important when buying them, more so than the coupon rate. But in this case, being paid a larger $100 coupon helped cushion the negative price effects of an interest rate spike.
Again, if you don't plan to sell your bond before maturity, this would not make a difference. You would just buy new bonds at higher current yields.
Other effects on bond prices
A lower interest rate environment means more volatile bond prices if there is a rate hike.
If current yields are at 3 per cent, and there is a three percentage-point shock upwards, the bond price of a $1,000 10-year bond paying $50 annual coupons would fall by 21 per cent. If current yields were far lower, at 0.5 per cent, and there was a similar shock to 3.5 per cent, prices would fall by more, 22 per cent to be exact.
This is why the current low interest rate environment means bonds are risky to hold if one plans to sell them at some point.
Another factor that affects the sensitivity of bond prices is the length of time before the maturity of the bond.
If the bond has a long maturity date, meaning there are a lot of interest payments to be made, a change in interest rates would result in a sharper movement in prices.
For example, if the above example of a $50 coupon and 3 per cent yield applied to a 30-year bond, prices would fall by 38 per cent if interest rates spiked 3 percentage points up, higher than the 21 per cent fall for a 10-year bond.
To conclude, coupon rates, interest rate changes, length of maturity and the current interest rate environment all have effects on bond prices.
To measure the sensitivity of the price of a bond to interest rate changes given all these factors, investors use a calculation known as duration. We will discuss this in a future piece.
Cai Haoxiang
14/10/2013
A FRIEND, upset at how his mother was sold a financial product, recently told me this story.
His mum was convinced by her banker to buy a complex product which involved the bonds of four foreign companies with coupons ranging from 3 to 5 per cent.
Now, 3 to 5 per cent sounds good. But if she knew how bonds worked, she would have asked what the yield of the bonds were.
In this case, her banker did not mention yields at all. Worse still, the product sold was just a derivative on the underlying bonds. The buyer has no legal ownership of the underlying bonds.
My friend cancelled the deal immediately upon finding out. It was unclear what kinds of gains could have come out of it. But it was clear that the bank would make a spread from selling such a product. The banker would make a nice commission. Meanwhile, the risks to the client are complex and might not justify the gains promised.
How do coupons factor into bond pricing? Are higher coupons good?
Before we answer these questions, we have to first understand how bond prices are affected by a major item: interest rates.
The inverse relation
If the US government defaults on its sovereign debt obligations in the coming weeks by failing to raise its debt ceiling, one of the first and most serious consequences will be a rise in interest rates.
This will happen if US Treasuries, previously thought to be the safest asset in the world, face a sell-off.
When investors are not willing to pay as much to lend money to the US government, the US government will need to pay a comparatively higher interest on the bonds it issues to attract investors back.
New bonds will thus yield more for investors. While this can be seen as a good thing, this situation arises because the investors are taking more risk. They are signing up to lend money for a long period of time to a government that might not be able to borrow more to pay them back.
The first relationship in the bond world that beginners learn is the inverse relationship between prices and yields.
When prices fall, yields go up. When prices rise, yields come down.
This can be hard to understand at first. Falling prices is not a good thing for the owners of any asset. So why then do falling prices come with improving yields - which is a good thing?
To figure this out, you have to decide whether you are a bondholder or a potential bond buyer. If you currently own bonds, then falling prices does not seem good because if you really need to sell your investment, you can get less for it.
But falling prices, which are caused by rising interest rates, should not bother you if you have money to reinvest.
After all, you have locked in some gains by buying the bond. You will keep receiving interest payments until the end of the bond's term, by which you will then get the original value of the bond, known as the par value, together with the final interest payment.
If interest rates rise, it just means that your current investment, locked in at an earlier yield, isn't as attractive compared to others now. You won't lose money if you don't sell the bond, assuming the government or company you lent money to does not go bankrupt.
Rather, you can invest more money in bonds at a better yield, now that interest rates are higher.
So while falling bond prices mean that you are sitting on a paper loss, you need not realise the loss, but can continue to hold the bond till maturity and collect the originally agreed-upon interest payments. Most people hold bonds to maturity and are not bothered by fluctuations in between.
Meanwhile, the higher yields that bonds are trading at, given higher interest rates, mean that you can lock in better returns on current investments as a potential bond buyer.
Similarly, rising bond prices are not a good sign for potential bond buyers, for this means that they are not able to get as good a yield on their investments.
But for current bondholders, this means they can sell their bonds for a profit, and reinvest the money elsewhere for hopefully better returns.
Coupons aren't everything
Now we bring in a common feature of bonds that confuse people: coupons.
Coupons refer to the interest payments that issuers of bonds give out, usually twice a year.
For simplicity, we will assume these payments are made once a year. Obviously, the larger the coupons are, the more one would pay for the bond. But if one has to pay a higher price, the bond is not as attractive.
A similar logic applies to how this bond is actually priced.
Let's say a company plans to issue a bond that pays a 10 per cent coupon out of every $1,000 lent to the company. It will borrow $1,000 for 20 years. The $1,000 here is called the face or par value of the bond. This represents the sum of money that the company will repay the investor at the end of the borrowing period.
At a 10 per cent coupon rate, an investor that holds this bond will get $100 every year (10 per cent of $1,000) for 20 years. At the end of the 20th year, he will get the final $100 coupon payment together with the $1,000 face value.
Without even going into the calculations, we can see an investor will get $2,000 worth of coupon payments over the lifetime of this bond.
A 10 per cent coupon thus sounds like a great deal. Right?
Here's the catch.
It usually will not cost an investor only $1,000 to buy this particular bond.
If prevailing interest rates were lower than 10 per cent, a bond with this 10 per cent coupon becomes very attractive. Investors would be willing to pay more to buy it.
The bond's price would typically adjust instantly to a price higher than $1,000. It will trade at a premium.
It will cost an investor way more than $1,000 to get hold of this stream of interest payments of $100 a year.
In fact, if such a deal came out today, and interest rates are 3 per cent - meaning that investors can only get a yield of 3 per cent in the market - this 20-year bond with a 10 per cent coupon will actually cost the investor $2,041 to purchase!
There is no way that the investor can get a yield of more than 3 per cent if 3 per cent was the prevailing interest rate. All bonds issued will lock in a yield of 3 per cent. If their coupons give a higher rate, their prices will automatically adjust upwards.
Thus, it is more accurate to say that investors are willing to pay $2,041 to get a cash flow of $100 a year for the next 20 years, getting back $1,000 in the final year, to get a yield of 3 per cent. This also assumes coupons are reinvested at 3 per cent. Getting the number $2,041 requires a financial calculator. You need to put in the coupon payments every year ($100), the number of years (20), the expected "future value" at the end ($1,000), and the expected interest rate or yield (3 per cent), before computing the "present value" to find out what this stream of payments is worth today.
The 10 per cent coupon rate is not as useful here.
Thus investors have to be wary of only being quoted the coupon rate. They have to ask what the yield of the bond actually is.
Larger coupons lead to lower price volatility
Larger coupons, however, are still useful to have. This is because having a larger stream of regular payments will be a comfort to investors if interest rates change suddenly.
If interest rates change, the prices of bonds with smaller coupons or no coupons will change the most dramatically.
Let's take the example of the previous 20-year $1,000 bond with a 10 per cent coupon, that was issued when interest rates were at 3 per cent.
Once bonds are issued, bond prices will depend on how many coupon payments are left, as well as the interest rate investors can get on other investments.
Ten years in, halfway through the life of the bond, ten $100 payments will have already been made. If interest rates are still at 3 per cent, meaning that investors still expect to yield 3 per cent from similar bond investments, this bond will be worth $1,597.
Now, let us say interest rates spike to 6 per cent. The value of this bond will drop to $1,294 - a 19 per cent drop. If the coupon was just $50 a year, meaning an original coupon rate of 5 per cent, the equivalent price drop will be from $1,171 to $926 - a larger 21 per cent drop.
If the coupon was even smaller, say $20 a year, the price drop will be 23 per cent.
Looking at the yield of a bond is important when buying them, more so than the coupon rate. But in this case, being paid a larger $100 coupon helped cushion the negative price effects of an interest rate spike.
Again, if you don't plan to sell your bond before maturity, this would not make a difference. You would just buy new bonds at higher current yields.
Other effects on bond prices
A lower interest rate environment means more volatile bond prices if there is a rate hike.
If current yields are at 3 per cent, and there is a three percentage-point shock upwards, the bond price of a $1,000 10-year bond paying $50 annual coupons would fall by 21 per cent. If current yields were far lower, at 0.5 per cent, and there was a similar shock to 3.5 per cent, prices would fall by more, 22 per cent to be exact.
This is why the current low interest rate environment means bonds are risky to hold if one plans to sell them at some point.
Another factor that affects the sensitivity of bond prices is the length of time before the maturity of the bond.
If the bond has a long maturity date, meaning there are a lot of interest payments to be made, a change in interest rates would result in a sharper movement in prices.
For example, if the above example of a $50 coupon and 3 per cent yield applied to a 30-year bond, prices would fall by 38 per cent if interest rates spiked 3 percentage points up, higher than the 21 per cent fall for a 10-year bond.
To conclude, coupon rates, interest rate changes, length of maturity and the current interest rate environment all have effects on bond prices.
To measure the sensitivity of the price of a bond to interest rate changes given all these factors, investors use a calculation known as duration. We will discuss this in a future piece.
Sunday, October 13, 2013
Time the market based on valuations
Those entering market at current levels have good chance of earning satisfactory returns over next 5 years
By Teh Hooi Ling
One of the shrewdest and longest lasting market strategists on Wall Street, Mr Jeremy Grantham, has a bone to pick with some value investors who contend that bubbles and busts can be ignored. You don't have to deal with that kind of thing, they argue, you just keep your nose to the grindstone of stock-picking, said the founding partner of GMO who prides himself and his team as global bubble spotters. These value investors feel that there is something faintly speculative and undesirable about recognising bubbles.
The fact is, the mantra of staying invested, of not timing the market, is not the exclusive purview of value managers. That's the investment adage that most fund managers preach to the retail investors as well. In fact, in The Sunday Times Invest pages recently, the headline for one story is exactly this: "Don't try to time the market, says expert".
There are lots of merits to the "don't time the market" advice. The thing is, the average retail investor tries to time the market based on news flows, or the price movements of the market.
Will the US Federal Reserve start tapering next month? Is that company going to win that lucrative contract? Is there going to be a reverse takeover of this stock? I will only buy when I can discern a clear uptrend momentum, some say.
Let me tell you this. The chances of getting the timing of your stock purchases or sales correct based on news flow and price movements are not good. There are bigger players who can react faster to the news, more sophisticated investors with better access to the news, or can analyse the situations better although I won't place my bets on anyone being able to consistently do that. The modern economy is infinitely complex. And funds are flowing so quickly around the world that an uptrend can easily turn into a downtrend the next day. These are but market noise.
What Mr Grantham refers to in terms of spotting bubbles relates to recognising when markets are overvalued, or conversely, when it is undervalued. Bubbles happen because of investors' euphoria and greed, and the fear of career risks by people in the financial sector.
As the former chairman and CEO of Citigroup, Mr Chuck Prince, famously said: "As long as the music is playing, you've got to get up and dance." Such behaviours will bring market valuations to extreme levels in either directions.
But there is a central truth to the stock market: Underneath it all, there is an economic reality. There is arbitrage around the replacement cost. And the price of an asset has to be justified by the earnings that it can generate.
Say because of a bull market, the shares of a company that owns a factory are now worth $100 million. If somebody can build a similar factory with the same production capacity at $50 million, that somebody is going to do it.
The $100 million factory is going to face competition from the $50 million new factory, and its earnings will be affected. Shareholders, who bought the shares of the $100 million factory, will not see the return they expected when they bought their shares.
They will be disappointed, and they will sell the shares leading to a decline in the share price. The result could be that the $100 million company now has a market value of $60 million.
Now, let's say a third tycoon comes to town. Building and material costs have not risen. He discovers that he can build another factory also at a cost of $50 million. He does that and now there is even more competition in the market. The first factory may not be able to compete with the new factories, and it starts to make losses. Investors sell down its shares even more. Now the factory which used to have a market value of $100 million is worth only $30 million.
The owner of the second factory is thinking of expanding his capacity because he is able to capture an increasing market share due to better branding. But to build a new factory, it will now cost him $70 million because land cost has risen. He sees that his old competitor's factory is selling for only $30 million. He figures that he can buy that factory, upgrade it at a cost of $10 million, and it will be as good as new. So he offers to buy the first factory at $40 million. After the upgrading costs, he still gets the factory at a cheaper price than if he were to build a new factory from ground up.
So there you have it. Stock prices can't be so high that they are detached from market reality. Neither will they stay cheap for long if they are trading below the replacement cost of the assets they are holding.
Consider the price of the Singapore market, relative to the 10-year average of its earnings per share, as calculated by Thomson Datastream. This is measured by the so-called Graham and Dodd price-earnings (PE) ratio.
In the past 30 years, the highest the market price has gone up to was 33.5 times its 10-year average earnings. That was in August 1987 just before the October 1987 Black Monday crash. The lowest the market has plunged to was 10.3 times its 10-year average earnings. That was in February 2009, the darkest point of the recent global financial crisis.
In the past 30 years, when the Graham and Dodd PE fell below 16 times, the returns of the three portfolios five years later tended to be substantial.
They averaged 15.2 per cent a year for the entire market; 25.4 per cent a year for the low (price-to-book) PB portfolio; and 13 per cent a year for the high PB portfolio. The five-year period starting from the lowest point on our PE chart, i.e. February 2009, has not ended yet. But already, those who entered the market at that point are sitting on, or had made, outsized returns.
There was only one instance when buying into the market at the Graham and Dodd PE of 16 times or below did not pay off handsomely five years later. That was in July 1997, at the onset of the Asian financial crisis. Five years later, in August 2002, the market was still trading at similar levels as it struggled to climb its way out of the dot.com bust and the 2001 terrorist attacks in the United States.
The higher the Graham and Dodd PE, the lower the return five years later. Investors who entered the market at a PE of 26 times or higher had seen a miserable 1 per cent average return a year in the following five years for the market portfolio, 7 per cent for the low PB portfolio and minus 2 per cent for the high PB portfolio.
At that market entry level, chances of an investor suffering capital loss are also elevated. Based on monthly numbers in the past 30 years, the probability of loss five years later (at Graham and Dodd PE of 26 times and above) was 42 per cent for the market portfolio, 12 per cent for the low PB portfolio and a whopping 70 per cent for the high PB portfolio.
Finally, where is the Graham and Dodd PE for the Singapore market now? It's at 14.1 times as at end September. This compares with the average of 20.8 times in the past 30 years.
In the past three decades, there were 25 different months when the Graham and Dodd PE traded between 14 and 16.5 times. For those 25 different months, the market portfolio returned an average 15.5 per cent a year over the next five years. The low PB portfolio averaged 24.8 per cent a year, and the high PB portfolio 14.3 per cent a year. The probability of capital loss for those periods was 1-in-25 for the market portfolio, and 3-in-25 for the low PB as well as the high PB portfolios.
So based on patterns in the past, in so far as companies' earnings are not artificially propped up by low interest costs and barring any structural change in the economic environment, investors who enter the market at current levels have a good chance of earning satisfactory returns from the stock market over the next five years.
stinvest@sph.com.sg
The writer, a chartered financial analyst, is head of research at Aggregate Asset Management, manager of a no-management fee value fund.
By Teh Hooi Ling
One of the shrewdest and longest lasting market strategists on Wall Street, Mr Jeremy Grantham, has a bone to pick with some value investors who contend that bubbles and busts can be ignored. You don't have to deal with that kind of thing, they argue, you just keep your nose to the grindstone of stock-picking, said the founding partner of GMO who prides himself and his team as global bubble spotters. These value investors feel that there is something faintly speculative and undesirable about recognising bubbles.
The fact is, the mantra of staying invested, of not timing the market, is not the exclusive purview of value managers. That's the investment adage that most fund managers preach to the retail investors as well. In fact, in The Sunday Times Invest pages recently, the headline for one story is exactly this: "Don't try to time the market, says expert".
There are lots of merits to the "don't time the market" advice. The thing is, the average retail investor tries to time the market based on news flows, or the price movements of the market.
Will the US Federal Reserve start tapering next month? Is that company going to win that lucrative contract? Is there going to be a reverse takeover of this stock? I will only buy when I can discern a clear uptrend momentum, some say.
Let me tell you this. The chances of getting the timing of your stock purchases or sales correct based on news flow and price movements are not good. There are bigger players who can react faster to the news, more sophisticated investors with better access to the news, or can analyse the situations better although I won't place my bets on anyone being able to consistently do that. The modern economy is infinitely complex. And funds are flowing so quickly around the world that an uptrend can easily turn into a downtrend the next day. These are but market noise.
What Mr Grantham refers to in terms of spotting bubbles relates to recognising when markets are overvalued, or conversely, when it is undervalued. Bubbles happen because of investors' euphoria and greed, and the fear of career risks by people in the financial sector.
As the former chairman and CEO of Citigroup, Mr Chuck Prince, famously said: "As long as the music is playing, you've got to get up and dance." Such behaviours will bring market valuations to extreme levels in either directions.
But there is a central truth to the stock market: Underneath it all, there is an economic reality. There is arbitrage around the replacement cost. And the price of an asset has to be justified by the earnings that it can generate.
Say because of a bull market, the shares of a company that owns a factory are now worth $100 million. If somebody can build a similar factory with the same production capacity at $50 million, that somebody is going to do it.
The $100 million factory is going to face competition from the $50 million new factory, and its earnings will be affected. Shareholders, who bought the shares of the $100 million factory, will not see the return they expected when they bought their shares.
They will be disappointed, and they will sell the shares leading to a decline in the share price. The result could be that the $100 million company now has a market value of $60 million.
Now, let's say a third tycoon comes to town. Building and material costs have not risen. He discovers that he can build another factory also at a cost of $50 million. He does that and now there is even more competition in the market. The first factory may not be able to compete with the new factories, and it starts to make losses. Investors sell down its shares even more. Now the factory which used to have a market value of $100 million is worth only $30 million.
The owner of the second factory is thinking of expanding his capacity because he is able to capture an increasing market share due to better branding. But to build a new factory, it will now cost him $70 million because land cost has risen. He sees that his old competitor's factory is selling for only $30 million. He figures that he can buy that factory, upgrade it at a cost of $10 million, and it will be as good as new. So he offers to buy the first factory at $40 million. After the upgrading costs, he still gets the factory at a cheaper price than if he were to build a new factory from ground up.
So there you have it. Stock prices can't be so high that they are detached from market reality. Neither will they stay cheap for long if they are trading below the replacement cost of the assets they are holding.
Consider the price of the Singapore market, relative to the 10-year average of its earnings per share, as calculated by Thomson Datastream. This is measured by the so-called Graham and Dodd price-earnings (PE) ratio.
In the past 30 years, the highest the market price has gone up to was 33.5 times its 10-year average earnings. That was in August 1987 just before the October 1987 Black Monday crash. The lowest the market has plunged to was 10.3 times its 10-year average earnings. That was in February 2009, the darkest point of the recent global financial crisis.
In the past 30 years, when the Graham and Dodd PE fell below 16 times, the returns of the three portfolios five years later tended to be substantial.
They averaged 15.2 per cent a year for the entire market; 25.4 per cent a year for the low (price-to-book) PB portfolio; and 13 per cent a year for the high PB portfolio. The five-year period starting from the lowest point on our PE chart, i.e. February 2009, has not ended yet. But already, those who entered the market at that point are sitting on, or had made, outsized returns.
There was only one instance when buying into the market at the Graham and Dodd PE of 16 times or below did not pay off handsomely five years later. That was in July 1997, at the onset of the Asian financial crisis. Five years later, in August 2002, the market was still trading at similar levels as it struggled to climb its way out of the dot.com bust and the 2001 terrorist attacks in the United States.
The higher the Graham and Dodd PE, the lower the return five years later. Investors who entered the market at a PE of 26 times or higher had seen a miserable 1 per cent average return a year in the following five years for the market portfolio, 7 per cent for the low PB portfolio and minus 2 per cent for the high PB portfolio.
At that market entry level, chances of an investor suffering capital loss are also elevated. Based on monthly numbers in the past 30 years, the probability of loss five years later (at Graham and Dodd PE of 26 times and above) was 42 per cent for the market portfolio, 12 per cent for the low PB portfolio and a whopping 70 per cent for the high PB portfolio.
Finally, where is the Graham and Dodd PE for the Singapore market now? It's at 14.1 times as at end September. This compares with the average of 20.8 times in the past 30 years.
In the past three decades, there were 25 different months when the Graham and Dodd PE traded between 14 and 16.5 times. For those 25 different months, the market portfolio returned an average 15.5 per cent a year over the next five years. The low PB portfolio averaged 24.8 per cent a year, and the high PB portfolio 14.3 per cent a year. The probability of capital loss for those periods was 1-in-25 for the market portfolio, and 3-in-25 for the low PB as well as the high PB portfolios.
So based on patterns in the past, in so far as companies' earnings are not artificially propped up by low interest costs and barring any structural change in the economic environment, investors who enter the market at current levels have a good chance of earning satisfactory returns from the stock market over the next five years.
stinvest@sph.com.sg
The writer, a chartered financial analyst, is head of research at Aggregate Asset Management, manager of a no-management fee value fund.
Thursday, October 10, 2013
Gold price movements defying logic
The Business Times
Neil Behrmann
10/10/2013
THE big question is why has gold been lacklustre in the face of a US political standoff and monetary easing, a weakness in the greenback, emerging currency upheaval and continued Middle East concerns?
Moreover, President Obama's appointment of Janet Yellen, a quantitative easing (QE) dove, as Federal Reserve chief, should in itself be another bull point for gold. The market expects her to continue with current QE well into 2014.
Since gold's peak of US$1,921 an ounce in September 2011, latecomer investors have had a torrid time. The price slowly sank in 2012 and in the second quarter of this year plunged from US$1,590 to US$1,180 an ounce, then rallied to US$1,420 in August and is now languishing at US$1,320 an ounce.
Most gold watchers focus on the investment and the so-called safe-haven status of bullion, but its demand-supply fundamentals are more complex than that. The market tends to swing between global investment and speculative demand and jewellery and other physical consumption mainly in China, India and other Asian markets.
Gold plunged in June because investors took fright and hedge funds and holders of gold exchange-traded funds (ETFs) dumped their holdings. The subsequent recovery came about because jewellery and other industrial buyers of gold took advantage of cheaper prices and bought.
Investors and speculators are nervous that the political battle between the Democrats and Republicans could cause a slide in equities, commodities, including gold and other risk assets, so they are only prepared to buy on dips. Reflecting their skittishness, gold recently plunged, by about US$40, to US$1,286 an ounce when Russian Premier Vladimir Putin diffused the Syrian chemical weapons crisis and the US began talks with Iran.
The price then rallied above US$1,300, but has not taken off mainly because demand from the two biggest consumers - China and India - has been slack in recent weeks.
According to estimates from Mathew Turner, precious metals analyst at Macquarie Bank, Chinese demand slowed in July and August when the price rallied. Shanghai gold was at a premium of US$40 over the international price at the start of July but since then has slipped to less than US$10. Statistics related to China are a conundrum because of obfuscation on the part of the authorities.
Mr Turner estimates, however, that over and above China's annual gold production of 413 tonnes, the country's net imports from Hong Kong were 818 tonnes in the first eight months of the year compared with 379 tonnes in the same period last year and 643 tonnes for the whole of last year.
An unknown proportion of imports and production could well be going into the central bank's reserves, so it is difficult to gauge consumption. China is completing a week's holiday to celebrate Golden Week, so demand is expected to pick up, especially ahead of Chinese New Year.
India, the world's second-biggest consumer of gold, has been a negative for bullion this year, said Mr Turner. A variety of duties and other import controls and the sharp devaluation of the rupee, which raises the internal price of gold, caused imports to tumble in recent months.
Gold refiners and traders are hoping that Diwali, India's festival and wedding season in November, will boost demand, but others say there could well be a switch to cheaper silver.
Traders and analysts also hope that once the US government shutdown ends and there is an agreement on extending the government's debt limit, there will again be a rush into equities and gold.
Macquarie, for example, predicts an average price of US$1,385 in the final quarter while 18 analysts surveyed by Bloomberg expect prices to rise compared with only eight who are bearish and four neutral.
Neil Behrmann
10/10/2013
THE big question is why has gold been lacklustre in the face of a US political standoff and monetary easing, a weakness in the greenback, emerging currency upheaval and continued Middle East concerns?
Moreover, President Obama's appointment of Janet Yellen, a quantitative easing (QE) dove, as Federal Reserve chief, should in itself be another bull point for gold. The market expects her to continue with current QE well into 2014.
Since gold's peak of US$1,921 an ounce in September 2011, latecomer investors have had a torrid time. The price slowly sank in 2012 and in the second quarter of this year plunged from US$1,590 to US$1,180 an ounce, then rallied to US$1,420 in August and is now languishing at US$1,320 an ounce.
Most gold watchers focus on the investment and the so-called safe-haven status of bullion, but its demand-supply fundamentals are more complex than that. The market tends to swing between global investment and speculative demand and jewellery and other physical consumption mainly in China, India and other Asian markets.
Gold plunged in June because investors took fright and hedge funds and holders of gold exchange-traded funds (ETFs) dumped their holdings. The subsequent recovery came about because jewellery and other industrial buyers of gold took advantage of cheaper prices and bought.
Investors and speculators are nervous that the political battle between the Democrats and Republicans could cause a slide in equities, commodities, including gold and other risk assets, so they are only prepared to buy on dips. Reflecting their skittishness, gold recently plunged, by about US$40, to US$1,286 an ounce when Russian Premier Vladimir Putin diffused the Syrian chemical weapons crisis and the US began talks with Iran.
The price then rallied above US$1,300, but has not taken off mainly because demand from the two biggest consumers - China and India - has been slack in recent weeks.
According to estimates from Mathew Turner, precious metals analyst at Macquarie Bank, Chinese demand slowed in July and August when the price rallied. Shanghai gold was at a premium of US$40 over the international price at the start of July but since then has slipped to less than US$10. Statistics related to China are a conundrum because of obfuscation on the part of the authorities.
Mr Turner estimates, however, that over and above China's annual gold production of 413 tonnes, the country's net imports from Hong Kong were 818 tonnes in the first eight months of the year compared with 379 tonnes in the same period last year and 643 tonnes for the whole of last year.
An unknown proportion of imports and production could well be going into the central bank's reserves, so it is difficult to gauge consumption. China is completing a week's holiday to celebrate Golden Week, so demand is expected to pick up, especially ahead of Chinese New Year.
India, the world's second-biggest consumer of gold, has been a negative for bullion this year, said Mr Turner. A variety of duties and other import controls and the sharp devaluation of the rupee, which raises the internal price of gold, caused imports to tumble in recent months.
Gold refiners and traders are hoping that Diwali, India's festival and wedding season in November, will boost demand, but others say there could well be a switch to cheaper silver.
Traders and analysts also hope that once the US government shutdown ends and there is an agreement on extending the government's debt limit, there will again be a rush into equities and gold.
Macquarie, for example, predicts an average price of US$1,385 in the final quarter while 18 analysts surveyed by Bloomberg expect prices to rise compared with only eight who are bearish and four neutral.
Sunday, September 29, 2013
Learning - the Finnish way
No exams, no tuition, no streaming, minimal homework and lots of play. Yet Finland consistently produces top students in mathematics, science and literacy. How does the country do it?
Published on Sep 29, 2013
By Sandra Davie Senior Education Correspondent
Like Singapore, Finland, which has a population of 5.4 million, is an education superstar.
Its students consistently do as well as top-performing Singapore pupils in international maths and science tests.
But a recent study trip by The Sunday Times sponsored by Lien Foundation found that Finnish students take a completely different route to academic excellence.
Before going to Primary 1 at age seven, all that Finnish children in pre-schools seem to do is play.
And once in school, they do not undergo formal assessments or examinations until they are 18, when they sit for a matriculation examination to enter university.
There is also little homework for primary and lower secondary students, and no nationwide standardised testing.
And tuition? That is a concept foreign to most Finnish parents.
Teachers say the equivalent of Singapore's gifted education scheme or Normal or Express streams would be illegal in Finland because its education policy calls for all children to be given the same opportunities.
The only "streaming" allowed occurs at age 16, when students, after being graded by teachers, get to choose whether to take the vocational or academic route.
And yet, the Finns have consistently performed in the top tier since the first Programme for International Student Assessment (Pisa) survey was conducted in 2000.
This study compares 15-year- olds in different countries in reading, mathematics and science.
So how does Finland do it without the intense pressure and competition that are so much a part of Singapore's system?
Finnish educators list a combination of factors, from the strong reading culture - Finnish people borrow more books from libraries than anyone else in the world - to highly educated and well-trained teachers.
Many also attribute the success of the Finnish education system to the strong foundation in learning laid in pre-school, where the focus is on cultivating intellectual curiosity and a love of learning in the young.
The emphasis is on learning through collaboration, not competition.
"All children are given equal opportunities. We put equity ahead of producing top students," says Dr Pasi Sahlberg, who wrote the much-talked-about book, Finnish Lessons, which details how the country improved its mediocre academic results and produced top-performing students.
The 53-year-old director-general of CIMO (National Centre for International Mobility and Cooperation) at the Finnish Ministry of Education explains how Finns aim to have good schools for all students, echoing the Singapore Education Ministry's (MOE) recent slogan that "every school is a good school".
Dr Sahlberg says Finnish parents really do believe that all Finnish schools are equal. That would explain the puzzled looks given by Finnish parents when The Sunday Times asked how they select a school for their children. The answer: They pick the one closest to home.
Dr Sahlberg points out that the Pisa results show that the gap between high and low achievers in Finland is the smallest in the world.
The main aim of its policymakers since the 1980s has been to ensure that every child should be given the same opportunity to learn, regardless of family background or income.
In Finland, education is free from pre-school to university level. Government spending on education makes up 6.8 per cent of gross domestic product (GDP).
All Finnish schools offer free meals, free health care, free psychological counselling and free individualised student guidance.
The country's education system did not start out this way. Back in the 1960s, less than 10 per cent of students continued their education until the age of 18. There was nationwide standardised testing for children at age 11. Children who scored in the top 25 per cent went to private schools that charged high fees.
But starting in the mid-1970s, education reforms were introduced. Private schools were scrapped and all schools became publicly funded. Pre-school teachers attended a three-year degree course, while those heading to teach in primary and secondary schools studied for five years up to master's level.
Streaming of students to put them on either the vocational or academic tracks was pushed to a later stage, at age 16.
Class sizes were kept to an average of 25 students. Teachers were allowed to design their own lessons. Instead of examinations, teachers assessed students using tests they designed themselves. Grades in report cards were based not just on test scores, but also on projects and class participation.
Periodically, the Education Ministry would track a few sample groups of children across a range of schools to make sure the system was working.
There was opposition to the reforms at first, with some groups calling for a return to examinations and streaming.
But the results of the first Pisa studies in 2000 and the second in 2003 changed people's minds. Finnish children were among the top performers in mathematics, science and literacy.
Soon, educators from around the world were flocking to Finland, hoping to learn the secret to its success.
"Once, people used to come to Finland to learn about Nokia. Now, they come here to learn about our school system," says Dr Sahlberg, who receives numerous invitations from around the world to give talks and attend education conferences.
Dr Sahlberg, who has been appointed visiting professor by Harvard University, says: "When the first Pisa study came out, most Finns didn't believe it. But we came out tops again in the second survey. The best thing that Pisa did was that it silenced those who wanted to go back to having private schools and national examinations."
But he is quick to correct any misconceptions among visiting educators that the system, from pre-school to university, is laid-back. He notes that although examinations and streaming do not exist in the lower levels, students have to sit examinations at age 18.
At 16, more than 90 per cent of students choose to further their education through either "general" or "vocational" upper secondary schools.
Vocational students usually head to polytechnics or enter the job market. Those in the academic general stream have to sit a national examination to get a place in university.
Universities also set their own entrance tests to select students for specific courses.
However, there are those who believe the Finnish system is not suitable for all countries, including Singapore.
While Finland's population is similar in size to Singapore's, it is largely homogeneous, with people speaking the same language, Finnish.
Also, Finland has a generous social welfare system where education and health care are free. But Finnish taxes are among the highest in the world at 44 per cent of GDP, reported Reuters. The income tax rate ranges from 6.5 per cent to 31.75 per cent. On top of that, Finns pay municipal tax ranging from 16.25 per cent to 22 per cent.
Dr Sahlberg says Singapore is admired for the way it teaches mathematics and science, and for its recruitment and training of teachers.
But one thing that Singapore should consider doing away with is the Primary School Leaving Examination, he says, echoing the views expressed by Stanford University professor Linda Darling-Hammond in a recent interview with The Sunday Times.
"Singapore is one of the few countries in the world to have a high-stakes examination for 12-year-olds," says Dr Sahlberg. "So I wonder why Singaporeans are arguing over scores or bands. Shouldn't the debate be about whether the exams are appropriate for children at such a young age?"
He is aware of the anxiety felt by Singapore educators over the widening gap in school performance between children from disadvantaged homes and those from privileged backgrounds.
Stressing that many elements of the Finnish school system are interwoven with the country's social welfare policies, he says: "As the OECD (Pisa) report stated, the highest-performing education systems are those that are able to combine quality with equity.
"And if there is something that Finland can show others, it is what equity and equal opportunity in education look like. And it is possible to achieve excellence along with equity."
sandra@sph.com.sg
Background story
PSLE revisited
"Singapore is one of the few countries in the world to have a high-stakes examination for 12-year-olds.
So I wonder why Singaporeans are arguing over scores or bands. Shouldn't the debate be about whether the exams are appropriate for children at such a young age?"
Dr Pasi Sahlberg, director-general of the National Centre for International Mobility and Cooperation at the Finnish Ministry of Education.
Published on Sep 29, 2013
By Sandra Davie Senior Education Correspondent
Like Singapore, Finland, which has a population of 5.4 million, is an education superstar.
Its students consistently do as well as top-performing Singapore pupils in international maths and science tests.
But a recent study trip by The Sunday Times sponsored by Lien Foundation found that Finnish students take a completely different route to academic excellence.
Before going to Primary 1 at age seven, all that Finnish children in pre-schools seem to do is play.
And once in school, they do not undergo formal assessments or examinations until they are 18, when they sit for a matriculation examination to enter university.
There is also little homework for primary and lower secondary students, and no nationwide standardised testing.
And tuition? That is a concept foreign to most Finnish parents.
Teachers say the equivalent of Singapore's gifted education scheme or Normal or Express streams would be illegal in Finland because its education policy calls for all children to be given the same opportunities.
The only "streaming" allowed occurs at age 16, when students, after being graded by teachers, get to choose whether to take the vocational or academic route.
And yet, the Finns have consistently performed in the top tier since the first Programme for International Student Assessment (Pisa) survey was conducted in 2000.
This study compares 15-year- olds in different countries in reading, mathematics and science.
So how does Finland do it without the intense pressure and competition that are so much a part of Singapore's system?
Finnish educators list a combination of factors, from the strong reading culture - Finnish people borrow more books from libraries than anyone else in the world - to highly educated and well-trained teachers.
Many also attribute the success of the Finnish education system to the strong foundation in learning laid in pre-school, where the focus is on cultivating intellectual curiosity and a love of learning in the young.
The emphasis is on learning through collaboration, not competition.
"All children are given equal opportunities. We put equity ahead of producing top students," says Dr Pasi Sahlberg, who wrote the much-talked-about book, Finnish Lessons, which details how the country improved its mediocre academic results and produced top-performing students.
The 53-year-old director-general of CIMO (National Centre for International Mobility and Cooperation) at the Finnish Ministry of Education explains how Finns aim to have good schools for all students, echoing the Singapore Education Ministry's (MOE) recent slogan that "every school is a good school".
Dr Sahlberg says Finnish parents really do believe that all Finnish schools are equal. That would explain the puzzled looks given by Finnish parents when The Sunday Times asked how they select a school for their children. The answer: They pick the one closest to home.
Dr Sahlberg points out that the Pisa results show that the gap between high and low achievers in Finland is the smallest in the world.
The main aim of its policymakers since the 1980s has been to ensure that every child should be given the same opportunity to learn, regardless of family background or income.
In Finland, education is free from pre-school to university level. Government spending on education makes up 6.8 per cent of gross domestic product (GDP).
All Finnish schools offer free meals, free health care, free psychological counselling and free individualised student guidance.
The country's education system did not start out this way. Back in the 1960s, less than 10 per cent of students continued their education until the age of 18. There was nationwide standardised testing for children at age 11. Children who scored in the top 25 per cent went to private schools that charged high fees.
But starting in the mid-1970s, education reforms were introduced. Private schools were scrapped and all schools became publicly funded. Pre-school teachers attended a three-year degree course, while those heading to teach in primary and secondary schools studied for five years up to master's level.
Streaming of students to put them on either the vocational or academic tracks was pushed to a later stage, at age 16.
Class sizes were kept to an average of 25 students. Teachers were allowed to design their own lessons. Instead of examinations, teachers assessed students using tests they designed themselves. Grades in report cards were based not just on test scores, but also on projects and class participation.
Periodically, the Education Ministry would track a few sample groups of children across a range of schools to make sure the system was working.
There was opposition to the reforms at first, with some groups calling for a return to examinations and streaming.
But the results of the first Pisa studies in 2000 and the second in 2003 changed people's minds. Finnish children were among the top performers in mathematics, science and literacy.
Soon, educators from around the world were flocking to Finland, hoping to learn the secret to its success.
"Once, people used to come to Finland to learn about Nokia. Now, they come here to learn about our school system," says Dr Sahlberg, who receives numerous invitations from around the world to give talks and attend education conferences.
Dr Sahlberg, who has been appointed visiting professor by Harvard University, says: "When the first Pisa study came out, most Finns didn't believe it. But we came out tops again in the second survey. The best thing that Pisa did was that it silenced those who wanted to go back to having private schools and national examinations."
But he is quick to correct any misconceptions among visiting educators that the system, from pre-school to university, is laid-back. He notes that although examinations and streaming do not exist in the lower levels, students have to sit examinations at age 18.
At 16, more than 90 per cent of students choose to further their education through either "general" or "vocational" upper secondary schools.
Vocational students usually head to polytechnics or enter the job market. Those in the academic general stream have to sit a national examination to get a place in university.
Universities also set their own entrance tests to select students for specific courses.
However, there are those who believe the Finnish system is not suitable for all countries, including Singapore.
While Finland's population is similar in size to Singapore's, it is largely homogeneous, with people speaking the same language, Finnish.
Also, Finland has a generous social welfare system where education and health care are free. But Finnish taxes are among the highest in the world at 44 per cent of GDP, reported Reuters. The income tax rate ranges from 6.5 per cent to 31.75 per cent. On top of that, Finns pay municipal tax ranging from 16.25 per cent to 22 per cent.
Dr Sahlberg says Singapore is admired for the way it teaches mathematics and science, and for its recruitment and training of teachers.
But one thing that Singapore should consider doing away with is the Primary School Leaving Examination, he says, echoing the views expressed by Stanford University professor Linda Darling-Hammond in a recent interview with The Sunday Times.
"Singapore is one of the few countries in the world to have a high-stakes examination for 12-year-olds," says Dr Sahlberg. "So I wonder why Singaporeans are arguing over scores or bands. Shouldn't the debate be about whether the exams are appropriate for children at such a young age?"
He is aware of the anxiety felt by Singapore educators over the widening gap in school performance between children from disadvantaged homes and those from privileged backgrounds.
Stressing that many elements of the Finnish school system are interwoven with the country's social welfare policies, he says: "As the OECD (Pisa) report stated, the highest-performing education systems are those that are able to combine quality with equity.
"And if there is something that Finland can show others, it is what equity and equal opportunity in education look like. And it is possible to achieve excellence along with equity."
sandra@sph.com.sg
Background story
PSLE revisited
"Singapore is one of the few countries in the world to have a high-stakes examination for 12-year-olds.
So I wonder why Singaporeans are arguing over scores or bands. Shouldn't the debate be about whether the exams are appropriate for children at such a young age?"
Dr Pasi Sahlberg, director-general of the National Centre for International Mobility and Cooperation at the Finnish Ministry of Education.
Lessons from fallen financial idols
Their words still offer valuable insights about investments
Published on Sep 29, 2013
By Goh Eng Yeow Senior Correspondent
As a financial writer who tries to help readers to understand the intricacies of the stock market, I have often turned to the folksy quotes of investment guru Warren Buffett to make my point.
But let's face it, most of us are not likely to have the patience to buy a stock and then hold it for decades like Mr Buffett. The likelihood is that if we make a decent profit on our investment, we will take the windfall and use the money to reinvest somewhere else.
So what other financial leading figures might we learn from?
This may sound rather perverse, but a few of them whose words are worth heeding are fallen idols in the financial world.
And it is precisely because they have fallen foul of the law in their relentless pursuit of material wealth that they make such captivating subjects to study.
For me, one compelling fallen angel is the late Marc Rich, the "king of commodities" credited with pioneering global spot oil trading markets in the late 1960s.
What I find abhorrent about him was his lack of ethics and failure to differentiate between right and wrong. But I sometimes wonder if these were the very traits which made him a successful trader.
I first came across his name when he was given a controversial pardon in 2001 by then US President Bill Clinton nearly two decades after he fled the United States on charges of fraud, racketeering and tax evasion. It was a decision Mr Clinton later regretted, calling it "terrible politics".
When Rich was once asked by a young trader for advice on trading, he purportedly picked up a knife, ran a finger across its edge and said: "As a trader, you often walk on the blade. Be careful and don't step off."
It offers a valuable insight on what makes a good trader - living the high life, but perpetually trying to balance risk with reward, fearful of falling off the cliff if he is not careful.
Few walked the so-called knife more skilfully than Rich. His life story read like a spy thriller, as he scanned the globe for looming crises to make money, skirting around political and moral obstacles, such as by selling Soviet oil to then apartheid South Africa despite a United Nations embargo.
But even he fell off the knife blade, as he ended up in 1983 on the Federal Bureau of Investigation's list of 10 most wanted people on charges that included exploiting a then US embargo against Iran - while it was holding US hostages - to make huge profits on illicit Iranian oil sales.
Then there is the disgraced Wall Street financier Bernie Madoff, mastermind of the biggest Ponzi scheme in history, which cost investors at least US$18 billion (S$22.6 billion) in losses when the law finally caught up with him.
For the financially uninitiated, a Ponzi scheme is a fraudulent investment operation that pays its investors a return from their own money, rather than from profit made by the business.
I recently came across an interview which Madoff gave to a US financial portal, Marketwatch, five years after he was put behind bars for his crimes.
Some advice he offered to investors on how to avoid getting scammed boils down to common sense.
Madoff said: "Wall Street is not that complicated. If you ask an average hedge fund or investment firm how they make their money, they won't tell you. If you don't understand something, then don't invest in it."
Still, the ease with which he could get people to part with their money was amazing. He used credibility won by hobnobbing with the likes of former US Treasury secretary Bob Rubin and former Securities and Exchange Commission chairman Arthur Levitt.
He said: "My investors were sophisticated people, smart enough to know what was going on, and how money was made - but they still invested with me without any explanation."
And he noted that if an investment sounds too good to be true, it is. He had offered his clients a consistent 11 per cent to 12 per cent return year after year which made no sense, yet nobody questioned him about it and he was able to continue with his scam for a long time.
But if you believe that frauds perpetuated by the likes of Madoff are few and far between, you would be mistaken.
Just look at the recent gold scams in our own backyard which look like variations of the Ponzi scheme spawned by Madoff.
In one instance, a trading firm lured investors into buying gold at a premium and then offered them an attractive monthly payout for keeping the precious metal with the firm. Its owner, who capitalised on a spot of good publicity to perpetuate his scam, went missing after that.
For me, the best advice Madoff has to offer is to just keep your cash safe, even though you run the risk of its value getting eroded by inflation.
He said: "If you are not sure, you should put your money in a savings account. At least it is better than losing the money to fraud."
engyeow@sph.com.sg
Published on Sep 29, 2013
By Goh Eng Yeow Senior Correspondent
As a financial writer who tries to help readers to understand the intricacies of the stock market, I have often turned to the folksy quotes of investment guru Warren Buffett to make my point.
But let's face it, most of us are not likely to have the patience to buy a stock and then hold it for decades like Mr Buffett. The likelihood is that if we make a decent profit on our investment, we will take the windfall and use the money to reinvest somewhere else.
So what other financial leading figures might we learn from?
This may sound rather perverse, but a few of them whose words are worth heeding are fallen idols in the financial world.
And it is precisely because they have fallen foul of the law in their relentless pursuit of material wealth that they make such captivating subjects to study.
For me, one compelling fallen angel is the late Marc Rich, the "king of commodities" credited with pioneering global spot oil trading markets in the late 1960s.
What I find abhorrent about him was his lack of ethics and failure to differentiate between right and wrong. But I sometimes wonder if these were the very traits which made him a successful trader.
I first came across his name when he was given a controversial pardon in 2001 by then US President Bill Clinton nearly two decades after he fled the United States on charges of fraud, racketeering and tax evasion. It was a decision Mr Clinton later regretted, calling it "terrible politics".
When Rich was once asked by a young trader for advice on trading, he purportedly picked up a knife, ran a finger across its edge and said: "As a trader, you often walk on the blade. Be careful and don't step off."
It offers a valuable insight on what makes a good trader - living the high life, but perpetually trying to balance risk with reward, fearful of falling off the cliff if he is not careful.
Few walked the so-called knife more skilfully than Rich. His life story read like a spy thriller, as he scanned the globe for looming crises to make money, skirting around political and moral obstacles, such as by selling Soviet oil to then apartheid South Africa despite a United Nations embargo.
But even he fell off the knife blade, as he ended up in 1983 on the Federal Bureau of Investigation's list of 10 most wanted people on charges that included exploiting a then US embargo against Iran - while it was holding US hostages - to make huge profits on illicit Iranian oil sales.
Then there is the disgraced Wall Street financier Bernie Madoff, mastermind of the biggest Ponzi scheme in history, which cost investors at least US$18 billion (S$22.6 billion) in losses when the law finally caught up with him.
For the financially uninitiated, a Ponzi scheme is a fraudulent investment operation that pays its investors a return from their own money, rather than from profit made by the business.
I recently came across an interview which Madoff gave to a US financial portal, Marketwatch, five years after he was put behind bars for his crimes.
Some advice he offered to investors on how to avoid getting scammed boils down to common sense.
Madoff said: "Wall Street is not that complicated. If you ask an average hedge fund or investment firm how they make their money, they won't tell you. If you don't understand something, then don't invest in it."
Still, the ease with which he could get people to part with their money was amazing. He used credibility won by hobnobbing with the likes of former US Treasury secretary Bob Rubin and former Securities and Exchange Commission chairman Arthur Levitt.
He said: "My investors were sophisticated people, smart enough to know what was going on, and how money was made - but they still invested with me without any explanation."
And he noted that if an investment sounds too good to be true, it is. He had offered his clients a consistent 11 per cent to 12 per cent return year after year which made no sense, yet nobody questioned him about it and he was able to continue with his scam for a long time.
But if you believe that frauds perpetuated by the likes of Madoff are few and far between, you would be mistaken.
Just look at the recent gold scams in our own backyard which look like variations of the Ponzi scheme spawned by Madoff.
In one instance, a trading firm lured investors into buying gold at a premium and then offered them an attractive monthly payout for keeping the precious metal with the firm. Its owner, who capitalised on a spot of good publicity to perpetuate his scam, went missing after that.
For me, the best advice Madoff has to offer is to just keep your cash safe, even though you run the risk of its value getting eroded by inflation.
He said: "If you are not sure, you should put your money in a savings account. At least it is better than losing the money to fraud."
engyeow@sph.com.sg
Don't try to time the markets, says expert
Have a well-diversified equity portfolio and don't focus on picking the next shiny sector
Published on Sep 29, 2013
By Alvin Foo Economics Correspondent
Trying to time financial markets in these volatile times would be foolhardy, according to a leading fund manager in the region.
Retail investors should, instead, adopt a dollar-cost averaging method of regular investing, with a balanced and diversified approach, said Mr Jed Laskowitz, the chief executive of JP Morgan Asset Management (JPMAM) Asia-Pacific.
He told The Sunday Times: "Timing the markets doesn't work... individual investors tend to become too euphoric in the good times and too negative in the bad times."
That leads them to sell at the bottom and buy at the top, Hong Kong-based Mr Laskowitz added.
He advocates having a well-diversified equity portfolio while not being too focused on picking the next market or sector which will shine.
"What you tend to see is investors buying past performance," he noted.
"Investors need to stay away from chasing last year's best-performing asset class, and build a long-term investment plan that's well diversified across stocks and bonds and geographies and stay true to that plan."
JPMAM manages US$1.47 trillion (S$1.84 trillion) worth of funds globally as of June 30, with US$126 billion being Asia-Pacific client assets.
Mr Laskowitz noted that stocks are still not that popular with investors: "The great rotation out of bonds to equities hasn't quite happened... most clients don't own enough equity in their portfolios."
That is because many investors still feel the sting of the global financial crisis, thus they prefer to keep significant amounts of their wealth in cash.
This behaviour is particularly true in Asia.
"Investors are still concerned with volatility. The markets in the last five years have traded more on macro events than fundamentals," he said.
Mr Laskowitz also weighed in on the surprise decision by the United States Federal Reserve to maintain its massive money-printing measures.
He said upcoming events such as the appointment of the next Fed chairman, the US debt ceiling debate and US budget may have been considerations for the Fed's delay.
"The decision to wait is a sound one... as there are potential challenges those items could create," noted Mr Laskowitz, who added that the market consensus is that the Fed will start winding stimulus back in December. "But as we've seen this time, it's not so easy to predict".
He also unveiled plans to expand his firm's Singapore headcount.
The firm has 54 staff here, of whom 17 are investment professionals. It hopes to grow this to 65 employees with 21 investment professionals by the end of next year.
The funds management industry here recorded gross fund flows of US$12 billion in the first half of this year, with net fund inflows of US$4 billion.
JPMAM's market share is 17 per cent of the total net industry flows.
Its client assets under management here grew 32 per cent between December 2011 and July this year, said Mr Laskowitz.
"More of our clients are growing here and are making more of their investment decisions out of Singapore," he added.
alfoo@sph.com.sg
Background story
Stick to the plan
"Investors need to stay away from chasing last year's best-performing asset class, and build a long-term investment plan that's well diversified across stocks and bonds and geographies and stay true to that plan."
MR JED LASKOWITZ, chief executive of JP Morgan Asset Management Asia-Pacific
Published on Sep 29, 2013
By Alvin Foo Economics Correspondent
Trying to time financial markets in these volatile times would be foolhardy, according to a leading fund manager in the region.
Retail investors should, instead, adopt a dollar-cost averaging method of regular investing, with a balanced and diversified approach, said Mr Jed Laskowitz, the chief executive of JP Morgan Asset Management (JPMAM) Asia-Pacific.
He told The Sunday Times: "Timing the markets doesn't work... individual investors tend to become too euphoric in the good times and too negative in the bad times."
That leads them to sell at the bottom and buy at the top, Hong Kong-based Mr Laskowitz added.
He advocates having a well-diversified equity portfolio while not being too focused on picking the next market or sector which will shine.
"What you tend to see is investors buying past performance," he noted.
"Investors need to stay away from chasing last year's best-performing asset class, and build a long-term investment plan that's well diversified across stocks and bonds and geographies and stay true to that plan."
JPMAM manages US$1.47 trillion (S$1.84 trillion) worth of funds globally as of June 30, with US$126 billion being Asia-Pacific client assets.
Mr Laskowitz noted that stocks are still not that popular with investors: "The great rotation out of bonds to equities hasn't quite happened... most clients don't own enough equity in their portfolios."
That is because many investors still feel the sting of the global financial crisis, thus they prefer to keep significant amounts of their wealth in cash.
This behaviour is particularly true in Asia.
"Investors are still concerned with volatility. The markets in the last five years have traded more on macro events than fundamentals," he said.
Mr Laskowitz also weighed in on the surprise decision by the United States Federal Reserve to maintain its massive money-printing measures.
He said upcoming events such as the appointment of the next Fed chairman, the US debt ceiling debate and US budget may have been considerations for the Fed's delay.
"The decision to wait is a sound one... as there are potential challenges those items could create," noted Mr Laskowitz, who added that the market consensus is that the Fed will start winding stimulus back in December. "But as we've seen this time, it's not so easy to predict".
He also unveiled plans to expand his firm's Singapore headcount.
The firm has 54 staff here, of whom 17 are investment professionals. It hopes to grow this to 65 employees with 21 investment professionals by the end of next year.
The funds management industry here recorded gross fund flows of US$12 billion in the first half of this year, with net fund inflows of US$4 billion.
JPMAM's market share is 17 per cent of the total net industry flows.
Its client assets under management here grew 32 per cent between December 2011 and July this year, said Mr Laskowitz.
"More of our clients are growing here and are making more of their investment decisions out of Singapore," he added.
alfoo@sph.com.sg
Background story
Stick to the plan
"Investors need to stay away from chasing last year's best-performing asset class, and build a long-term investment plan that's well diversified across stocks and bonds and geographies and stay true to that plan."
MR JED LASKOWITZ, chief executive of JP Morgan Asset Management Asia-Pacific
Friday, September 27, 2013
Six Genneva personnel slapped with over 900 money laundering charges
Published: Friday September 27, 2013
By M.MAGESWARI and Maizatul Nazlina
KUALA LUMPUR: Six personnel from gold investment company Genneva Malaysia Sdn Bhd and another company have been slapped with 926 charges of money laundering, making false statements and illegal deposit-taking involving RM5.5bil.
Genneva received the RM5.5bil from 35,000 depositors.
Its directors Datuk Philip Lim Jit Meng and Datuk Tan Liang Keat faced 246 and 226 counts of money laundering respectively; business advisers Datuk Ng Poh Weng (155), Datuk Marcus Yee Yuean Seng (17), Datuk Chin Wai Leong (23), and general manager Lim Kah Heng (16).
All six claimed trial to the charges.
The company itself, Genneva Malaysia Sdn Bhd, faced 222 counts of money laundering and Success Attitude Sdn Bhd, eight counts.
Four of them, Philip Lim, Tan, Hah Heng and Ng, were also charged under the Banking and Financial institutions Act 1989 with two counts each of accepting deposits without a valid licence via a scheme involving gold transactions.
Earlier, Philip Lim and Tan pleaded not guilty at another Sessions Court to making a false statement in an advertisement on the company's website, saying its gold trading was in accordance with Islamic law.
Genneva Malaysia Sdn Bhd also faced a similar charge.
The case has been set for mention on Oct 28 and the two were granted bail of RM20,000 each.
By M.MAGESWARI and Maizatul Nazlina
KUALA LUMPUR: Six personnel from gold investment company Genneva Malaysia Sdn Bhd and another company have been slapped with 926 charges of money laundering, making false statements and illegal deposit-taking involving RM5.5bil.
Genneva received the RM5.5bil from 35,000 depositors.
Its directors Datuk Philip Lim Jit Meng and Datuk Tan Liang Keat faced 246 and 226 counts of money laundering respectively; business advisers Datuk Ng Poh Weng (155), Datuk Marcus Yee Yuean Seng (17), Datuk Chin Wai Leong (23), and general manager Lim Kah Heng (16).
All six claimed trial to the charges.
The company itself, Genneva Malaysia Sdn Bhd, faced 222 counts of money laundering and Success Attitude Sdn Bhd, eight counts.
Four of them, Philip Lim, Tan, Hah Heng and Ng, were also charged under the Banking and Financial institutions Act 1989 with two counts each of accepting deposits without a valid licence via a scheme involving gold transactions.
Earlier, Philip Lim and Tan pleaded not guilty at another Sessions Court to making a false statement in an advertisement on the company's website, saying its gold trading was in accordance with Islamic law.
Genneva Malaysia Sdn Bhd also faced a similar charge.
The case has been set for mention on Oct 28 and the two were granted bail of RM20,000 each.
Sunday, September 22, 2013
The Caregivers - The day he lost his soulmate to dementia
Published on Sep 22, 2013
HUSBAND & CAREGIVER
They come from all walks of life – parents, spouses, children, even strangers – but the trials they face are similar. Long hours often on top of a full-time job, emotional and physical strain, and all too often, financial stress as well. Yet they toil on, day after gruelling day, driven by love and family bonds.
Madam Ng Mui Chuan, 61, has wandered into the kitchen in the middle of the night to turn on the gas for no reason.
She has strewn rice and oats all over the kitchen, played with her faeces and spent hours on the floor in a foetal position weeping. For no reason at all.
As her dementia advanced, so did her fits of anger and paranoia, says her husband and sole caregiver, Mr Lim Fah Kiong, 68.
When out in public, she would point at strangers and make "scolding noises". Fearful of taking her out or leaving her alone indoors, Mr Lim eventually became a prisoner in his own home.
For the past four years, he has helped his wife eat, dress, shower and go to the toilet. He also cooked, cleaned and did all the other household chores.
He could afford a maid, but chose not to have one. "I was afraid Mui Chuan might hit her. I just can't live with that fear," he says.
When her condition deteriorated late last year, his wife would keep waking him up at night. "I could sleep only one or two hours at a stretch, week after week."
Robbed of sleep for days, there were times he felt he was losing his sanity. He would often break down in tears, he says, but never in front of her.
He knew she had to be in hospital the day she assaulted him with a clothes hanger and tried to smash a fish tank.
He is on the lookout for a subsidised nursing home, but with long waiting lists for dementia patients, the former SingPost executive is bracing himself for round two of his caregiving ordeal.
The couple are childless.
It was not always this way. Mr Lim and Madam Ng retired when they were in their 50s in 2005, eager to spend their golden years with love and laughter - without the stresses of work.
They had married late in life, after meeting at a training course. They planned "makan trips" around the island and to Malaysia.
"We hoped to grow old together as friends and soulmates," said Mr Lim. "Just like when we were young."
But that was not meant to be.
Sitting alone in the study of his spacious and neat five-room flat, decorated with photographs and Valentine's Day cards from his wife, Mr Lim lets on that her problems began innocuously enough.
She would be forgetful and get angry for no reason. She began washing her hands obsessively, every time she saw a tap.
Once a genial, gentle woman, she grew suspicious of even her closest friends. "They hammer me when you're not around," she would tell him.
He took her to a psychiatrist in 2010 after she tried to jump from their eighth-floor flat. She was diagnosed with obsessive compulsive disorder.
He installed window grilles. He soon had no time to tend to his beloved plants and the ornamental fish he kept in a giant double- decker fish tank in his living room.
"My bougainvillea are dead and most of my big fish," he said sadly, as a lone golden dragon fish swam in one of the tanks.
It was only after she was referred to the National Neuroscience Institute in 2011 that she was also diagnosed with Alzheimer's disease - by then already in its moderate stage.
"With so much hype on dementia being an old person's disease, few realise that you can get it even before you hit 50," said Mr Lim.
Despite medicines, the disease continued its inexorable march. By early this year, Madam Ng could not recognise most of her friends and family. He is bracing himself for the time when she forgets him too.
She failed to recognise everyday objects too. When the phone rang, she would put the television remote control to her ear. She left wet slippers on the bed. And once, trying to dress herself, she wore a panty like a shirt.
She went to a day-care centre for dementia patients for one year till early this year, but her frequent "crying, praying and chanting" frightened the other patients.
"I was told I must withdraw her till she gets better," he said. "But she never did."
These days, Mr Lim follows a familiar routine. Every morning, he takes a bus from his Bishan home to the Institute of Mental Health, where his wife is warded, only to return late in the evening.
September has always been a special month for the couple. His birthday is on Sept7 and their wedding anniversary, five days later. They have been married 25 years now.
His wife did not remember either occasion. He spent both days sitting next to her in hospital.
"There is nothing left to celebrate any more," he said.
Radha Basu
HUSBAND & CAREGIVER
They come from all walks of life – parents, spouses, children, even strangers – but the trials they face are similar. Long hours often on top of a full-time job, emotional and physical strain, and all too often, financial stress as well. Yet they toil on, day after gruelling day, driven by love and family bonds.
Madam Ng Mui Chuan, 61, has wandered into the kitchen in the middle of the night to turn on the gas for no reason.
She has strewn rice and oats all over the kitchen, played with her faeces and spent hours on the floor in a foetal position weeping. For no reason at all.
As her dementia advanced, so did her fits of anger and paranoia, says her husband and sole caregiver, Mr Lim Fah Kiong, 68.
When out in public, she would point at strangers and make "scolding noises". Fearful of taking her out or leaving her alone indoors, Mr Lim eventually became a prisoner in his own home.
For the past four years, he has helped his wife eat, dress, shower and go to the toilet. He also cooked, cleaned and did all the other household chores.
He could afford a maid, but chose not to have one. "I was afraid Mui Chuan might hit her. I just can't live with that fear," he says.
When her condition deteriorated late last year, his wife would keep waking him up at night. "I could sleep only one or two hours at a stretch, week after week."
Robbed of sleep for days, there were times he felt he was losing his sanity. He would often break down in tears, he says, but never in front of her.
He knew she had to be in hospital the day she assaulted him with a clothes hanger and tried to smash a fish tank.
He is on the lookout for a subsidised nursing home, but with long waiting lists for dementia patients, the former SingPost executive is bracing himself for round two of his caregiving ordeal.
The couple are childless.
It was not always this way. Mr Lim and Madam Ng retired when they were in their 50s in 2005, eager to spend their golden years with love and laughter - without the stresses of work.
They had married late in life, after meeting at a training course. They planned "makan trips" around the island and to Malaysia.
"We hoped to grow old together as friends and soulmates," said Mr Lim. "Just like when we were young."
But that was not meant to be.
Sitting alone in the study of his spacious and neat five-room flat, decorated with photographs and Valentine's Day cards from his wife, Mr Lim lets on that her problems began innocuously enough.
She would be forgetful and get angry for no reason. She began washing her hands obsessively, every time she saw a tap.
Once a genial, gentle woman, she grew suspicious of even her closest friends. "They hammer me when you're not around," she would tell him.
He took her to a psychiatrist in 2010 after she tried to jump from their eighth-floor flat. She was diagnosed with obsessive compulsive disorder.
He installed window grilles. He soon had no time to tend to his beloved plants and the ornamental fish he kept in a giant double- decker fish tank in his living room.
"My bougainvillea are dead and most of my big fish," he said sadly, as a lone golden dragon fish swam in one of the tanks.
It was only after she was referred to the National Neuroscience Institute in 2011 that she was also diagnosed with Alzheimer's disease - by then already in its moderate stage.
"With so much hype on dementia being an old person's disease, few realise that you can get it even before you hit 50," said Mr Lim.
Despite medicines, the disease continued its inexorable march. By early this year, Madam Ng could not recognise most of her friends and family. He is bracing himself for the time when she forgets him too.
She failed to recognise everyday objects too. When the phone rang, she would put the television remote control to her ear. She left wet slippers on the bed. And once, trying to dress herself, she wore a panty like a shirt.
She went to a day-care centre for dementia patients for one year till early this year, but her frequent "crying, praying and chanting" frightened the other patients.
"I was told I must withdraw her till she gets better," he said. "But she never did."
These days, Mr Lim follows a familiar routine. Every morning, he takes a bus from his Bishan home to the Institute of Mental Health, where his wife is warded, only to return late in the evening.
September has always been a special month for the couple. His birthday is on Sept7 and their wedding anniversary, five days later. They have been married 25 years now.
His wife did not remember either occasion. He spent both days sitting next to her in hospital.
"There is nothing left to celebrate any more," he said.
Radha Basu
Monday, September 16, 2013
An unwavering dedication to Singapore
By Heng Swee Keat
16 Sep 2013
The first time I met Mr Lee Kuan Yew in person was in March 1997, when he interviewed me for the job of Principal Private Secretary (PPS). His questions were fast and sharp. Every reply drew even more probing questions.
At the end of it, he said: “Brush up your Mandarin and report in three months. We have an important project with China.”
I realised later that, among other things, it was perhaps when I replied “I don’t know” to one or two questions that I made an impression. With Mr Lee, it is all right if you do not know something. But you do not pretend and lie if you do not know. Integrity is everything.
I had the privilege of working as Mr Lee’s PPS from mid 1997 to early 2000. This was the period of the Asian Financial Crisis, and Mr Lee was writing his memoirs.
Mr Lee’s world views are comprehensive and consistent. Three stand out for me.
THAT YIN-YANG TENSION
The first is about Singapore’s place in the world. His view is that a small city state can best survive in a benign world environment, where there is a balance of powers, where no single state dominates, and where the rule of law prevails in international affairs.
A small city state has to stay open and connect with all nations and economic powerhouses. To prosper, Singapore has to be relevant to the world. We must be exceptional.
Second: His views about human nature, culture and society. Human beings have two sides to our nature — one that is selfish, that seeks to compete and to maximise benefits for ourselves, our families, our clans; the other that is altruistic, that seeks to cooperate, to help others, and to contribute to the common good.
A society loses its vigour if it eschews excellence and competition; equally, a society loses its cohesion if it fails to take care of those who are left behind or disadvantaged. Mr Lee believes that this tension between competition and cooperation, between yin and yang, is one that has to be constantly recalibrated. Within a society, those who are successful must contribute to it and help others find success. We must share the fruits of our collective efforts.
Third: His views about governance and leadership. As a lawyer, Mr Lee believes deeply in the rule of law and the importance of institutions in creating a good society. But institutions are only as good as the people who run them. Good governance needs leaders with the right values, sense of service and abilities. It is important to have leaders who can forge with the people a vision for the future and to forge the way forward.
Above all, leaders are stewards. They should develop future leaders and, when their time comes, they should relinquish their positions, so that the next generation of leaders can take us to greater heights.
HIS FAVOURITE QUESTION: ‘SO?’
While Mr Lee’s world views are wide-ranging and widely sought, when I worked with him, I had the privilege of learning how his views are so coherent, rigorous and fresh, and how he put his agile mind in the service of the Singapore cause.
Mr Lee’s favourite question is “So?” If you update him on something, he will invariably reply with, “So?” You reply and think you have answered him but, again, he asks, “So?” This forces you to get to the core of the issue and draw out the implications of each fact.
His instinct is to cut through the clutter, drill to the core of the issue, and identify the vital points. And he does this with an economy of effort.
I learned this the hard way. Once, in response to a question, I wrote him three paragraphs. I thought I was comprehensive. Instead, he said: “I only need a one sentence answer, why did you give me three paragraphs?” I reflected long and hard on this, and realised that that was how he cut through clutter. When he was Prime Minister, it was critical to distinguish between the strategic and the peripheral issues.
PERSUASIVE, BUT ALSO PERSUADABLE
On my first overseas trip with Mr Lee, Mrs Lee, ever so kind, must have sensed my nervousness. She said to me: “My husband has strong views, but don’t let that intimidate you!”
Indeed, Mr Lee has strong views because these are rigorously derived, but he is also very open to robust exchange. He makes it a point to hear from those with expertise and experience. He is persuasive, but he can be persuaded.
A few months into my job, Mr Lee decided on a particular course of action on the Suzhou Industrial Park, after deep discussion with our senior officials. That evening, I realised that amid the flurry of information, we had not discussed a point. I gingerly wrote him a note, proposing some changes. To my surprise, he agreed.
ONE-MAN INTELLIGENCE AGENCY
Mr Lee’s rich insights on issues come from a capacious and disciplined mind. He listens and reads widely, but he does so like a detective, looking for and linking vital clues while discarding the irrelevant.
Once, he asked if I recalled an old newspaper article on United States-China relations. I could not — this was several months back and I had put it out of my mind — but a fresh news article had triggered him to link the two developments.
I realised that he has a mental map of the world where he knows its contours well. Like a radar, he is constantly scanning for changes and matching these against the map. What might appear as random and disparate facts to many of us are placed within this map and, hence, his mental map is constantly refreshed.
A senior US leader described this well — Mr Lee is like a one-man intelligence agency.
EVERY MOMENT ABOUT SINGAPORE
The most remarkable feature of the map in Mr Lee’s head is the fact that the focal point is always Singapore. I mentioned his favourite word, “So?” Invariably, the “So?” question ends with, “So, what does this mean for Singapore?” What are the implications? What should we be doing differently? Nothing is too big or too small.
I accompanied Mr Lee on many overseas trips. The 1998 trip to the US is particularly memorable. Each day brought new ideas and, throughout the trip, I sent back many observations for our departments to study. It might be the type of industry that we might develop or the type of trees that might add colour to our garden city.
This remains his style today. His every waking moment is devoted to Singapore, and Mr Lee wants Singapore to be successful beyond his term as Prime Minister.
From the early 1960s, he already spoke about finding his successor. During my term with him, as Senior Minister, he devoted much effort to helping then-Prime Minister Goh Chok Tong succeed.
He refrained from visiting Indonesia and Malaysia as he wanted Mr Goh to establish himself as our leader. Instead, he fanned out to China, the US and Europe to convince leaders and investors that Mr Goh’s leadership would take Singapore to new levels of success.
As Senior Minister, he worked out with Mr Goh areas where he could contribute, and I will share three key projects that not only illustrate his contribution but, more importantly, how he develops insights and achieves results.
SINGLE-MINDED ABOUT RESULTS: SUZHOU
The Suzhou Industrial Park project was one of the areas in which Mr Goh asked Mr Lee to stay actively involved. Two years into the project, we ran into teething problems: Local Chinese officials promoted their own rival park.
Some felt that such startup problems and cultural differences were expected and would be resolved over time. But Mr Lee drilled deep into the issues and held many meetings with our officials. He worked with an intensity that I did not expect of someone who was then 75 years old.
He concluded that the problem was much more fundamental. China had (and still has) a very complex system of government, with many layers and many interest groups, some formal, some invisible. The interests of the various groups at the local levels were not aligned with the objectives that the central government in Beijing and Singapore had agreed upon. Unless this was put right, the project would not go far.
Instead of hoping that time would resolve this, Mr Lee raised issues at the highest levels and made the disagreements public. He was unfazed that going public could diminish his personal standing.
He proposed to the Chinese, among others, two radical changes: To swap the shareholding structure so that the Chinese had majority control, and to appoint the CEO of the rival park to head the Suzhou Industrial Park. Mr Lee was proven right — the changes created the necessary realignment and put the project back on track.
Next year, we will be witnessing the 20th anniversary of the Suzhou Industrial Park. From all accounts, it has been a success story, not just in its development, but also in how it has enabled a new generation of leaders from both sides to develop a deeper understanding of each other, and in paving the way for further collaboration.
I learned a valuable lesson. If things go wrong, do not sweep them aside. Confront the problems, get to the root of the difficulties, and wrestle with these resolutely. Go for long-term success, and do not be deterred by criticisms.
ADVERSITY INTO OPPORTUNITY: FINANCIAL CRISIS AND REFORMS
My second example, on the revamping of the financial sector, shows how Mr Lee is constantly looking out for how Singapore should change, and how he turns adversity into opportunity.
The 1997/98 Asian Financial Crisis hit the region hard. Many analysts attributed it to cronyism, corruption and nepotism. Mr Lee read up on all the technical analyses and met with our economists. I was amazed at how, at the age of 75, he would delve deeply into the issues.
He concluded that the reason was more basic — investors’ euphoria and the weak banking and regulatory systems in the affected countries had allowed a huge influx of short-term capital. These weaknesses had their origins in the political system. Cronyism exacerbated the problems, but was not the cause. Years later, many bankers would tell me that Mr Lee’s analysis was the best they had heard.
Mr Lee was convinced that though Asia’s economic growth would be set back temporarily, dynamism would return. In the short term, we had to navigate the crisis carefully but, for the longer term, we should turn this adversity into opportunities. While investors fled, we should use the crisis to lay the foundation for a stronger Singapore in a rising Asia.
Mr Lee took the opportunity to review the long-term positioning of Singapore’s financial sector. With the permission of then-Prime Minister Goh, he met experts from different backgrounds as well as the Chairmen of local banks.
AN ACT OF BOLDNESS
For years, Mr Lee had believed in strict regulation and in protecting our local banks. While this protected the banks from the crisis, it had its cost. Our stringent rules, while appropriate in the past, were now stifling growth, and the banks were falling behind.
Mr Lee was persuaded that our regulatory stance had to change.
I was struck by his systematic and calibrated approach. His reputation is that he is impatient for results, and drives a fast pace. This is true, but he is also wise in distinguishing between things that change slowly and things that ought to change swiftly. Instead of one big bang, he was in favour of a series of steps which added up to a significant shift of direction.
Mr Lee discussed with and sought Mr Goh’s approval on a broad plan to revamp the financial sector. Mr Goh agreed with the plan, and later appointed then-Deputy Prime Minister Lee Hsien Loong as Chairman of the Monetary Authority of Singapore (MAS) in January 1998. Mr Lee Hsien Loong did a review of major policies and reorientated the MAS’ organisational culture. Remarkably, within a few years, the MAS was transformed. By 2006, when I became Managing Director of the MAS, I inherited an organisation with a new set of regulatory doctrines and a deeper pool of talent.
The global financial crisis of 2007/08 tested our system severely. We not only withstood the shock, but also emerged stronger after the crisis. Singaporeans’ savings were well protected and businesses recovered rapidly.
If Mr Lee had not initiated the changes in the late 1990s and sought to turn adversity into opportunities, we would not have become a stronger financial centre today. To prepare to open up our financial system in the midst of one of the worst financial crises is, to me, an act of great foresight and boldness.
ADVOCATE FOR COLLABORATION
My third example relates to how Mr Lee expanded our external space by being a principled advocate of collaboration, based on long-term interests. Today, we are remarkably well-connected, but this did not come by accident. Over the years, Mr Lee has worked hard at this.
His strategic world view has projected Singapore onto the global stage and created opportunities for Singaporeans. In all his years as the face of Singapore, Mr Lee also made fast friendships with senior world leaders who appreciate his view of things and respect Singapore’s principled stance on international issues.
This was driven home to me at two meetings. In 1999, relations between the US and China were very tense. China’s negotiations with the US on its entry to the World Trade Organisation (WTO) had failed, there were tensions between the two countries over US bombs that had hit the Chinese embassy in Belgrade, and President Lee Teng Hui in Taiwan had pronounced his “two states” concept.
In July 1999, US Secretary of State Madeleine Albright and Chinese Foreign Minister Tang Jiaxuan were in Singapore for the ASEAN Regional Forum. It was quite tense, and many of our officials believed there could be a flare-up at the forum. Both figures met Mr Lee separately.
Mr Lee gave each side his reading of their long-term strategic interests. His advice to the US was that it was not in their interest to be adversarial towards China or regard her as a potential enemy. To China, he suggested that it should tap into the market, technology and capital of the US to develop its economy. They should look forward, and search for areas of cooperation, such as China’s entry into the WTO.
Sitting in these meetings, I was struck by how Mr Lee approached this delicate situation. He did not say one thing to one and sing a different tune to another. If they had compared notes later, they would have found his underlying position inconsistent.
What made him persuasive was how he addressed the concerns and interests of each side. I could see from the way both reacted that his arguments struck a chord, and one of the guests asked a note-taker to write the notes verbatim for deeper study later on. In 2000, a few months after this meeting, I was very pleased to witness China’s entry into the WTO at the Doha meeting.
THE PRAGMATIC IDEALIST
What is Mr Lee like as a person? The public persona of Mr Lee is a stern, strict, no-nonsense leader. But deep down, he is energised by a deep sense of care for Singaporeans, especially for the disadvantaged.
He does not express this in soft, sentimental terms — his policies speak louder, and he is content to let them speak for themselves. He distributed the fruits of Singapore’s progress in a very significant way, by enabling Singaporeans to own their flats. Apart from the investment in education, he donated generously to the Education Fund to provide awards, especially to outstanding students from poor families.
He is a firm advocate of a fair and just society. But he demands that everyone, including those who are helped, put in their fair share of effort.
Many regard Mr Lee as a pragmatist who does not hesitate to speak the hard truths. I think he is also an idealist, with a deep sense of purpose. He believes one has to see the world as it is, not as one wishes it to be. Fate deals us a certain hand of cards, but it is up to us to make a winning hand out of it. Through sheer will, conviction and imagination, there is always hope of progress.
Man is not perfect, but we can be better — Mr Lee embraces Confucianism because of its belief in the perfectibility of man. No society is perfect either, but a society with a sense of togetherness can draw out the best of our human spirit and create a better future for our people.
He is, to me, a pragmatic idealist.
A CLOSE-KNIT FAMILY
During my term as PPS, the Prime Minister of a Pacific Island nation asked to call on Mr Lee. Given his very tight schedule, I thought Mr Lee would not be able to meet him. To my surprise, he said he would make the time.
He explained that this young Prime Minister’s father had been a comrade-in-arms, fighting the British for independence, and he owed it to his father, who had passed on, to offer whatever advice might be useful.
Mr Lee and his family are closely knit, and he was particularly close to Mrs Lee. On overseas trips, I had the opportunity to have many private meals with Mr and Mrs Lee. It was heartwarming to see their bantering. Mr Lee has a sweet tooth, and Mrs Lee would, with good humour, keep score on the week’s “ration”.
But when it came to official work, they drew very clear lines. Mrs Lee travelled with him whenever she could. Once, in Davos, she came into the tiny room where Mr Lee was giving a media interview. She found a stool in a corner and sat there, listening unobtrusively. Twice, I offered her my more comfortable seat near Mr Lee. She said to me: “You have work to do. I am just a busybody — don’t let me disturb you!”
Mrs Lee was supportive without intruding — she was certainly not “just a busybody”, and anyone who had the chance to observe them together would know just how close a couple they were, and how much strength her presence gave to her husband.
AN UNWAVERING DEDICATION
We live today in a different world that demands of us new ideas and approaches. But there is one quality of Mr Lee’s that we can, and need to, aspire towards: His unwavering and total dedication to Singapore, to keeping Singapore successful so that Singaporeans may determine our own destiny, and lead meaningful, fulfilling lives.
Singapore’s survival and success are Mr Lee’s life’s work and his lifelong preoccupation. History gave him a most daunting challenge — building a nation out of a tiny city state with no resources and composed of disparate migrants. He cast aside his doubts, mustered all his being and has given it his all.
His most significant achievement is to show the way forward in building a nation. There were, and still are, no textbook answers for achieving this. Mr Lee and his team analysed the issues from first principles and had the courage and conviction to do what was right and what would work for the country.
Mr Lee is an activist. He and his team would try, adapt and experiment, to get on with the job of making Singapore a better home for all. In the same way that he asks himself, we need to always be asking ourselves, “So?” So, what does this mean for Singapore? So, what should we do about it? And act on it.
Of the many qualities I have observed in him, this is the one that leaves the deepest impression on me — the one I hope we can learn to have. We take inspiration from the courage and determination of Mr Lee and his colleagues. The task of creating a better life for all Singaporeans — through expanding opportunities and through building a fair and just society — never ends.
ABOUT THE AUTHOR:
Education Minister Heng Swee Keat spoke yesterday at the conference “The Big Ideas of Mr Lee Kuan Yew”, organised by the Lee Kuan Yew School of Public Policy in celebration of Mr Lee’s 90th birthday. This article is abridged from that speech.
16 Sep 2013
The first time I met Mr Lee Kuan Yew in person was in March 1997, when he interviewed me for the job of Principal Private Secretary (PPS). His questions were fast and sharp. Every reply drew even more probing questions.
At the end of it, he said: “Brush up your Mandarin and report in three months. We have an important project with China.”
I realised later that, among other things, it was perhaps when I replied “I don’t know” to one or two questions that I made an impression. With Mr Lee, it is all right if you do not know something. But you do not pretend and lie if you do not know. Integrity is everything.
I had the privilege of working as Mr Lee’s PPS from mid 1997 to early 2000. This was the period of the Asian Financial Crisis, and Mr Lee was writing his memoirs.
Mr Lee’s world views are comprehensive and consistent. Three stand out for me.
THAT YIN-YANG TENSION
The first is about Singapore’s place in the world. His view is that a small city state can best survive in a benign world environment, where there is a balance of powers, where no single state dominates, and where the rule of law prevails in international affairs.
A small city state has to stay open and connect with all nations and economic powerhouses. To prosper, Singapore has to be relevant to the world. We must be exceptional.
Second: His views about human nature, culture and society. Human beings have two sides to our nature — one that is selfish, that seeks to compete and to maximise benefits for ourselves, our families, our clans; the other that is altruistic, that seeks to cooperate, to help others, and to contribute to the common good.
A society loses its vigour if it eschews excellence and competition; equally, a society loses its cohesion if it fails to take care of those who are left behind or disadvantaged. Mr Lee believes that this tension between competition and cooperation, between yin and yang, is one that has to be constantly recalibrated. Within a society, those who are successful must contribute to it and help others find success. We must share the fruits of our collective efforts.
Third: His views about governance and leadership. As a lawyer, Mr Lee believes deeply in the rule of law and the importance of institutions in creating a good society. But institutions are only as good as the people who run them. Good governance needs leaders with the right values, sense of service and abilities. It is important to have leaders who can forge with the people a vision for the future and to forge the way forward.
Above all, leaders are stewards. They should develop future leaders and, when their time comes, they should relinquish their positions, so that the next generation of leaders can take us to greater heights.
HIS FAVOURITE QUESTION: ‘SO?’
While Mr Lee’s world views are wide-ranging and widely sought, when I worked with him, I had the privilege of learning how his views are so coherent, rigorous and fresh, and how he put his agile mind in the service of the Singapore cause.
Mr Lee’s favourite question is “So?” If you update him on something, he will invariably reply with, “So?” You reply and think you have answered him but, again, he asks, “So?” This forces you to get to the core of the issue and draw out the implications of each fact.
His instinct is to cut through the clutter, drill to the core of the issue, and identify the vital points. And he does this with an economy of effort.
I learned this the hard way. Once, in response to a question, I wrote him three paragraphs. I thought I was comprehensive. Instead, he said: “I only need a one sentence answer, why did you give me three paragraphs?” I reflected long and hard on this, and realised that that was how he cut through clutter. When he was Prime Minister, it was critical to distinguish between the strategic and the peripheral issues.
PERSUASIVE, BUT ALSO PERSUADABLE
On my first overseas trip with Mr Lee, Mrs Lee, ever so kind, must have sensed my nervousness. She said to me: “My husband has strong views, but don’t let that intimidate you!”
Indeed, Mr Lee has strong views because these are rigorously derived, but he is also very open to robust exchange. He makes it a point to hear from those with expertise and experience. He is persuasive, but he can be persuaded.
A few months into my job, Mr Lee decided on a particular course of action on the Suzhou Industrial Park, after deep discussion with our senior officials. That evening, I realised that amid the flurry of information, we had not discussed a point. I gingerly wrote him a note, proposing some changes. To my surprise, he agreed.
ONE-MAN INTELLIGENCE AGENCY
Mr Lee’s rich insights on issues come from a capacious and disciplined mind. He listens and reads widely, but he does so like a detective, looking for and linking vital clues while discarding the irrelevant.
Once, he asked if I recalled an old newspaper article on United States-China relations. I could not — this was several months back and I had put it out of my mind — but a fresh news article had triggered him to link the two developments.
I realised that he has a mental map of the world where he knows its contours well. Like a radar, he is constantly scanning for changes and matching these against the map. What might appear as random and disparate facts to many of us are placed within this map and, hence, his mental map is constantly refreshed.
A senior US leader described this well — Mr Lee is like a one-man intelligence agency.
EVERY MOMENT ABOUT SINGAPORE
The most remarkable feature of the map in Mr Lee’s head is the fact that the focal point is always Singapore. I mentioned his favourite word, “So?” Invariably, the “So?” question ends with, “So, what does this mean for Singapore?” What are the implications? What should we be doing differently? Nothing is too big or too small.
I accompanied Mr Lee on many overseas trips. The 1998 trip to the US is particularly memorable. Each day brought new ideas and, throughout the trip, I sent back many observations for our departments to study. It might be the type of industry that we might develop or the type of trees that might add colour to our garden city.
This remains his style today. His every waking moment is devoted to Singapore, and Mr Lee wants Singapore to be successful beyond his term as Prime Minister.
From the early 1960s, he already spoke about finding his successor. During my term with him, as Senior Minister, he devoted much effort to helping then-Prime Minister Goh Chok Tong succeed.
He refrained from visiting Indonesia and Malaysia as he wanted Mr Goh to establish himself as our leader. Instead, he fanned out to China, the US and Europe to convince leaders and investors that Mr Goh’s leadership would take Singapore to new levels of success.
As Senior Minister, he worked out with Mr Goh areas where he could contribute, and I will share three key projects that not only illustrate his contribution but, more importantly, how he develops insights and achieves results.
SINGLE-MINDED ABOUT RESULTS: SUZHOU
The Suzhou Industrial Park project was one of the areas in which Mr Goh asked Mr Lee to stay actively involved. Two years into the project, we ran into teething problems: Local Chinese officials promoted their own rival park.
Some felt that such startup problems and cultural differences were expected and would be resolved over time. But Mr Lee drilled deep into the issues and held many meetings with our officials. He worked with an intensity that I did not expect of someone who was then 75 years old.
He concluded that the problem was much more fundamental. China had (and still has) a very complex system of government, with many layers and many interest groups, some formal, some invisible. The interests of the various groups at the local levels were not aligned with the objectives that the central government in Beijing and Singapore had agreed upon. Unless this was put right, the project would not go far.
Instead of hoping that time would resolve this, Mr Lee raised issues at the highest levels and made the disagreements public. He was unfazed that going public could diminish his personal standing.
He proposed to the Chinese, among others, two radical changes: To swap the shareholding structure so that the Chinese had majority control, and to appoint the CEO of the rival park to head the Suzhou Industrial Park. Mr Lee was proven right — the changes created the necessary realignment and put the project back on track.
Next year, we will be witnessing the 20th anniversary of the Suzhou Industrial Park. From all accounts, it has been a success story, not just in its development, but also in how it has enabled a new generation of leaders from both sides to develop a deeper understanding of each other, and in paving the way for further collaboration.
I learned a valuable lesson. If things go wrong, do not sweep them aside. Confront the problems, get to the root of the difficulties, and wrestle with these resolutely. Go for long-term success, and do not be deterred by criticisms.
ADVERSITY INTO OPPORTUNITY: FINANCIAL CRISIS AND REFORMS
My second example, on the revamping of the financial sector, shows how Mr Lee is constantly looking out for how Singapore should change, and how he turns adversity into opportunity.
The 1997/98 Asian Financial Crisis hit the region hard. Many analysts attributed it to cronyism, corruption and nepotism. Mr Lee read up on all the technical analyses and met with our economists. I was amazed at how, at the age of 75, he would delve deeply into the issues.
He concluded that the reason was more basic — investors’ euphoria and the weak banking and regulatory systems in the affected countries had allowed a huge influx of short-term capital. These weaknesses had their origins in the political system. Cronyism exacerbated the problems, but was not the cause. Years later, many bankers would tell me that Mr Lee’s analysis was the best they had heard.
Mr Lee was convinced that though Asia’s economic growth would be set back temporarily, dynamism would return. In the short term, we had to navigate the crisis carefully but, for the longer term, we should turn this adversity into opportunities. While investors fled, we should use the crisis to lay the foundation for a stronger Singapore in a rising Asia.
Mr Lee took the opportunity to review the long-term positioning of Singapore’s financial sector. With the permission of then-Prime Minister Goh, he met experts from different backgrounds as well as the Chairmen of local banks.
AN ACT OF BOLDNESS
For years, Mr Lee had believed in strict regulation and in protecting our local banks. While this protected the banks from the crisis, it had its cost. Our stringent rules, while appropriate in the past, were now stifling growth, and the banks were falling behind.
Mr Lee was persuaded that our regulatory stance had to change.
I was struck by his systematic and calibrated approach. His reputation is that he is impatient for results, and drives a fast pace. This is true, but he is also wise in distinguishing between things that change slowly and things that ought to change swiftly. Instead of one big bang, he was in favour of a series of steps which added up to a significant shift of direction.
Mr Lee discussed with and sought Mr Goh’s approval on a broad plan to revamp the financial sector. Mr Goh agreed with the plan, and later appointed then-Deputy Prime Minister Lee Hsien Loong as Chairman of the Monetary Authority of Singapore (MAS) in January 1998. Mr Lee Hsien Loong did a review of major policies and reorientated the MAS’ organisational culture. Remarkably, within a few years, the MAS was transformed. By 2006, when I became Managing Director of the MAS, I inherited an organisation with a new set of regulatory doctrines and a deeper pool of talent.
The global financial crisis of 2007/08 tested our system severely. We not only withstood the shock, but also emerged stronger after the crisis. Singaporeans’ savings were well protected and businesses recovered rapidly.
If Mr Lee had not initiated the changes in the late 1990s and sought to turn adversity into opportunities, we would not have become a stronger financial centre today. To prepare to open up our financial system in the midst of one of the worst financial crises is, to me, an act of great foresight and boldness.
ADVOCATE FOR COLLABORATION
My third example relates to how Mr Lee expanded our external space by being a principled advocate of collaboration, based on long-term interests. Today, we are remarkably well-connected, but this did not come by accident. Over the years, Mr Lee has worked hard at this.
His strategic world view has projected Singapore onto the global stage and created opportunities for Singaporeans. In all his years as the face of Singapore, Mr Lee also made fast friendships with senior world leaders who appreciate his view of things and respect Singapore’s principled stance on international issues.
This was driven home to me at two meetings. In 1999, relations between the US and China were very tense. China’s negotiations with the US on its entry to the World Trade Organisation (WTO) had failed, there were tensions between the two countries over US bombs that had hit the Chinese embassy in Belgrade, and President Lee Teng Hui in Taiwan had pronounced his “two states” concept.
In July 1999, US Secretary of State Madeleine Albright and Chinese Foreign Minister Tang Jiaxuan were in Singapore for the ASEAN Regional Forum. It was quite tense, and many of our officials believed there could be a flare-up at the forum. Both figures met Mr Lee separately.
Mr Lee gave each side his reading of their long-term strategic interests. His advice to the US was that it was not in their interest to be adversarial towards China or regard her as a potential enemy. To China, he suggested that it should tap into the market, technology and capital of the US to develop its economy. They should look forward, and search for areas of cooperation, such as China’s entry into the WTO.
Sitting in these meetings, I was struck by how Mr Lee approached this delicate situation. He did not say one thing to one and sing a different tune to another. If they had compared notes later, they would have found his underlying position inconsistent.
What made him persuasive was how he addressed the concerns and interests of each side. I could see from the way both reacted that his arguments struck a chord, and one of the guests asked a note-taker to write the notes verbatim for deeper study later on. In 2000, a few months after this meeting, I was very pleased to witness China’s entry into the WTO at the Doha meeting.
THE PRAGMATIC IDEALIST
What is Mr Lee like as a person? The public persona of Mr Lee is a stern, strict, no-nonsense leader. But deep down, he is energised by a deep sense of care for Singaporeans, especially for the disadvantaged.
He does not express this in soft, sentimental terms — his policies speak louder, and he is content to let them speak for themselves. He distributed the fruits of Singapore’s progress in a very significant way, by enabling Singaporeans to own their flats. Apart from the investment in education, he donated generously to the Education Fund to provide awards, especially to outstanding students from poor families.
He is a firm advocate of a fair and just society. But he demands that everyone, including those who are helped, put in their fair share of effort.
Many regard Mr Lee as a pragmatist who does not hesitate to speak the hard truths. I think he is also an idealist, with a deep sense of purpose. He believes one has to see the world as it is, not as one wishes it to be. Fate deals us a certain hand of cards, but it is up to us to make a winning hand out of it. Through sheer will, conviction and imagination, there is always hope of progress.
Man is not perfect, but we can be better — Mr Lee embraces Confucianism because of its belief in the perfectibility of man. No society is perfect either, but a society with a sense of togetherness can draw out the best of our human spirit and create a better future for our people.
He is, to me, a pragmatic idealist.
A CLOSE-KNIT FAMILY
During my term as PPS, the Prime Minister of a Pacific Island nation asked to call on Mr Lee. Given his very tight schedule, I thought Mr Lee would not be able to meet him. To my surprise, he said he would make the time.
He explained that this young Prime Minister’s father had been a comrade-in-arms, fighting the British for independence, and he owed it to his father, who had passed on, to offer whatever advice might be useful.
Mr Lee and his family are closely knit, and he was particularly close to Mrs Lee. On overseas trips, I had the opportunity to have many private meals with Mr and Mrs Lee. It was heartwarming to see their bantering. Mr Lee has a sweet tooth, and Mrs Lee would, with good humour, keep score on the week’s “ration”.
But when it came to official work, they drew very clear lines. Mrs Lee travelled with him whenever she could. Once, in Davos, she came into the tiny room where Mr Lee was giving a media interview. She found a stool in a corner and sat there, listening unobtrusively. Twice, I offered her my more comfortable seat near Mr Lee. She said to me: “You have work to do. I am just a busybody — don’t let me disturb you!”
Mrs Lee was supportive without intruding — she was certainly not “just a busybody”, and anyone who had the chance to observe them together would know just how close a couple they were, and how much strength her presence gave to her husband.
AN UNWAVERING DEDICATION
We live today in a different world that demands of us new ideas and approaches. But there is one quality of Mr Lee’s that we can, and need to, aspire towards: His unwavering and total dedication to Singapore, to keeping Singapore successful so that Singaporeans may determine our own destiny, and lead meaningful, fulfilling lives.
Singapore’s survival and success are Mr Lee’s life’s work and his lifelong preoccupation. History gave him a most daunting challenge — building a nation out of a tiny city state with no resources and composed of disparate migrants. He cast aside his doubts, mustered all his being and has given it his all.
His most significant achievement is to show the way forward in building a nation. There were, and still are, no textbook answers for achieving this. Mr Lee and his team analysed the issues from first principles and had the courage and conviction to do what was right and what would work for the country.
Mr Lee is an activist. He and his team would try, adapt and experiment, to get on with the job of making Singapore a better home for all. In the same way that he asks himself, we need to always be asking ourselves, “So?” So, what does this mean for Singapore? So, what should we do about it? And act on it.
Of the many qualities I have observed in him, this is the one that leaves the deepest impression on me — the one I hope we can learn to have. We take inspiration from the courage and determination of Mr Lee and his colleagues. The task of creating a better life for all Singaporeans — through expanding opportunities and through building a fair and just society — never ends.
ABOUT THE AUTHOR:
Education Minister Heng Swee Keat spoke yesterday at the conference “The Big Ideas of Mr Lee Kuan Yew”, organised by the Lee Kuan Yew School of Public Policy in celebration of Mr Lee’s 90th birthday. This article is abridged from that speech.
Time to look for good-value buys?
The Straits Times
Goh Eng Yeow
16/9/2013
FED up with the US Fed? For investors burnt by recent declines in stock prices, the United States central bank looks like a convenient scapegoat to blame for their woes.
The Federal Reserve's vast stimulus programme has helped to fuel a year-long rally in global equity markets.
But Fed chief Ben Bernanke pricked that bubble in May when he flagged the likely scaling back of this stimulus.
Some believe that if Mr Bernanke had said nothing, the recent precipitous sell-off may have been avoided - at least for now.
But closer scrutiny suggests that the Fed's role may have been overstated.
The real villain may not be the Fed but a host of other issues, which have been dogging the worst-hit markets for some time.
One big factor is a lack of good corporate governance practices which investors tend to overlook, doing so at their own peril.
Too often, investors take too narrow a view of governance, failing to appreciate that it extends beyond the corporate arena to include the rule of law, political freedom and the robustness of a nation's institutional framework.
But when the tide of cheap money recedes and investors turn their back on emerging markets, the flaws become all too obvious - India's political sclerosis, Brazil's credit worries and Indonesia's excessive deficit.
Still, as the dust settles on the indiscriminate sell-off which initially battered emerging markets everywhere, some markets, such as Taiwan and South Korea, have been luring investors back into their fold.
Both are export-oriented economies with healthy trade surpluses, which should help shield them from the withdrawal of the Fed stimulus - whenever that comes.
And the strong institutional framework they have built up since the Asian financial crisis 15 years ago offers another layer of comfort to investors.
Then there is the fixation over China.
Now that the days of China's double-digit economic growth are over, the worry is that the super-commodity cycle triggered by the mainland's insatiable demand for raw material has come to an end.
That has taken a toll on commodities-heavy markets such as Brazil, Indonesia and Australia.
Mr Jeff Shen, the head of emerging markets at US fund manager Blackrock, said in a recent note that the fixation over short-term performance was what led investors to adopt a commodity-based strategy that rests on China's demand for raw materials.
So every time China's manufacturing data flags a slowdown in factory activity, it inevitably triggers a big debate as to whether the mainland is handed for a hard landing - and an almost inevitable sell-off in shares on regional bourses.
But Mr Shen has this advice to offer: "In reality, it is more important to look at how successful China is at changing its economic model and to match your investment horizon to the long-term horizon it is taking."
For investors, it is more important to focus on issues such as sustainable growth and corporate cash flow, rather than try to time the market swings, he said.
Of course, that is not to say the end of the Fed easing does not matter.
Emerging market assets have been boosted to recent high levels by investment flows that were artificially strong, as traders and hedge funds took advantage of the cheap greenback to put money where it could earn a higher return.
But even as the US Fed turns off its liquidity tap in the months ahead, the risk of another financial disaster, similar to the one that hit South-east Asia in 1997, is remote.
Asian countries sit on huge war chests of reserves and a lot of their debts are now denominated in local currencies. That means it may be possible for most of them to survive the withdrawal of the Fed stimulus without triggering a painful recession.
But just as countries' fortunes will diverge once the US Fed brings its vast money-printing programme to an end, so will individual companies'.
As this new phase unfolds, issues such as company fundamentals, stock valuations and corporate governance will start to matter again to investors, to a much greater extent.
For value investors who have the patience to hold for the long term, it may be worthwhile looking for stocks to pick up again, rather than trying to time the market.
The heady days of buying an index fund to ride on the broad emerging market rally may be over, but there are many corporate gems going at pretty attractive prices waiting to be unearthed. Maybe it is time for investors to start digging hard.
engyeow@sph.com.sg
Goh Eng Yeow
16/9/2013
FED up with the US Fed? For investors burnt by recent declines in stock prices, the United States central bank looks like a convenient scapegoat to blame for their woes.
The Federal Reserve's vast stimulus programme has helped to fuel a year-long rally in global equity markets.
But Fed chief Ben Bernanke pricked that bubble in May when he flagged the likely scaling back of this stimulus.
Some believe that if Mr Bernanke had said nothing, the recent precipitous sell-off may have been avoided - at least for now.
But closer scrutiny suggests that the Fed's role may have been overstated.
The real villain may not be the Fed but a host of other issues, which have been dogging the worst-hit markets for some time.
One big factor is a lack of good corporate governance practices which investors tend to overlook, doing so at their own peril.
Too often, investors take too narrow a view of governance, failing to appreciate that it extends beyond the corporate arena to include the rule of law, political freedom and the robustness of a nation's institutional framework.
But when the tide of cheap money recedes and investors turn their back on emerging markets, the flaws become all too obvious - India's political sclerosis, Brazil's credit worries and Indonesia's excessive deficit.
Still, as the dust settles on the indiscriminate sell-off which initially battered emerging markets everywhere, some markets, such as Taiwan and South Korea, have been luring investors back into their fold.
Both are export-oriented economies with healthy trade surpluses, which should help shield them from the withdrawal of the Fed stimulus - whenever that comes.
And the strong institutional framework they have built up since the Asian financial crisis 15 years ago offers another layer of comfort to investors.
Then there is the fixation over China.
Now that the days of China's double-digit economic growth are over, the worry is that the super-commodity cycle triggered by the mainland's insatiable demand for raw material has come to an end.
That has taken a toll on commodities-heavy markets such as Brazil, Indonesia and Australia.
Mr Jeff Shen, the head of emerging markets at US fund manager Blackrock, said in a recent note that the fixation over short-term performance was what led investors to adopt a commodity-based strategy that rests on China's demand for raw materials.
So every time China's manufacturing data flags a slowdown in factory activity, it inevitably triggers a big debate as to whether the mainland is handed for a hard landing - and an almost inevitable sell-off in shares on regional bourses.
But Mr Shen has this advice to offer: "In reality, it is more important to look at how successful China is at changing its economic model and to match your investment horizon to the long-term horizon it is taking."
For investors, it is more important to focus on issues such as sustainable growth and corporate cash flow, rather than try to time the market swings, he said.
Of course, that is not to say the end of the Fed easing does not matter.
Emerging market assets have been boosted to recent high levels by investment flows that were artificially strong, as traders and hedge funds took advantage of the cheap greenback to put money where it could earn a higher return.
But even as the US Fed turns off its liquidity tap in the months ahead, the risk of another financial disaster, similar to the one that hit South-east Asia in 1997, is remote.
Asian countries sit on huge war chests of reserves and a lot of their debts are now denominated in local currencies. That means it may be possible for most of them to survive the withdrawal of the Fed stimulus without triggering a painful recession.
But just as countries' fortunes will diverge once the US Fed brings its vast money-printing programme to an end, so will individual companies'.
As this new phase unfolds, issues such as company fundamentals, stock valuations and corporate governance will start to matter again to investors, to a much greater extent.
For value investors who have the patience to hold for the long term, it may be worthwhile looking for stocks to pick up again, rather than trying to time the market.
The heady days of buying an index fund to ride on the broad emerging market rally may be over, but there are many corporate gems going at pretty attractive prices waiting to be unearthed. Maybe it is time for investors to start digging hard.
engyeow@sph.com.sg
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