Nearly 40 participants have registered to play Pro-Investor during the past 2 days. One participant log in 7 times and played around 30 games. Another participant achieved Level 9 - which is the top level.
I have created a new entry under Guide to share my personal experience about playing this simulation game on stock selection. I have given some tips on how you can find a technique that can reduce your learning curve. You can experiment with variations of this technique to get better results.
Picking the right stocks in the real world environment is a matter of experience and learning. There is no single magic formula that you can use, as the environment keeps changing. What you can learn is the secret of watching the right trends and making the right choices - and hope to be right 60% of the time or better. Pro-Investor aims to give you this chance to learn through experience, and to acquire a lifetime of experience within a few days. I hope that you enjoy this learning experience.
Tan Kin Lian
Saturday, January 23, 2010
Friday, January 22, 2010
Restore trust in participating policies
Participating policies, i.e. endowment or whole life policies, are designed to provide a guaranteed yield at a modest level (say 1% p.a.) and to provide variable reversionary and terminal bonuses that can increase the yield to a higher level. The bonuses are declared each year based on the financial results of the insurance company.
In the past, most life insurance companies were able to give an attractive yield to the policyholders. The insurance company invest the money well with a long term perspective and were able to achieve an attractive return. After taking away a fair proportion to cover their expenses and profits, they distribute most of the surplus to the policyholders with a high rate of bonus.
The insurance company maintains a manageable number of policy series, and distributes the same rate of reversionary or terminal bonuses to all policies in the same series. The policyholders in each series can see that they have been treated equally with other policyholders in the same series.
This practice has changed in recent years. Insurance companies have introduced too many policy series and distributes different rates of bonuses to policyholders in the same series. It is difficult for any policyholder to be sure that they are getting the fair rate of bonus, based on the actual experience of the fund.
To make matters worse, some insurance companies retain too much surplus in the fund, under the purported aim of "smoothing the bonus", or use the surplus to pay for high expenses, resulting in a poor yield to policyholders.
It is the lack of clarity that gives a bad name to participating policies in recent years. Many policyholders find that the projected bonuses made at the inception of the policy had been severely reduced due to "difficult investment climate", but it is not clear if the reduction is due solely to this cause or to other unethical and unfair practices.
To overcome this problem, the insurance company can adopt the "asset share" method to distribute bonus. This method ensures that each policyholder gets its fair asset share on the surrender or maturity of the policy based on the actual experience for that policy. It is quite to adopt this method using modern computer technology.
Some countries make it mandatory for the "asset share" method to be used, to ensure that the policyholders are fairly treated. The regulator in Malaysia took this step many years ago, in their effort to protect the interest of the consumers and to ensure fair practices.
In Singapore, many insurance companies have severely reduced their reversionary and terminal bonuses in recent years, often more than expected. Many consumers have lost trust in the participating policies and the insurance companies that sold these policies.
I hope that the regulator in Singapore will implement the "asset share" method early, to ensure that all policyholders are given a fair return in this volatile situation and that the trust in participating policies can be restored.
Tan Kin Lian
In the past, most life insurance companies were able to give an attractive yield to the policyholders. The insurance company invest the money well with a long term perspective and were able to achieve an attractive return. After taking away a fair proportion to cover their expenses and profits, they distribute most of the surplus to the policyholders with a high rate of bonus.
The insurance company maintains a manageable number of policy series, and distributes the same rate of reversionary or terminal bonuses to all policies in the same series. The policyholders in each series can see that they have been treated equally with other policyholders in the same series.
This practice has changed in recent years. Insurance companies have introduced too many policy series and distributes different rates of bonuses to policyholders in the same series. It is difficult for any policyholder to be sure that they are getting the fair rate of bonus, based on the actual experience of the fund.
To make matters worse, some insurance companies retain too much surplus in the fund, under the purported aim of "smoothing the bonus", or use the surplus to pay for high expenses, resulting in a poor yield to policyholders.
It is the lack of clarity that gives a bad name to participating policies in recent years. Many policyholders find that the projected bonuses made at the inception of the policy had been severely reduced due to "difficult investment climate", but it is not clear if the reduction is due solely to this cause or to other unethical and unfair practices.
To overcome this problem, the insurance company can adopt the "asset share" method to distribute bonus. This method ensures that each policyholder gets its fair asset share on the surrender or maturity of the policy based on the actual experience for that policy. It is quite to adopt this method using modern computer technology.
Some countries make it mandatory for the "asset share" method to be used, to ensure that the policyholders are fairly treated. The regulator in Malaysia took this step many years ago, in their effort to protect the interest of the consumers and to ensure fair practices.
In Singapore, many insurance companies have severely reduced their reversionary and terminal bonuses in recent years, often more than expected. Many consumers have lost trust in the participating policies and the insurance companies that sold these policies.
I hope that the regulator in Singapore will implement the "asset share" method early, to ensure that all policyholders are given a fair return in this volatile situation and that the trust in participating policies can be restored.
Tan Kin Lian
Training software: Pro-Investor
Develop your skill in picking the right stocks for long term investments. This skill comes from many years of experience. This simulation software allows you to acquire a lifetime of experience in a few hours. Click here to play the game.
Read the Guide. Register an account. You start witl Level 1 and will progress until Level 9. Good luck.
Read the Guide. Register an account. You start witl Level 1 and will progress until Level 9. Good luck.
Thursday, January 21, 2010
GST penalty for small business
I wrote to Today Paper that a small business has to suffer a penalty under the current Goods and Service tax (GST). It has to pay GST on its purchases and is not able to recover the GST from its business customers and on its exports. This has forced many small businesses to "volunteer" to register for GST, even though the amount of GST payable is small. It causes administrative work for IRAS and compliance cost for small businesses to keep records to prepare and submit the quarterly GST returns.
To avoid this problem, I suggested that the the GST law be changed to allow business customers to treat al ltheir purchases as qualifying from GST, including the purchases from the small entities that are exempt from GST.
IRAS has replied that it is not able to offer GST credit for exempt entities who do not pay GST. This reasoning overlooks the fact that the exempt entity has to pay GST on many of its own purchases already. By taking a rigid position, IRAS is creating unproductive and wasteful work for small businesses and itself. Even the business customers have to keep separate records to segregate purchases from exempt and non-exempt suppliers.
IRAS did not contact me to discuss the issue before giving its reply. There is no attempt by IRAS to understand the issue from the point of view of the taxpayer. I hope that our authority can be more open for discussion and dialogue on important issues that affect the cost of doing business in Singapore.
Tan Kin Lian
To avoid this problem, I suggested that the the GST law be changed to allow business customers to treat al ltheir purchases as qualifying from GST, including the purchases from the small entities that are exempt from GST.
IRAS has replied that it is not able to offer GST credit for exempt entities who do not pay GST. This reasoning overlooks the fact that the exempt entity has to pay GST on many of its own purchases already. By taking a rigid position, IRAS is creating unproductive and wasteful work for small businesses and itself. Even the business customers have to keep separate records to segregate purchases from exempt and non-exempt suppliers.
IRAS did not contact me to discuss the issue before giving its reply. There is no attempt by IRAS to understand the issue from the point of view of the taxpayer. I hope that our authority can be more open for discussion and dialogue on important issues that affect the cost of doing business in Singapore.
Tan Kin Lian
Wednesday, January 20, 2010
Benefits of Life Insurance
Life insurance performs two useful functions:
a) Provide financial security in event of premature death or disability through the pooling of risks
b) Provide a useful service for ordinary people to pool and invest their savings to get an attractive long term return.
If it is practiced fairly, transparently and honestly, it can bring tremendous benefits to ordinary people. This was how life insurance was practiced for a long time in the past. It was useful to society.
In recent years, life insurance has been changed to be a way for financial institutions to make large share of the gains, and to offer a poor return to the unsuspecting, trusting public. The charges taken away from the consumers to pay the high marketing expenses, salaries and profits are excessive - perhaps unconscionable.
I hope that the leaders of life insurance realize that they have a responsibility to offer a fair return to the consumers who trusted them to take care of their future. It is necessary to pay for the expenses and make a fair profit, but the charges should be reasonable and the interest of the consumers must also be protected.
I hope that the regulator will make it possible for the public to enjoy a fair outcome. This will make life insurance a good way for consumers to save and invest for the future.
Tan Kin Lian
a) Provide financial security in event of premature death or disability through the pooling of risks
b) Provide a useful service for ordinary people to pool and invest their savings to get an attractive long term return.
If it is practiced fairly, transparently and honestly, it can bring tremendous benefits to ordinary people. This was how life insurance was practiced for a long time in the past. It was useful to society.
In recent years, life insurance has been changed to be a way for financial institutions to make large share of the gains, and to offer a poor return to the unsuspecting, trusting public. The charges taken away from the consumers to pay the high marketing expenses, salaries and profits are excessive - perhaps unconscionable.
I hope that the leaders of life insurance realize that they have a responsibility to offer a fair return to the consumers who trusted them to take care of their future. It is necessary to pay for the expenses and make a fair profit, but the charges should be reasonable and the interest of the consumers must also be protected.
I hope that the regulator will make it possible for the public to enjoy a fair outcome. This will make life insurance a good way for consumers to save and invest for the future.
Tan Kin Lian
Purpose of insurance regulations
Some regulators consider that their primary duty is to ensure the solvency of the insurance companies, as financial failure will cause hardship to the consumers. Solvency is important, but is not the only risks faced by the consumer.
The regulator has also to pay attention to all four duties, as follows:
- Maintain insurer solvency
- Compensate for inadequate consumer knowledge
- Ensure reasonable rates
- Make insurance available
The regulator has also to pay attention to all four duties, as follows:
- Maintain insurer solvency
- Compensate for inadequate consumer knowledge
- Ensure reasonable rates
- Make insurance available
Consumers are not well versed in insurance and may be badly treated through legal contracts that are not transparent and not fair. A common example is the use of irresponsible projection to entice consumers to invest in insurance contracts, and to give a final payout that is much lower than projected. Badly worded or unclear language in policy documents also place consumers at a disadvantage as the consumers are not able to afford the legal fees to have the contracted interpreted in the court.
The regulator has also to ensure that the insurance rates are reasonable and that consumers are not overcharged due to their ignorance of the market or their inability to judge the value of the insurance protection that is provided.
At the other extreme, the regulator also wants to prevent irresponsible price cutting that may lead to insolvency of the insurers. If an insurer cuts price to an inadequate level, other insurers may be forced to follow, to protect their market share.
The regulator also aims to ensure that insurance is available, especially for people or risks that are considered to be unprofitable. As motor insurance is compulsory, it is necessary to ensure that it is available to people who are considered to be high risk, as they would otherwise by denied the right to drive a car.
Tan Kin Lian
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