Old lady (Mdm Lim*) with modest means passed away at 90 years old donated 6mil to charity. Where did she get the money? She had a modest job as an admin assistant and lived a simple life. If you walked past this lady in a Chinatown market you would never believe that she was a multi millionaire. She wore simple clothes and shopped at the wet market like my mom. She did not have a MBA or a finance degree. You could not tell!!!!! Wait till you hear how she did it.

How was she able to donate so much to charity and also leave a few mil to her 2 kids? Here is her secret. Every month, after paying her mortgage, she invested the rest into the stock market. 4 stocks + an equity index. Here is what she owned a Singapore bank, a Singapore REIT, Microsoft, Starbucks and Global index ETF. When the companies paid a dividend she would take the proceeds and reinvest it in the same manner. She kept dollar-cost averaging over 20-25 yrs and repeated this process every month regardless of how the markets were.
How did she pick those stocks? She said these are established businesses that she knew well and can sleep well at night. Was she worried about the market crash like in 2001? Her reply was if markets drop she will use the same amount to buy more shares. Overtime markets will go up so why keep fearing of the next market crash. Stick to a simple plan and invest over time. Wisdom on simplicity in life. The difficulty for most of us is to stick to a plan year in year out.
On another hand, a rich wall street commodities trader (Mr Wong*) who worked for top notch wall street bank. A very smart person, studied finance in the best universities in the world had an MBA from a prestigious university but failed to make the right decisions in life. He was very well paid by the bank with large bonuses. When he retired, he bought complex derivatives products from the private bank, illiquid private equity, and leverage up. When markets turned he went Bankrupt!!!! What a shock, am sure his family was in pain when this happened.
How could someone with all the best education in the world , who had substantial financial means end up bankrupt? Whereas Mdm Lim who had very little means lived a much less worried life but ended up financially better.
What are the things we can learn from this Mdm Lim the old lady and rich banker Mr Wong?
“Human behavior will determine how well you will end up?”
Here are 2 simple lessons
1. Follow simple rules – stay invested dont try to time the markets and worry about the next crash.
2. Avoid Complexity – Bankers like to sell you complexity but it may not always work for you
Follow simple rules – Don’t try to time the market
In the last 20 yrs (7300 days) if you miss the best 10 or 20 trading days this would be the difference in returns.




Source: Bloomberg, S&P 500 Returns.QS Investors
Mdm Lim had a systematic investment process helps to reduce stress and worry. Staying invested and not timing the markets would have helped her over long period of time. Worrying about the next market crash is not a very productive use of time and health. But dollar cost averaging over time helps to reduce the chance of missing the best days in the markets.
Most investors tend to wait for the all clear sign which never happens. Our news flow driven culture tends to favour bad news over good. Who would read the headlines if it read “the world is getting better and poverty is reducing”? But if there is bad news like a pandamic, recession or a horrific accident it would sell more copies and attract attention. But the emphasis on bad news does not always translate to returns in our portfolios. In fact there is little or no correlation between the two.
Avoid Complexity
“Life is really simple, but we insist on making it complicated” – Confucius
Bankers tend to sell complexity because it helps to conceal the fees and risk that clients are not aware of. Clients find it too complex to understand. It is human nature to be attracted to such complexity, this is called the Complexity Bias
Most clients do not have the patience or time to read thru the 200 pg prospectus and the risk disclosures. Mr Wong the rich banker bought complex instruments which had long lock up periods of 7 years, the underlying were very illiquid. Add in some leverage and derivative structures it was a recipe for disaster.
Shane Parrish from Farnam Street highlighted that marketers often use complexity bias to sell. They do this by incorporating confusing language or insignificant details into product packaging or sales copy. Most people who buy “ammonia-free” hair dye, or a face cream which “contains peptides,” don’t fully understand the claims. Terms like these often mean very little, but we see them and imagine that they signify a product that’s superior to alternatives.
Complexity bias is another way we try to sidestep the need to understand. When things are too simple, they are also viewed as dull and boring.
“A complex system, such as a nuclear reactor or the human body, will malfunction if any of its essential components fails. Even when the likelihood of failure in each component is slight, the probability of an overall failure can be high if many components are involved.” Daniel Kahneman (Nobel laurate) and Amos Tversky wrote in 1974 (in Judgment Under Uncertainty: Heuristics and Biases):
Conclusion
Managing the human response would affect the long term outcome of your portfolio.
Mdm Lim stuck to a simple plan and not try to time the markets helped her not miss out on the best trading days. This dramatically affected her long term performance of the portfolio.
Does a more complex product mean it is a better and superior to the simple one?
Have you every noticed the abbreviations used for the additives in baby milk powder? (DHA, Prebiotics, ARA, Taurine, Choline, Lutein, Pantothenic Acid, nucleotides, PDX and GOS). No wonder every mother out there has a PHD in chemistry and medicine.
Avoid complexity – stick to the simpler solution for investing and you will be better off in the long run.
*We have amended the names of the persons to protect their identity and the identity of the estate.