Archives for category: Investing

Sorry for the light links this week. I haven’t found much worth sharing. Besides, I’ve been too busy binge-watching “Bodyguard” on Netflix.

Delay paying off your Mortgage Early, Build Liquid Assets till Your Debt is Less than All your Liquid Assets (Investment Moats)

Right after I post about how Investment Moats is one of the best Singapore-based financial bloggers to follow, he writes this gem. It’s a topic that many Singaporeans would find useful and I’m sure the broad principles apply to non-Singaporean readers as well.

Dividend Investing Is Bizarre (Fat-Tailed and Happy)

Saw this off Financial Horse’s curated links for the week. US-based reasons so remember that in Singapore, investors don’t pay taxes on dividends since those are taxed at the corporate level.

While the writer is correct in pointing out that investing for dividends means taking on equity risk and that dividends can get cut, the writer fails to point out that dividends can increase over time and the share price can appreciate.

The use of free cashflow to pay dividends instead of reinvesting in the business is also not necessarily a bad thing. There have been many cases of management, flooded with cash, going into areas of business that they otherwise would never venture into.

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Financial literacy (FinLit) in Singapore is going to be a thing. After all, sometime late last year, it was announced that all Polytechnic and ITE students would be made to undergo some FinLit module.

I really hope that this programme pays off because there are too many old folks who are quite clueless about basic finance concepts and there are too many wannabe financial bloggers out there who offer shitty advice and they really don’t know any better.

Old Folks Getting Scammed

I read this in the news the other day about how an elderly petrol station attendant got conned of almost $130,000 over a period of 10 years. Now, this elderly man may be an extreme example because of how he fell for such an obviously fake story but how many folks do you know of that trust every single word their financial advisor tells them?

I find that among older folks, it’s only those that have been running their own businesses for some time that are more savvy of when the professional advice they get is dodgy. So, for the majority of folks that fall in the average, they wouldn’t question the advice from a financial advisor regarding what kind of financial products are suitable for them, and which are not.

The oft-used analogy is that if you’re sick, you would get professional advice from a doctor. Similarly, if you have problems with your finances, you should get advice from a financial advisor. To a certain extent, this is true. However, also consider the fact that the barriers to becoming a financial advisor in Singapore are much lower than that for doctors. Even more importantly, is the fact that most of them work for commissions. In other words, the more money you put into their products, the more they earn. To me, that’s why you can’t compare financial advisors to doctors.

And it’s not just older folks

Maybe it’s just me. Or maybe Google’s algorithm is getting too good. But lately, I’ve noticed a proliferation of blogs (and this is just Singapore-based ones!) that start off as personal finance blogs but have now ventured into the space of giving advice on stock-picking.

Now, it’s one thing to give advice on how to save money but when you give advice to people on investing, that’s a whole different ball game. There are some basic principles to investing but giving advice on whether to buy or sell a certain counter is treading into a murky swamp that even professionals fail to do very well.

Take the following for example:

Not going to put a link to this and forgive my amateur attempt to mask their identities. You can go search for the post if you want to but I suggest you spare yourself the agony.

I saw this featured on my feed that Google’s curated and it looks like this blog’s trying to sell some course that teaches you how to invest so that you can spend your time travelling and experiencing the fun stuff in life.

But I read the post and realise that it’s as vapid as the title.

There is NO SUCH THING as a safe return. Dividends can get cut, Bond prices can go down and assuming you get 6% in one year, then what? What are your chances of finding another “safe” 6% yield for another year and another and another?

The worst part about this blog is that they were even featured in a local newspaper which goes to show how FinLit inept our local journos are as well.

In Short

I really do hope that people out there beginning to take an interest in investing find the right sources to start with. In the Singapore Financial Blogger Universe, there are way too many bad sources and few good ones.

In the vein of supporting FinLit, I suggest starting with the following places:

Personal Finance/ Investing with a Singaporean flavour
Investment Moats
Financial Horse
Dr Wealth
The Fifth Person

US-based
Anyone from the Riholtz Team (Ben Carlson, Michael Batnick, Josh Brown, Barry Ritholtz)
Early Retirement Now
Mr Money Moustache

There are definitely other good ones out there but this list is not a bad place to start to or even get by with.

Delusions (The Reformed Broker)

It’s true. The academic world has known for a long time that more data points do not necessarily make for better predictions. Unfortunately, as humans, our confidence goes up based on the amount of information we have. this is why I’m all for making investing as simple as possible.

Hackers may have just stolen $1 million from the Ethereum Classic blockchain in a “51%” attack (MIT Technology Review)

So much for the much-vaunted about revolution of blockchain. I chanced upon this soon after reading another post on Marginal Revolution about how blockchain technology is less secure than people think it is.

The funny thing is that the Marginal Revolution (MR) article is on a study about how, in theory, the blockchain can be compromised and then, this MIT article shows the execution of it. I may be misinterpreting the article but it sounds like what happened in Ethereum Classic is an actual happening of what’s described in the paper the MR article talks about.

Which brings us to the more important point – technology progresses and improves lives, but often not overnight in the way that people in 2017 were making blockchain out to be through the way they invest their money.

Updating My Favorite Performance Chart for 2018 (A Wealth of Common Sense)

Check out Ben Carlson’s yearly tally of how various asset classes fared and their performance in subsequent years. It’s interesting and tempting to use the table as a gauge of what’s currently cheap or expensive but the table only goes back as far as 2009 so to use the table for any sort of investment decision is dangerous.

For example, the 10 year tally shows that REITs, Large Cap (US stocks), Mid Cap, and Small Cap were the best performing asset classes over the 10 year period and in terms of frequency, it holds too. However, we have been in a bull market and so to extrapolate the same sort of performance for another 10 years may be detrimental to your portfolio if a deep bear markets follows.

Given the rally in the markets from the start of the new year, a friend and I were discussing the likely direction of the markets. Now, we aren’t chartists nor are we professional economists or analysts* but my friend has a good sense for business and I…, well, I read a lot.

He was wondering about the potential implications of a slowdown in the Chinese economy and its impact on the world economy, and by extension, the world’s stock markets.

Based on what I’ve read, I think some serious shit could happen and I’ll lay out the conditions for it.

The Chinese Economy

It’s no secret that China’s economy is slowing down. It’s also no secret that the Chinese government has been trying to transition the Chinese economy from an investment-driven one to a consumer-driven one.

To a certain extent, China has been pretty successful in helping Chinese companies grow and gain the technological capabilities necessary for them to be world-class competitors.

If we just look around us today, many Chinese brands like Alibaba, Huawei, and Xiaomi have sizable shares of their respective industries. Within Asia, countries like Tencent (which owns the all-in-one app, Wechat) has also become so entwined with people’s lives that it’s going to be hard for their Western counterparts to gain a foothold. So, the bottom line is that it’s no secret that China’s investment-driven strategy has produced some results.

However, what many people outside of China probably don’t realise is how the Chinese government directed investment spending in China. It turns out that the Chinese government was leaving it up to the banks and its related entities.

And while the rest of the world recovered, this worked fine. Unfortunately, the returns started to slow down once the low-hanging fruit was picked and obviously, lots of money has been either lost through corruption or just bad investments.

The best examples of this are how much money was flowing into overseas property markets like Canada’s and Australia’s or how Chinese companies with non-existent business models (think bike-sharing firms like Ofo) expanded in so many markets so quickly.

In short, to paraphrase the Washington Post article in the link above, China’s debt-fuelled stimulus is getting less and less effective. Which brings us to the better question: What’s next?

China’s Gameplan

I’m not an expert on China but if I had to guess, China realised that returns on investment were slowing down due to diminishing returns and/or corruption were those who had access to the money were just misappropriating it and moving the money overseas into property and other forms of wanton spending.

Therefore, their solution to “pay off” the debt that was circulating in the economy was to have their domestic economy take over. If their households started to consume more and take on more borrowing in order to do so, the previously issued debts of the firms could be “rolled over” into newly created debts that would be borne by the consumers.

The second thrust would be for Chinese firms to expand overseas as much as possible to earn foreign currency. This would directly help pay off the debts created as it would be a return on the investment.

The third thrust is to have the RMB become more widely accepted as a reserve currency which is pretty much a variant of the first strategy as the world takes on more debt which “offsets” the amount of debt owed by Chinese firms.

What Could Go Wrong?

As 2018 showed, the Chinese consumer is not exactly picking up the slack from the firms. Although in part due to Trump’s trade war and the Huawei situation, Chinese consumer spending is projected to slow and evidence of it is showing up in the projected fall in iPhone sales as well as the drop in car sales.

As for the second thrust, Trump’s trade war, as well as a projected slowdown in most major economies, is making this strategy a no-go. Ofo looks like it’s preparing to go bankrupt which shows you how tight credit is in the startup space.

The third thrust is also unlikely to work even with China’s “One Belt, One Road” idea because that idea pretty much depends on China lending money to developing countries to build all sorts of infrastructure like ports and railroads. This means taking on more credit risk for the Chinese financial system which is the opposite of what China needs.**

Conclusion

Don’t get me wrong. It’s not like I don’t want China to succeed. China’s economy slowing will mean a lot of pain for the rest of the world. After all, it is the world’s second-largest economy. Much of Asia also depends on China to buy raw materials or supply us with goods.

What I’m saying is that China needs a lot to go right for it to restructure its economy and given the state of affairs in the world today, it really needs Trump to stop his ridiculous trade war and the fed to loosen credit so that Chinese firms can breathe easy.

Notes:
*Well, not likely those guys are likely to be any more accurate.
**Lending money to third world countries for infrastructure projects in which neither borrower nor lender has much experience executing is a disaster. China may have another agenda through this but that’s another story altogether. See Sri Lanka’s experience with their Hambantota port.

First “Best Reads” of the year. Hope this year will be another year of working towards your goals.

My 2018 Annual Expenses: $19,665 and Financial Security Musings (Investment Moats)

The OG financial blogger in Singapore’s review of his expenditure in 2018. The details aren’t important. What’s important is the fact that his expenditure only comes up to just under $20,000 in one year.

With that kind of expenditure, it’s very likely that Kyith never has to worry about much about money for the rest of his life. Why? Because he’s playing such good defence that it becomes a part of his habits and in the meantime, his portfolio will continue growing (even more if he continues working and saving) to such a point he will never have to work unless he wants to.

65 million. That’s how many apartments are empty in China. Even as a proportion of the total housing stock (20%), the numbers are staggering. You have to wonder whether the fall in the Chinese stock markets is really due to the Trade War with the U.S. or it’s a sign of a larger problem in the domestic economy.

I’m willing to bet that it’s the latter.

$10 Million Isn’t What it Used to Be (The Wealthy Accountant)

It’s only early days of 2019 but I’ve found another blog to follow.

A musing on how having more money than most people isn’t a life-changing event. It’s a first-hand account of how going from less money to more money doesn’t really change who you are.

And ironically, that’s how people get rich and stay rich.


Do not pray for an easy life, pray for the strength to endure a difficult one.

– Bruce Lee

2018 hasn’t been a very good year for me – the stock market hasn’t helped with building my net worth, I fell had to take sick leave from work twice in the last quarter alone when I usually go a whole year without taking sick leave. At times, I haven’t felt like doing much either because of this sense of boredom and jadedness with life and work.

Within the family, there have also been some health scares. Earlier in the year, our cat had a little bit of tummy troubles following his visit to the groomers. Then, the older family members faced some health problems.

Thankfully, 2018’s about to be over. And we should recognise and celebrate the things that made the year great. These are my “Best of 2018” and I hope you find yours too.

Market Calls and Cryptocurrencies

One of the few things I identified right was how overhyped crypto was at the beginning of the year. Of course, by then, cryptos had already fallen quite a bit from the peak reached at the end of 2017 but let me pat myself on the back for calling the bullshit on the investment that is crypto.

3 Feb – More tales from the crypt(ocurrency)
14 June – So, who still wants to buy bitcoin?

But even more prescient than Crypto which I was largely skeptical of as an investment in 2017 was recognising the flow of easy money into the tech space.

10 July – State of the (U.S.) markets
11 Aug – State of the Markets (1 August 2018)

Now, before I get too swell-headed, I must confess that it’s not like I made profits from my views. I just got lucky that the tide against tech turned so much in such a short period of time.

Easy credit could have continued and I’d just as easily be labelled as someone who made a prediction and got it wrong. That’s the danger when shorting markets and unless you’re as experienced as someone like Jim Chanos, you shouldn’t do it.

This isn’t a how my portfolio did in 2018 post so I’ll leave it here. Look out for that when the year actually ends.

Learning New Skills

2018 was the year that I finally put whatever programming I picked up to good use. I wrote a script to automate some super bothersome tasks at work and if I had the time, I probably could write more scripts. I also messed around with some webscraping for stock data (shhh! Don’t tell anyone.) and I guess the next step would be having that data on a site for everyone to view. More importantly, I created a page to document the STI’s PE10. It went live at the end of July and I update it every first day of the month.

You can check it out here.

I’m hoping that in the not-too-far future I’ll have the chance to learn programming with a little more guidance and that I’ll actually have a chance to create sites that are useful. Best part is that I’m going to have my job give me time off (with pay!) to go do that. That’ll probably happen end 2019 or in 2020.

New Knowledge – habit formation

If I didn’t learn anything new all year, then that year would be a certain disaster.

James Clear’s Atomic Habits is easily one of the best things I’ve read this year. He gives really sound strategies on how you can form new habits and ditch bad ones. In fact, I didn’t know it then but I was using some of the same strategies to lose weight and practice mindfulness meditation.

This led me to cut sugar from coffee and I’ve lost even more weight than before and am at the same weight that I was in high school. Once again, the message is instructive – you have to make it a paradigm shift/lifestyle change rather than use willpower to make the change.

To drive the point home, let me give you another example.

I also developed the habit of writing roughly 3 blog posts a week this year and while it isn’t much, that’s helped boost traffic to my blog this year.

My blog stats across the years…pathetic but hey, this is a personal blog after all. I’m writing for personal amusement and not to bring in some dough.

You can see that this year is the year where, apart from April when I was on holiday for a week, the views each month were consistently above 2,000 (coloured blue). So what gives?

Well, the main things that happened was (1) that I finally got my new device, and more importantly (2) my wife started going to gym every weekend.

What has that got to do with anything? Well, every weekend, while she at the gym, I pumped out blog posts over coffee while waiting for her to be done.

This is precisely what Clear was talking about in his book. New habits need to have some place in your routine in order to become part of your life. This might be particularly instructive for some people as the new year is coming around and new year usually means new resolutions. If you really want to achieve something in the new year, you need to change your habits and not just hit some targets for a couple of weeks through sheer willpower.

Personal Front

On the personal front, this year marks the 6th year that my wife and I have been married and I couldn’t be happier. I’ll be lying if I said that we are happy 100% of the time but I’m pretty sure that on average, we’re happier together than we are apart.

I need to work on communicating with my wife more. Maybe it’s a guy thing or it could be just me but I’m not very good at communication (that’s why I have this blog!).

Our cat is also just the best thing that’s ever happened to us. He’s the one thing that makes me wake up at 6:45 am every single day and he really bosses me around until he gets his food. Then, he’s just the sweetest thing who will do whatever he wants: chilling under the bed, on his cat tree, cat window or on the sofa because he wants some attention from us.

This is his first full year with us and I know he’ll be with us forever. If you love cats, check him out on Instagram (@kingteddy_thetabbycat). Also, please donate to the Cat Welfare Society if you can. If you want a cat, adopt. Don’t shop.

2019, please be nice to me

I hope 2019 will be good for you and if anything, I’ll be working on the things I can control – my emotions, my temper, my actions, my reaction to events that are out of my control.

Goodbye 2018.

It’s been a crazy week for the U.S. markets this week. I keep expecting Asia to follow suit but each morning after a bloodbath on Wall Street, Asia remains subdued. I guess that’s what happens when everyone’s away for the holidays.

It’s the weekend before X’mas but somehow I feel like X’mas has already passed. I’m not a X’mas person anyway and I’m really looking forward to next year. This one has been nothing short of bad for the markets but I’ll leave it more for a “end of year” post.

Happy week ahead!

How Cheap Is The Singapore Stock Market Currently? (Motley Fool Singapore)

Regular readers will know that I usually use the PE10 but there are many ways to skin a cat. I’m not usually the Motley Fool Singapore’s biggest fan but this is interesting because I’ve seen James Montier do a similar study on international markets and it is a feature that when markets are beaten down, “Net-Nets” must appear.

“Net-Nets” were popularised/invented(?) by Benjamin Graham to find stocks that are trading for less than Net Current Assets. In theory, buying these companies and immediately liquidating them will earn you a positive return. The nub of course is that the value of their current assets may not be realised in reality. However, the theory is still valid and therefore, is an indication of how pessimistic investors are about a company.

In any given market, you tend to find companies that aren’t doing well and so you would expect a certain number of “Net-Nets” to exist at any given point in time. However. the number of “Net-Nets” in a bear market would be exceptionally high as pessimism of general prospects are dim.

In short, an exceptionally high number of “Net-Nets” in a market would be a fantastic indicator of when investors are too pessimistic about the future and hence, would be useful as an indicator of how cheap a market is.

Right not, the Motley Fool data seem to indicate that we’re cheap but not dirt-cheap.

Nov 2018 – Monthly Updates (Minimalist in the City)

Putting this one here because of the interesting statistic cited in the post:

Interestingly so, a study also mentioned that a child typically only plays an average of 12 toys out of 238 toys they own. This is about 5% of the toys which is quite an astonishing figure that should bring attention to the adults that a child does not really need that much toys at all.


5% is a ridiculously low number but I’m not surprised. The funny thing is that I think it’s not confined to kids. I’m pretty sure it applies to clothing, shoes, bags etc. Heck, it might even apply to our cat because he doesn’t play with most of the toys that were bought for him.

It’s sobering and a timely reminder that we should really think hard about what we need before we spend money on things that’s just going to take up space and gather dust.

Don’t Be Your Worst Enemy: Self-Inflicted Wounds Are Terribly Unnecessary (Financial Samurai)

A fantastic post listing some of the ways we sabotage ourselves.

I’ve done it many times in my life as well.

When I was younger, I drank way too much. That was a complete waste of time and money. I should have spent my time picking up some more practical skill.

There are many more examples I can give you and while each of them seems like a waste of either time or money or both, I learned important lessons from each case. It’s as if each misstep increased my self-awareness – the things that I’m good at, how to play to my personality, the areas that I’m not so good at that I could and should increase my competence in.

There’s nothing I can do to get the time that has passed so what matters most is how I spend my time, money and energy on from here on out.

I wrote a post about this on Wednesday and I really didn’t expect the S&P500 to fall another 4% in two days but it has. My CNBC notifications have been all about the Dow falling a few hundred points each day*

And it’s not just the drops. Volatility has gone up too. The VIX has gone above 30 for the first time since early this year. The difference now seems to be that volatility is here to stay for a while.

I’m checking out the latest Animal Spirits podcast for me, the meaningful statistic is that almost half of the markets around the world are in a bear market. Now if you look at the accompanying chart there, you’ll realise that good buying opportunities happen when roughly 70% or more markets are in a bear. That seems to be a good indicator of when pessimism reaches a peak.**

What to do about all this?

If you’re like me – a 30-something year old, with a recession-proof source of income, little to no liabilities, then the next 3 to 6 months should present a buying opportunity that comes only once every few years.

Right now, by virtue of valuations, buying opportunity seems the greatest in markets outside the U.S. If you have to buy U.S., then you better hope that markets there fall by another 5 to 10%.

The main thing to remember is not to over-leverage or be in it for a quick buck because cheap can get cheaper. As the great economist, Keynes once said, “The market can remain irrational longer than you can remain solvent.”

Notes:
*A few hundred points on the Dow shouldn’t be meaningful anymore because the Dow has gone up so much that a few hundred points are just a percentage point or two. No big deal anymore. Just ask the Japanese.

**Obviously this isn’t advocating market timing because low can always get lower. Add leverage to the mix and you have a recipe for disaster.

Markets have had a horrible December so far. For those outside the U.S., the whole year has been terrible. The problem with all of this is it only seems like it’ll get worse.

Here’s an opinion piece by former banker, and author, Satyajit Das, that was on Bloomberg and republished in The Business Times:

THE “everything bubble” is deflating. The fact that it’s happening relatively slowly shouldn’t blind us to the real threat: The world is dangerously underestimating how hard it’ll be to deal with the fallout once it pops. 
 

Frothy markets can’t disguise the warning signs. The shift to tighter monetary policies in the West is putting pressure on global equity and real-estate values. Even more critically, it’s weakening credit markets. Over-indebted emerging markets face headwinds from rising borrowing costs and dollar shortages. 

I don’t have any particular insight into the financial sector or the rumblings in the corporate debt markets but from what I’ve been reading, it seems that tighter credit markets have finally hit home.

What we’ve yet to see a a major default by a corporation that is Too Big To Fail. Once we have that, it’ll be the catalyst for a further drop in the markets that will take markets down to bargain bin territory.

A Market of Our Making

The funny thing is how this whole mess is a market of policy missteps. Barry Ritholtz made a good case for how Trump basically did everything wrong – he did a terrible job replacing a Fed Chief that’s more partial to a gradual tightening with one that’s more hawkish. He also screwed up on trade with his trade policy, and now it seems that he’s bent on taking the U.S. close to a shutdown.

Over in the U.K., things aren’t looking so hot either and you can argue that it all started with David Cameron’s promise of a referendum on Brexit. Now it seems that lawmakers can’t agree on Brexit and the deadline is looming.

Closer to home, one Dr. M across the Causeway isn’t making things easy for us. What and how big the fallout will be from the increase in tensions between Singapore and Malaysia remains to be seen but I’m pretty sure that any major hit to our economy and markets isn’t going to come from Malaysia.

Take cover but be ready

In short, I think things could get worse before it gets better. This is particularly true for U.S. markets because valuations there haven’t come down as much (major indexes there have only just reached correction territory).

For the local markets, things are cheap but we’re not quite at basement bargain levels. We’ll need at least another 7-10% drop in the index to take us there. And at that point, people invested in more leveraged counters like REITs will be feeling a lot of pain.

It’s been a terrible week for me. I was pretty much in bed for the first two days of the week and I couldn’t eat much until Thursday. Thankfully, I’m feeling close to a 100% now.

Hope your week ahead won’t be anywhere near as bad as mine was this week.

Photo by Mikes Photos on Pexels.com

The Big Read: Cryptocurrency crash offers industry the reality check it needs (TODAY Online)

Great read on the aftermath (yes, you’ve read it first. I’m calling it an aftermath) of investing in Cryptos with accounts from those who had substantial (relative to probably their own net worth) skin in the game.

Good lessons abound and I wish I had kept better records or accounts of what was happening in ’07, ’08 and ’09. I was only in university then and beginning to start learning about the markets but I remember how some guys were trading warrants and making/losing 5-figure sums in the room that us Honours year students were given to use.

That was in ’07 and of course, we know what came after. I would have liked to remember a little better how I felt about the markets in ’08 and ’09 because the sentiment now in 2018 certainly fits those times better.

Of course, in recent times, we haven’t seen the participation of the masses in any widespread, crazy speculation (apart from a tiny group in crypto) so my question now is: What is the next shoe to fall?

As Singapore’s population ages, I suspect we’ll see this sort of thing start to pop up as well. I mean, we hear of elderly folks being conned of their CPF savings through various means (appealing to their vices, taking advantage of their less-than-once-stellar mental faculties etc.) but I’m waiting to see if it happens at the financial institutions level.

I suspect it’ll come from the financial institutions offering a product that isn’t actually designed to give returns much better than the risk-free rate but with all the “protection” of a bond. That sounds like Structured Products which kind of gave banks a bad rep but if you know of anything new, do let me know. It’s fascinating stuff really.

Russell Napier: Equity Markets and Structural Change (Enterprising Investor)

A plausible sounding narrative for where U.S. markets are headed in the longer term. Not optimistic but if it does happen, it would provide a good buying opportunity.

Could we Model Our Retirement Spending like Endowment Funds? (Investment Moats)

Sharing this not because it’s a new idea to me but I think it could be a paradigm shift for many people.

Most people aim to accumulate a certain sum before they retire and upon retirement, spend down the sum and upon their deathbed, leave the rest for their beneficiaries.

It’s not that I think that’s wrong but I think the pros of acting as if your money should last forever outweigh the idea behind spending it down.

For starters, aiming to have the accumulated sum grow/last forever means greater prudence in spending. It also means greater prudence in investing as it requires a proper plan for investing the money instead of sticking to investments that guarantee the principal at the expense of purchasing power.

The biggest downside is what the growing sum of money is meant to do. If the beneficiaries are too few, you end up with a generation of spoiled heirs who will eventually squander it all.