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Friday, 14 November 2014

Finance Trained Equals Financially Literate?


Let's have a fun exercise!

Especially if you have studied Finance at tertiary level - Poly or University; or working in Finance in the corporate world.

If you are not Financially trained, you may want to play this exercise with your Financially trained friends, colleagues, or neighbours.

Warning:  Must choose your playmate carefully OK? Wait they punch you I not responsible hor!


Exercise 1
 
In you day job, you make analysis like whether it's better to buy or lease an equipment.

When you bought your car, did you do the same analysis?

You know, whether it's better to rent/lease your car over buying?


Exercise 2

As a newly minted accountant, you scored brownie points by proposing to your Board of Directors and CEO that it's good, better, best to sell the building your company owns to a REIT, and lease it back for 20 years. This way, you can monetise the capital gains in this asset sale (pump up the EPS - shareholders happy; CEO happy) and re-deploy the cash into projects with higher Internal Rate of Return.

(Your CFO is sweating bullets soon you may usurp his job!)

Now back home, your dad asks you whether it makes sense to sell the remainder of his HDB lease to HDB so he can monetise the asset value to pay for his retirement, what would you the accountant do?






Proof of the pudding is in the eating

The answers are not important. Everyone is entitled to their opinions.

Notice I italic the words do? 

I didn't use the word say.

What I am after is whether these financially trained individuals practice what they have been trained or taught?

Did they do an analysis first (like in their day job), or did they straight away acted/say out their bias?


Q1. Why do you think we act one way in corporate life and do the complete opposite in our private lives?


Q2. If the same people who have spent 3-4 years getting their Finance diplomas or degrees behave like that, do you still think Financial Literacy can be taught?

(Please don't be so serious; its just a rhetorical question. And it's Friday!)





25 comments:

  1. Financially trained retail investors will have an edge in the stock market over newbies who knows little on finance or market actions.

    "The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder


    Where does money from stock market come from?

    Most of these money in the stock market come from contributions from somebody's hard earned income from their day jobs.

    No?


    ReplyDelete
    Replies
    1. CW,

      I am not so sure...

      Those that come to the markets as a white sheet of paper have less preconceptions and assumptions to unlearn.

      I wonder if anyone has done a study - do business trained investors outperform non-business schooled investors?

      The only concession I will acknowledge is that those good in math have an edge when it comes to spotting arbitrage opportunities in trading.

      For investing? Neh. All we need is primary school math.

      Delete
    2. Alamak! The key word is Newbie who is untrained in Finance or Stock Market!

      Me is not a Finance student in school but study the stock market, companies, borrow books from NBL, everyday Google, and visit blogs like yours and then graduate with Master in Stock Market.

      Retail investors need formal or informal training in finance or stock market.

      No formal or informal training can make huge money in the stock market is Gu Shen. We must pai pai.


      Delete
    3. CW,

      Never heard of beginner's luck?

      Making money in our first trade is how most of us got lulled into the folly of thinking trading/investing is easy!

      How about newbie investors making money just by entering the market from 2009? Got see those blogs right? Their annual percentage gains of 20-30% beat yours ;)

      And that's why they are close to 100% vested. Cash is a drag on % performance.

      You and I learned about risk/money management the hard way, didn't we?

      And that you can't learn from books or classes.

      We have seen hubris in the mirror before ;)

      Delete
  2. HI SMOL,

    This is my first comment on your blog. Hope you do not mind me speaking my mind here.

    In my opinion, trading the markets for a living cannot be taught. It has to be learnt by doing.

    Knowledge about trading can be learnt from books, paid courses, free articles from the internet, etc, but the ACT of trading itself can only be learnt from one person - your own self.

    ReplyDelete
    Replies
    1. yes i second that, learn to trade is like learning to ride a bicycle, we don't study and get a degree on bicycle subject and yet so many of us are capable of riding it.

      but why so many of us fail as a trader?

      no we didn't fail, we just run out of money.

      Delete
    2. Long-Term Capital didn't fail if they are Longer-Term Capital. Ha Ha!

      Delete
    3. Ha! Ha!
      That's where Time in the market & Market timing must syn.

      Delete
    4. Jac Lau,

      Welcome! And no worries, just speak you mind!

      I am equal opportunity blogger when it comes to feedback.

      If you spend more time here, you'll find I enjoy bantering, poking, and debating until my face turn blue with some of the regular readers. I'm an air-head.

      LOL!


      Ah! We are pretty much on the same page.

      I see you are a trader from your comments at ladykiller's blog. (I shamelessly call myself a trader too. I call myself many names; I have my issues...)

      Traders pretty much think the same way when it comes to learn by doing. Perhaps that why traders come in all shapes and sizes. It's one of the most meritocratic profession out there.

      Low entry barriers (you don't need a Master in Finance), low capital requirements (although under capitalised its one of the most common reason why most traders fail), and no one cares whether we are young or old, man or woman, normal or got some screws missing (like coconut, snigger, snigger).


      This time don't count. Hope next time you'll disagree with my posting and we have a go at crossing swords?

      Cheers!

      Delete
    5. temperament, CW, and coconut,

      That's why there's this trading joke:

      Q: How to have a million dollars by trading?

      A: Start with 10 million dollars.


      Must say this with a straight face. Cannot smile while you say it!

      Delete
    6. SMOL,

      Thanks for welcoming me to post comments on your blog.

      I am a home based (since Nov 14) SGX derivatives trader. Used to trade in a "professional trading arcade". I have tried to make a living off the futures market since 2004. I have an interesting trading track record. I have 59 days where my losses exceeds S$10K per day. Total losses for those 59 losing days - about S$2,570,000.

      Two of those losses happened this year. Took S$70K off my S$100K trading account.

      When I started trading for a living in 2004, after being retrenched, I had about S$250K savings. Almost three years after I started trading, all I had left was S$70K.

      If you enjoy trading war stories, I have some of my own to share. Had to fight one battle yesterday morning, to survive another trading day. I am still trying to figure out why I sold the equivalent of about S$3.7M worth of Japanese blue chip stocks before the stock market opens, on an options SQ (special quotation) day.

      I do not envy those who choose to trade the markets for a living. They are like gladiators playing a game in an amphitheatre. Most will eventually get wounded and leave, some will survive and a few may prosper.

      Jac

      Delete
    7. Jac,

      Traders will empathised what you have gone through.

      10 years...

      Are you trading full time now you have left the arcade?


      Thanks for your sharing.

      I think your story and Fat's are important counter-balance to those who preach anyone and everyone can trade for a living.

      The truth is only 5% can.

      My view is that those interested should just come in and do it for 2 years. That's the only way to see if you belong to the 5% or not.

      Crash got sound.

      Delete
    8. SMOL,

      As trading is all I do now to earn a living, I would say that I am a full time trader. The futures market is open almost round the clock. I don't trade all the time and there are days that I do not trade at all.

      One reason I left the trading arcade which cost S$749 per month for booth rental is because the internet speed there is unacceptably slow. My M1 fibre 1Gbps internet speed which cost S$49 per month is much faster.

      I think FAT is smart to quit trading while he is ahead. Those who switched from full time trading to any other profession, for whatever reason, I respect them for their courage and determination to earn a living doing something else.

      As for me, I will take it a day at a time and enjoy my FREEDOM.

      Delete
    9. To echo what Jac Lau said...

      Interestingly, if I had to redo my career path all over again, I probably might not pick trading. There are easier ways to make money. Trading is a painful and emotional journey. You enjoy the rewards in character development more than that which lies in your bank account.

      Delete
  3. Being Financially trained and Financially educated may probably be the difference between applying it to your everyday life and using it only in your work.

    All Financially Advisors are financially trained and certified, but not all are financially educated. Similarly, for those in the Financial industries like accountants, bankers etc.

    ReplyDelete
    Replies
    1. globalnumerology,

      I think I'll replace Financially educated with Financially literate for better effect.

      Educated and trained are synonyms.

      But literate has a different shade of meaning.

      I've never studied Teochew, but I know how to speak it ever since I have first consciousness. I am literate in Teochew ;)

      Delete
  4. Think those financially trained think too much. End up might miss opportunities or don't dare.

    Those who know less do not have so many considerations. Just do it!

    ReplyDelete
    Replies
    1. pf,

      Most financially trained investors/traders starting out overlook this one simple fact:

      Analyzing past financial statements to predict the future is like driving just by looking at the rear view mirror.

      How many professional sell side analysts were able to anticipate the recent poor quarterly results of OSIM and Supergroup?

      Delete
  5. i think WB says it best. Not too long ago he said it again to a group of people with > 160 IQ. Below was what he said as reported:-

    Warren Buffett says: You got more IQ than needed

    Written by: Ashvini

    Posted on : April 14, 2011


    Recently Warren Buffett commented to a group of youngsters that to become a great investors they need to lower their IQ by at least thirty points.

    The interviewer then informed Mr. Buffett that most of the youngsters that the IQ of the audience was above 160. Warren in his typical style said that it is at least thirty more than required.

    Is genius a waste ? What about the society that worship GMAT , GRE scores? How many of the people who have received very high grades have actually been able to set up businesses of their own? Why college dropouts set up better businesses than those stuyding in excellect colleges.

    To become a product developer you need intelligence and IQ and sometimes exceptional abilities.

    But to become an entrepreneur you need emotional intelligence( and some IQ as well) . Emotional intelligence is about not getting drowned in deluge of pressure and difficulties. It is about holding when things are not going your way.

    So a high IQ person will be good at research department while a high EQ person would be good at managing situations. The best part is that EQ can be learned with practice and patience .

    NB:-
    Can EQ be learned with practice and patience?
    Then like what Chinese says, "Adding wings to the tiger" lol.
    Of course you know who are the tigers

    ReplyDelete
    Replies
    1. temperament,

      When people asked what I trade?

      If I am in a philosophical mood, I'll answer:

      I trade sentiments ;)

      Delete
  6. Hi SMOL,

    Corporate life not our money mah, so talk a lot and talk easy. Once our own money, we heart pain, and do complete opposite.

    Haiz.....isn't this quite typical Singaporean!

    Rolf

    ReplyDelete
    Replies
    1. Rolf,

      In corporate life, we back up our decisions with lots of research and analysis - just in case "challenged" by others.

      In our private life, we rely on heuristics. When cornered, we hide behind this so and so said so!

      LOL!

      Delete
    2. I agree, corporate life is all about cold hard facts. Most people wont cry a river if a colleague leaves for good the next day. Cost saving + up profit is most important goal.
      At home however, losing a memorable thing, a friend or a family is most painful. Thus I pay and pay to avoid losing anything or anyone.

      Delete
    3. ckw-I99,

      Poor choice of words - don't say pay and pay ;)

      I know what you meant.

      Like you say, most things we can't control, just being here and now is enough :)

      Delete

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