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Thursday, 14 June 2012

Compartmentalise or Ring-fencing


If you have watched war movies involving submarines or battleships, you may have noticed the heart wrenching scenes where sailors may “close the hatch” on their fellow shipmates to prevent the whole vessel from sinking…




Naval ships and submarines are designed with multiple compartments throughout the whole vessel. This is so that if the vessel sprung a minor water leak, you can localise the flooding to that particular section or compartment.

In my speculation journey, I use the same technique.

I create separate accounts for each investing/trading activity.

For example: I separate my Margin, CFD, and Futures into three separate accounts.

This way, if I bust one account, I can “close the hatch” like chopping off the gangrene toes to save myself.  


Nowadays, you may hear another similar word called ring-fencing when it comes to Europe’s contagion fears if and when Greece leaves the Eurozone.

If you were around in 1997, you too would have experienced what contagion means. Strange hor? A single event in Thailand can trigger a domino effect that affects the whole of Asia.

Now why wasn’t Europe and US affected during the Asian Financial Crisis?

If you have the answer, you would probably know whether you should (or don’t bother since you believe in Asia decoupling) compartmentalise or ring-fence your portfolio for what may happen in Greece this coming Sunday.

We are living in interesting times!

Who knew 11 million Greeks going to the polls this Sunday – whether they vote with their hearts or minds – will have such an impact on financial markets next Monday.
I wish my Greek ex-colleagues and families well.


I hope Singapore will not meet a similar fate again. Being kicked out of the Malaysian Federation once is enough!  

That’s what happens if we have no growth and flagrantly spent all our reserves. I hope I will not be around when that day befalls Singapore. 

We would probably have a referendum whether to crawl back to the Federation (to be bailed-out) and accept whatever terms they may demand of us.


21 comments:

  1. Why would M'sia be even thinking of getting us back if the scenario you painted does Sg one day? Our relationship with M'sia is fundamentall different from West Germany/ East Germany or North Korea/ South Korea. There isn't really that strong an attachment to begin with.

    ReplyDelete
    Replies
    1. Anon 11:20,

      Have you tried seeing things from their perspective?

      Having said that, I must also include Indonesia too least people forget about Confrontation.

      Just like we see some Singaporeans taking glee from the "fall" of high paying elitist Singaporeans, guess what happens if Singapore stumbles?

      Once mighty Nokia and RIM. No vultures circling now to see if they can buy up their patent assets on the cheap?

      If we out of job more than 1 to 2 years. See how we get treated in family and friends gathering?

      Delete
    2. Such is life. Reality is cruel. No mercy...

      If Singapore were to go down the longkang, anything we own that is in the country, including S$ kept in Kong Guan biscuit tins at home would plummet in value.

      Now, a 5 room HDB flat is worth more than 5 landed terrace houses in Johor Bahru. Quick, sell the flat and buy a house in JB and keep the rest as Ringgit! Safe! ;p

      Seriously though, we should all own some physical gold. Financially, that is the way to protect ourselves from the shortcomings of fiat currencies.

      Delete
    3. AK,

      LOL! But jokes aside, I am more looking into Penang (love the atmosphere there) and Bangkok (I'm still a guy afterall) for my 2nd "summer home".

      Not as an investment to rent for yield; but more for leisure lifestyle. Imagine a few months in Singapore, a few months overseas. Fun?

      You more atas than me. I own silver ;)

      Delete
    4. Simi atas? Aiyoh, bo lah. I have silver too but paper silver. That is more an investment for gains in fiat currency terms. Physical precious metals are real money. Your silver is physical hor?

      I was looking at some condos in Phuket just last month actually. Haha.. I like Phuket more than Bangkok. Air is better. Yes, really, it is for the air. ;)

      Penang? Hmmm... I thought about it but we only qualify to buy homes of RM2m in value or higher now. That is a bit rich for me.

      Delete
    5. AK,

      Paper silver in UOB silver account. But may buy some physical gold coins after Oct 2012 ;)

      7% wor!

      LOL! OK, I believe you - its for the air in Phuket.

      Delete
    6. Sama sama.. UOB Silver Savings Account. Haha.. ;)

      Well, I bought most of my physical gold when it was much lower and I complained about having to pay 7% GST but the value of those gold coins have almost doubled by now in S$ terms. So, not complaining anymore. ;p

      Delete
    7. Good for you AK!

      You're right. Don't sweat the small stuffs when we are going for multi-baggers ;)

      Lucky I converted some of my euro savings into silver.

      Sure beat the below 1% interest rates at our savings banks!

      Delete
  2. sure? it is only one account and that is margin accounts with different names.

    make no different.

    ReplyDelete
    Replies
    1. only different is they trade different products. risk stay the same.

      Delete
    2. Coconut,

      I need to manually transfer money to each account. This is my 2nd line of defence.

      If I stupid enough not to cut-loss as my first line of defence, then having my broker close my positions will be the action to save me from myself.

      Once upon a time, my broker lump everything into one master account - it's so confusing for me to evaluate my exposure...

      Now it's better. Margin account I normally use 2x leverage; CFD 3x leverage; and futures 6x leverage.

      Each vehicle is in their own compartments although with same broker.

      And my other asset class like currencies (cash) and silver are ring-fenced at other institution accounts - got learn from MF Global mah!

      Delete
    3. you need others to control you (your risk)? thats bad. use internet/phone banking, money transfer is important, especially when we don't keep all our funds in the accounts.

      i'll be frank, don't assume your broker will cut your losses automatically, they will come after you for any short fall.

      do your own journel entry for trades management and stop relying on the platform for you trades, reconcile them every now and than. it will help you on trading system (strategy) development in the long run.

      lastly, cut your losses yourself, don't let anyone, including the market, cut it for you.

      Delete
    4. come on, don't let MF Global incident frigthen you off. i had hundreds of thousands inside before it collapes and i'll do it again!

      it is you that you have to worry about, not your brokers.

      Delete
    5. Coconut,

      I agree. That's why I only have one broker. But to put even my cash in my broker's money market funds would be pushing it a little too much. LOL!

      I am a cheerleader of taking ownership and personal responsibility ;)

      Like I've said, it's a 2nd line of defence just in case where I "lost my head" and argue with the market instead of doing stop-losses.

      My margin account (is like Germany) can bail-out my CFD and futures account many times over.

      I would not do what EU has done. Each account must survive on its own. No bail-outs. No moral hazard.

      I believe in free market capitalism. All these manipulations and government bail-outs are merely politicians rescuing their own benefactors.

      Campaign contributions are not "free".

      Delete
    6. haha, why not melt your silver and use them as jewellary. as for your cash, er, headach haha. but keep them in singapore currency.

      oh i forgot, they are in euro right?

      Delete
    7. the politicians have no choice, they look at the whole, the mass, the systems, not their own benefactors.

      that being said, if you as a trader goes along with it, then you belongs to the mass. a trader looks for frault, in any direction, with anybody (just like i did to you haha

      Delete
    8. haha my apology, when talking trading, i just can't get enough, the market is so still today, totally totally still! its bad for business.

      Delete
    9. No worries.

      I understand ;)

      Low volume days are boring... I think SGX must be worried. That's why they now encouraging our local brokers to train more retail participants to become a full-time traders. I attend one talk recently.

      Nah. I rather be my own opportunistic and sporadic speculator for now. Can't look at screens whole day.

      My only euros are stuck in my IKEA pension :(

      Can only withdraw them at 55. Kiss them bye bye now if I convert to SGD... But not so bad. I got hedge with my silver.

      At least I have euros to spend in Europe when I take a whirlwind tour of Europe at 55! That's if euro is still around in 10 years? Whatever will be will be...

      Again I so happy and contented to be in Singapore. One day SGD and USD will reach parity.

      Then I can have one more option to Penang and Bangkok ;)

      Delete
    10. what happen if euro break up by the time you are 55?

      "sorry sir, that piece of paper you're holding no longer exit. where the hell did you get so much of them?"

      haha.

      Delete
    11. "but hold on! we have a football match tonight. can use them for celebration in the stadium."

      Delete
    12. Coconut,

      Ha ha! Hope in 10 years' time, Germany and a few northern European countries will still be using the euro...

      Or the euro can be used in parallel with the local European currencies like how the USD is used in Latin America in conjuction with their local currencies.

      Or like in Myanmar and Vietnam also :)

      Delete

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