Financial Literacy and BVB Bourse Investing in Romania

Now that most stock markets plummeted on Friday, it is about time to complete my overview of how investing is reflected in Romanian mass media. Whereas before the pandemic lockdown most articles were asking “why aren’t Romanians investing”, thereafter we have a lot of reports of investments doubling every year.

Varianta în limba română pe FaṭăCarte Meta.

• I discuss the Financial Literacy Survey as well as PISA results of Romania, reflected poorly by the media.
• My experience in investing (going back to the ‘90s) is not a basis for advice, which is why this article should be read as a work of fiction.
• I look at the best ways to start investing if I were to start today.

I was ending my previous article on investing with a strong suggestion to diversify and it occurred to me that this might not be a term that’s fully understood by Romanians. As I surveyed the Blogo.ro-oaie and Twitter/Meta-verse, I got this feeling that Romanians are not very knowledgeable when it comes to investing (see also the ill-fated contest from Publica). I didn’t use “scientific” methods, so I was curious to find out if anybody else did. For the general level of education and its adequacy we have PISA, previously covered for 2015 and 2009. According to Statista, for PISA 2018, Romania “recorded a decrease in PISA results for each category compared to those of 2015 and 2012. The lowest results in the PISA test were recorded in 2006 with a reading literacy score of 396, while the best results were achieved in 2012” (sta-pisaro18).

An advocate for Romanian intelligence and prowess (a very imaginary entity, as most Romanians would rather badmouth their own) might point out that PISA is a general educational barometer and it might be possible for Romanians to be financially literate while scoring low on PISA. Even this argument is entirely refuted by evidence: in 2015-2016, S&P/WorldBank conducted an international financial literacy survey that also placed Romania dead last (or among the last, depending on whom you include) in Europe. This is particularly jarring considering the simple questions in the survey (1. Diversification, 2. Inflation effects, 3. Numeracy/Percentage, 4-5. Compound interest; fbs-finlit, spg-14finlit). It’s also interesting that while Canada’s score (68%) is highest in G7, Romania’s is lowest in EU. Additionally the survey found a bad situation worldwide (dm-finlit).

• Low levels of financial literacy around the world
• Numeracy and inflation are the most understood concepts
• Risk diversification is the least understood concept
• Youth and women’s financial literacy levels are lower than adult men’s

Given the Romanians’ relationship to real estate, perhaps it is best to explain these concepts with houses and apartments. However, successive BVB leaders employ slightly different methods.

After the survey came out, Lucian Anghel, BVB CA pres went on TV to detail the results (spt-hanga)

• 75% of Romanians don’t get risk diversification
• only 35% of Romanians who borrowed understand compound interest
• only 15% save for retirement
• upset for general knowledge at the expense of financial education in school
• potential for BVB: 23000 Romanians have over 100000 euro in bank savings for a total over 6 billion euro and 13.7 million have deposits less than 100000 euro for a 24 million total; over 200000 have salaries over 5000 euro per month
• market cap of BVB listings 14-15 billion euro

That was in 2016.

Closer to the present, Radu Hanga, president BVB, appeared on iBani with Stefana Todica (spt-hanga). We learn that he looks a bit like Moulea and that the BET index increased in 2021 by 28%.

One explanation for the lack of financial literacy are the many financial scandals such as Caritas, FNI (Ponzi or pyramid schemes?) or “white collar” bank robberies (Dacia Felix, Bancorex). Such scandals are probably both a cause and an effect of the aforementioned lack of financial education. On the other hand, ineffective regulation is definitely more of a cause than an effect. I tried looking for the Romanian regulator and so far I’ve found a reference to fond-FCI.ro and ASFromania.ro on BVB’s site (bvb-reg). I’ve also discovered a reference to the Romanian National Securities Commission but its website, cnvmr.ro is dead – it may have been consolidated into ASF (PDF). It would be great if there was an ETF to track the BET index (bvb-bet), but you won’t find one in the list of country ETFs (edb-ctry).

Even in Canada regulation is imperfect. There isn’t a national regulator and most regulation falls on provinces and mainly, OSC. This “imperfection” was illustrated by the Quadriga scandal or even China-born Binance, who at first stated they are leaving Canada, only to recant and be “corrected” by OSC who reminded everyone that they are not among the 6 crypto exchanges registered and allowed to operate here (cp/fp/bb-bnnc). OSC has also a financial literacy website (osc-finlit).

myexp

I’ve been a bit lazy since I was little. I thought I liked work, just not stupid work. But most work seemed stupid. When given a five minute task, I preferred to spend seven minutes automating it if there was a 50% chance I’d have to do it again. I know many people who would find themselves in the above, and a few who do but are in denial. For us who know ourselves, the stock market is the perfect way to make money: what else will work for you with the same efficiency even while you sleep?

In university, I joined an investment club (HHIC). Back then, the Internet for me was mostly Usenet & IRC and I got into a stock-picking contest which I promptly f’d up. I was paired up with some dude whom I couldn’t contact – anyway, a terrible experience. I had also pretended that I knew more than I did. I nonetheless learned as much as I could with the idea that this is something to learn when I don’t have much money in order to apply it when I do.

I started investing with real money quite a while back. Since then, I invested in many ways and with several brokers and advisors. The latest are TD brokerage, Questrade (Qt; free ETFs buying, low commission trades) and Wealthsimple (Ws; completely free trades on Canadian stocks). Of these two, Ws is often not working as it should. I use Qt for ETFs and Ws solely for Canadian stock picking (i.e., investing in individual stocks). I don’t have time for daytrading so I keep it all in TFSA; as such, I don’t overtrade because obtaining outsized returns could result in a CRA audit and taxes imposed. Recently, National Bank has started offering $0 commission trades and I will open an account with them soon (nb-free). I don’t claim any expertise and warn you to do your own research – consider this article a work of fiction. I am writing this, as most other articles, to clarify my own thoughts and satisfy my curiosity.

rec

Getting into an investment club was the way to learn before the Internet. One can also keep an eye out for stock picking contests organized by exchanges with real cash prizes, though these are not easy to win. Today, most brokers have “trial” accounts / stock simulators which allow you to try them with imaginary money. The best interface and easiest to use, especially if you don’t plan to invest real money any time soon is, in my experience, Invstr (link below) which has apps for both Android and iPhone. Every month the top achievers in fantasy finance get cash vouchers to start investing real money. They also have a forum where you can ask questions and interact with others. This is a great resource for fantasy finance and for investment clubs – it is in some ways a gamification of investing much like Duolingo is for learning languages – but I never used it for investing real money and I couldn’t recommend it for that purpose. To determine your risk tolerance (which typically governs asset allocation and your investment thesis) you might want to complete a risk tolerance survey on your own (msre-rta) or even a PDF if you want to keep your info private (ej-surv).

Unfortunately, not everyone has the patience to think/study/research before jumping in. If you have a lot of money in a bank account that are not working for you, the next best thing is a robo-advisor (RA), which is a service offered now by most discount brokerages. You could invest most of your money with the roboadvisor (RA) and keep a small amount that you can afford to lose for “play”, daytrading or speculative investments. Though it’s always best to play with imaginary (or other people’s) money, playing with a small amount of your own could keep your interest and focus while you learn. The RA will get to know you through an online form then decide how to invest your money on autopilot for a small fee, e.g., 0.25% p.a.

Next best thing is ETFs. A Canadian invention (va-etfhist), these are the old mutual funds, newer and improved. There may be situations where you can only buy mutual funds, and in that case, stay with cheap index funds (mutual funds are typically more expensive to own than ETFs). Either way, look for a Vanguard, Blackrock’s iShares or SPDR ETF with the lowest fees or expense ratios (ER, i.e., what they skim off the top). They have funds geared to all sorts of strategies and risk profiles, but unlike robo-advisers, the operating assumption is that you know what you are doing. For funds from different providers focused on the same sector, differences are not only in ER but they may also track a slightly different index, for example MSCI vs FTSE. As an beginner investor, you could start by acquiring one of the larger, “all-you-can-eat” or “all-inclusive” type of ETFs, such as $VGRO, $VBAL, $VVL, $VMO, $VVO, $VEQT depending on your goals and risk tolerance vca-etfs). If you go with such a strategy, you might want to buy when such an ETF is at a low point (rather than when it’s too high).

The last two ideas above, involving investing your main nest egg in either a RA or ETF (or both) and keeping a small amount for speculative trading (including crypto) would involve opening an account with a broker and funding said account. For Europe, I have heard good things about eToro – i.e., being a low or zero-commission broker that also had a good forum. The latter, though one could easily substitute reddit or fb groups for it, is important because the quality of information is bound to be higher when actual investors produce it, as opposed to other social media sites that are more liable to exploitation by pump and dump schemers (cbs-kkfm) or other nefarious intents. Unfortunately, eToro is not allowed to accept Canadian investors and have a hard block on IPs from Canada and as such I did not bother to try it. Another broker that has a Canadian presence and is also accepting Romanian investors is Interactive Brokers (IB). I have not tried it because their commission structure is costlier than the combination of Ws / Qt I am currently using, but they are solid and best especially for professional, high volume traders.

There are numerous broker comparisons (cb-15, bc-bro) and I encourage you to have a good look at their fee structures and regulator before opening an account and funding it. Zero-commission brokers (ai-cft) might be lacking in functionality or they might overcharge in other areas to compensate – for instance, Ws is very slow, often fails to complete trades and does not allow me to hold USD funds, forcing a higher rate conversion at every trade in US stocks (unless I go through a CSE ADR), but I put up with it because I do not daytrade, and use Qt for the US market. I have created an exhaustive, full comparison of brokerages but it is mostly for my own use and available to supporters – you can request access through the blog contact form.

Here’s a summary of a few other articles, mostly in Romanian, many trying to answer why Romanians don’t invest.

• Luca Dezmir thinks that BVB is too small so he invests in NYSE (hn-dzmr)
• Iancu Guda from Coface thinks Romanians should invest in BVB rather than “bricks” (hn-ig) – duh!
• BVB has an interesting risk vs rewards graph (bvb-0)
• The Dividende blog has an excellent guide for the Romanian first-time investor, though it pushes too hard dividend-investing; it’s only one strategy of many and it is not the best for every person and scenario though it is probably better than crypto for most people (dvdb-ghid)
• Financer has Romanian (and not only) text including even a broker comparison (fn-sfaturi)
• Valentin Nedelcu sells courses on his website (stb-strtg)
• Laurentiu Mihai has a list of all the BVB brokers and ebook (lm-brokeri)
• ASF has a list of all entities (asf-entit)
• Tradeville, a Romanian broker, has a website dedicated to ETFs (ulise.ro)
• InvestesteLaBursa is a highly monetized website by Rares Mihaila currently pushing hard a particular broker; it seems that its focus is its Yt channel (ilb-bvb22)
• etoro survey: 28% crypto, 19% Au+Ag, 18% stocks (of which 33% Ro only, 28 int only, 22% both), 4% collectibles; 58% more likely to invest: 37% online platform, 26% through bank, 9% investment advisor; 4.8% ETFs and 12% other funds, 3% in the bank; they don’t invest b/c 5% too risky, 66% not enough income: 80% income < 5000 RON/mth, 11% 5001-10000 RON/mth and 1.6% 15000+ RON/mth; 47% don’t invest b/c lack of knowledge; half would learn online or books, family & friends 8%; Attest end October 2021 on 1000 w/ age 18-55 (mr-rorisca, fi-etoro, b-etoro, pft-caa, stu-sndj)
• Bogdan Maioreanu, “analist de piață eToro – România” adds in a financial education summit more info: 40% of Ro investors 18-40 (youngest of all countries surveyed), 38% are 35-54, 5% students; only 34% women compared to USA 51%; most investors work full time, only 9% retired; 46% (most) w/ <2yrs exp; 53% in stocks, 46% in crypto (the most in 12 countries) – survey of 6000 of 12 countries of which 500 in Ro; eToro has 23 million users in 100 countries $9.4 billion AUM (nwr-maioreanu)
• Mihai Constantinescu has a survey on why Romanians don’t invest (esb-dc): 40% lack of info, 36% fear of losing, 10% not enough money, 9% other reasons (nothing 5%, no money 3%, 1% lazy, victim mindset, no time, no predictability, current maxima + lack of patience 1%), 5% too complicated. He also provides a course.
• PNL rep Sebastian Burduja writes about his experience with market investing in USA, a mass phenomenon, and is pushing a law to reduce taxes on “winnings” from 10% to 1% for stocks owned for more than 1 year and 3% for those owned less than a year, together with 50 others; many other countries don’t tax at all such capital gains (d24-taxe)
• Interview quotes with many investors and brokers about investing and listing on BVB (spt-bursapane)
• Quoting ZF w/o link, 71,000 investors trade on the BSE as of June 2021, up 23% over 06.2020, b/c of more listings + high returns; over 5000 new investors + 17 private + 2 state-owned new listings = 1.07 billion euro + 16 corps at 137 million euro; BVB up 21% or 25% incl div in 01-06.2021; capitalized at 1 billion euro (mf-robursa)
• Quoting zf-nio, NIO, GameStop, AMC most popular foreign stocks purchased in the first half of 2021, followed by Tesla, Palantir and UiPath; 33000 investers w/ 2 billion RON profit in 2020; Saxo Bank study shows medium Ro investor age 35-40, avg mthly income 4000 euro. (alphn-frgnstcks)
• Significant increases in 2020 pandemic vs 2019 same interval at all brokers (brs-rostr)
• Tradeville: 41% of new accounts in 2020 for foreign market investment (36% of all), accts doubling to 18000, 630000 transactions of which 11% on foreign markets, 100000+ on mobile; during pandemic lockdown 3x more new accounts vs same in 2019
• eToro: 228% more Ro clients 01-09 compared to 2019, 5 million more globally, transaction volume 400%+, end of Jan 1 mill+ globally to 18 mill, Ro 1.5% of clients
• XTB Ro: 205% increase in new clients and 209% increase in transactions, 280% more deposits comp 2019, 01.2021 as many new clients as in entire 2019 and 2x pandemic record (Irina Cristescu, gen mgr)
• Admiral Markets UK – 64 monthly new accts or 630000/mth by Ro on avg in 2020 (double 2019)
• I was going to read and summarize undated articles (pro-dishe, wsr-dishe) as well as older (2010: zf-dishe, 2013: wsr-dishe) but I ran out of time and patience.

Some (if not most) of the aforementioned websites and blogs have their own Youtube channel; I am not linking the channels because it’s important for you to read a text before you invest and you cannot rely on videos alone to learn before investing – though Florin Rata is not bad.

If you decide to invest, be careful. Don’t be the pheasant the rich made billions off and learn first. Here’s a few basic concepts you should understand before investing:

• what is technical analysis / fundamental analysis and main concepts
• how rising interest rates affect stocks and bonds; inflation / deflation
• economic cycles and value vs growth
• the difference between trading and investing (explained earlier)

To conclude, given the recent market correction, it may be a good time to start now, before the real estate market crashes as well.

Whichever investing method you pick I wish you the best of luck!

Sources / More info: zf-12mlde, pr-scnfi rl, hhic, invstr, finlit-pdf, gflec-spsrvy, wb-dmrtzs, sta-pisaro18, fbs-finlit, spg-14finlit, dm-finlit, spt-hanga, vca-etfs, rb-anghel, hn-dzmr, bvb-0, nb-free, cb-15, bc-bro, bvb-reg, va-etfhist, cd-bnnc, fp-bnnc, bb-bnnc, ai-cft, dvdb-ghid, cbs-kkfm, fn-sfaturi, stb-strtg, lm-brokeri, asf-entit, ilb-bvb22, hn-ig, bvb-bet, edb-ctry, osc-finlit, mr-rorisca, fi-etoro, b-etoro, pft-caa, stu-sndj, nwr-maioreanu, ej-surv, msre-rta, esb-dc, d24-taxe, spt-bursapane, mf-robursa, alphn-frgnstcks, zf-nio, brs-rostr, pro-dishe, wsr-dishe, zf-dishe, ecn-dishe

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