You Could Be Richer Than You Think

you-could-be-richerEvery year, more than $16 billion in dividends are paid out to investors. It was reported this week that there were $68.3 million worth of unclaimed shares and dividends still held in SGX, these belong to 83,000 investors. Among them, some 74,000 investors failed to cash their dividend cheques, amounting to $53.7 million in total. “In particular, one surprisingly forgetful person stands to be $1.2 million richer if he collects all his outstanding dividends.

While the news may surprise many people, I find it hardly anything new. Two years ago, I wrote a blog entry “Common psychological biases among Asian investors“, I outlined common biases average investors have. One of them is called “Mental Accounting”. Ask yourself or your friends, have you ever recorded all your investment transactions and really penned down your profit and loss? I have met so many investors but none of them can show me an excel sheet of their past investments.

Some may argue that the brokers provide such system, but the reality is that many people transact through multiple brokers. The situation is worse especially in Singapore, where stocks are held in CDP instead of the brokers. I’ve yet to see a broker’s system to be able to capture information of dividends, rights, etc. If you also invest into unit trust and dividend or coupon paying life insurance policies, you will never know what you have until you really write them down.

In fact, stocks and dividends are not the only financial information which people lose track. Many do not budget and have no idea of their own monthly expenses and outstanding debts. That is why “money is not enough” until you count it.

There are even unclaimed insurance maturity proceeds and death proceeds. Most of the insurance companies publish these data in their website, and the list is astonishing long.

The news is a wake up call to many. Probably you should turn on your computer and start to record your personal finance from today. But the first thing you need to do it to check if you have any unclaimed shares or dividends. You can simply visit or call 6589 8039 (8.30 am to 5.00 pm Mondays-Fridays, 9.00 am to 12.30 pm on Saturdays). SGX will waive the administrative fee for the re-issuance of dividend cheques and dividend crediting until 26 January 2014.

Check for your spouse and parents too!

One Night Stand Investment

I stumbled upon this interesting term  “One Night Stand Investment” from today, it means “Buying a security with the intention of holding it for the long term, but subsequently panicking and selling it the following day.”

Investopedia further explains that “An investor sells out the following day typically because of bad news or a sudden change in long-term expectations”.

From my experience, the reality is just the opposite. Many investors buy a security with the intention of selling it the following day for a quick gain, but subsequently hold it for the long term if the stock price drops ever since.

When I do portfolio review for my clients, many of them hold shares from many different companies. Most of them are usually penny stocks which have dropped substantially in value in the past years. It is easy to understand the situation because many of these stocks were bought with the intention of one night stand, but end up became a long term commitment.

Just like one night stand, short term happiness always leads to long term pain.

Market Crashed! What should you do now?

Recently I wrote a blog “Is Cash the King now?“, today I received a friendly call from one of my insurance clients asking how I was doing for the past week. This guy is a DIY stock investor, and I have never managed his portfolio, that probably explains why he is concerned about me. He probably thought my clients were cashing out.

He couldn’t believe that none of my clients are worried and some of my clients even topped up recently. Then he assumed I must be on the short side of the markets, which I am clearly not.

Incidentally, I received an email from my stock brokers advising whose who were “stuck” in the market last week should “sell on technical rebound”. Then he quoted, “as Warren Buffet famously said, Be Greedy when others are Fearful, Be Fearful when Others are Greedy”. (a bit contradicting to me)

When I was in the office, I heard other advisers receiving calls from clients concerning their investments. To me, the fear is definitely in the markets, your friend are fearful, your stock brokers are fearful, even some of the advisers are fearful too, but how many of you are “Greedy when others are Fearful”?

As yourself this question (from Warren Buffett)

“If you want to buy hamburgers tomorrow, should you wish for the price of burgers to fall or rise before you buy?”

Of course you want the price to fall, isn’t it?

But strangely, if you are going to buy an investment, why are you panic when the price of the investment falls?

Below is a typical DIY investors behavior chart (click to enlarge). Ask yourself which point are you at this moment. When markets crash, investors buy, traders sell, speculators cut losses. Which one is for you now?

Typical DIY Investor Behavior


Is Cash The King Now?

It seems scary enough by just reading the news headlines in the past week, when US Debt Ceiling Impact and Euro Debt Crisis still show no sign of relief.

  • Aug 3, 2011 (Wed) – US Senate approves debt deal hours before deadline / STI weighed down by bleak US data
  • Aug 4, 2011 (Thu) – STI plunges on global economic fear
  • Aug 5, 2011 (Fri) – STI sees third straight day of losses, with no relief in sight
  • Aug 6, 2011 (Sat) – STI falls 3.6% as investors flee markets / Large investors turn to cash
  • Aug 7, 2011 (Sun) – US Credit Rating cut caps week of misery

So is Cash the King now?

I will show you three charts as below.

The first chart plots Fund Sales from fundsupermart vs MSCI Asia ex-Japan Equity Index. The chart clearly shows when market was moving up, people pumped in more and more money into riskier asset but immediately shunned away when the market crashed.  As the Saturday Straits Times yesterday:

“Large investors … are pulling their money out of stocks and other investments and stashing their hoards of cash at banks … The (Cash) accounts do not earn interest … At one point, yields on one-month bills actually fell into negative territory before ending at zero – signalling that investors are so worried that they are prepared to pay the US government to take their money.”

But wait, by doing so, didn’t you just buy stocks when the market was high and sell when the market was low? No wonder so many people lost money during financial crisis and never made it back. This is exactly because that most investors were rushing to the jump onto the wagon just before the market hit the cliff and crashed, however, when the market rebounded 100% since 2009, many investors are holding cash!

FSM Sales vs MSCI Asia ex-Japan Equity

The Second chart I am going to show you is Investment Performance in S&P 500 Index Missing the 5 Best or Worst Days. There are many similar studies but I find this chart is pretty recent. The first half of 2011 is very volatile,

  • if you had a crystal ball and avoided the 5 worst days, you would have a stellar return like the yellow line (fantastic but we all know it is impossible).
  • On the other hand, if you were holding cash for just 5 of the best performing days, your portfolio return would be underwater like the red line.

Stock markets were most down by 10% for the past week. Given the current market scenario, if you are moving into cash now, you are not only realizing the damages by the worst days but most probably will miss the best performing days in the future as well. There is a high probability that your investment return will be even worse than the red line.

And that is exactly the same mistake made by many investors as the first chart shown.

Investment Performance in S&P 500 Missing the 5 Best/Worst Days (Source: The Big Picture)

As reported by the news on Aug 6, “Singapore share plunged 3.61% yesterday …The last time investors went through this sort of pain was on Mar 30, 2009, when the market crashed 4.1% amid the fallout from the financial crisis.

Let me bring your attention to the last chart, which is historical performance of Straits Times Index (STI). Isn’t Mar 2009 the bottom of stock market since financial crisis and the stock market run up more than 100% since then? Is stock market really going to die after a crash like this?

Straits Times Index 2008 to 2011 (Source: Yahoo Finace)

I think this is a good time for investors to reflect themselves:

  • Why do you invest?
  • What is your investment objective?
  • What is your investment horizon?

Remember the famous words from William Shedd, “A ship is safe in harbor, but that’s not what ships are for.


Common psychological biases among Asian investors

Recently, Hubbis, a leading provider of content and online training for Asia’s Wealth Management & Private Banking Industry, published a report The High Net Worth Guide to Wealth Management in Asia 2011.

In one of the chapter, Understanding your biases, looks at the influence and impact of emotional and psychological biases on investors’ investment decision-making, including insight on some of the most common ones, and considers how investors should tackle these.

Given the volatile stock market, it is essential for investors to evaluate themselves again to prevent from the many types of psychological bias, all of which impact their approach to their investments. Below are the common biases abstracted from the report. Ask yourself if you have fallen to these traps before:

[Read more...]

How information overload leads to bad investment decisions

In today’s Straits Times, the article, “Investor sues UBS over US$1.6m losses”, reports that a Taiwanese woman claimed bank told her US$2 million investment funds were protected where it was not.

Of course it again turned to the argument whether the claimant was savvy herself or whether she could communicate in English when she signed the documents.

Let’s temporarily put aside the argument whether the bank has mis-sold the client; How can a investor lost 80% of the capital and then turned around saying “I do not know what had happened”?

From my financial advisory experiences with clients, I guess this is probably due to what is called information overload.

In 2004, Julie Agnew and Lisa Szykman published a paper in the Journal of Behavioral Finance, revealed that people with a low level of financial knowledge suffer particularly from information overload.

Many are simply overwhelmed and cannot cope at all. This leads them to take the path of least resistance, the “default option” in investment planning.

While some investors inevitably have too little information, others have too much, which leads to panic and either bad decisions or trusting the wrong people. When people are exposed to too much information, they tend to withdraw from the decision-making process and reduce their efforts. (A lack of information, which one could call “underload” can have the same result, by the way, and is certainly just as dangerous).

In this case, client leaved decision making process to the bank but they failed to recognize that bank is a party to providing people with information about investment options, which may not be enough to produce rational and sound decisions.

Floundering in a maze of information opens people up to misselling and misbuying. As a result, investors get really lousy, unsuitable investments foisted on them. In short, investors land up with investments that are lucrative only for the seller, or which are simply easy to sell and no trouble to manage.