12 October 2008
Effects Of The Current Financial Turmoil (1)
I read with sadness that quite a number of people have lost large sums of money recently because they invested in structured deposits linked to the collapsed Lehman Brothers bank. For some of these people, the money they lost were their entire retirement savings. I heard one elderly Singaporean couple invested $250,000 and may not get any of their money back.
As for me, I have made quite a few bad investments myself. A few weeks before the dot-com bubble burst in Mar 2000, I bought into ABN AMRO Star Global Information Society Fund. Needless to say, when I sold off the investment after the bubble burst, I got back only less than 20% of its original value. It was only after the dust had settled that I realised that the fund was classified as "high-risk and narrowly-focussed". To make matters worse, the investment was sold to me by a very close relative. I won't deny that our relationship had suffered because of this unpleasant experience.
More recently (in Aug 2008), my wife and I bought some OCBC non-convertible preference shares. We were attracted to them because they paid 5.1% annual dividends - not bad when you consider that interest rates for savings and fixed deposits are only a small fraction of that. As promised, the shares did pay a 5.1% pa dividend, i.e. S$33.53 for every S$10,000 invested for the 24 days which the shareholder had held on to the shares. Not too bad except that the closing price of the share had dropped from $100 to $93.42 within the same period - we had a paper loss of more than $1000 within less than a month and got back only less than $100. Would you have subscribed to the shares if you know that this is the outcome? Of course, with the benefit of hindsight now, the answer is an obvious one.
My many bad experiences in investment make me wonder how people like Mr Oei Hong Leong can make S$7 million by trading AIG shares in such a difficult market condition. No wonder they say that the rich gets richer (people like Mr Oei) while the poor gets poorer (people like me). Alright, Mr Oei did a good and noble thing by donating his S$7 million gain to the Lee Kuan Yew School of Public Policy. (I would like to donate too but now, I am badly in need of donations myself.)
I feel that our MAS has not been very pro-active in its role as a financial regulator. It should not have allowed highly risky products to have been marketed as relatively safe investments to risk-averse investors. This would have constituted as misrepresentation by the sellers. The least it could do is to label the products as "high risk" and this fact should be made known to buyer by the seller. The buyer should also be told in layman's terms the various scenarios which will cause a loss to the investment and by how much.