Wednesday, April 30, 2008

NTUC Income Change of Bonus Scheme

NTUC Income recently sent a letter to all their Policyholders with regards to a change in their bonus scheme. They are reducing the Annual Bonus and increasing the Special Bonus. This change will affect how bonus are allocated to their participating life insurances.

What is it about?
* Annual Bonus are given to the policyholder on a yearly basis.
* Surrender/Maturity Bonus are given to the policyholder when he/she surrender the policy or on maturity.
* NTUC Income will give lower yearly bonus and therefore policy will show a lower value.
* However on maturity or surrender, NTUC Income will give a surrender bonus to boost the amount before the Policyholder get his surrendered amount.

Is the change for the good or for the bad?
* I have to say. No one knows for sure because the answer will only be known 15,20 yrs down the road. If NTUC Income continues to manage their Life Insurance Fund well, the change will most likely be towards the good. If NTUC Income mismanage their fund, the change will not be good for their policyholders.
* However, if NTUC Income don't change, they may lose to other insurance companies in getting a better returns on their funds due to restrictions in the way they invest their money.
* When they get a lower returns, they will eventually gives lower bonus to their policyholders too.

What did some bloggers say?
* Many of them are emotional. They did not fully understand how the change will affect their policies and why the company need to adopt this practice. Some disclosed their diasppointment and announced that they will terminate their policies.
* Terminating a policy prematurely will adversely affect the potential yield of your policy and the existing coverage that you have. It is not wise to do it and DO NOT BE EMOTIONAL...

My meeting with their Appointed Actuary
I was particularly concerned with this issue and I have an opportunity to ask some question to Mr Ken Ng, their Appointed Actuary. I questioned him on the rational of this change and if a scenerio of them declaring a very low surrender bonus in recession years are possible.

* He answered me that the change is necessary for the long term viability of the company. They need to take slightly higher risk towards investing their life insurance fund. Their current practice of giving generous annual bonus are forcing them to keep more funds in bonds and money market. If asset allocation is not changed, they may eventually give a lower returns to policyholders in the long term.
* He also assured that they are aware of the past when some insurance companies declare a very low surrender value in years of recession. They counter this by ensuring that they will put aside reserves in booming years to cover the loss during recession years.

How I feel after the meeting?
* I accepted his reasoning and I have trust in NTUC Income that they, being a cooperative, will continue to serve well for their policyholders.
* I like to re-assure my policyholders that NTUC Income remains a well managed company and I will continue to recommend plans from NTUC Income.

Tuesday, April 29, 2008

Misleading Ad

I saw this ad in the Straits Times last week. I'm sure that many people will misunderstood this as a Fixed Deposit Scheme that is capable of giving 2.08% p.a
How can we identify that it is not true? There are 3 lines of words that reveal this:
1) "Guaranteed Coupon"
They did not specify guaranteed Interest, Returns or Yield. They can give a guaranteed coupon of 2.08%, but the underlying fund can be reduced by 2.08% on the same day.

2) "Capital Guaranteed at end of year 2"
If the 2.08% is guaranteed, why they only capital guarantee the capital? So obviously, you can get 2.08% for 2 years but the end of day principal returned to you can actually the initial amount invested minus off your 2 years of coupon.

3) The bonus Coupon payment is dependent on the value of the underlying asset.....
This line clearly implied to us that this is an investment, not like a deposit type of plan.
I wonder how many Uncles and Aunties will misunderstood about this plan...

Sunday, April 27, 2008

Chill out from the Examination Heat

Its coming to May and many parents are worried about their children Mid-year Examination. I too, am exactly 5 weeks away from my CFA examination. No one is worried for me except myself... My parents will only ask me "Why everytime see you study one? What exactly are you studying?" "You got so many paper, what are you working?"

I'm very stressed out and am going for an Examination Suicide. With the pace I"m going, I'm sure to fail the exam and waste all my money and time. Really feel like giving up at this stage. Its affecting my work, my life and my income over the past few months. Its super tough for me, who is not so smart and without finance background to go for this exam with only 6 months to prepare.

I had also just started my project "MP". What MP stand for? Not to reveal yet. This project is taking me a lot of time as well. STRESS... STRESS... STRESS...

Good news!!!
Remember this? This is something that can chill me out from the heat

Ben and Jerry is celebrating Free Cone Day again this coming Tuesday. I had talked about it in my blog last year.

I don't care!!! I'm going to have 2 ice-cream this time round to cool my examination heat and stress. Don't tell the staff there, okay?

Thursday, April 24, 2008

Eldershield. Keep or don't keep?

ElderShield is an insurance scheme introduced by the Ministry of Health (MOH) in 2002 to all Singapore Citizen and PRs between age 40 and 69 as at 30 Sep 2002 to provide financial help to those who are unable to take care of themselves because of severe disabilities.

Why Implement it?
It was projected that as many as 1 in 12 elderly persons will suffer from disabilities as a result of aging and illness and can make them incapable of doing simple everyday activities. These people need long term care which can be expensive and may require financial help.

Who is it for?
ElderShield provides cash payout every month to those who are not able to do 3 or more of the following Activities of Daily Living - washing, feeding, dressing, toileting, mobility and transferring.

My formula to remember the 6 ADLs?
E - Eating
T - Transferring
D - Dressing
U - Use Toliet
M - Mobility
B - Bathing

What is the payout?
a) Those who entered into the Steady State before 30 Sept 2007 (Eldershield Plan) are entitled to $300 monthly benefit, for benefit period up to 60 months.
* Max payout = $18,000
b) Those who entered into the Steady State on or after 30 Sept 2007 (Reform Eldershield Plan) will be entitled to $400 monthly benefit, for benefit period up to 72 months.
* Max payout = $28,800

What is the premium?
a) For normal Eldershield, the eventual total premium paid will be around $3.7k for men and $4.9k for women
b) For reformed Eldershield, the eventualy total premium paid is around $4.5k for men and $5.7k for women

Where can you get these plans?
Check it out at

Is the premium worth the cover?
a) Our government made the research that 1 in 12 will be incapable of performing the 3 ADLs.
- Well, its possible. But I'm not sure how many years later will this statistics come true.
- The insurance companies should be able to collect millions in premium and generate a good investment profits before serious claims comes about
b) How many do you think can smell the money?
- If the person become disabled, how long will the person live to collect the full $18k or $28.8k?
- Not forgetting that many will never be disabled before they die
- Many may only get only 1 or 2 ADLs disability and a claim is not possible
c) Mathematically, a woman may pay as much as $5,000 for a maximum claim of $18,000. You are betting on a probability of 27%. Not forgetting that the $18,000 may not be fully paid out as the insured might die before even collecting back the premium.

Is it worth to keep this plan then?
Many people came to me and seek my opinion if they should surrender this plan. They also know how to calculate like what I did above. I'll advice:
Better keep. Why?
a) Life is too unpredictable. Government come out with this plan is to tell us that "they do not want to take care of us when we are old. We better take care of ourselves."
b) Its a government scheme, they will make sure the insurance company return back their profit to policyholders. The scheme will keep improving. Be patient, don't surrender.
c) If disability really strike, the cost in daycare centres and nursing home can be high. So better don't play play unless you have plenty of $$$.
d) Its Medisave money. Cannot use for other purpose anyway.
So Close 1 eye, don't be too calculative. Just pay, be safe...

Tuesday, April 22, 2008

Vietnam and Ho Chi Minh City

Came back from Ho Chi Minh City after a 4 days trip. It was my first time there and I like to share my thoughts about Vietnam and the City.


Ho Chi Minh City is the largest City in Vietnam, formerly known as Saigon. The city was influenced by the French during their colonial occupation. Saigon was also called the "Paris in the Orient" The city fell to the North Vietnamese on 30th April 1975.

My thoughts on the Country and City

1) The Vietnam Flag

I thought the flag looks interesting with a big yellow five pointed star in a red background.
* The star actually represent the Labourers, Peasants, Intellectuals, the Military, and the youth. * The red represents the blood of the working class and revolution towards socialism.

2) The Vietnam War
* From 1950-75, the United States began to send troops to Vietnam to fight for a questionable cause against communism. During that 25 years, almost 3 million US men and women were sent thousands of miles to fight and it is estimated that over 2.5 million people on both sides were killed.
* The people in the South are happy to see Communism rule in the North and yield to see a unified country. They fought their life for their country and people. The American merely fought for anti-communism which the people back home do not support.
* Its no doubt that the American, despite having better weapons and tactics are simply not strong enough to fight an unconventional war with the Viet Cong.

3) The people
* Half of the people I saw in HCMC looks like Thais and the other half more towards Chinese.
* The man are not very big sized and looks quite stern.
* The ladies looks slim and have nice gorgeous long hair.
* I can't feel the friendliness of the Vietnamese, from resturants, hotel, bazaar, shopping centres, tourist spots, etc. I even got cheated when I was shopping in Ben Thanh Market. (Don't think like to elaborate)
* Taken a picture with the fair ladies. Take a look

* Fancy getting a Vietnam Wife? Make sure you get one who is happy and smile often.

4) The Vietnamese Costume
* Also known as the Long Dress or áo dài. This dress is very authentic to the Vietnamese.
* Frankly telling, I feel that girls can easily show their curvy bodies and elegance to attract any men they fancy.
* They looks sexy, not because of how much they reveal. Its the mystery on how much can be revealed.

5) Their Motorcycles and their Helmets
* 80% of the vehicle I saw on the road are motorcycles, probably 10% public transports like taxis and buses, 5% trucks and remaining 5% private cars.
* Cars are probably too expensive for them
* Some of them don't even wear a helmet and some wear very cute helmets. Take a look below:

6. The Cu Chi Tunnels
* It is an immerse network of underground tunnels used by the Vietcongs and Guerrilla fighters
* The Americans tried to destroy Cu Chi but repeatedly failed with heavy casualties.
* The traps used were amazingly creative but inhuman
* This is the type of unconventional warfare that the Vietnamese won over the Americans
* Make me rethink my marketing strategy in my Financial Planning Business. I may have to be more creative and unconventional.

7. The Massage

* I'm a very typical Singaporean. Go Thailand, Indonesia or Vietnam, never fail to go for cheap and good massage. Some people even go for 4 straight days of different massage
* I do not know where to find a good one till someone passed me a namecard with this picture behind. Anyway, not knowing where to go, I still went ahead to the place.

* The girls there are young, wear skirts, slim with good body. The girl who gave me the massage looks better than them. (Hey, don't think dirty okay?)
* She is very strong and really step and crack my body. However I feel that there are still some part of my body not properly massaged, hence not very systematic. (Traditional Thai massage still the best)

8) Overall Experience
* Overall enjoyed my meals with the seafood, beef noodle. Shopping at Ben Thanh, Binh Tay Market and Dong Khoi Street as well as amazed by the Cu Chi Tunnel and History Museum.
* The best is still being able to enjoy the trip with my fellow colleagues and have fun partying together.
* Will I go again? Of course, why not? Haven't go to so many tourist attractions yet, like the Reunification Palace

Friday, April 18, 2008

Off to Ho Chi Minh City

I'm going to Ho Chi Minh City for 4 days. Will not be blogging till next Tuesday.
Wish all of you a nice weekend ahead...

Wednesday, April 16, 2008

Entering our Senior's mind

I talked to a group of retirees in a coffeeshop recently when I meet up with one of my annuitant client. We discussed about having a fruitful retirement life and how we manage money during this period.
They are around 60 yrs old and in the early stage of their retirement life. They are enjoying themselves by having frequent coffee sessions with friends and lots of fun with their grandchildren. They spend time watching the stock market and going for holiday with their family once or twice a year.

Being a Financial Planner, I natually started probing into how they manage their finance.

From the conversation, I managed to draw some points and I started to get worried for them as we discussed further. So what are my points and worries?

1) They are worried about poor health and the high medical cost
* They reserved quite a sum of money just in case they need it for medical expenses
* They are not sure if they are having the right Medical Insurance. They are confused between a Hospital Expense Insurance and a Critical Illness Policy
Areas that I'm concerned
* By always reserving the large sum of money, they are foregoing the opportunity cost of investing
* By Procrastinating to understand their current plans will only make them disappointed when they realised that the plans they hold don't meet their needs.

2) They underestimate their lifespan
* I told them that Life Expectancy in Singapore is 78 for men and 83 for woman. They laughed at me and told me they don't think they will live that long.
Areas that I'm concerned
* This is dangerous as they are underestimating how long they may live and have a good chance of misusing their money at this stage and outlive their resources.

3) They estimate that their money will be enough
* They assume their money will be enough if they are able to see money in their bank
* They use instinct to estimate how much they need based on how long they think they may live
Areas that I'm concerned
* Their estimation might be wrong. Its dangerous to use instinct. Its wiser to use some scientific and mathematical way of calculation

4) Their Asset Maximization Plan is highly questionable
* On one end, they look for the safest investment such as Fixed Deposit and Capital Guaranteed Structured Products.
* They actually spend lots of time searching for one with highest interest and sign up without understanding of the underlying cost.
* On the other end, they punt their money into the stock market, 4Ds and Totos. They lost their money too easily for the thrill and the greed
Areas that I'm concerned
* They lack a proper investment blueprint. They do not understand the importance of diversification and stablised returns at this stage of their life.
* They rather go for super high risk or super low risk.

5) Their retirement expenditure are not as low as they thought
* Their spending pattern are actually not very far away from their pre-retirement lifestyle.
* They spend more money on holiday, frequent outing with grandchildren, car, food, health products, friends and 4D, Toto, etc
Areas that I'm concerned
* Some people planning for retirement will pluck a figure from the sky and tell us that will be enough. It may not be accurate. I will advise to use a replacement ratio method if my clients is young and expense method if they are near to retirement.
* Projection of 70% to 90% of pre-retirement lifestyle may be okay. Projection of less than 50% may be questionable.

Monday, April 14, 2008

Penalties for late or wrong tax filing

You have 1 more day to submit your tax returns. Our tax rate this year is as follows:

First $20,000 - 0% - $0
Next $10,000 - 3.5% - $350
First $30,000 - xx - $350
Next $10,000 - 5.5% - $550
First $40,000 - xx - $900
Next $40,000 - 8.5% - $3,400
First $80,000 - xx - $4,300
Next $80,000 - 14% - $11,200
First $160,000 - xx - $15,500
Next $160,000 - 17% - $27,200
First $320,000 - xx - $42,700
Next $320,000 - 20% - xxxx

Our tax rate was actually reduced over the years. So what will your penalty be if you fail to file your tax on time or you negligently file a wrong return?

Offence for Late or no filing
1) A Letter of Composition will be issued. To settle the Letter of Composition, the Income Tax Return must be filed and composition fee paid by the due date as stated in the letter.
2) If IRAS do not receive the Income Tax Return and the composition fee by the due date, a summons will be issued to attend Court. To settle the Summons, the Income Tax Return must be filed and composition fee paid before the date fixed by the Court.
3) If the summons is not settled with IRAS before the date fixed by the Court, you have to attend Court on the assigned date. Once the taxpayor plead guilty, he have to pay a fine subject to a maximum of $1,000 for each summons issued.
4) If the taxpayor ignored everything, a warrant of arrest may be issued and force him to submit and pay the fines
5) A taxpayer who does not file his/her Income Tax Return for any Year of Assessment (YA) for two years or more after the filing due date is liable -
a) penalty equal to double the amount of tax that the Comptroller may, to the best of his judgement, assess to be payable by the taxpayer for that YA;
b) a fine not exceeding $1,000.
c) If the taxpayer cannot pay the penalty or fine to court, he will be liable to imprisonment for a term not exceeding 6 months

Offence for wrong filing of Income Tax
1) A person who files a wrong return due to negligence or without reasonable excuse can be brought to court. If convicted, the person may pay a penalty up to two times the amount of tax undercharged. A fine or an imprisonment will also be imposed.
2) If a person is found to be evading tax, he can pay a penalty up to 3-4 times of the tax undercharged.
3) A fine or an imprisonment will also be imposed.

Saturday, April 12, 2008

Comments Moderation

I tried to be open in accepting comments from my readers. I accept constructive and honest feedbacks. However there are too many unacceptable comments which are extreme, bias and contain vulgarities.

There are some ground rules I have to set before accepting future comments.

1) I do not accept comments that is unfair, without basis, bias and extreme.
2) I do not accept comments that I suspect are untruthful and excessively trying to tarnish the image and professionalism of specific person, company or industry.
3) I do not accept the comment if the writer do not disclose his identity and posting do not contain any useful points
4) I will not make my blog to become a place where unidentified people trying to make use of it to harm any specific person or company.

Example of a comment that I rejected everyday:

* All XXXX agents are useless, stupid. They tell lies and are a greedy bunch of monkeys. They are robbers and act like Prost... in Geyl..., etc...
* All Plans from XXXX are idotic and those who took up these plans are

Such comments are unacceptable. I suggest that these writers find a psychologist and GET OUT of my BLOG. I'm sick of you!!!

I will welcome comments if they are fair, truthful and honest.
* The agents from XXXX may need more training. From my experience, I find them very pushy and lacks basic knowledge, etc
* The XXXX plan cash value is low on maturity and expenses is high compare to the YYYY plan. It is not of good value to the customers.

Thursday, April 10, 2008

Insurance Economics

There are 4 types of economic markets: (1) Perfect Competition, (2) Monopolistic Competition, (3) Oligopoly and (4) Monopoly

1) Perfect Competition - Exist when all the firms in the market produce identical products. Large number of independent firms. Each seller is small relative to total market and barrier to entry is low.
2) Monopolistic Competition - Large number of firms produce (slightly) differentiated products. Firm complete on price, quality and marketing. Barrier to entry is low.
3) Oligopoly - Small number of firms with similar or slightly different products. Profits to be made are interdependent on competitors' decisions. Can collude to form a monopoly.
4) Monopoly - One seller of specific, well-defined products that has no good substitutes and high barrier to entry.
I am not an economist. I like to share 10 short points on how Economics apply to the Insurance Industry and 8 points on how I feel about my analysis.

My 10 points on how it applies to the Insurance Industry?
1) The insurance industry seems to lean towards a Monopolistic Competition Model. Policies are about the same but often with funny features to make it different.
2) A lot of money have to be spent on product design, marketing and distribution to differentiate themselves and their policies.
3) By doing so, they can justify that they have better plans so that they can charge a higher premium and earns an Economic Profit.
4) Its unlikely to see standardisation within the Insurance Industry because similar products will turn the industry into a Perfect Competition Model.
5) Perfect Competition Model is no good for the company because company can only price their policies equal to its average total cost. i.e, Everyone shall charge the same premium and earn the same amount of money.
6) Perfect Competition Model may not be good for the consumers in the long run because competion will only be based on price. Innovations and breakthroughs will never be possible.
7) There are people trying to turn the industry into a Perfect Competition Model by grouping or standardising all plans, reduce marketing expenses and distribution cost.
8) The agents factor is one of the distribution cost and commissions paid form part of normal profit and economic profit. Some agents earn a lot more than others
9) Efficiency of a Monopolistics Competition Model in the insurance industry is unclear.
10) Collusion is not possible in the industry because of there are too many firms.


My 8 conclusive points?
1) Insurance Companies will continue coming out with different type of insurance policies to confuse the consumers.
2) It will not to be their interest to educate the public on how to compare different products
3) The call towards transparancy and efficiency is high. The model may gradually change into a Perfect Competition Model when demand for such get higher.
4) The market is not efficient in term of information flow, the consumers are lacking knowledge in products comparison. As a result, consumers may not be getting the best deal.
5) Some agents shall continue to earn an elephant economic profit as they discourage product comparison.
6) An ethical and competent adviser may find it hard to earn as much as them because they are promoting plans that earns them a lower commission.
7) This industry is still bright for the ethical/competent and unethical/incompetent advisers alike. The smart ones may choose the latter and passionate ones the former.
8) Which type of adviser do you choose to be? One who will say that everything offered by your company is good or one who is willing to research before saying what is good.

Wednesday, April 9, 2008

How fast can you type???

Try this!! Its quite fun...
I tried around 10 times. This is my best... 74 words per minute...

74 words


Monday, April 7, 2008

NTUC Income Growth Plan

There are many people in my blog criticizing the Growth Plan from NTUC Income. I had also rejected some of the comments because the language used to scold NTUC Income advisers was unacceptable and uncalled for.

What exactly is this Growth Plan about? I like to first proclaim that my blog have nothing to do with NTUC Income, hence you can be assured that my view is independent and unbias.

Growth Policy is a Single Premium Endowment plan
Shortest Term - 5 yrs
Minimum Premium - $5,000
* Maturity Cash value consist of Guaranteed and Non-guaranteed portion
* Sum Assured covers Death and PTD and is doubled in event of accidental death.
* As a special privilege, surrender value = single premium after policy in-force over 12 months. This special privilege is not guaranteed and subjected to Life Insurance Fund actual experience.

Single Premium - $10,000 x 10 yrs
Sum Assured - $12,238.60
Guaranteed Returns - $12,239
Non Guaranteed Returns - $2,624
Total Projected Returns - $14,863
Yield - 4.04% p.a basis 5.25% projected IRR

Real Yield for a 10,000 x 10yrs Growth Plan that matured in 2007 - 4.92%

So what are the criticism?
1) Returns are non-guaranteed and if policyholder use the money for investment, the returns will be higher.
2) There are advisers recommending Growth Plan for Special Account
3) There are advisers recommending Growth Plan for the initial $20k of Ordinary Account

How I feel about it on above 3 critics?
1) I agree that returns are not guaranteed and investment returns are generally better. But there are truly people out there who die die don't want to invest.
*They want a better returns compared to bank deposits. They don't mind locking up this fund for next 5 or 10 years.
* The Ordinary account in excess of $20k is also okay in this plan for same group of people who simply cannot be convinced into investment.
* I don't see anything wrong for such group of people who are satisfied and happy with it.

2) My commentors claim that there are many advisers recommending Growth Plan for client's Special Account.
* I agree that this is not recommended because Risk free returns for Special Account is around 4% and Growth Plan returns are only semi-guaranteed less than 0.1% higher.
* I don't know how these commentors claim they saw many NTUC Income advisers doing this? I have no idea where they see it.
* From my understanding, advisers will have a hard time justifying their recommendation for approval under strict MAS guidelines.

3) There are some advisers recommending Growth Plan for the initial $20k of Ordinary Account. This option is somehow like at the tip of the fence. Either side looks equally okay.
* However, I will not recommend this option because the guaranteed returns is 3.5%. Projected returns of Growth Plan is barely 0.5% higher.
* This 0.5% higher returns is not guaranteed and is in exchange for the opportunity cost of using this fund for other purposes such as mortgage repayment liquidity or Children Education, etc.

Above is my view. If anyone wish to comment, pls comment constructively and no vulgarities please.

Saturday, April 5, 2008

Insurance Distribution Channels

Insurance and Investment products are distributed mainly by 3 channels:

1) Tied Agencies - Consultants that solely represent one insurance company. They are managed internally and tied to the company.
2) Bancassurance - It is the sales of Insurance Products via a bank by advisors on a salaried basis. Insurance Companies are able to expand their sales via this channel and banks are able to provide a wider financial services to their clients.
3) Independent Financial Advisers - They are consultants who offer unbiased advice on financial matters to their clients and recommend suitable financial products from the market. They operate their own office and earn their revenue through Advisory Fee or brokerage.

To-date, Tied agencies and Bancassurance are still the major distribution channels with around 85% market share. How different is it between the 3? Let me share...

1) Tied Agencies
* The most traditional way of Insurance distribution
* This Distribution Channel is generally Sales Driven. They will not be paid if nothing is sold.
* They will not be paid to review if their customers are on track to achieving their goals.
* The process becomes "Transactional" and advisors have to close more sales for a Living.

2) Bancassurance or Direct Business model
* Customers come to the branch and they buy insurance as a one-stop service
* The bank consultants get a salary + incentive.
* They are also Sales Oriented because of their monthly quotas and competitive environment.
* The plans they carry are normally limited.
* The turnover of advisers are expected to be high

3) Independent Financial Advisers
* An IFA can select an Insurance or Investment plan from a larger pool
* They can adopt a fee based or a brokerage model
* They are also compensated for ensuring the customer's investment portfolio is doing well through a wrap fee.
* An unethical IFA will select a plan with highest commission and churn investment for customer regularly.
Other Distribution Channels
a) Fee based advisers
* Customers pay an advisory fee and that same fee will be waived by the commission earned by the adviser if customer get any plan.
* This model works best for client interest because the commission is no longer a issue.
* The problem is that the fee structure cannot be easily determined and many are not willing to pay a fee.
b) Internet Distibution
* Customers DIY their own financial portfolio after learning the basic of Financial Planning from the internet
* Theoretically, insurance purchased via this channel should be lower because of the lower expenses involved with no human advice.
* The DIY plan may not be correctly done and may not be properly followed through over long term.

FN: There are good and bad advisers under all distribution channels. Its for you to decide which channel you prefer.

Thursday, April 3, 2008

Catching a Falling Knife

Imagine a stock market falling hard on a downward slope. There will be people trying to buy into the market, thinking that a rebound is eminent. They ignored market signals and try to catch a good price. This is what I'm trying to describe: "Catching a falling knife".

When the market is in such a falling state, those who think that it will rebound and buy in more trying to support the prices will be cut deeply by this sharp falling knife.

Those who try to catch this knife previously might have been cut badly, but the market rebound lately has indeed been a breather. Now the question is:" Has the knife dropped to the ground?" I am not a fortune teller or analyst. I have absolutely no answer.

I read a report by an analyst from Temasek Holdings and he was so confident that the market had reached bottom. He spoke from the fundamental point of view and I agree with him. But I see that there are still uncertainties in the market and in my view, better to be prudent in our investment selection.

I had reduced my clients equities holdings earlier this year. There are calls from some clients about the recent rebound. I'll keep it this way until things get clearer.