Onions

I thought this article was quite interesting:

What onions teach us about oil prices

I didn't know onions used to be traded on the futures market.

Arguing against the belief that speculators drive up the prices of oil, it seems to suggest that without the market mechanism in place and the "speculators" providing the liquidity, oil prices might be more volatile than it is now.

It works both ways. Live with it.

Live by the Sword, Die by the Sword

Are oil prices really going to the moon?

It looks like it from the recent price activity. The trajectory of the rise seems to indicate that a bubble is forming, according to many. Why shouldn't it be? After all, the meteoric rise of oil has many similiarities to the NASDAQ bubble a few years back (I read the article somewhere, but can't recall where).

I have no idea which direction oil prices will go. However, I'm not sure if it's considered a bubble if there are still people on the streets saying it is a bubble/ a bubble is forming etc. I thought a bubble is only formed when everyone is convinced prices will continue to go up. Oh well. we'll only know if it's a bubble after it bursts.

If you decide to get vested in commodities related funds, good for you. If you decide to stay out of it, good for you too.

The Battle for Investment Survival

I read the book of the same title some months back. It was written in 1930s by Gerald Loeb.

As you would know, languages evolve over time. Even within a short period of 70 years, I feel the style of English used in the book is slightly different from the later titles I've read. But it could be due to the writing style of the author too.

I especially like the concept of "putting all your eggs in one basket and watching that (damn) basket carefully". Very different from the diversification style espoused by the masses.

Gerald is definitely not a fan of the buy and hold strategy, probably because he has seen through some serious and prolonged bear markets. Or maybe because of his stockbroker background. This is not to say that buying and holding is not a sound strategy. It works, but only in an upward trending environment. Or you bought your stocks real low (but then you wouldn't have sold it near the top since you bought and decided to hold for the long term).

Inflation is also given much focus in the book. Inflation has been largely ignored for much of the past decade, so reading the book gives an idea of how to tackle such condition (mostly through equities, or so says Gerald). The idea is that we are constantly in the battle to maintain and increase the value of our money.

Low quality investment products are being launched every now and then. Have you fallen victim to any of them yet? My random observation is that such products inevitably have the following characteristics:

1. "principle guaranteed" with a lock-in period.
2. promises a not-so-stellar performance.
3. marketed by banks.

Don't we simply love safety?

I know I did. I recently terminated a growth plan which promises an annual growth rate of 4% and banked the proceeds in another vehicle (where the returns are uncertain but at least it has a fighting chance against inflation).

Having said that, I think it's time to re-read the book. I hope to find this book at the Times The Bookstore sale at a good price.

Hedging Activities

If you have been browsing airline websites in search of travel locations recently, you would have noticed that fuel surcharge has been increasing steadily in wake of the high oil prices. If I recall correctly, Qantas has increased their surcharge by around $200-250 in the past 2-3 weeks.

Guess what? It is still one of the cheapest airlines (if not the cheapest) to fly to Europe! The other airlines already have a higher initial fuel surcharge compared to Qantas.

At the back of my mind, though I wasn't sure, I was impressed with their trading arm of the business. The low fuel surcharge was possible only through hedging. By buying future contracts of fuel, Qantas has already locked in prices way ahead of the oil price surge.

To my surprise, the Sunday Times published this article.

Despite the crisis, Australian carrier Qantas still expects to make a record profit in excess of A$1.5 billion (S$1.94 billion) this financial year, due largely to its fuel hedging programme, which has seen it pay US$76 a barrel for fuel.

But too bad their contract wasn't for a longer period of time. They will be paying US$112/ barrel starting from July till December. Earlier, they have announced that there will be a fuel surcharge revision from 4 June onwards.

On another note, Nestle published a full page advertisement some time earlier this year announcing that the prices of their products will remain constant for about 3-6 months.

Yes. It's hedging at work. Makes for a good PR exercise too, doesn't it?

OCBC NCPS

This is another product which has recieved attention from interested investors with more than $20,000 to spare.

Look at the yield. 5.1%! Where can you find such good interest rates nowadays?! It's a sure win deal, isn't it?

If you remember, the annual inflation rate for sunny Singapore was reported to be 7.5% in April. That means the effective rate of return is -2.4% for the NCPS! Am I missing anything?

Think this is just an one-off event and that inflation rate should come down soon? I hope so too. But I'm not taking any chances. I am factoring a long term inflation rate of 5% for my retirement.

Meanwhile, oil prices seemed poised to hit the moon. Note that oil prices are expected to "spike", whether they are sustainable at that level is quite a different matter altogether.

United Commodities Plus Fund

With all the hype on commodities the past few months, interested investors have an ever increasing number of options to participate in the commodities bull run so frequently mentioned by Jim Rogers.

I recieved a pamphlet on the above fund together with my CPF statement recently. What makes this different from the other commodity funds is that it includes a TIPS component, meaning that the fund could invest in US bonds which are tied to the Consumer Price Index, helping fight inflation along the way.

But everyone should have realised that government released statistics don't necessarily reflect sentiments on the ground.

Anyway, what caught my eye in the pamphlet was this:

The Fund’s portfolio will be re-balanced every six months, based on a 40-30-20-10 mix, with the best-performing one allocated 40% and the worst-performing one allocated 10%.

It seems to me that this strategy is strongly dependent on a trending market, which is good since commodities do appear to be moving up (though not steadily). However, it is not without its' trade-offs. In a non-trending environment where prices hits a high and retreats, be prepared that UOB Asset Management will be buying high and selling low.

If you're wondering, I'm not subscribing to this. I inherently prefer putting my working capital into a commodity index fund.

All Markets are Dangerous

The other day, I visited the fish market to look for a Batang fish.

I've never bought a single fish my whole life. Being new to the fish market, the fishmonger sold me the said fish at a much higher price. To add salt to injury, the fish wasn't even fresh.

So you see, any market can be risky if you don't know anything about them. Do your own due dilligence.

Insurance Planning in 15 minutes

Some time back, I mentioned that I would be reviewing my insurance needs. Since then, I 've sent out several emails to various insurance companies to request for a quotation.

After doing a review, here are a few of the plans which I think is essential. In the order of importance (in my personal capacity as a normal man on the street):

1. Medical Insurance (Must have)
2. Insurance cover for Death and Total Permanent Disability (Must have)
3. Disability Income Insurance (Must have)
4. Insurance cover for Critical Illnesses (Nice to have)

Medical Insurance
Premiums for Medical Insurance can be paid using your CPF (up to $800 per person). It basically covers for any big bad events which requires you to be hospitalised. I've did a simple comparison on the benefits versus cost for different insurers but have been told that the premiums will be increased soon, probably in July. so I will not include the comparison here.

As you may have felt the effects of inflation on your daily life, do take note of this component too when you choose your plan. It's best to get one which reimburses you on a "As Charged" basis to cover yourself against medical cost inflation. If you need an idea of how much medical operations costs in Sunny Singapore, you can check it out here.

You can get this policy anytime you want. But do take note that if you do switch between insurers, make sure you do not have any pre-existing conditions.


Insurance cover for Death and Total Permanent Disability (TPD)
Most people would have known this by now. As such, my point of discussion will be on whether you should get a Term or Whole Life Policy.

Friends of mine will know that I'm a proponent of Buying Term and Investing the Difference/ Rest. My reasons are:

• The insurance should be for protection purposes, not for investment.
• The purpose of insurance is to protect yourself and your family should you be gone and unable contribute to the household.
• No intention to leave a large legacy for my dependents, except to cover for their daily needs when they are still financially incapable.
  

But one caveat about this method - You need to be fairly disciplined to invest the rest. I think this is not such a big problem if you set up a regular savings plan with Fundsupermart or DollarDex. I'll talk about that the next time.

You have to understand that as you're paying less every month in insurance, you should go along the path of becoming your own insurer after you pass the age of 65 or 70, when insurers will only take you in if you pay up a large sum of premiums. Hence, the remaining invested will be a cover for your own death and TPD after those ages.


Disability Income Insurance
There is a very real need to protect ourselves against risk of being totally or partially disabled. If the bad were to happen, the effective income generation due to the loss of working capability will be zero (unless you have other streams of income coming in, but that's a different issue). Hence, you need a policy which pays you should you lose the ability to work. For this, you can approach either Great Eastern or Aviva. To my limited knowledge, these are the only 2 insurers providing such policies.


Cover for Critical Illnesses
They are nice to have. The cost of hospitalisation and surgery should have been covered by your medical insurance. However, it might be necessary for you to have an additional sum of money to tide over the period where you are unable to work after your surgery (assuming of course you can be saved).


There you go. Insurance planning in 15 mins! I'm going to kick start my plans this weekend.