Wednesday, September 16, 2009

Do not Assume.

I was at the same table with one of my Uncle during Grandma's birthday last week. I've known him to be a stock investor who put in at least several hundred thousands into Singapore Shares and another few hundred thousand more in Cash. Naturally, I'll hope that I can convince him to diversify some of his investments via me.

With some help from my mother and Sister, he finally told me to plan something for him for a small sum and insisted that he don't want insurance but investment. Its probably just 5% of his overall investments compared to shares.

I took pains to construct a portfolio, draw out a chart of different countries PE ratio and indices with latest data from the Bloomberg terminal, read up the market news, comparing funds with the good Alphas and Sharpe Ratios, draw up a beautiful chart with the geographical, sector allocations, past performances charts of 1 and 3 years, etc. All hoping to impress him so that he can part a bit more for me in future. Took me nearly 1 full day to do all just these.

Time to present yesterday and excited to show him all that I'd prepared. He allows me half an hour near his workplace to present and it goes like this.

Uncle: What do you have for me?
I took out my file and not even open up my file.
Uncle: I don't want Unit Trust har! I hate all these investments
Not even having the chance to open my file yet.
Adrian: Oh. Whats wrong with Unit Trust?
Uncle: Wait I lose all my money there like that Lehman Brother case
Adrian: But Minibond and Unit Trust are 2 different things
Uncle: No no. I thought you work for insurance company and have those deposit scheme that gives high returns
Adrian: Maybe I show you what is Unit Trust first
Uncle: No no. I just don't like Unit Trust. There are too much risk in it. I heard of people losing all their money in it.
Adrian: Okay. So are you looking at those offered by Insurance companies?
Uncle: How many percent can they give me?
Adrian: Maybe around 3-4%p.a after 5-10 years
Uncle: You must be joking. Its too low. I rather put more money into Shares. Can you give me at least 6-8% p.a and I can take out after 1-2 years?
Adrian: No such guaranteed instrument. Fixed deposit nowadays gives less than 1%. How to give until 6-8% without risk? Unless you invest. How about see what I have here.
Uncle: I don't want Unit Trust. Its just too risky. Don't need to show it to me. If I want Unit Trust, I will already buy the Bonds from OCBC
Adrian: What Bonds? Are you talking about their preference share? They are different from Unit Trust.
Uncle: Tell your mother that I can't help you. Unit Trust is too high risk and I can lose all my money in it. Just let me know if you have something better in future, I can consider again.

He went away in just 5 minutes. His mind are all closed up. He kept shaking his head. No chance to show him my colourful 1 full day effort of charts and graphs. I had assumed that he is a well versed investor with his so many years of investment experiences. My assumption was dead wrong.


Rhincodon said...

Uncle: Tell your mother that I can't help you.

You're helping him, not the other way round! Oh well, if someone's mentality is that he is doing it out of 'charity', nothing good can come out of it... Not to mention that it's insulting...

Anonymous said...
This comment has been removed by a blog administrator.
Khiat Han Hwee Adrian said...

He is definitely not crude or a gambler. He is a very good investor who select his shares very carefully. He had taught me on how to read financial reports despite that he never attend any school before.

It just caught me by surprise that he cannot differentiate between shares, bonds, unit trusts and derivatives. I think I have chance in convincing him with more time.

He probably need a bit of help to diversify a bit out from Singapore stocks. Its a challenge and I accept it.

Khiat Han Hwee Adrian said...

Amendment from an Anonymous posting on 16th Sep 11:25pm.

Your uncle is representative of many so called investors. They are blind gamblers who don't even know what hit them. You are lucky that he didn't invest or else he will give hell to you. To be crude, He knows nothing about stocks or investemnt.

Count yourself lucky, Adrain.Don't be disappointed. In fact it was blessing. You learned something about investors.

Peter said...

That is why for some people, it is important to establish rapport first before you talk about main plan. Without rapport, whatever you have done will be gone into waste.

Anonymous said...

Did you discuss with your uncle about his investment objectives, risk appetite and time horizon before you draw up all those plans? I think you are just assuming that you uncle wants unit trust when you heard the word "investment". From what I inteprete, he could be just looking for a safe avenue to park his excess gains from his stock investment.

Since you mentioned that you uncle is a savvy stock market player, if he had bought heavily into those blue chips (GLC) stocks and high quality REITS / Trust Fund during the Oct 08 and Mar 09 lows, he could be possibly sitting on multi-fold capital appreciation and on top of some very hefty double digit dividend yield. Do you think your unit trust plan can beat his return?

In fact your uncle is not wrong to say that unit trust is risky. Unit trust is just as risky as investing directly in stock. Somemore before you invest in it, you are already down by the X% of sales charge impose and basically you do not have control over what these fund manager do with your money. Tell me how many unit trust in Singapore actually consistently beat the market benchmark? When the fund is doing badly, do they stop imposing management fee and the FA stop collecting their wrap fee?

Just to tell you a short story. I once invested in a Technology Fund during the dot com bust period and lost almost 80% of my principal. That fund later was quietly withdrawn but the same fund manager is still around promoting their other range of funds. I once did a study on all the Singapore Equity Funds available and found out that all these guys cannot beat the STI returns even when STI was during its bull run years (from 2004 to 2007). If I am to just invest in STI ETF, the returns would have been far more impressive.

Anonymous said...

anon 9.36am,
very few funds beat the benchmark, only 17% globally.That is why ETFs are popular today despite their low liquidity.

Anonymous said...

U know what? your uncle is right!
If would have been 90% poorer if i had invested into a fund instead of stocks 10 yrs ago...
Why go for 1-2% when u can got >40%.
if he timed the mkt and have a cut-lost system, he is safe.
like what warren buffet said, diversify is for the ignorance.

Anonymous said...

September 18, 2009 1:47 AM,
why wait for 10 years. You can easily double your money at the casino every minute.Imagine you compound your winnings for 10 years, you no need to invest anymore.

Anonymous said...

Just let those who think they are smarter do their own investment... They ought to pay some 'tuition fee' and get burn, before they learn their painful lesson. It's sad to see people losing their money due to their ignorance. Just let your uncle go... Or else he will come and complain to you from time to time why UT so slow...

Anonymous said...

Hey. You neber hear people say that ASSUME is making an ASS out of U and ME?