01 Feb What is Our Investing Culture?
In the recent months, I had the chance to spend quite a fair bit of time in Japan, both for work and play.
It was an extremely interesting experience. On one hand, the bedrock of the Japanese society is their steeped in their cultural history – food, religions practices and artifacts, traditional costumes to mention a few. On the other, Japan has experienced decades of technological innovation that has propelled the country and its people into a fast moving, first world environment. Every where I go, it seems that the Japanese people are caught up in this uneasy truce between the new and the old.
I try to learn more about the country, but in order to truly understand the people and the society I have to first understand their culture. I remembered a classic paper by global consulting firm McKinsey that I first came across many years ago. Culture is extremely difficult to define, yet they managed to do it elegantly. They simply put culture down to –
the way we do things around here
What is our investing culture?
With that in mind, I am eager to explore what exactly is the investing culture in Singapore. Let us take a look to see how we ‘do things around here’.
Singaporeans invest in properties.
Singapore has one of the highest percentage of home ownership in the world. According to Singstat, up to 90.5% of Singaporeans live in family owned dwellings. This was made largely possible by permissive Government policies that encouraged home ownership. The Housing and Development Board has built over one million flats in its four decades of existence and according to its annual report for 2014, close to 82% of Singaporeans live in public housing.
The Government has also been very forthcoming in its pursuit of asset enhancement policy. It believes that since the majority of Singaporeans are home owners, by allowing a gradual and controlled increase in housing prices, the entire population benefits from the effects. Here is a look at the HDB resale price index.
The implications of this policy is that an entire generation of Singaporeans grew up benefiting from the spoils from the success of the property market.
I know of an uncle who has bought and sold 3 apartments over the course of 30 years, each time benefitting both in terms of a newer and larger property and spare cash upfront. My parents have done well with their decisions over the years. I remembered unsolicited but well intentioned advice to apply for a HDB flat and ‘chope’ a place in the queue as early as I possibly can with my future wife, just to prevent having to pay more for the same flat in time to come.
Given the circumstances, Singaporeans’ obsession with properties is not unjustified. We need a place to stay anyway, why not make some money out of it? The roof over our heads have become our biggest investment.
Singaporeans invest in stocks
According to SGX, the total number of CDP accounts as of Dec 2014 stands at 1.66 million. Based on the entire island population of over five million, one in three would be an account holder and could potentially have bought and sold a stock before.
As the adage goes, 90% of investors in the stock market loses money. Unlike the property price index, where we could safely assume that the increase over the years benefits the majority of property investors rather uniformly, the performance in the STI does not have a similar effect on equity investors.
Unlike properties, I personally do not know of a single friend or relative who has profited consistently from the stock market over the past 30 years. There is no data on the performance of retail investors, and the closest proxy I can find is information obtained from the CPF Investment Scheme (CPFIS).
The CPF Board tracks the performance of investors who have sold their holdings over the past year. In the year ending September 2014, that number stood at a tad over nine hundred thousand. Out of this, 40% of investors suffered losses. Another 45% failed to beat even the CPF interest rate of 2.5%. Only 15% managed to eek out a decent profit that is over and above the risk free rate.
Based on this damning piece of statistic alone, 85% of investors would be better off leaving their money in the CPF account.
Investors are getting younger.
According to SGX, investors who are below 25 make up 31% of new CDP account holders in 2014. This is up from only 19% five years ago.
The finance blogosphere has also seen a number of younger bloggers getting into the game, amongst them SGYI and Teenage Investing. They write well and I have no doubt they will go a long way towards influencing their peers to be part of the investing community.
Our very own Value Investing Mastery Course is also seeing good responses from the young. At the end of 2014, a 16 year old lady in the midst of her O’levels took time out to attend the session. We had a number of promising students who saw the importance of starting young and choose to spend their weekend with us instead hanging out with friends. So here is a shout out to Vicky, Victor, Dennis, QZ, YL and WY, and to all others I have inevitably missed out. Your involvement at this early stage is the surest sign of a healthy and growing investment culture in Singapore.
Developing the investing culture in Singapore
Singapore may be 50 this year but we are still a young country by anyone’s standards. We need time for the culture to become us and for us to become our culture.
I am sure there are many other facets of the investing culture in Singapore that I have missed out. These are but three observations I have about the way we go about doing our investing thing. Do feel free to share your thoughts with us.
As investors, every single one of us make up the investing community. It is up to each of us to make the investing culture as vibrant and healthy as we possibly can!