Tag: t_gold

[23]BTC !!as solid as gold

Posted on by tiger40490

For every theoretical criticism of bccy, someone would challenge it with “How is gold any better?” This bpost is a biased view against bccy (in favor of gold). For simplicity, I will use BTC (or ETH) as a concrete example of bccy.

If a gold transaction happens electronically, the physical gold is still the same amount (not vanishing). Electronic audit trail of the transaction would be open, and disputes can be resolved in a court of law.

Multiple Nobel economists have said the intrinsic value of BTC is zero, but how about gold?

— Q: BTC has no future cashflow supporting its valuation, but how about gold or art collectibles?
A: I think BTC is similar to art collectibles or tulips. Gold has (no cashflow) some unique advantages as store_of_value, as discovered over centuries and widely documented.

It’s quite possible that BTC will enjoy growing demand despite its limitations, just as gold enjoys robust demand despite its limitations. (Some would see exact that scenario has materialized since the late 2010s.)

Q: Gold (and silver) is not the only rare metal in the world, and it has defeated all those competitors over centuries and emerged as the dominant physical store_of_value for (central) banks. Will BTC  follow the same path?
A: BTC has emerged dominant. A better bccy might emerge dominant later, like ETH. That may lead to a drop in demand for BTC and devaluation.
A: even if a real king of bccy emerges after some battles, it doesn’t imply acceptance by central banks as store_of_value.

— Q: BTC is not yet suitable as a medium_of_exchange, but how about gold?
A: silver (and copper) was a medium_of_exchange. Gold coin was also proven fairly effective as a medium_of_exchange. Many gold coins are issued by national banks.

— Q: Gold has a proven track record over millenniums. What if BTC also survives 50Y and earn our trust?
I think over 50Y we would see some end-use case. (Gold has end-use case like industrial and jewelry.)

50Y will witness the “inflation hedge“. (Gold is proven.)

— Q: what if central banks start to build up BTC positions within their OFR [official foreign reserve] or other national reserves?

See bccy as reserve currency@@ #volatile

Q4: what if half of all celebrities and big corporations start to build up BTC positions (comparable to gold)?
A: I doubt a sophisticated investor would allocate half her assets in BTC (or bccy in general), if she has kids or dependencies.

Q4b: what if many ibanks and big corporations take positions in BTC similar to the gold situation?
A: I doubt it could happen but if it does, then I think the key feature is central bank acceptance. So far only one central bank has accepted BTC, but I don’t want to digress.

Q: both gold and BTC has limited supply, and therefore provide store_of_value?
A: Any limit on issuing rate is hard to maintain. The case of gold is about the only proven case. For BTC, the hard limit on total supply is designed by people, implemented in software and can be scrapped given sufficient popular support. ETH has no max cap. ETH issuing rate is subject to change by the SWEs.

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

hesitant: allocate $200k→ETF+stocks

Posted on by tiger40490

Q: why I don’t want to increase my US-stock-index allocation from 1% to 10%, despite the observation on many smart investors including Kun.h, Venkat, MMM
A: Main reason is current income vs windfall appreciation. See other blogposts.

The most popular and safest index ETF show very low dividend yield, below 3% if I’m not wrong. In contrast, My rental properties deliver much higher and (arguably) more consistent current income while appreciation may be higher or lower than SP500.

  • Suggestion: I might want to cherry-pick my dividend stocks, but very time consuming and won’t reach SGD 200k.
    • Actually, I have up to 10k in USD
  • Suggestion: buy some gold to hedge my equity exposure

— U.S. housing plan:
Warning: My U.S. housing plan will become dependent on U.S. stock market ! If market is down for a long time I won’t be able to liquidate my stocks for housing needs.

However, I am not among the desperate immigrants burdened with high rental burn rate [1]. Even though I have a family of four, my burn rate will remain under control, and I have nonwork incomes to sustain long-term renting.

Sugg: split the allocation into two parts, with a 30% portion invested in gold, but beware the negative current income. Remember my overseas rental properties generate current income to relieve my pressure in the high-cost NY region. Gold doesn’t help directly, but it provides some cushion/buffer for stocks.

[1] Deepak CM’s discussion came to mind, but I think his double-income-single-kid brbr is actually quite comfortable.

Let’s ask Deepak!

— literature and mainstream investor experience on US index ETF

I think majority of US retirement accounts (including mine) rely on US stock ETF (beside international stocks and U.S. bonds). I think this has been a major support for U.S. stocks esp. index constituent stocks. Self-fulfilling prophecy.

— #1 justification for allocation increase: diversification from SEA properties

I feel Beijing^SG^KHM^PH offer some diversification as these markets are not correlated.

Still, it’s good to have U.S. stocks and gold as diversification.

 

##NNIA=NET nonwork income from asset

Posted on by tiger40490

— The NNIA concept .. Non-work incomes can come from gov, pension/annuities, adult children, inheritance, cut-loss sales,,, NNIA is about income from productive assets.

However, negative incomes (i.e. expenses) are more overlooked and deserve more attention than the positive income. Better list the expenses on top.

Jolt: Whether you like it or not, the reality is, the expenses are the rent you pay to hold the “cash-cows” generating the payout.

An income stream from an asset may require periodic “work” such as maintenance. I guess it could be a BBB or RRRR type… see ##pff complexities]old age . IFF the workload is too demanding, then it would not be nonwork income. Eg: managing a “hotel” of rental properties.

— Components of (usually monthly or quarterly) nonwork net income from asset:

  • -ve mortgage + rEstate tax
  • -ve HOA — $0 for some SFH or MFH
  • -ve other haircuts on GNRY
  • -ve holding cost of gold
  • -ve trailer fees
  • -ve income taxes on realized gains
  • cash dividends
  • cpf-life payout
  • .. CPF interest is not cash payout. Instead, it’s similar to the theoretical accrual of reference value in AllianzIncomeProtector.

[16]scenario plann`: asset devalue over50-100Y

Posted on by tiger40490

Here I’m talking about gradual/progressive decline, beyond normal inflation.

In contrast, a sharp decline (discussed in the black-swan blogpost) may precede a V-shape recovery, and is more common at least in my simplistic view not based on any reliable data.

Actually, the protections in the black-swan blogpost also apply here.

A complete and objective assessment would probably rank my asset allocations as

#1 property – SG
#2 property – BJ
#3 property – Cambodia, BGC
#4 SGD or USD cash including CPF
… See also [20]current portfolio4 family livelihood protection, but those other allocations (eg: stocks) are smaller and less prone to long-term gradual devaluation.

So what about a 50% decline in one of these? Some of these assets have the potential to decline even worse, but 50% is a reasonably bad scenario to target. Based on my observations over the last 10-20 years, I feel U.S. and Singapore are fairly resilient, so a 50% decline in my lifetime sounds like low probabilities, but we still need to prepare.

The black-swan blogpost listed top 3 (or more) non-financial protections such as career longevity. However, I need some financial hedges, too.

  • Hedge – gold — probably the best hedges against inflation over 100Y
  • Hedge – USD or SGD cash and bonds — least volatile, more reliable but susceptible to inflation
  • Hedge – US stocks

— legacy planning in the face of lont-term gradual devaluation

If I only leave, say, $1M to my children and grandchildren, then I feel a 50% decline is tolerable. The decline would be gradual and I would have time to liquidate some assets and spend or reallocate elsewhere.

What’s the chance of me leaving more than $1M? Rather low.

— devaluation is always measured against some benchmark, usually against a currency. I suspect that with one exception [3], long-term devaluation is always a local devaluaiton relative to some global benchmark. If this is the case, and if you hold properties or stocks in several locations, you are unlikely to experience devaluation across the board.

What if those locations are heavily correlated (the black thinking hat)? Well, putting on my blue thinking hat, I think yes SEAsia locations might be correlated.  According to this theory, it’s worthwhile to hold some U.S. rental property, but beware the high running cost.

[3] The exception is inflation, not a focus of this blogpost.

[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.

stay fully invested@@ .. if crash@@

Posted on by tiger40490

If one of bonds/eq always outperforms bank account, then yes i should invest most of my savings. However, this is a big IF.

Should I invest 80% of my USD, leaving just enough (20k) for Oanda trading and conversion?

(SGD? need to leave enough in bank accounts.)

In a crash, I think bonds (HY? less confident) might perform reasonably well. Gold (not gold mining stocks) is another asset class that has a chance to stay resilient.

[15]black swan crash #600w

Posted on by tiger40490

big picture — financial protections (insurance, diversification, current income…) are important-partially-effective as protections of family livelihood. More important protections are non-financial

  • 1A) health and healthcare system,
  • 1B) strong marriage and family,
  • 1C) resilient career longevity
  • 1D) Good kids working on reasonable jobs would be a strong protection. This factor is largely within my influence as a parent.
  • 1F) strength of Singapore and U.S. , my two choices.

Black swan crash mostly affect stock market and property market. This scenario is different from long-term devaluations discussed in another blogpost

Many stock market crashes saw all the experts proven wrong, but each time, a few people seemed to be prepared for the crash, because … BlackSwan by definition is obvious in hindsight.

I feel every serious student has this same homework — study each crash and draw his/her own conclusions. I haven’t done my homework. I will simply point out that in a stock market crash, if we are cautious to avoid buying at the peak (assuming our judgement is right, though no one can predict.) then most investments should not suffer many years (specifics? no need) of draw-down. Suppose we see the longest draw-down is 8 years. We are right to assume the most likely length of the next draw-down is that long. But statistically we are unlikely to suffer exactly that draw-down, since we are unlikely to invest 100% at the very peak.

I feel developed market eq and bonds both exhibit a long term trend. Central banks will handle any liquidity crunch, so those are likely short-lived crashes.

— 3 CPF-life
— 4) diversification (at low correlation) could help, even tough all assets decline together.
Reality — Some assets recover faster than others. Some fall less than others. By diversifying, I have a reasonable chance of capturing some quick recovery, perhaps on a small position.
— 5) income stocks are safer among stocks, assuming most of them continue to pay dividends.
— 6) Gold is the strongest “currency” and a good hedge for equity market crashes and some (but not all) political upheavals, but you must be prepared to hold it for decades.
— 6b) USD is safer, so is SGD to a lesser extent. Flight to safety.

— 7) gov bonds are safe, partly because
* Gov have the (not unlimited) power to print money
* flight to quality
— 7b) I believe Investment-Grade bonds are safe, because government would inject liquidity to help the “normal” corporations survive and service their debt.

— 8) rental yield is more weather proof than the promise of windfall appreciation.

Suppose my high-yield rental property pays out NetRY 5% vs 2% for a high-end residential. In a down turn, valuation could drop by half. My rental income provides 4 cushion compared to the high-end

  1. in good times or bad times, my rental property is more likely to be rented whereas the high-end is less more likely to be vacant, because my property was bought for the sole purpose of rental.
  2. If both are rented out during the down turn, then my rental property is likely to generate higher rental yield just as before the down turn
  3. higher rental yield is an attractive feature during a down turn, as the prospective owners assess the positive cashflow. This is similar to income stock vs growth stock. Therefore, the valuation drop is less severe than the high-end residential.
  4. suppose we are forced to sell at a loss during the down turn, my cumulative rental income — hitherto received — would offset my losses.
  5. (Not a cushion) The promise of windfall would be very hard to keep after a huge draw down. In contrast, the rental yield was already realized over the preceding years.

Oanda, brief notes

Posted on by tiger40490

Could be hard to bring money in/out, so let’s transfer USD $2000 for now.

–Use 10:1. Buy-and-hold audjpy with avg spread of 2 pips.

Quantum – $100.

Set take profit to 5% without SL.

–Use 10:1 buy-and-hold gold with avg spread of 30 (price is about 128,640 pips).
Quantum – 1 ounce, worth about USD $1286