Category: invest_gtmp

some@%%non-performing investments@FSM

Posted on by tiger40490

Q: Did I make the mistake of investing too little in good funds?
A: I don’t think so. I usually start with $100 to test the water. Then I increase to $500 or $1k. I am cautiously open to bigger exposures.

— #1 Blackrock gold USD
Mistake — too big. invested 5k, when 5k was the minimum
Mistake#2 — when I had a chance to exit, I sold 40% only. So the big exposure is my own deliberate choice and calculated risk-taking.
Luckily I don’t need the USD so I could wait.
Long term trend is poor. I was fully aware of it when buying. Calculated risk.
Motivation: this is one of the few hedges out there for DJ

–Parvest Bd Best Selection Wld Em USD
Mistake — too big. Invested U$1k. Luckily I don’t need the USD so I could wait.
I think as a bond fund it won’t drop too low.
EM are suffering, esp. the heaviest allocation countries – Brazil, Russia
Graph is too short.

— Indonesia
Mistake — too big. Invested U$1k. Should have used RSP
However, graph is reasonable.
Motivation: diversify
Luckily I don’t need the USD so I could wait.
Performance is bad for many years.

— Latam
Mistake — too big. Invested U$1k.
However, graph is not too bad, not all the way down.

— Japan (recovered🙂
Mistake — too big. Invested in 2 funds, USD 1k each.
Luckily I don’t need the USD so I could wait.
Mistake — one (Schroder ISF Jap Eq Alp A Acc USD) of my 2 funds did much worse than the other(Eastspring Inv Jap Dynamic USD A)
Japan has potential and did recover in 2014.

— Legg Mason WA EmMkt Bond A SGD H (mdis) plus
Mistake — should have used USD. Invested S$1k
However, graph is reasonable, not all the way down.
Motivation — monthly div, but reinvested 🙁
I think as a bond fund it won’t drop too low.

[15] tanko: investment choices discussed on 9 Oct

Posted on by tiger40490

Hi Keng Oon,

Just a summary of some investment ideas discussed, to be published on my personal blog.

Real estate — my exposure and concentration is rather high. Out of my entire investment portfolio, more than 70% is in this sector, including 200k in Manila, and 30k in Germany+Brazil.

Bonds — offers something close to compound return, esp at the low-yield end. I have about 70k – 90k in bonds.

** High yield bonds — most of my bonds are high yield bonds. Price has dropped 15% – 30% since 2013, so I feel I should buy more, but my existing holding is at a loss, so I am hesitant and cautious.

Equities — I have 30k – 60k invested. I feel now the valuation has improved so I should invest more.

** US equities — is the strongest stock market over long term. I have relatively low exposure now (perhaps 5k – 10k). Should consider a top-up like 10k. However, US stocks are possibly overvalued. Again, I’m hesitant.

** Index tracking ETF — is new to me but I do hope to overcome the initial resistance and give it a try. However the lot size is uncomfortable to me. Luckily I found an index tracking fund with $0 commission and basically no minimum commitment.

Gold — very cautious. I would only consider 1 ounce

Without converting my USD, My SGD may have very little left after the next 90k investment in the real estate deals, as planned. Therefore, I will consider only small investments at the moment.

GIC 2015report: realistic20Y return #w1r2

Posted on by tiger40490

One of my A-list investment firm is the Singapore GIC. They publish annual report on their performance, including rolling 20Y performance metrics. I glanced at their 2015 metrics. The preceding 20Y (1995 – 2015) had some major ups and downs including dotcom boom and bust, 1997 Asian financial meltdown, the 2008 GFC, the boom leading up to it and the spectacular recovery afterwards.

If you look at a 5Y horizon you could see oversize annual returns (like 20%/year return) or negative returns…. all smoke and mirrors! I really want to see a long-enough window showing the cumulative effect of all of those short-term ups and downs. Well, 6.1% was the annualized return GIC achieved, which is comparable to a 6.9% return in their “reference portfolio” — 65% global stocks and 35% global bonds. (I think insurance products can deliver 3-4%.) 6.1% is considered high, so it’s probably unrealistic to achieve higher return than 6% over 20Y.

Other findings in the report:

  • property – GIC managers see it as an inflation-hedge. I see it as good diversification from stocks and bonds.
  • GIC portfolio is believed to be S$350b in total. 34% of that is allocated to US, 25% to Europe but not only stocks and bonds.

A fundamental implicit assumption in my comments above is ..

.. no regime change. In other words, the assets’ growth/devaluations are treated similar to natural phenomena like temperature, rainfall… that follow a consistent trend. There are random factors but the source of those factors are stable.

This is a fundamentally questionable assumption. Regime change is frequent and drastic IMO. If we look at equity return figures in U.S. stocks, the post-WW2 returns are very different from pre-WW2. Also, the equity returns in the 30 years after the war (reconstruction boom) were much higher than the recent 30 years. Yet another factor is technology (and energy) stocks, which occupy a significant position in U.S. equity indices. Did these growth factors exist in the 60’s? Regime change! The evidence in developing markets (Asia, Latam, BRIC…) are even “worse” i.e. too many regime changes. The volatility level is much higher now than N decades ago (N > 2). Therefore, I always feel cheated when a research uses 100 years of return data.

I think all serious economists know the limitations of “models” which ignores regime change, but I feel they can’t throw away most of the data and only use the last 20Y of return data.

We the lay public don’t realize the limitations. We see a long history of data and we feel reassured and emboldened. Surely if a doctor has treated 600 patients over 40 years, then she must be more trust-worthy than someone with experience on 200 patients over 10 years, right?

More and more scientists now recognize climate change is affected by human behavior so rainfall level fluctuations are different from 500 years ago i.e. pre industrialization. There are regime changes in nature too.

USD^SGD heuristics

Posted on by tiger40490

These aren’t reliable or even backed by sufficient statistics. Market doesn’t obey any rule.

Looks like long term USDSGD will weaken but short term could strengthen.

  • I do believe that if SEA regional currencies are very weak, then SGD appreciation (USD/SGD decline) would be limited.
  • SG government financial fundamentals much stronger than US government, but this doesn’t stop USDSGD from rising
  • Growing US government debt weakens USD, in the long term.
  • MAS is still confident about SG economy long term… maintains gradual appreciation of SGD against trading partners.
  • Long term confidence — global investors have more confidence in US economic growth than Singapore economical growth. US economic growth (and booming stocks) strengthens USD against all other currencies
  • US tech boom — seems to drive “new economy” and strengthens USD
  • talent competition — US still attracts global talents more than other countries, and therefore remains global leader in innovation.
  • The 2015 strength of USD is attributed to
    • stronger US economy relative to Eu/Jap
    • impending Fed rate hike
    • devaluation by China
    • weak SG economy, possibly a technical recession

underestimating market jumps, overconfident in historical price band

Posted on by tiger40490

First big lesson was 1997 commodity trading, after industrial attachment, before I took on an office boy temp job at Nippon Steel. Historical high prices in copper, soybeans etc. To cover my margin, I dumped all of my family’s savings (about 50k) into the margin account. Then I realized only money I keep OUT of that account is safe from market swings and gigantic jumps, which I have no knowledge whatsoever. Any sense of confidence and insight about that market was all illusion.

I realized that with margin trading, I needed to define a max “affordable” loss.

2nd experience was my 2013 FX option writing. To avoid commissions, I wrote twelve U$50k short calls. Total notional $600k. I thought all positions were deep OTM but many became close to the money or ITM. From that experience, I learnt to use smaller contracts each time, even deeper OTM, long-dated, and reduce total exposure. Still, I was unprepared for ….

3rd experience – when USDSGD strengthens to 1.34, my margin utilization shot up to 80%. Exposure was around U$200k, including $140k deep OTM – sounds safe but I underestimated the FXO margin calculator. Either the delta margin or (more likely) the vega margin was many times higher than I thought. I had no idea about that margin calc. All guestimates. Now I guess (again, no evidence) to earn $500 premium, we may need $10k of capital reserve.

[15] market timing #FSM seminar

Posted on by tiger40490

Buffett@market timing describes two meanings AA) acquisition price, or BB) price forecast.

Hi,

I spoke to a few fund managers and fund house salesmen (who seem to know something about the fund strategies) from some top 30 fund houses.

(None of them mentioned automated trading. They may very well use an execution algorithm like VWAP to automate slice and dice a block order and smart-route it to multiple liquidity venues. They could get trading signals from a software but I didn’t ask if they let a machine automatically send orders based on the signals.)

Their sales pitch is very heavily macro-economic.

One fund house said as a guideline they don’t encourage market timing [BB] by retail investors, though I believe the fund managers have to operate by different guidelines. However, another fund house rep shared with me that poor timing [AA] is a valid explanation for a 10 year drawdown.

These are opposing/conflicting guidelines for a retail investor, to whom I belong. Since my investment skills and experience is mediocre, so I do not regard myself as a sophisticated investment pro. Anyway, the way I reconcile these guidelines is,

  • ideally the investment strategy should be largely timing-proof [BB] and fool proof so we don’t need to time the market. Perhaps DCA in some balanced fund?
  • I haven’t identified such a strategy yet so I feel timing [AA] is important, extremely.
  • It pays for a retail investor to spare some time following the market, to help decide where and when to invest.
  • .. Some don’t have the time. I once wrote that a passive investor may spend half a day a year. I doubt such a person can accumulate any insight or investment experience. But I won’t say these individuals should avoid investment.
  • most retail investors except the retirees probably don’t have a few hours a week to spare. We have to make timing decisions based on what little we gather. Buffett makes the same timing decisions in the AA sense.
  • even those with hours to spend may not gain any real insight to improve their timing. All the experts could fail to time the market in the BB sense.
  • Back to Square One — I still hope to find some timing-proof way to increase my equity exposure.

Just to share. Here’s my eq investment strategy so far. This strategy is light on BB timing. To increase my equity exposure, I would need to increase the 2 top-up decisions, which require timing!
– start with small positions like $100.
– If profitable, I time the market to exit. Relatively unstressful timing — even if I exit too early or too late, I still make some small profit
– If profitable, I may also top up, but carefully, since the price is higher now.
– if it remains at a loss, I usually wait for it to recover. In special cases, I top up on an unprofitable position, but slightly. Don’t want to invest on a downward slope.

time spent on analysis^mindless investment #R.Xia

Posted on by tiger40490

Mindless or passive investment means no need to think or make decisions. Examples —

  • * #1) buy and hold an index ETF without monitoring.
  • * CPF compulsory no choice
  • * regular savings plan
  • * 401k

Over the years, there’s a big debate whether the effort (3H/week for me) spent on active investment can beat mindless investment over the long run. Many researchers point out the stock index (#1 above) beats most actively managed funds. I am suspicious of that.

This is the same question I asked in the beginning:

Q1: … so does my effort outperform mindless investment? I have a few answers:

A0 — probably not. I will probably reduce the effort to 2Hr/week, and increase my exposure from S$100k to 150k.

A1 — Financial market is powerful and unpredictable, a bit like the huge dragon in the 2nd movie [[how to train a dragon]] … and we can learn some of its “behavior”.

We are all affected by the market in terms of family finance (some of my friends made millions of Chinese RMB by being lucky with property investment. Others lose thousands and thousands of dollars.) So it’s worthwhile to study some of this “market behavior”.

However, studying such a beast is confusing and apparently fruitless. One pattern (or “behavior”) is mean-reversion and cycles. Another pattern is “higher risk assets give higher return”. My experience taught me — I believe one of them and regard the other as the biggest lie in the investment world. (You know which is which!)

Yet another pattern is that in bad times diversified portfolio suffer lower losses than un-diversified portfolio — questionable, based on my experience.

Yet another behavior is the tight correlation among all the regional equity markets. How highly correlated? I learned by investing in them at the same time.

There are books and training classes on the behavior or financial markets. I’m sure over time I will find out how vast this knowledge is. However, it’s not how many hours I spend reading/discussing that improves my knowledge of this “dragon’s behavior”. It’s how many trades I do, how long I hold them, how much risk money i play with… that improves my knowledge.

A2 — beside studying markets, it’s equally important to study our own individual “risk profile”. The standard portfolio and standard investment style is a bad mismatch for my risk profile. As hinted in my earlier mail (below) i developed my own risk management rules by hitting real losses.

Every Singapore investment consultant use a Government-required questionnaire (20 pages of nice diagrams and good questions) to help the retail investor find out his/her own risk profile. Good start, but uttlerly inadequate. I only figured out my risk profile by taking risks and losing money.

On Sat, Nov 1, 2014 at 11:18 PM, Bin TAN (Victor) wrote:

Hi Xia Rong,

Working in Merrill Lynch, I’m only allowed to trade unit trusts, indices and
FX, not individual stocks/bonds. I have spent the last 2 years trading only
two markets — unit trusts and a few currency pairs. I want to be critical
about myself — have I improved and grown stronger as an investor.

This is an important question. I have limited time to spend with my kids,
with my Master’s program, learning c++, with friends, or work-out… as you
surely understands as a father. Therefore, the hours I spent on personal
investment need to bear fruit, otherwise i better save the time. Many people
advocate not just passive or mindless investment like regular savings plans
into some balanced fund. I tried and ran away from it (will share with you
why if interested.)

Mindless investment costs a few hours (or maybe up to a day) each year —
talking to salespeople, reading financial news…, whereas I spend 3 hours a
week, so does my effort outperform mindless investment? That’s Question 1.

A related question (Q2) is, does mindless investment outperform
no-investment, like compulsory savings (Central-Provident-Fund) or insurance
policies, or time-deposits? I don’t have an answer. Based on my limited
observations, I’m biased against no-investment.

On the other hand, I recognize mindless and passive investment can suffer
losses that fail to recover over many years whereas I have not seen anyone
hitting losses with no-investment. I noticed many major markets (Europe,
Japan, Hongkong, China etc) take 10+ years to recover to the last peak. For
example, my mother’s investment at end of 2007 has negative return whenever
we look at it. Stock market bubble is real and does hurt mindless investors.

Yet another related question (Q3) is inflation. I generally don’t worry too
much about it. Investing to beat inflation often results in losses…

Now i will try to address the tricky question Q1. I feel my FX investment is
improving compared to my first year. I learnt many lessons and know what to
avoid i.e. learnt a bit of risk management. I now invest very little amount
in FX ( though notional is high, like 100k – 200k, down from 600k two years
ago:)

In terms of real capital, I invest perhaps 10 times more into unit trusts.
Again, i feel i’m more skilled than earlier —
– I know my preferred allocation between equities and bonds — 20/80 or
10/90
– I know what i like/need — regular income, anti-correlation, extremely
volatile funds …
– I know to avoid balanced funds. i know how to use RSP.
– I know how to diversify — using very focused (and volatile) funds
– I know to spend more time buying and less time analyzing/reading. I use
small but real investments to watch the market.
– I know i will inevitably suffer losses. I have some ideas how to cope —
risk management, my style.
– i started with small amounts, and now invest about 100k, and I feel OK
about my diversification and risk exposure.

But how about my investment performance, relative to mindless investment?
Based on limited observation, i guess i’m not under-performing. But is the
excess return big enough to justify the hours? Not sure. May not justify.
Maybe i should cut down the hours but i’m kind of hooked. I now spend more
time on personal investment than on c++/c# combined:)

Going forward, perhaps i will invest more aggressively, take on more risks,
lose bigger amounts, learn more lessons, before I cut down.

P/E valuation

Posted on by tiger40490

I now feel PE valuation is a useful guide to crash-proof investment. Some markets may crash (for political or other reasons) even after you buy at a reasonable PE valuation. Eventually, however, global investors will become greedy, and bid up the price. We need to look at some examples in recent history

• Russia?
• Brazil?
• Malaysia?