Stay with cash in these volatile times till clearer picture emerges as other options entail much risk
By Goh Eng Yeow 22 March 2009
The biggest storm whipped up on the financial blogosphere recently was the online thrashing of Mr. Jim Cramer, the former hedge fund manager who hosts Mad Money on the CNBC financial news network.
The dressing down, billed as the ‘week-long feud of the century’, took place after American satirical comedian Jon Stewart skewered Mr. Cramer and his network over their coverage of the 18-month-old financial crisis.
I felt sorry for Mr. Cramer as he came under Mr. Stewart’s wilting criticism for failing to take a more investigative approach when reporting the lines tossed out by corporate bosses who regularly appear on the network.
True, all reporters have their ‘bad hair’ moments, but it was painful to watch Mr. Cramer cringing as he was shown an old video explaining how his hedge fund could manipulate a stock price with a buzz of trading activities and telling the interviewer that ‘it is legal, a very quick way to make money, and it is very satisfying’.
To many, Mr. Cramer personified Wall Street after he railed against the US central bank on television in August 2007 for failing to cut interest rates to relieve the pain traders suffered as a result of the stock market plunge.
Having said that, some assertions made by Mr. Stewart deserve serious airing. He asserted that the belief that the financial crisis is ‘some sort of crazy, once-in-a-lifetime tsunami that nobody could have seen coming is disingenuous at best and criminal at worst’.
He took issue with Wall Street for advising Main Street investors to buy and hold their shares for the long term, while flipping these same shares for a ‘constant profit on a daily basis’.
Traders took an extremely short- term outlook and had all the incentives to churn the market and ‘burn the house down with our money and walk away rich as hell’, he said.
His observations go to the heart of an old dilemma. Many of us, for example, put our nest eggs into unit trusts, run by fund managers, in the belief we will earn a decent return to see us comfortably through our golden years.
But the horrendous losses in such investments have led to serious questions about the wisdom of relying on such ‘experts’ for guidance.
It has been reported that about $1.5 billion walked out of Singapore unit trusts in the fourth quarter of last year. Investors who made their exit seemed to be the shrewd ones.
Even with the recent rebound, stock prices have fallen another 10 per cent since January. Investors who park their money in unit trusts find they are doing as badly, if not worse, than those who choose to make stock investment decisions themselves.
Some super-rich investors, including those who parked their money with scammer Bernie Madoff, fared worse.
One unhappy investor wrote to me complaining that it was difficult to beat fund managers at their game.
‘They are given handsome rewards for any upside in the portfolios they manage but suffer no penalty on the downside,’ he said, adding that all the funds want to do is ‘to keep investors at the table so that they can continue to earn fees from their nest eggs’.
Cynicism aside, a key question is why so few fund managers foresaw the financial crisis and took steps to protect their investors’ interests.
Anyone who accepted the ‘buy and hold’ advice - touted by these investment professionals to hold stocks for the long term because they outperform bonds and other assets - must now feel cheated by current events.
After all, it has long been drummed into long-term investors that they could not go wrong if they set aside some money to put into unit trusts each month.
But as the great British economist John Maynard Keynes once noted: In the long run, we are all dead.
Share prices on Wall Street have fallen to an 11-year low - even with the recent rebound - while the Singapore market is trading at levels last seen during the Sars crisis in 2003.
Since the financial crisis erupted 11/2 years ago, fund managers have not been able to switch out of stocks into cash fast enough. Some of them have been buried by the avalanche of plunging stock prices.
Baby boomers, in particular, face the arduous task of having to start rebuilding their nest eggs again if they had suffered horrendous investment losses, and amid a massive financial storm in full swing.
Unlike the boom years when they could recoup their losses easily, the big problem now is that stock prices may not enjoy any upswing until major economies such as the United States and Europe are restored back to health.
In the meantime, unemployment is rising and banks are trimming their sails and cutting back on the credit lines they lavishly foisted on consumers in the recent boom years.
A study by French insurance group AXA last year showed that Central Provident Fund savings would provide only a quarter of the funds which Singaporeans need in their old age.
They will have to make their money work harder for them to be able to retire comfortably.
My advice to these folk is to play it safe and hold on to their cash and not splurge on big-ticket items like a new car or going on an expensive holiday.
Given the current economic uncertainties, saving for your retirement has never been more pressing or more difficult.
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Not such a good idea to ‘buy and hold’ now
Stay with cash in these volatile times till clearer picture emerges as other options entail much risk
By Goh Eng Yeow
22 March 2009
The biggest storm whipped up on the financial blogosphere recently was the online thrashing of Mr. Jim Cramer, the former hedge fund manager who hosts Mad Money on the CNBC financial news network.
The dressing down, billed as the ‘week-long feud of the century’, took place after American satirical comedian Jon Stewart skewered Mr. Cramer and his network over their coverage of the 18-month-old financial crisis.
I felt sorry for Mr. Cramer as he came under Mr. Stewart’s wilting criticism for failing to take a more investigative approach when reporting the lines tossed out by corporate bosses who regularly appear on the network.
True, all reporters have their ‘bad hair’ moments, but it was painful to watch Mr. Cramer cringing as he was shown an old video explaining how his hedge fund could manipulate a stock price with a buzz of trading activities and telling the interviewer that ‘it is legal, a very quick way to make money, and it is very satisfying’.
To many, Mr. Cramer personified Wall Street after he railed against the US central bank on television in August 2007 for failing to cut interest rates to relieve the pain traders suffered as a result of the stock market plunge.
Having said that, some assertions made by Mr. Stewart deserve serious airing. He asserted that the belief that the financial crisis is ‘some sort of crazy, once-in-a-lifetime tsunami that nobody could have seen coming is disingenuous at best and criminal at worst’.
He took issue with Wall Street for advising Main Street investors to buy and hold their shares for the long term, while flipping these same shares for a ‘constant profit on a daily basis’.
Traders took an extremely short- term outlook and had all the incentives to churn the market and ‘burn the house down with our money and walk away rich as hell’, he said.
His observations go to the heart of an old dilemma. Many of us, for example, put our nest eggs into unit trusts, run by fund managers, in the belief we will earn a decent return to see us comfortably through our golden years.
But the horrendous losses in such investments have led to serious questions about the wisdom of relying on such ‘experts’ for guidance.
It has been reported that about $1.5 billion walked out of Singapore unit trusts in the fourth quarter of last year. Investors who made their exit seemed to be the shrewd ones.
Even with the recent rebound, stock prices have fallen another 10 per cent since January. Investors who park their money in unit trusts find they are doing as badly, if not worse, than those who choose to make stock investment decisions themselves.
Some super-rich investors, including those who parked their money with scammer Bernie Madoff, fared worse.
One unhappy investor wrote to me complaining that it was difficult to beat fund managers at their game.
‘They are given handsome rewards for any upside in the portfolios they manage but suffer no penalty on the downside,’ he said, adding that all the funds want to do is ‘to keep investors at the table so that they can continue to earn fees from their nest eggs’.
Cynicism aside, a key question is why so few fund managers foresaw the financial crisis and took steps to protect their investors’ interests.
Anyone who accepted the ‘buy and hold’ advice - touted by these investment professionals to hold stocks for the long term because they outperform bonds and other assets - must now feel cheated by current events.
After all, it has long been drummed into long-term investors that they could not go wrong if they set aside some money to put into unit trusts each month.
But as the great British economist John Maynard Keynes once noted: In the long run, we are all dead.
Share prices on Wall Street have fallen to an 11-year low - even with the recent rebound - while the Singapore market is trading at levels last seen during the Sars crisis in 2003.
Since the financial crisis erupted 11/2 years ago, fund managers have not been able to switch out of stocks into cash fast enough. Some of them have been buried by the avalanche of plunging stock prices.
Baby boomers, in particular, face the arduous task of having to start rebuilding their nest eggs again if they had suffered horrendous investment losses, and amid a massive financial storm in full swing.
Unlike the boom years when they could recoup their losses easily, the big problem now is that stock prices may not enjoy any upswing until major economies such as the United States and Europe are restored back to health.
In the meantime, unemployment is rising and banks are trimming their sails and cutting back on the credit lines they lavishly foisted on consumers in the recent boom years.
A study by French insurance group AXA last year showed that Central Provident Fund savings would provide only a quarter of the funds which Singaporeans need in their old age.
They will have to make their money work harder for them to be able to retire comfortably.
My advice to these folk is to play it safe and hold on to their cash and not splurge on big-ticket items like a new car or going on an expensive holiday.
Given the current economic uncertainties, saving for your retirement has never been more pressing or more difficult.
Safeguard it well.
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