A Primer on Investing

An edited version of this interview was featured in an article in the 3-5 May 2019 issue of The Business Times' Weekend magazine.

Note: the article is available in full to subscribers only

Below is the original interview in full.

1. Why did you want to write a book on investment? Have you always wanted to write?

On the contrary, I was initially reluctant to write this book as we were already so busy with our clients and company projects. However, I was later convinced that writing this book could be a way to help more people not be confused by the often conflicting information about investing, and not to be discouraged into thinking that they would never accomplish their financial goals.

What I wanted to accomplish through the book is to curate important financial truths, distilling decades of discoveries in financial science that have been proven to help everyone invest successfully. And I wanted to show that successful investing is simple and not as complicated as people may have been led to think.

2. There are already a lot of books on investment out there. Why do you think yours is different or better, specifically for the Singapore reader?

Many investment books out there claim to have the secret formula for making money. Who is correct? It is more probable that some of these formulas work only some of the time. Truth be told, if there really was such a secret formula, wouldn’t the author be quietly making his money and not telling the whole world?

My goal of writing this book is to let people know that there really is no secret formula at all. If you think about it, there are thousands of brilliant people working in finance who spend every day looking for some way to beat the market. The reality that we show in the book is that it is extremely difficult, if not impossible, to beat the market consistently.

So, instead of spending time and money pursuing some holy grail of investing that would give you a short-cut to instant wealth, we show you why investment success is most reliably achieved through simple discipline and patience. And the data supports this!

You will find most investment books are targeted to a Western audience. We have localised most of the data in the book to make it relevant for a Singapore-based investor as well as provide a guide to investing simply within a Singaporean context and our regulatory framework.

3. Who's the target readership? Novice investors, or more?

This book is meant for anyone who is interested in investing. It is a good primer for beginners who are completely new to investing, as the book simplifies a lot of concepts and provides examples to make it easy for novice investors to digest.

It also helps experienced investors to rethink the way they have been investing, by providing hard evidence of what works and what doesn’t. The book provides a lot of data and research to help investors question conventional ways of investing.

4. You've given a wide range of advice and comments, from enhanced indexing to Robo-advisory. If there were three pieces of advice you could give to average investor, what would they be?

First, there is a better approach than conventional investing. Recognise the fact that many in the industry have a vested interest in making investing seem complicated so that you have to continue relying on them to make investment decisions about your hard-earned money. Test everything, and ask questions, no matter how stupid they may sound. Remember that if you lose your money, you will be the one looking stupid in the end.

Secondly, you are your own greatest enemy in investing. Never underestimate your emotions. How you react when markets collapse or go sideways will determine your future investment success. As humans, we are all susceptible to what we read and hear through the financial news. Ignoring the market noise and holding fast to your course is not natural, and very few people can do it. But this is what makes or breaks a well-crafted financial plan, with long-lasting repercussions on your future wealth. The book offers suggestions on how you can counter such behavioural traps.

Thirdly, ask the hard questions about any investment you are asked to buy. Our minds are lazy and seek to take the short-cut in any complex decision. It is hard work processing complex information, and so most times we make decisions based on emotions, which is not always right. It just takes a few wrong decisions to wipe out your wealth. One of the chapters in the book provides a cheat-sheet of sorts as to what you need to ask. You should then seek out a trusted friend or adviser to keep you accountable in such decisions.

5. What would you say are the three common mistakes the average investor makes?

One common mistake is that people get distracted by returns and forget about risk. Do you notice how advertisements for investment products always heavily emphasise the potential returns or the yield? It is compulsory for them to disclose the risk, but this is always in the small print that most people don’t bother to read. When was the last time your adviser or relationship manager spoke to you about an investment product? The whole conversation was likely to be about the potential high returns, and the risk was only cursorily mentioned when you finally sign the document – so that they are protected. What if you were contemplating buying a bond that pays you 6.5% every year, and the relationship manager tells you upfront that if that company collapses, you could lose everything? Would you still buy? Don’t forget that low risk does not mean no risk.

The second common mistake is chasing trends. The recent cryptocurrency boom and bust was an example. There are many examples of investors piling into an asset class at its peak only to suffer a dramatic loss when it crashed. People have to realise that there is no free lunch. Many people mistake investing to be the same as gambling. Such speculation can be fun and exciting, but it is something you should never risk money that you cannot afford to lose. Invest to live, don’t live to invest.

A third common mistake is overconfidence in believing that you have found the secret to beat the market. People get emboldened when they experience short-term success, but the evidence shows that no one has ever been able to consistently beat the market in the long run. The evidence is that you are statistically more likely to lose money than gain it, especially if early successes make you overconfident in your abilities.

6. Property is one of Singaporean's favourite asset classes. But you've offered a data-backed argument for why property is less attractive than stocks. Why do you think many Singaporeans still favour property?

First, there is the constant mindshare of the many who made their wealth through investing in property. There is the illusion that property only goes up in the long term, and if you were to hold on long enough, you will definitely make money. But logic dictates that for every person who sold property at a high price, there was someone else who bought it at that high price. Similarly, for everyone who bought property at a low price, someone else had to sell it at that low price. Do you ask why is it that we never read about the poor chaps who lost money in property? They were likely too embarrassed to tell their story, and so the media hardly ever showcases these people.

Secondly, if people were to receive a valuation of their property on a daily or monthly basis, same as with stock statements, and experience first-hand the gyration in prices, I suspect most of them would be less enamoured of property investments.

Thirdly, the benefit of leverage – which is common in property purchases – is what makes property investment so attractive, as returns are amplified. But many forget that leverage is a double-edged sword and can also amplify loses, such as what happened during the Asian financial crisis when the word ‘negative equity’ became part of the vocabulary.

Finally, there is the emotional aspect. People generally like to buy something they can see, feel and touch. Stocks or bonds don’t give investors the same experience that a nice house does. You can see the nice view, and touch the fittings and furnishings. But investing is not at all tactile, as it is just so many line items in a report.

However, if one analyses it from a purely returns perspective, the evidence shows that the compounded annualised returns of Singapore stocks and global stocks beats the returns of Singapore residential property and is inherently more liquid. I think the results may surprise many although I suspect it will not change their entrenched beliefs.

7. How many years of your investment wisdom have been distilled into this book?

I have been investing for more than 30 years. Essentially, everything I have learnt till today has been distilled in the book. From the many financial crises I have gone through – SARS, the Asian financial crisis, the internet bubble and the great financial crisis of 2008 – I learnt first-hand which investment ideas work and which don’t. I was also able to observe our clients’ behaviours while in the midst of these crises, and that also produced valuable lessons on how not to react when facing a scary investment statement, and why it is important not to panic. I have tried to input as many of these lessons into the book as possible, as well as draw upon important research over the last 90 over years of investment history to illustrate some of the points.

8. If you had to pick, which would be your favourite investment book/s of all time – apart from yours?

The 'Little Book of Common Sense Investing' by John Bogle, the founder of Vanguard, is a simple and short read which encapsulates some of the concepts discussed in my book. But in my book I take it further by giving pointers on what investors should do when they are caught in various market situations.

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