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THE BOTTOM LINE

What investors can learn from Trump, Kim and Mr Kiasu

I FONDLY remember when Johnny Lau's Mr Kiasu: Everything Also I Want encapsulated the spirit of a generation afraid to be left behind. But the issue with kiasu, as I witness every day on the MRT when the majority queue for the escalator despite the stairway being empty and quicker, is that it's flawed: being motivated to have the best is not the same as achieving the best.

Being kiasu, or "having a fear of losing out" will be something on the mind of Kim Jong Un for his historic summit with Donald Trump - taking place here in Singapore. On the one hand, Mr Kim wants to cling tight to his nuclear capabilities. On the other, he wants sanctions eased and an inflow of US investment.

As for Mr Trump, with his "on-again, off-again" negotiation stance and hot/cold interpersonal skills, it's clear that he leads by impulse, not patience.

As these two leaders come together, it's interesting that, from an investment manager's perspective, they share some of the most common mental and emotional biases that impact investment strategies. This makes it a good time to reflect on one's own investments and the lessons we can learn from Trump, Kim and being kiasu.

'EVERYTHING ALSO I WANT'

It's been proven that different personality types have a strong impact on investment choices. We call this "behavioural finance" and it stretches not only to the limitations of individual mental and emotional bias, but also to the sometime irrational nature of financial markets as well.

Take Mr Trump as an example. It's widely acknowledged that he is an ESTP type on the famous Myers-Briggs personality test, seeking adventure and excitement in all facets of life. It's a common type of investor. Motivated by opportunities and "living in the moment", such investors can be prone to distraction and may lack the self-discipline to stick to a plan if it starts to feel boring.

In Singapore, investors tend to be the opposite - notorious cash-holders, risk-averse and confident in their financial future and the local stock market. But they are also reluctant to take risks, and typically seek guaranteed returns. This is a risk in itself as it means many Singaporeans are overconfident with how much they think they need to retire - and often find themselves falling short for the life they imagined. Cash is not always king, especially not when you factor in rising inflation and interest rate fears.

But what about Mr Kim? Like an ordinary investor consciously thinking about safeguarding the financial future, he should want financial security. Yet, he fears what will happen if he loses his one bargaining chip - his nuclear weapons.

Understanding biases can help investors formulate a proper investment strategy that aims at an investor's long-term goals, rather than focusing on short-term, immediate gratification.

THE VALUE IN THE LONG-TERM

Bill Gates said, "we always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10".

Often when investors lead with instinct, they miss this rule of thumb for three reasons. First, they are not looking beyond their short to mid-term investing horizon (roughly three/four years). Second, they have not grasped the value of compounding over time. Third, they have not properly diversified their portfolio.

In my experience advising Singaporean investors, it is important to look beyond the local financial market and farther afield to fully diversify a portfolio. Balancing risk can actually help achieve greater returns.

This is why I'm a believer in investment management strategies guided by clients' long-term goals. No single investment house has a monopoly on investment expertise, which is why we do not employ in-house investment managers. Instead we carefully select a number of external managers of outstanding ability to manage our range of funds.

This provides the freedom to select first-class managers from the global investment market to manage our funds on behalf of our clients, it enables us to change any of these managers at short notice if we have lost confidence in them, without any charges, or tax, or inconvenience to our clients, and it offers our clients a real opportunity to diversify their investments by spreading their money across funds managed by different managers with different styles. Above all, our value in real relationships with our clients means that we can be an objective adviser to help guide investors through their own biases, challenges and changing circumstances.

This brings us back to Mr Trump, Mr Kim and kiasu-style investment. It's important to remember not to overestimate the "must have of the moment", but to assess within a framework that better reflects the balance of your long-term objectives.

Next time on your commute on the MRT, take the stairs. Let's hope Mr Trump and Mr Kim do the same.

  • The writer is Investment Manager, St James's Place, Singapore

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