You would have heard Dr Tan’s interesting economic insights on 938LIVE Money Talks. He has been doing the show for 5 years running. By telling stories to illustrate his views about the world of finance and investments, he made it easy and interesting for the laymen to understand. Jon and I unanimously wanted to invite him for a chat and hopefully, glean some insights from him. Below is what transpired during our conversation with Dr Tan.
What do you do for a living?
My clients pay me for my economic advice. I also make some money on my own from my investments. Since my investments tend to be long term in nature, profits do not happen every week. To keep myself busy, and keep another income stream, I also teach undergraduate economics.
What do you mainly invest in?
I trade stocks, indices and currencies. If I do stocks, they tend to be blue chip stocks. I don’t like penny stocks and those that are illiquid. I came across a syndicate in the past. In order to receive reliable stock tips, you would have to stick around and follow their lifestyle. It is something I find it difficult to do. My opinion towards small cap stocks and Singapore stocks in general, are easier to be manipulated. I would avoid them as much as possible although I do hold some good Singapore stocks for the long run. Since I do not have an edge over them, I prefer to trade counters that are likely to be less manipulated. When I go into currency pairs, they also tend to be the major ones like AUDUSD, GBPUSD, EURUSD, and USDJPY. I also do S&P500 and Nikkei.
How would you describe your investment style?
I follow the big economic picture and this is the reason major currency pairs and stock indices fit into my investment universe. My approach is discretional as I do not follow a fixed style or a set of rules to evaluate trade ideas. I get most of my trade ideas from reading. For example, I see a bright future in the U.S. economy if they can harness energy from Shale Oil efficiently. The U.S. has abundance of Shale Oil and history has taught us that an economy is strong because of access to a cheap resource. During the Industrial Revolution, England had coal. China has cheap labour but I think this is no longer the case. The price of energy is already much cheaper in the U.S. than most other places in the world and many firms are now thinking of moving more of their energy-intensive operations to the US.
Afternote: This interview took place a while back and Apple recently announced to shift some production capacity from China to U.S. Of course, the cause might be a myriad reasons and cost may or may not be one of them.
What do you read to get your trading ideas?
What I read is available to all – financial newspapers, websites and brokers’ reports. The issue is that there is not enough time to read them all so we form our views based on what we have read. Basically, we are all biased.
Has your economic training helped you to see investing in a different light from others?
My economics training certainly helped. But I know many people who are better than I am who were not trained in the same way. They are more talented and lucky.
You write and publish a fair bit on behavioural finance. How has the understanding of our biases and thought processes helped you make a better trading decision?
I like behavioural finance because it helps to discipline my trading, and adds reason to my trading strategies. But like I said, sometimes the theory says something. I act on it and yet still lose money. Other times, I don’t act on it, and I make money. I am always amazed. That’s why I believe luck plays a major role.
How should retail investors invest?
Ideally, they should buy when all others are selling, ie. buy after the stock market crashes. If they can do it, they will do much better than those who try to time the market regularly. But it is not easy to follow such a rule because nobody knows where the bottom is. I think about 90% of investors lose money. So this game is not for everyone. During a bull run, we all think that all have made money. But when the crash comes, 90% of investors will know where they stand.
What is your advice for young aspiring traders?
They have to learn it through the hard way which is to lose money in the first couple of years. There is no other way. So again, investment is not for everyone. I believe luck plays a great role in our investment success. Most of us are better off making money in our own professions.
For those who wants to be employed as traders, it is important to find a job in the financial industry. Initially, it may not be directly involved in trading or security analysis but it is more important to know people and build connections. You do not know when you may get where you want to be. Luck is an important factor for investment success and anything else in life.
You can read more about Dr Tan and his articles here.
CEO of Dr Wealth. Built a business to empower DIY investors to make better investments. A believer of the Factor-based Investing approach and runs a Multi-Factor Portfolio that taps on the Value, Size, and Profitability Factors. Conducts the flagship Intelligent Investor Immersive program under Dr Wealth. An author of Secrets of Singapore Trading Gurus and Singapore Permanent Portfolio. Featured on various media such as MoneyFM 89.3, Kiss92, Straits Times and Lianhe Zaobao. Given talks at events organised by SGX, DBS, CPF and many others.