SINGAPORE – Some friends think that because I am a financial journalist, I make better investment decisions. Yet, this couldn’t be further from the truth.
Covering the financial markets and the various scandals over the years has made me a cynic; I am trained to unearth anything negative that could potentially derail a business.
Still, when I read stories about young investors reaping large rewards over a short period from cryptocurrencies, the fear of missing out creeps in. I wonder if I am too conservative.
The crypto ecosystem is interesting. These digital currencies do not need banks to verify transactions. Instead, they rely on a technology called blockchain which is decentralised, meaning no single entity is in charge of them.
But the industry – with its 20,000-plus cryptocurrencies worth more than US$1 trillion (S$1.33 trillion) in total – is tainted with scams and scandals.
Crypto company FTX is an example. It was once heralded as the Goldman Sachs of crypto, and its chief executive Sam Bankman-Fried deemed by some as the next Warren Buffett. It was valued at US$32 billion at the start of 2022. Nine months later, it collapsed and is now bankrupt.
Victims of high-profile crypto collapses echoed the same tune: “No one expected the crash and the magnitude is shocking.”
Yet, not everyone seems to have learnt their lesson, and greed always prompts irrational decisions. Online forums are still abuzz with people asking if it is time to “buy on the dip”.
Mr Buffett says to never invest in anything you don’t understand. Hence, I give cryptocurrencies a wide berth.
It may be common-sense advice, but when it comes to making money, sometimes the gut and the brains don’t connect. We all know someone like that – the risk junkie.
American researcher Brian Knutson explained: “Nothing had an effect on people like money – not naked bodies, nor corpses. It got people riled up. Like food provides motivation for dogs, money provides it for people.”
I witnessed that kind of adrenaline-charged snap investment-making decision in action during the 2008 Lehman Brothers debacle that led to the global financial crisis.
Many banks around the world bled and relied on government support to avoid bankruptcy. There was panic everywhere. Financial markets became dysfunctional as everyone tried to sell at the same time.
On March 5, 2009, shares in Citigroup – once the world’s largest bank by market value – fell 16 per cent to around 97 US cents due to its exposure to toxic sub-prime mortgages. That left its market value down by more than 90 per cent since the start of the year.
A senior colleague stood up and shouted across the newsroom that the Citi share price had fallen below US$1. Amid the chaos and frenzy, he was ignored.
The veteran financial journalist quietly withdrew his savings and bought shares of Citigroup. Fortunately for him, and Citigroup investors, the bank survived. The stock limped into 2010 at a price of around US$3.40, and he liquidated part of his holdings.
What inspired the reckless purchase, I asked. His reply was simple: “Do you believe Citi bank is worth less than a roll of toilet paper once this is over?”
Investor Ronald Chan, who founded Chartwell Capital in Hong Kong, told me in an interview that investment temperament is also key to investment success, aside from research.
My former colleague had the courage to take a contrarian view and buy a stock he had been eyeing when there was blood in the streets. He also had the sense to take profit when the stock price more than doubled (he tells me he still has 500 Citi shares).
In stock trading, we are told to “buy low and sell high”. But when is it low, and when is it high? Well, according to Mr Howard Marks, co-founder and co-chairman of US investment management firm Oaktree Capital Management, “the bottom can be recognised only after it has been passed, since it is defined as the day before the recovery begins”.
Instead of predicting the future, what really matters is whether the price change is proportional to the worsening of fundamentals, he added.
Sometimes, it is really about the “time in the market”, rather than “timing the market”.
Take Chinese technology stocks and their related exchange-traded funds. They were deemed “no-brainers”, given that China has been the fastest-growing economy in the past decades. Having missed a chance to buy US technology stocks, many found their cheaper Chinese counterparts like Alibaba to be attractive alternatives.
Well, that was the case until they were trampled by regulatory scrutiny on both sides of the Pacific and Beijing’s crackdown in late 2020. Things are looking bright again, as China eases its stance. I believe China is now a safer place for investors, but there are risks to its recovery story.
So, while the brave continue to look for the proverbial pot of gold in cryptocurrencies and the stock market along with various financial instruments, I find peace in fixed deposits. No financial analytical skill or luck is involved – I just need to deposit money in the bank, and when the tenure is up, I get back my principal plus interest.
With recent banking turmoil overseas, I think more about spreading out the deposits now since the Singapore Deposit Insurance Corporation guarantees deposits in a bank of up to $75,000 per bank per person under its deposit insurance scheme.
Luckily, fixed deposit rates in Singapore are rising again after being in the doldrums for years, and are now close to 4 per cent compared with near-zero when the Covid-19 pandemic hit in March 2020. This is the highest since November 1998, when 12-month deposit rates went above 3 per cent.
As Singapore’s interest rates are largely influenced by global markets, and especially the United States Federal Reserve’s rate, which has been steadily rising, the window of opportunity has opened for conservatives and the risk-averse to earn some money from savings again until the right time to reinvest presents itself.
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