Rena He Hanxi, marketing director of HSBC Jintrust Fund Management Company, has hit upon a novel way of ushering a novice gently into the financial world. Her first book, Honglou Fortune: Wealth for Generations, reads like a soap opera, where all the characters' dialogues relate to wealth management. Inspired by an 18th century Chinese classic, Dream of the Red Chamber, the book discusses tips on how a family should handle its finances. At the end of each dramatic episode is a recommendation by the HSBC Jintrust investment advisers.
At times, this reads like a propaganda machine for the fund company. For instance, when two characters are discussing ways to save money for a child's education, the conversation veers to life-cycle funds. They then propound the benefits that investors can enjoy by putting in money in the HSBC Jintrust 2016 Lifestyle Fund. Despite this glaring self-promotion, it's fun to read Honglou... if only because you want to know which crisis is going to strike the family next and how the wise Tan Chun, the family's financial guru, is going to crack the problem.
The book, however, fails at many levels. It's too elementary for anyone who has even a passing knowledge of finance. At the same time, it does not explain concepts that a layman would want to know more about. For instance, in chapter 4, one of the characters is advised to invest in money market funds. But beyond saying that these funds deliver returns on a par with fixed deposits and offer the flexibility of current deposits, there is nothing that explains the instrument. So a novice will learn about the benefits of money market funds without understanding anything about what constitutes such a fund or how it works.
Also, some chapters offer decidedly bizarre learnings, such as the one on studying abroad. The lesson: studying in a foreign country not only provides you with an education, but more importantly, it lets you choose your own destiny. So, is one to understand that studying in one's own country will not allow one to do the same?
It seems Hanxi realised this failing and has done her best to overcome it in her second book, 36 Stratagems for Investors: Timeless Financial Wisdom from a Chinese Classic. The book is based on proverbs relating to war scenarios in Chinese history spanning almost 800 years. While the first book deals with financial planning, the second focuses on mutual funds.
In the sequel, each chapter begins with a battle strategy adopted by military leaders. This is then interpreted to give a new spin to mutual fund investing. This time, the stories are shorter while the lessons are explained in detail. Perhaps it's the influence of two more authors, Nian Lu and Joe Jiang Xing, both employees of HSBC Jintrust. So in fund lingo, 'beat the grass to startle the snake' means that before you invest in a particular fund, you must gather all possible information about the fund company.
Both books are easy to read and have a cartoon strip after each lesson. Financial experts can simply skip to each cartoon; some are worth a chuckle, others are profound.
One of the most glaring problems with both the books is the number of characters one needs to track. In Honglou..., there is no explanation for the complex relationships between the characters. It just assumes that we are familiar with all the players, which can be very frustrating for a first-time reader. Typical of a family soap, each chapter introduces yet another new character.
The second book, too, suffers from the same malaise. By the time you come to the tenth chapter, you've lost track of the generals, kingdoms and warring states. However, the military strategies make for an interesting read, so much so that you'll be tempted to pick up a book on China's history. Thankfully, the fund tips too are explained well, which might just inspire our financial tyro to take a bolder approach to investing.
Time to sell a fund
Increasingly lacklustre results: Don't sell a fund only because of a decline in its net asset value. Compare the fund with its peers or the benchmark. Consider long-term performance for more than three years before getting rid of a fund.
Set a limit for losses: Regardless of whether you have achieved your goal, redeem the fund once your losses rise to a certain level. Holding on to the thought that 'prices may just rebound' is likely to cause more grievous damage.
Emergency cash needed: A household's living expenses for six months should be invested in liquid funds so that the money can be tapped immediately.
Unanticipated changes in the size of the fund: When a fund expands or shrinks radically in size, find out the reason. A flush of investment capital could undercut your profit margin, while huge redemptions may mean bracing for a market crash.