'Intriguing enjoyment' in the world of finance

Engineer-turned-asset manager Supakorn Soontornkit practises what he preaches when it comes to mutual funds

SRIWIPA SIRIPUNYAWIT

The more Supakorn Soontornkit gets to know about the financial world, the more fascinated he becomes. After 20 years as an investment expert, he still considers his profession ''an intriguing enjoyment''.

The 40-year-old formally dressed fund manager is always willing to share his views and insights on the economy and stock market whenever asked. He is a strong believer in the virtues of wealth management, financial planning and investment diversification. He practises what he preaches _ his personal portfolio includes investments in 20 mutual funds.

Interestingly, finance was not Dr Supakorn's chosen field. After completing his undergraduate degree in civil engineering from Chulalongkorn University, he decided that acquiring some business skills would also be useful. He pursued an MBA at the University of Central Oklahoma, where he was totally drawn into the financial world. Later, he chose to further his journey by studying for a doctorate in business administration at Thammasat University.

He entered the field by becoming a vice-president at the Thai Bond Market Association before joining MFC Asset Management, where he serves today as executive vice-president in charge of the research and strategy department.

Having been around for almost two decades, he has seen constant development in both the market and its participants. Many new financial products and innovations have entered the market while the public has become much more aware of financial planning and wealth-building concepts.

''In the past, no one had ever thought about personal finance or how to manage one's finances,'' he says. ''However, today people have started to think about it as human lifespans have become much longer and so they need to plan well for their lives after retirement.''

Many years back he began to manage his financial affairs by setting up plans and financial goals for a life after retirement. Recently, he has invested mostly through mutual funds.

Of his overall portfolio, 60% is in equity funds, 30% in fixed-income funds (FIFs) and the remaining 10% is in foreign investment funds (FIFs).

Dr Supakorn is of the strong belief that equities will usually outperform fixed-income in the long run. Lately, he has also increased his exposure to overseas investment through FIFs to 25% of the total portfolio.

''That's because I believe in the necessity of diversification. Foreign investment, particularly in emerging markets such as Asia, is quite promising. So, I'll keep increasing the share in the funds,'' he says.

As well, he believes one should always watch for alternative investments such as property funds and sector funds. Sector funds, or mutual funds that invests in particular sectors, have recently been of increasing interest to several fund managers. MFC is also planning to launch a sector fund this month, he adds.

He invests in six FIFs, four equity funds, four long-term equity funds, three retirement mutual funds and three fixed-income funds. Annually, his portfolio generates returns of more than 10%.

''One should also have plans or set goals and manage to get there,'' he adds.

Basically, he says equity funds should deliver annual returns of around 10%, fixed-income 5-6% and property funds 8.5%. Given the low bank interest rates at the moment, Dr Supakorn suggests that people leave only the smallest amount of their money in a bank and seek to build wealth elsewhere, in line with their expectation and risk appetite.

As well, one should should diversify an individual portfolio into several asset classes with different risk levels such as equities, fixed-income, and other choices such as property funds and overseas investment. Of course, it will be necessary to revise the portfolio occasionally based on changes in market conditions and trends.

''Once every quarter people should check out their portfolios to see if they are delivering the returns they expected earlier,'' he advises. ''If not, they need to adjust them. However, this shouldn't be done too frequently as that might damage investors' discipline.''

The Biggest Personal Finance Story of the Past 30 Years - Conclusion

http://www.theskilledinvestor.com/wp/archives/134

This article concludes our series on the greatest personal finance story of the past thirty years. In this article, we discuss whether the dramatic growth in equity value of the financial services sector indicates that securities markets are becoming less efficient.

Some might look at the financial services sector’s current 21% share of S&P 500 market capitalization and assume that the securities markets are “not efficient.” This is not necessarily the case. A far more compelling argument is that much of this growth results from a wealth transfer from individuals to the industry.

For a graph of the relative percentage shares of various sectors within the S&P500 index over five decades, see Figure 4 on page 16 of the financial study by Jeremy Siegel and Jeremy Schwartz entitled: “The Long-term Returns on the Original S&P 500 Firms.” [Note that this is an Adobe Acrobat document on The Wharton School of Business website at the University of Pennsylvania. Be patient and let it load.]

With the securities markets, excessive costs paid by investors can simply be a wealth transfer to financial securities firms.

The concept of an efficiently priced securities market, does not tell you who will actually get to keep the market’s return. If you agree to pay higher visible costs or you pay higher hidden costs unwittingly, the market’s return simply ends up in someone else’s pocket. Higher costs charged to individual investors just move money from one pocket to another. Retail investors are just another financial industry profit center where the client generally lacks knowledge and sophistication and pays through the nose for this lack of financial skill. (See these related articles on The Skilled Investor website: Controlling Investment Costs )

“Market efficiency” is a concept related to whether the securities markets set appropriate risk-adjusted asset prices given all the uncertainties about future asset market values. If securities market prices are set efficiently, there should not be any investment strategies available that would produce returns that are disproportionate to the risk incurred.

While there is a very large random element associated with the volatility of individual stocks, market segments, and markets overall, the key test is whether these positive and negative statistical pricing “errors” cancel each other out over time. Securities markets are judged to be relatively efficient when current prices generally provide a relative return or risk premium over time that is commensurate with the risk taken as measured by relative volatility. Some investors may do better or worse due to randomness and luck, but efficient market pricing would not provide skilled investors with consistent, long-term opportunities to obtain higher returns without taking higher risks. (See these related articles on The Skilled Investor website: Securities Valuation and Returns and Risk Premiums )

The finance literature endlessly debates market efficiency and statistical “anomolies” that might seem to contradict this theory. Nevertheless, the scientific finance literature indicates that the securities markets are largely “efficient” and that the markets have probably grown even more so during the past several decades.

While there could be certain strategies to exploit to achieve disproportionate returns for the risk exposure, such opportunities would tend to be narrow, infrequent, transitory, and require the skills and resources of professionals to identify and exploit. Success eludes almost all individual investors in beating the market consistently over the long-run. Furthermore, success in consistently beating the market also eludes the vast majority of professional investors, as well. (See this category of articles on The Skilled Investor website: Luck versus Skill )

Individual investors are constrained by excessively high investment costs, personal investment taxes, lack of time, lack of knowledge, and lack of sophisticated analytical resources.

In practical terms, the average individual investor can just assume that securities market prices are efficient. For individual investors, the logic of adopting a very-low cost passive index investment strategy is very compelling, because investment costs and taxes are among the few very significant investment factors that they actually can control. (See these categories of articles on The Skilled Investor website: Financial Decision Rules, Selecting Investment Funds, and Personal Efficiency )

Therefore, 1) if securities markets are relatively efficient, 2) if individual investors are confused and highly unlikely to beat the markets and 3) if professionals also have a tough time beating the markets, then what strategies could the financial services industry adopt to increase their profits? Well, if getting a higher return from the market is not easy, taking away the investment assets of naive individual investors through excessive costs and fees can be a far easier path to higher profits. Furthermore, if investors are charged fees as a percent of their assets rather than a percent of their returns, then the individual investor does not even need to have a positive market return for the industry to get paid!

One way or another, huge amounts of personal money are being poured into the financial sector by individuals and much less than what they pour in comes back to them. The choice is yours as to whether you want to keep pouring in your money or whether you want to adopt a lower cost personal finance strategy. (See these related articles on The Skilled Investor website: The heavy burden of recurring investment fees and The investment industry is not your investment partner)

Postscript:

Note that another factor may have also contributed to the escalating value of the financial sector in the S&P500 index over the past thirty years. Some financial firms and investment banks previously may have been private entities that went public and became available to be included in the S&P 500 index. Other financial firms may have been private entities, which were acquired by public financial companies. The Standard and Poors Index Committee periodically changes the composition of the S&P 500 index in an effort to include the largest U.S. firms. If very large financial firms come to market via IPO and/or are merged into other financial firms, they become candidates for inclusion in the index.

While such IPOs or acquisitions can distort the historical growth rate of the financial sector, the absolute size of the financial sector is the greatest concern and the best measure of the expected value of the ongoing wealth transfer from individuals to the industry. The revenue size, profitability, and growth of the financial sector all reinforce concerns about excessive industry costs and wealth transfer from individuals to the financial sector.

Three Essential Personal Finance Tips

Connie Barker

Personal finance is extremely important in today’s society. Whether you are looking to purchase a new home, pay for college or take a trip of a lifetime, personal finance can help you achieve these goals. While there are many ways to benefit from good money management, here are three essential personal finance tips that can truly help you achieve your goals.

Save and Invest

It is absolutely essential that you save as much money as possible and then invest it so that it can work hard for you. Saving money is vital to having a nest egg in the future for the purchases you desire. Saving requires a plan and usually lots of time. One of things that you should do once you receive your paycheck is to pay yourself first. Take a set amount of your pay check and put it away. Once you have money saved, the next step is to invest it and make it work hard for you. Over the years, you can earn hundreds of thousands of dollars off of just $30K to 50K in savings using the power of compound interest. There is no magic involved. In order to create a nest egg in 10, 20 or 30 years save money and invest it.

Create a Budget

Creating a budget is essential for anyone that has an income and expenses. Many of us are usually carefree and do not keep a record of all our purchases, however if we knew just how much we spent each year on junk or impulse purchases we would be aghast. Creating a budget is a great way to understand what we spend our income on, reduce spending on non essential items and discipline ourselves to save and invest our money for the long term. Creating a budget is extremely simple and requires only a few hours of time each month. A simple budget can literally save you thousands of dollars a year and give you true piece of mind.

Use Credit Wisely

Credit cards can be extremely convenient, but many times they are equally destructive. A credit card is not a license to spend; it is in effect a loan. Understanding how credit works and how to use it responsibly can make your life much easier. Credit cards can be a great option in certain situations, however using them properly is essential to proper money management.

========

Connie Barker is the owner of several financial websites including those dealing with Personal Finance

http://www.arcamax.com/consumernews/s-212973-125791?source=1930