Family Money: Balancing the Risks

By Leslie Wright

At some point in discussing investments you’ve probably been asked about your “attitude towards investment risk”. Most people immediately react with a comment like, “I don’t want any risk!” But giving this question more serious thought only raises yet more questions in the minds of most investors. What is investment risk and who or what do you measure it against?

Last week we offered a ‘self-help’ quiz to help you evaluate your own risk profile and give you some indication of whether you’re a high, medium or low risk investor (which result may well have differed from what you thought you were.) Also, whether your current investment strategy is overly aggressive, unduly cautious, or just about right.

The questions that made up that quiz also emphasise that evaluating one’s individual risk profile is not as simple as it might sound - but is vital to helping you choose the right solutions from the infinite range of savings and investments on offer nowadays.

The dilemma, highlighted in the diagram below, is that higher potential returns involves sacrificing capital security. At one end of the safety scale, a fixed term deposit will give a certain return at the end of the deposit period, but you won’t get any pleasant surprises. At the other extreme lie high-risk investment schemes that can be a spectacular success, or could result in a dramatic loss.

Remember that a longer investment period generally reduces the impact of the ups and downs that are a natural feature of stocks and shares in the short term.

In the short term, a market ‘correction’ (which is the financial community’s jargon for a drop of less than 10%) often leads investors to panic and sell out, thereby locking in what otherwise was only a loss on paper. If they had kept their nerve and held on for a few more months - or even better, bought more when the market had over-reacted (which it often does, caused by the herd’s panic selling) - they would stand to make a nice profit once the market had recovered, which historically it always has within a few months.

Even in the case of a ‘crash’ (the financial world’s euphemism for a drop exceeding 20%), such as the collapse of the speculative bubbles of 1987 or 1993, the indices quietly crept back above their pre-crash ‘highs’ within a couple of years. Nonetheless, some people still talk about The Crash of ’87 as if it was a major disaster and a good reason never to invest in equities.

Spreading your money across a mixture of investments can be an effective way of dampening down the risks. On the other hand, investments denominated in currencies other than your ‘home’ currency increase the level of investment risk as the values of international currencies change against each other.

But these are all reasons why investors who have neither the time, interest, nor access to the specialised information required even to attempt to gauge the future direction one or another market may take should either seek professional advice on a regular basis as to the appropriate portfolio mix for their investment strategy, or keep it simple and use broad-based diversified investments such as Global Managed Funds and stick with them for at least five years.

Class distinctions

It’s important to recognise that whilst the rules of risk and potential reward can’t be broken, they can be engineered to a degree.

For example, government bonds (otherwise called fixed income securities) offer a regular fixed income if you’re prepared to accept a small element of capital risk. Similarly, capital protected investments give cautious investors the opportunity to benefit from growth linked to stock markets investments while removing the risk of loss of capital.

So let’s take a brief overview of the risk/return spectrum, and where along it different types of investments fall.

Savings Accounts in one’s base currency are generally regarded as safe but unspectacular. Higher balances and longer term deposits generally attract higher interest rates.

However, every expatriate in Thailand knows that just a year or so ago, fixed term deposits at local banks were paying up to 17% p.a. - but now only about 4-5%.

The currency risk also has to be taken into consideration, bearing in mind that the baht has fluctuated from 25 to the US dollar in 1997 to as low as 55 in ’98 and is wobbling around 40 at present.

Bond funds and capital-protected funds tend to offer higher returns than savings accounts, but their values will fluctuate as interest rates change over time. In economic theory, lowered interest rates make bonds more enticing, which are then traded at a premium. Similarly, increasing interest rates make them less appealing.

1999 has been a notable exception to this ‘rule’. After interest rates were lowered in late 1998, international investors seem largely to have eschewed bonds in favour of equities (stocks & shares), and despite positive forecasts, bond funds have generally had a very poor showing so far this year. With the return of rising interest rates, this under-performance may continue for some time to come.

Investors are now faced with the dilemma of maintaining their portfolios at what is generally perceived as a relatively low risk-rating by including bond funds, and perhaps seeing their capital being eroded if bonds continue to under-perform; or increasing their exposure to inherently more volatile equities, and hence increasing the overall risk-rating of their portfolio.

The relatively safe solution to this dilemma is the recent and innovative introduction of various limited-risk and capital guaranteed funds, all of which offer a limited (or in some cases, even zero) downside, combined with potentially higher gains from exposure to global equity markets. But as these various funds differ markedly in their investment strategy and management style, professional advice should be sought before venturing into them.

Managed funds combine the relative stability of bond investments with the high potential returns from equities. But these funds also come in various guises and flavours, which can be confusing to the uninitiated.

As has been discussed in previous articles, all funds are managed. But what has historically been called a Managed Fund (technically but more appropriately termed an Asset Allocation Fund nowadays) can, at least in theory, invest across the entire investment spectrum and anywhere in the world where the fund managers believe the best returns are to be found. How any particular one of these funds is managed and the parameters & constraints under which its managers must operate are important to understanding why some Managed Funds are much more volatile than others, and why some produce much better (or worse) returns than others. The key is the asset allocation mix - what proportion is held in bonds versus equities versus cash, and how much of each of these asset classes is invested in which geographical areas and/or market sectors.

Regionally invested funds reduce the risk of equity investment by purchasing shares in a number of countries within a geographical area. European Stock Market and Pacific Equity funds are just two examples of this type. But again, some produce much better (or worse) returns than others. And once again, the key to understanding this is knowing the management style and parameters of the fund in question.

Single country funds are more geographically focused. Investing in a narrowly-focused emerging single country fund inherently carries a greater element of short-term risk, while at the same time offering potentially higher short-term returns. The degree of risk will vary according to the nature of the underlying economy, so that a UK stock market or North American Equity fund will tend to be less volatile than, say, a Hong Kong or Japan stock market fund.

Single country equity funds that invest into an emerging market - such as Thailand for instance - will tend to be even more volatile, and the reasons are slightly more complex. Partly this has to do with relative capitalisation. A capital influx or outflow of just a few million dollars can have a marked influence on a small stock market (such as Thailand’s or Korea’s), as indeed has been the case this year. These movements of capital are more often made by international institutions’ fund managers than by an accumulation of small investors, who are often late joining the ride and can be left holding the bag when the large institutions sell out.

Here the key to success is correctly identifying both the buying opportunities and the danger signals - which is a fund manager’s full-time job, but much more difficult for most amateur investors.

Commodities, futures & options are investment classes which can produce very substantial gains, and very spectacular losses. These markets can move so fast that most amateur investors are unable to keep pace with developments, and are certainly not recommended for widows & pensioners.

Nowadays, however, these highly volatile sectors are accessible to investors through specialist funds which are actively managed, thus removing the hassle of day-to-day (or perhaps more aptly, minute by minute) trading that is the norm with these investment classes. Nonetheless, such funds should only be considered by more sophisticated investors who understand the inherent volatility and risks involved.

Interestingly though, these asset classes (and other specialist sectors such as energy, telecommunications, healthcare, leisure, and privatisation) are often not correlated to movements in major markets or ‘blue-chip’ stocks, so do not move in line with them.

Thus adding an element of commodities, futures & options (or the other somewhat less risky specialist sectors mentioned) to your strategically balanced portfolio can increase the overall gain while actually reducing the overall risk!

This premise is perhaps more easily understood with the analogous principle learned by every secondary school physics student: add a sine wave to a cosine wave of the same frequency and you end up with a flat line. However it is worth remembering that this principle concerning interference patterns also holds true if the peaks or troughs coincide: two coinciding peaks augment each other to make a ‘super-bump’, just as two coinciding troughs combine to produce a spectacular loss if we keep in mind that it’s your money we’re talking about.

When considering higher risk investments, then, the potential for spectacular returns has to be balanced against the increasing risk of capital loss. The lure of potentially high gain should always be secondary to the question: “How much can you afford to lose?” And that’s the only amount of money you should consider placing into adventurous investments.

If you have any comments or queries on this article, or about other topics concerning investment matters, contact Leslie Wright directly by fax on (038) 232522 or e-mail [email protected]. Further details and back articles can be accessed on his firm’s website on www.westminsterthailand.com.

Editor’s note: Leslie sometimes receives e-mails to which he is unable to respond due to the sender’s automatic return address being incorrect. If you have sent him an e-mail to which you have not received a reply, this may be why. Please ensure your return e-mail address is complete, or include a phone/fax number, to ensure his prompt response to your enquiry.

Leslie Wright is Managing Director of Westminster Portfolio Services (Thailand) Ltd., a firm of independent financial advisors providing advice to expatriate residents of the Eastern Seaboard on personal financial planning and international investments.

The Computer Doctor

by Richard Bunch

From Jozef Hendricz, Belgium: I am living in Belgium with my Thai spouse and any time I come to Thailand I read the Pattaya Mail. It is a very interesting newspaper and I prefer it above the Bangkok Post and The Nation but unfortunately I cannot find it in Thai shops in Antwerpen (only the Bangkok Post, once a week).

I would like to ask for some information from you. For 3 weeks, I have connected my PC to the Internet and I would like to visit Thai Web sites. As long as these sites are in English I don’t have any problem but my web browser is unable to show me Thai letters. Can you please help me with the following:

1) How can I install Thai fonts for using them with my web browser (Microsoft’s Internet Explorer 5)?

Computer Doctor replies: To do this you need to have installed Thai Language support as an option when the install was performed. If you did not choose it, then run set-up again and check this option. Once installed, from the View Menu, select Encoding and from the drop down list select Thai (Windows). You should then be able to read Thai web sites.

2) I use WIN98 and I want to write Thai letters with my word processor (MS-Word 7). A friend told me I need Thai fonts and a utility to switch from Dutch language to Thai and vice versa. I already bought a keyboard that responds to the Thai character sets. Can you tell me where I can download Thai fonts and that switch-utility? By the way, we use “AZERTY” keyboards in my country and the keyboard I purchased in Thailand is a “QWERTY” one.

Computer Doctor replies: You need a keyboard switch; this is a small TSR (Terminate and Stay Ready) program, which allows Thai to be typed on a non-Thai language-operating platform. You may download this from http://thaigate.rd.nacsis.ac.jp/refer/thaiio.html.

With regard to the keyboard layout, you will of course be typing Thai with the QWERTY keyboard connected. In order for the system to correctly recognise it, you will need to open Settings, Control Panel, Keyboard, then select the Language tab and Add English United States. You will then be able to adopt a shortcut keystroke combination to ease the chore of switching between QWERTY and AZERTY. Do bear in mind that when you connect the different keyboards to the PC you will have to restart the system.

Send your questions or comments to the Pattaya Mail at 370/7-8 Pattaya Second Road, Pattaya City, 20260 or Fax to 038 427 596 or E-mail to [email protected]

Richard Bunch is Managing Director of Action Computer Technologies, on South Pattaya Road (900 metres from Sukhumvit Road). Providing total computer, IT solutions, website and advanced graphics design to corporate clients and home users on the Eastern Seaboard. Please see our advertisement or call 038 374 147 or 411 063 www.act.co.th

Successfully Yours: Father S. Claus

by Mirin MacCartthy

Santa is here! Yes, he is arriving early in Thailand this year. Because of his busy schedule he will be visiting Pattaya on Saturday December 11th at a party for street children at the Bangkok Pattaya Hospital and everyone is asked to come along and help distribute presents.

Santa Claus is pretty successful at his job, being one of the best known people in the world. He lives on top of Korvatunturi mountain near the Polar Circle in Lapland. Korvatunturi is called Mount Ear because it has three ears that let Santa hear messages from all the children everywhere.

Santa is so busy these days that he keeps the exact whereabouts of his home a secret and no one has ever been there except Mother Christmas and the elves. Mother Christmas enjoys the quiet life and prefers to work behind the scenes.

Today Finland and Lapland are some of the few countries where children actually see Father Christmas delivering presents on Christmas eve, in person. It is also probably the only place where Santa asks the kids if they behaved during the year. In America and other countries it is kept a secret, that is why he has to sneak down chimneys at night.

Santa Claus is a “well nourished” jolly old chap with a white beard and long red robes to keep him warm and visible in the snow. He used to travel around Lapland by reindeer, but he became so popular and is in so much demand he now jets around the world for all the pre Christmas events.

It was one of Thailand’s heroes, Hanuman the magic monkey, who invited Santa Claus to the Bangkok Pattaya Hospital this year. Hanuman was concerned that the children of Thailand who do not usually make a big tradition of Christmas, preferring other festivals such as Songkran, might not be as well versed on the legends of Santa Claus and could miss out.

However, Santa Claus wasn’t all that surprised to receive the invitation. “I just love spreading goodwill and giving out presents. A December holiday here gives me a chance to catch up on a couple of Singha beers and on my suntan too!”

Rudolph and his other reindeer have been left at home in the care of the elves. “They leave a dreadful mess everywhere - worse than elephant poo.” (I think he means the reindeers!)

Santa is actually following a long family tradition, “Ho! Ho! Ho! My parents were Father and Mother Christmas of course. This job is handed down from father to son through the centuries. I can trace my ancestry back to St Nicolas and even before that in pre-Christian times to the Pagan chieftain Mithra. I love telling people about St Nicholas, Old Saint Nick we call him. He was a rich and kind old Bishop, a friend of the children, who went about helping poor people, sailors and merchants. My great grandfather told me Old Saint Nick used to give gold coins to the poor. On Christmas Eve he would dress up in disguise and hand out sweets for the kids, and money from a little sack to the really needy.” (So it seems nothing has changed really!)

Santa Claus has many different names, Sinter Klaas in Holland, Father Christmas in the U.K., Babba Natal in Italy, Pa Norsk in Norway, Joulupukki in Finland, Papa Noel in Spain, and Grandfather Frost or Baboushka in Russia. Does this bother Santa? “Oh Ho! Ho! Ho! No, not al all,” he chuckles. “All my uncles and brothers have spread to the furthest corners of the world, not because nocturnal traveling is in our blood. Oh Ho! Ho! Ho! No, every Santa Claus has traditionally been entrusted with the very special mission of bringing peace and goodwill to everyone everywhere. Not just presents, but giving and taking the time for each other, and celebrating together, that’s what its all about.”

Santa admitted he has a problem here. “I had to leave my elves at home in charge of the messy reindeers, so I need all the helpers I can get. I was a bit overweight on my baggage too, so we are a little short on presents. Please come along and help us all party tomorrow. Just drop off as many presents as you like to the International Department of the Bangkok Pattaya Hospital beforehand. The home for street children has boys aged between 6 and 17. They haven’t seen much of the way of toys in their life, but please no weapons, toy guns or knives. I need help with singing the Christmas Carols too. I’m only good with the chorus, ‘Ho! Ho! Ho! Though I’ve heard I get the backing of the Street Children’s Choir and the Seaboard Sound and Friends and other guests stars beside me.”

The Christmas party for Street children at the Bangkok Pattaya Hospital is on Saturday December 11th, from 10 a.m. to 1 p.m. Santa has personally invited you. Be there!

Snap Shots: Walk several metres closer!

by Harry Flashman

The biggest single factor in the failure of a good photograph is the camera being too far from the subject. The advice “walk several metres closer” should be in your mind every time you look through the viewfinder of your camera. The real words in photographic parlance are “Fill the frame”, but this does not seem as easy to understand as the “walk several metres closer”.

You see, when the picture appears in front of you and you decide to record this on film for posterity, you have a pre-conceived idea in your mind’s eye as to what this photo will look like. The only trick is to make that pre-conceived picture bob up in the viewfinder!

It sounds so basic that no-one could get this incorrect - but thousands of people do get it totally wrong! The problem comes from the fact that the camera does not “see” the same visual field as you do. When you start to use different lenses, rather than the standard lens, this effect is even more exaggerated. You are standing on one spot and seeing the scene, but you will most likely have to move to allow the camera to “see” the same thing. And generally that means several metres closer!

Use two hands!

The next problem that photographic shops see so often is “unsharp” photos. There are really only three reasons for this. Firstly, the camera was wobbling when the shot was taken. Secondly, the lens was not focussed properly and thirdly, but not all that rarely, the lens was dirty.

So just how many times do you see people holding their point and shoot camera with one hand? Lots of times is the answer. And the chances are that every one of the one handed shots will be blurred. Always hold the camera with both hands, hold your breath as you squeeze the shutter release and keep your elbows in towards the body to stabilise yourself. Do this and you will see an improvement in the sharpness of your prints straight away.

Getting the lens focussed is simply a matter of taking your time and focussing on the subject. If it is an auto focus lens then it becomes even more important to focus on the subject, then keeping the shutter half depressed, compose your shot.

Dirty lenses? Clean them with a soft rag. It is that simple.

There is actually another cause for “soft” pictures. That is when the photo processing shop does not correctly focus their auto-printing machines. Unfortunately, this does happen more often than it should in Pattaya. This is one reason why Harry uses the Kodak place next to McDonalds on Beach Road, Royal Garden Plaza.

Read the manual!

“When all else fails, read the instruction manual.” These are prophetic words! How often has Harry heard questions being asked about the operation of a camera, when just a few minutes reading the manual would have answered the query.

When you get any new camera you should spend at least an hour going through the manual with the camera in your hands. Get used to opening and closing the camera. Get used to turning it on. Get used to every function.

Many new cameras, even compacts, have got “red eye” compensation settings. If you do not know how to turn it on when you are about to take a picture in a pub you will either lose that moment in time, or end up with a nasty red eyed picture. When about to take a shot outside and the subject is strongly back-lit, do you know how to activate the exposure compensation? An hour spent with the camera and the manual will return excellent rewards in the improved standard of your pictures.

Modern Medicine: The Quality of Life

by Dr Iain Corness

Having read all about life spans in Leslie Wright’s Money column a couple of weeks ago, I thought that perhaps in this column I should do a short dissertation on stained fingers brought about by counting one’s pennies and the likelihood of getting copper poisoning counting your superannuation payout. But I’m being facetious!

What Leslie’s column did remind me of was a little motto I used to have on my surgery wall. It read, “An increase in the length of life is not necessarily equivalent to an increase in the quality of life.” Actually these words are very deep, so stick with me for a while.

Over the past couple of decades there has been a great deal of research into the causes of death and whether we can alter (or should I say - delay) the inevitable outcome. Statistical work has shown the importance of metabolic agents such as cholesterol, for example, and it has been shown that reduction of cholesterol levels does reduce the incidence of heart attacks in any given population. That population will therefore live longer. Add in cigarette smoking and booze and again reductions will give longevity to the group.

But death is inevitable. We all have to die of something (even if it is boredom!) so what are these “extra” years going to be like? Quite frankly, if there is not sufficient “quality” in those years, are they worth having? For my money, most definitely not!

There is also a tendency amongst my specialist colleagues in Australia to look only at their own narrow field. Consider the cancer surgeon. So you have abdominal cancer - don’t worry, he can remove it and all the spread out lesions in the bowel. Of course you will need chemotherapy which will make you nauseated and perhaps some radiation as well. Sure you’re going to be hospitalised for several weeks, end up with a colostomy bag for the rest of your (now miserable) life and be unable to eat the foods you like and alcohol is definitely a no-no. Is this the quality of life someone in their 70’s would want? The cancer surgeon has done his job - he’s removed the cancer - but removed the quality of life as well.

I always advised my patients, when they had been given a “nasty” diagnosis, to ask the specialist to tell them exactly what “life” was going to be like after the specialist treatment. Would they still be able to go fishing? Would they still be able to hug their grandchildren?

Certainly, all these things are relative. The decisions one would make when 40 years old are not necessarily the decisions one would make at 70. The important factor is that the Quality of Life must be considered. Living longer may not be the be all and end all. Actuarial tables be damned! Look at life! Sermon over!

Dear Hillary,

I just do not understand these Thai girls at all. My Thai girlfriend can be sweet and loving some days and on others she does not want to know me and will even shun me in public. When I ask what is wrong she says, “You know, and I’m afraid, I don’t.” Is there something that I should know about Thai women that the guidebooks do not tell you about?

Perplexed

Dear Perplexed,

It is very simple, modesty rules. Good Thai girls do not want to be touched in public at all by a male, even one they are related to. It is taboo! Husband and wives do not kiss, fathers and daughters do not hold hands, teachers and doctors never consult with the opposite sex without chaperones. Ever heard of the very true story of the Thai princess who drowned when the boat overturned because none of the boatmen were allowed to touch her? Please remember that the amazing bar and cabaret shows here are not part of the general Thai morality. Ever noticed how many Thais swim fully clothed? I recommend two guide books with an insight to your problems, “In the bedroom out of Trouble” by Bud Knackstedt and Oiy Ford, in Thai and English available at Bookazine and “Culture Shock Thailand” by Robert & Nanthappa Cooper.

Dear Hillary,

The local police towed my car away the other day and I am furious. The kerb I parked next to had so little paint on it that at night you could not see that it used to have (a long time ago) red and white paint on it. It cost me 800 baht to get it back and I really do not think it is fair. Would it be worth my while to fight this? As I do not know Thai legalities, I thought you just might be able to help. What should I do?

Kerbstone Ken

Dear Ken,

So sorry, like many things here, just grin and bear it or practice a cool heart, ‘Jai yen’ as they say. Remember you still have something to smile about if you haven’t seen the inside of a Thai jail yet. You say you do not know Thai legalities, but do you know the Thai way? Aggression is not on here and no-one wins any fight except perhaps in Muay Thai (Thai boxing). Just think about it this way, it would cost you much more to bail out your car plus a hefty fine back home in the Old Dart.

Dear Hillary,

Every time I walk down Soi 7 on my way to my favourite watering hole I get accosted by girls from the beer bars. It makes it very difficult and can even be embarrassing if I have my wife with me. She is French and visits here for one month every couple of months. Do you think the council should fence in these open bars or stop the girls from being so pushy? Perhaps some legislation might quieten them down a bit. What do you think?

Soi 7 Sam

Dear Sam,

Are you serious! All the luscious lovelies of Pattaya corralled and legislated? The mind is definitely challenged! OK, Hillary can think about the bizarre. When all else fails legislate! I’m happy to say it doesn’t work here! Have you noticed how effective legislation is around town? As a small example look at the “motorcycle riders must wear a crash helmet” law. I rest my case, except to say that if you are embarrassed, then catch a taxi down Soi 7, or at least frequent only five star hotels with your wife. For that matter, what does your wife make of the Place Pigalle or the Moulin Rouge in La Belle France?

Dear Hillary,

My landlady is holding back my three months deposit I gave her on the house where I stayed in for a year and a half. We left three weeks ago. She says she has not got all the bills and refuses to give me any of it. The deposit came to B. 60,000 so it is no small sum. How can I get her to give me the money? Is there anything like the Rental Bond Authority as they have in other countries?

Bill Bond

Dear Bill,

Your landlady will wait at least a month to get all the bills in before she returns you any bond - that is standard practice. Did you sign a rental agreement drawn up by a reputable real estate agent?

Noooo, there is no rental bond authority here. Perhaps sweet smiling persistence or ringing and faxing her several times daily may have some effect. After two months you may contemplate contacting a trustworthy Thai lawyer. The Tourist Police can also assist at times.

GRAPEVINE

Copyright 1999 Pattaya Mail Publishing Co.Ltd.
370/7-8 Pattaya Second Road, Pattaya City, Chonburi 20260, Thailand 
Tel.66-38 411 240-1, 413 240-1, Fax:66-38 427 596; e-mail: [email protected]
Updated by Boonsiri Suansuk.