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Friday, 10 February 2017

Investing is not Saving (Part 2 of 2)

To recap from my previous post:

Invest - risk capital to capture (outsized) capital gains and/or income.

Saving - seeking conservative yield in return for no risk to capital (in nominal terms).

Why in nominal terms? Well, if you include inflation adjusted returns, it gets us no where since you and I know the CPI is just a statistical index. What we chose to include and exclude, we can manipulate it to whatever we want to show.

For eg, if CPI shows inflation is 3.5%, then voluntarily contributing to CPF OA to get the 2.5% interest is "dumb"... When it isn't necessarily so. Especially when the more you invest, the more you lose... Ouch!

I am also excluding bankruptcies to banks and insurance companies, collapse of governments, regime changes, tsunamis, earthquakes, fire and brimstone scenarios. I think you know why.

But its not unimportant.

This scenario is relevant when you are super rich. That's why you see the super rich spread their assets and money across different geographic jurisdictions and their wealth denominated in different currencies.

Just look at the rich Indonesian tycoons. They even send different members of their family to different parts of the world. One daughter in Hong Kong, one uncle in Singapore, one nephew in New York, another cousin in London. This way, if the patriarch is jailed or purged, the business empire will carry on.

Chose your own poison; not those offered by others

Is the above invest and saving distinctions important?

No and yes.

If you know what you're doing, then its not important.

But if you are easily "sold to", then it may help to find out whether you can accept losses to your capital and seek the "right" instrument or vehicle accordingly yourself.

Examples of mismatches of what you think and reality

1.  You regularly saves $2000 per month to your savings account as you are clueless to investing. However, that sweet tight skirt at the bank convinces you that you'll get a much better "interest" return if you channel that $2000 per month to a regular monthly "savings" program into the STI ETF. After all, in the loooooong term, the projected return is 8% right?

2.  That insurance "friend" of yours persuades you that you should "invest" and not let money rot in the bank. So you bought wholelife and endowment policies thinking that you are "investing". Which is not so bad by itself if you wish to have a comfortable nest egg by 65, but if you have delusions to be financially free by 40...

When successful "savers" are most at risk

Have you read in the papers some victims of scams are in their late 50s or 60s? And the amounts they have lost are in the hundreds of thousands!?

You would wonder how on earth these people with some many years of life experience under their belts can be so "bei kambing"?

Same goes for the big amounts of money some of our retirees have lost "investing" in properties and stocks once they have access to their CPF funds.

What gives?

If all of your whole adult life you have been "invested" in saving instruments and vehicles, its understandable when you have access to hundreds of thousands or even millions in your 50s or 60s, you would think you are "better" than your peers.

Forgetting that money you have, but you have not built up your craftsmanship in investing all these years.

The reason for starting young in investing is not the power of compounding so evocated by so many books. That's the saving route.

The main reason for starting young is so that you get yourself inoculated by the slings and arrows of the investing arena.

You personally have lived through a few bull/bear cycles, know how it felt to swear buy and hold only to see your stock goes to zero...

Experience the euphoric highs of a 10 bagger, forget to take money off the table, and let it turn into a 2 bagger. You didn't lose money, but still... 

Say your REITs are under water by 20% but if you add all the dividends collected, you are breakeven. Then realise that's not the purpose of income investing - use the bricks of the eastern wall to patch the hole in the western wall? You invest to breakeven?

Know yourself

Its much better to lose all your money in your 20s than in your 60s.

The best reason to start investing early is to know yourself.

Without doing, how to know whether you are cut out to be an investor? There's no shame in taking the saving route (OK, harder to impress that "chio bu" at the pub; but you'll attract the gold diggers).

The majority of investors lose money.

The majority of savers will have money.

And now the distinction is important!


  1. Hi Jared,

    Been awhile since I last commented. Hope all is great!

    Always like to read what you written which is contrary to what the majority always like to hear! :-)

    I like the conclusion you made regarding investing leading to knowing yourself. And possibly to add on to knowing oneself but also seeing the bigger picture in life, all the way back to history and root.

    My personal testimony is that investment started as a replacement of a hobby of mine. Of course to compound wealth also.

    Never did I realize that it leads on to more and more miraculous revelation in life than the thoughts of mere initial financial benefits

    Therefore I conclude with my own humble experience that, the revelation of a bigger truth in life much outweighs the financial part.

    1. Rolf,

      I am doing fine. Thank you!

      Yes, its been a while. Taking a break is good.

      I learnt this from LP. The pauses in between musical notes are part and parcel of making music ;)

      I must commend you on your foresight. Last year, you sold your car and were hankering down for the inevitable in your industry.

      Now with Swiber and Ezra, the common retail investor finally comprehends how bleak the situation is. As always, last to know. Those in the know were selling down to them...

      Even the banks were "surprised"; what more for the retail investors out there?

      Macro top-down investing is not easy. Bottom-up individual stock investing "lagi" not easy. If we not familiar with the industry, how to spot the changing fortunes early like the insiders?

      I can see your trials and tribulations have brought you closer to your faith.

      I am a man without religion. I ask too many questions. If I had studied more, I think I'll make a good scientist ;)

  2. Hi SMOL

    There are so many keytakeaway from your this post that I dont know know where to begin but its a great post. Thumbs up.

    1. B,


      I don't provide take away service. Just as long you self-service, I'm totally OK with it.

      Come, take! Don't be shy. Take another one!

      You want to know the secret sauce? I got do foreplay first ;)


  3. Hi SMOL,

    Great insight and love the last bit:

    "The majority of investors lose money.

    The majority of savers will have money."

    Totally agree that investment is a skill that is honed through the years and an acquired experience rather than starting out and immediately find success in it.

    1. Kate,

      Thanks for coming back!

      Those who don't respect investing/trading as a craft will soon find out the markets have a penchant for proving book knowledge wrong.

      That's perhaps why most academics are not known to be great investors nor traders...

      I do appreciate it when women readers come to this watering-hole. The more babes here, the more crocodiles will come ;)

  4. Hi SMOL,

    Great post :) I once thought i'm invincible too after reading a few books on trading and investing, and it took a while for the market to humble me. I think this idea of knowing oneself through the market is very important. It need not be the market, but the market is a good testing ground to see where you are emotionally and where your risk level is. Imagine filling your own risk assessment in a mcq form!

    1. LP,

      Those risk profile forms are a joke! How to trust ownself check ownself?

      Who will put themselves as risk averse in front of a tight skirt with see through chiffon blouse?

      OK, if missus next to us then we better put ourselves as super conservative, prefer the tried and tested, don't wish to try new experiences...

      Men lie big time!

      I cringe when I hear newbies just starting their investment journeys parroting "buy term; invest the rest".

      I humbly think we need at least 10 years of proven track record before we've earned the right to say that sentence.

      Words easy to say; results harder to prove.

  5. Don't just read books. Attend investing courses. Many testimonials. How wrong can it be?

    1. CW,

      That's not investing. That's idol worship.

      If their idols keep long hair, fans follow.

      The behaviours of our fan boys and girls in the financial blogosphere no different.

      You buy that stock? OK, I follow!


  6. Hi SMOL,

    Enjoyed both your posts.

    I'm starting to question whether the 8% per annum returns for the STI ETF is true. Interestingly, what led me to question my assumption is my investment in an asset manager company specializing in unit trusts. It's refreshing to see things from the other side.

    Thanks for reminding me to take profit. It's another area which I need improvement on.

    Patch western wall with eastern wall bricks? I cringe when I read newbie US investment bloggers who dollar-cost average into Procter and Gamble and Johnson & Johnson at a 52-week high.

    1. Unintelligent Nerd,

      Its good to have doubts.

      Most of the famous investors I've read all have doubts and lots of questions.

      They seek out the answers to their satisfaction first before they invest.

      Their conviction is based on tireless research and independent thinking; its not based on faith.

      It also helps to have the intellectual curiosity to solve investing puzzles before the general public gets it.

      But that's not me. I'm not smart. Hence I'm a trend follower. I just wait for the "right" wave to come along and do my best to ride it as long as possible!

      I'm macro top-down.

      P.S. The STI ETF's back testing were based when Singapore's GDP were double digits or high single digits. Now going forward? If GDP is 2-3%, is 8% returns for STI ETF aligned?

      If I want 8% returns, I would think other South East Asian economies would be more likely. But then, what do I know? I'm just a pretty face!

  7. Hi SMOL,

    If we make money, it's called investment.

    Otherwise, it's called donation. Not lose money hor!

    So we are either an investor or a philanthropist when we 'invest'.

    Way sexier than being called a kiasu, kiasi hoarder.

    The 'savers' are not just being more risk adverse, they have a smaller measure of generosity too. *Roll eyes*


    1. Endrene,

      If we can earn a good income, save 20% of our take home pay after CPF, without thunder and lightning, and provided we don't develop a serious illness or lead an extravagant lifestyle; I don't see why can't save our way to a comfortable retirement by age 65.

      If we want to have early retirement before 40, then we must either be lucky or be very competent investors!

      There are quite a lot of peddlers of "fear" out there. Of course what? If not how to earn fees and commissions?

    2. LOL. Give me such a serious answer.

      All roads to lead to Rome lah. No need to get too hung up with semantics. You say so yourself but went at length to 'define' with so many examples. Definitely well-meaning but no need to do striptease mah. Like your cryptic posts a lot more than these two. :P

      Words are used to convey meaning for communication. A vehicle, not the meaning itself. ;P

      When we think of how to use money to make more money, that could already depart from the 'original' meaning of savings. What's 'original'? Means date back to stone age lah where there is only accumulation and consumption. Anything that departs from there (we call it evolution or whatever makes us happy) would be more like moving along a continuum, not sitting on an absolute. But then hor, the idea of accumulation is also not so simple. What we accumulate may 'rot' also which you have pointed out.

      To me, defining savings and investment in discrete terms is as problematic as defining gender. What makes you male and me female, other than our anatomy?

      Psychology? Femininity and masculinity as a manifestation of it?

      Our actions are driven by our psychology. Investing and savings alike, both driven by fear. Just different types. Greed resides in fear. And fear is the mother of all actions and inactions in money management. LOL.


      Today is the 15th day of CNY, wishing you huat a lot a lot for this year! :D

    3. Endrene,

      Happy Chinese Valentine's day too!

      What? Wish me huat and not lots of "liaisons"?

      I think I would prefer the latter. Remember got "naughty" and "frisky" jie-meis must introduce, OK?

      First things first mah.

      For those who can't see the differences, must point it out. Then we baby steps to the next level to "forget" the differences ;)

      I'll be the last person to be stuck with precision when it does not matter. Money is money; water is water whether its in the form of snow, ice, hail, or fog.

      Never notice how subtly I've merged investing with gambling, speculating, trading, etc? How's that for grey?

      When we put capital to risk, calling it "investing" does not make us more holier than thou ;)

    4. Hahaha. Birds of the same feather flock together. So you think I will have jie-mei like that meh? Oh, in the first place, I hardly have any jie-mei. Buddies you want? If you 'open up', you will have 50% more chances of getting lucky! ROFL.

      Agree with you! 'Investing' is just a sexy term people use to mask their desire to get money 'easily'. Motivation same as gambling and for some 'investments' the odds are better than others. Like comparing horse betting vs 4D vs TOTO.

      Look at forex 'investment', it's essentially the same as betting Big/Small in casino mah. Argue on the difference for what? But then hor, must distinguish! Firstly, need to pander to the ego. Definitely more atas to be called 'trader' or 'investor' than gambler. And secondly, it's holier too hor. Religiously teachings got prescribe cannot gamble, but never say cannot invest or trade mah. ;P

    5. Endrene,

      That's why where spirituality is involved, its better to sometimes close one eye, sometimes have temporary amnesia, sometimes "buat bodoh suak".

      Imagine if you believed a camel can pass through the eye of the needle much easier than a rich man, guess what happens when you are financially free?

      Talk about the price of success is what you have to give up to achieve it! Yeeks!

      Nah, I maybe in touch with my feminine side, but I still prefer women ;)

      I'm liberal, but I not so liberal I can bend it both ways. Sorry, got to disappoint the other 50%...


  8. Great post!
    I lost x money in 1st 5 years of investment.
    Breakeven for 2nd 5 years.
    Made 5x for 3rd 5 years.

    Experience and market timing helps
    Savings with larger warchest helps
    Still comfortable buying at small amt when taking positions
    Be humble or be humbled by the market!

    1. AT-AT,

      Its how we finish that matters ;)

      You had a better start from the beginning. You lost money.

      I didn't start well. I made money.

      Had to wait for the 2000 Nasdaq crash for me to unlearn quite a few bad book theories and realise I was mistaking luck in a bull market for skill...

      You are right.

      The market gives; the market takes.

  9. i say nothing beats a specilaist doctor in private practice.

    He can easily earn a $1000,000.00/year.

    So what's saving or investment to him?

    He can do both easily or don't have to do anything.

    The rest of us, we have to save for a raining day before we should talk about investing or gambling.

    1. temperament,

      Yes, high income earners like doctors and lawyers just need to "invest" 10% of their networth for the fun of it.

      Their 10% is several times our networth, anytime, any day...

      If wiped out, their lifestyles are not affected.

      Earn more beats save more ;)

  10. Hi
    I am new investment, while I looking for some info about saving & investing. Just happen I saw this blog. May I know what is "being kambing"???

    Just kaypoh asking... if u don't mind


    1. Sy sy,

      Ha ha!

      You know "kaypoh" but don't know "bei kambing"? LOL!

      Bei - is Chinese Hokkien dialect for "white".

      Kambing is Malay for "lamb".

      Put together, "bei kambing' literally meant a white little lamb.

      Its to denote a naïve, innocent, blue-eyed person.

      It can also mean a noob or newbie in modern youngster lingo ;)

      Financial snake-oils (sales persons) love selling to "bei kambings"!

      Bei kambing only trust.

      They can't or don't know how to do verifications themselves.

  11. Pls forgive my poor hokkien...
    Paiseh, is the 1st hokkien word I learnt...
    Unfortunately, I like to ask questions so my fren say I kaypoh... 2nd hokkien word that I learnt...

    So bei kambing sound like 小绵羊... right? Hehehe


    1. sy sy,

      Yes. Its "innocent" like 小绵羊 ;)

      No worries. Feel free to ask anytime.

      I'll do my best to undo the damage big daddy did when they tried to phase out dialects.

      Mandarin is not my mother tongue. Teochew is ;)

  12. Hi Jared,

    Love the part about investing early to know yourself. Pay school fees to earn life's lessons. Anyway,how many gold diggers did you attract?

    1. Jes,

      I had my thrills... At Shanghai bund...

      Let's say I did my wine, women, and song thing and got it out of my system ;)


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