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The Straits Times
Nov 6, 2011
Investors at unis steer clear of CFDs

Safer traditional equity investments still preferred, say clubs

By Magdalen Ng , Stacey Chia

With MF Global in trouble, those who have accounts with the brokerage firm are feeling the heat. Among them are young adults and students, who may not have a steady stream of income.

The reason they choose to dabble with a financial instrument as complex as Contracts for Difference (CFDs): such a product does not require as much initial outlay as a regular equity investment; one can pay as little as 10 per cent of the investment's value.

Mr Ben Fok, Grandtag Financial Consultancy's chief executive, said: 'CFDs will definitely be attractive to young people because they feel like they will be able to make money without paying as much.

'But it is a lot riskier than buying shares, and you may lose your capital, and more. I would only recommend it for more sophisticated investors.'

A check with the investment clubs of the three local universities showed interest in investing is on the rise, but many still prefer the safer traditional equity investments.

Ms Lin Xun, a 22-year-old finance major at the National University of Singapore (NUS) Business School, was introduced to investing by her parents, and started trading a year ago. 'My parents asked me what I wanted for my 21st birthday and I said I wanted to have some Singapore blue-chip stocks,' she said.

'My investment strategy is a simple buy-and-hold strategy, which I believe is the most appropriate for me at this time.'

Her stock portfolio consists of mainly dividend plays; she steers clear of CFDs and the 'more exotic' financial instruments. 'Having to juggle school and extra-curricular commitments, it is not feasible to constantly monitor the markets.'

Ms Lin, the president of the NUS Students' Investment Society, said the club has seen more interest as students realise the importance of starting to invest early.

Similarly, at the Nanyang Technological University (NTU) and the Singapore Management University (SMU), such investment and finance clubs have proliferated, and memberships have spiked.

Mr Scott Tan, president of the NTU Investment Interactive Club, has seen the number of members increase 30 per cent over the last year, to more than 3,000 now.

'The younger generation is definitely getting more tech-savvy and information is so easily available on the Internet. There are also many stories about how young people like us have earned enough money to buy properties, so people will want to know more,' said the second-year business student.

Mr Tan, 23, started investing even before he could open a trading account, at the age of 14. He would tell his father what shares he wanted to buy, and funded his small investments of 'a few hundred dollars' through his savings.

'My dad does some investments, so I guess it rubbed off on me. I was brought up to learn the value of money. At first, it was the savings, and then I wanted to use my money to earn more money,' he said.

He keeps two separate portfolios, one for blue-chip stocks and one for penny stocks. Together, they are worth between five and six figures.

Banks and investment houses have also put in place programmes to educate these older teenagers and young adults on the importance of financial literacy, such as the Phillip Securities Young Investors Group (YIG) and OCBC Securities' Young Investors Pack (YIP).

When the YIG was first launched in September 2009, there were only fewer than 50 in the programme, but now more than 1,000 have signed up, according to Ms Kwang Sook Fong, POEMS marketing manager at Phillip Securities. The programme organises educational talks and seminars.

There are also checks in place for these young investors to prevent them from going over the deep end.

OCBC's YIP has organised stock-trading competition together with the investment clubs of the three universities since 2006, attracting more than 2,000 participants each time. YIP members are also given a book where they can learn more about investment strategies.

SMU's associate professor of finance (education) Joseph Lim believes that it is a good thing for students to invest, because it gives them exposure to what the real world is like, especially for those who learn about finance theoretically. However, his advice is that students only invest with money that is 'disposable', like from their red packet money, and not with savings set aside for education.

He also warns students against the high-leverage products, such as CFDs, because money can be lost very quickly unless there is a deep understanding of the market, and investors have the time to monitor it consistently.

'For students, education should come first. They have to understand where their priorities lie, and there will be plenty of opportunities to learn about investing.

'Students have to know themselves. If they don't have self control, then it is best to stay away.'

The Straits Times
Nov 6, 2011
Newbie unfazed by trading losses

Despite all her buys being in the red after less than a year of investing in shares, law undergraduate Lim Yan Wen is not deterred.

Since the 21-year-old opened her trading account, her portfolio has been hit by the volatility plaguing the stock markets since August.

'I did try to exit the market before the stocks were in the red, but there are some that I couldn't liquidate, so I'm just holding on and looking at buying stocks that are undervalued,' she said.

'It is actually quite a good time to enter the market if you are prepared to wait it out. I am younger, so I can take risks better.'

The third-year student at the Singapore Management University is also not too worried about the uncertainty.

'I don't get sleepless nights over the fluctuations. I can always earn it back,' she said.

Ms Lim bought her first unit trust and endowment plan at the age of 18. Her interest was piqued by watching her father invest.

Together with her equities, her portfolio, funded by her savings, is now worth about $30,000. She has lost about $2,000 on paper.

She does not have much time to watch the market during school term, so to keep up, she mainly reads Bloomberg news. This changes during term breaks though.

The budding investor also regularly attends seminars conducted by the Singapore Exchange or private investment firms, and subscribes to financial magazines.

Her parents have been supportive of her forays into investing.

'When I tell them I want to buy a stock, they won't disagree even though they have their own reservations. They want me to learn how to be financially responsible,' she said.

Her father works in the shipping industry, and her mother is an administrative assistant. She has two younger siblings, aged 19 and 16.

As to what she will do with the money when her investments start reaping benefits, Ms Lim said: 'Beating inflation is one of the matters of concern. But right now, I don't have material needs, so I'm not too sure what to do with it.

'Probably just use it to grow even more money.'

Magdalen Ng

The Straits Times
Nov 6, 2011
Young investor defied his parents

When third-year economics student Barry Toa, 23, started investing in the financial market about four years ago, his parents did not approve.

But that did not stop the Singapore Management University student and his brother, who is six years older, from pooling together $10,000 to buy shares during the 2008 financial crisis.

'Financial news was flooding the papers every day, and we thought that we could get some cheap bargains out of it,' he said.

His first investment, in Citibank shares, did not get off to a good start. He lost $4,000.

'My parents were unhappy because people who lose money are always in the news, but they don't hear of the instances when I make money,' said Mr Toa.

His father is a retiree and his mother, a preschool teacher.

His current portfolio is less than $20,000, and contains three stocks, with an average growth rate of 12.5 per cent year-on-year, he said.

When he started, he invested based on what was in the news, analysts' reports and market sentiments. He also read many investment books.

'Now I rely mostly on my own judgment about the possible growth within a company, and my view of its business model,' he said.

When news about MF Global running into financial problems broke, he thought it would be worthwhile to put a small investment of $500 in it.

He said that he thought a large part of the business would be acquired, given that its then chief executive Jon Corzine had wide contacts in the financial industry.

However, he changed his mind in the end.

'I'm glad that I did not invest in it. I may not have lost a lot, but it's still money,' he said.

He said that he does not make as much losses today as he did when he started out.

'There are a lot of risks when it comes to investing. You can't invest without doing your homework,' he said.

Stacey Chia

The Straits Times
Nov 6, 2011
Managing parents' portfolio paid off

What started out as an interest may help 25-year-old Wong Jian-Hui with his job applications in the future.

He began reading and researching on the stock market when he was just 18, and started helping his father, a retired engineer, manage his portfolio.

When he turned 21, his parents - his mother is a housewife - hived off part of their investment dollars for him to start a trading account. It was a six-figure sum.

After two to three years, he returned the base sum to them and traded with the profits generated.

His own portfolio is now worth a six-figure sum, and they are mainly in Singapore equities such as blue chips CapitaLand, Sembcorp Marine and Wilmar.

The final-year business student at the Singapore Management University (SMU) said that, year on year, his return on investment is about 20 per cent on average.

He continues to manage his parents' portfolio.

'So many people have good grades, so I'm hoping that my experience in managing my own portfolio will give me an edge,' he said.

As the former president of the SMU E.y.E Investment Club, he also had the opportunity to network with bankers and visit the offices of many investment houses.

The recent market volatility has not bothered him too much, as he even managed to make money in the global financial crisis in 2009.

'Initially, I lost quite a large chunk of my portfolio. Eventually I had to rethink my strategies and even managed to recoup my losses and I made a slight profit,' he said.

He started trading in contracts for difference (CFDs) because they allow investors to take a short position in anticipation of a price decrease.

'This is especially useful when markets are very bearish,' he said.

'But I don't use CFDs to long stocks because there are financing charges involved and I very much only invest with what I can afford to lose.'

Magdalen Ng