Financial Planning Central

Has The Wine Bubble Popped?

Tiang Chuan — Mon, 30 Jan 2012 03:18:01 +0000

Another investment bubble may have popped. This time, it is something you can drink.

As with some other forms of investments, sellers have been touting the China demand and limited supply as the sure-win formula to great profits. However, wine prices have slumped recently. The Live-ex 100 index, which represents the price movement of 100 of the most sought after fine wines which have a strong secondary market, have fallen 22% from the peak in June 2011. Prices of Chateau Lafite 2008 have even been reported to have fallen by 45%.

“Some of the Chinese super-rich are getting tired of Lafite“, said George Tong, vice-president of his family’s toy company and a prominent Hong Kong wine collector, quoted The Sunday Times.

When someone is trying to sell you something, it is normal to find him or her emphasising only the good stuff and none of the bad stuff. Do not get greedy and ignore the risks.

Stocks v Property… Again

Tiang Chuan — Sun, 22 Jan 2012 03:04:50 +0000

As the Rabbit prepares to dive into its burrows and the Dragon primes itself to emerge from the water, the journalists were busy writing on what might be the hits and misses for the new year. The main article on the last day of the Year of the Rabbit is on Stocks v Property. Well, I had written an article on it some time back. Thus, there is special interest from me on this article. There are some issues I would like highlight.

Data-mining

The article produced some numbers from an SGX study which showed that from 2001 to 2010, the STI returned 4.9% annualised (without dividends) compared to 3.9% from property (excluding rental, maintenance fees and taxes). There were comments that this is an unfair comparison as 2001 was low point in equities due to the burst of the dotcom bubble and 911 terrorist attacks. Well, there is true. However, there was also data over 5 years (2006 to 2010), 3 years (2008 to 2010) and 1 year (2010) which shows that property outperformed stocks. Historical performance would be affected by the time frame selected.

Volatility

The owner of a real estate consultancy was quoted as saying ” There is one big difference between stocks and property: No matter what, a piece of property will also have value“. I simply disagree.

It is true that there is a chance that a single stock could drop to nothing. However, that does not happen to a well diversified basket of stocks eg, an index. That’s what diversification is all about. It is also easy to diversify in stocks compared to property.

A piece of property will not always have value. In Singapore’s context, I have not heard of any property dropping to zero. However, most properties here are lease-hold. What happens when the lease runs out?

How property prices are reported gives an illusion of low volatility. Property prices are reported monthly. This creates the same issue with monthly priced funds.

Leverage

The article gave an example of how an investor who invested $100,000 and borrows $400,000 can make $25,000 if the price moves up by 5%. That’s a 25% return (not taking into account other costs like interest and lawyer fees). That good. But what if the price move down 5%? The opposite happens, the investor loses 25% ($25,000). Leverage cuts both ways. I’m disappointed that the downside was not mentioned. However, giving the benefit of the doubt, the consultancy owner may have mentioned but it was not mentioned in the article.

It is more than meets the eye when it comes to comparing equities to properties. There are other issues like concentration risk, regulatory risk, ease of management etc. Readers can access my previous article here.

Wishing all readers a blessed and prosperous Year of the Dragon!

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Letter To The Straits Times – Singaporeans Benefit From Property Measures

Tiang Chuan — Sat, 07 Jan 2012 15:15:07 +0000

I wrote a letter to The Straits Times Forum in response to the letter from Mr Tan Cheng Hock who felt that successful Singaporeans have been victimised by the latest property measures (Multi-property owner speaks up).

My letter (Singaporeans benefit from property measures) was published on the 07th Jan 2012. The editor removed my point that property investors who invested right before the Asian Financial Crisis would have to wait for up to 14 years for property prices to recover.

CDP Revamp In The News

Tiang Chuan — Fri, 30 Dec 2011 07:56:32 +0000

The proposed revamp of the Central Depository (CDP) system to allow stockbrokers’ access is in the news again. The Straits Times carried a report on the subject on its 30th December 2011 edition (CDP revamp reignites debate on potential fraud). The article can be accessed here.

Basically, they have summarised the forum letters written by me and Mr Tan Kin Lian.

Letter To The Straits Times – Guard against rogue brokers

Tiang Chuan — Thu, 22 Dec 2011 13:46:12 +0000

I wrote to The Straits Times forum on the possibility of increased churning from SGX’s decision to open up CDP data to stockbrokers. The letter was published on the 22nd December 2011. The letter – Guard against rogue brokers – can be assessed here.

Letter To The Straits Times – Singaporeans Benefit From Property Measures

CDP Revamp In The News

Sunshine Empire Trio Fails In Court Appeals

Tiang Chuan — Tue, 22 Nov 2011 03:10:18 +0000

High Court Justice Tay Yong Kwang dismissed the court appeals by Sunshine Empire trio, company founder James Phang, former director Jackie Hoo Choon Cheat and Phang’s wife Neo Kuon Huay, reports the November 22nd 2011 edition of The Straits Times (Sunshine Empire appeals dismissed).

James Phang, Jackie Hoo and Neo Kuon Huay was given sentences of nine years jail plus $60,000 fine, seven years jail and $60,000 fine respectively. The court decision means that Phang and Hoo would have to start serving their sentence next month.

Judge Tay was quoted as saying that the scam was “well thought-out scheme designed to defraud participants under an aura of legitimacy and respectability“.

About $180m was brought in by Sunshine Empire using almost 26,000 packages from August 2006 to October 2007. The company was listed under the Investors’ Alert List by MAS before the Commercial Affairs Department stepped in in November 2007.

Profitable Plots Director Fails To Get Back Passport Again

Tiang Chuan — Sat, 19 Nov 2011 03:09:54 +0000

A director of landbanking firm, Profitable Plots, have failed to get back her passport after a second attempt, reports the 19th November 2011 edition of The Straits Times (Profitable Plots director can’t get back passport). She made the first attempt in May this year.

The Singaporean requested to be allowed to live in Johor Baru as she claims that she can’t afford to live in Singapore. The judge found no evidence that she cannot afford the rent here as she has 3 properties in Malaysia which she could have sold. Instead she decided to sell her HDB for $550,000 in Feburary. She had also shipped three containers of personal belongings to France.

So far, no one has been charged yet. The Deputy Public Prosecutor (DPP) says that a decision on whether to press charges will be made in four months time.

Not Another Gold Scam…

Tiang Chuan — Sun, 13 Nov 2011 10:38:50 +0000

Every Sunday, there will be an article on the papers that features a successful investor in a Q&A format. Part of the Q&A will be a question on their worst and best investment. Normally, the best investment would be business of the interviewee. However, it was different today. The best investment is an unfamiliar name. What piqued my interest was that the interviewee said that that particular investment was earning her a return of US$90 a day from a capital of US$6,000 (that’s 1.5% a day) ! What legitimate investment would give a fix daily return? So, I put on my Sherlock Holmes cap and started to do some investigation…

It was not easy to find the website of the firm on Google. I found it using Yahoo. The website looks does not look professional and was filled with pictures of the gold mining process. Basically, the company claims to be harvesting residual gold and precious metals from tailings, the unwanted earth and rocks from the initial mining process. They do the harvesting from mines in Africa. Nothing is mentioned about the way the investors’ return is calculated.

So again, I searched for the CEO’s details. There was no match on the companies he worked for. One company came close but wasn’t a perfect match. The other asset management company did not even exist. Neither was the CEO’s details on the web.

There were some Facebook pages but they were in Malay. I don’t understand Malay. But I came across a photo of the screen capture of an investors ‘investment plan’. The daily dividend is at 1% every day! What kind of investment can give you a guaranteed 1% return every day?! I think you know the answer…

This is not the first time coming across readings of ‘successful’ investors putting money into suspicious investments. Other articles from the weekly column has also mentioned of investors ‘investing’ into popular gold cash back schemes. A colleague shared that his client has put significant amount into one such popular schemes and refuses to listen to him. That client was sold after receiving the ‘cash backs’.

When national papers put up such articles, non-discerning investors would gain confidence on such scams and more people would become victims. However, it is not easy to expose scams in Singapore at all. It is common that only after thousands of people have lost millions of dollars that some form of action might be taken. Sadly, many victims have to resort to civil suits whereby the quality of the engaged lawyer can make or break the legal claim. Not many investors, who are your man-in-the-street and having lost a significant part of their wealth, can afford top-notched legal advice.

Profitable Plots Sends Lawyer’s Letters To SIAS and CEO

Tiang Chuan — Wed, 09 Nov 2011 02:45:05 +0000

According to the 09th November 2011 edition of Today (Profitable Plots sends legal letters to SIAS, CEO), Securities Investors Association of Singapore (SIAS) and it’s CEO, Mr David Gerald, have received lawyer letters from Profitable Plots on the latter’s consideration of defamation suit against SIAS and Mr Gerald regarding Mr Gerald’s comments in a webcast on SIAS’s website.

According to SIAS’s website, SIAS is a non-profit organization founded in 1999 to champion CLOB issues after US$5b worth of Malaysian stocks from 172,000 retail investors were left stranded after the Malaysian government suddenly froze their investments in Malaysian stocks in September 1998.

Meanwhile, the Court has granted another 4 months extension to the Commerical Affairs Department’s (CAD) investigation on Profitable Plots on the grounds of needing more time to evaluate experts’ reports on the case. CAD has visited Unite States and has collected more information.

The next hearing is on 08th March 2012.

Landbanking Firm Claims They Have Never Lost Money

Tiang Chuan — Mon, 03 Oct 2011 04:44:58 +0000

A landbanking firm claims that they have never lost money for their clients. They claim that their accounts have been vetted by a renowned auditing firm and they have very strict criteria in selecting their projects. Sounds to be the perfect investment! But let’s cool down and think through the possible issues.

No one likes to lose money. Certainly having the record of no losing client’s money is great. But are there possible ‘costs’ to this? According to the article, some investors have to hold on to the investment for as long as 19 years! Of course, not all projects are that long. The reported average holding period is 7 years. However, the liquidity profile is not stated in the article. Investors might have difficulty liquidating before project is complete.

Furthermore, currency is not stated. Not losing money in USD/CAD does not mean not losing money in SGD. Capital gains could be easily lost to currency losses. The article stated that the ‘annualized total return‘ ranges from 5.2% to over 50% and the boss was quoted as saying “Our returns, on average, are 15% compound after fees.”. I do not understand what kind of returns they are driving at, average returns (arithmetic return), Compounded Annual Growth Rate (CAGR or geometrical return) or the average of the geometric returns. Averages are affected by outliers. A 100% growth followed by a 50% fall gives a 25% average growth when the geometric growth is actually zero.

After Enron, Worldcom and the Financial Crisis, perception of auditors and credit rating agencies is not too comforting to say the least. Being audited by a reputable company definitely beats not being audited. However, this does not mean everything is definitely right.

No firm would say bad things about their products. Every fund manager I’ve met says that they have such-and-such process and as-strict-as-you-can-get selection criteria. Yet, many will under-perform their benchmark.

This post is not landbanking bashing. Any investment could have the above issues. The important thing is to look at the investment, know it’s characteristics and see if it fits the protfolio. Remember, any mistake must be survivable.