Investment Outlook

Bill Gross wrote his August investment outlook that builds on his ideas from the previous months. The 'price of hope' is a very interesting concept. It is always easier to sell hope than reality.

Important take away - In a world where single digit return is the norm, then there should be even more emphasis on cost of investment.

Imagine a fund that has underlying return of 7% but charges a 1% annual management fee.

Over 10 years, $10,000 will should have grown to $19,671, but due to the 1% fee, actual return would be 17,908. A difference of over $1700!

Furthermore, there is a typical 'sales fee' of about 3% - 5% in Singapore.
Assuming a 5% fee and 1% annual management fee, after 10 years your return would be 17,013.

If you look through the fund reports of unit trusts that are available in Singapore, it is very common to see annual fee expense above 2%. This drag means that fund manager has to outperform the benchmark by 2% just to breakeven with the benchmark which can be purchased through a relatively low cost ETF.

I find it scary that 85% of people who took money out of their CPF special account with a garunteed return of 4% fail to beat it! and i have recently heard a sales pitch from an insurance agent saying that 'take your money out of your CPF (yielding 4%) and buy my product that yields 2%. Insane!

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I have been re-reading the Intelligent Investor. This third read is very beneficial as i reflect on what i've learnt in the past year or so. I remember the first time jiechao recommended me the book in 2004, and i thought it is just one of those how to get rich books. I don't know anything about investing or finance then. I read the preface to the book at Kino and was hooked. By the way, the preface was written by a certain Warren E. Buffett, and I had NO IDEA who that is.

The first read was painful.

After a day of torture in my beloved Sungei Gedong Camp, i'll curl up on bed and seek wisdom in this classic. Realizing that to read this book requires basic understanding of accounting and finance, i bought a outdated version textbook on Financial Accounting from Bras Brasa and started my amazing journey with accounting and investing. During my last year in camp, i read an average of 2 books per week. Reading and thinking i believe is the first step of learning how to invest.

After 5 years, I have become more clear and steadfast than ever that my investment success will come from having a sound investment policy, a keen awareness of my limitations and biases and a truly long term perspective when dealing with the daily up and down of the manic depressive Mr Market.