Archives for category: Investing

I’ve mentioned a few times about how a senior colleague of mine has been waiting on the sidelines for almost two whole years. He’s been almost 100% in cash or some fixed-income investments that pay little to nothing, and had to experience the pain of missing out on last year’s run-up in the market. He’s also missed on the additional yield provided by equities.

I’ve also moved more from equities to cash/bonds but that’s largely a function of how markets have run up and I’m definitely nowhere near 100% in cash. As my time horizon is VERY long, I suspect my average allocation will be 80/20 cash/bonds with room to move to 100/0 or 70/30 at market extremes.

Kyith over at Investment Moats has a fantastic post on how being too cautious has costs too.* Of course, one does what one needs to do to sleep well but the costs of trying to time the market can be costly and investors will do well to recognise this cost.

 

Notes:

*In Econ 101, this is what we call opportunity cost.

Advertisements

I know I run the risk of being wrong but for what it’s worth, this is my honest opinion. After all, it’s very difficult to spot bubbles except in hindsight.

Recently, I’ve been talking a lot of shit about cyrptocurrencies and I think many people have mistaken my comments about cryptos as a sign that I think they are a total scam.*

I don’t. In fact, with my cursory understanding of the technology, I think they the Blockchain technology that all cryptos are based on could fundamentally change the way some business is done. There seems to be a lot of promise in reducing the fees that many financial intermediaries earn or ensuring the integrity of the supply chain of a product.

The problem I had with cryptos is the fact that almost everyone seemed to be buying into the hype. In fact, my boss asked an innocent question, “Why was there suddenly so much attention on bitcoin when the thing itself is almost 10 years old?”

I thought the answer was simple.

The only reason why 2017 was the year of bitcoin and cryptos was that there was so much money that was made (whether the money was real or illusional is another matter altogether).

That fact in itself made the intended use of cryptos irrelevant. All that was relevant (and still is for some people) was whether the price of cryptos was going to go up or down. Now, that is something interesting to me because it is the same with any other investment. If there are too many people chasing after the same returns, they are going to bid the price up and sooner or later, no one is going to believe that the price will keep going up and that will be the beginning of the end for the inflation in prices.

The people that believe that it could be otherwise just haven’t read enough.

It was the same for financial assets and real estate (‘08/09), internet start-ups (00s), Asian real estate and stocks (‘97), Nifty Fifty stocks (60s), equities (1929), the South Sea Company, tulips and so on and on.

Stage one: nascency

People who invest in anything, in general, need to be more aware of the fact that ALL markets move in cycles. In general, any cycle starts with a small segment of investors in some new or previously unloved asset class. These investors get called all sorts of names- whackos, gamblers, speculators or what-have-you.

Stage two: some people make decent money

Eventually, these guys start making some money and people start to take notice. As more people chase after the same returns that these guys have gotten, the initial group of investors starts to make outsized returns. It doesn’t help that this initial group seem like average Joes and Janes to their neighbours. People start to think that if these people can make 1000% returns, I can too.

Stage three: envy draws everyone

Investors in other asset classes, which have returned nowhere close to the returns from this asset class, then wonder what the hell they’ve been doing, getting tiny returns while these people that they thought were whackos are proving them wrong. It doesn’t help that some “whackos” make all this money that is many multiples of what their full-time job pays in a year. Some of the investors start becoming converts.

Eventually, many people who have no business investing in anything start putting in tiny bets into this new asset class. The bets pay off. They then put their entire nest egg into this ‘sure thing’.

Stage four: beginning of the end

Then, without warning, prices start to collapse.

Entire nest-eggs and paper fortunes worth several lifetimes evaporate. Those with gains start selling furiously, desperate to hold on to whatever gains that they have. This compounds the selling. The die-hards are telling everyone else that this is just a dip. It’s a chance to buy even more they say. What they forget is that some people have already put all they have into this one thing.

Stage five: back to earth

Prices start to stablise and provide some relief. But as corporate bankruptcies due to losses in this asset start to filter, everyone starts to realise that it’s over. All they can now do is lick their wounds.

While it seems like the easy answer is get it at stage one or two, the unfortunate thing is that there’s no way to predict which asset to get into or when it’s going to take off.

Many other experts on investing have written about bubbles, market euphoria and how to spot these things. My favourite person on the topic is Howard Marks of Oaktree Capital and I understand he has a whole book devoted to market cycles coming out later this year. I’ll be sure to read it.

Revisiting the crypto craze

If you cast your mind back cryptos, very few people were talking about it prior to 2017. Only the people who kind of understood or were willing to explore the technology were invested before 2017. I dare say that prior to 2013, the people in it were mostly the people who were working on the technology itself.

Only after a certain group of people had already made outsized returns on their investments did cryptos start to attract the kind of attention it did in 2017. It probably also helped that 2015 and 2016 weren’t exactly good years for stocks. This made the gains in crypto seem all the more attractive. Everybody from South Korean students to Japanese salarymen started buying bitcoin too, thinking that they’re all bonafide investors now. My boss was also asking if we could do a presentation on the economics of bitcoin.

That’s basically when I knew that cryptos were done. I didn’t know if prices would continue to go up or not but I knew cryptos were now a major bubble.** The point here is not about cryptos per se. The point is that if we look back at the Global Financial Crisis (GFC) in ‘08/09, there was a similar story that played out in US real estate (in ‘04-’06) which led to the financial crisis.

Next time, if someone asks you for money to invest in something, you probably want to ask yourself: “Which part of the cycle are we at right now?”

Notes:

*Funny enough, there’s actually one called Super Cool Awesome Money (SCAM).

**After some colleagues and I discussed how ridiculous the price increases in crypto had been, the price of bitcoin more than doubled over the next three weeks. It goes to show how difficult timing markets can be. Crazy can get crazier. Lord Keynes has been quoted to death on this but it bears repeating: “The market can stay irrational longer than you can stay solvent.”

So, equity markets around the world were hit pretty bad on Monday and Tuesday. Even the cryptocurrencies were hit pretty bad*. As I write this, the STI is down about 6.5% from its most recent peak.

However, a colleague of mine who’s been on the sidelines, and totally missed the upward march in the stock market, got really excited. His worry will be that markets don’t go down far enough for him to get completely in.

I’m not out of the markets because I believe timing it is a futile exercise but I moved more money to cash/bonds as valuations got higher. In fact, I stopped buying anything after Feb last year.

Key point now is: What would you do if the markets really present a buying opportunity?

For me, the plan would be something like this:

  1. Split the money you have to invest** into 10 portions.
  2. When the market goes down 10%, invest 1 portion into whatever’s on your watchlist. To keep things simple, I’ll assume it’s the STI ETF.***
  3. If it goes down another 10% (relative the peak), invest 2 portions.
  4. If it goes down another 10% (relative to the peak), invest 3 portions.
  5. If it goes down another 10% (relative to the peak), invest 4 portions. By this time, that sum of money you had will be fully invested.

You could swap the 10% down criteria for months. i.e. Wait 2-3 months instead of seeing whether it goes down 10%. Either way, I don’t think you’ll do very badly in the long run by following such a plan.

My main point is: You need a plan to get through a fall in the markets. Some people panic or they don’t have deep pockets and are forced to sell. This is the kind of opportunity for long-term investors to get in and have their money compound at 10% per year. If you get in when markets are expensive, it’s pretty likely you’ll end up compounding at a rate lower than the average rates.****

Plus, most bear markets don’t go down more than 50%. The times that it did, the run-up in valuations were much more extreme. Even the S&P 500’s CAPE ratio is half that of the dot-com bubble. This time, you don’t hear stories of the financial system being over-leveraged or major players being over-extended. For Singapore, you could even argue that markets were not richly valued by a long shot before Monday. Personally, my money is on a correction or a bear that is extremely short-lived.

Notes:

*My joke is that cryptos fell because some colleagues and I had to give a presentation to other colleagues. When you have civil servants interested in something, you know it’s time is up.

**This sum should be something you don’t have any urgent need for. You shouldn’t be using money that you need to use to pay the bills or something that you’ll need in the foreseeable future. If you struggle to pay the bills, you shouldn’t even be investing. Get your spending in order first.

***For most people, stock picking isn’t something they should be doing anyway.

****If average rates of return for the STI are 8% a year (which they have been), then buying at low valuations should help you compound above that rate (e.g. 10-12% p.a.) while buying at high valuations will cause you to compound at a rate much lower (e.g. 4-6% p.a.).

STI Close: 3,529.82
PE10: 14.38x

The run-up in the STI has really caused valuations to jump quite a bit. With the PE10 at 14.38x, the earnings yield is now below 7%. Furthermore, a spike in the 10-yr bond means that difference in yield between the PE10 and 10-yr Singapore Bond has fallen significantly below 5% for the first time since August 2015.

Given the pullback in US and EU markets on Friday, I suspect we’ll see a much weaker STI on Monday. Anyway, at this level, things aren’t looking attractive. I’ll consider loading up on more equities if the STI goes down to 3,200 or less.

Meanwhile, sit tight and hang on for the ride!

So, the price of bitcoin and other cryptocurrencies have taken hit once again.

I’m not surprised at how things have turned out. I can say that I’m kind of glad that the vindication in my view that it’s a mania has come so quick but who knows, bitcoin and other coins could easily bounce back up 50% from here.

Some signs that cryptos as asset (*cough cough) have been been much too popular of late:

  • A colleague and I are supposed to give a presentation for the economic and financial aspects of cryptos tomorrow.**
  • I recently heard (from two different sources, no less!) that Singaporean civil servants have been punting on cryptos.*** It’s literally a punt because these people are just putting in a few hundred to a few thousand dollars, at best and monitoring the prices a few times a day.
  • Bitcoin and strip club? Anyone remember the days before the GFC when bankers were throwing parties in Las Vegas?
  • Lastly, anyone remember this guy? I was just telling my colleagues how people like Roubini and John Paulson have fallen off the radar since the GFC. It’s quite telling that the bears have been mostly forgotten which shows how positive it’s been for investor sentiments.****

I’m not saying that financial markets are any safer but let’s not deny how overhyped cryptos were in 3Q and 4Q of last year. If cryptos were in a bubble and that bubble has now burst, then I suspect the prices of cryptos should have a lot more room to fall.

Notes:

*Any sound financial advisor wouldn’t advise his/her client to take this on in a portfolio in a huge way.

**When Singaporean pseudo-academia is interested in something, it should set alarm bells ringing.

***These aren’t public servants who have any expertise in the matter by the way. They probably have no idea what’s the difference between each coin and at the moment, it’s not like the differences matter much anyway. If more than a handful of public servants are into something, it’s probably the end of the party.

****Even the latest drop in the financial markets (minor relatively to history) are being framed as a good thing. That’s how positive things are right now.

In a world filled with psychological biases, there is none more apparent than the “halo effect”. The “halo effect” is when someone is viewed as some Omni-prescient being due to his or her status.

This status may be due to positional goods (a.k.a Veblen goods) that signal one’s position or it could be due a status conferred by an authority. In the first case, a good example would be the conclusions people jump to based on the kind of car you drive; a person driving a Mercedes Benz or BMW is usually seen as someone with money. In the second, doctors or people who have some title (e.g. CFA, CPA, etc.) to their name as seen as authorities of some sort.

With the ‘halo effect’, the assumptions and presumptions are sometimes taken too far. For example, it would reasonable to assume that a doctor is knowledgeable about medicine and health but with the ‘halo effect’, sometimes people expect doctors to be knowledgeable about everything.  

Unfortunately, this halo effect is often present when it comes to getting wealthy. Many people assume that getting wealthy and being free from worry about finances is only something those with high-paying jobs or those who are really intelligent* can achieve.

See if you fall prey to the ‘halo effect by considering the following two people.

Person 1

Gas station attendant and later on in life, janitor.  His idea of a treat was his usual morning visit to his local coffee place. He always wore shabby looking clothing that even gave the impression that he was homeless.

Person 2

A-list actor. Earned millions from blockbuster movies screened in theatres around the world.

Who would win?

At first glance, the obvious answer seems to be Person 2. After all, if you earned millions in your lifetime, you’ve possibly earned more than most people even earn in their lifetimes. With that kind of a headstart, how can you possibly do worse than Person 1 who probably earns a wage than probably falls into the bottom 10% of any society?

Unfortunately, that’s true.

Person 1 accurately describes Ronald Read who left a US$8 million dollar fortune to charities and other institutions. And he isn’t an isolated example. Take the case of Margaret Dickson who left a US$1.42 million dollar fortune and Paul Navone who had a fortune large enough for him to donate US$2 million to charity. (full story here). In Singapore, there was a case of a retired primary school principal who left $1 million to her domestic helper (story here).

Neither of these people profiled had jobs that paid astronomical sums. In fact, Ronald Read, Magaret Dickson, and Paul Navone all had low-paying jobs while the Singaporean profile had a job that was considered upper-middle class but certainly nowhere near investment banking levels.

Whereas I got Person 2’s profile from something I read about Nicholas Cage (who had to declare bankruptcy) but that profile isn’t something out of the ordinary. I remember reading similar things about Johnny Depp and stories of lottery winners who subsequently lost it all also come to mind.

Sure-fire way to wealth

I read this the other day and I completely agree. You may not be the best investor out there who can consistently generate the highest returns year after year, but being disciplined about savings and being humble about potential returns will ensure that you get there.

The main reason why people in the Person 1 profile succeed despite the seemingly low odds is that they turbo-charge their returns with a high savings rate and let their returns compound. i.e. They put their head down, work hard, lead a simple life, and let time do the heavy lifting for them.

The main reason why people in the Person 2 profile do so badly despite the odds being in their favour is that they let lifestyle creep** take over and make terrible financial decisions. It’s the same with every company that earns too much cash and then blows it on silly projects that kill shareholders’ returns rather than add to them.

As the people in the first profile show, there is a way to wealth.

You just have to stick with the plan.

Conclusion

Before we go, I’m not saying that you shouldn’t study hard, or work hard to get a job that pays well. I’m saying that getting a high-paying job isn’t a necessary condition in order to get wealthy. Neither is a high intelligence.

Obviously, better-paid people who are disciplined savers and investors end up wealthy at a younger age and find it much easier to do so. Celebrities who are smart with their finances can parlay their sums into even greater sums (Oprah and Dolly Parton for good examples of this).

The point I wanted to make is that we need to strip the halo effect away and realise that most people could become wealthy if they wanted to. Being disciplined and smart about your finances matter more than high pay and intelligence.

 

Notes:

*I used the word ‘intelligent’ and not ‘smart’ because ‘intelligence’ usually refers to one’s innate cognitive ability and is largely immutable whereas ‘smart’ usually refers to one’s learned experiences. Even if you disagree, that’s the way I mean it here.

**Lifestyle creep is something that many people can relate to especially in this era of social media. Seeing other people dine at fancy restaurants or take holidays to exotic locations stir emotions that have people convinced that they too, need to experience the same things in order to be happy. People then spend extra dollars earned on nicer but unnecessary things. It’s particularly common among younger people who see 100 dollar t-shirts or 1000 dollar shoes as a necessity in order to gain influence among peers. It’s stupid but I know the feeling well because hey, I was once young too.

I met a friend for lunch and he shared with me that he was thinking of retiring early. Not super early but earlier than official retirement age kind of early. Given that the official retirement in Singapore is 67, he was looking at something like 60. His wife also brought up the possibility of reducing the number of hours of work or stopping work altogether in order to spend more time with their young children.

Some background first

My friend is also a colleague. He’s a very dedicated and hard worker, wife and he are in their 30s, they have two young children and are basically, in terms of income, are what Singaporeans would call middle or upper-middle class. After all, when they got married, he was forced to buy a property from the resale market as their combined income already exceeded the cap that qualified people to buy a subsidised apartment from the government.

In my opinion, that’s a big handicap for him as far as retirement is concerned as he has a 20-30 year (the typical length of a mortgage in Singapore) mortgage to pay off on his property. If he plans to keep staying in Singapore, that’s money that he’ll have to pay off as he’s working towards gathering more assets that can replace the income he receives from work.

He also has two young children. That’s an additional financial burden for roughly the next 20 years of his life. The burden should ease somewhat as his children move into primary school as formal schooling in Singapore is heavily subsidised but as far as living expenses as concerned, that’s going to be another anchor tied to his feet. But given the circumstances, it’s no wonder we Singaporeans aren’t producing enough babies to replace ourselves.

The path to early retirement

He then shared that he came across a roadshow from our national pension system, the Central Providend Fund (CPF) and was seriously considering moving more funds into his Special Account (SA) as it earned a much higher interest rate (4% as of writing) as compared to the Ordinary Account (OA) which only pays 2.5% (once again, as of writing).* He also felt that CPF Life scheme, which is basically an annuity that pays you a certain amount each month for as long as you live, was promising. He also shared that he thought about moving abroad in later years as each dollar could be stretched much more in other countries.**

Unfortunately for my friend, his housing loan will probably mean that not much is going to accumulate in his CPF account. I suspect he’ll be lucky to have about $100,000 in his CPF accounts (OA plus SA) by the time his housing loan is paid off.

I don’t envy my friend’s position. He and his wife may belong to the upper-middle strata of society if we go by household income but the fact that he has a huge housing loan on a private property and two young children to take care of means that even something like retirement may be a concern for him.

My reply

So what I told my friend must have been a paradigm shift for him because I told him that I wasn’t going to wait until I was anywhere near 60 years old. I was going to stop work as soon as I hit my target net worth that would generate enough income to allow me to live a life near my current standard of living. By my estimates, this will take me another 5-10 years. I’m pretty sure I’m an outlier because very few people in Singapore are planning to retire in their 40s.

The sad thing about us having that conservation is that if we, middle to upper-middle class Singaporeans are having this conversation, then people who fall below the middle in terms of household income better hope that their bodies and mind never give way until the day they die because they’ll probably be working for the rest of their lives.

Personally, my plan hasn’t changed. If you can figure out how much you need each month, multiply it by 33 (if you’re conservative) or 25 (if you’re less conservative) and you’ll know how much you need in order to retire. If you want to be more precise, I’ve written about this before.

The other key to this is to be able to generate at least 3-4% return per year (not difficult) on your assets which will provide the income to replace the income from work. The other concern is inflation which means that the ideal rate of return is not 3-4% but more like 6-7% per year (still doable even without leverage).

An example

Just for illustration, let’s suppose that someone in Singapore needs $1,500 per month in order to survive. Assuming $250 a month for utilities, internet and phone bills, conservancy charges and transportation, that leaves our hypothetical Joe with about $40/day for entertainment and food. Food is pretty cheap if you don’t eat out at expensive restaurants every single day.

So given the above estimate, hypothetical Joe will need anywhere from $450,000 – $600,000 (depending on whether you use a 3 or 4% withdrawal rate) in order to generate the income needed for survival.

I guess a good rule of thumb would then be that if you have double the survival amount, you would be living decently and if you have double that, you would be able to live pretty luxuriously.

In short:

Standard of Living      Wealth Needed                 Income Generated (Monthly)

Survival                        $450,000 – $600,000          $1,500
Decent                           $900,000 – $1,200,000       $3,000
Luxury                          $1,800,000 – $2,400,000    $6,000

Next steps

I know that those sums above look ridiculously huge but if you plan to retire without worries, that would be the kind of sums I would aim to have to retire with a peace of mind.

Of course, if you can cut your expenditure down to much less (e.g. through growing and cooking your own food, spending much less on discretionary items such as cars and holidays, spending less on medication and healthcare by keeping yourself healthy), then I guess it’s possible to retire with much less. The other alternative would be to continue working in some form (i.e. reduced hours or reduced workloads) or to generate income from other some venture.*** But think about how much less of a burden it would be knowing that you’re not working in your job because you have to.

 

Notes:

* I know the CPF pays an extra percentage point on the first $60,000 of the sum in your CPF but in the larger scheme of things, that’s negligible.

**This, I agree. Unfortunately, it also means quite a bit of lifestyle changes. No more 24-hour prata joints, McDonalds’ and Mustafa, if that’s your sort of thing. Or no more eating cheap and good food like Chicken Rice, Nasi Lemak and Mee Goreng unless you plan to move to Malaysia. But that presents other concerns, like safety.

***It’s ironic how some people who stopped working early actually ended up making more money sharing their experience with early retirement as compared to their previous jobs.

I’m a fan of what the Motley Fool (MF) puts out but some of the things that they put out are, for obvious reasons, click-bait-ish or downright simplistic. In this article, it’s worse. It’s downright dangerous.

So in this article (link here), the MF writer looks at three stocks on the STI that are near their 52-week low. To be fair, that is a promising way to fish out stocks that may have been beaten down more than deserved.

Most of the article is a pure description of the latest corporate activities in the respective stock. This is fair but the point of the MF article isn’t to report the news but to make some analysis of the events. So, issue one, the article doesn’t make any sense of the recent developments and the subsequent impact on the stock’s financials.

Right near the bottom, the MF writer goes into the downright dangerous territory by recommending that SingTel is worth a look (and the other two aren’t) just because SingTel’s dividend yield is higher than the STI’s overall dividend yield.

This is dangerous because it doesn’t explore whether SingTel’s yield is sustainable. One, it could have been high because of special dividends the previous year. Two, the current yield may not be sustainable and shareholders may experience a cut in dividends which will eventually bring the yield down.

Now, I don’t know if any of the above will happen as I haven’t gone to take a look at SingTel’s financials but the fact that the MF article recommends SingTel based on its dividend yield and the stock being near its 52-week low is just a bad recommendation.

I wonder how many people will read the MF article and be able to point the same things that I just did. If you could, then good for you. You’re probably financially-savvy.

It’s been a long time since I published this. A couple of data points missing so I had to fill the missing points.

Anyhow, not sure if the CAPE is so efficient any longer as we’ve been seeing pretty low 5-year CAGR returns for PE10’s less than 15x but it is what it is. CAPE is supposed to be more indicative of 10-year CAGR returns anyway so 5-year may be missing the point. Unfortunately, our markets don’t have enough data to provide any insight on 10-year returns.

So for what it’s worth, here goes:

STI Close (on 29 Dec 2017): 3402.92
PE10: 13.88x

2017 has been a hell of a ride.

I don’t have any documentary prove but basically, I was invested quite heavily (~80% of my portfolio) in equities when Trump got elected. After the immediate sell-down caused by Trump’s election, I started buying into the market as I thought that markets usually overreact to political events. The buying was confined to the STI ETF as I wanted to go heavy on the banks. Given that the banks have a heavy weighting in the STI (~40%), it’s a pretty good proxy.

The reason for buying banks is simple. The fed had just embarked on their major rate hike cycle. As the Fed raises rates, we should expect banks to earn more from existing loans.* Add to that the fact that the banking sector was the proximate cause of the Global Financial Crisis, it makes good sense that the banking stocks would have been beaten down the hardest and therefore, far from the highs of 2007.

I was pretty much right on this. What I got wrong (or failed to expect) was blue-chips such as the telcos and SPH getting beat down really hard. Keppel and Sembcorp had already been beaten down quite bad so, in fact, buying the STI ETF helped me gain some exposure there. However, news of a fourth telco, SPH’s continued downtrend in its core business and the impact of ride-sharing on Comfort Delgro caused the STI’s performance to be less than ideal. Overall, the STI still returned about 20% (including dividends) for the year. This isn’t something to sneeze at. Most people will be happy to get 10% per annum (p.a.). Of course, I wasn’t just in the STI ETF. Holdings of some other stocks amassed over the years also brought portfolio returns down.

Investment Returns (capital gains and dividends)

This year, the portfolio returned 8.18%. This is sad as the STI returned roughly 20% including dividends. The drag on my performance has been the huge cash holdings I had as well as the drop in blue-chip names like SPH and Keppel Corp. I was even a little too early in M1. Basically, nothing went right as far as timing was concerned.

Of course, returns were still positive for the year so I’ll take it as a win.

Total Growth

The better news is that the portfolio still managed to hit all-time highs despite the less than stellar performance. This is largely due to my highly aggressive rate of savings.

 

navVSwealthDec2017

Getting wealthy exhibit 1: Savings vs. Investing alone

If I were to count on investing alone, me being no Warren Buffett would have only turned $1 into about $1.70 after seven years. However, by aggressively saving, the total amount “grew” from $1 to $3.50.

I know it sounds like I’m cheating. After all, it’s not like I’m some had some special skill as a farmer to grow more apples from the same tree. What I did was basically acting like a farmer who acquired more land and planted more seeds so that I have more fruit trees than ever before.

But think about it this way. Assuming that you need $30,000 to survive in Singapore and that a safe withdrawal rate is 3%, someone who wants to live off his/her portfolio will need a million dollars in the portfolio in order to generate $30,000 every year. The most important thing is getting a million dollars right? Who cares whether I get there through investment returns (i.e. capital and dividend gains) alone or through savings?

Savings is the thing that will turbo-charge your returns. You can read through why this works in an earlier post I wrote.

 

Gameplan going forward

Wasn’t my best year. As usual, I was a little too cautious when I should have been bold. Going forward, I need to tweak my portfolio so that I’ll be invested pretty much most of the time. Only at times of extremely high valuations will I move to cash. At times where the market isn’t cheap, I’ll just focus on holding my positions and let my cash build up through dividends as well as my usual practice of socking away about 25% of my take-home pay**.

Furthermore, my job is pretty much immune from market cycles and therefore, acts as a bond. Basically, I will be the least likely person out of a job and my earnings are highly unlikely to fluctuate from year to year unlike bankers or people in highly cyclical industries. (Read more on human capital in an earlier post)

Also, my time horizon is pretty much longer than most people. I am relatively young and personally, I don’t believe in investing for X number of years and then subsequently drawing all of it down to fund living arrangements for the rest of my human life. I view investing as accumulating and growing a pot indefinitely. Even long after I’m gone, this pot of gold should go on benefiting this world.

Given all of the above (high rate of accumulation of cash, bond-like job, and long-term horizon), I really ought to be more aggressive in pursuing higher returns.

Outlook 2018

Despite my gameplan, next year doesn’t seem to be the best year for that. Valuations are high in major markets. The various components of the STI that still look cheap (e.g. SPH, Comfort Delgro, Singtel, and Starhub) and offer close to or above 5% dividend yields are cheap for plausible reasons (i.e. competition from upstarts that threaten their monopoly).

Furthermore, the same doom and gloom-ers in late 2016 and early 2017***  aren’t that gloomy anymore. Economic growth in Singapore (which we know is, at best, a coincident indicator) came in strong. This suggests that we may be at the end of the upturn in the economic cycle. Will we continue to peak or will we see a drop? Who knows. All I know is that things aren’t as cheap as they were a year to a year and a half ago.

I think that it’s going to be harder to make money from the broader market going into 2018. This is probably a year for turning over rocks and if we’re lucky, we’ll get a drop of between 15-20% that will make things start looking cheap again.

Good Luck for 2018!

Notes:

*Last I checked, most people are paying floating rates on their mortgages in Singapore.

**I would totally sock away more but, as it is, 23% goes into my CPF account. This basically means that my savings rate is about 42% of my total pay package. 42% is high but unfortunately, some of the money in the CPF account goes towards paying off my mortgage. CPF is Singapore’s National Savings/Pension Scheme.

***Who by the way called it completely wrong with respect to the economy and markets.