Category: buyStocks

standard deductions #Rbh div withhold`tax

Posted on by tiger40490

Standard deduction is used by most taxpayers. Itemized deductions are less common and actually turned out inferior in my experience.

— inflation adjustment for tax year 2022 (filing done in 2023)

  • for married couples filing jointly, the standard deduction will increase to $25,900, which is $800 more .
  • For single taxpayers and married individuals filing separately, the standard deduction will increase to $12,950 — up $400.
  • The deduction for heads of household will rise to $19,400, a $600 increase.

— MOETF implication (keywords: Rbh, dividend withholding)

All Singaporeans receiving dividends on U.S. stocks pay 30% withholding tax. However, I am a U.S. tax payer … no withholding tax on dividends or capital gain. Instead, these incomes are assessed during tax filing. It is typically below $1k, well below the std deduction, so I end up paying no tax on these investment /gains/.

This is another advantage of my Rbh account over other platforms. It is something to keep to myself not even for my family members, definitely not something to share with friends.

price buffer build-up: effective@@ #w1r3

Posted on by tiger40490

In use multiple parking funds in FSM sub-accounts, I wrote that

For a few slightly-volatile parking funds, X months after buy, when the position has accumulated a 2% margin of safety, then the entire position is unlikely to go underwater. This asset thus becomes liquid i.e. At any time I would feel free to liquidate the entire position.

That is the first asset class of this blogpost.

In what stocks to sell, I wrote

Also, the price increment provides a buffer against a down turn.

However, for a highly volatile low-yield stock (like NOK, GE, MRNA,, a second asset class) even a 100% m@s [margin of safety] can evaporate overnight, or over a month [1]. Suppose bought at $1k, rose to $2k and back to below $1k.

The buffer build-up is like the vulnerable levees along Yellow river giving people a false sense of protection.

That’s why I prefer stable utility stocks or defensive consumer staples  (a third asset class). I do feel protected by a m@s [margin@safety] build-up  after my purchased stock rises by 50% and …. maintains dividend. The dividend stability is more reassuring than the price rise. Dividend stability often reflects healthy cash flow. Price rise reflects SnD, often irrational demand.

— market momentum .. can favor the buffer build-up
When the buffer gets eroded we can ask why. Suppose the stock has no real bad news. Then it’s likely “broad market”. This would be good news for the believers of the buffer. Broad market usually recovers in months or years.

In the short term, many investors would see that this stock has reasonable fundamentals, and has fallen a lot and is now a bargain. Some bargain hunters would buy at least a small quantity, like a fractional share. The key reason for the appearance of “bargain” is the $1k->$2k price buffer build-up.

Note blue-chip stocks with long history have a visibility advantage and command a high investor mindshare.

— [1] realized return to protect a position from going underwater
The “evaporation” scenario described above is real. In my CRBP case, I bought around $5 and had a 80% profit, when the free fall (to $2) wiped out that buffer. For my twin brother who bought at $8, the free fall would be more devastating. Therefore, a free fall probably wipes out 9 out of 10 investors, but the “evaporation” is not the same simple end for every one —  Size of the previous buffer still makes a real difference:

  • trough duration depends on the previous buffer
  • depth of the trough depends on the previous buffer. 95% drawdown vs a 40% drawdown are very different when forced to liquidate.

For free-fall there is a preemptive protection — realized profit. With CRBP I had no realized profit or dividend. Here’s a simpler illustration. In our previous example, you invested $1k and now it’s worth $2k, so you have an unrealized profit of 100%, but this buffer can evaporate. Now what if you cash out $300? So the price must fall from $1700 to below $700 to become “underwater”.

dependable: blue-chips imt mufu/SDB #w1r5

Posted on by tiger40490

[21]SDB liquidity #selective cashout

See also (the Rebecca post) the affluent often favor Funds over stocks@@

Before I discovered my system of dividend stock picking in 2020, I was using mostly mufu (and FXO + Oanda).

Q: Over 10-20Y, which group is more solid and financially dependable ? Blue-chips (with or without div) vs mufu such as DIVA? (I won’t compare fixed-income.)

I would say blue-chips are more dependable. Warren Buffett (among many) gave Coca-cola as a shining example. You can analyze the Coca-cola business, the moat, the competitive landscape. No such thing with mufu. A fund manager can analyze and include such blue chips. Anyway, I don’t have energy/absorbency for such analysis.

I once liked and increased my commitment in 1) ShentonIncome, with 5% CDY 2) Unifund 3) AllianzUsHY but in each case, the fund performance was not sustainable.

You can buy-n-forget with a blue chip. You can sink in more fund with confidence. Although mufu also supports the same, there are some differences:

  • dividend stability .. see section below
  • Churn .. Within 10Y, a fund manager can decide to re-balance a portfolio, update “mandate”, or get closed (perhaps after a 30Y run) and replaced by another fund run by the same fund house. I have seen this many time. I think they do these things to maintain or increase AUM. If your favorite blue-chip is (partially) liquidated as a result, you won’t even notice. In contrast, a single blue-chip is a lot more stable and more dependable.
  • diversification improves dependability … A tricky point, deserving a separate section below.

— div safety .. is a key difference between blue-chips and funds. If the dividend income is steady (as with some blue-chips), then buy-n-hold is much easier. With mufu, dividend amount is far less stable. Also, management fee is forever erosive esp. when you invest a large amount like 20k. In terms of carefree buy-n-forget, mufu is less dependable.

Beware .. Most big names pay very low CDY, even cut dividends in bad times. In contrast, many steady dividend payers are small or lesser-known companies.

DPR (Div Payout ratio) explains why mufu dividend is far less sustainable or dependable.

See also my small debate on DIVA

See also My case study on AGD fund.

— high similarity between two funds ..

[1] Consider this analog: If you mix a bunch of distinct colors in 10 different “mandates” (allocation schemes), the 10 resulting colors all look similar.

Selectivity (subtle difference) …. enhances my confidence in a portfolio. Out of 10 broad-based funds I look at, probably 8 are very similar and equally “solid“, so selectivity is low.  It’s hard to find one clear “winner” among the 10. By contrast, my blue-chip stock-pick process is more selective, using more criteria. I tend to use my own criteria to identify my own solid and dependable blue-chip. Sometimes, you could stumble on one that fits like a glove.

Higher diversification (across lots of names) improves dependability of the portfolio, but diversification is defeated by correlation. Using two correlated names to achieve diversification is cheating. Two stocks are more uncorrelated than two funds… therefore a better scratch for the itch.

In a down turn, in my portfolio I am more likely to find one savior stock “above water”, and realize a profit.  The diversification (unimpressive between funds [1]) within a fund doesn’t help, since I can’t cash out one savior stock out of a fund!

The other factors below are less about “dependable”…

In theory, I can  check P/E ratio of a blue-chip and notice when a blue chip is undervalued relative to peers. Even if a mufu is as solid as a blue chip, with the mufu I am not allowed to decide when to buy a constituent stock ! To do that I have to break into the “brave new world” of stock-picking (pre-clearance, account mgmt, commissions…)

— Beware of hidden risks with “reputable” stocks … not always dependable.

  • Many China companies are state-controlled. However, Vance Chhoa told me China government clamp-down doesn’t target entire sectors.
  • Political factors influence many oil companies.
  • big tobacco stocks are subject to legislation risks.

— How about a fund consisting of blue-chips? Well, I have no time to analyze each constituent stock. I think many constituents are not good enough (dependable, solid) by my standard.
— how about solid gold? I’m generally negative about gold:

  • If fundamental of a business is sound, its price would eventually catch up with its dividend-derived value. The dividend is a constant beacon of dependability to all market participants.
  • bid/ask spread and other transaction costs .. reduces liquidity and hurts dependability
  • fundamentals .. is harder to assess. Gold is almost all about SnD, which is less dependable
  • holding effort (esp. -ve DYOC) .. makes gold less dependable over long term.

Gold has solid advantages over no-dividend blue-chip :

  • no competition no replacement
  • solid support by all governments

validating 炒股 books

Posted on by tiger40490

Nobel laureates are peer-reviewed experts. Most investment books are not so theoretical.

For all of these books, peer review is the best validation, better than popularity. Many best-selling book with lots of media coverage can be proven invalid by the market a few decades later.

In contrast, sometimes a theory is actually validated over a long horizon … like 200 years! This is basically Fama’s criticism of Shiller.

A peer-reviewed investment theory is more validated than a “popular” book, but not as validated as a chemistry theory. Asset pricing theories are hard to validate, esp. compared to phy/che/med theories. Very limited data available to use for validation.

## fraction@big-quantum stocks: drawbacks

Posted on by tiger40490

When I buy IBM, CVX or OMC, I use small fractional orders of 0.1 share each, and build up my position. It felt fairly convenient, at least for liquid names, but really? Let’s list the drawbacks of this approach

— drawback: defeats fire-n-forget .. Relying on limit orders (not these fractional market orders), I have a new habit of building my order book to buy at multiple price levels. This way, I can set up a series of entry-points and go to sleep.

As such, it’s a form of fire-n-forget. Without this, I’m forced to watch the market (not really for liquidation purpose) to acquire the stock.

— drawback: slow fill .. Fractional orders may take a while to execute, perhaps due to technical issues including liquidity. I think the order is not sent to exchange, but sent to some special liquidity pool.

I experienced this “slow execution” with Asia time-zone stocks like WNS and many pink sheet illiquid stocks.

MOETF crash nearest to a xjl crunch

Posted on by tiger40490

See also MOETF [def]

Nearest to a time of xjl crunch(cashflow crunch), MOETF could hit a crash. I think this is one of G5 (or G3) reasons why most people hesitate about long-term commitment to the (risky) stock market.

— eg: when a family member hits a medical emergency
— eg: when a family member loses a job and needs to live off savings
— eg: During the years around age 30 (perhaps 25-35), most of us need liquidity for our xjl crunch. During this period, we tend to sell equity whenever we want to cut losses. This cohort lack patience, stamina or holding power. When these investors see a large (realized or unrealized) equity loss, they tend to regret investing such a large amount in such a risky asset. Therefore, it’s a challenge for this age group to buy-n-hold.

— eg: In our sunset years, we worry that we may not have the Sys2 resources to monitor MOETF. Some may experience that difficulty when they start to withdraw from retirement account, so they experience a xjl crunch. They find it difficulty to liquidate stocks to support retirement expenses.

Rbh: investor safety #OTC #FSM

Posted on by tiger40490

https://www.investingsimple.com/is-robinhood-safe/ is an all-positive review.

It’s human nature — if you ask around, there can be a multitude of concerns, sometimes irrational or far-fetched. Better focus on the realistic concerns.

— Rbh and FSM regulated
FSM is a retail service provider and regulated by MAS.

Also, for mufu, client positions are maintained in the client trust account, insulated from FSM bankruptcy.

For stocks (non-SRS/CPF), custodian is iFast.

So I feel Rbh is less safe.

— concern: password leak, a realistic risk affecting all online trading systems.
Right now my NAV is small.

Action: update password soon.
— concern: platform unavailable when I need to liquidate. (Noe I rarely need to “buy at a golden opportunity”, so let’s not worry too much.)
This risk is higher for OTC and for less liquid names.
— concern: platform unavailable for good i.e. insolvency (company cash flow?) — SIPC . Very rare and protected, so let’s not worry too much.
— concern: theft of asset — SIPC. More rare than insolvency, and protected. Let’s not worry too much.
— concern: OTC markets are less liquid, less regulated than full exchanges. See below.
Specifically, when I need to sell in a hurry, I may need to wait (much) longer. Luckily, my quantities are small.
— Robinhood lists a number of safety concerns for crypto. I have highlighted the non-market risks.

Purchasing digital assets (such cryptocurrencies and associated derivative products)  comes with a number of risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. In addition, digital asset markets and exchanges are generally not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing. These exchanges are also sometimes vulnerable to intrusions in which digital assets are taken away from their rightful owners. Digital assets prices can change radically in a trading day and thus lead to significant and sudden financial losses. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price. For additional information please refer to our Cryptocurrency Risk Disclosure.

— some Barrons journalist descriptions of Robinhood:

Robinhood, founded in 2013, had popularized fractional shares and zero-dollar commissions….

This year, we decided to see how Robinhood would fare against the full-service brokerages. Robinhood trailed the field, though it wasn’t a complete wipeout. Robinhood is easy to use, offers the ability to trade equities, some options, and cryptocurrencies, and has a clean, attractive design. The downside: It lacks the panoply of services and on-site resources of the full-service brokers.