Tuesday, June 15, 2010
Long term investing
Here are some secrets and tips. Ignore the stock market. Don't watch TV. And more.
Criticism of politicians
Dr. Mahathir explains why he will not sue the author of a book that criticises him. Read this article.
Workers in China
1. Is the era of cheap Chinese labour almost over?
A string of suicides at the Foxconn plant in southern China that makes iPads and iPhones for Apple
has focused attention on wages and conditions there.
http://news.bbc.co.uk/2/hi/business/10294850.stm
2. In China, Unlikely Labor Leader Just Wanted a Middle-Class Life
Tan Guocheng is hardly a self-styled labor leader.
Age 23 and introverted, he grew up among rice paddies and orange groves far from China’s big factory towns.
But last month, an hour into his shift at a Honda factory in the southern city of Foshan,
Mr. Tan pressed an emergency button that shut down his production line.
“Let’s go out on strike!” he shouted.
Within minutes, hundreds of workers were abandoning their posts.
http://www.nytimes.com/2010/06/14/business/global/14honda.html
3. What Do China’s Workers Want?
What do these protests say about China’s new generation of workers?
How should multinationals respond, given their huge investment in China’s labor market?
Five experts share their views.
http://roomfordebate.blogs.nytimes.com/2010/06/13/what-do-chinas-workers-want/
My views
The low wages in China is not the only problem. This is made worse by the high cost of living and the high property prices. These issues have to be addressed, so that there is a proper balance between wages, cost of living and cost of a home. These challenges apply to Singapore as well.
A string of suicides at the Foxconn plant in southern China that makes iPads and iPhones for Apple
has focused attention on wages and conditions there.
http://news.bbc.co.uk/2/hi/business/10294850.stm
2. In China, Unlikely Labor Leader Just Wanted a Middle-Class Life
Tan Guocheng is hardly a self-styled labor leader.
Age 23 and introverted, he grew up among rice paddies and orange groves far from China’s big factory towns.
But last month, an hour into his shift at a Honda factory in the southern city of Foshan,
Mr. Tan pressed an emergency button that shut down his production line.
“Let’s go out on strike!” he shouted.
Within minutes, hundreds of workers were abandoning their posts.
http://www.nytimes.com/2010/06/14/business/global/14honda.html
3. What Do China’s Workers Want?
What do these protests say about China’s new generation of workers?
How should multinationals respond, given their huge investment in China’s labor market?
Five experts share their views.
http://roomfordebate.blogs.nytimes.com/2010/06/13/what-do-chinas-workers-want/
My views
The low wages in China is not the only problem. This is made worse by the high cost of living and the high property prices. These issues have to be addressed, so that there is a proper balance between wages, cost of living and cost of a home. These challenges apply to Singapore as well.
Lehman and Enron
Financial Planning Talk, 26 June 2010
I am giving a 3 hour talk entitled "Financial Planning - A Practical Apprach" at SMU on Saturday 26 June, 3 to 6 pm. The last talk had full house. Details can be found at http://www.fisca.sg/.
Fiduciary duty
The director of a company has a fiduciary duty (i.e. a duty of trust) to act in the interest of all shareholders. In the past, many people hold positions of trust and act with integrity. This position of trust also extend to profesionals, such as doctors and lawyers.
In recent years, due to greed and the wish to be super rich, some people (maybe many people) are behaving less honorably. They have less compunction about over-charging on their fees or take take advantage of other people's ignorance to make profit at their expense. In the past, these people would be considered as crooks. Today, these behaviors are considered as acceptable in the free market.
Tan Kin Lian
In recent years, due to greed and the wish to be super rich, some people (maybe many people) are behaving less honorably. They have less compunction about over-charging on their fees or take take advantage of other people's ignorance to make profit at their expense. In the past, these people would be considered as crooks. Today, these behaviors are considered as acceptable in the free market.
Tan Kin Lian
Structured products
A structured product is a financial product that has been created by a financial institution for sale to the public. The terms of the structured product are determined by the issuer (i.e. the financial institution).
When the consumer buys a structured product, the consumer faces the following risk:
a) The issuer may have high margin for their profit or marketing expenses
b) The terms of the contract may not be transparent to the consumer
c) Lack of liquidity - the product can only be sold back to the issuer at a big discount.
d) The terms amy be written in favour of the financial institution and to the disadvantage of the consumer
A life insurance policy has features similar to a structured product. In fact, it is the fore-runner of the structured products that were created by the banks, such as the various types of linked notes.
Many decades ago, most large life insurance companies were organised as mutual companies (i.e. owned by the policyholders) and can be trusted to look after the interest of their policyholders. However, in recent years, this trust has eroded as many companies have become demutualised or have focused on making profits for shareholders.
Many life insurance products introduced in recent years have become less transparent, to give a larger margin to the agents and shareholders, at the expense of the policyholders. In some cases, there were deliberately designed to confuse and mislead the policyholder.
Many structured products issued by the banks have similar characteristics, i.e. lack of transparency and poor return to the consumer.
Generally, I advice consumers to avoid all types of structured products and to invest in exchange traded products. Read my book, Practical Guide on Financial Planning.
Tan Kin Lian
When the consumer buys a structured product, the consumer faces the following risk:
a) The issuer may have high margin for their profit or marketing expenses
b) The terms of the contract may not be transparent to the consumer
c) Lack of liquidity - the product can only be sold back to the issuer at a big discount.
d) The terms amy be written in favour of the financial institution and to the disadvantage of the consumer
A life insurance policy has features similar to a structured product. In fact, it is the fore-runner of the structured products that were created by the banks, such as the various types of linked notes.
Many decades ago, most large life insurance companies were organised as mutual companies (i.e. owned by the policyholders) and can be trusted to look after the interest of their policyholders. However, in recent years, this trust has eroded as many companies have become demutualised or have focused on making profits for shareholders.
Many life insurance products introduced in recent years have become less transparent, to give a larger margin to the agents and shareholders, at the expense of the policyholders. In some cases, there were deliberately designed to confuse and mislead the policyholder.
Many structured products issued by the banks have similar characteristics, i.e. lack of transparency and poor return to the consumer.
Generally, I advice consumers to avoid all types of structured products and to invest in exchange traded products. Read my book, Practical Guide on Financial Planning.
Tan Kin Lian
Tender Loving Society
Singapore is a tender loving society. We believe in using the tender for most business transactions. The contract is usually awarded to the party that submitted the lowest cost or, in the case of sale of land, to the highest bidder.
This system has bad consequences. When a contractor tender a lower price to get a job, they are under pressure to reduce their cost. This will find ways to cut corners, resulting in lower quality of work. Alternatively, they will seek opportunity to increase their revenue on variation orders or extended scope of work.
If a developer pays a high cost for a piece of land, they will add the cost to the final product tht is sold. This has led to escalation in the price of property. The high property prices have led to high cost of living and other an unfair distribution of income, from tenants to owners of property. This has led to a frenzy of property buying, which has in turn caused the property prices to escalate further.
There is an alternative to the tender system. It is easy to estimate the cost of a contract, using the inputs in materials and labour, and to award the contract based on cost plus a fair margin. The work can be distributed to eligible parties based on fair assessment of quality. This is people are recruited to work in a big organisation.
If land is tendered based on the average price of similar properties and is sold at controlled prices (i.e. cost of land, construction and a fair margin of profit), there is no need for property prices to escalate sharply. The property prices will reflect the true market, without the excessive speculation.
There is an alternative to the "tender loving society".
Tan Kin Lian
This system has bad consequences. When a contractor tender a lower price to get a job, they are under pressure to reduce their cost. This will find ways to cut corners, resulting in lower quality of work. Alternatively, they will seek opportunity to increase their revenue on variation orders or extended scope of work.
If a developer pays a high cost for a piece of land, they will add the cost to the final product tht is sold. This has led to escalation in the price of property. The high property prices have led to high cost of living and other an unfair distribution of income, from tenants to owners of property. This has led to a frenzy of property buying, which has in turn caused the property prices to escalate further.
There is an alternative to the tender system. It is easy to estimate the cost of a contract, using the inputs in materials and labour, and to award the contract based on cost plus a fair margin. The work can be distributed to eligible parties based on fair assessment of quality. This is people are recruited to work in a big organisation.
If land is tendered based on the average price of similar properties and is sold at controlled prices (i.e. cost of land, construction and a fair margin of profit), there is no need for property prices to escalate sharply. The property prices will reflect the true market, without the excessive speculation.
There is an alternative to the "tender loving society".
Tan Kin Lian
Telco charges
The governments of Singapore and Malaysia have agreed to request the telcos to reduce their SMS and mobile charges between the two countries. The current charges are too high.
This is just one example about how businesses use the free market to over-charge consumers. Many examples exist in the banking industry and other businesses. It shows the fallacy of the concepts that the free market need not be regulated and that competition can bring down cost to consumer. In the free market environment, it is also difficult for businesses to agree on measures that are fair to consumers, when their own bottom line are involved.
I hope that the Government will realise that they have a role and a duty to take positive action to bring down prices for consumers and to ensure fair treatment of consumers. These matters cannot be left to good intention or the market.
Tan Kin Lian
This is just one example about how businesses use the free market to over-charge consumers. Many examples exist in the banking industry and other businesses. It shows the fallacy of the concepts that the free market need not be regulated and that competition can bring down cost to consumer. In the free market environment, it is also difficult for businesses to agree on measures that are fair to consumers, when their own bottom line are involved.
I hope that the Government will realise that they have a role and a duty to take positive action to bring down prices for consumers and to ensure fair treatment of consumers. These matters cannot be left to good intention or the market.
Tan Kin Lian
Land banking Action Group
If you have invested in land banking or similar products and wish to join the action group, please send an e-mail to Land Banking Action Group.
Intelligence Quiz
Dear Mr. Tan
Thank you for organising the Quiz 6-1 contest. I like this quiz. Where can I get more of such quiz?
REPLY
You can buy TKL Intelligence Quiz here. It comes in Vol 1, 2, and 3. Each volume has 24 quiz at 3 levels, total of 72 quiz. Some people are hooked to this type of quiz and like more volumes of puzzles to try.
Thank you for organising the Quiz 6-1 contest. I like this quiz. Where can I get more of such quiz?
REPLY
You can buy TKL Intelligence Quiz here. It comes in Vol 1, 2, and 3. Each volume has 24 quiz at 3 levels, total of 72 quiz. Some people are hooked to this type of quiz and like more volumes of puzzles to try.
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