Category: invest_gtmp

##hot assets2avoid esp.4 Lower-midClass

Posted on by tiger40490

I see a pattern — if you are lower-middle class like me, but compete with the upper-middle class to acquire these hot, favorite, trophy or popular assets, you would feel the strain eventually. Wrong priority.

Possibly a strategic misstep if you can’t easily liquidate it or if you spend a sizeable amount maintaining a white elephant.

Rule_1: I avoid all of these assets.
Rule_2: always check overvaluation relative to alternatives, and check value/price ratio

[w=white elephant, often high maintenance trophy]

— eg: hot growth stocks with near-zero CDY or very high P/E
— [w] eg: big, luxury cars .. are for the rich
— eg: leading cities .. See mansion^commercial rEstate demand]leading cities #defy`gravity. Beside the Beijing home, all my properties fall outside the category. My HDB is not a private property 🙂
[w] NYC co-op has very high maintenance cost according to Chris Ma.

— [w] eg: top U.S. SDXQ homes, usually SFH with slightly higher psf valuation, but much bigger, therefore a white elephant. GRY suffers as a result.

Items below are not tradable “assets” per se, but still related to the same theme

— eg: medical school .. is for the rich, similar to luxury cars
— [w] eg: expensive branded colleges.  See luxury(+special)Edu: unaffordable to 中产华裔
UChicago is my 1st hand experience, and a breach of my Rule_1
— eg: international competition trophies .. takes lots of effort but often don’t mean much to your career.

different fear@bad investment: divStocks^rEstate^gold

Posted on by tiger40490

During my due diligence before an investment purchase, we worry about the consequence of a regrettable, unprofitable buy.  The original title of this blogpost is “fear@bad investment”. My worries are quite concrete, not abstract or theoretical. The worries are different for each asset class.

— Asset: gold .. trough risk is my only worry i.e. long trough
🙁 DYOC is negative. adding salt to the wound.
— Asset: HY/PE .. credit risk is my only worry, i.e. capital loss
— Asset: overseas rEstate .. country risk is my main worry including policy risk, legal risk, national economy risk, currency risk,,
Trough risk is secondary.
— Asset: SG rental property.. trough risk is my main worry, but the DYOC is a good compensation for this risk.
There’s also some non-negligible country risk because the resale demand is largely foreign hot money, and rental demand is primarily foreigners.

— Asset: divStocks [including funds] .. trough risk is my only worry, but lower than SG condos
— Asset: regular mufu .. trough risk is the main worry, based on decades of experience since 1997
🙁 expense ratio adds salt to the would, though dividend from the underlying stocks can sometimes come to the rescue
——-
Unexpectedly, after many years of heavy investments into mufu, rEstate, stocks.. now I’m more comfortable with the fears and worries. In contrast, I now worry more about PIP, parenting, FOLB,

Why the mellowness, peace .. against those financial risks? I can pinpoint a few factors

  • career longevity
  • cpfLife
  • brbr, Fuller Wealth

[22]diversify4crash-proof: fake@@

Posted on by tiger40490

Paramount priority of diversification is — crash proof. See also post on crash.

  • USD
  • CNY
  • gold can be safer than USD
  • energy stocks
  • alternative energy stocks
  • minerals
  • consumer
  • financials
  • healthcare
  • REIT
  • bonds – Asian
  • bonds – gov SG, US. Would appreciate in a flight to quality

— 2022 diversification xp .. my eq portfolio (along with SP500) experienced a major decline, raising the question of diversification. Watching some OCBC TV ad, I wondered how useful diversification actually is in pff.

  • How about bccy? (I own none) Most of them declined more than stocks… Ineffective diversification.
  • How about bonds? My bond mufu remain underwater since late 2021 .. Ineffective diversification.
  • How about my HY/PE from Jill? In default… ineffective diversification.
  • I think many asset classes are highly correlated… fake diversification.
  • Other asset classes can have a super long trough (like 30Y) after a crash, such as gold and some properties.
  • Some private investment schemes are shady and unregulated such as HY/PE and some bccy. So diversification using them can become fraudulent.

In conclusion, nowadays I think diversification is oversold to the general public.

A superficial diversification would involve some high-beta stocks (high correlation with SP500), some bonds, some bccy, some gold, some HY/PE, but I doubt they would provide positive return (end-to-end) in a depressed market. Such a return is what I need for liquidity.

[21]SDB liquidity #selective cashout: not available]mufu

Posted on by tiger40490

The more I watch the kettle, the more pain.

— On 18 Feb 2022, I spoke to a FSM advisor in depth. I compared SDB to some of my best div stocks and realized that I have different expectations for each asset class:

  • for div stocks, I have much longer holding windows [don’t want to be specific here, but at least 3Y]
  • .. but I expect consistent DYOC. Many dividend superstars have a commitment to that.
  • for SDB, I need liquidity: 1) time-bound dips. I also need 2) shallow dips, which is satisfied by this asset class.

It turned out SDB is failing expectation #1. The macro environment is not so drastically different from the past 30Y, so I blamed the fund managers (across the industry) for poor management.  Now I would blame the SDB asset class for failing my expectations, if the very best fund manager couldn’t deliver. That’s why I compared SDB to div stocks.

Now I think as an asset class, SDB is low-return, small loss, but not always better liquidity. For a fair comparison, FSM advisor reassured me that the dip would remain small (much better than stocks), and NAV recovery would arrive within the timeframe I set for my stocks.

One factor is selective cash-out (introduced in a 2021 mail to XR). FSM Advisor pointed out that most of the SDB issuers are reputable and consistent with coupon payments, but I am unable to see their coupon payout, and I can’t filter out the underwater bonds, and cash out the rest without loss. Selective sell-out would enhance liqudity of the SDB mufu.

Sugg/Plan 1: since there’s a high chance that Shenton SDB will decline further over the next few months, let’s sell $2k and watch the market. (Will maintain the deep-frozen 38k so as to capture the upswing.) If in a few months I see a 1% recovery in this mufu, we will progressively get back in, hoping to capture the upswing in time.

I discussed Sugg 1 with FSM advisor. She said many informed/patient investors would probably hold out for a recovery within 1-2Y (rather than timing the market), so I think it’s not stupid to hold. I told her that I would probably Feel better executing my Plan 1.

As of the call I had $4k invested in Shenton SDB. I did sell half at a price around 1.586. Now price is even lower, vindicating my decision.

— On 20 Dec 2021, I spoke to a lady at Fullerton regarding https://www.fullertonfund.com/fund/fullerton-short-term-interest-rate-fund-c/, followed by a chat with a FSM advisor.

This fund holds investment grade (average BBB+) short-duration (2-3 Y average duration) bonds including corp bonds, without HY bonds like those China property corp bonds.  Default risk is low with the underlying bonds.

Q: why the recent drop in NAV?
A: 1) rate hike and 2) China sentiment. The Fullerton lady emphasized that the sell-off in China depressed all market segments, as many investors dump all China corp bonds including investment-grade.

Q: what’s the projected impact due to upcoming rate hikes across the globe?
%%A: a CB announcement would (immediately?) translate to higher market yield i.e. lower NAV, but over time, the return on the fund will hopefully (am not so sure!) recover and catch up with the prevailing higher rate.

Q: based on historical chart, I would say every decline was followed by a reversal within a year. Average annual return is 2-2.5%, so can I assume this time round will be similar? Well, there are only a few historical occurences.
A: managers often hold IG bonds to maturity, and then deploy the repayment to buy new bonds, whose returns are higher during rate rise.  I guess that’s the mechanism of the reversal.

Jolt: However, how soon is that maturity? Average duration across existing bonds is 2Y+ ! So this mechanism won’t kick in within a year 🙁

If this fund can deliver 2%pa return as historically, then it is likely to beat my mtg interest cost. It would qualify as a parking spot for my borrowed dollars.

Jolt: However, the NAV could zigzag till late 2022.  Remember that once I sell #1173 I would have plenty of cash to capture the recovery. Now I think the recovery will not be over so soon. Instead of holding all the way through the recovery, (AA) means “sell now and buy after CompletionS”.

Q: When and how much is the expected mtg rate hike? Remember MBR is under OCBC in-house control.
A: As of Oct 2021, most mortgage brokers and bank executives agreed that the full impact of these global actions on Singapore will only be realized in 2023

Q: How fast and big are the hikes?
A: As of Dec 2021, the anticipated rate hikes (projected 2 to 3 in FY2022) is likely to end shy of 1%, rising at a quicker pace in FY2023 and FY2024, as widely polled by Economist.  The first rate hike may only occur in May 2022, as polled widely.

— Which option is safest? Earmark 42k for liquidation before exercise, to reduce quantum. Grab any chance for ABE over the next months, and liquidate incrementally.

AA) liquidate $42k at a small loss now, so as to reduce my housing loan quantum by $42k.
BB) keep the $42k position in FSM and wait for price recovery. The $42k portion of my housing loan will incur a floating interest rate of (projected) 1~1.5% for 12 months from mid-2022 to mid-2023.

FSM advisor is confident about the validity of AA. FSM advisor said BB is risky because mtg rate will probably go up amidst the “3 rate hikes”, but those SDBs could take a hit immediately and take a long time to recover, so I could end up losing on both sides. If those 42k positions decline while my mtg rate trends up, I would feel bad and have to hold longer. I may end up watching the 42k in pain, expecting it to outrun the mortgage rate.

She also pointed out the China sentiment may not get “resolved” so soon. It could depress the NAV of my 42k SBDs over 2022 or beyond.

— Q: is this oth?  Not oth because I care about loan burden, and monthly burn rate.
— soft close .. this fund includes 6%+ current allocation to cash. Too much cash. Mangers currently won’t accept new cash, and risk diluting future returns. I guess this means they are ready to buy new bonds at higher yield, but can’t find enough of them. If they use the idle cash to buy the current crop of new bonds, they would “buy” low coupon rate and stand to lose as yield rises.

[24]buy`corpBond]Sgp #AT1

Posted on by tiger40490

I like the coupon rates, but have my reservations (below). So I should consider alternatives like tBill and bond mufu

— my reservations about Sgp corporate bonds
1) quantum .. too big.
2) spread + commission .. too high. At IPO, you incur the lowest transaction cost .. 25 bps commission.

— wholesale bond vs retail bond
By default, “corporate bond” in Singapore means a whole sale bond, with SGD 250k quantum. Only SgAIS can buy.

Retail bonds are rare, with quantum below $5k.

====high yield bonds
Some smaller issuers like Oxley pay higher coupons but are actually riskier.

— AT1 bonds [Additional Tier 1] … are only issued by banks. AT1 bonds offer attractive coupon rates, but don’t be fooled by the combo of yield and brand name.. (like a cheap branded item).  Unknown to many, AT1 comes with serious “trigger risk”. (You can read later.)

Q: AT1 is expensive for the issuer, so why do banks issue AT1?
A: Phillip bond specialist told me .. no choice … banks are required to issue some amount of AT1 almost every year.

I also know that some U.S. muni bonds can default. Those are governments!

[13]saving1%sales charge ^ buying right fund at right time

Posted on by tiger40490

Sales charge is #1 factor for frequent in-and-out trades. Sales charge is plain old transaction cost, just like VAT or electricity cost. The more often you buy/sell, the higher. High sales charge encourages buy-and-hold. The extreme case was my Commodities day-trading in 1997 — no unit trust.

I guess financial advisors recognize but would resolve/rationalize client’s fixation on sale charge. I guess when you look back at any “completed” unit trust investment,

  • if it’s a negative return, then the 1% sales charge rubs salt onto the injury.
  • if it’s a positive return, then the 1% sales charge doesn’t mean much. Other factors often dominate.
  • if you had to wait (to exit) for MV recovery, then you would resent the sales charge

ez2hit high return but..Sustainable@@ #luck #w1r3

Posted on by tiger40490

MOETF return is likely lower than Buffett, which is likely no better than sp500
Do I envy those with higher annual returns? Typically we are seeing BTC or growth stock investors.

——

See also

  1. ##hot^beloved asset classes 喜新厌旧
  2. MOETF: lower return than SP500 likely which points to beatIndex^absReturn: choose your goals
  3. j4 MOETF #w1r4

Background: I often feel my MOETF “system” is under fire when lots of fellow investors seem to make higher returns either quickly or over a short few years. Are their returns sustainable?

It’s crazy to use (realized or unrealized) return alone to compare 2 portfolios, ignoring quality of return, fundamentals, crashes, and variouis risks (liquidity risk, credit risk, investor sentiment risk). Buffett’s portfolio probably shows better risk-adjusted return than sp500.

I would say if the investor pockets the realized profit and stand aside with detachment, then she is wiser than most. But such wise investors are rare.

Some investors make “enough” (like USD 2M) and then scale back risk capital level to $100k .. “cash out n quit”.  But such ungreedy investors are rare if under age 60.

— jolt: sustainable if buy-n-forget→ sleep]peace, focus@work. With high growth investments (including BTC), can you sleep in peace?

— jolt: Intern… Learning is an absolutely essential process (takes years) before people can have reason to believe your high return is sustainable.
There are various types of knowledge/experience to learn. Here I tend to think of EE/AA.

If higher return were sustainable without substantial learning and risk analysis, then this would be similar to an arbitrage or a Ponzi scheme.

— jolt: arbitrage or Ponzi/pump-n-dump
Q: deep down, do you really believe your SP500 ETF would show compound return at least 8% a year for the next 40Y, with at most one negative year in any 5Y window? I think many respected publication assume just that.

If you believe it, then to you this represents an arbitrage or Ponzi scheme. You should really borrow money to the max and invest in SP500 ETF.

— jolt: diversification .. A related perception is “To beat the broad SP500 index, you will need higher concentration on growth stocks.” — this perception is very dangerous. Look at Shopee. High-risk-high-return.

Diversify to international stocks .. is a recommendation for U.S. stock investors. However, if you allocate 30% this way, usually it would reduce your portfolio average return.

— eg: hot growth stock investors … even index investors can hit higher return than my div-centric MOETF system.
— eg: personal xp: 1997 commodity trading .. return too high. My agent said 18% a month. Clearly unsustainable.
leveraged trading !
— eg: dot-com boom-n-bust .. https://www.fool.com/investing/best-warren-buffett-quotes.aspx says “I can’t think of another period of time when it was easier to make money in the stock market. ”
— eg: bccy.. I think the believers of growth stocks would also consider cryptocurrencies (Zhang Jun?), even though they recognize the fundamental differences between bitcoin and growth stocks in terms of economic value.
— eg: leverage .. some investors even borrow money to trade stocks. With $100k capital, they get to trade $200k and hit higher returns on capital
— eg: xp of many non-US investors .. newbies tend to lose money in stock-picking outside the U.S. I guess this is worse with growth stocks. In contrast, index investing looks like safer.

##Buffett quotes #BnH

Posted on by tiger40490

— “In the 54 years (Charlie Munger and I) have worked together, we have never forgone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions.”

— “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Fair meaning mediocre
— “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be a more productive than energy devoted to patching leaks.” — don’t keep buying at lower prices if the business (not stock) is not performing as you expected. Leaks probably means annual losses.
— “Success in investing doesn’t correlate with IQ … what you need is the temperament to control the urges that get other people into trouble in investing.” — impulses, infatuations, fears
— “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”
— “If returns are going to be 7 or 8 percent and you’re paying 1 percent for fees, that makes an enormous difference in how much money you’re going to have in retirement.”
— “The difference between successful people and really successful people is that really successful people say no to almost everything.”
— “For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.” — market timing?
==== don’t focus on a fellow investor’s trec in good times
— “Only when the tide goes out do you discover who’s been swimming naked.”
When the market goes up and up, everyone looks like an investing genius. It’s only when things go sour that you see who actually has a good long-term strategy.
==== beware of infatuation with new technology
— “The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.” — Buffett is not keen on innovative technology, but destructive innovation can hurt a cash-cow’s durability-of-advantage
— “In the business world, the rearview mirror is always clearer than the windshield.”
Focus less on prognosis. Historical data is always more accurate than future projections
— “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
I think in the short term, you can, simply because of first-mover advantage, momentum and other investors’ herd mentality.

==== on buy-n-hold
— “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”
— “When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
Note when the “outstanding” becomes mediocre, then holding period may need adjustment.
— “Buy into a company because you want to own it, not because you want the stock to go up.”
— “Buy a stock the way you would buy a house. Understand and like it such that you’d be content to own it in the absence of any market.”
I think “market” means liquidity or opportunity to sell for a profit, similar to :

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

 

[21]to sis:G3specific goals@invest`more

Posted on by tiger40490

See also best Spends@100k windfall but I want to maintain two distinct blogposts.

Hi my dear sister,

Re your “vague” question of what exactly I want to achieve with my investment effort, I have a longer answer now, hopefully not so vague 😉

Indeed I still spend several weeks each quarter on investment research/review/decisions. I adjust my views (more often than my portfolio) rather actively.

In [[irrational exuberance]]  Shiller imagined holders of stocks growing into paper millionaires. One of them out there will feel the itch to cash out and improve current living standard. If I were one of them , how do I want to “live more like a millionaire“?

Even though I feel almost “job done” (i.e. I can retire to a thrifty retirement), there’s still some cash flow anxiety beneath the surface.

1) First goal I want to achieve with my investment is relief from that anxiety. Comparatively, I’m on a very comfortable cash flow “high ground”, so my anxiety is less than other people’s.

I will say there’s a risk that we could fall sick, suffer an investment loss or take other strategic missteps. Investment incomes (hopefully diversified and without a 10-year wait) provide the cushion I need.

I can see the ERE author doesn’t have this goal in https://www.getrichslowly.org/early-retirement-extreme/

See precarious pillar/levee/shield #MLP

1b) a related (vague) goal .. reduce my dependency on the WSC harbor as the base_camp for my family livelihood. Best achieved with higher NNIA.

2) The Second (specific) goal I want to achieve with my investment is relief from long commutes, which is a common pain in NY/NJ area. Most people seem to put up with long commutes but I hate it. With more investment income, I can afford to live closer to office, or take lower-paying jobs closer to home.

This goal is so close to heart that it popped out  as soon as I wrote down your question.  After a while, I found a more important, less realistic goal about work stress (work-life balance). I would want to find an easy job (less lucrative) with plenty of free time, where I am free to put in 50% of effort to do a good enough job, without risk of PIP.  I said “unrealistic” because my current level of wealth is insufficient to support it. At a more realistic level, I do feel less pressure to earn more, since 2019 in my chats with GregR. See also my blogpost on all_the_way despite low pay

3) another specific goal .. to support my stay-home wife, so that she can nurture the kids till high school. Many well-off families have a stay-home mother.

9) A distant goal I want to achieve with my investment is extra reserve to support optional big ticket items such as college. I don’t need an even bigger home, but my wife has persuaded me to consider a bigger home. Vacations are unnecessary to my simple life, but my wife would appreciate them.

Fundamentally, by age 40 I had completed all my big-ticket goals — 1) home ownership 2) retirement 3) medical contingency reserve 4) an optional, reasonable amount set aside to help pay college (discussed shortly)

When I look around at my age group, where is the Biggest difference in cash flow pressure, the difference between high ground vs low ground? Luxury branded education. As I said, most of my peers (Chinese professionals in finance or technology) set a target to save more than a million dollars for top school-district housing and top colleges. These are luxury items, not suitable for lower-middle class like me, with only a single income and two kids. To them I say NoThanks.

Now, Many of them consider the school-district home purchase (USD 700k+) an investment, but the monthly cost is heavy, including mortgage, pTax and maintenance, adding up to 4k to 6k every month. When I first considered this burden, this monthly commitment, I had to literally take a deep breath.

Why do I keep talking and thinking about my peers making their decisions? Because they represent a huge peer pressure on me and my wife. The “NoThanks” is easy to say once or twice, but consistency requires mellowness. I have to work hard to keep saying NoThanks. Paradoxically, this NoThanks is a major underlying motivation behind my investment effort.

Overall, I’m comfortable in terms of cash-flow, but in terms of income, we are really lower-middle class . No shame no regret.

— In Sep 2021 AshS asked me a similar question “Your growing net asset is just a number on a screen that you check every year. Why is that number important to you?”

  • I named nonwork income, esp. after retirement. I allocate most of my spare money into income-generators
  • I said that at the moment I wasn’t worried about having too much money to spend in later life. I think it reflects an underlying insecurity in livelihood[3], perhaps not about (anticipated) job loss but about non-financial disasters that financial resource would be needed just to reduce the impact. 100% complete protection is usually unattainable.
  • .. How about legacy for my offspring? I told AshS “not my plan” but any leftovers I can surely leave to them.

[3] Even the best managed companies and countries , with the widest moat, have the same insecurity.

— compare to younger peers like Kun.h
My friend K.Hu’s 2020 email is quite in-depth. Similar to my first goal, I can see that he still works hard for long-term family livelihood. ( I guess AshS is more carefree, due to the bachelor’s life. )

Compared to them, I’m older and more mellow, less ambitious in terms of Brbr, FOLB/exclub, career growth… Instead, wellness, lifestyle adjustment, healthcare, choice of home country, retirement planning …. are more important as I grow older. Therefore, livelihood is a slightly smaller driver.

FOLB/exclub/kiasu … At my age, I have less to prove, less to aim for in terms of moving higher…

Cashflow is a factor (sometimes a major factor) in each “dimension” above. However, cashflow should not dominate every dimension.