“Yang Chye’s Simply Invest is a succinct guide for investors to help them understand the key principles of long-term investing and the value of working with an adviser and goals-based investing.” DAVID BOOTH, executive chairman and founder, Dimensional Fund Advisors “Essential knowledge for investors Armed with his many years of experience, Yang Chye has written a very interesting and well researched book It has lots of gems on investments and the financial markets This is a must read for anyone investing in the market, a good resource of fundamentals for beginners and an equally important reminder for seasoned investors.” NG KENG HOOI, group chief executive and president, AIA Group “An insightful view of investing from an industry veteran, expounded in a refreshing way Well written and engaging, with wise insights this is a good primer to investing Technical concepts are presented clearly and simply, with astute advice for beginners to investing and even seasoned professionals Yang Chye wisely takes the emotion out of investing and focuses on the facts and fundamentals that matter.” THIO BOON KIAT, chief executive, UOB Asset Management “Simply Invest imparts discerning knowledge to succeed in achieving one’s financial goals, in a market clouded by excessive noise and information overload It is written in simple language, making it an easy read for all types of investors.” SUSAN SOH, managing director and country head, Schroders Singapore “This book is a pleasant read and draws precious lessons of past crises Being a fund manager for the past thirty years, I couldn’t agree more with the author that at the end of the day, three simple principles govern the success to investing: discipline, commitment and ability to wait.” HOU WEY FOOK, chief investment officer, DBS Bank “A highly readable book for anyone interested in investment, whether you are a novice investor or seasoned financial adviser Yang Chye has the gift of making complex ideas simple I am sure you will find useful tips and practical insights.” GILBERT TAN, associate professor, Lee Kong Chian School of Business, Singapore Management University “Finally, a well-researched, insightful and relevant contemporary investment bible A must read for investors A wake-up call for financial industry practitioners A persuasive and enlightening testament to all on the importance of goals-based investing.” GOH KEAT JIN, CFA, chief executive, Maybank Asset Management Singapore “Simple to read and easy to relate to I hope through reading this, investors will come to appreciate that investing can be as simple as you want it to be, as long as you are disciplined, committed and patient.” MADELINE HO, head of Wholesale Fund Distribution, Asia-Pacific executive managing director, Natixis Investment Managers “From helping investors understand how difficult it is to outsmart the market to the value of advice —Simply Invest by Yang Chye is an insightful guide that lays out the challenges and opportunities investors face on their journey to a successful investment experience.” MARK GOCHNOUR, CFA, head of Global Client Services, Dimensional Fund Advisors Simply Invest Copyright © 2019 by GYC Financial Advisory Pte Ltd Photography by Joseph Goh Used with permission Cover design by Qin Yi Cover images © pngtree.com, © xb100 / Freepik All rights reserved Published in Singapore by Epigram Books www.epigrambooks.sg NATIONAL LIBRARY BOARD, SINGAPORE CATALOGUING-IN-PUBLICATION DATA NAME Goh, Yang Chye TITLE Simply invest : naked truths to grow your money / Goh Yang Chye DESCRIPTION Singapore : Epigram Books, [2019] Includes bibliographical references and index IDENTIFIER OCN 1086363823 ISBN 978-981-47-8560-0 (paperback) ISBN 978-981-47-8561-7 (ebook) SUBJECT LCSH: Finance, Personal—Singapore Investments—Singapore CLASSIFICATION DDC 332.02401095957—dc23 First edition, April 2019 INTRODUCTION A BETTER WAY TO INVEST PART I REVEALING THE FOLLIES OF FORECASTING CHAPTER ONE The Predictable Failure of Market Predictions CHAPTER TWO Nobody Can Forecast Winners CHAPTER THREE The Hidden Costs of Forecasting PART II APPLYING THE GREATEST IDEAS FROM FINANCIAL SCIENCE CHAPTER FOUR The Efficient Market CHAPTER FIVE Markets Work in Cycles CHAPTER SIX Markets Reward Long-Term Investors CHAPTER SEVEN Risk Comes First PART III BEATING THE MARKET CHAPTER EIGHT You Cannot Outsmart the Market CHAPTER NINE The Limits of Index Investing CHAPTER TEN The Drivers of Return CHAPTER ELEVEN Building Better Portfolios PART IV STAYING ANCHORED THROUGH MARKET CYCLES CHAPTER TWELVE The Crashing Market CHAPTER THIRTEEN The Stagnant Market CHAPTER FOURTEEN The Booming Market CHAPTER FIFTEEN The Uncertain Market PART V FIGHTING OUR INSTINCTS CHAPTER SIXTEEN Why Our Instincts Make Us Poor Investors CHAPTER SEVENTEEN The Ways We Fool Ourselves CHAPTER EIGHTEEN The Siren Call of Fad Investments PART VI GETTING STARTED CHAPTER NINETEEN Taking the Plunge CHAPTER TWENTY Does Everyone Need an Adviser? CHAPTER TWENTY-ONE The Value of Good Advice CHAPTER TWENTY-TWO Don’t Get Cheated! CONCLUSION MAKING THE RIGHT CHOICES ACKNOWLEDGEMENTS SOURCES ABOUT THE AUTHOR INTRODUCTION A BETTER WAY TO INVEST evaluate your investment strategy with your adviser to understand why it is not working out How are my investments doing relative to my financial goal? After all, this is the reason you are investing in the first place Do not be complacent or accept patronising answers on why you cannot see or measure how your investments are doing Many investors feel that they are not experts and have no knowledge of the markets, and so leave it all to their relationship manager They obviously know more than me, is a common refrain, so I trust them to make the right call However, asking how existing clients have fared is an important question every investor needs to ask when interviewing their adviser and assessing whether they can work together Knowing how the adviser reacted during past market turmoil and financial crises is also crucial Answers should not be vague, and should not just be the results of a single client, or a cherrypicked handful of lucky market calls or fantastic stock picks The adviser should also be upfront about what did not work in the past Performance data should be a composite of a large number of clients’ portfolios over multiple time periods The more enlightened investors become, the more transparent the financial industry will be And that will ultimately benefit everyone Key Takeaways It is important to know how to protect yourself from being cheated Check that your financial adviser has a valid license For Singapore, check that the firm you are dealing with is on the MAS list of licensed financial institutions and organisations Ask your adviser about their investment philosophy and how they will be managing your money Ask your adviser if they will be reporting your returns on a compounded annual growth (CAGR) basis, and how they will track your investments’ progress towards reaching your financial goal CONCLUSION Making the Right Choices A fter almost four centuries of rule over ancient China, the end of the Han Dynasty was decided by the Battle of Red Cliffs in AD208 Cao Cao was one of the most powerful warlords in China He had successfully dominated northern China and was looking to conquer the southern territories around the Yangtze River Facing him was a loose alliance of the southern warlords Liu Bei and Sun Quan, who could only muster an army of around 50,000 soldiers against Cao Cao’s boasted army of 800,000 strong Going up against that vastly superior force might have seemed an insurmountable challenge; yet the Liu–Sun alliance led by Zhou Yu (Sun Quan’s chief commander) and Zhuge Liang (Liu Bei’s chief strategist) managed to win the day by exploiting their enemies’ weaknesses through good military intelligence and careful planning Perhaps you may be intimidated by the prospect of entering a market filled with armies of highly-skilled professionals and billionaires armed with cutting-edge technology, sophisticated trading algorithms, decades of experience and the latest “secret formula” for success But, just like in that historic battle, if you plan ahead and develop a strong strategy based on the available evidence, you will not only be able to keep up with them but have a good chance of beating them at their own game What you should have realised by now is that all those fancy tools and “secrets” touted by the pros not guarantee a successful investment experience In fact, they can contribute to failure, if apparent success gives us the illusion that we are somehow “gifted” with the ability to make the right investment calls Historians have attributed Cao Cao’s defeat at the Red Cliffs to his overconfidence following his earlier victories and how that led him to ignore the facts and advice from his military advisers Such advice—that seeks to rein in your impulses, balance your views and show you the hard truths—is invaluable Remember that you don’t need to this alone If you are unable to get a financial adviser, seek out a sensible, trusted friend who knows you well and can help to keep you steady whenever markets are in chaos, both good and bad It goes without saying that not all advisers or friends will act in a fiduciary manner that puts your interests first, nor subscribe to the correct investment philosophy But the time spent in seeking out such a person will be well worth your while The stories outlined in this book are meant not just to educate but also to provide some realworld context to the confusing realities of investing Many of the things you have just read may contradict what you have previously learnt or heard about investing Hopefully, you will now know not to blindly follow advice or recommendations (even by highly-credentialed investment experts) that are not backed by evidence Ask questions Challenge assumptions Don’t put your money into any investment until you are satisfied by the answers to those questions Be wary of investment “advice” that just tries to tell you what to buy or sell next A quick recap of the key points in this book: Despite many valiant attempts, the most renowned investment experts on the planet have not been able to reliably or consistently forecast what the markets would (Part I) Markets go through cycles Don’t become fearful in down-cycles or greedy in up-cycles In any situation, remember: this too will pass Always consider risk before performance! (Parts II and IV) You cannot outsmart the market Neither can your banker, broker or adviser Even if you or they manage to get better returns for a year or two, the evidence shows that this is down to luck, and, more importantly, cannot be sustained Instead, to increase your chances of beating the market in the long run, construct a globallydiversified portfolio tilted towards the scientifically-proven drivers of return, and invest for the long term (Parts II and III) The famous military strategist Sun Tzu said, “If you know the enemy and know yourself, you need not fear the result of a hundred battles.” Behavioural finance has shown that we are often our own worst enemy in investing It is imperative that you are aware of and guard against these destructive impulses before you invest (Part V) As Lao Tzu said, “The journey of a thousand miles begins with a single step.” Getting started is often hard, especially if you have never invested before Use the steps outlined in Part VI and, if necessary, seek out the help of a trusted adviser Always remember why you are investing in the first place Keeping your ultimate financial goals—a comfortable retirement, financial independence, your dream home, starting a business, supporting your loved ones, contributing to causes you are passionate about— in mind will keep you anchored to your plan Investing merely for the sake of investing is never a good idea Investing is not a race Succeeding in investing does not mean being the first to arrive at some arbitrary finishing line Everyone is different, invests for different reasons, and has different priorities and risk appetites that depend on their unique financial goals, time horizon and life stage As such, there can be no one single path, investment product or secret that will suit everyone The key is to work out what your own specific investment plan should be, based on an understanding of your goals and particular financial situation Doing that, and sticking to that plan, will be a much more worthy venture than trying to chase that elusive investing secret to rule them all If you are armed with the proper knowledge and selfawareness, a risk-optimised portfolio matched to the amount of losses you can tolerate, the discipline to stay the course when everyone is panicking and the patience to wait for compounding to work in your favour, you will be well poised to achieve investment success with a lot less effort and a lot less stress No market timing; no stock-picking; no losing sleep when markets are crashing All you need to is carefully plant a seed, and wait patiently for the day you reap its fruit This is the way to simply invest ACKNOWLEDGEMENTS This book would not be possible without my wife, Sok Lee, and my two sons, Joseph and Barnabas, who have been my pillars of support, joy and inspiration; and the following people and their respective contributions: Aw Choon Hui, contributing author who helped with content, and conceptual and narrative design; Carl Chay, contributing author who assisted in content, and investment research and analysis; Davian Aw, co-writer, who contributed to writing, editing and structure optimisation; Barnabas Goh, co-writer, who aided in research and analysis, writing and editing; Joseph Goh, artist, whose photography and design concepts were used; and Eldes Tran, editor, and Qin Yi, designer, of Epigram Books SOURCES Bailey, David H et al “Evaluation and Ranking of Market Forecasters.” 31 May 2017 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2944853 Baker, H Kent and Victor Ricciardi “How Biases Affect Investor Behaviour.” The European Financial Review 28 February 2014 http://www.europeanfinancialreview.com/?p=512 Bengen, William P “Conserving Client Portfolios during Retirement, Part IV.” Journal of Financial Planning 14, no (2001): 110–119 Bessembinder, Hendrik “Do Stocks Outperform Treasury Bills?” Journal of Financial Economics 19 January 2017 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George M and Alok Kumar “Do Older Investors Make Better Investment Decisions?” Review of Economics and Statistics 93, no (2011): 244–265 Kumar, Satish and Nisha Goyal “Behavioural Biases in Investment Decision Making—A Systematic Literature Review.” Qualitative Research in Financial Markets 7, no (2015): 88–108 Montier, James Behavioural Investing: A Practitioner’s Guide to Applying Behavioural Finance Hoboken, NJ: John Wiley & Sons, 2009 Pfau, Wade D “Making Sense out of Variable Spending Strategies for Retirees.” Journal of Financial Planning 28, no 10 (2015): 42–51 Satovsky, Jonathan “Smart People Can Make Stupid Investing Decisions.” Forbes 16 August 2012 https://www.forbes.com/sites/greatspeculations/2012/08/16/smart-people-can-make-stupidinvesting-decisions/#1d27cfd815d5 Sharma, Ruchir “When Forecasters Get It Wrong: Always.” New York Times 30 December 2017 https://www.nytimes.com/2017/12/30/opinion/sunday/when-forecasters-get-it-wrongalways.html Sharpe, William F “Likely Gains from Market Timing.” Financial Analysts Journal 31, no (1975): 60–69 Sharpe, William F “The Arithmetic of Active Management.” Financial Analysts Journal 47, no (1991): 7–9 West, Richard F., Russell J Meserve and Keith E Stanovich “Cognitive Sophistication Does Not Attenuate the Bias Blind Spot.” Journal of Personality and Social Psychology 103, no (2012): 506-519 ABOUT THE AUTHOR Goh Yang Chye is the chief executive and founder of GYC Financial Advisory Pte Ltd He graduated with an engineering degree from the National University of Singapore (NUS) He is an affiliate with the Australian and New Zealand Institute of Insurance and Finance, as well as a Chartered Financial Consultant (ChFC) and a Fellow Chartered Financial Practitioner (FChFP) — POST SCRIPT BY AW CHOON HUI, DEPUTY CEO OF GYC FINANCIAL ADVISORY With over three decades of experience in financial advisory, Goh Yang Chye is widely acknowledged to be one of Singapore’s pioneers in comprehensive financial planning Having graduated from NUS in 1987 with an engineering degree, he shunned a promising career with a large real estate firm to instead become one of the first engineering graduates to enter the insurance industry as a commission-based agent Armed with the logic and process-oriented discipline of his engineering background, he sought to transform what was then the lowly-perceived insurance industry into a respectable vocation His perseverance eventually paid off Yang Chye rose through the ranks to become one of the top insurance professionals in Singapore, running a 150-strong team and generating premiums well in excess of half a billion dollars His personal sales were simultaneously enough to qualify him for a lifetime membership and Court of the Table status with the internationally prestigious Million Dollar Round Table Yang Chye soon won every conceivable award in the field— including beating 20,000 insurance advisers in Singapore to clinch the coveted Life Insurance Practitioner Award of the Year in 2000 His foresight and expertise were recognised by DBS Bank, Citibank and the Lippo Group, which invited him to train their first batches of relationship managers Yang Chye went on to speak at international financial events including the esteemed Million Dollar Round Table in the United States, the LIMRA Oceanic Financial Advisers Conference in South Korea and the All China Broker’s Association Conference in Beijing He lectured at Singapore’s Institute of Banking and Finance and at the Singapore Insurance College for their Chartered Financial Consultant (ChFC) Programme He additionally shared his expertise at internal events hosted by Bank Negara Malaysia, NAMLIA Malaysia, IFPAS Singapore, and LUA Hong Kong, Indonesia and Philippines He was on the founding board of directors of the Board of Society of Financial Services Professionals (Singapore) and the Board of Securities Investors Association Singapore (SIAS) Research Pte Ltd All in all, Yang Chye trained thousands of advisers and managers over the years, and helped set the foundation for Singapore’s current wealth management industry He developed principles and concepts that are still widely used today by many practitioners He has been featured in The Straits Times, Business Times, Zaobao, Today, Smart Investors, Financial Planners, Fundsupermart, IFPAS Coverage, the Asia Financial Planning Journal and the Singapore International Chamber of Commerce’s economic bulletin, Wealth, as well as on TV’s Channel NewsAsia and the radio station 93.8FM Yang Chye’s current standing belies his humble beginnings As a young boy, he spent his childhood helping out at his father’s drinks stall, sharing in the successes and failures of the family business and witnessing creditors seize their possessions when his father was declared bankrupt I first met Yang Chye in 1984 when we were studying for our engineering degrees He was an avid sportsman, full of energy and always seeking to better himself We were both in the Christian Fellowship, and it was there that I once asked him why he always volunteered to head the less popular committees He replied, “Because this forces me to improve on what I am not good in.” This, I believe, is what drives him, and is an attitude he has continued to carry over all these years Yang Chye became my insurance agent soon after I graduated He spoke in a language familiar to engineers—using sheer logic, charts and numbers to illustrate and make simple what were previously complicated insurance and financial planning concepts He showed me how these concepts could help me and my family, and for that, I am indebted to him He helped me buy the right type of insurance at a young age, and I am now seeing the fruits of the plans I bought those 25 to 30 years ago Yang Chye is a person of uncompromising integrity and dedication to his craft I have had the privilege of working with him since 2004, the year he convinced me to switch careers after 17 years in engineering and property development That was also the year when Yang Chye left the insurance industry to run GYC Financial Advisory This long-planned move allowed him greater latitude in advising on almost all types of investments compared to what he was previously allowed It also meant forfeiting an amazing $10 million in commissions, which The Straits Times (22 Feb 2004) and other media outlets reported on in awe “Not everything in life is about money,” Yang Chye explained in an interview with Fundsupermart in 2004 “In order for you to climb the next mountain, you must be willing to come down from your current mountain.” Yang Chye quickly climbed that new mountain Following his unparalleled success in insurance, he proved himself an astute investor with an uncanny sense of the markets He transformed GYC Financial Advisory from a distribution-based financial firm to a client-centric wealth management firm, repeatedly breaking new ground by developing a proprietary online platform, collaborating with UOB Asset Management to launch a new ETF retail fund (that, in 2017, became the first in Singapore to gain access to the renowned Dimensional Fund Advisors’ enhanced index funds), and creating the revolutionary Risk Matrix alert system in 2016 Yang Chye has always been passionate about his work, generous towards his staff and advisers and appreciative of their loyal dedication in delivering their best to clients Despite his busyness, Yang Chye is also a devoted family man who enjoys spending time with his wife, Sok Lee (also an engineer and an accountant), and their two sons, whom he calls his greatest achievements and who have just started exciting careers in the US and the UK Yang Chye was initially reluctant to publish this book He has always shunned outright publicity and preferred to concentrate on the business of helping friends and clients He only assented to create this book when convinced it would have a far greater potential to reach and help more people in their quest for financial independence He hopes and believes that most young people will be able to accumulate at least a million dollars by the time they retire, just by making use of the concepts in this book It is his way of giving back to society and to provide everyone, regardless of their socioeconomic status, with a chance to level up in life: by investing simply, and simply investing More about Yang Chye at gyc.com.sg/group/p_yangchye.htm Follow him on LinkedIn at www.linkedin.com/in/yang-chye-goh-41770a2 ... several naked truths about investing This book will bring you on a journey to discover those truths and how to use them to successfully and simply invest It will reveal why conventional investing... Broadly speaking, there are two types of investors: passive investors and active investors Passive investors hold every security available on the market They would simply receive the market return,... BOARD, SINGAPORE CATALOGUING-IN-PUBLICATION DATA NAME Goh, Yang Chye TITLE Simply invest : naked truths to grow your money / Goh Yang Chye DESCRIPTION Singapore : Epigram Books, [2019] Includes