IFAST Insight- Learning from past Financial Crises

financial
cover planning
story
By allis on le e
By iFAST Editorial Team

LEARNING
FROM PAST
FINANCIAL CRISES
iFAST INSIGHT interviewed a panel of financial advisers who
experienced the Asian Financial Crisis, the Technology Bubble and
the SARS Crisis, and got them to share the key lessons they learnt and
their advice for investors in this current global financial crisis.

P
undits are calling the current recession the worst the global economy has experienced in 60 years,
since the dark days of the Great Depression of 1929. The implosion of the subprime-induced cred-
it crisis that first emanated from the US and Europe in the latter part of 2007 has brought about an
economic storm that has swept across the globe.
Equity markets worldwide have tanked, dispelling any talk of the “decoupling” between Asia and the US.
The US, Europe and Japan are in a recession, while closer to home, Hong Kong and Singapore have lapsed into
technical recessions.
A quick look back at the recent economic crises brings to mind the Asian Financial Crisis (1997), the
bursting of the Technology Bubble (2001) and the SARS Crisis (2003). History has taught us that the global
economy has its boom and bust cycles; the global economy may be in shambles now, but the recovery will
eventually happen.
iFAST INSIGHT interviewed a panel of financial advisers who experienced the Asian Financial Crisis,
the Technology Bubble and the SARS Crisis, and got them to share how their portfolios were impacted then,
the mistakes they made along the way, what lessons they learnt, and their advice for investors in this current
global financial crisis.

22 | 2009
February ~ July

Article disclAimer: This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision should be taken without first viewing a fund’s prospectus. Any advice herein is made on a general basis
and does not take into account the specific investment objectives of the specific person or group of persons. As some of the authors/contributors may have a personal interest in some of the funds commented on, investors should seek the advice of professional advisers regarding
the evaluation of any product, unit trust or other financial instruments, report, index, opinion or any other content contained herein, to ensure the investment instrument is suitable for them. In the event that investors choose not to seek advice from a professional adviser, they
should consider whether the investment instrument is suitable for them. Past performance and any forecast is not necessarily indicative of the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Opinions expressed
herein are subject to change without notice. iFAST Financial and/or its licensed financial advisers representatives may own or have positions in the funds of any of the asset management firms or fund houses mentioned or referred to in the article, or any unit trusts or Singapore
Government Securities bonds related thereto, and may from time to time add or dispose of, or may be materially interested in any such unit trusts or Singapore Government Securities bonds.

THE ASIAN FINANCIAL CRISIS

Sani Hamid Raymond Wee

the issues that led to the demise of many corporations and pushed
In July 1997, the Thai baht collapsed, sparking off the
banking systems in Asia to the brink. Simply put, Asian economies
Asian Financial Crisis (AFC) that lasted till February 1998.
saw a period of sustained growth for a good part of the 1990s
The effect of this crisis was felt throughout Asia. During
which eventually went beyond what these economies could sustain
that period, the MSCI Asia ex-Japan Index fell to a low of
fundamentally, as evidenced by large current account deficits and
316 points from 576 points at the start of the period – a
persistent inflationary pressures.
45% drop.
It was a painful lesson. Like almost everyone else, the finan-
While Singapore was not the worst hit, it too suffered
cial market meltdown hit my portfolio severely. The only bright
from the AFC. Rather than intervene in the market, the
spot was that having only just been in the work force for about
Singapore government allowed the Singapore stock mar-
four years, my investment portfolio was not too large. However,
ket to weather the volatility. The STI fell 43% from 1923
it was my trading portfolio which did the most damage as I suf-
points at the start of the period, to a low of 1082 points.
fered losses of a few thousand dollars related to contra trades.
iFAST spoke with two veterans of the financial indus-
And back then when my monthly salary was less than $4,000, it
try who lived through the AFC. Raymond Wee is currently
was painful.
an Associate Director in Financial Alliance and leads a
team of consultants. He started his career as a tied agent
iFAST: What are some of the mistakes you (or other
before becoming an independent financial adviser and has
people you know of) made as a result of this crisis?
more than 13 years of experience in the Financial Services
RW: The financial services industry was not as developed back
industry. Sani Hamid is the Director of Wealth Manage-
then as it is now. We did not have the tools to create a diversified
ment in Financial Alliance and has been with the company
portfolio for our clients, as the number of funds available to us as
for more than 15 years. They shared their experience and
tied agents were limited. We did not have the opportunity to work
insights in the following interview.
with a unit trust platform with over 300 funds. Hence most of our
iFAST: What was this crisis about? How was clients’ investments were pooled into either an Asian equity fund
your portfolio impacted then? or a global equity fund from the same fund manager. As we did
RAymond Wee (RW): The AFC led to much gloom not practice portfolio creation, we pretty much did not split our
clients’ investments into equity-bond mix.
and doom in the general population. At that time in 1998,
We had one other global bond fund and a Singapore fund,
most people had the same end-of-the-world (or rather
which I shunned due to their slow growth prior to the crisis com-
end-of-the-market) feeling as we do today. In the financial
pared with Asian and global equities. The years prior to 1998
services industry, we were also not spared that sentiment.
were like the years from 2004 to 2007 where the market could
There was much talk that the dismal economy would drag
do no wrong. Everything an investor threw his money at made
on for years. With that, the heyday of the financial serv-
profits. Anything that was seen as slow, stable growth was not at-
ices industry, which had seen good growth since the early
tractive.
1980s, was over at best, or it would be wiped out at worst.
When the crisis struck, our clients’ investments did more poor-
Some of my colleagues left the industry to pursue other
ly than now, as we did not put in bonds to cushion losses, nor
things. My clients who invested in my company’s single
were we able to access better-performing fund managers. When I
premium investment-linked products (ILP) funds made
average losses of 40%-50% on their principal amount. made the switch to join an IFA in 2004 and had the opportunity
to make the comparison of the Asian equity funds, I realised that
in the period from 1997 to 2004, the top Asian equity funds were
SAni HAmid (SH): The AFC was about - like many
performing at an excess of 20% per annum year-on-year (yoy),
other crises – excess. Excessive foreign currency borrow-
whereas the one my clients invested in from my tied company only
ings and reckless lending by the banking system, especially
did 9% p.a. yoy!
➝
to non-productive sectors of the economy, are just two of

23
Important: See Disclaimer on Page 6 iFAST INSIGHT |


cover story
By iFasT ediT o r ia l T e a m

iFAST: What are your tips on how investors should
➝
A grave mistake committed by many in the financial serv-
face 2009?
ices industry was to quit. The industry has continued to see
growth and if we engage our clients in the proper way, we SH: We always like to believe “it’s different this time”. We
will still be relevant to our clients and can add value to their thought we were different from Thailand when the baht
financial planning process. tanked in 1997, we thought ridiculous valuations for internet
stocks were justifiable in 2000 and in 2007, again we thought
SH: I bought a stock called Uniphoenix. The price had the world had decoupled from this crisis that originated from
dropped substantially and on the charts it looked poised for a the US. Similarly, it will not be different - the market will re-
rebound. What the chart didn’t tell me was that it was going cover. We believe markets will bottom in 2009, potentially even
to get suspended. It has remained suspended until today, for in the first quarter and in the worst case, in the third quarter. It
a good 10 years. will not be different as markets have normally bottomed in the
same year growth hits a trough. And we expect that in 2009.
iFAST: What did you learn from this crisis? As such, investors who ride out this downturn will be rewarded
RW: Diversification can help cushion losses, though it cannot for understanding that “it’s never different”.
buck the trend. With equities losing up to 60% of their value
WHEN FACED
since November 2007, most bond funds lost only 5%-8% in

WITH A CRISIS...
the same period.
Ultimately, the market will recover, given time. As men-
tioned, at that time in 1998, we had the same end-of-the-
do:
world feeling as we do today. My clients, who invested in my
company’s single premium ILPs, were sitting on losses of • Keep calm.
40%-50% of principal and there was pressure from them to • do appropriate switching.
sell. However, even those who invested in the market highs of • Get back into the market when you see good value and
1997, made profits of an average of 5% per annum, when not allow the scars from losses to scare you away.
they held their investments to 2004/05. This is a reasonable • Be patient. I know a lot of people who keep averaging
return given the limited tools available in terms of fund avail- down just because stocks have fallen say 10-20% from
their original purchase level. Instead, wait for signs that
ability and diversification into different instruments.
the market has bottomed. For example, I believe the
SH: I learnt a few key lessons in that crisis. The first and market has moved into a sideways base building
consolidation phase. I believe this is the time to pick
foremost is not to over-leverage. In other words, “Don’t play
up stocks for those with a minimum time horizon of 3
contra if you cannot manage the leverage”. The crisis also
years or more.
taught me how markets could turn suddenly and that no mat-
• Protect your profits. Increasingly, as crisis become
ter how many times you hear the words “we are different”, as
more frequent and severe, capital preservation will be
many countries tried to differentiate themselves from Thai-
a key feature in any portfolio. In fact, we are looking
land after the baht’s collapse, financial markets are closely
to introduce features into our clients’ portfolios which
intertwined.
will help guard against sharp declines like that faced
iFAST: How has this crisis helped you to plan in 2008.
your clients’ portfolios better in 2008?
RW: It has given me conviction that markets, no matter how
don’t:
disastrous, will recover. This has enabled me to reassure my
• Sell off at a whim.
clients who have made losses, to hold on to their investment
• Believe every piece of news you read. Markets have
objectives that they started off with and stay invested for the
been known to be talked-down by the pessimism of
next 5-10 years.
economists.
• Link the economy with the market. Markets may recover
SH: Based on the (painful) lessons I learnt in 1997, I exited
before the economy does.
the equity markets in Q4 2006 as I felt very uncomfortable
• Be overly sentimental with losers. the question
with how markets had rallied unabated, reminiscent of pre-
investors should be asking themselves is whether the
1997. With hindsight, it was a full 12 months too early and
investment they are holding will be able to recover
I had to contend with the fact that markets rose much more
when the market does. the worst case would be to
during that period. But I feel vindicated now as prices have
hold onto a stock or unit trust which will underper-
collapsed way beyond my exit levels. Now I have in fact gone
form the market when a recovery takes place.
back into the market via dollar cost averaging because my
capital is fortunately intact. Source: Financial alliance Pte ltd

24 |
February ~ July 2009


THE TECHNOLOGY BUBBLE

Victor Wu Bob Mock

ren Buffet – was the order of the day. Millions of dollars were
In the mid-1990s to the early 2000s (right before the bursting
thrown to corporations with no clear business plan, to grow to
of the technology bubble), technology and technology-relat-
the likes of Microsoft in an unrealistic time frame. 18 months
ed entities and stocks were all the rage. Dot-com companies
became the golden standard for VC investment time horizon.2
sprung up at a pace previously unseen; almost every sizable
To be fair, some company founders did strike it rich by selling
dot-com entity was regarded to have the potential to be the
their businesses at the early stages of the bubble. But majority
next big thing in the technology space.
did not and all these selective successful testimonies only served
Bob Mock, Senior Consultant with Alpha Financial Ad-
to create a larger false impression of the market.
visers Private Limited, says, “At the peak of the Nasdaq index
Then on 10 March 2000, millions of dreams all over the
of over 5,000 points, the price earnings (PE) ratio went to an
world were shattered when the NASDAQ fell 33% in 1 month.
astronomical high of 62X. The bubble started to deflate when
And there was more to come, over the next 2.5 years, the NAS-
leading technology companies such as Cisco and Oracle failed
DAQ lost about 78% of its value (closer to our heart, the STI
to meet analysts’ earnings expectations.” He added that the
lost about 50% during this period)3. When the dust settled,
crisis was perpetuated by investors’ greed for short-term gains
US$5 trillion of paper value had evaporated from the tech-
and thirst for high returns which led to concentrated bets on
laden index4.
technology shares, disregarding the golden rule of traditional
asset class allocation based on investors’ risk profile and the
iFAST: What are some of the mistakes you (or
need for portfolio diversification.
other people you know of) made as a result of
In an interview with the duo, they tell us more about the
this crisis?
key lessons they learnt from this crisis. Victor Wu joined Alpha
VW: A Gallup poll put out by Paine Weber was conducted on
in 2004 and has 5 years of industry experience. Bob Mock,
a group of investors in December 1999. In it, Warren Buffett
a senior consultant with Alpha, has more than 10 years of
was criticised by many for failing to take advantage of the phe-
working experience in the financial industry.
nomenonal rise in the IT stocks. Many investors were making
iFAST: What was this crisis about? How was your extraordinary returns and had expected a 19% annualised re-
turns in the next decade5. When the party was over, they were
portfolio impacted then?
the ones who would kill to have the 12% annualised return
VicToR Wu (VW): At the height of the investment fren-
in Berkshire Hathaway’s holding since 1965 to 2006. Buffett
zy, people were pouring their personal assets into the market,
clearly knows something that we, mere mortals, do not. When
even quitting their jobs to be full-time day traders. This was
caught up in the euphoric period of the mid-90s, people were
also a period marked by rapid IPOs. There were 457 IPOs in
throwing the fundamentals of the companies out of the win-
1999 (a rate of 1.25 IPO per day), most of which were tech-
dow. But Warren Buffett has repeatedly shown us that he is not
nology and internet related. 117 of them doubled in price on
the first day of trading.1 A Venture Capitalist (VC) was once in the business of buying over-priced assets. He was constantly
seeking out undervalued companies which promised long term
described as someone having deep pockets with short arms.
profits growth. In his 2000 acquisitions, there was not a single
Even then, when an investment was pitched with a “.com”
technology company in it, but a bunch of ‘boring’ companies,
at the end, the VCs would jump right at it. Irrational exuber-
by any standard applied.
ance – in the words of Alan Greenspan and the great War-
Another lesson which we observed from the technology sec-
tor meltdown was the lack of diversification when investing.
People were holding majority, if not exclusively, technology and
internet stocks in their so-called portfolio. In our excitement,
we forgot that there was a need to diversify across asset classes,
➝

25


cover story

Greed as well as fear is bad for investors’ portfolios when
regions and sectors. While some experts may frown upon
➝
one tends to chase after hot stocks when the shares are rag-
the concept of diversification, it would be suitable for people
ing, forgetting to buy stocks with strong fundamentals and low
in the Main Street.
valuations. Conversely, investors are likely to sell out at market
BoB mock (Bm): As usual, mistakes were made by both bottoms due to fear that their shares may go lower the next day
with relentless bad news from reading the newspapers.
retail and institutional investors. The main mistake committed
by both type of investors was ignoring the basic rule of invest-
iFAST: How has this crisis helped you to plan
ing, which is to invest based on sound business fundamentals.
your clients’ portfolios better in 2008?
Institutional investors, such as analysts and fund managers,
VW: The IT bubble as well as other market corrections that
were talking up the technology sector as the only place to be
came along the way had certainly reminded us how important
in, while putting down “brick and mortar” defensive sectors
it is to invest in the long-term value of quality companies and
as sunset investments.
not the ‘flavour-of-the-season’. We have just been reminded
Retail investors, meanwhile, failed to reduce their in-
how frequently bubbles form, with the recent commodities
vestment risks by placing most of the money into technol-
bubble. In early 2008, investors were demanding to invest in
ogy shares or funds. This mistake, turned out to be a pain-
the commodity sector. However, we felt that the over high valu-
ful lesson for them as they saw their wealth decimated when
ation was just not justifiable to invest in and thus commodity
the NASDAQ crashed, and they were not buffered by other
products were not included in the portfolio. While the question
asset classes such as bonds, real estate and commodities in
on whether the commodity bubble popped depends on who
their portfolios. Another mistake made by some investors was
you ask, clearly the fever has subsided just as abruptly.
borrowing to invest in the bull market, failing to cut losses
When you have a game plan, stick to it no matter how
fast to salvage their portfolios, and selling at much lower levels
tempting outside market noises may seem. Revisit your invest-
after several rounds of margin top-ups.
ment objectives and time horizon to gain strength when your
iFAST: What did you learn from this crisis? confidence seems to be wavering. This, coupled with periodic
VW: To further add salt to their wounds, investors burnt by rebalancing of the diversified portfolio and a level-headed
mind, would always do the trick. Identifying how emotions are
the market tended to over-react to market volatilities rather
affecting us is the key to preventing more mistakes from being
than respond in a rational manner. Just as greed rules our
made especially during the down times. Somewhere between
emotions when the going seems smooth, fear paralyses our
greed and fear is that elusive sweet spot which we all can be at
mind when all seems lost. Investors pulled out of falling stock
peace with.
markets, completely disregarding market fundamentals. Sud-
denly, all long-term investment planning becomes short term
Bm: Indeed, the lesson I learnt from the technology sector
when faced with the fear of sustaining further losses.
crash has proven to be invaluable to my practice. I have made
It is painful enough to see a large portion of your investment
it a point to construct diversified portfolios for most of my cli-
portfolio evaporate in a fast and furious pace, but the thought
ents based on their risk profiles and their personal preferences
of the possibility that the lost wealth might never return is just
on certain asset classes or sectors. The portfolios constructed
too much for some to bear. It is both personal and painful to
have a long-term perspective but short term tactical portfolio
acknowledge that expensive mistakes have been made. How-
adjustments are used to enhance the returns or reduce risks in
ever, there is nothing shameful in cutting loss, rebalancing the
view of the constant changing economic environment.
portfolio and moving on again, instead of permanently staying
I do not encourage the use of leverage in direct stock mar-
on the sideline, missing out of future market rallies after each
ket investments or unit trusts as the losses will be magnified
crisis. There will never be a single event or a clear defining
when market crashes just as the gains will be multiplied in a bull
moment to indicate the bottoming of any financial crisis.
run. However, the current global credit crisis has added a new
Bm: After the technology bubble burst, investors learnt that dimension to portfolio investment risk as this is the first truly
global contagion triggered by the US real estate bubble. As a
valuation does matter in long term investing and one should
result of innovative financial engineering, some complicated
invest in companies that deliver positive cashflows and pay
derivative products are packaged out of subprime bank loans
good dividends. Technology companies may produce state of
that are then sold to most developed and emerging banks that
the art programs or games but their business viabilities will be
seek higher yields.
reduced if they do not bring in profits to sustain (their busi-
We have learnt that even widely diversified portfolios may
nesses) for the long term.
suffer big losses in a short time frame and the current crisis
We also learnt not to put all eggs in one basket as asset class
may drag on for longer than expected. Investors are likely
allocation in portfolio does reduce investment risks through
to accept lower returns or even negative returns in the near
diversification. Investors should not confuse long-term invest- ➝
future if the credit market does not recover fast enough to allow
ment with short-term trading.

26 |


AD
27


cover story

➝
normal lending and borrowing between banks and companies
WHEN FACED
to resume.
As this (current) crisis is coined as a “once in a century
WITH A CRISIS...
crisis” by former Federal Reserve chairman Alan Greenspan,
investors who have fully invested diversified long term port-
do:
folios, constructed based on sound fundamentals, must not
• Stay calm and focus on the long term fundamentals of
waver and should look to invest further with spare cash, with
the companies or unit trusts invested.
an eye on the future recovery in the global stock markets.
• Monitor and rebalance your portfolio to weed out
iFAST: What are your tips to investors on how highly leveraged companies to lower risk.
investors should face 2009? • only look to add new positions in different tranches
when stock market stabilises.
VW: In summary:
• Invest in dividend paying stocks or unit trusts as it helps
- Set a realistic time horizon for all investment ventures
to reduce overall losses in your portfolio.
e.g. 5 years or more; revisit them from time to time
• Engage a professional financial consultant to manage/
- Invest in businesses that you understand
monitor your portfolio to minimise emotional
- Diversify across asset classes, regions and sectors
attachment to managing it on your own.
- Let the law of Dollar Cost Averaging work for you,
even more so during the present financial crisis
- Accept that volatility is part of investment and that we
don’t:
should be more aware of our emotions when making
• Panic sell out of your stocks or unit trusts on big down
investment decisions
days when the market crashes more than 5%.
We have been through countless financial crises and the
• Borrow to invest during crisis as cost of borrowing is
market will bounce back when all hope seems lost. During the
usually high and the timing of recovery long.
Berkshire Hathaway Annual Meeting in 1997, Warren Buffet • Invest too early when the market has just reversed its
put it succintly, “If you’re an investor, you’re looking at what uptrend and bad news is only starting to get out.
the asset is going to do, if you’re a speculator, you’re common- • Buy highly-leveraged companies or unit trusts that
ly focusing on what the price of the object is going to do, and may not be able to pay their debts due to worsening
that’s not our game.” There are many learning experiences in business conditions.
life. Unfortunately, the high-tech shakeout has been a costly • Short term trading is not advisable as volatile market
lesson to many of us. Already there are talks of ‘tech bubble conditions may wipe out your hard earned money and
2.0’ looming near the horizon. The immensely popular so- confidence.
cial networking site MySpace and video-sharing site YouTube
have already encouraged scores of copycats. In 2006, there
were nearly 180 new online video companies all trying to be
Source: alPha Financial adviSerS Pte ltd
the next YouTube. While the investment community is not
behaving as irresponsibly as in the mid 90s, who is to say that FootnoteS:
given time, they will not bite? 1 httP://www.inveStoPedia.com/FeatureS/craSheS/craSheS8.aSP
Hopefully we will remember and learn from this IT bub- 2 httP://www.grandbankScaPital.com/aSSetS/PdFS/our_team/
ble as with the present financial crisis, because if not, the cost bu_SPeech.PdF

will be much higher when the next global crisis hit us again. 3 httP://Sg.Finance.yahoo.com/q/hP?S=%5eiXic, httP://Sg.Finance.
As we usher in the Year of the Ox with a weak clang, all our yahoo.com/q/ hP?S=%5eSti

hopes and prayers are to see that it is enough to awaken the 4 httP://www.qctimeS.com/articleS/2006/07/17/newS/buSineSS/
doc44b b0a1ab97ce159604273.tXt
sleeping Bull.
5 httP://newS.bbc.co.uk/2/hi/buSineSS/1217716.Stm

Bm: 2009 is likely to see volatility as the credit crisis is going 6 httP://www.berkShirehathaway.com/2000ar/2000letter.html
to filter into the real economy as more corporate failures may 7 httP://blog.Streamingmedia.com/the_buSineSS_oF_online_
drag more countries into recession. Retail investors should re- vi/2008/12/-online- video-comPanieS-raiSe-over-75-million-
in-PaSt-60-dayS.html
frain from short-term trading if the golden trading rule of
cutting losses is not imposed. I would urge investors to buy
stocks with strong fundamentals that pay good dividends as
cash is king in the current credit crisis. The important maxim
of focusing on the long term must not be forgotten as success-
ful investing has been clearly demonstrated by the investmtent
guru, Warren Buffett, who preferred to hold stocks in his port-
folio forever!
28 |


THE SARS CRISIS

Sherlyn Chua Jessica Koh

On 15 February 2003, China reported 305 cases of what was to a standstill. Few people visited restaurants, shopping malls
then known as ‘atypical pneumonia’. Thus began a crisis that and cinemas etc., few people dared to travel. Business activity
lasted till 28 April 2004, when the World Health Organisation plunged.
(WHO) reported that the outbreak of Severe Acute Respira- Because of the freeze in the economy and the recession
tory Syndrome (SARS) was under control. that followed, portfolio values plunged, because many of the
The impact of SARS was reflected in the STI, which fell businesses I was invested in were badly affected.
by 9% from 1336 points at the start of 2003, to 1214 points in
iFAST: What are some of the mistakes you made
March 2003. While the impact of SARS was not as serious as
(or other people you know made) as a result of
other crises such as the Asian Financial Crisis, the psychologi-
this crisis?
cal impact of the crisis was evident. In Singapore, quarantines,
Sc: Somehow, we have this natural herd instinct inherent in
travel restrictions and thermal imaging became commonplace
as the government took steps to contain the outbreak. each and every one of us. Most people are worried about the
Jessica Koh of fin-exis Advisory Pte Ltd, has been in the widespread consequences of the contagious SARS and fearful
financial industry for six years. She is a Chartered Financial An- of what’s going to happen in the event that the virus cannot be
alyst (CFA) charterholder, a Certified Public Accountant (CPA) contained; not many people saw opportunities in the midst of
and a Fellow Chartered Financial Practitioner (FChFP). the crisis and dared to have a contrarian view.
Sherlyn Chua, also with fin-exis Advisory Pte Ltd, has Personally, I remember having had a discussion with
been in the industry for seven years. Both Jessica and Sherlyn my colleagues about how low the Straits Times Index had
lived through the SARS crisis. They shared their experiences dropped to at that time, averaging around 1300 points and
with iFAST INSIGHT. that it was probably an opportune time to invest. However, this
was purely talk and none of us acted on it at that time. I simply
iFAST : What was this crisis about? How was your held on to my investments, and essentially failed to seize the
portfolio impacted then? opportunity to make important buying decisions. I think the
SHeRlyn cHuA (Sc): When the SARS crisis first took greatest mistake was to be overly worried about the severity of
place in early 2003, it was an unprecedented health crisis. the crisis; therefore I allowed the short-term crisis to inhibit me
Within just two months of the SARS outbreak, a large part from investing as I should for long-term goals.
of the world was affected and this significantly impacted lives I also recall that I had a client who purchased a whole life
and businesses with implications globally and domestically. At investment-linked plan from me two years prior to the SARS
that point in time, it was frequently referred to as the most crisis. While such plans are meant to provide life coverage, they
serious issue facing the region since the Asian financial crisis. also accumulate investment units over the long term. Because
Because of the sudden occurrence of this contagious health of the SARS crisis, he changed his mind about keeping the
crisis, people were fearful when investing, due to their lack of investment-linked plan for fear of the future investment cash
information. value being affected by the crisis. That was really unfounded
In 2003, my personal portfolio was mainly invested into fear and the early termination resulted in a painful loss of both
investment-linked funds and I only held a few stocks. They coverage and cash value.
were mainly invested only a few years prior to the crisis and
Jk: Some people panicked and pulled out their funds, at what
they were down by an average of 20% when the SARS crisis
happened. Even though the investments were doing badly, I turned out on hindsight to be the market bottom. Some people
remember I was not perturbed as I had no urgent need for had surplus funds in the bank but did not invest for fear that
the money. prices would plunge further. Nobody knew when it was going
to end, or, in the first place, whether it would end, or was it
JeSSicA koH (Jk): This crisis was about a loss in confi- the end of the world? When markets started to pick up slowly,
dence in one’s health and not knowing what would happen many were sceptical. By the time they started investing again,
the next day. Anybody could have been the next victim and prices had already moved up substantially and they did not get
lost their lives. Because of this, the economy virtually came to take part in a large portion of the rally that ensued.
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cover story

iFAST: What did you learn from this crisis?
➝
similarly a crisis that many were not prepared for. Naturally,
people fall into the fear of the unknown - it was more than
Sc: There will always be opportunities in times of crisis. Hu-
a financial crisis, it was also a psychological and confidence
man nature and the world will not change much. I remember
crisis. The severity of the financial tsunami and the speed at
hearing the story of a friend who actually believed so much in
which events developed was way beyond even the expectations
the potential of investing during crisis that he went to borrow
of Wall Street geniuses. As a financial consultant, I cannot per-
money from friends so that he could purchase more in the
form miracles for client’s portfolios which have fallen into the
stock market during the SARS crisis. I heard that he made
red, but I believe in helping them see “RED” in a different
loads when the economy recovered within a short period of
light – Reassure, Educate and Direction. I will meet my clients
time. Of course I do not advocate borrowing to invest, es-
to review their existing portfolio and ensure that the level of
pecially from a speculative point of view. Nonetheless this
risk is still within their level of tolerance and if not, we will
friend’s risk-seeking attitude reminds me that there are invest-
make changes accordingly.
ment opportunities in crisis while conservatism and the fail-
I also provide them with latest market news if they do not
ure to act will never result in good returns.
have the time to follow, and educate them of the developments
in the market and why certain events lead to certain conse-
Jk: I learnt that no matter how bad things get, each crisis will
quences. Finally, I remind them to focus on their long term
eventually blow over. The only question is when. The most
goals again and provide the direction that they should stick to
important thing I learnt is to keep a cool head regardless of
and not be distracted by the recent spikes of events that may
what the media says. In fact, I learnt to be a little contrarian
cause them to take a detour.
– when the newspaper front pages are full of gloomy news,
jobs were being lost, prices are at big bargains and it would
Jk: I have learnt to keep my cool and transmit calmness to
be wise to invest even if all your friends say you are crazy to
them. For the braver ones, provided they are comfortable and
do so at such a time.
prepared for the potential volatility, they increased their alloca-
iFAST: How has this crisis helped you to plan tion to equities.
your clients’ portfolios better in 2008? After seeing a few crises including SARS, I noticed that
there are always people who say “this time it’s different”, this
Sc: When the global financial crisis happened in 2008, it was
crisis is different, equities will never ever recover, or take 10 or
20 years, to recover, etc. Yes, each crisis is different in the sense
that the causes of each crisis are different. However, human
behaviour that drives markets always repeats itself. It is not the
end of the world. If it’s really the end of the world anyway,
even if you have all the money in the world, you would have
no use for it!

iFAST: What are your tips to investors on how
investors should face 2009?
Sc: The financial markets for year 2009 will continue to be
challenging and shall present both upside and downside sur-
prises. From an investor’s point of view, I think it is difficult to
expect any short-term gains. Even if there are any bear market
rallies, they are very difficult to take advantage of as the up-
ward trend should be fast and furious, yet short-lived.
I see 2009 as a year of consolidation of government ef-
forts in all major economies and all these policy actions will
eventually bear fruit; markets will start to recognize this and
react accordingly. And if human nature stays constant and the
world continues to run the way it had in past decades, this must
truly be one of the best times to be a value stock accumula-
tor. I would continue to build up on my investments over this
year, diversify across the different regions and asset classes, and
hopefully look back 5 to 10 years down the road to see that I
have made some good investment decisions which had posi-
tioned me well for retirement in time to come.
The truth is that investment concepts are often boring and
simple, but only a handful of investors consistently practise them.

30 |


IFAST Insight- Learning from past Financial Crises

IFAST Insight- Learning from past Financial Crises

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