Conversation with Mother

Before entering university, I applied for the interest-free loan from one of our local banks. Honestly, the loan wasn't required as my parents had already accumulated enough. However, using the $30,000 to generate returns of say, more than 5% a year would be brilliant use of that money, which would otherwise be accruing a measly 0.025% per annum in a current savings account.

Now, what to do with the $30,000? I considered the 'capital guaranteed' structured products offered by banks, but delved deeper and realised that they weren't as attractive as made out to be in advertisements. Dividends weren't guaranteed and worse, the capital could be compromised should a 'credit event' happen. Seeing how they lack the security of bonds and the capital gains potential of stocks, they could probably be called a worse-of-both-worlds investment product. Furthermore, the investor will still be slapped with fund management fees even if the manager underperformed benchmark indices, or worse, suffered losses. Shortly after, the subprime mortgage crisis erupted and the Lehman minibonds saga ensued. Unwary investors lost money buying into complex derivatives they didn't understand. Having read about the anguish of losing life savings and having carefully accumulated nest eggs smashed, I resolved to become financially literate and become responsible for my dollars and cents.

In January 2010, I started a trading account with Phillips' Securities using their online trading platform. I put in $1000 of my own money as the deposit, and my mother entrusted me with $15,000 to invest. The young impressionable me, foolishly thinking that after gaining some rudimentary knowledge on reading analyst reports, blindly bought into 2 counters. On hindsight, these counters were over-priced and violated the cardinal value investing principle of not paying more than 1.5 times book value and 15 times earnings, amongst other criteria. These counters have since gone on to lose 25% and 18% respectively. The lesson really hit me where it hurt - my wallet. It dawned on me that there often exists some conflict of interest, which must be duly considered prior to any purchase. For example, the brokerage house may well be vested in the counter, screaming buy calls publicly but acknowledging the company was thrash privately.

My mother gave my brother $15,000 to invest with shortly after. He deposited the money with me. He soon became consumed by his own work - a start up company selling fitness equipment, and left me to manage the 'Ko Family Fund'. Still smarting from being blindly led around by the nose, I plunged into reading investment classics. Coupled with endless hours of trawling financial websites and blogs, I was equipped with better knowledge. My coursework also exposed me to Real Estate Investment Trusts and their workings, of which the knowledge I used to provide an edge.

I was reporting the status of the portfolio to my mother recently, which sparked off the topic for this blog post, and subsequent reflections.

Me: I've managed to achieve absolute returns of about $3000.

Mother: Good job Son. But $3000 only?

Me: Mother, you have to put things into perspective. $3000 represents an 9.7%* growth in the portfolio. Furthermore, it was a year where I managed CAP scores of 4.00 and 4.25 in the respective semesters, consistently qualified for the finals of 3 prominent bouldering competitions and got myself ranked 3rd overall in the Singapore Bouldering League, did a 3 month internship in a bid to shore up my CV, dedicated time to help pen articles for the local climbing magazine (DYNO Issue 5 and 6), took up the mantle of Chief Route Setter for ClimbNus10, and helped coach a bunch of novice women within the climbing team. I hope I've done a decent enough job.

Mother: Good job Son.

*As of the time of writing, that figure has since grown to 21% given the surge in the stock market (even after taking into account the losses incurred should I choose to liquidate my non-performing securities).

In 2011, I hope to
1. Rebalance my portfolio by diversifying into other asset classes to spread risk. I am currently overweight in equities because of a lack of financial knowledge. I want to learn more about the other asset classes such as commodities, defensive stocks like utilities, bonds, gold, etc, and how I act to lower risk and maximise returns.
2. Attempt to win an Open Men bouldering competition
3. Pull CAP up above 4 (am currently at 3.98/5.00).
4. Be a better person. Be a better son to my parents, sibling to my siblings, boyfriend to my girlfriend, friend to my peers.