The Funny Characteristics of Human Beings

We human beings, regardless of race, language or religion, have one funny characteristics. This is the characteristics of contradictoriness. This is how it goes:

1. We are in such a hurry to grow up, and then we long for our lost childhood.

2. We make ourselves ill earning money, and then spend all our money on getting well again.

3. We think so much about the future that we neglect the present, and thus experience neither the present nor the future.

4. We live as if we were never going to die, and die as if we had never lived.

5. We tell people all our problems, but when present with an opportunity to work on the solution, we reject the solution with ample reasons.

I wonder do animals have this problem.

The Moment of Dawn

A Rabbi gathered together his students and asked them:

"How do we know the exact moment when night ends and day begins?"

"When it's light enough to tell a sheep from a dog," said one boy.

Another boy said:"No, when it's light enough to tell an olive tree from a fig tree."

"No, that's not a good definition either."

"Well, what's the right answer?" asked the boys.

And the Rabbi said:

"When a stranger approaches, and we think he is our brother, and all conflicts disappear, that is the moment when night ends and day begins."

Wonderful definition, isn't it?

(Source: Shimon Peres, winner of the Noble Prize for Peace, told this story during the World Economic Forum at Davos)

Why Health Insurance?

Recently, the issue of retirement planning is a heatedly debated issue. I took this opportunity to re-visit some of my senior aged clients. I am surprised that some of them view medical insurance premium as a cost, and are unhappy that being older, or those with existing medical conditions, they need to pay higher premium. I think it is necessary to get re-educated on this issue by going back to the basic question: "Why Health Insurance?"

Medical cost in Singapore is one of the sure-way of depleting one’s assets. For example, it is not uncommon for a cancer treatment to cost $100,000. A colon cancer treatment alone can cost $6,500 to $7,000 (source: Parkway Group Healthcare Pte Ltd). These are direct medical cost.

The indirect medical cost are equally (if not more) damaging. On the one hand, our working capacity will drop; on the other hand, our need for special diet and transport will increase, not to mention if one need a care-giver. This drop in income and the rise in living cost is one of the main causes of financial problems. I have seen many such cases in my work.

In an unplanned situation, people self insure such risk, i.e. when illness strikes; they use their own savings or medisave. The few lucky ones will have family members to chip in. Such situation is not only unwise and also unsustainable.

In a planned situation, one transfers this risk to an insurance company. By pooling the premium from a large group of people, the insurance company will take on the obligation to pay the medical bill or provide the insured with a replacement income. To ensure the whole system is fair, the person with the higher chances of claim (i.e. older in age or with pre-existing condition), the premium is usually higher or sometimes, the policy is issued with certain exclusion.

The cost of insuring is high, but the cost of not insuring is even higher.

A little life story of Arthur Rubinstein

One of the greatest pianists of our time, in my opinion, was Arthur Rubinstein. Unlike most pianists, he was able to play publicly and at a high level throughout his 70s and 80s. His interpretation of Chopin's music had brought much joy (and tears) to many people.

I was surprised to read in his autobiography a little life story about his early struggle.

Arthur Rubinstein was a prodigy. Once he became world renowned – feted wherever he traveled – he ceased to work on his craft with sufficient regularity and assiduity. He confessed with great sorrow that he was not proud of himself at those early years. Below were his own words:

The dissipated life I was leading, my constant constantly preoccupation with the opposite sex, the late hours spent nightly with my intellectual friends, the theaters, the shows, the rich food at lunch and dinner, and worst of all, my passionate attraction for all of this never allowed me to concentrate on my work.......I couldn't boast of one single piece which I played entirely faithful to the text and without some technical shortcomings........I knew that I was born a true musician but instead of developing my talent I was living on the capital of it. (Source: Arthur Rubinstein, My Many Years (NY: Knopf, 1980))

Rubinstein came to realize that he could not live on this capital indefinitely without replenishing it. He privately commented to a friend, “When I don't practice for a day, I know. When I don't practice for two days, the orchestra knows it. And when I don't practice for three days, the world knows it.” And so he gradually relinquished the life of the sybarite, settled down, launched a family, and began to practice the repertoire with greater regularity and scrupulousness. Rubinstein went on to become a giant amongst classical musicians (pianist) of our time.

Rubinstein stands as an example of someone who has the humility to admit one's weakness(at the height of one's success); the courage to let the unholy self dies, the perseverance to wed the two meanings of discipline: mastery of a craft, and the capacity to renew that craft through regular application over the years.

Indeed, this is something we can learn.

* Arthur Rubinstein died on 20 December 1982 at the age of 95, and his ashes were buried in Israel, in a plot of land overlooking the Jerusalem Forest. His music lives on, and can be found on youtube web-site.

A Quick Way to Examine an Investment Product

In my work, I am frequently being asked to advice on investment products. Especially those which promise “high returns and low risk”. I must admit that some of the marketing effort of such products were very well done and persuasive. However, most of them were sugar coated poisons. There is no such thing as “high returns with low risk” investment products. Let me share with you a quick way to examine an investment product. This method is to know the prime lending rates of major banks in each country.

Prime rates are the lending rate which a bank would lend to its best 10% customers. In Singapore, the prime rate is around 5.3%, in the US the rate is around 8.3%. This is the rate which drive business activities, because most businesses (in any economy) use debt to finance their working capital or build resources. Most of the time, not many people will qualify for prime rate, and usually we are charged a few percentage points over the prime rate (e.g. 2% + prime rate).

I am always amused when “professionals” try to convince me of a seemingly guaranteed investment products of 20%-25% per year (I have even seen a “40% p.a.” return product promotion). If this will be the case, this product will create an “arbitrage” situation in the financial market of a country, where people can borrow from the bank and “invest” it into the product and profit from the interest differential. Let's assume a business can borrow $1M at prime rate (5.3%), and then invest at “20%” guarantee. The borrowing interest cost would be $53K, but the return profit would be $200K. Therefore, there would be a gain of $147K, without doing anything! In no time, such economy will collapse. This was the scenario in Indonesia and Thailand in 1997, and subsequently, both of these countries were hard hit by the financial crisis.

This is the reason why a government's bond coupon rate is always slightly lower than the prime rate. Equity will generate higher return than the prime rate, but the trade off will be its uncertainty. Therefore, if the product advisers still insist they are right, you can be sure that there will be some risk which is not explained.

The only “high return & low risk” financial product is the Ang Boa (red packet) from one's grandparents during festive occasions.

God bless you.