It’s wise to invest, but invest in what you understand

HOUSING INVESTMENTS
By THEAN LEE CHENG

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IN the parable of 10 gold coins, a man of noble birth gave each of his servants a gold coin before going away to a distant land. “Put this money to work (invest it) until I come back,” he told them. On his return, he called each of his servants and asked what they did with the money.

The first said he had earned 10 times the capital given to him, the next five times. The third came and said he buried it in the ground. The master was very angry and asked him why he did not put the money on deposit to enable him to at least collect some interest. The third servant justified himself by saying that out of fear for his master, he did nothing.

Putting our savings in the bank may not be a popular option today but that aside, if the story of stewardship and investment was relevant in a simple agrarian society during biblical times, it is all the more relevant today.
The over-riding principle of that parable is that investing is not wrong. In fact, it is wise to invest.

The parable remains relevant because today, unlike before, all sorts of financial instruments are available. Although options may be limited when compared to the West, technology has allowed many to ignore national borders and many have invested globally. There is a need for wisdom and simplicity. Invest in what you understand.

Secondly, it remains relevant because the principle of investment takes into account the time element. The nobleman went away to a distant land. In those days, it takes time to travel from one place to another. He gave time to the servants to invest. It was long-term gains he was looking for. Consider the time element of your investment choices. Invest for posterity because it is a legacy that you want to leave behind.

Granted, the spectre of inflationary pressures then and today are vastly different. The world did not have seven billion hungry people. They grew their own food, unlike today where food prices are experiencing a spike. It is this volume in numbers feeding on each other in this pursuit for gains that gives the strength to this tidal wave that is just beginning to form in Asia. Be wary of mass exuberance.

Whether it is time deposit, properties, stocks or gold, we are all servants of the market. Conversely, we are also the force and strength behind the market.

We invest for three reasons to speculate, to hedge against inflation, or to arbitrage. Speculators do so to make a quick profit. They buy a house only to “flip” it when it is completed. They do not need the house or want the house for what it is. They use is as a channel to make quick gains.

Retirees and the more conservative investors hedge to preserve the value of their nestegg. That is a strong motivating factor amid today's inflationary pressures. An investor buys a house to hedge against inflation, hoping that the value of the house will remain. He also derives an income from it for future gains.

The arbitrageurs take advantage of the discrepancies in the markets. They buy a house in London because of the weak sterling and low interest rates in the hope that currency will appreciate in future, together with better house prices. In the meantime, they use it as a holiday home.

Everyday, while someone is making money, another is losing the shirt off his back. As the FBM KLCI takes on new peaks in the coming months with expectation to surpass the 1,700 mark, and property prices continue to trend upwards, it is time to return to the parable and the simplicity it represents.

The story concluded with the master taking away the third servant's gold coin only to give it to the first, the one who made 10 times the profit. The other servants protested, saying that he already has a lot, to which the master said: “To those who have, more will be given.”

Warren Buffet, one of the world's greatest investor, began with little. He had an interest in saving and making money. One of his strategies is patience. Like Buffett, Microsoft Bill Gates is counted among the world's richest because he did what he like. Both of them enjoyed their work. Likewise Jim Rogers, the other great investor of our times.

Not many of us will be able to enrich ourselves from the work we do. But we are given opportunities to invest. What is the motivating factor?

Assistant news editor Thean Lee Cheng does not think fear should be part of the equation. Remember the third servant who did nothing out of fear? But she does realise that wisdom is very much a scare commodity in today's times.

Consulting is no child’s play

OPTIMISTICALLY CAUTIOUS
By ERROL OH

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YEAR Four pupil Gerald Khoo (not his real name) hopes to be a consultant one day. His mother, Patricia Teng (not her real name either), says: “Gerald is not your average 10-year-old boy. He's always been precocious, especially when it comes to anything about business and finance. He has problems mixing well with other kids since he had started talking. He operates on a different wavelength and it frustrates him that they don't treat profits as a priority.

“Playtime is particularly difficult for him. When joining the others to play house when he was younger, he insisted on being a property developer. Then, they would quarrel over the home prices.

“He got excited when the girls started a session of masak-masak. But it always ended in tears because he had volunteered to be a restaurant owner and had got angry when the other kids had refused to pay for the food'. I remember that time when somebody suggested a game of hide-and-seek. I still laugh when I think about it. (And indeed, she cackles for a good two minutes.) This was what he said: Okay, I'll be the accountant. Who'll be the auditor?'”

The boy's father, Khoo Liang Huat (for the last time, not his real name), maintains that his son's deep interest in business and finance comes naturally, and that the parents have not at all steered him in that direction. When asked about the couple's occupations, the elder Khoo refuses to offer any information other than that his job “has something to do with shares” and that his wife “handles the money side of it.”

“For the longest time, Gerald's ambition was to be the CEO of a listed company. When he gets back from school, he won't ask what's for lunch. Instead, he'll check the stock market index at the mid-day break. He calls a family reunion dinner an AGM. When his little sister was born, to him it was a bonus issue. And his school has complained that he kept pestering the teachers for quarterly report cards,” says the father.

“But recently, he told us that he had changed his mind. His ambition now is to be a consultant. When we asked why, he said he was convinced that a consultant's work got the best rewards. He added that he shouldn't say more about it because he didn't want too many people to know about how great it was to be a consultant. Neither did he tell us what sort of consultancy work he was interested in.”

StarBizWeek was unable to interview Gerald because, according to his parents, he now spends his free time pitching for consultancy contracts. In addition, he prefers to keep a low profile so as not to spook potential clients.

Fortunately, last week, Gerald's class was assigned to write an essay titled “My Dream Job”. Courtesy of the Khoos, below is his effort (bear in mind that this is a boy whose bedtime reading includes Fortune, The Wall Street Journal and Financial Times, and whose favourite Astro channels are Bloomberg and CNBC):

My Dream Job
By Gerald Khoo
When I grow up, I want to be a consultant, just any type of consultant. I have Googled the subject, and I know there are hundreds of jokes and quotes about consultants, questioning the usefulness of the consultants' advice and services. I found on the Web this popular definition of a consultant. I have changed it a little to follow the school rules on appropriate language, and here is my version: Someone who knows 101 ways to make out, but cannot get a date.

And then there is this guy, Norman Ralph Augustine, an American aerospace businessman who obviously isn't very fond of consultants. According to him, when you ask consultants what is two and two, they will respond with “What do you have in mind?” He was also quoted as saying this: “Hiring consultants to conduct studies can be an excellent means of turning problems into gold, your problems into their gold.” Ha, ha, very funny, Mr Augustine.

Perhaps, he and the other critics are right. I am sure the consultants are not always right and maybe, they are not always as good as they claim to be. But boy, do consultants get paid well. It's almost as if all you need to do to get a big sum of money is to call yourself a consultant, or go along with it when others call you a consultant. In some cases, you don't even have to do any real consulting work.

Those who say there are limited opportunities in Malaysia have clearly never charged consultancy fees. For example, last month, when the US Securities and Exchange Commission (SEC) charged Paris-based telecommunications company Alcatel-Lucent SA with violating the Foreign Corrupt Practices Act (FCPA) by paying bribes to foreign government officials to illicitly win business, it was alleged that an Alcatel company paid two Malaysian consultants US$700,000 for market research several years ago.

“However, the work product these consultants prepared could not justify the size of Alcatel Standard's payments. In fact, Malaysian Consultant A and Malaysian Consultant B did not appear to render any legitimate services to Alcatel Malaysia in connection with these payments,” said the SEC in a complaint submitted to a Florida court on Dec 27.

Just before that, Sime Darby Bhd had announced civil suits against ex-CEO Datuk Seri Ahmad Zubir Murshid and a few others for huge losses incurred in relation to four engineering projects. After reading the company's two statements of claim, I have no doubt that my dream is to work in the consulting line. One of the documents contends that there have been wrongful appointment of consultants. On one project, seven consultants were paid a total of RM102mil.

Sime Darby says there were “no objective grounds” for appointing six of these consultants, claiming that none of the six added value to the services that the Sime Darby group could offer to the securing and proper implementation of the project.

I can't think of an easier way to earn big bucks than to be a consultant. Can you?
When he was 10, deputy executive editor Errol Oh (yup, that's his real name) wanted to be a zoo-keeper. He still thinks it's not too late. On some Sundays, you can see him at Zoo Negara, looking wistfully at the animals.

China and America to lead global mega-boom -HSBC

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HSBC sees China and America leading global mega-boom

The greatest global boom of all time has barely begun. Over the next forty years, economic growth will quicken yet further as the rising powers of Asia, the Middle East, and Latin America reach their full stride

In a sweeping report entitled "The World in 2050", HSBC said China at $24.6 trillion (constant 2000 dollars) and the US at $22.3 trillion will together tower over the global economy. 

By Ambrose Evans-Pritchard 6:00AM GMT 05 Jan 2011

Crunching everything from fertility rates to schooling levels and the rule of law, HSBC predicts that the world's economic output will triple again by 2050, provided the major states can avoid conflict - trade wars, or worse - and defeat the Malthusian threat of food and water limits. Growth will rise to 3pc on average, up from 2pc over the last decade.

In a sweeping report entitled "The World in 2050", the bank said China would snatch the top slot as expected, but only narrowly. China at $24.6 trillion (constant 2000 dollars) and the US at $22.3 trillion will together tower over the global economy in bipolar condominium - or simply the G2 - with India at $8.2 trillion far behind in third slot, and parts of Europe slithering into oblivion.

Turkey will vault past Russia, settling an Ottoman score. Egypt, Malaysia and Indonesia will all move into the top 20. Muslim societies may start to reassert an economic clout unseen since the late Caliphate. Yet Brazil may disappoint again, stalling at 7th place in 2050 as its birthrate slows sharply and bad schools exact their toll.

The surprise is how well the Anglo-Saxon states hold up under HSBC's model, which is based on the theoretical work of Harvard professor Robert Barro. America's high fertility rate (2.1) will allow it too keep adding manpower long after China's workforce has begun to contract in 2020s and as even India starts to age in the 2040s.

An eightfold jump in the per capita income of China and India will keep growth brisk despite demographic headwinds, but they will not come to close to matching US living standards. Americans will be three times richer than the Chinese in 2050.

Britain at $3.6 trillion also fares well, slipping one rank to sixth place but pulling far ahead of Italy and France, and almost displacing Germany as Europe's biggest economy. This is chiefly due to the UK's healthy fertility rate (1.9), although sceptics might question whether a birthrate inflated by the EU's highest share of unmarried teenager mothers is a good foundation for prosperity.

The low fertility of Korea (1.1), Singapore (1.2) Germany (1.3), Poland (1.3), Italy (1.4), Spain (1.4) and Russia (1.4), more or less dooms these countries to aging crises and population decline unless they open the floodgates to immigration.

Japan is already deep into this phase of atrophy, explaining why the country has had such trouble shaking off the effects of the Nikkei bust. Its total population began contracting outright since 2005. It shed a record 120,000 last year, and will shrink 37pc by 2050.

"Demography matters," said Karen Ward, the report's chief author. The "big losers" are the smaller states of Switzerland, Netherlands, Sweden, Belgium, and Austria, which will mostly drop out of the top 30. "They may struggle to maintain their influence in global policy forums," she said.

HSBC works from the assumption that mankind will avoid the energy crunch and overcome the eco-deficit, a term used to describe the world's depletion rate of non-renewable assets. It calls for $46 trillion of investments in alternative forms of energy to break out of the carbon trap, and head off a supply crisis that could derail growth.

Feeding the world may be harder. The UN expects food demand to rise 70pc by 2050, yet the yield growth of crops has slowed to 1.5pc a year from 3.2pc in the 1960s. The number of people living in areas experiencing "severe water stress" will double from a third of the world population to two thirds between 1995 and 2025. The water basins irrigating the crops of the North China plain are being exhausted at an alarming rate.

HSBC admits that it economic projections are based on a "rather rosy scenario". Yet one thing seems clear. As superpowers of world food output, the US and Canada are sitting pretty.

HSBC: China and America to lead global mega-boom - papers

China and the US will lead the biggest-ever economic boom as global output triples again by 2050, a HSBC report predicts.

Growth will rise to 3% on average over the next 40 years, up from 2% over the last decade, as the rising powers of Asia, the Middle East and Latin America become major players in the world economy, it said.
In a sweeping report entitled "The World in 2050", the bank said China would snatch the top slot as expected, but only narrowly, reports the Telegraph.

China, at $24.6trn (constant 2000 dollars) and the US at $22.3trn will together tower over the global economy in bipolar condominium - or simply the G2 - with India at $8.2trn far behind in third slot, and parts of Europe slithering into oblivion.

Crunching everything from fertility rates to schooling levels and the rule of law, HSBC predicts that the world's economic output will triple again by 2050, provided the major states can avoid conflict - trade wars, or worse - and defeat the Malthusian threat of food and water limits.

Fed unmoved by improving economic data

The US Federal Reserve will push ahead with its $600bn (£385bn) stimulus programme - dubbed QE2 - as it is not convinced by improved economic data in the US, meeting notes show.

Speculation had been mounting the Fed might scale back its controversial stimulus measures given recent signs of an economic recovery in the US.

Factory order figures for November, released yesterday, showed a return to growth.
The Fed minutes from its 14 December policy meeting revealed that "the pace and size of the overall purchase programme" would depend on the strength of the recovery, writes the BBC.

"However, some members indicated that they had a fairly high threshold for making changes to the programme," the notes said.

"While the economic outlook was seen as improving, members generally felt that the change in outlook was not sufficient to warrant any adjustments."

Source: IFA Online - News, blogs and analysis for IFAs. Visit the website now.

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