Best Things I’ve Read All Week (21 May ’23)

Sorry for the lack of posts but I’ve been busy at work. Will be busy until early June. Anyway, markets have been rangebound and unexciting.

Photo by Mikes Photos on Pexels.com

Dividends matter, growing dividends matters more
(Klement on Investing)

Not really an interesting finding but I thought the finding is important because it confirms that from a behavioural investing point of view, there is some merit to those who believe in dividend investing.

Klement reports that a study by Paul Schultz finds that most investors don’t sell down their stocks to fund their expenses and therefore dividend-paying companies tend to see less turnover in their stock (i.e. more loyal shareholders).

I’m saying this because there was some debate on this following a post by Kyith of Investment Moats. I think the topic was relatively hot here in Singapore because many of the Singapore-listed stocks tend to be dividend payers rather than the more growth-y companies you find in the US markets.

Is the 60/40 Portfolio Still Relevant?
(Enterprising Investor)

The CFA blog runs some data on various portfolios (including the 60/40) across a few different markets. The tl;dr and caveats are:

Based on the lumpsum Sharpe ratios, the 100% equity portfolio had the best risk-adjusted performance through 2022 in all markets save Italy. For the period ending 31 December 2021, the 60/40 allocation fared best on a risk-adjusted basis in each country but not globally. The 80/20 allocation did better than 100% equity and 100% bond allocations in some markets and worse in others. Overall, the bond disaster of 2022 dragged down annualized and risk-adjusted returns.

To draw further conclusions about the utility of the 60/40 portfolio versus the 80/20 or any other allocation strategy requires further research. Indeed, our colleagues are in the midst of conducting it. But as our analysis shows, a portfolio redeemed at year-end 2021 would have outperformed the same portfolio redeemed at year-end 2022. This is a good reminder of the risk of end-point bias in any time series analysis.

To be sure, our investigation has limitations beyond those mentioned above. It does not account for the impact of foreign currency conversions, exclusively focuses on developed markets, and has an abbreviated investing period. Nevertheless, it does provide a window into how different asset allocation strategies played out over the past decade and illustrates how the 60/40 portfolio can add to risk-adjusted returns and how outlier years can drag down performance.

Is Britain Finally Ready To Admit Brexit Was a (Catastrophic) Mistake?
(Eand.co)

Who would have guessed? -_-“

Ok, everyone with half a mind was saying that it’s a bad thing. Also, I had a look at JPM’s Guide to the Markets for 2Q23 and guess which Developed Economy is still struggling with a close to 10% inflation rate?

BudgetMealGoWhere: New website lets you find cheap eats from S$3 at nearby HDB coffeeshops
(Vulcan Post)

The list of places in my ‘hood is sad. =(

The Greatest Wealth Transfer in History Is Here, With Familiar (Rich) Winners
(The New York Times)

It’s not just in New York. I’ve been telling friends that we’re about to see something similar in Singapore.

Best Things I’ve Read All Week (16 Apr ’23)

This week was a tough week at work. I’ve come to realise that I have zero aptitude and desire for some of the tasks required of me. More than that, I realise that at my age and stage in life, what I really want is a break and the space to pursue my interests. The last thing I need are deadlines for tasks that bore me.

The countdown has begun.

Photo by Mikes Photos on Pexels.com

Trickle me, Elmo
(Klement on Investing)

Next time anyone mentions “trickle-down economics”, please show them this.

Is the 60/40 Portfolio Still Relevant?
(Enterprising Investor)

Not sure if the post had a conclusion but the money shot from the piece is (emphasis mine):

To draw further conclusions about the utility of the 60/40 portfolio versus the 80/20 or any other allocation strategy requires further research. Indeed, our colleagues are in the midst of conducting it. But as our analysis shows, a portfolio redeemed at year-end 2021 would have outperformed the same portfolio redeemed at year-end 2022. This is a good reminder of the risk of end-point bias in any time series analysis.

With any rate of return figures, it helps to remember that choosing a single time period to demonstrate returns is a sign of poor research.

What Makes You Happy
(Collaborative Fund)

There’s wisdom to this piece that I understand but struggle to practice in everyday life. May you reach there sooner than me.

Best Things I’ve Read All Week (9 Apr ’23)

For some reason, the hot economic topic of the week is about the USD losing its relevance in the near future. I’ve lost count of the number of local Finfluencers on YouTube that made videos about the topic in the same week. I’m not quite sure what the trigger for this is but I guess it may have something to do with the Saudis talking about switching to accepting RMB as payments for oil.

The funny thing is most of these local guys on YouTube don’t know much about international economics and basically parrot whatever they’ve read from Bloomberg or the WSJ. I’ve heard their commentary and I’ve not heard one of them mention current account surpluses/deficits, capital controls, or the amount of trade done in USD. This is International Econ 101 which pretty much determines the likely future path of a country’s FX rate.

Remember, it’s already hard enough for geopolitical analysts, macro-, and international economists to get this right. So if you hear some Singaporean YouTuber whose usual spiel is to recommend credit cards or their armchair analysis on Tesla start talking about whether the RMB will replace the Dollar, please don’t hit “Like and Subscribe”.

Photo by Mikes Photos on Pexels.com

30 under 30-year sentences: why so many of Forbes’ young heroes face jail
(The Guardian)

The short answer is because they are young, dumb, and full of c*m.

The longer answer is that we now live in a world hyper-fixated on quick fixes and instant success. Think of all the people flaunting their success on Instagram or Tik-Tok. Even if it took them a couple of years, it’s all condensed into a 15-second reel because no one has time to even sit through a clip that’s a minute long.

And that’s going on the premise that a successful business or product can be built in a year or two. To my knowledge, that’s a lousy premise.

Oh, and it’s also telling that the list is from Forbes. That goes to show what sort of media outlet they are – one that focuses on fads and headline-grabbing personalities rather than actual business.

Weekend reading: Making a K Drama out of the FIRE movement
(Monevator)

Adding this purely for the commentary on the link between a certain K-drama and the FIRE movement. I resonate with this because if investing doesn’t lead to freedom to do whatever you want, then what the hell are you doing it for?

Sadly Giving Up On Retirement And Going Back To Work
(Financial Samurai)

Not quite what the headlines suggest.

Best Things I’ve Read All Week (26 Mar ’23)

Following the downfall of Credit Suisse, markets seem to be fearing a contagion among European banks. Deutsche Bank seems to be the poster boy for this new wave of contagion and I think news in the coming week will be all about whether the ECB manages to contain this wave of negative sentiment or whether we’ll see another wave in this banking crisis.

Early in the year, I was in the camp that the hike in interest rates could cause instability in some markets but I never thought that it would be in the banking sector given how much more capitalised banks are following the GFC. I honestly thought it would be in commercial real estate (especially the office segment) because of how work-from-home has become a fixture of post-covid life. If the banking sector is already reeling from this recent turmoil and the commercial real estate sector takes a hit, things could get ugly.

Having said all this, the next few years could be one of the rare times where DCA-ing into the market will outperform lump-sum investing. If you’re a young investor getting started today, you couldn’t pick a better time.

Photo by Mikes Photos on Pexels.com

‘Gerbil banking’ preceded the Great Depression. We’re seeing it again today
(Fortune)

Was this the genesis of the Post Office offering banking services? I’ve always wondered why Japan’s Postal service had such a huge banking arm and why we have Post Office Savings Bank (POSB) in Singapore. Maybe this origin story in the US explains it.

Strategic thinking matters
(Klement on Investing)

The game described in the article is one that I’ve read about before. In fact, they used the very same setup in one of the games in season 2 of Alice in Borderland on Netflix. Maybe it’s a good filter when hiring traders.

Why your financial conditions index sucks
(FT.com)

The money shot from the post is:

In any case, because a financial conditions index has no natural unit, it can’t really be compared over long periods – as Catherine Mann points out, there’s no absolute answer to whether conditions are “loose” or “tight”, just a sense that if the line is going up they’re getting tighter and if they’re going down they’re getting looser. This means that the FCI, however cleverly constructed, isn’t giving more information than you could get by looking at a chart of share prices (with maybe a fleeting glance at a chart of bond spreads). 

Aha, maybe it’s time to throw some of these things away.

Where People Find Meaning in Life: revised in 4 slides
(r/dataisbeautiful)

Someone posted a visualisation of a survey on areas in life that people in different countries find meanginful. I found this interesting for a few reasons:

1. Family, Children, and Community relations rank near the top across all nationalities. This seems to echo the finding from The Good Life which is a book based on a long-running study of what matters in life to people.
2. The results for Singapore (see 2nd picture in the link) are arguably quite different from every other country in the survey in that even in the top-ranked category “Family and Children”, only 29% of those surveyed answered positively on whether they found meaning in life from this category.

In short, maybe whatever studies you read about that survey predominantly White Anglo-Saxon People (WASPs) don’t really apply to this part of the world after all.

Best Things I’ve Read All Week (19 Mar ’23)

The fallout in banking has gone international! Credit Suisse was in the headlines this week after they couldn’t secure capital from their biggest shareholder – the Saudi National Bank due to regulatory requirements. Ultimately the Swiss central bank had to step in but it seems that move was a temporary band-aid. Will CS be merged with UBS or taken over by some other bank? Who knows?

Meanwhile, I’ve been catching up on all the news and opinions regarding the financial sector fallout and it seems to me that this was a combination of regulatory failure, bad risk management on the part of both SVB and its depositors, and the byproduct of the current macro environment.

The worry now is that credit will be tighter for longer and be another source of headwind for the already weak global economy. The good thing is that the recent drop in markets and less-than-rosy- sentiment means that it could be a good time to start getting back into markets if you had cash waiting on the side.

The main problem with that is valuations for US markets aren’t necessarily cheap.

Photo by Mikes Photos on Pexels.com

Don’t Chase the Past
(bilello.blog)

Great post. Goes at odds with the momentum crowd though.

The economist who won the Nobel for his work on bank runs breaks down SVB’s collapse—and his fears over what’s next
(Yahoo finance)

I forgot that Diamond and Dybig won the Nobel Prize in Economics for their model on Bank Runs. Anyway, great points made by Diamond in this Fortune.com article that’s posted on Yahoo finance.

What I Think About the Silicon Valley Bank Situation
(Ray Dalio)

Ray Dalio thinks SVB is just the start of things to come.

Myth-Busting: The Economy Drives the Stock Market
(Enterprising Investor)

The economy is undoubtedly linked to the stock market. The question is which way is the casuality and how much does it matter?

“But even if economies and stock markets are highly correlated, it does not necessarily follow that high-growth countries make for good investments. The low volatility factor demonstrates that low-risk stocks outperform their high-risk counterparts, at least on a risk-adjusted basis, and the excess returns from growth stocks are essentially zero. The same likely applies on a country-by-country basis.”

You can use the stock market to predict the economy but you can’t necessarily use the economy to predict the stock market.

Best Things I’ve Read All Week (12 Mar ’23)

What a week!

On Tuesday, Fed chair Jerome Powell spoke and in an instant, changed the markets’ view on the direction and magnitude of interest rates. Then Silvergate Bank, a bank that provided services for the crypto industry, got shut down on Wednesday. And yesterday, Silicon Valley Bank, a bank that catered to startups and the VC crowd announced it was also getting liquidated.

It’s already common knowledge that the low-interest rate environment of the last decade fueled an excess in the startup, crypto, and tech space. If there was any excess in the system, that was where the excesses were and therefore, it’s no surprise that the tech space has borne the brunt of the reversal that came because of higher interest rates.

What we’re seeing now (tech layoffs, demise of those who extended credit to the sector) seems to be Act 2 or beginning parts of Act 3 of that bubble bursting. I don’t think we’ve seen the end of this story yet because many of those who benefited from the bubble are still around (think ARK Invest, Tesla, and Masayoshi Son).

Having said that, if you’re investing for the long-term, valuations are definitely a lot more compelling now than in January. Even more so if your reference point are the all-time highs of early 2022.

Photo by Mikes Photos on Pexels.com

The Fed is Breaking Things (and it could get worse)
(The Big Picture)

SVB
(The Reformed Broker)

Two-fer that gets you up to speed with the news and commentary surrounding the demise of Silicon Valley Bank. I’ve seen less-than-informed mainstream media outlets in Singapore suggesting that this is another ‘Lehman moment’ and that the next GFC is around the corner. Honestly, they don’t know what they’re talking about.

Most stock pickers underperformed in 2022’s ‘stock picker’s market’
(Tker.co)

S&P Dow Jones Indices published their annual SPIVA U.S scorecard. Even in a year like 2022, picking an active manager to beat the S&P500 fared worse than a coin-toss. I’ve looked through the report (link here) and the base case for picking an active manager that can beat their benchmark is awful (Report 1a and 6a for US and International Funds respectively).

It Turns Out Money Does Buy Happiness, At Least Up to $500,000
(Bloomberg)

So much for the often-quoted figure of $75,000. By the way, that figure is for salary and not net worth. So it appears that most of us in the rat race are there for a reason.

The Basics of FIRE
(Early Retirement Now)

Big ERN provides a very succint overview of the various components and quick math to FIRE.

HOW TO ACTUALLY BE DATA-DRIVEN
(cheerful.egg)

A wonderful and well-written piece on how to actually do data-driven decision-making. Reminded me so much of how we used to do the opposite at my former job that I sent this to a former colleague. We agreed that so much of the time wasted in meetings was due to the fact that many of the meetings didn’t focus on the data. If anything, it was driven by personalities, anecdotes, and opinions.

Best Things I’ve Read All Week (5 Mar ’23)

Apart from Friday, 3 March, markets have pulled back somewhat from their January highs. Are they taking a breather or is this a sign of worse things to come? Meanwhile, we’ve been getting sweater weather here in Singapore. The rain has been relentless and the temperatures have been cold.

Photo by Mikes Photos on Pexels.com

The Low-Risk Effect in Equities: Evidence from Industry Data in an Earlier Time
(Financial Analyst Journal)

Using data on US industries, the authors find that low-risk equals higher returns on a risk-adjusted basis. Link to journal article behind paywall. If you have a CFA Institute membership, you’ll be able to access it.

A year after the first rate hike, the Fed still has a long way to go in the fight against inflation (CNBC)

Essentially an overview of what the markets currently think of inflation and the issues surrounding it.

The Real Cause of Sri Lanka’s Debt Trap
(The Diplomat)

I’m no expert in foreign debt markets but it’s international economics 101 that borrowing in other currencies when you have trade deficits or no foreign investment inflows is a disaster waiting to happen.

A Sustainable Investment Strategy That Matches Your Lifestyle Might be a More Sub-Optimal Strategy – Corey Hoffstein (Investment Moats)

A few interesting ideas to unpack. I’ve heard of factoring in your human capital when it comes to asset allocation decisions. What I think is missing is the fact that some people’s human capital is more bond-like than others. I must admit that I know nothing about managed futures so that may be an area I need to learn about. The idea about structuring his investments such that it’ll be simpler for non-finance trained asset holders to stick to the plan is worth thinking about.

Best Things I’ve Read All Week (19 Feb ’23)

It’s crazy how fast time flies. We’re almost at the end of February. Markets seem to have gotten off the hopium that fueled the January rally and it seems to be more likely than not that the Fed will raise rates even further than the market expects no thanks to a still-strong US jobs market. The most recent CPI numbers also seem to suggest that inflation might be stickier than expected.

One can remain hopeful.

Photo by Mikes Photos on Pexels.com

Hiking at $60b a Month (Fed Guy)

Joseph Wang, a former trader at the Fed, explains how Quantitative Tightening (QT) is causing the economy to become more sensitive to monetary policy. I must admit that I didn’t understand his earlier posts but the accompanying YouTube video that he put out to explain this post helped me understand it a lot better.

Essentially, Wang says that QT is causing cash in the system (i.e. deposits in the bank) to move to higher-yielding short-term treasuries which causes banks to be more competitive for deposits. I found this easy to understand because we’ve seen the same thing happen here in Singapore with the sudden increase in interest in T-bills.

In short, if rates stay high and QT continues (which it probably will for some years), expect monetary policy to remain tight unless the system breaks and the Fed is force to backpedal.

Vanguard’s Active Funds Beat their Benchmarks
(SSRN)

I haven’t read this paper yet but I will have to for work. =(

U.S. Stock Market Returns – a history from the 1870s to 2022
(The Measure of a Plan)

I saw this from The Big Picture. For some reason, the nice gif doesn’t load in the original post so head over to The Big Picture’s post to check it out.

It gives a good overview of what to expect from the US markets over time.

We Measure What We Can (Verdad)
Risk Eats Return (Verdad)

Two parter from Verdad on volatility and volatility scaling. Nice introductory posts but the idea aren’t for the typical retail investor.

Best Things I’ve Read All Week (12 Feb ’23)

It’s already the middle of February and I feel like I haven’t gotten much done. For the rest of the year, I hope to continue exploring what it takes for someone in Singapore to retire.

Photo by Mikes Photos on Pexels.com

Different Types of Mistakes
(The Rational Walk)

The post runs through a long story of a fictional investor who invests in Berkshire Hathaway in the fall of 2001. If you don’t have the time to read the whole thing, the money shot is this:

Truly horrific investment mistakes are usually the result of leverage, either applied directly by the investor using margin, or embedded within the capital structure of the companies that are purchased.

I can’t argue with that. Except that using Berkshire Hathaway is cherry-picking. Imagine if the same investor invested in General Electric or some Singapore “Blue-Chip” like SPH or Singtel. Returns could easily be less rosy.

He didn’t listen to Buffett
(Thoughts of a Cynical Investor)

I’ve written about Softbank’s vision fund before but this chart and Masayoshi Son stepping away from Softbank is probably the finale to this story.

Deconstructing 10, 20 & 30 Year Stock Market Returns
(A Wealth of Common Sense)

Note to self: S&P 500 returns measure the returns to large-cap US stocks. While the same observed pattern (30-year returns > 20-year returns > 10-year returns) may apply to other markets and equities of other sizes, the magnitude of returns could be quite different.

What economists get wrong about personal finance
(Tim Harford)

It’s true. Don’t depend too much on theoretical economics and optimal solutions. Better to find a solution that works for you rather than a general case.

Median household income in Singapore rose slightly in 2022 to S$10,099
(CNA)

Time for your annual dose of reality.

If your household is making S$5,578 or more per member, you’re among the top 20% of income-earning households in Singapore. Add to that the recent rise in home prices and you have many Singaporean resident households better off in terms of both income and wealth.

Can’t complain much about 2022.

Best Things I’ve Read All Week (22 Jan ’22)

Best Reads CNY 2023 edition. Actually, I don’t have any links directly related to CNY.
May the year of the Water Rabbit bring you peace, prosperity, and happiness!

Photo by Mikes Photos on Pexels.com

The most important equation or why Bitcoin has to average 30% return a year to break even with the S&P 500
(Klement on Investing)

A good read on why we use geometric returns and not the arithmetic mean when calculating investment returns. I’ve heard of the term “volatility drag” but I never really understood it until I read this. Someone in the post’s comments point out that the equation presented in the post is an approximation and if you want to find out more, Kitces has a nice post on this concept. The quick takeaway from this is that you should never ever use the simple average when calculating returns that compound.

Why sanctions fell short of their objectives in the First Gulf War
(LSE blog)

Economic history buffs, this one’s for you. Whether or not this same analysis applies (or the extent that it applies) to Russia is a whole other question.

Bull or Bear?
(The Big Picture)

Barry Ritholtz nicely summarises the current sentiment in the market in one paragraph:

“It is noteworthy that most of the bullish signals are market-based or technical in nature. The bearish signals I am gathering for next week seem to be primarily fundamental or economic in nature…”

WHICH COUNTRY HAS THE BEST RETURNS IN 2023 IS IRRELEVANT
(TEBI)

A returns quilt for individual countries’ equity returns. I’m surprised that Singapore is in the top half of the list for so many years. 2019-2021 was tough.