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Why you should not buy IPOs As Sheng Siong is launching its IPO next month, I expected a few calls as whenever an IPO is launching. And if you are my client, you know my answer. I decide to write this article so everybody can benefit...

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Questions to ask your Financial Adviser Every Sunday morning when I read the newspapers, I always see articles or advertisements regarding "Financial Advisers". Nowadays, just like the once prestigious word "Banker", which is misused in the...

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Revision to Nomination of Insurance Nominees Regulation With the onset of the Mental Capacity Act ("MCA") coming into effect on 1st March 2010, the Insurance (Nomination of Beneficiaries) Regulations 2009 ("the Regulations") will be amended to effect 2 changes: The...

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The ABCs of the Financial Advisers Act The title, Financial Adviser, is always mis-used in the industry and misunderstood by the consumers. On 10 October 2002, the Financial Advisers Act came into effect and all financial institutions are...

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Moratorium Underwriting by Aviva It is a common that insurance companies do not cover pre-existing condition. Typically, pre-existing conditions will be excluded with little or no chance of them being covered, even after a number of treatment-free...

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Why you should not buy IPOs

Posted by Ivan Guan | Posted on 21-07-2011

Category : Featured Post, Investment Ideas

Tags: ,

As Sheng Siong is launching its IPO next month, I expected a few calls as whenever an IPO is launching. And if you are my client, you know my answer. I decide to write this article so everybody can benefit from it.

1. Are you sure you can value an IPO?

An initial public offering, or IPO, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it’s known as an IPO.

In another word, the company who is issuing IPO has no public track record.Whatever written in the prospectus (if you ever read) will not help you much as the document is drafted for the purpose of promoting the company.

It’s already hard enough to analyze the stock of an established company. An IPO company is even trickier to analyze since there won’t be a lot of historical information.

LinkedIn’s banker Goldman Sachs was paid $39 million yet they still mis-priced the IPO by 100%.

2. IPO is just selling stock

Investors must understand the primary goal of an IPO is to sell the pre-determined number of shares being issued to the public at the best possible price.

Usually, IPO is used by small business go to the public to raise cash to seeking to expand their business. As a result, many times, the IPO becomes the end rather than the beginning as the objective is fulfilled

IPO is all about the sales job. If you can convince people to buy stock in your company, you can raise a lot of money.

If you do get shares, it’s probably because nobody else wants them. The hot IPOs are usually snapped up by the big institutional investors or the very best wealthy clients of the underwriting firm.

Yes, there are exceptions to this rule, just keep in mind that the probability isn’t high if you are a small investor.

3. Why are investors so interested in IPOs?

It is important to understand that underwriters are salesmen. The whole underwriting process is intentionally hyped up to get as much attention as possible.

If your broker call you today to talk about Singtel stock, you will immediately hang up on him. But if he tells you that there is this amazing company who has bright future and now is offering a “once in a lifetime” opportunity to buy his IPO, you will want to check it out. After all, people like scarce things, even if it is a piece of junk.

Then you try to search the web, read the newspaper, ask your friends. Everything you hear about this company is, of course, fantastic. After all, this is what is designed to be.

4. “I will sell the IPO on the first day it debuts”

So do I! So does everybody!

Investors always misunderstand the real liquidity of the stock market. They often forget if you want to sell your stock, someone has to buy it. If everybody wants to sell the IPO after it launches, the price can only go down. If you want to offload your shares, you have to find a greater fool who is willing to pay more than what you have paid.

5. “I will hold the IPO until the price rises”

This is what I call Karung Guni Investors. These investors buy all kinds of stocks whenever they are offered at “seemingly cheap price”, hopefully to sell it to somebody else in a future day.

You can definitely make some money in this way as you should always be able to find some people who value the antique chair more than you do, but you will surely turn your home into junkyard in the long run.

6. “Some IPOs soar high and keep soaring!”

Yes, granted! LinkedIn nearly double the IPO price. But back to my second point, how much IPO shares do you think you, as a retail investor, will be allocated in the first place. The share soared simply because many desperate investors was not allocated the shares during the IPO process.

After all, many IPOs fall all the way since their debut.

7. “So I should not buy IPOs at all?”

As Warren Buffett once commented IPOs,

“It’s almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors).”

Buying IPO is just like buying any other stocks. The questions you ask yourself should be the same as if you are buying any other stocks.

  • What is your risk tolerance level?
  • How does this investment fit into your portfolio
  • What level is the current price or the IPO price in your opinion, is it fairly valued? discounted or premium?
  • What price should you sell for a profit?
  • What price should you cut loss no matter what?

If you haven’t thought about these, you should think about them now.

Questions to ask your “Financial Adviser”

Posted by Ivan Guan | Posted on 08-05-2011

Category : Featured Post, Financial Planning

Tags: ,

Every Sunday morning when I read the newspapers, I always see articles or advertisements regarding “Financial Advisers”. Nowadays, just like the once prestigious word “Banker”, which is misused in the modern financial industry and misunderstood by many consumers, the term “Financial Advisers” has become widely misunderstood.

To some people, any sales person in the bank is a “Banker”, and anybody who is selling a financial product is a “Financial Adviser”.

Almost every Sunday, The Straits Times features a financially successful person in the “Me & My Money” section. When asked what has been your worst investment to-date, many of the persons featured answered that they have lost thousands of dollars in stocks or unit trusts. While these people are successful in their own business and career, it always makes me ponder why they seem to be unable to make right decisions in their financial products.

I blogged about how information overload may lead to unwise investment decisions. The crucial part of this process is probably due to the source of financial advice they receive from their “Financial Advisers”. Investors may not find the right financial advisers because they do not understand the differences between Exempted Financial Adviser,  Licensed Financial Adviser and Independent Financial Adviser, or the importance of the differences.

By asking two simple questions before engaging a person to provide financial services, you will be more likely to find a more suitable financial adviser for yourself, and thus reduce the chances of making improper financial decisions.

1. Are you a stock­bro­ker, insur­ance agent, relationship manager or independent financial adviser?

This question cuts through all the mar­ket­ing hype and makes the fact clear to you. No mat­ter what title (private wealth manager, financial consultant, personal banker, blah blah) or des­ig­na­tions (ChFC, CFA, CFP, etc) printed on the person’s name card, the answer will tell you how he or she earns a liv­ing — and what kind of prod­uct rec­om­men­da­tions you are likely to get from him.

No mat­ter what he might claim to the con­trary, a person who’s solely a bro­ker, a relationship manager or an insur­ance agent makes a liv­ing sell­ing invest­ment or insur­ance prod­ucts, or in another words, makes a living from having transactions.

It does not take a PHD holder to understand that a transaction-based model will inevitably affect the basis of the recommendations given.

2. How are you compensated?

In today’s context, many service providers hold mul­ti­ple licenses.You can walk into a bank to buy an insurance product, and a General Insurance Broker can sell you a Unit Trust.Your stock broker will send you “Tips of the day”, and your online fund providers will email you “Best Idea of the Week”. You probably have attended some FREE Seminars unleashing the best kept “Investment Secret”.

They all seem to be trying to help you.

But wait, didn’t you often hear that there is NO FREE LUNCH?

Have you asked how are they compensated? How do they cover the costs of:

  • Putting up full page marketing campaign in the newspapers or magazines?
  • Offer you FREE gifts when you sign up their products?
  • Renting a hotel room to hold seminar with FREE buffet?

Did you really ever think those research reports flying into your mail box gives you genuine, unbiased and sound advice? Just read their disclaimers.

Revision to Nomination of Insurance Nominees Regulation

Posted by Ivan Guan | Posted on 21-03-2010

Category : Estate Planning, Featured Post, Financial Industry Update

Tags:

With the onset of the Mental Capacity Act (“MCA”) coming into effect on 1st March 2010, the Insurance (Nomination of Beneficiaries) Regulations 2009 (“the Regulations”) will be amended to effect 2 changes:

  1. The Regulations will be amended to provide for insurance nominations and revocations to be made by the court on behalf of a mentally incapacitated policy owner.
  2. The Regulations will also be amended to provide for trustees who are not natural persons (i.e. trust companies) to be named in the statutory forms.

For instance:

The Special Needs Trust Company (“SNTC”) was set up in October 2009. This is a nonprofit organization that provides trust services for families with disabled children. Now, policy owners may wish to use the amended forms to appoint SNTC as a trustee.

The ABCs of the Financial Advisers Act

Posted by Ivan Guan | Posted on 18-08-2009

Category : Featured Post, Financial Planning

Tags: ,

The title, Financial Adviser, is always mis-used in the industry and misunderstood by the consumers.

On 10 October 2002, the Financial Advisers Act came into effect and all financial institutions are expected to comply with all its requirements from 1 April 2003, so what can consumers expect from financial advisers and their representatives? What are the likely benefits to consumers, and what are the things that they should look out for?

There are three types of Financial Advisers:

  • Exempted Financial Advisor
  • Licensed Financial Advisor
  • Independent Financial Advisor

Before consumers seek for financial planing advice, they should be clear about what kind of advisors they are dealing with and what are the implications. The players in Financial Advisor Market are

fiancial_advisor_players

While Exempted Financial Advisors and Licensed Financial Adviso are allowed to distribute insurance and investment products without offering a choice. Only an Independent Financial Advisor (IFA) is required to offer choices and
provide fair and objective advice and recommendations.

The article, The ABCs of the Financial Advisers Act, published in SmartInvestor has more detailed discussion about this topic.

Moratorium Underwriting by Aviva

Posted by Ivan Guan | Posted on 18-08-2009

Category : Featured Post, Medical Insurance

Tags: , ,

It is a common that insurance companies do not cover pre-existing condition. Typically, pre-existing conditions will be excluded with little or no chance of them being covered, even after a number of treatment-free years.

Fortunately, the British insurer, Aviva, applies what the industry calls the ‘Moratorium Underwriting‘ to its MyShield plans, as part of a series of policy enhancements since Aug, 2007.

Applicants for its MyShield plans no longer need to declare their medical history when they sign up, but will instead be given instant approval. This is on the condition that they are not employed in certain occupations and have not been rejected for health or life insurance previously. As a result, if a person with pre-existing condition signs up for the plan, and the illness returns after a five-year absence, it will be covered.

However, For five continuous years from the coverage start date, he must not have, in relation to a Pre-Existing Condition,:

  • experienced symptoms; or
  • sought advice or tests from a Physician, a Specialist or Alternative Medicine Provider (including checkups for that Pre-Existing Condition); or
  • required treatment or medication; or
  • received treatment or medication

There are also a list of pre-existing illnesses that are permanently excluded from coverage. These include stroke, kidney failure and all forms of cancer except skin cancer.

Nevertheless, the product is still very helpful for people with minor medical condition or accident before.

 

How Safe Are Unit Trusts?

1

Posted by Ivan Guan | Posted on 22-11-2008

Category : Featured Post, Investment Ideas

Tags:

The nerves of many local investors have been badly rattled of late. The bankruptcy of Lehman Brothers, and the mini bonds saga that followed, gave investors of the Lehman Brothers mini bonds a rude awakening, as they saw their investments reduced to nothing but worthless scraps of paper.

One fundamental rule of investing: Always know what you are buying into. If you know next to nothing about what you are investing in, do not buy into it, no matter how enticing the returns may seem, or how persuasive the personal banker may sound!

…

In A Nutshell: Advantages & Disadvantages of Unit Trusts

By now, investors should be well-acquainted with the numerous benefits of unit trusts. Diversification, economies of scale, professional management and liquidity are the main benefits of unit trusts. For example, for a minimum sum of S$1,000, an investor can stretch his or her dollar, and be invested in a global, regional, or single country equity fund.

But as with any form of investments, unit trusts have their own set of risk and disadvantages as well.

The returns from your unit trust investments do fluctuate according to market conditions. Thus, there is always the possibility that the value of your investments would depreciate. Unit trusts are professionally managed instruments, but it does come at a cost to investors. Upfront sales charges, annual management fees and expense ratios are costs that investors have to take into account. The management fees and expense ratios vary from fund to fund.

Having run through some of the main advantages and disadvantages of unit trusts, let’s take a closer look at the risk control measures behind them.

Understanding How A Trustee Works

The assets of a fund are taken into custody, and held by a trustee. In accordance with the duties and responsibilities of a trustee of a fund, trustees are required, but not limited to:

  • take into custody or control all the property of the fund and hold the property on trust for the participants
  • ensure that all the property of the fund is properly accounted for
  • keep and maintain a register of the participants of the fund

By holding on to the assets of the fund, the trustee functions as a third-party ‘safety net’ for investors.

However, this safety net is not 100% “fool-proof” either. A trustee can also become insolvent . In the event that the trustee of a fund becomes insolvent , the trustee is not allowed to use the investors’ holdings and monies to offset the trustee’s debts. The fund manager will appoint another approved trustee to take over as the new trustee.

Will I Get My Money Back If The Fund House Winds Up?

Investors need not worry about their investments, in the event a fund house ceases its operations.

The assets of unit trusts are held separately on trust by the trustee for the benefit of the unit holders. In the event that the fund manager goes into liquidation, a meeting will be called by either the manager or the trustee for the purpose of determining an appropriate course of action.

If a resolution is passed at the meeting, the trustee will take the necessary steps to wind up the fund. The trustee then has to ensure that the resultant proceeds have been distributed to participants in the same proportion as their holdings of units.

Source: Fundsupermart.com