Comment posted in my blog
Martin said...
Martin said...
While I do agree in principle with Mr Tan’s approach to stock investments for average Singaporeans who know little about financial markets, a few practical realities give pause to me in fully supporting SGX and SIAS’s push to increase retail participation.
To start off, there is no universal definition to differentiate investment from speculative activities. The formers sounds learned while the latter concords negative images of a gambling addict. As a result, most participants define their market participation as investments rather than punting. General rules of thumb like the time frame of holdings, the practice of fundamental and/or technical analyses, concentration on “blue chips” (whatever that means) are woefully inadequate to come out with a set of coherent identifiers that separate investments from speculations. Most laymen do not have the required knowledge to make the distinction and may end up speculating in the market heavily all the while thinking they are “investing”.
It is also important to note that SIAS in general does not advocate the sort of consistent, broad based and mechanical approach that Mr Tan is advocating. Most of their activities and materials are focused on market timing, technical analysis, fundamental ratios etc. The underlying educational theme of SIAS is to help investors pick the right stocks at the right time. A relatively small proportion of their time is devoted to ETFs and even when they do, the focus is more on picking the “right” ETF based on analysis on market conditions. This is of course contrary to what Mr Tan is advocating.
Then there is also the SGX’s irreconcilable conflict of interest where their clearing fees depend on trading velocity, i.e. it is in their interest to encourage people to leverage up and trade actively as much as possible as opposed to Mr Tan’s recommendation to make relatively small purchases every few months consistently.
To sum it all up, the general direction of SGX and SIAS to increase awareness and knowledge in the financial markets is a step in the right direction, but its execution is fraught with moral hazards and potential mischief. The whole exercise requires closer supervision by the relevant authorities to keep things in check than what is being practiced now. One only needs to briefly read through postings in a few popular local forums like CNA, HWZ or Valuebuddies to see that a sizable group of laymen neither know the distinction between investments and speculation nor care about the subject.
COMMENT
I want to thank Martin for explaining my views quite clearly and in his own words.
To start off, there is no universal definition to differentiate investment from speculative activities. The formers sounds learned while the latter concords negative images of a gambling addict. As a result, most participants define their market participation as investments rather than punting. General rules of thumb like the time frame of holdings, the practice of fundamental and/or technical analyses, concentration on “blue chips” (whatever that means) are woefully inadequate to come out with a set of coherent identifiers that separate investments from speculations. Most laymen do not have the required knowledge to make the distinction and may end up speculating in the market heavily all the while thinking they are “investing”.
It is also important to note that SIAS in general does not advocate the sort of consistent, broad based and mechanical approach that Mr Tan is advocating. Most of their activities and materials are focused on market timing, technical analysis, fundamental ratios etc. The underlying educational theme of SIAS is to help investors pick the right stocks at the right time. A relatively small proportion of their time is devoted to ETFs and even when they do, the focus is more on picking the “right” ETF based on analysis on market conditions. This is of course contrary to what Mr Tan is advocating.
Then there is also the SGX’s irreconcilable conflict of interest where their clearing fees depend on trading velocity, i.e. it is in their interest to encourage people to leverage up and trade actively as much as possible as opposed to Mr Tan’s recommendation to make relatively small purchases every few months consistently.
To sum it all up, the general direction of SGX and SIAS to increase awareness and knowledge in the financial markets is a step in the right direction, but its execution is fraught with moral hazards and potential mischief. The whole exercise requires closer supervision by the relevant authorities to keep things in check than what is being practiced now. One only needs to briefly read through postings in a few popular local forums like CNA, HWZ or Valuebuddies to see that a sizable group of laymen neither know the distinction between investments and speculation nor care about the subject.
COMMENT
I want to thank Martin for explaining my views quite clearly and in his own words.
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