He goes for large funds and looks at exit strategy too
LORNA TAN
Sun, Aug 03, 2008
The Straits Times
When Mr Stephen Tan was 15, he already understood the concept of buying low and selling high for profit.
Now 36, the director of IT products distributor Convergent Systems recalled how vacation jobs at his parents' business sharpened his entrepreneurial edge from a young age.
'I learnt that when you sell a product, you have to incorporate the expenses into it and sell it at a profit so as to cover future expenses,' he said.
'It was an early induction into the business world, quite a different experience from my school friends whose parents held salaried jobs.'
The stints taught him the concept of buying low and selling high by adding value or through pure opportunities.
It was a lesson that Mr Tan put to good use when he found himself taking over the reins of his parents' company, Convergent, together with his older sister and brother-in-law, when his mother died suddenly from a rare bacterial condition in 1997.
That was the year he graduated from Nanyang Technological University with an engineering degree. He is now responsible for the firm's finances.
Where his personal investments are concerned, Mr Tan considers himself an aggressive investor with a five- to 10-year time horizon. In the past five years, he has engaged the services of two private banks but made the call on what to invest, and the mix.
His parents set up Convergent in 1987 with $100,000. Since then, it has grown into a business with an annual turnover of $130 million of which the bulk, or $91 million, is generated from its Singapore operations.
It supplies Kingston and Lexar memory products as well as Hitachi hard disk drives to retailers, stores and system integrators. It has more than 100 employees across Singapore, Malaysia and Indonesia.
Mr Tan is married to former human resource practitioner Lilian Low, 36. They have a daughter, Natalie, four, and twin boys, Samuel and Oliver, one.
Q: What are your money habits?
I draw only about $200 at one go from the ATM so I don't have more than 200 bucks in my wallet at any one time. If there is any purchase exceeding $200, I will use one of my two credit cards.
I'm more of a saver, saving about 30 per cent of my income. I save for myself but I tend to spoil my kids and wife. My house is like a playschool with all kinds of toys and slides.
I try to provide the best for them, so I end up spending a lot on children's clothes such as Baby Guess and Gap, toys, health supplements and good medical care.
Q: What financial planning have you done for yourself?
I put 30 per cent of my savings in hedge funds, another 30 per cent goes to fixed income instruments and the rest into Singapore blue chip stocks such as SIA, SPH, Cosco and SembCorp. I've enjoyed good dividends from SIA and SPH. If I need money, I will liquidate my stocks first because they are the most liquid.
My fixed income instruments include high-yield bonds and dual currency fixed deposits. I have two hedge funds, one investing in natural resources and the other in forex.
My entire portfolio achieved returns of 11-12 per cent last year. In good years, the returns were 18-25 per cent and in bad years, about 7 per cent.
I also hedge my currency risk in three ways, US$ against euro, US$ against yen and euro against yen, using plain forex trades.
Some of my investments are in other currencies, such as the US$ or yen. This is to prevent the gains from being eroded by currency volatility.
Q: What about insurance planning?
As the sole breadwinner, I have four plans for myself - two whole life, one term insurance and one health policy. Should anything happen to me, my wife and kids will not have to worry about the roof over their heads and their education. I'm insured for about $1 million on my life. My annual premiums amount to $10,000.
My daughter has an education policy riding on me and I'm in the process of buying another two more educational savings policies for the twin boys.
Q: What's your investment philosophy?
Never be too greedy. Buy what I can afford to lose on paper, and sell it when there is profit.
When selecting funds, I look at the historical track records, governance and where they are domiciled. I prefer large-size funds. Other considerations include the prospects of the funds and the exit strategy, in case the investments turn bad.
Q: Money-wise, what were your growing-up years like?
The toddler years were tough. I grew up in a two-bedroom HDB flat in Marine Crescent with seven people in it. I shared my bedroom with my two siblings and two cousins from Indonesia. My mum was a housewife while my dad was an Ericsson phone salesman. Things improved a few years after my parents started Convergent. I was 12 when we moved into an HUDC maisonette in Marine Parade.
We were taught the value of money from young. We had to save from our daily allowance of 20 cents, and lunches were packed from home.
Q: What has been a bad investment?
It has to be the three telecom unit trusts that I bought on the advice of my priority banker in 1999. They included an innovation fund from Taiwan and a global telecom fund. I had invested $50,000 in each fund. But they lost 30 per cent in four months. I eventually sold them at a loss of 45 per cent - or $60,000 - seven months after I had bought them. There was also zero diversification because I was solely invested in one sector. It was a painful lesson and I realised that I needed to do my own homework.
Q: Your best investment to date?
It is a hedge fund investing in natural resources and commodities. It was bought in 2005 and it is up 70 per cent. It was my private banker who introduced the fund to me. I thought it was a good investment as oil prices were at US$60 to US$80 per barrel then and climbing. I hope to liquidate it by the end of this year as it is better to exit when it is still up. I don't think it is possible to exit at the highest point for every investment.
Q: What's your retirement plan?
I expect to continue working at Convergent till the Lord calls me home.
Assuming the house and children's education needs are fulfilled, I would need about $5,000 a month (in today's dollar value) for my wife and me in our golden years.
Q: And your home now is...?
A semi-detached three-storey 3,000-sq ft house in Upper East Coast. It was bought for $1.8 million in 2006. I lived in a terrace house in Siglap after I got married, but I sold it for a profit and moved to this bigger place when I realised my wife was expecting twins.
I plan to look around for good property investments when prices soften.
Q: And your car is...?
A grey Volkswagen Golf for myself and a light blue Volvo XC90 for the family.
