Jos Teo’s latest faux pas highlights everything that is wrong with the PAP government and the civil service.

In case you’ve been out of the country and without internet access, Jos Teo who is Minister of State and heads the National Population and Talent Division (NPTD) was quoted in a Straits Times article saying “You need a very small space to have sex.” Needless to say, that line has become the latest meme on the Singaporean blogosphere and she has come out to say that the line was taken out of context and her intention was to the highlight the fact that in other countries, such as certain ones in Europe, having children is not something that always follows marriage and/or the purchase of a home.

As I remarked to a colleague the day after her comments were published, the real reason why people are making fun of her comment is not just because of the comment itself (which, to be honest, is darn funny) but because it serves to highlight the problem that our Ministers have when it comes to cherry-picking examples to make their point (think Shanmugam’s defending the death penalty for drug trafficking or every time someone warns about taxes going up when there is suggestion to increase the social safety net).

At this point, I would have to explain my line of reasoning further but thankfully, the ever-astute Donald Low wrote a post explaining very clearly the problem behind Jos Teo’s comment. (link to’s coverage here) In case you need a TL;DR version, Mr. Low highlighted the fact that those countries Jos Teo pointed out have a much stronger social safety net as well.

In other words, you can’t want to solve one problem without changing the constraints imposed or as Mr. Low put it, “you can’t have your cake and eat it too.”

This brings me to the problem with the current government and civil service in general. Don’t get me wrong, our government and civil service are perhaps one of the most functional in the world. Joined at the hip is, of course, the fact that our civil service is also one of the least corrupt (yes, you may point out certain examples like the SCDF guy and the Brompton bikes case but the fact that those cases have been brought to light shows that we have a relatively low level of corruption).

The problem I’m referring to is the fact that the government and civil service has grown so large and become so entrenched in managing so many different things that it’s no longer possible to work in silos and think that you can solve problems within a committee. Using Jos Teo’s case as an example, the NPTD cannot possibly think of solving the low birthrate issue without considering an expansion of the social safety net which cuts across healthcare, housing and education amongst other things but that is precisely what Jos Teo’s use of her example highlights- solving for an optimal solution given current constraints when she should be working with a whole lot of other committees or departments to change those constraints.

An example closer to my heart is at the organisation that I work in. We suffer from a problem of excess supply when demand is falling (largely due to the falling birthrate). While the demand issue is one that was set in motion years ago, the supply-side issue is due to the fact that we have to support government initiatives for hiring older workers. Don’t get me wrong, older workers who need to and can work should be encouraged to but most of them in my department have absolutely NO NEED to. A fair number own a second property, have financed their children’s education overseas and stay on the job only because it pays quite decently (thanks to their length of service) for little effort on their part. And because we can’t add more hours to the core job because of the falling demand, many of us end up being shoved into doing some low value-add tasks in order to have something to shout about during the yearly appraisal.

In short, the big problem is that the government has tried too hard to solve too many problems and the way they are trying to solve the problems is by assigning capable people who don’t necessarily collaborate nearly enough because of whatever issues like guarding their turf or having an ego larger than this little red dot. Those are two problems that are loosely related but let’s face it, it’s making even smart people look stupid.

In other words,  it seems that our civil service has reached diseconomies of scale.

It’s been 9 years since I’ve gotten my toes wet in the investing world and it’s been amazing. I’m pretty familiar with equities, ETFs and REITs now and even dabbled a little in Options.

Along the way, I’ve become a CFA charter holder and more importantly, I’ve seen my portfolio grow a tremendous amount. I don’t want to reveal any details but I started with a tiny, tiny amount (four figures) and now it’s six.

Of course, not all of the returns were due to investment gains. I’ll be kidding if I told you that I’m extremely confident of every investment decision that I take- there’s still a lot of second-guessing my valuations and I know that nine years isn’t much compared to people who have seen decades of ups and downs in the market.I was also lucky to have started just about when the market topped. When you have little to lose, bear markets are extremely fertile grounds for finding gems.

I was also lucky to have started just about when the market topped. When you have little to lose, bear markets are extremely fertile grounds for finding gems. Furthermore, the fact that you can almost do no wrong due to the fact that the market has very little downside left means that you won’t be psychologically scarred by the bear.

To be honest, now that my portfolio is much larger, I won’t know how I feel when the next bear comes around. All I can say is that my investment plan seems to be working well since I’ve been during the minor corrections of 2011 and 2015 till date and I’m actually still posting decent year-on-year returns.

For those young ‘uns, don’t even think twice about getting started in investing.

Today, Joseph Schooling made history by becoming the first Singaporean Olympic gold medallist and he did it in amazing fashion- broke an Olympic record, beat his childhood idol the legendary Michael Phelps as well as being the only one in the race to go under 51 seconds.

That is so incredible. And he did it despite being away from home for so long and having to deal with crap like deferring NS. Oh yes, and it’s still stupid that some people think he’s a foreign talent because his family name is ‘Schooling’. I wonder who these people are and do they even know that we have Eurasians in our society. Big props to his family for having the courage to allow their son to pursue his dreams. I’m sure that when Joseph Schooling was a kid, he didn’t jump in the water and immediately produce Olympic record-breaking times. So many people must have questioned his parents’ decision along the way but look how it’s paid off. And I don’t mean the million-dollar prize money Singapore pays athletes for coming home with the Olympic gold medal but even before Schooling won, a nation was united (possibly over social media) and watched with bated breath to see how Schooling would do.

I don’t know Schooling or his family or his friends but they must be so proud and happy for him. Let’s not forget that there are other Team Singapore athletes that may not have won but for them to be there, on that stage amongst the world’s best means that they’ve put in lots of work as well. They must be disappointed that they didn’t win but what they need is encouragement to train harder and bounce back higher than before.

I read Schooling’s bio about how he’s been swimming since a very early age and that got me thinking about how much time, effort, sweat, blood and tears he must have put in. Obviously, support from his family was also tremendous. Imagine dedicating a good 16 years towards being there for another person’s singular goal of being the best at his or her craft. Not easy.

Therein lies the parallels to investing. Start early, stick to the plan and see the rewards blossom like a snowball that has gained enough traction. After all, as Warren Buffett said,

Life is like a snowball. The important thing is finding wet snow and a really long hill.

I’ll blog more about this another time for this post is really about Joseph Schooling’s amazing achievement and the unspoken, unseen effort and dedication that all Team Singapore athletes have put in.

This is part four of my 10 things every beginning investor should know post.

#4 Turnover is costly

I touched briefly on this in part one so let’s go into more detail here.

Be wary of managers who buy and sell stocks like they would change their underwear. It’s the same thing with dating people who keep having partners, it’s a signal that these people have poor judgement or don’t know what they are doing.

Before we go into that, what exactly is turnover?

In general, turnover refers to transacting. Therefore, a turnover can be thought of as each buy and sell transaction. In evaluating a portfolio, investors can see how often a manager turns over the holdings in the portfolio but looking at something called the ‘turnover ratio’. Investopedia defines this as such:

The turnover ratio is the percentage of a mutual fund or other investment’s holdings that have been replaced in a given year…

There are a few reasons why turnover is costly. Firstly, transaction fees have to be paid each transaction. This means that for each buy and sell transaction, fees are twice.

Secondly, turning over means that investors incur taxes on short-term gains which are usually higher than taxes on long-term gains. While that may not apply here in Singapore since there is no taxes on capital gains, there is no reason to believe that Singaporeans only invest in funds that invest in SGX-listed companies.

Thirdly, even if the manager matches the returns on the market. With the additional fees paid when turning over a stock, it means that returns are compounded over a smaller base.

Fourth, turning over means that the manager must consistently find winners. It’s just pure odds. Let’s be generous and say that the odds of picking a winner are 50%. Having the manager pick just once means that the manager’s odds of picking a winner are 50-50. However, the more times a manager has to pick, the lower the odds (as a total) are because to pick two winners in a row would mean that the odds are 1/2 multiplied by 1/2 which now gives us odds of 1-in-4. Even if the manager has a secret sauce which increases his or her odds of picking winners, the odds that winners are picked must necessarily fall over time due to mathematical laws and as other market participants start to follow the same kinds of strategy.

To sum up, in the words of legendary economist Paul Samuelson:

“Investing should be dull. It shouldn’t be exciting. Investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas…”


This is part three of my 10 things every beginning investor should know post.

#3: Even active investors find it hard to beat the market

Alternatively, this should be titled “Even the pros (probably) can’t do it”. We touched a little on this in part one but this post will be a full exposition to convince readers that even the pros find it tough to beat the market. Do note that this is a blog post so being a blog post, this is by no means an academic thesis on why the pros can’t do it. But the evidence I shall present is quite damning.

The Stats

There are people out there who actively look for managers that can beat the market and in a given year, there ARE managers who can beat the market. However, the problem is that a star today almost invariably turns out to be a dog the next year or within the next three. Check out John Paulson’s record for a perfectly textbook example of this. Even managers that have done well for decades can see their records erode over a single event (think Bill Miller).

Studies have also shown that over the long-run, hardly anyone beats the market. So, if you’re a beginning investor and have no clue as to what things like indexed funds, synthetic ETFs, MTNs, Structured Products, Accelerators or Dual-Currency products are or how they work, why take the moonshot chance that things will turn out good?

Behavioural factors lead to closet indexing

The reason for the lack of outperformance among professionals can also be attributed to some behavioural factors. As famous economist and investor, John Maynard Keynes once said, “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

Studies have shown that active fund managers, despite being paid to beat their benchmarks, often end up mirroring their benchmarks so that they don’t do too badly in a given year.

So, the question is, if there is a good chance that your active fund manager is going to end up putting together a portfolio that basically mirrors the index or benchmark he/she is being compared against, then why pay those higher fees at all?

As a beginning investor, it honestly isn’t worth the trouble on taking that bet that things will pay off handsomely when the odds show otherwise.

The fallacy of composition is perhaps the most common one made by many investors. I have a post on this over on my economics blog detailing how Warren Buffett avoided that by shutting down Berkshire Hathaway’s textile operations as well as how this plays out during bubbles in asset classes.

STI close: 2868.69
PE10: 11.93x

So, the news of Swiber’s demise probably led to more damage than Brexit. However, as far as long term investing goes, you probably won’t find a better time to start. A colleague mentioned to me last week about how everything he’s bought recently has gone down even further. Frankly, I’m not surprised given how he tried to bargain hunt Noble and some O&G related counters. I wouldn’t have touched those with a 10-foot pole given how difficult it is to make money in those industries in the first place.

I’ve been starting to see a wider spread of returns than what the PE10 model would predict so it does seem that the accuracy of the model is getting weaker. However, as a guide to longer-term (5 years and more) returns, the model is still holding up well. Anything under a PE10 of 15x has yet to show terrible returns.

I’ve begun to do a series for beginning investors so if you find it useful, stay tuned for more!

So general principle number 2 is simple- if you can’t beat them, join them.

#2 If you aren’t willing to invest the time and effort, go passive

Warren Buffett, who’s as good as a stock picker as you’d get once said that for the majority of people, their best option is to go passive. It’s not that stock picking can’t be done, it’s just that it’s terribly difficult.

As we saw in #1 costs matter, even the pros have a hard time staying ahead of the market. If indexing didn’t exist in this world, guess who the pros would be making money from? After all, for every seller, there must be a buyer. If you thought you were getting it at a good price, guess who’s selling to you? And if you thought that things were getting expensive and sold, guess who’s buying?

It still amazes me how many retail investors use price as a signal rather than a basis to form an opinion about valuation. Using price on its own is one of the worst signals I can think of EVER. Let’s do a thought experiment. Suppose a year ago, a stock was selling for $0.30. Last week, it was going for about $0.15. That’s a massive 50% discount from a year ago. Would you consider the stock cheap?

Well if you did, guess what? That’s the exact price history of Swiber which just decided to announce that it’s going to be liquidated. I don’t know what shareholders will be left with after creditors and bondholders get their share but the market doesn’t seem to be too optimistic given that it last traded at $0.11. By the way, Swiber IPO-ed at $1.50. There’s been some stock splits and what-not but baseline is, Swiber was a terrible stock.

So, for beginning investors or those unwilling to put it theirs dues, save yourself a whole lot of trouble and just go passive.

So I did a post on 10 things I thought all beginning investors should know. These are general principles and meant to hold 99% of the time. First up, costs matter.

#1 Costs Matter

I always tell my wife that she’d make a better investor than me. Why? Simply because she’s a better shopper than me and if investing isn’t all about buying low and selling high, then what is it? In other words, buying low is half the battle won.

It’s crazy but most people would find this a no-brainer. If you were buying a car and given the choice between two very similar cars, most people would look at the price as the deal breaker. However, when it comes to investing, many people believe that their bank relationship manager can give advice that allows you to beat the market when there is evidence to the contrary that most active fund managers struggle to beat the market. Also, add to that the fact that the relationship manager only follows a prescribed formula in their recommendation which means that the relationship manager is just an agent for the investment manager which means another layer of fees.

Take the following for example. Suppose two investments with identical rates of return (5%) have different costs- Investment A has an upfront cost of 3% while Investment B has an upfront cost of 1%. If each Investment requires an investor to put in $1000, after one year, the investor will end up with $1,018.50 if he or she went with A versus $1,039.50 if the investor went with B. Over a typical investment lifetime of 30 years, the sums are $4,192.28 versus $4,278.72. While the difference seems small, that’s because I used a small starting principle of $1,000. Most investment principles start from 5 or 6-figure sums meaning the difference is at least 10-100x the difference above.

Furthermore, funds typically have management fees which are deducted yearly making the difference in our example even more stark if you were holding on to a stock or even an index fund or ETF which has annual management fees that are almost close to zero percent.

In short, look at costs. The lower, the better.

My wife attended a course on investing recently. It was organised by her employer and so I got curious- What could a 2-day course possibly teach people with zero background in investing? By the way, the course isn’t cheap. The training company charges something like $300 per participant and there were easily 30 people in the class. That’s $9,000 in revenue of which I’m sure the presenter got at least $4,500. $4,500 for two days work, that’s not bad.

As it turns out, the course covers a lot of ground from the motivation for investing, basic financial planning calculations, risk management as well as an overview of different asset classes such as stocks, bonds, unit trusts, ETFs, gold, property, investment-linked products, structured funds and more. Obviously, the trainer can’t be a specialist in all those areas. Typically, one specialises in a particular asset class. For example, an analyst that covers equities won’t cover the bond market or much less property for that matter. Even within equities, analysts specialise in different sectors as the economics and cycles of each sector can be very different.

In short, looking at the course material, I get the sense that the course is dangerous because a little knowledge can be a deadly thing. In fact, if I were to do a course, I’d focus on general principles that all investors (especially those at the beginning) ought to know.

Which brings me to my top 10 list which is backed by research.

  1. Costs matter.
  2. Active investing requires investment in knowledge. If you can’t or won’t, go passive.
  3. Even active investors find it hard to beat the market.
  4. Turnover is costly (see point 1).
  5. Start early, be often (i.e. timing the market is mostly futile but see point 7).
  6. Live simple. (see point 1).
  7. If you go active, valuation matters.
  8. Diversify but do not over-diversify.
  9. Don’t worry about the economy (so much).
  10. Don’t ask for tips.

I’ll elaborate more on each point in separate posts but essentially, that’s it!Investing is fun but it’s not for lazy people. You may take a lazy approach (such as going passive) but if you don’t understand basic concepts, you may be convinced that all passive approaches are the same. They aren’t! For example, products touted by financial planners are passive for you as an investor but odds are they would do worse than a plain vanilla approach such as an index fund or an index ETF that is fully replicated (i.e. not constructed with derivatives). So you know what? There’s plenty of good investment bloggers out there (even within the Singapore blogosphere)

Investing is fun but it’s not for lazy people. You may take a lazy approach (such as going passive) but if you don’t understand basic concepts, you may be convinced that all passive approaches are the same. They aren’t! For example, products touted by financial planners are passive for you as an investor but odds are they would do worse than a plain vanilla approach such as an index fund or an index ETF that is fully replicated (i.e. not constructed with derivatives).So you know what? There’s plenty of good investment bloggers out there (even within the Singapore blogosphere)

So you know what? There’s plenty of good investment bloggers out there (even within the Singapore blogosphere) that’s written a lot about investing. You don’t really need to pay $300 to attend a two day course.


PS: By the way, if you would like to know more about using economic concepts to understand the world, head on over to my other site, and you can either follow our blog or our facebook page.