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Owen Caterer

Why your assumptions are hurting your returns.

Posted on November 29, 2016 Facebooktwittergoogle_pluspinterestlinkedinrss

Here we delve deeper into Behavioral Finance which we kicked off recently.  Today we are going to look at how your assumptions and mental accounting hurt your investing, caused by a thing called Representativeness Bias

Humans are built to analyze and classify.  To put a label on things.  Labeling, you see, has benefits: it provides a short-cut to making a decision rather than thinking things through.  But when investing, those short-cuts are often, most of the time, way off the mark.  If you fail to double check your assumptions or labels, you are suffering from Representativeness Bias.  Many people, even when asked to stop and consider, aren’t good at looking at the probabilities because their brain and its habits makes assumptions and races away.  This is a cognitive bias, meaning it is often an error in logic, which makes it easier to correct.  I’m going to provide some clear examples and then relate it to situations you can apply for yourself.

Try this question.

Question: Jim is an ex-minor league basketball player. After he graduated from university, Jim became a physical education teacher. Jim has three sons, all of whom are excellent athletes. Which is more likely?

a. Jim coaches a local junior basketball team.

b. Jim coaches a local Little League team and plays with the local men’s basketball team.

Which do you think?

Answer: Many people would pick “b,” which is the predictable answer, are likely to suffer from base-rate neglect representativeness bias. It is possible that Jim both coaches and plays basketball, but it is more likely that he only coaches Junior basketball.  Here is the graph that helps explain.

pie chart

The problem is people jump to the conclusion that “he is a basketball person, so he is more likely to be involved in basketball in every way possible”.  The graph above also illustrates the unspoken choice – Jim only plays basketball.  B refers to the small slice of both coaching and playing.  We made up the numbers, but you can see it must always be the smaller slice since only a portion of junior coaches, also play themselves.

The second is ‘sample size’ neglect.  This often appears when people are considering the market or an individual fund manager’s returns.  But first let’s look at tennis to illustrate our point.

If you are the better tennis player, should you prefer a 3 set match or a 5 set match, assuming that you both equally fit?  Have a think about it.  Most people would be indifferent thinking that they are both equal measures of ability.  But think about it in a smaller scale.  If you are the better player, would you prefer 21 points or 3 points?  Obviously 21 points since any player can hit a couple of lucky shots, or under the pressure you throw in a bad shot and you lose in 3 points.  So the correct answer is 5 sets.  Men’s tennis is more predictable than women’s at Grand Slam tournaments, and it is no accident that Men play 5 sets versus only 3 for Women.

In finance, sample size neglect leads people to consider small amounts of evidence as being significant.  We just don’t have a good feel for it.  It could however be random chance or a fluke.   Is the last 6 months of a fund manager’s outperformance really meaningful?  Not statistically speaking.  Here is what often happens.  Make sure it doesn’t happen to you.

A firm called DALBAR conducted a survey into investor behavior in 2003.  The title was Quantitative Analysis of Investor Behavior. It showed that investors tend to buy funds that had recently showed a rapid price rises. But by buying then, at the top part of the cycle, they found tends to shortly precede a subsequent fall in the fund’s performance. When prices go down, many investors quickly dump their holdings and search for the next hot fund.

The study found that the average equity investor during this period earned over 1984-2002 a return of 2.57% per annum.  During the same period inflation was 3.14% and the S&P 500 did a rock solid 12.22% per annum.  Losing to inflation over that period was a pretty poor result, and most of it was due to

The moral of the story is threefold.

a) When investing in the market – a large chunk should be in a low-cost index fund.

b) Chasing hot performing funds/managers with a good 12 month return is a statistically poor strategy and,

c) Jumping around a lot usually hurts investment returns.

Further ways to improve – practice on others

When it comes to finance and economics, here are some common fallacies that are keep popping up in recent times.  Keep in mind, when everyone else get’s it wrong, it creates opportunities for you.  Challenge your (and the media’s) assumptions when it comes to investing. So trying to understand where others are wrong (or yourself) is a profitable hobby.

Assumptions: Most Americans think American property is a poor investment. Most Australians think Australian property is a wonderful investment.

The facts however are against both assumptions.  Rental yields in the US are far higher (around 7-15%) and property prices are far cheaper compared to income than most markets globally due to large falls in 2007-2010.  Australia is the reverse, where rental returns are often poor (3-5%) after years of price rises and most average Australian’s struggle to afford a property.

Assumption: Chinese people think that property prices can never fall.

That assumption is being tested right now.  There has never been an asset, anywhere in the history of the world, that went up consistently without significant dips.  Usually speaking the bigger the run, the bigger the dip.

Assumption: The US financial media believes that all property bubbles lead to banking crises and therefore China’s big property bubble will make the Chinese banks collapse.

This ignores the rather large differences in the financial and government systems in China when compared to the United States.  All banks are government owned in China.  Personal levels of leverage or borrowing are quite low in China, with high levels of savings and high levels of deposits for all property purchases.  There might be problems, but they appear manageable.

guy-with-binocularsAssumption: Printing money always leads to inflation.

All else being equal, that assumption holds.  The problem in the US, Europe and the UK that all else isn’t equal.  When an economy is deleveraging, and loans are repaid, money is destroyed (yup – it doesn’t sound true, but it is).  Also consider the case of Japan, where printing money has been tried several times in the last 25 years but inflation has never moved at all.  In fact the Yen often strengthened.  Of course if you run the presses like crazy, then things can get away, but it is interesting that inflation hasn’t budged since quantitative easing started in 2008, already 6 years ago, despite what gold bugs have been predicting, endlessly, the whole time.  They might be right eventually, but the statistics show no sign of it being anytime soon..

What are your assumptions when it comes to investing? 

Perhaps write them down, and then consider them like a scientist.  What basis in research or hard numbers can you find?  Discuss them with your partner or your adviser, since it is always easier to see the illogic in other’s arguments, rather than your own.


About Caterer Goodman Partners
Caterer Goodman Partners is a Shanghai based wealth management firm established with a clear vision to provide a new level of personalized financial planning services for expatriates in Asia. Our financial advisors provide guidance for our clients in all areas of investment, specialising in managed accounts, money-market funds, retirement planning and alternative investments. At Caterer Goodman Partners, we offer our advice and experience to provide low cost, tax-effective and simple solutions to match our clients’ interests.

About Owen Caterer
Since graduation Mr Owen Caterer has worked with the Queensland Premier's Department in Trade Facilitation and then as a financial adviser in Shanghai from 2005 until 2010.  He then rose to Senior Adviser, then Business Development manager and then to Chief Investment Officer responsible for portfolios to a value of US$280 million across Asia. Following that Mr Caterer left to found his own firm with a partner in the financial advisory and wealth management area.   This focused on developing China and Asia's first fee-based financial advisory (rather than commission-based). This has grown to now have 8 staff and and managing almost US$35 million for clients throughout Asia. This business success was recognized as a finalist in the 2013 ACBA in the Start Up Enterprises category and are one of a small number of foreign managed firms to have a full asset management license in China.  Owen has also been active in the community volunteering for the Australian Chamber of Commerce in Shanghai and acting as the Vice-Chair of the Small Business Working Group (2012-2014) and as the Co-Deputy Chair of the Financial Services since 2013 until the present. They have continued to grow their business and have now been selected as a small group of companies who are platinum members of the Australian chamber of commerce. The achievement they are most proud of is their efforts to reform the financial planning industry in China and push it away from a hard-sales commission driven model to a more ethical management fee and long term customer service model.   Owen has a Graduate Diploma of Applied Finance from the Securities Institute of Australia of which he was a member as a Fellow of Finance for many years and also has an undergraduate degree from Griffith University in International Business.  Owen's interests are tennis, running and his wife and two children.  He speaks fluent Chinese, first arriving in China in 1997.
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Owen Caterer

Can I tax deduct my trip home?

Posted on November 28, 2016 Facebooktwittergoogle_pluspinterestlinkedinrss

Question: I have an investment place in Sydney which I visit each year.  Can I tax deduct my travel costs for my trip home?

Answer: If you’re an Australian expat with a portfolio that has property at home you may often find yourself going back to back to Australia to carry out inspections and maintenance, as well as visiting friends and family. The ATO allows you to claim a range of travel expenses when flying internationally and although most things can be considered expenses, there are a few rules and intricacies that you should know and be aware about.

655342-australian-taxation-officeWhat won’t the ATO let me claim on?

The Australian Tax Office has the approach of anything is allowed, provided it is not of a ‘capital nature’ and provided it’s done in order to aid the gain of assessable income. This means that anything that changes the base value of your property like travelling to go monitor a loft conversion can’t be claimed and anything like going to collect rent or deal with maintenance issues is claimable. Another good example of where this extends to is a claim for a plane ticket to go and rent your property versus a plane ticket to go and sell your property; the former being claimable and the latter not.

Duality of purpose

The ATO also looks at whether or not you can prove what is called ‘no duality of purpose’, i.e. if you visiting the property is only incidental to your trip to Australia. So claiming an airline ticket to go to Australia to go on holiday and to inspect your property on the side is not deductible.

So does that mean I can only claim on flights specifically to go see my property?

If your visit does happen to be of a dual nature, worry not as deductions directly related to the property can still be made. This now falls under the category of domestic claims and is treated like any other normal claim you’d make on ‘income costs’. This means that if you visit Sydney but your property is in Perth, you can claim travel expenses from Sydney to Perth. This holds if you travel by aeroplane, motor vehicle, or camel (a joke of course).

So then how are my deductions calculated and how do I prove these claims?

There are a few methods for the calculation of these by car costs, such as the cents per kilometre method or the logbook method. Details can be found here.

In order to prove this the ATO requires documentation in the form of either receipts or a written travel diary (if your travel domestically is more than 6 days) that logs your daily activities. This diary should include the date, time, duration, and a brief description of your activities. It’s also advisable to keep all receipts and invoices throughout your visit, even receipts for items used in your property maintenance as small as paint.

Great. Anything else I should know?

Yes. Accommodation where it would otherwise be unreasonable to not stay on your visit is claimable. This means hotel accommodation, but try not to push the taxman’s buttons and go all out at a 5 star with your family as this deduction only applies to whoever actually owns the property. If this is you and your partner both have joint ownership, you both can claim half the expenses each.

You should also know that food expenses are deductible, from a bottle of water on the way, to a restaurant meal(s). Again, it’s important to keep a record of these events in the form of receipts and some sort of travel log should the taxman decide to audit you and your claims.

 

About Caterer Goodman Partners
Caterer Goodman Partners is a Shanghai based wealth management firm established with a clear vision to provide a new level of personalized financial planning services for expatriates in Asia. Our financial advisors provide guidance for our clients in all areas of investment, specialising in managed accounts, money-market funds, retirement planning and alternative investments. At Caterer Goodman Partners, we offer our advice and experience to provide low cost, tax-effective and simple solutions to match our clients’ interests.

About Owen Caterer
Since graduation Mr Owen Caterer has worked with the Queensland Premier's Department in Trade Facilitation and then as a financial adviser in Shanghai from 2005 until 2010.  He then rose to Senior Adviser, then Business Development manager and then to Chief Investment Officer responsible for portfolios to a value of US$280 million across Asia. Following that Mr Caterer left to found his own firm with a partner in the financial advisory and wealth management area.   This focused on developing China and Asia's first fee-based financial advisory (rather than commission-based). This has grown to now have 8 staff and and managing almost US$35 million for clients throughout Asia. This business success was recognized as a finalist in the 2013 ACBA in the Start Up Enterprises category and are one of a small number of foreign managed firms to have a full asset management license in China.  Owen has also been active in the community volunteering for the Australian Chamber of Commerce in Shanghai and acting as the Vice-Chair of the Small Business Working Group (2012-2014) and as the Co-Deputy Chair of the Financial Services since 2013 until the present. They have continued to grow their business and have now been selected as a small group of companies who are platinum members of the Australian chamber of commerce. The achievement they are most proud of is their efforts to reform the financial planning industry in China and push it away from a hard-sales commission driven model to a more ethical management fee and long term customer service model.   Owen has a Graduate Diploma of Applied Finance from the Securities Institute of Australia of which he was a member as a Fellow of Finance for many years and also has an undergraduate degree from Griffith University in International Business.  Owen's interests are tennis, running and his wife and two children.  He speaks fluent Chinese, first arriving in China in 1997.

 

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Owen Caterer

Why you shouldn’t look for a ‘pension’?

Posted on November 27, 2016 Facebooktwittergoogle_pluspinterestlinkedinrss

I want a pension plan.

I want an individual pension.

With governments in huge and growing debt, and the population aging, it makes sense to save for your own independent retirement. But what sort of pension should you get? Investing, however, is not like going to the supermarket. It is usually a huge mistake to look for a product that has “Pension Savings Plan” on the wrapper. Why?

saving-for-retirementThe reason is that insurance and investment companies simply use this title as part of their sales approach to you. Forget the titles and pay far more attention to the terms of the investment. Usually these “investments” (in many cases we use the term very loosely) are highly restricted so you can’t get your money out if you need it. They are also very expensive with layer upon layer of fees. There will be a very limited chance you will ever make money. The only reason your friendly local adviser is so keen on his recommendation is the large commissions he will receive once you start investing. If you achieve a return of 1% per annum, you’ll be doing well. That’s not even close to the best deal around.

What’s the real need? More Money

When you are saving for retirement (or for children’s education), the primary goal is to build the biggest pot of money you can. That’s it – don’t get distracted.

A few more % equals a lot more

Increasing your return from 1% each year to even just 4% will have a tremendous effect on your eventual result. Often that will mean doubling your money or more, instead of a barely noticeable gain. Furthermore, restrictions on accessing your money aren’t for your protection. They suit the investment company which then has a client’s money hostage. Special structures don’t “lock in its tax free nature for when you go home”. That is just an untrue sales line peddled by hard-selling brokers.

It’s the details that matter, not the marketing spiel

Any investment account with a discount broker is going to be miles better. Yes, they might not have invested money in glossy brochures of elderly couples walking along the beach. Possibly there will be a yacht or a luxury convertible driving along a ocean-side road in there too. You know the ones. They might not have pension plan or education plan on the tin, but a good deal often seems simple, because it is. In complications, fees usually hide.

Buy direct ETFs in a discount broker

You can reduce costs by investing directly into low cost funds traded on an exchange called ETFs. You can do it yourself, or get others to manage for you – either way. If you go even close to matching the market return of around 8% per annum and you’ll do very nicely over the long term, provided you stick to your plan. Your returns, and pension pot are almost guaranteed to be far far healthier than with a dedicated “pension plan”.

You can call a Managed Account anything you want.

managed accountsWe use managed accounts to accumulate wealth for our clients, whether the underlying need is build up wealth for retirement or to pay for their children’s education. Interactive Brokers is our preferred platform since the only management fee is ours and the trading costs are 90% lower than the next lowest in the market. Also, you can get your money within 2 days’ notice and the structure is clean, simple and transparent. But don’t let the boring name of “managed account” fool you. It can be called a pension fund, savings plan, rainy day fund, education plan, boat saving fund or whatever you want. It will still be better than any “tailored” solution you will find.

Bottom-line: It’s the investment deal that matters. Not the name.

 

About Caterer Goodman Partners
Caterer Goodman Partners is a Shanghai based wealth management firm established with a clear vision to provide a new level of personalized financial planning services for expatriates in Asia. Our financial advisors provide guidance for our clients in all areas of investment, specialising in managed accounts, money-market funds, retirement planning and alternative investments. At Caterer Goodman Partners, we offer our advice and experience to provide low cost, tax-effective and simple solutions to match our clients’ interests.

About Owen Caterer
Since graduation Mr Owen Caterer has worked with the Queensland Premier's Department in Trade Facilitation and then as a financial adviser in Shanghai from 2005 until 2010.  He then rose to Senior Adviser, then Business Development manager and then to Chief Investment Officer responsible for portfolios to a value of US$280 million across Asia. Following that Mr Caterer left to found his own firm with a partner in the financial advisory and wealth management area.   This focused on developing China and Asia's first fee-based financial advisory (rather than commission-based). This has grown to now have 8 staff and and managing almost US$35 million for clients throughout Asia. This business success was recognized as a finalist in the 2013 ACBA in the Start Up Enterprises category and are one of a small number of foreign managed firms to have a full asset management license in China.  Owen has also been active in the community volunteering for the Australian Chamber of Commerce in Shanghai and acting as the Vice-Chair of the Small Business Working Group (2012-2014) and as the Co-Deputy Chair of the Financial Services since 2013 until the present. They have continued to grow their business and have now been selected as a small group of companies who are platinum members of the Australian chamber of commerce. The achievement they are most proud of is their efforts to reform the financial planning industry in China and push it away from a hard-sales commission driven model to a more ethical management fee and long term customer service model.   Owen has a Graduate Diploma of Applied Finance from the Securities Institute of Australia of which he was a member as a Fellow of Finance for many years and also has an undergraduate degree from Griffith University in International Business.  Owen's interests are tennis, running and his wife and two children.  He speaks fluent Chinese, first arriving in China in 1997.
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Darren Cox

American Real Estate Purchased by non-US investors

Posted on November 26, 2016 Facebooktwittergoogle_pluspinterestlinkedinrss

US propertyMost will say that the United States has served as a beacon for foreign investments and business opportunities for many decades. Growing up in rural Connecticut, I would take the one and half journey to New York City at least twice a month. When the meadows vanish in the rearview, and the buildings start to grow taller and taller, you know you’re in the center of it all when you reach your destination. People from every corner of the world are attracted to America, a relatively strong economy with political stability. The result has been a steady increase in foreign investment. America coupled with strong technological innovation has created a robust consumer demand. After the financial crisis, capitalism has been restored and the U.S. is once again a beacon of safety. However, most foreign investors are generally not able to find useful information about legal structuring for property purchases when they are ready to diversify to America.

The devil is in the detail

Like everyone else, I’m overwhelmed when I hear 7,000 taxing authorities rule the United States, from the Internal Revenue Service down through all fifty states to the thousands of local jurisdictions. Each has its own rules – the only thing in common among them is their lack of consistency and coordination. In my opinion, foreign investors that decide to hold a piece of US real estate directly may opt to structure it as a business entity for the added legal protection.

A tale of two tax regimes

IRS FIRPTAWhen I bump into experienced investors, they will always tell you about two tax regimes that apply to them as foreign investors. The regimes solely depend on whether the property generates ‘passive’ income or ‘effectively connected’ income.

Passive income you can consider as fixed income. It is subject to 30% tax withholding on gross income unless reduced by some special tax code. Always check your local government for details. Effectively connected income is income that can be shown to be connected to a trade or business, and is taxed on a net income, or after expenses – so it is lower than passive. The tax rates change with higher income and apply to US citizens and foreigners. In almost every situation, it is the foreigner’s best interest to make the effectively connected election when structuring an income-producing real estate transaction. Now let’s get on with the real impact on foreign real estate investors: FIRPTA. Congress passes the Foreign Investment in Real Property Tax Act.

FIRPTA

Before this law was passed in 1980, capital gains taxes – the big payout of the sale of property – could be avoided (like in some countries). This was done through legal structuring that configured the transfer of assets as a mere corporate stock transfer. FIRPTA closed this loophole in order to ensure that the sale of US real property interests by foreign investors remained subject to US taxes. Therefore we need to structure properly. And yes, the government requires full disclosure of the citizenship of the person holding the title to the property.

6 Common Structures for Investment by Non-US Investors in Real Property

03_ramp-up-trainingAs a non-US investor, the most practical structures with respect to FIRPTA and the tax regimes are if you own less than 5% outstanding shares of a publicly traded real estate investment trust (“REIT”) or if you hold shares in a privately-held REIT. REITs are good, but they are often riddled with management fees that really “eat” into the investors’ returns. REITs are a good way to indirectly own U.S. medical offices, multifamily apartments, and specific areas of the U.S. You could also own member interests in Joint Venture that holds REIT shares. Another structure is when you are a shareholder of a wholly owned Delaware corporation or if you co-own property with other investors through a Delaware partnership. Delaware is a popular place for business entities because it is owner-friendly and strongly protects the rights of shareholders. And don’t worry, the state you register a legal entity does not necessarily have to be the same state where the real estate is located. Lastly, making an investment through a debt instrument is a viable option for you as a foreign investor.

Keep in mind as the investor you should be protected both in the US and in your home country. Some structures are more expensive to create and maintain, but if your investment portfolio is large enough, the tax savings can more than offset the setup cost and tax filing requirements.

Caterer Goodman Partners can help you understand these different options. For effective and personal tax planning, it is best to consult a lawyer specialized in real estate and in that specific geography where you will be buying. Caterer Goodman Partners works with several professionals across America, from New York to San Francisco, to advise and execute your real estate investment in the United States.


About Caterer Goodman Partners
Caterer Goodman Partners is a Shanghai based wealth management firm established with a clear vision to provide a new level of personalized financial planning services for expatriates in Asia. Our financial advisors provide guidance for our clients in all areas of investment, specialising in managed accounts, money-market funds, retirement planning and alternative investments. At Caterer Goodman Partners, we offer our advice and experience to provide low cost, tax-effective and simple solutions to match our clients' interests.
About Peter Okrasa
I have been a financial advisor for busy expats in China and their families since 2014. I have also been actively consulting private mainland investors since 2012 to help them buy real estate in the USA and other overseas markets. My area of expertise is educating clients to diversify, earn stable income, and grow their capital in accordance to their medium and long term financial objectives. Before coming to Asia in 2011, I lived in the USA and managed commercial property investments worth $30 million in the east coast. In 2007, I graduated from the University of Connecticut with a B.A. in economics.
 
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Owen Caterer

How to avoid Alternative Investment frauds, always

Posted on November 25, 2016 Facebooktwittergoogle_pluspinterestlinkedinrss

Working in investment management in Asia we get asked all the time about investment strategies by our friends.   Often the question is these days is about alternative investments since many people are looking for something else besides and in some cases instead of, their stock portfolio.   Our advice is in the anti-Nike, “just don’t do it”.  Just don’t.

We realize, this simple announcement might need some explaining since the case for an investment that doesn’t follow the stock market can seem like a good idea.   We consider alternative investments to be a category of real assets outside the world of funds and direct stocks that was popularized by storied investors such as of the Yale Endowment.  Things such as wine, stamps, precious metals, diamonds, forestry plantations, art and collectibles are all alternative in our view.

Our negative advice puts us at odds with quite a few of our friends but we aren’t writing this advice to make friends (or commissions).  It also seems to fly in the face of the convincing stories and beautiful pictures and those wonderful graphs that go up towards the horizon, with barely a pause for breathe.

Practically all alternative investments sold by a broker ends in a loss.alternative_investment

Not every investment ends in complete loss of capital its true,   But the failure of programs and strategies that we have been
pitched, and avoided, is so regular from what we can see, that your hit rate might be as low as 2 in 10.  Yup, that’s an 80% chance of losing money and sometimes the loss is 100% of your money.  This makes the stock market look positively low risk.  Not that you’ll ever see this risk reflected in the sales material of alternative investment salesmen.  Even worse we think that perhaps as many as one third of investment programs are borderline fraudulent if not a complete scam.  Sometimes it is difficult to tell the difference between the frauds and merely incompetent, but is that truly a useful distinction?

The only time to buy an alternative investment.

If you know more about something than anyone else you know and could be considered an expert in your area because you have been working or studying your area for years, or even better, a decade, then, maybe, just maybe you are qualified.  We don’t mean that you have been drinking a glass or two of wine per night since you were 21 and going to the odd wine dinner.  That you once visited Bordeaux on holiday and visited a few wineries.  We mean work in the industry selling, growing and producing wine.   It is similar to the old poker story.  If you can’t tell after the first 5-6 rounds who the dupe is in a game of poker; then the dupe is you. The same goes for alternative investments.

Why are alternative investments so risky?

Once you move outside market traded assets like the stock and bond market, a lot of the protections in place vanish.

  1. There are no cu56307091-C77D-267E-D892-8DF979A62815stodian accounts built into the system to protect theft from your asset manager. Think about that for a second – there is nothing stopping your wine broker, loading up a case your valuable wine in the back of his van and selling it and later telling you that it had been “lost or broken”.  Of course, that can give him a bad reputation, but by that time, the fraud has happened, and, if done in a small way on enough people, the perpetrator has disappeared somewhere with his illicit gains.
  2. The valuation methodologies on alternative investments can become divorced from reality, thus meaning you are paying overinflated prices for assets. These methodologies often must be devised because trading happens so rarely (unlike stocks), but they can be abused to pretend you are making gains in your fund when you are not.  Often this starts innocently to smooth a bad month, but sooner or later the manager will be relying on this most months to show strong growth and attract assets that the difference might be 20-40%.  Independent valuation experts are paid by the manager, so how independent are they truly?  We have seen this happen to property funds like student accommodation funds for example, that whilst otherwise solid, ended up with problems unloading their assets that had overinflated prices and thus locked up their client’s assets for years whilst they waited for reality to catch the model.
  3. There are no protections in place against self-dealing. This is where your helpful broker buys at the market at a lower price and then sells to you for a higher price.  For example your wine broker might pick up a case of Chateau Lafite for $10,000 and then sell it to you for $14,000 USD. Would you ever know that your wine broker quietly pocketed $4,000 completely risk free?  Later the broker can just say that “demand isn’t that strong right now, so we suggest you hold for another 2 years while we charge you a management fee for crossing our fingers and hoping that the market bails out our poor deal”.  Sounds like an awesome deal, right?  Protections against this were put in place in securities markets more than 100 years ago, but they don’t exist in these unregulated markets.
  4. Understand you are betting on future fashions which are unpredictable. We aren’t talking about buying vintage clothes here, but the simple fact that some things go in and out of fashion.  Witness the collapse in Bordeaux prices as Chinese investors moved on from buying bottles of wine to buying Burgundy wineries.  Who knows what the hot trend in art will be in 10 years?  Investing is about buying an asset that can deliver a future income stream, like a company that pays dividends or a property that pays rent.   Picking a future hot fashion you need a lot of luck.
  5. Fear the word ‘guarantee’ and you’ll avoid the worst of the worst. Whenever my partners and I hear the word ‘guarantee’ from an investment provider, we go running immediately.  There is no better predictor of investment failure in my opinion, than investment providers who use that word.  Look for a good risk on a company that is growing to the  future and making money now (think Facebook and not Tesla) and you are likely to do far better than looking for a safe haven that is anything but.

Don’t be the patsyimages (2)

So, our simple rule of thumb is, if you don’t know how to engage in your preferred market without a broker and you don’t know all the right people, the tricks, the history, the strategy and the market players BEFORE the broker turns up.  Then you should turn the broker away.  If you need entry to the market via a broker (who might also call himself an IFA or financial adviser) because you don’t know enough, then you shouldn’t be playing the game; because the patsy at the poker table is you.

 

About Caterer Goodman Partners
Caterer Goodman Partners is a Shanghai based wealth management firm established with a clear vision to provide a new level of personalized financial planning services for expatriates in Asia. Our financial advisors provide guidance for our clients in all areas of investment, specialising in managed accounts, money-market funds, retirement planning and alternative investments. At Caterer Goodman Partners, we offer our advice and experience to provide low cost, tax-effective and simple solutions to match our clients' interests.
About Owen Caterer
Since graduation Mr Owen Caterer has worked with the Queensland Premier's Department in Trade Facilitation and then as a financial adviser in Shanghai from 2005 until 2010. He then rose to Senior Adviser, then Business Development manager and then to Chief Investment Officer responsible for portfolios to a value of US$280 million across Asia. Following that Mr Caterer left to found his own firm with a partner in the financial advisory and wealth management area.   This focused on developing China and Asia's first fee-based financial advisory (rather than commission-based). This has grown to now have 8 staff and and managing almost US$35 million for clients throughout Asia. This business success was recognized as a finalist in the 2013 ACBA in the Start Up Enterprises category and are one of a small number of foreign managed firms to have a full asset management license in China.  Owen has also been active in the community volunteering for the Australian Chamber of Commerce in Shanghai and acting as the Vice-Chair of the Small Business Working Group (2012-2014) and as the Co-Deputy Chair of the Financial Services since 2013 until the present. They have continued to grow their business and havenow been selected as a small group of companies who are platinum members of the Australian chamber of commerce. The achievement they are most proud of is their efforts to reform the financial planning industry in China and push it away from a hard-sales commission driven model to a more ethical management fee and long term customer service model. Owen has a Graduate Diploma of Applied Finance from the Securities Institute of Australia of which he was a member as a Fellow of Finance for many years and also has an undergraduate degree from Griffith University in International Business.  Owen's interests are tennis, running and his wife and two children.  He speaks fluent Chinese, first arriving in China in 1997.
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