Business Times - 23 Nov 2011

Wall Street is full of the young and the jobless

Headcount of financiers aged 20-34 falls 25% from 3Q08 to 3Q11

(NEW YORK) Steve Ferdman celebrated getting a recent job offer from Credit Suisse in the usual Wall Street fashion. Over expensive oysters and dark rum cocktails at a trendy Manhattan restaurant with his parents, he toasted landing the full-time position after working six months as a consultant without benefits.

A week later, Mr Ferdman, 28, sat alone at the same place and ordered a gin and tonic to lament getting laid off by the bank, for the second time since 2008. When he told the bartender about his misfortune, his next round was on the house.

'I did everything right. I came into work every day, I put in long hours, and I still got punched in the face,' Mr Ferdman said. 'People shouldn't want to work in this industry anymore.'

Being young on Wall Street once meant having it all: style, smarts, and too much money to spend wisely. Now, 20-somethings in the finance industry are losing both cash and cachet.

Three years after the global financial crisis nearly brought Wall Street firms to the brink, the nation's largest banks are again struggling. As profits wane, layoffs have claimed thousands of jobs, and those still employed have seen their compensation shrink. These problems are set against the morale-crushing backdrop of the Occupy Wall Street movement, which has made a villain of a once-lionised industry.

Much of the burden of Wall Street's latest retrenchment has fallen on young financiers. The number of investment bank and brokerage employees between ages 20 and 34 fell 25 per cent from the third quarter of 2008 to the same period of 2011, a loss of 110,000 jobs from layoffs, attrition and voluntary departures.

By comparison, industry headcount dropped 17 per cent in the same period, according to an analysis by The New York Times of data for New York City provided by the Bureau of Labor Statistics. The number of staffers older than 55 decreased only 11 per cent.

Young financiers have experienced setbacks in the past. Bankers and traders who rushed wide-eyed to Wall Street in the halcyon days of the 1980s were waylaid by the stock market crash of Oct 19, 1987, known as Black Monday. Then they got pummelled in 2000 by the dot-com collapse and the recession that followed.

But unlike previous downturns, today's doldrums are here to stay, experts say.

'A lot of the positions that are being cut right now aren't coming back,' said Leslie Hild, a vice-president with the recruiting firm Right Management. 'It's an emotional roller coaster for almost everyone.'

The industry's imbroglio has also affected the plans of undergraduate and graduate students at the nation's top colleges.

At Harvard Business School, where a relatively high 39 per cent of this year's graduates went into finance, compared with 34 per cent last year, there has been a 'heck of a lot more anxiety' about next year's hiring season, according to William Sahlman, a professor of business administration there.

'People used to think of some of these organisations, like a Morgan Stanley or a Goldman Sachs, as safe career bets,' he said. 'Those firms are not going away, but they're going to hire half the people they hired before.'

Any sympathy for Wall Street's aspiring rainmakers - its huddled masses yearning to get rich - should be tempered by the fact that financial sector recessions often deal a soft blow. Laid-off financial workers typically receive large severance packages, which include the use of outplacement services. During their job hunt, many can draw on substantial savings built off past bonuses, on top of collecting unemployment. But for those laid-off Wall Street workers whose golden tickets have vanished, the disillusionment is real.

Sam Meek, 27, who was laid off in September when his Connecticut hedge fund decided to downsize, used to spend US$500 on charity dinners and lavish golf outings. Now, it's home- cooked meals and beer on the sofa. Recently, Mr Meek and his roommate, another unemployed banker who spoke on the condition of anonymity because he did not want to jeopardise his job search, sat together in the kitchen filing for unemployment and drinking a bottle of champagne.

'I'm scraping by right now,' he said. -- NYT

A CLEANER who had sex with a property agent gave him an ultimatum: pay $1,500 or she would tell the police he had molested her.

But the agent, Mr Seow Wai Hoe, went to the police and yesterday, a district court sentenced the cleaner, Kathijah Bibi Abdullah, 27, to three months in jail.

She pleaded guilty to committing criminal intimidation by threatening to injure the reputation of Mr Seow, by lodging a police report accusing him of molestation.

The court heard that he had called a chat line at 6pm on June 26 and got to know Kathijah.

They exchanged telephone numbers and planned to meet later that evening.

At about 8.30pm, he picked her up along Bugis Street in his car.

Mr Seow, 41, then drove to Kent Ridge Park, where they chatted and had sex.

He then took her to Plaza Singapura. She worked as a cleaner and was to help a colleague with some cleaning jobs, she told him.

During the journey, she also asked him for a loan of $50. He handed over $30 and offered to drive her home after she finished helping her friend, which he did at 2am.

In the carpark near her flat in Jalan Bukit Merah, she asked him to wait for her to go upstairs to get the $30 she owed him.

A few minutes later, he received a text message from her, saying that her grandmother had seen her alighting from his car and now wanted her to lodge a police report that he had molested her in the park earlier.

Kathijah wanted $1,500 for not going to the cops.

Mr Seow bargained it down to $1,000 and promised to make the first payment of $600 the following day.

But he had a change of heart and went to the police, and she was arrested.

The slim, tattooed woman, who did not have a lawyer, could have been sentenced to two years in jail or a fine, or to both.

I think what these couples don't realize is that the "real" marriage starts after that big proposal, or the big wedding dinner! That's when you literally live with each other for the rest of your life and have to get used to all the bad habits/practices! Another version of "Keeping Up With The Joneses"!

The Straits Times
Nov 20, 2011
Grand proposals
Higher expectations and peer pressure have led to marriage proposals becoming more flamboyant

By Melissa Kok

On Valentine's Day this year, teacher Daryl Sung, with the help of his friends, executed an elaborate proposal to his girlfriend of five years.

Inspired by their love for movies, the 30-year-old created a music video to be screened at an outdoor drive-in movie night organised by MovieMob and held at the field beside Liang Court shopping mall.

With 900 people gathered to watch the movie as witnesses, he declared his love.

He said in the video: 'I've been waiting five years, 10 months, 13 days and 19 hours, 50 minutes and 20 seconds for this very special moment.' His friends then held up cardboard signs that spelt the words, 'Will U Marry Me?'

His surprised girlfriend Melissa Goh, 28, who was sitting in his car, stammered: 'Can I consider?'

It was not the answer Mr Sung expected but she later rescued an otherwise potentially awkward moment with her reply - 'I've considered for five years, actually' - and sounded the car horn thrice to signal yes.

Mr Sung took about three weeks to plan his proposal, which cost him less than $100 as his friends had helped him make the music video for free.

He had not realised that Miss Goh was not fond of public proposals but said: 'In the end, it was a pleasant one for her... but if she had a choice, she wouldn't want it.'

Over-the-top proposals are not for everyone. Lately, however, more people are pulling out all the stops to coax their partners into saying 'okay' about saying 'I do'.

To show their love and sincerity, many are popping the big question in the most creative and ostentatious ways possible.

Guys have been known to book entire cinema theatres, serenade their girlfriends in restaurants and 'hijack' public events with hundreds of people to propose.

Civil servant Chris Lim, 26, proposed to Linda Lim, 23, in front of thousands of people at The New Paper Big Walk@Resorts World Sentosa recently.

After the 4km walk, Miss Lim was called to a stage by the event's emcees and was surprised by Mr Lim, who proposed on bended knee with a bouquet of 26 roses - the number signifying their first date on Jan 26, 2009.

He admitted that his girlfriend, who works as an administrator, is not the type who likes grand proposals and that he initially had a much simpler plan in mind. But he felt that if he showed his sincerity, it would be okay.

He said: 'I thought that the Big Walk is like our journey together. It's meaningful.

'If it's simple, there is no element of surprise. Proposals should be once in a lifetime, same as a wedding - you should make it more special.'

He said his fiancee was shocked at first because she thought she had won a prize but 'she loved it in the end'.

Some couples and dating experts told LifeStyle the trend is because expectations are higher these days and that there is a sense of competition among people to outdo their peers.

Dating expert Violet Lim, who founded dating agency Lunch Actually, said many women have expectations of grand proposals due to peer pressure and comparison among friends, and also because of a desire to be swept off their feet, like in a fairy tale.

'They see their friends getting such proposals and feel that they will 'lose face' if they do not receive these types of proposals as well,' she said.

'Friends will always ask, 'How did he propose?'. If the answer is, 'Do you want to get a flat together?', the girl is going to have a tough time sharing it with her friends.'

She said such women place emphasis on the proposal because they may not understand or may forget that the wedding is just the beginning of a marriage. 'Many see it as the destination or end goal of a relationship. As a result, a lot of emphasis is also placed on the pre-wedding aspect.'

Indeed, Mr Lim joked that his friends had given him flak on his Facebook page for 'setting the benchmark', adding that one of his friends' girlfriend even told him, 'I believe you can do better'.

He even noted that one of his friends had been rejected after he proposed over a romantic dinner. 'The girl said no because it was not grand enough and did not show how sincere he was,' said Mr Lim.

Recently, Mr Kiran Joshi, 31, chief technology officer at All Deals Asia, a website that offers shopping, entertainment and lifestyle deals in South-east Asia, proposed to his girlfriend of four months via a 'priceless deal' posted on the site.

The two-day advertisement touted undying love, where he would live anywhere with his girlfriend and promised to shower her with 'a lifetime of happiness, laughter and sharing of... moments together'.

The deal, which also offered a 'lifetime warranty', garnered rave 'reviews' from online users who vouched for his good qualities and highly recommended him.

The deal - titled 'Lifetime of happiness from our very own All Deals Asia Chief Technology Officer! Say YES, Jen!' - was 'purchased' more than 1,000 times by the time it expired last Saturday.

Mr Joshi spent about a day thinking of how to pop the question. He got a friend to send Jen - who declined to be identified further for this story - a link to the deal before meeting her at a park where they first kissed, to propose. She said yes.

He said: 'She loved it. She thought it was very thoughtful. We were so happy that the excitement made it hard to sleep.'

He noted that these days, there is a 'big build-up around engagements and weddings' which can create unrealistic desires in some women and put pressure on many men.

'The goal should be for both people to be happy, support each other and share life's experiences together. But too many people want 'perfect' or to impress others, and lose sight of what it's really about.'

Not everyone can stomach an over-the- top public display of affection, preferring an intimate low-key proposal instead.

Miss Lee Hanyi, 29, who works in advertising and has been in a relationship for the past 11/2 years, said: 'I don't think I'd like something flashy because I'd be quite embarrassed. The person shouldn't invite his friends along... because there's only one option when everyone else is watching.

'It should just be between two people.'

melk@sph.com.sg

Hi. Could anybody explain to me what is the difference between Free Cash Flow and Cash at end period on the cash flow statement?

Reading this article, I am again reminded how tough it is to make a profit in the airline industry. I therefore conclude that one generally should avoid airline companies when it comes to investing (yes, including SIA and Tiger Airways).

The Straits Times
Nov 17, 2011
India's airlines bleeding despite soaring demand
The carriers are hit by cut-throat competition and high fuel costs

By Ravi Velloor

EVER since the industry was opened to private players, India's airlines have been an exuberant advertisement for the nation's increasingly open policies, with their spotlessly maintained fleet and well-turned-out, efficient crew.

Falling ticket prices spurred a boom in air travel that left passengers thrilled and aircraft manufacturers salivating over the market. Kingfisher Airlines chairman Vijay Mallya, in particular, with his fleet of red aircraft manned by a red-uniformed crew, has often been compared with British entrepreneur Richard Branson and is known as the 'king of good times'.

But the industry has not managed to turn booming demand into profits.

Jet Airways, the No. 1 carrier, posted a US$142 million (S$183 million) loss in the quarter ended September, swinging from a profit in the same period last year. Discount carrier SpiceJet has also slipped into the red. At state-owned Air India, the bleeding is so severe that staff salaries are frequently delayed and the government is considering a US$5 billion bailout.

This week, the spotlight has been on Kingfisher, which lost nearly US$1 billion in the past three years and owes US$1.2 billion to creditors. As the Bangalore-based airline cancels a third of its flights, struggles to pay its fuel bills, delays buying the Airbus A-380 superjumbo and crams its aircraft with more seats to improve yield, some are asking if the king of good times built castles in the air. Mr Mallya was forced to defend his company's health this week.

'The industry is in deep trouble,' said the liquor baron, who named his airline after India's best-selling beer. 'We aren't worse off. In fact, we are better off. In five of the last six quarters, Kingfisher has outperformed the industry.'

Analysts said he is largely right and airlines are caught in a perfect storm.

Interest rate increases have pushed up borrowing and repayment costs for airlines. The cost of jet fuel, which accounts for more than 50 per cent of the operating expenditure of the average Indian airline, has soared in recent months as oil prices rose and the rupee depreciated, making imports costlier. State sales taxes of about 60 per cent add to the fuel costs. To cap it all, airport fees are high.

Mr Mallya said that when Kingfisher negotiated a debt recast plan last year, the assumed interest rate was 11 per cent. Today, it is 14 per cent.

Meanwhile, he and others said cut-throat competition has prevented airlines from raising ticket prices.

'Fare increases can only work if the industry agrees to do it together,' said a top executive with a full-service carrier. 'Every time we raise rates, we wait to see if the others follow. When they don't, we quietly allow rates to slip back. Each flight we operate, we are bleeding ourselves a little bit more.'

Aviation analysts said the situation will lead to a shake-up in the industry, with mergers or the entry of new strategic investors being likely.

'A large part of the problem arises from structural issues such as fuel costs,' said Mr Kapil Kaul, regional head of the Centre for Asia Pacific Aviation, a consultancy. 'But the airlines themselves are to blame for expanding too aggressively without properly understanding the underlying risks. That said, I do not foresee any airline closures, although a new set of financial investors are a certainty.'

The pity, analysts like Mr Kaul said, is that the airlines are bleeding at a time when demand is soaring. The number of domestic passengers rose 19 per cent in the year through August to 40 million, government figures showed.

Earlier this year, budget carrier IndiGo surprised the world by placing a US$16 billion order with Airbus.

Mr Mallya himself ordered five A-380s, orders he said he will delay accepting. He started Kingfisher in 2005. Three years later, he bought Air Deccan, India's first no-frills airline, joking at the time that he had 'chosen to be an employee of Captain G.R. Gopinath', the founder of the airline.

Now the joke's on Mr Mallya. Capt Gopinath, it seems, departed on time.

velloor@sph.com.sg

I don't get it - the Govt wants to cut vehicle population and encourage public transport usage, yet it plans to build this massive North-South Expressway by 2020?

The Straits Times
Nov 16, 2011
More than 500 homes to make way for highway
North-South Expressway to cut travel time by 30%

By Christopher Tan

A 5.6KM-LONG three-lane dual carriageway running beneath some of the busiest parts of the city will form the southern stretch of the North-South Expressway.

The Land Transport Authority (LTA) announced yesterday that the fully underground stretch will go through areas such as Novena, Kampong Java, Rochor and Ophir Road before joining the East Coast Parkway near Suntec City.

It will be completed some time in 2020 and will cut peak-hour travelling time by up to 30 per cent.

Like the northern segment announced in January, there will be land acquisitions, the LTA said at a briefing held jointly with the Singapore Land Authority and Housing Board.

All in, 24,700 sq m of private land will be acquired along the 5.6km stretch, on top of 55,800 sq m acquired for the 16km northern stretch.

They comprise two full lots - Rochor Centre and a clan building - and 21 partial lots.

The acquisition of Rochor Centre in Rochor Road is the biggest of its kind here to date, and involves 567 Housing Board flats in four blocks, 187 shops and eating houses and three communal facilities.

Over at Kampong Java, the 40-year-old Nanyang Pho Leng Building will also be acquired. It houses a clan association for descendants of immigrants from Pho Leng county in China's Guangdong Province.

The 21 private properties that will have bits of their land acquired include SLF Building, St Joseph's Institution International and the Singapore Polo Club.

Two properties on state land will also be affected - the Lee Ah Mooi Old Age Home in Thomson, which dates back to the 1960s, and the Victoria Street Wholesale Centre, a favourite haunt for people wanting to stock up on festive goodies.

Major construction will start from 2015

Tenants will have to move out when their leases expire by 2013.

Properties on 16 other pieces of state land will also be affected in some way, including five rented landed properties in Halifax Road and two blocks of walk-up apartments in Toa Payoh Rise. These buildings are currently state properties let out for residential use and the lease will be allowed to run out.

Transport researcher Lee Der Horng of the National University of Singapore said highway construction abroad which cut through communities can cause 'a lot of hassle' for governments. This is especially so in bigger countries, where there are often alternative routes.

'In Singapore, our situation is different,' he said. 'Land is limited. So planners face a dilemma here.'

Rochor Centre residents will be paid prevailing market rates for their flats. They will also have the option to move to new HDB flats to be built in Kallang, next to the river and near the Kallang MRT station.

These displaced owners get to buy the new flats - which will be up in mid-2016 - at subsidised prices frozen at today's rates, said the HDB. On top of that, they get a 20 per cent discount.

Displaced Rochor Centre shop tenants will also be compensated, as long as they are Singaporeans who secured the premises before March 4, 1999, or took over from another tenant before June 1, 1999.

If they are small and medium-sized enterprises continuing their businesses in a new location, they will get an extra $30,000 in relocation help. They will also get a 10 per cent discount on HDB rental shops.

Advance work for the expressway, which includes detailed engineering studies, will start from 2013. Major construction of the entire 21.5km stretch - which runs almost parallel to the Central Expressway - will start in phases from 2015.

It will serve the northern towns, which have far outgrown the capacity of the 20-year-old Central Expressway.

The new expressway, the 11th in Singapore, will have 16 entry ramps and 17 exit ramps, plus a number of slip roads. It is estimated to cost $7 billion to $8 billion, although LTA chief executive Chew Hock Yong said the eventual cost might be higher.

Unlike the Kallang-Paya Lebar Expressway which opened in two phases, Mr Chew said the new expressway will open in one go. Opening in stages, he said, could have adverse impact on traffic flow along the corridor.

The LTA said that when the highway is in operation, it will shave up to 30 per cent off peak-hour travelling time.

For instance, a 30- to 35-minute journey between Yishun and the city will be completed in 20 to 30 minutes. A similar trip to and from Bishan will take 10 to 15 minutes, down from 15 to 20 minutes today.

Dr Lee of the NUS commented, however, that there seem to be a lot of entrances and exits, which can prove to be 'challenging' to motorists.

He said too many entrances and exits could disrupt traffic flow. He added a better way would be to have fewer access and exit points, which means drivers have to travel a slightly longer way to and from the expressway, but will experience a far smoother drive once they are on it.

Mr Chew assured motorists that the highway will be designed in a way that ensures smooth flow.

christan@sph.com.sg

Business Times - 09 Nov 2011

Hard lessons from MF Global

US financial institutions are not impervious to euro shocks

WHO are you going to believe - me or your own lying eyes? That old line from the Marx Brothers came to mind last week as brokerage firm MF Global was felled by over-the-top leverage and bad derivative bets on debt-weakened European countries. Suddenly, all of those claims that American financial institutions have little to no exposure to Europe rang hollow.

You can understand why Wall Street wants to play down the threats from Europe. Its profits depend on the market's confidence in the products it sells - and on the belief that the firms that sell those products will be around tomorrow.

But MF Global provides two lessons. The first is that US financial institutions are not impervious to euro shocks. The second is that when those problems reach America's shores, they usually ride in on a wave of derivatives. 'The problems that we've had since the inception of the credit derivatives market have never been solved in any meaningful way,' said Janet Tavakoli, president of Tavakoli Structured Finance and an authority on these instruments. 'How many times do we want to live through this?'

MF Global's debacle was a result of complex swaps deals that it had struck with trading partners. While those partners owned the underlying assets - in this case, government debt - MF Global held the risk relating to both market price and default.

These arrangements at MF Global underscore two big problems in the credit derivatives market: risks that can be hidden from view, and risks that are not backed by adequate postings of collateral. These are the same market flaws that helped hide the problems at American International Group (AIG) - problems that arose from insurance that AIG had foolishly written on crummy mortgage securities.

The International Swaps & Derivatives Association (ISDA), an industry lobbying group, contends that the market in credit default swaps is far more transparent than it was in 2008. For example, the Depository Trust and Clearing Corp compiles figures on the number and dollar amount of swaps outstanding on its trade information warehouse.

The numbers are pretty mind-boggling. As at Oct 28, for example, the warehouse reported US$24 billion in net credit default swaps outstanding on debt issued by France, up from US$14.4 billion one year ago. Some US$17 billion in net credit default swaps were outstanding on Spain, up from US$15.5 billion in 2010. Net swaps on Italy were US$21.2 billion at last count, down from US$28.5 billion last year.

The amount of net credit default swap exposure on the imperilled nation of Greece was much smaller: US$3.7 billion late last month. It was US$7 billion a year earlier. Officials at the ISDA say that these bets are manageable because they are probably backed by substantial collateral. Moreover, because of the 'voluntary' nature of the Greek restructuring deal, which would require private holders of the nation's debt to write off half its value, the association predicts that the arrangement should not qualify as a default.

Therefore, the insurance that has been written on all this Greek debt will not cover investor losses generated by the 50 per cent writedown - a disturbing consequence to those who thought that they were buying insurance against that very risk. Given this turn of events, it is hard to imagine why anyone would continue to buy credit default swaps.

In any case, the figures compiled by the Depository Trust and Clearing Corp (DTC) do not show the entire amount of credit insurance that has been written on Greece and other nations. DTC says that it believes that its figures capture 98 per cent of the market, but credit default swaps are often struck privately; not all of them are reported to regulators.

Credit-linked notes

Consider an investment vehicle known as a credit-linked note. In these deals, investors buy a note issued by a special-purpose vehicle that contains a credit default swap referencing a debt issuer, like a government. That swap provides credit insurance to the party buying the protection, meaning that the holder of the note is responsible for losses in a 'credit event', like a default.

Credit-linked notes are very popular, and have been issued extensively by European banks. Many are governed by ISDA contracts, which define the terms of a credit event and require a ruling by the association on whether such an event has occurred.

But some deals have different definitions or contractual language overriding the ISDA agreement. 'The people writing these contracts may say, 'I would like to be paid if there is a voluntary restructuring of debt, or if Greece goes back to the drachma, or if Greece goes to war with Cyprus',' Ms Tavakoli said. 'I can declare a credit event where I am entitled to get paid if any of those events happen.'

Cash calls can also be generated by declines in the market price of the notes or increases in the cost of insuring the underlying sovereign debt issue, according to credit- linked note prospectuses.

The other party has to agree to these terms up front. But given the nature of these bespoke deals, we do not know the full extent of the insurance that investors have written on troubled nations or the circumstances under which the insurance must be paid. Neither do we know who may be facing severe collateral calls or demands for termination payments on the contracts.

When those collateral calls start coming, market values assigned to the securities that have been provided as backup can decline significantly. And when a company's credit rating is downgraded, as MF Global's was in late October, cash demands from skittish trading partners become even greater\. \-- NYT


MF Global's debacle was a result of complex swaps deals that it struck with trading partners ... The arrangements at MF Global underscore two big problems in the credit derivatives market: risks that can be hidden, and risks that are not backed by adequate postings of collateral.

The Straits Times
Nov 6, 2011
A painful lesson on vagaries of the bourse
Know the risks - or playing CFDs with a small outlay may land you with big losses

By Aaron Low

When I first learnt about Contracts for Difference (CFDs) last year, it seemed to me then that it was exactly the kind of investment tool I needed.

First, I did not need to stump up a huge amount to buy the expensive stocks I wanted, such as banking stocks and big blue chip firms.

Second, I liked the idea that I could go 'short' on stocks, which is to sell them, something that I could not really do on the open market easily.

Costs were also relatively low, so I could make frequent trades without running up huge transaction costs.

Lurking in practically all the information I read on CFDs was the quiet warning that CFDs were a risky business, largely because leverage cuts both ways, in that you can profit handsomely with only a small outlay but can end up losing big too.

Then, there was the issue of counterparty risk, which means that if my chosen CFD provider did not have the financial strength and goes bust, my investments in CFDs would essentially be worthless.

As such, I put in a small amount initially, to the tune of about $1,000.

I started off badly at first, losing about $150 in the first week of trading.

I realised I was reacting too quickly to small market movements, closing and opening new positions almost on a daily basis.

This meant that I was making multiple transactions, incurring transaction costs that ate into my capital.

I went back to do more research and look for strategies on the best way to use CFDs.

Armed with more knowledge, I went back into the market again, making bigger but more targeted buys.

Slowly but surely, I started to recoup my losses, riding on strong speculation into silver, and turned in a profit. At one point, my initial capital had tripled.

It was an amazing feeling. I was actually making real money trading, like the traders on Wall Street.

But it all came crashing down one fine day in August.

I took a gamble on commodity player Noble, buying a CFD comprising several thousand Noble shares valued at about $1.58 on Aug 8.

Markets at that time were getting jittery over the health of European banks due to the region's sovereign debt crisis.

I had believed, rather naively, that European policymakers would not let their banks implode, and would not repeat the mistakes of the 2008 financial crisis.

And if markets could see that Europe was getting its act together, Noble's price, which had seemed oversold at that point, would surely rise again, I reasoned.

But when the markets opened on Aug 10, Noble and the rest of the markets crashed.

Noble fell 11 cents that day, from $1.58 to $1.47, or about 6.9 per cent of its share price.

Eleven cents seem a pittance but due to the thousands of lots I bought, along with the leverage I had used, I was immediately hit with a huge loss that day.

All the profits I had made over the previous five months, plus some of my original capital, were wiped out in one day, over a period of several hours.

I could have held onto the position as I still had funds left to absorb further losses without risking a margin call - this is when my broker would tell me to top up my funds or risk having my position automatically closed due to a lack of funds.

But with a trembling hand, I decided to close all my positions that day, preferring to keep what was left of my capital and learning a valuable lesson about risk and the vagaries of the stock market.

Noble's share price continued to plunge hitting a low of $1.21 on Oct 3.

If I had tried to wait it out, I would have been deeper in the red. It was only in recent weeks that the firm's share price recovered. Noble was trading at about $1.56 on Friday.

It was not a lot of money I had lost, fortunately. But it was a shock to see how fast the markets could move, taking out unprepared investors such as myself.

Having an extra tool such as CFDs in an investor's toolbox, even if risky, is not a bad thing. But what is important is how one uses it; whether one understands the risks involved, not unlike like how we would treat fire.

I still use CFDs, although a lot more sparingly. I use them now to hedge against stocks I actually own.

This means that if I had bought 2,000 shares of a company, depending on where I think the market is going, I may use CFDs to short the stock to protect myself from falling prices.

So for me, the main lesson I had learnt from the use of CFDs is this: Know thy risk.

aaronl@sph.com.sg

The Straits Times
Nov 6, 2011
Investors at unis steer clear of CFDs
Safer traditional equity investments still preferred, say clubs

By Magdalen Ng , Stacey Chia

With MF Global in trouble, those who have accounts with the brokerage firm are feeling the heat. Among them are young adults and students, who may not have a steady stream of income.

The reason they choose to dabble with a financial instrument as complex as Contracts for Difference (CFDs): such a product does not require as much initial outlay as a regular equity investment; one can pay as little as 10 per cent of the investment's value.

Mr Ben Fok, Grandtag Financial Consultancy's chief executive, said: 'CFDs will definitely be attractive to young people because they feel like they will be able to make money without paying as much.

'But it is a lot riskier than buying shares, and you may lose your capital, and more. I would only recommend it for more sophisticated investors.'

A check with the investment clubs of the three local universities showed interest in investing is on the rise, but many still prefer the safer traditional equity investments.

Ms Lin Xun, a 22-year-old finance major at the National University of Singapore (NUS) Business School, was introduced to investing by her parents, and started trading a year ago. 'My parents asked me what I wanted for my 21st birthday and I said I wanted to have some Singapore blue-chip stocks,' she said.

'My investment strategy is a simple buy-and-hold strategy, which I believe is the most appropriate for me at this time.'

Her stock portfolio consists of mainly dividend plays; she steers clear of CFDs and the 'more exotic' financial instruments. 'Having to juggle school and extra-curricular commitments, it is not feasible to constantly monitor the markets.'

Ms Lin, the president of the NUS Students' Investment Society, said the club has seen more interest as students realise the importance of starting to invest early.

Similarly, at the Nanyang Technological University (NTU) and the Singapore Management University (SMU), such investment and finance clubs have proliferated, and memberships have spiked.

Mr Scott Tan, president of the NTU Investment Interactive Club, has seen the number of members increase 30 per cent over the last year, to more than 3,000 now.

'The younger generation is definitely getting more tech-savvy and information is so easily available on the Internet. There are also many stories about how young people like us have earned enough money to buy properties, so people will want to know more,' said the second-year business student.

Mr Tan, 23, started investing even before he could open a trading account, at the age of 14. He would tell his father what shares he wanted to buy, and funded his small investments of 'a few hundred dollars' through his savings.

'My dad does some investments, so I guess it rubbed off on me. I was brought up to learn the value of money. At first, it was the savings, and then I wanted to use my money to earn more money,' he said.

He keeps two separate portfolios, one for blue-chip stocks and one for penny stocks. Together, they are worth between five and six figures.

Banks and investment houses have also put in place programmes to educate these older teenagers and young adults on the importance of financial literacy, such as the Phillip Securities Young Investors Group (YIG) and OCBC Securities' Young Investors Pack (YIP).

When the YIG was first launched in September 2009, there were only fewer than 50 in the programme, but now more than 1,000 have signed up, according to Ms Kwang Sook Fong, POEMS marketing manager at Phillip Securities. The programme organises educational talks and seminars.

There are also checks in place for these young investors to prevent them from going over the deep end.

OCBC's YIP has organised stock-trading competition together with the investment clubs of the three universities since 2006, attracting more than 2,000 participants each time. YIP members are also given a book where they can learn more about investment strategies.

SMU's associate professor of finance (education) Joseph Lim believes that it is a good thing for students to invest, because it gives them exposure to what the real world is like, especially for those who learn about finance theoretically. However, his advice is that students only invest with money that is 'disposable', like from their red packet money, and not with savings set aside for education.

He also warns students against the high-leverage products, such as CFDs, because money can be lost very quickly unless there is a deep understanding of the market, and investors have the time to monitor it consistently.

'For students, education should come first. They have to understand where their priorities lie, and there will be plenty of opportunities to learn about investing.

'Students have to know themselves. If they don't have self control, then it is best to stay away.'

songyuan@sph.com.sg

staceyc@sph.com.sg

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The Straits Times
Nov 6, 2011
Newbie unfazed by trading losses

Despite all her buys being in the red after less than a year of investing in shares, law undergraduate Lim Yan Wen is not deterred.

Since the 21-year-old opened her trading account, her portfolio has been hit by the volatility plaguing the stock markets since August.

'I did try to exit the market before the stocks were in the red, but there are some that I couldn't liquidate, so I'm just holding on and looking at buying stocks that are undervalued,' she said.

'It is actually quite a good time to enter the market if you are prepared to wait it out. I am younger, so I can take risks better.'

The third-year student at the Singapore Management University is also not too worried about the uncertainty.

'I don't get sleepless nights over the fluctuations. I can always earn it back,' she said.

Ms Lim bought her first unit trust and endowment plan at the age of 18. Her interest was piqued by watching her father invest.

Together with her equities, her portfolio, funded by her savings, is now worth about $30,000. She has lost about $2,000 on paper.

She does not have much time to watch the market during school term, so to keep up, she mainly reads Bloomberg news. This changes during term breaks though.

The budding investor also regularly attends seminars conducted by the Singapore Exchange or private investment firms, and subscribes to financial magazines.

Her parents have been supportive of her forays into investing.

'When I tell them I want to buy a stock, they won't disagree even though they have their own reservations. They want me to learn how to be financially responsible,' she said.

Her father works in the shipping industry, and her mother is an administrative assistant. She has two younger siblings, aged 19 and 16.

As to what she will do with the money when her investments start reaping benefits, Ms Lim said: 'Beating inflation is one of the matters of concern. But right now, I don't have material needs, so I'm not too sure what to do with it.

'Probably just use it to grow even more money.'

Magdalen Ng

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The Straits Times
Nov 6, 2011
Young investor defied his parents

When third-year economics student Barry Toa, 23, started investing in the financial market about four years ago, his parents did not approve.

But that did not stop the Singapore Management University student and his brother, who is six years older, from pooling together $10,000 to buy shares during the 2008 financial crisis.

'Financial news was flooding the papers every day, and we thought that we could get some cheap bargains out of it,' he said.

His first investment, in Citibank shares, did not get off to a good start. He lost $4,000.

'My parents were unhappy because people who lose money are always in the news, but they don't hear of the instances when I make money,' said Mr Toa.

His father is a retiree and his mother, a preschool teacher.

His current portfolio is less than $20,000, and contains three stocks, with an average growth rate of 12.5 per cent year-on-year, he said.

When he started, he invested based on what was in the news, analysts' reports and market sentiments. He also read many investment books.

'Now I rely mostly on my own judgment about the possible growth within a company, and my view of its business model,' he said.

When news about MF Global running into financial problems broke, he thought it would be worthwhile to put a small investment of $500 in it.

He said that he thought a large part of the business would be acquired, given that its then chief executive Jon Corzine had wide contacts in the financial industry.

However, he changed his mind in the end.

'I'm glad that I did not invest in it. I may not have lost a lot, but it's still money,' he said.

He said that he does not make as much losses today as he did when he started out.

'There are a lot of risks when it comes to investing. You can't invest without doing your homework,' he said.

Stacey Chia

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The Straits Times
Nov 6, 2011
Managing parents' portfolio paid off

What started out as an interest may help 25-year-old Wong Jian-Hui with his job applications in the future.

He began reading and researching on the stock market when he was just 18, and started helping his father, a retired engineer, manage his portfolio.

When he turned 21, his parents - his mother is a housewife - hived off part of their investment dollars for him to start a trading account. It was a six-figure sum.

After two to three years, he returned the base sum to them and traded with the profits generated.

His own portfolio is now worth a six-figure sum, and they are mainly in Singapore equities such as blue chips CapitaLand, Sembcorp Marine and Wilmar.

The final-year business student at the Singapore Management University (SMU) said that, year on year, his return on investment is about 20 per cent on average.

He continues to manage his parents' portfolio.

'So many people have good grades, so I'm hoping that my experience in managing my own portfolio will give me an edge,' he said.

As the former president of the SMU E.y.E Investment Club, he also had the opportunity to network with bankers and visit the offices of many investment houses.

The recent market volatility has not bothered him too much, as he even managed to make money in the global financial crisis in 2009.

'Initially, I lost quite a large chunk of my portfolio. Eventually I had to rethink my strategies and even managed to recoup my losses and I made a slight profit,' he said.

He started trading in contracts for difference (CFDs) because they allow investors to take a short position in anticipation of a price decrease.

'This is especially useful when markets are very bearish,' he said.

'But I don't use CFDs to long stocks because there are financing charges involved and I very much only invest with what I can afford to lose.'

Magdalen Ng