Exchange-Traded Fund (ETF)

Hi all,

Thanks for the comments in the previous post. Saw Tina's comment about STI ETF and did some research into it. Here are my findings:

What is ETF?

ETF stands for Exchange-Traded Fund. It is a basket of stocks that tries to mimic an index. For example, a Straits Times Index (STI) ETF will try to be as close to the STI as possible by holding the shares which comprises of the STI in the same ratio.

STI ETF

STI ETF was introduced in 2002. When you invest in the STI ETF, you're practically buying all the following shares from all the following companies:

CAPITALAND
OVERSEAS CHINESE BANKING CORP
CAPITAMALL TRUST
SEMBCORP INDUSTRIES
CITY DEVELOPMENTS
SEMBCORP MARINE
COSCO CORPORATION (S)
SIA ENGINEERING
DBS GROUP HOLDINGS
SINGAPORE AIRLINES
FRASER AND NEAVE
SINGAPORE EXCHANGE
GENTING INTERNATIONAL
SINGAPORE PRESS HOLDINGS
HONG KONG LAND
SINGAPORE TECHNOLOGIES ENGINEERING
JARDINE CYCLE & CARRIAGE
SINGAPORE TELECOM
JARDINE STRATEGIC
STARHUB
KEPPEL CORPORATION
THAI BEVERAGE
KEPPEL LAND
UNITED OVERSEAS BANK
NEPTUNE ORIENT LINES
WILMAR INTERNATIONAL
NOBLE GROUP
YANGZIJIANG SHIPBUILDING HOLDINGS
OLAM INTERNATIONAL
YANLORD LAND GROUP

The Good

1) Diverse - You get to spread your risks in all the above 30 blue chip stocks in Singapore Exchange (SGX)

2) Low Entry - The index is currently at 1.700, so you can purchase 1 lot (1000 units) at just $1700. Try buying a lot of each of the 30 companies, you need much more than 30k.

3) Low fees compared to Unit Trust - 0 sales charge, historically less than 0.3% management fee per annum. Capped at 1%.

4) Buy and sell anytime when SGX is open for trading.

5) Dividends - Yes

The Bad

1) Tracking flaws - STI ETF might not be able to fully replicate the performance of the STI index due to factors like timing differences or management fees. Also, it will never outperform the index significantly.

2) Market Movement - Just like securities, it is affected by market movement.

My Personal Take on STI ETF

I think STI ETF is a convenient form of investment. Much like buying a set meal. Save you from the hassle of thinking what to order. Probably good for busy executives who believe in the stability of Singapore blue chip stock and have no time to do analysis.

I personally like Buffett style of investing. To look at the intrinsic value of stocks and see if they are oversold. Then purchasing them at bargain price. So I'll rather buy individual stocks, Right now it is a good time to spot some bargain because emotions have brought shares of certain stable company to low level. Still researching on this. Meanwhile, I'll continue to observe and learn about the market.

OK, hope this post benefited you. Oh, and one last advice:

Never rush into any investments without understanding.

                                                              - Lam

Ha ha.. ok, that's all, enjoy your long weekend and remember to post your comments!

Sincerely,

Lam

Is Gold a Good Investment?

 

Hi All,

I did some research on gold this weekend, here are some of my findings:

Gold and Equity Market

When there is uncertainty in the equity market, prices of gold usually rise. This is because investors flocks to a more stable form of investment. As shown in this graph:

Graph of Gold vs S&P 500

How do we invest in gold in Singapore?

Well, I found a place where you can buy "gold bars" literally. Visit this link:

http://www.uobgroup.com/pages/personal/investments/treasury/preciousmetals/index.html

 

Warren Buffett's Stand on Gold

"It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

Warren Buffett,1998 at Harvard, on the non-productivity of Gold

Conclusion

So, I in my opinion, I think that gold only serves aesthetic purposes. And there is no such thing as investing in gold, only trading or speculating. Personally, it does not fit my investment taste. I want put money in places that do good to Mankind. Certainly not paying people to dig, bury and guard it. So, I guess I'll stay on with Government bonds and equity market.

Hope this post helped increased your knowledge. Do let me know if you actually purchased a gold bar from UOB. Would like to take a look at a real gold bar. Haha.. Ok, feel free to comment and add in your personal view. Thanks for viewing!

Sincerely,

Lam

Flaws in Commission Based Marketing and Media

Hi all,

I wish to discuss an issue on a topic that is close to us. That is the flaws in current commission based marketing and media.

Media - Too much subjective representations?

Today I heard on the radio about a medical professor on the radio speaking about health problems and recommending a product claiming that it will help in prevention of certain medical conditions.

I stopped and wondered. Is the information he shared really objective? Or is it tinted by his own subjective opinions and biases? Probably his paycheck next month will depend on the sales of this product?

My mind wandered again. This time I thought of the numerous shows on TV between 8 to 9pm, showing true cases of people who succeeded in slimming or hair treatment. Are all these successful cases accurate representations of all clients? Or is the company highly selective in the programme? Can we, from these few highly selective cases, generalise that all people who go for slimming programme will achieve similar results?

It is widely known that media is a very influential, and influence is like a double edged sword. When used correctly, it can help keep society in order and thrive. When abused, it can sway the opinions of the masses to the advantage of its wielder.  Many people listened to the radio and watched TV in the evening after a hard day's work, continuously being bombarded by information made by company with motive of maximising profit. With no one to remind them that the objectivity of the information is debatable.

Commission Based Marketing

What about companies (eg. financial and health supplement) using commission based model?

As the old Chinese saying goes:

“老王卖瓜，自卖自夸”

"Old Wang's selling melons, praising the melons as he sells"

Obviously, the seller's advice is definitely subjective, and that his next paycheck is 100% depended on his sales.

Well I'm ok with commission based model is used to sell melons. It is because most people understand melon. And they can expect how the melon will look like (unless it is rotten) inside, and how they can benefit from the melon. However, many commission based model today are being used to sell complicated financial instruments and health supplements.

Some of the people who joined these systems have inadequate training, and mainly motivated by financial rewards. A deadly combination.

Common sense tells us not to totally trust salesman. But in today's world, almost all information available on the Internet, TV, radios, newspaper, books, flyers, magazine are created by people who wants to make profit. Not much places where can we find objective, third-party, not-for-profit knowledge. Even doctors who owned their own private clinics have their income linked to the sales of medicine.

Vision of a Perfect Solution

I think the perfect and idealistic way is to have a publicly funded solution provider that is third party and not for profit. They back claims with accurate, objective statistics. Publishes their advices online,for the good of consumer, as though they are the consumer, and take responsibilities for the decisions made by the customer. The performance of this body is judged by customer satisfaction as well as a regulatory body (possibly from academic statisticians) that ensures their information for consumers are accurate and objective.

CASE is a good example of such regulatory body. However, CASE is more passive and response to complaints. Also they charge a high fee(in my opinion) making them unsuitable to help customers on small items. But, it is a good start.

At the same time, commission sales team and media advertisements should be transparent and regulated to avoid misrepresentations. Sales force should be well educated on the product. Presents benefits as well as drawbacks during sales pitch.

Consumer should get advice from the expert group, and do thorough research before purchasing products. As well as research of the company's previous lawsuit and complaints. Have a cooling off period before purchasing any item pitched. Have the courage to say no.  Never buy anything that you don't understand fully.

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Alright, wow, that's a long entry. Do give me your comments, or share any experiences that you may have. Thanks.

Sincerely,

Lam