This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on August 22 - 28, 2016.

 

Enduring value

Datin Paduka Tan Siok Choo, chairman of United Malacca Bhd, is definitely “old money”. She can trace her ancestry back generations. 

She likes to talk about her great-great-grandfather Tan Choon Bock, the founder of this dynasty, who decided to start a sailing service between Malacca and the Indonesian Spice Islands rather than run opium dens to create wealth. He reasoned that money made on the misery of others would bring misfortune on his descendants. 

However, despite his concern for his descendants, he ended up disinheriting his four sons, leaving his great wealth locked up in a trust that would last until his first grandchild had been dead for 21 years. Siok Choo talks about this fondly though. She calls it “tough love” and it is something that has been passed down through the generations.

Few people realise that her grandfather, Tun Tan Cheng Lock, was born without a silver spoon in his mouth because of her great-great-grandfather’s will. Cheng Lock wanted to be a lawyer but there were not enough funds for him to further his studies and he missed out on a scholarship by a few points. 

He became a teacher at Raffles Institution instead, but he hated his job. His mother, a wise woman, suggested that he try rubber planting (which had recently come to Malaya) and work for her cousin.

“That actually proved to be the making of Cheng Lock because he discovered that he did like rubber planting and he was successful at it. In April 1910, he established United Malacca. It is one of the oldest companies listed on Bursa Malaysia — we won an award for that actually. Sime Darby was formed in the same year, but its ownership has changed, whereas we are still significant owners of the company,” says Siok Choo.

Cheng Lock, though resentful at first, acknowledged that his grandfather’s tough love was the making of him because it spurred him to create his own wealth. “Otherwise, he would have been just like any rich young boy, quite content to live off his grandfather’s wealth,” she says.

United Malacca is tightly held by the family. “If you look at the annual report, you will see that the shares are not held through a single company. That is because my father realised that after the second or third generation, ties would fray and people would not get along. They would have different aspirations,” says Siok Choo.

“My father distributed the shares to all the family members so they would hold them directly. He said, ‘If you don’t vote as a bloc, you deserve to lose the company’.”

Her great-great-grandfather had a profound influence on her life. “Choon Bock taught me several lessons. It is not just about making money; how you make the money is also important. It must be made in an honourable way so that it does not cause the suffering of others. This has encouraged me to be an environmentalist.”

The second lesson was that sometimes, you need to practise tough love to get results. And the third was that one should never think in terms of just a single generation. “The long-term prosperity of your descendants is also important,” says Siok Choo.

The industry her grandfather chose to venture into drove home this point. “A rubber tree takes seven years to mature, so you are forced to take a long-term view —whatever you do today, you will only see the benefits seven years down the road,” she says.

Also, rubber prices are very volatile. “You may be the best planter in the world, but if the rubber prices go against you, you will make losses.”

That is why all plantation companies, United Malacca in particular, have a policy of high cash reserves, says Siok Choo. “It is to tide you over in bad times. And that is why we have been able to endure. We have survived two world wars, the 1921 rubber crisis and the Great Depression. Apart from those years, we have always paid a dividend.” 

Although United Malacca is clearly a family business, her father and grandfather always discouraged nepotism. “We were never encouraged to work for the family company because you would have no way of knowing just how good or bad you are. Also, good managers would never work for you because they are usually ambitious and want to make it to CEO. But if the son or grandson was in the company, what hope would they have?”

The Tan family policy has always been to work elsewhere first. As Siok Choo points out rather cheekily, it is good to let the company be managed professionally while your business rivals underwrite your learning curve.

“Take my father. His first employer was not my grandfather but the patriarch of the Chee clan. Chee was one of our neighbours in Malacca. When my grandfather saw that my father was doing quite well with the Chee family, he asked him to come back.”

When her father passed away, Siok Choo, who was a journalist at the time, decided that she wanted to be a part of United Malacca and that she would need to build her business credibility. So, she started working as an investment analyst at a stockbroking firm. The hours were terrible, so she switched to a bank. She joined Southern Bank and not Pacific Bank, which was 21%-owned by United Malacca.

“Everybody asked why I did not work for Pacific Bank. I said, ‘Why make your family put up with all the mistakes you are going to make when you start out?’” says Siok Choo.

But more than that, working for somebody else would mean a level playing field when you are evaluated. You would know whether you are good or bad because nobody would have to pander to your feelings out of fear that you would one day be their boss.

Her father was also adamant that his children learn to handle money at a young age so they would not go crazy when they got their hands on millions of ringgit. “When we went to university, he gave us a whole year’s allowance. From that, we had to pay our school fees, tuition fees, hostel fees, books, living expenses and most important of all, we needed to have enough left over to buy our plane ticket home,” says Siok Choo.

The allowance was not extravagant by any means. “My father did some research and asked the Education Department how much Malaysian students received as a scholarship. He added a bit extra so we wouldn’t be too poverty-stricken. We had to make do and were not allowed to ask for more money. This way, he told one of his friends, he would be able to see which of his children could handle money,” she says.

The allowance allowed them only a bare-bones existence. “In London, I had to walk 15 to 20 minutes to take the Tube, be it winter or summer. I had sandwiches for lunch and cooked my own dinner. I never ate out. If we were invited by the ambassadors of other European countries to stay with them, we took student charter flights, which were a lot cheaper but subject to delays,” says Siok Choo.

She and her younger sister eventually lobbied for a higher allowance because of the raging inflation in the UK at the time. But they were shrewd enough not to do so directly but through someone at the Malaysian Students department. 

All this made Siok Choo manage her money carefully. “You always have to think long term and be very conscious of risk. My father also taught us how to avoid being conned. He said if someone offers you a deal that promises a high return in a short span of time, it can only mean one of two things — it is illegal or it is a con. And both, we should avoid.”

The former finance minister taught his children not to be greedy and to avoid short-term gains. “He pointed out that normal businesses do not generate profits in a short span of time,” she says.

That is why Siok Choo is not a particular favourite of wealth managers. The questions she asks, when someone calls to sell her a product, are too probing and direct. This usually makes them uncomfortable.

“When they want me to invest in derivatives, for example, my approach is to ask two questions: First, tell me what my possible maximum loss is. If they can’t tell me this, it is not a good sign because that means unlimited losses. Second, where is the bank profit coming from [with regards to the product]? Is it just the fee? They hate answering that as well,” she says.

Siok Choo says her father gave her a great stockbroking tip. “He really was a great contrarian. He said to me, ‘Buy when everyone is selling and sell when everyone is buying. I always thought that is not a bad idea. So, in downturns, always look to buy.”

Like now, for instance. “I am waiting because I think Brexit is going to be long-drawn. It is not a one-term thing. Some economists think we could be in for another worldwide recession, like in 2008. So I look at companies with good management and strong dividend yields. In good and bad times, they can still pay. Especially now, I think we should not be looking for capital gainers so much as steady returns.”

Siok Choo admits that she prefers stocks to property as investments. “They are very liquid. In times of difficulty, they are easy to sell. My father never liked investing in property either because when you need the money, you cannot sell it easily. And usually, when you want to sell, nobody wants to buy.”

She has another objection. “In Hong Kong and Singapore, condominiums are well-maintained and the management company has the power to enforce payment as they can turn off your water or electricity. In Malaysia, they have no power and that is why you notice condos start to lose value after five years due to poor maintenance. I don’t want to keep having to look for new condos every five years.”

Siok Choo says she is essentially a conservative investor. “My first priority is ethical investing. Because of Choon Bock, I do not invest in gaming shares, even for United Malacca. And luckily, there are no opium stocks.

“Second, I always go for capital preservation. And third, I always go for long-term benefits. I don’t like faddish investments such as tech stocks, which may be very ‘in’ today but out of fashion in two to three years. I want something that will power earnings for the long term.”

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