By Andrew Wong      20th April 2003

Double Miseries and Not Double Happiness in Investment

(The Peril of Long Term Investment)
I received a call from my wife this morning. A neighbor, an old lady, passed a set of letters to my wife. The letters were her unit trust investment statements. 

The old lady said that she had invested in unit trust many years ago. For a long time the unit trust agent disappeared. She does not know what happen to her investment. Is she making money or losing money? Is there still money left in her account? She has no clues. She asked my wife to get me to help to find out, knowing that I am also an unit trust agent.

The old lady's family is of humble background. Though not too poor, but they must have worked hard to save some money. The old lady invested in unit trust with the view of managing her future then, when investment was made many years ago.

I made some checks from the little information given in the statements.

Mdm "Y" invested in X unit trust fund around August, 1994 with a few investments. She opened a few accounts : for herself, for her two daughters etc. That was 9 years ago, the children were still young then. A loving mother invested for her own future and her that of her daughters.

In a few batches, investment were made around August, 1994, e.g. RM 3000, RM 1000, RM 2000, RM 5000, et.c etc. The unit price then were RM 1.01, RM 1.06, RM 0.95 .All these years, there were extra units from bonus and dividends. 

In total, the invested amount in 1994 was RM 21420.00.

Today (April, 2003), the unit price is RM 0.5528. With the total accumulated units ( from bonus, dividend) multiplied by current price, the investment worth is RM 15104.22. A loss of RM 6315.78, or a loss of 29.49% in 9 years.

It is a painful news to the old lady. Why investment money can shrink? The loss is almost 3% plus every year. It does not make sense. Even today bank interest is + 3% per year. 9 years ago the interest was much higher. Unit trust investment is worse than putting money in the bank.

She remembers vividly that during the time of investment, the agent told her that unit trust investment is for long term. Is 9 years not long term enough? Does long term mean 90 years? What exactly is long term investment with good positive return?

It defies all logic! Furthermore when she stopped investment, the agent disappeared totally. 

She also remembers the agent told her to invest regularly. But then at that time, that was the only spare money she had. She could not invest regularly. She had never been told if there is no regular investment, one could not expect positive return of investment after long term.

Even if one invested regularly since 1994, today the investor still makes losses. In 1994 till 1997, it was bull market with higher and higher price until the market clashed during the Asian economic crisis. It was 3 years of bull (since 1994) and high price, regular investment, so called dollar cost averaging, will be chasing for higher and higher unit price. Then the clash till today, 6 years plus of decline, with a rebound in between. The regular investment strategy during this bear period is still not sufficient to compensate the 3 years of high price purchase. The net effect is still losses and losses. It may take another 2 - 3 years of bear market to acquire more units at low price to beak even with the high price of regular investment during the bull market. Maybe a total of 12 years to break even.

In this case, long term investment may mean more than 12 years to get positive return. Furthermore who has such spare fund to regularly invest for 12 years, and just to break even. 

It is a tragic logic with tragic result to the old lady

We need to re-examine the assumptions and logic that we apply to investment to ourselves and to others. With all the best intention, we create negative consequences of misery.

I arranged a time with the old lady and her daughters (now adults) to explain how the market forces affect one's investment. We need to have different strategy and not in a blind faith manner believing in "long term." Neither should we apply the logic of dollar cost averaging throughout without understanding the up and down of the market.

Ironically, the Chinese version of the unit trust fund which the old lady invested, is called "Double Happiness Fund".

Is it Double Miseries or Double Happiness in this case?


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