Date: December 28, 2023
First published in Straits Times on 28 December 2023
It certainly has been a tumultuous year for investors with stock and bond markets undergoing many ups and downs, driven mainly by inflationary worries and expectations of what central banks, particularly the US Federal Reserve, would do to contain rising inflation.
Over the past three months, those worries have subsided – the 10-year US Treasury yield, the most closely watched barometer for inflation and US Fed policy, started the year crossing 4 per cent in February, then 5 per cent in October but now looks set to end the year well below 4 per cent.
Wall Street stocks have thus undergone a massive rally since November and going by the latest data, the Fed is expected to cut interest rates three times in 2024.
While it is tempting to conclude that this means a strong year ahead for equities and bonds, caution is required.
The Securities Investors Association of Singapore (Sias), drawing from its 25 years as a shareholder activist group, looks at five ways in which retail players can take charge of their investments.
1. Make an informed decision
Always think twice or more before investing – if a deal appears too good to be true, it probably is.
It has been Sias’s position that investors, when confronted with eye-catching offers that come with high promised returns, must always ask, check and confirm. In our experience, retail investors who lose money on investments always made decisions based on greed and without proper evaluation of the risks.
All too often we read, almost daily, of individuals falling victim to investment scams. This is not only confined to naïve investors as often, the victims are well-educated and well-informed persons. The reason is simple – scammers prey on the two main emotions that underpin investing, namely fear and greed, emotions which are present in all of us.
Whether it is investing in overseas property, commodities or gold buyback schemes, which offer very high returns, always ask as many questions as you can, then check and double-check the credentials of the party making the offer against the Monetary Authority of Singapore’s Investor Alert List and then confirm for yourself that the returns are realistic. If you are unsure about any aspect of the investment, or if you do not understand how returns are generated, then it would be best to walk away.
In this regard, investors should always compare the potential returns against the risk-free rate, which in Singapore is usually taken as the yield on the Government’s 10-year bond.
Currently, this is 2.76 per cent so if an investment offers 6 per cent, investors should ask themselves whether the premium of 3.24 per cent is a fair return given the risks involved.
It is therefore essential that investors acquaint themselves with all the risks associated with the proposed investment and not just concentrate on the headline returns.
2. Don’t let greed be the driver
Do not let the fear of missing out (Fomo) or greed cloud your judgement – always ask what the money is for, or where it is going.
In many cases, Fomo causes individuals to make wrong assumptions regarding investments.
For instance, some 34,000 retail investors, many of whom were retirees, poured their money into Hyflux’s 2016 perpetuals, seduced by the headline yield of 6 per cent, which at the time was very generous given that interest rates were near zero, and based on a flawed assumption that Singapore’s investment company Temasek was a Hyflux shareholder.
If they had checked, they would have found that Temasek had invested in Hyflux in the early 2000s but had exited by 2006 – 10 years before the offer of the perpetuals.
Furthermore, had they asked where their money was going and checked against the original press statement and Use of Proceeds in the Products Highlights Sheet, they would have known that their money was intended to redeem earlier issues that had been made to sophisticated investors and institutions. Many didn’t even understand the true nature of perpetuals.
You’d have to wonder – how many investors would have rushed to buy if they had known that Temasek was no longer invested and that their funds were to be used to pay off essentially richer investors?
3. Do not rush into accepting privatisation offers
In 2023, Sias was heavily involved in the privatisation-cum-delisting offers of several firms such as Golden Energy and Resources, Global Palm Resources, Boustead Projects and Lian Beng.
In many cases, Sias called upon minority shareholders to reject the “lowball’’ prices made by offerors, sometimes even when independent financial advisers deemed the offers “fair and reasonable’’.
Sias succeeded in the cases of Golden Energy and Resources and Lian Beng in securing better prices, while Boustead Projects provided a good example of the need for minorities to exercise patience as the 4.5 per cent of shareholders who followed Sias’s advice to hold out eventually ended up receiving a revised price of $1.18 – 24 per cent better than the $0.95 that the rest received.
Those who accepted the $0.95 price probably did so based on a fear that they might end up owning shares in an unlisted entity – a legitimate concern that is fully understandable but also exploitable by the controlling shareholders.
In fact, offerors capitalise on the vulnerability of small shareholders and often make such lowball offers. And indeed, the odds are distinctly stacked against minority shareholders when controlling shareholders decide to go private. For minority shareholders, it is important to know the value of the shares, and not just the traded share price.
4. Exercise shareholder rights
As we transition to normalcy with Covid-19 now considered endemic, shareholder meetings have also reverted to their physical format. Sias encourages shareholders to actively participate, and maintain decorum, in the general meetings and to make their views and concerns known to the board and management.
Shareholders can and should play a more significant role in holding companies accountable and shaping the trajectory of the companies in their portfolios.
5. Pay heed to geopolitical risks
In 2023, markets managed to shrug off the ongoing war in Ukraine and the conflict between Israel and Hamas. This may have lulled many into a sense of complacency, but you would have to wonder how long this can last.
According to a Bloomberg estimate, 40 elections will be held across the world in 2024, starting with Taiwan in January to the US presidential election in November.
Bloomberg warned: “With two wars raging, tensions between the US and China escalating and political polarisation worsening before critical elections, the potential for disruption in 2024 is huge.”
Retail investors would be well advised to follow what Sias has always maintained, which is that investing in well-governed companies with strong fundamentals is preferable.
There is of course no guarantee of superior returns, but at least the chance of losing money to fraud and crooked accounting might be reduced. Always ask, check and confirm before you invest in 2024.
- The writer is Mr David Gerald, Founder, President and CEO of the Securities Investors Association (Singapore)