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Most Singaporeans don’t know how to invest in stocks

Bullionstar

Bullionstar

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For many Singaporean investors, the content of this article will come across as highly offensive. But recent happening in local stock market warrants a reality check for many Singaporeans. The hard truth is, most Singaporeans don’t know how to invest in stocks. In fact, many Singaporeans don’t even know exactly what is investment all about. Last Friday, I read an article from The Straits Times that an investor has lost $120,000 of his retirement funds trading in the Blumont shares. He was still in a shell shock state because the value of his shares is now worth only $5,850. He lamented that “I’m one of many saddened and disheartened investors who will have to live with this painful memory for a long time,”

Even though Singaporeans in general are highly educated, many still lack of “FQ”, commonly known as Financial Quotient. So what this means is that they can be very good in their careers or businesses and earn high incomes, but generally poor in personal financial management. Many are busy with various commitments, so they did not bother to spend time doing homework before investing away their hard-earned money in stocks. Many don’t even know the basic principles of financial planning and asset allocation. In the case of the investor who lost more than $110,000 in Blumont stocks, he should know better than to use his retirement funds for share trading.

stock market

Ask any male Singaporeans on cars and computers and very likely, they could easily rattle off the performance specifications, backgrounds and problems. But when it comes to stock investments, these people prefer to base their investment decisions on their brokers’ recommendations and media reports. Many don’t read the companies’ annual reports or do research on investment techniques.

In the case of Blumont, many investors don’t even realize that this is a risky stock in the first place. At one point before SGX suspended its trading, its valuation was above many of the blue chips trading in the local stock market. The share price had rocketed from $0.30 in Jan 2013 to $2.45 in Sep 2013, a 8-fold increase over only 9 months. Fundamentally, common sense should prevail and investors  need to know the basis and whether the 8-fold price increase is supported by fundamentals of the company. So I was not surprised that Blumont was one of the three stocks suspended by the Singapore Exchange on Oct 4 after sharp declines in their stock prices erased S$8.6 billion in market value over three days. They were later allowed to resume trading as “designated securities”, implying that there could have been manipulation or excessive speculation.

The worst thing is that many Singaporean investors still have not learned their lessons and still persist in trading in these penny stocks with no fundamentals. One of the fellow bloggers in The Finance.sg thought that he could cut loss and bought more shares, thinking that he could dollar-average his costs. In my mind, he has committed one of the most cardinal mistakes made by novice investors. And that is to be confused with buying under-valued stocks and junk stocks. The former can reap huge returns if the techniques were applied correctly, whilst the latter is basically “catching a falling knife”. I used to make this sort of mistake when I started investing, but I hope that new investors can avoid this costly misstep.

Another worrying trend is that there are Singapore traders using borrowed money from brokerages or banks to buy the shares. These punters are now facing the prospect of legal action from brokers and banks determined to get their money. I always have misgiving on trading shares with borrowed money. Although the returns can be several fold using a small capital, the losses can also be substantial if the market swing against you. Investors, especially the novice ones, need to be aware of the risks involved.

Singaporeans are generally not stupid but when it comes to investments, we tend to shoot ourselves in the foot and don’t learn from our lessons. After the Minibonds fiasco and the gold buy-back scams, many Singaporeans still persist in buying risky financial products with no basis. No wonder Hong Kongers and Taiwanese labelled us stupid.

It is important to diversify your portfolio and practise asset allocation. Precious metals such as gold and silver bullion may provide good stability to your investment portfolio in times of financial crises.

Magically yours,

SG Wealth Builder

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Updated: October 29, 2017 — 4:32 pm

4 Comments

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  1. Good post!! This is the truth that is happening in our local society. Many many stories of people who lost their money because of the lack of financial knowledge and intelligence. If this does now change, it’ll continue to repeat itself for as long as we live.

  2. Isaac Newton got super high IQ but lost lots of money.

    IQ is not so relevant in investing

  3. perhaps EQ will come into play.

  4. As a US citizen who has visited Singapore, lived in Bangkok and invested in Thai companies I am surprised to read this post. Why? Most of the Singaporean people I have met seem business savvy, well schooled, and at least informed about equity markets. That being said, maybe my sample of Singaporeans was not broad enough.

    I can say the same is true about many people in the US. They will invest on tips from brokers and media before reading a companies 10K (annual report). The main difference I recognize between East Asia and Wall Street is the quantity of boom and bust cycles. Wall Street is an older market, people’s great grandparents have passed on to younger generations the “be weary” of equity investing knowledge through stories, books and bankruptcy filings.

    In my opinion, a good benchmark of people’s investment knowledge comes from visiting their local library. If the local library has access to classical and current investment books written by both winners and losers then I bet that local community is better off than one without such free knowledge.

    Singapore is learning fast from my general assessment. With people like Jim Rogers and Mark Mobius taking up residence in Singapore, wise outside investment advice will hopefully permeate the culture faster than multiple boom and bust cycles.

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