Bittersweet analogy for investors

Business Times - 09 Dec 2008

Like choosing durians, you can never be quite sure what you are going to get with investments these days

DURIANS and investments tickled my mind this past week. I thought of buying some durians to lift my spirits amid all the negative news. But alas they are not in season. Still, the 'king of fruit' and the losses on my portfolio did throw up some nice analogies.

Hidden beneath the durian's tough spiky shell is a delicious treat that many hanker for. The trademark sharp spikes are a gentle reminder that any investment can be painful if handled badly.

It's extremely difficult to buy a good durian when the fruit is not in season, and the asking price is three times higher. But when the harvest is aplenty you can get wonderful fruit for much less. Watching the trend is the way to go about durians - just like investing.

Perhaps we should also remember that a durian tree takes about five years to bear fruit. Ah, another reminder of the time frame so important for investments to mature in this era of e-mails and blackberries. But after a five-year wait there is no guarantee that a durian tree will produce A-grade fruit. Some AAA grade seedlings may just produce the opposite - as investors have found out.

I have been buying durians for more than two decades, yet still I can never be sure that every fruit is full of fleshy, creamy finger-licking goodness. The signs boldly proclaim A grade, but every so often I end up with a possible B or sometimes even a dud C.

Perhaps this is because most vendors choose to open just a small corner of the fruit for you to poke your finger in to test the flesh. All vendors will scream pau chiak - which translates roughly to 'guaranteed to be a good eat' in Hokkien. Some even have half-opened fruit on display to tempt you. But ever so often, I discover later that part of the fruit has an uneven texture, sometimes hard, sometimes dry and often inedible. As with investments these days, you can never be quite sure what you are going to get.

Why is this so? Well, a durian has several compartments - a bit like the various reference entities of a structured products. Together they form the whole fruit. And occasionally, a tiny worm burrows a hole through the tough husk to enjoy a gourmet meal inside. The poor unsuspecting buyer - or investor - can end up with a lot less than they paid for.

Even experienced durian vendors cannot claim to get it right all the time. They shake the fruit, tap it with their trusty knife and cut it open - only to throw it into the reject basket. And this happens even when the durians have been graded and arranged into neat sections for display.
Well, if the experts sometimes get it wrong, the average durian lover can expect to have an even lower success rate.

In the old days, durian plantation owners used to wait for the fruit to mature fully on the tree and fall off before harvesting. This meant the fruit had a short shelf life. The trend these days is to cut it just before it is fully ripe, and to resort to artificial means to ripen it.

Alas, these 'techniques' are now common in exotic financial products to make them look fully ripe, when many an unsuspecting buyer bites into them only to discover they are far from it.

But one thing is for sure, the sharp knife of the durian vendor cuts deep and well. The best corner of the durian is always cut open to tempt you. And the surprising thing is that the vendor - just like a financial wizard - very rarely cuts himself, even though he opens several hundred durians on a busy day.

I have made up my mind to be a lot more vigilant when it comes to buying durians because true AAA fruit is a lot harder to find these days. Just like a worthwhile financial instrument.