Tag: t_hotAsset

popular, high-return, quick-profit assets

beatIndex^ livelihoodBoost: choose your goals #R.xia

Posted on by tiger40490

 

See also

As I continue to invest more money + time, and write more blogposts evaluating my MOETF vis-a-vis other investments, there’s a real growing concern like

Q1: is my time and money well-invested in MOETF?  It is quite productive compared to my other investments, but perhaps an ETF/eqMufu would achieve higher total return and lower tcost?
%%A: even if you hold a SP500 ETF, there’s always [2] a legitimate need for an alternative equity portfolio with lower volatility, lower risk of a “down year”, higher cash payout, higher reassurance,,, Therefore, it’s my mistake to pit MOETF against SP500, when it’s not designed to compete with SP500.
A: tcost is addressed below

There’s a widespread perception that “mindless (therefore easy) investing in the U.S. [1] large-cap index will outperform most hand-picked MOETF in most years“. Buffet has struggled against the SP500 index for decades. I believe many value investors achieve lower return than the US large-cap indices. (Note SP500 is all-large-cap and all-US.) See Buffett no longer beating SP500. I do have some ETFs and mutual funds (T.R.Price) to capture the index appreciation. If after X years (to be decided) I still believe that MOETF consistently underperforms SP500, then I would allocate more to an SP500 ETF.

One portfolio in MOETF would become a fund comparable to a cash-cow retirement account; another portfolio an absolute-return fund without a benchmark. As such, MOETF is designed to meet those “other” needs.

Jolt: Similarly, most SP500 ETF investors also have assets in retirement accounts (401k), bonds (or money-market funds), gold, Reits, rental properties, dividend stocks etc, so it’s unfair to look down on those assets or MOETF.

[1] How about mindless investing in non-U.S. indices? Much weaker?
[2] many investors put aside that need .. unwise

— OPP .. It’s crucial to be clear what exactly we want out of stock trading. Many valid priorities of other investors are not important to us. In fact, these OPPs (other people’s priorities) may get in our way.

  • when you take on those OPP, your life becomes more complicated, when it can be simpler like mine. You may have to babysit your positions. Your firewall is strained.
  • when you take on those OPP, they could displace some of your true priorities. Analog: carry-on luggage (i.e. limited holder of true priorities) vs checked luggage i.e. holder of lower priorities
  • when you take on those OPP, you may inadvertently take on more risks.

Matching SP500 return … is a bad OPP. Investing 80% of my assets, and minimizing idle cash (make every dollar work hard) … is an OPP

Q2: how important is total return (including current income) vs beating some index?

These questions arise more often when I discuss with fellow investors. An unwise investor may have an implicit goal “match other people’s returns” even though he doesn’t know their pain/risk profiles or even their actual return rate. I try to avoid that unwise goal. I often justify MOETF using phrases like “absolute return”, firewall (sleep well), recreational (learning), DYOC(current income),,,

div stocks: widely seen as low-growth #valInv #laughing described the recurring scenario .. When I show my 5% current income to friends, they probably walk away laughing …

— Question 2 is similar to FOMO^livelihood  — am happy with the current income, the low-stress (firewall), the relatively low but positive return, but not so happy when I compare with some “high flyers”. Why the hell do I bother with other people when I’m happy with MOETF?

MOETF generates a few times more current income than any SP500 ETF or cryptos, if I (arbitrarily) exclude the low-yield stocks that I bought for growth.

— rental yield .. is a parallel. So far I’m satisfied with my SEA rental properties esp. the rental yield, perhaps more than my Beijing property. If I were to compare myself with those who achieved 10x returns in some Chinese-hot locations then I might feel diminished.

However my Q1 above is different. Compared to those hot property markets, SP500 is widely perceived as less risky and tracking ETFs are much more accessible (low entry requirement, very passive,,,)

— Learning and fun.. relatively vague ROI, but as a ROTI it is growing more important. See learning: fund^stock-pick

  • If you don’t need learning, then SP500 ETF beats almost all ETFs or eqMufu.
  • If you want learning, then growth stocks and cryptos threaten my firewall (babysitting, buy-n-forget)

— le2 XR… a summary on a familiar question. Q3: given that MOETF can’t outperform a SP500 ETF, why bother to hand-pick to construct MOETF?

  • A(mentioned in earlier mail): foreign stocks .. missing from SP500.
  • A(mentioned in the call): recreation and learning (see above)
  • A(mentioned in the call): dividend payout, esp. during a downturn.
  • A(mentioned in earlier mail): selective cash-out
  • A(mentioned in earlier mail): selective buy .. esp. if I know a company well. This feature could help me outperform SP500
  • A: consider retirees. They don’t focus on “return” only, so they allocate heavily towards bonds, annuities, dividend stocks outside SP500. One retiree I know invests heavily into a rental property for rental income. MyOwnETF doesn’t aim to outperform SP500 but aims to provide other benefits such as access to cash flow.
SP500 return is hard to beat, so I will probably maintain 50% allocation to SP500. As I age, we will need to reduce SP500 allocation.

growth ptf +income ptf +.. #w1r3

Posted on by tiger40490

Many investors maintain multiple portfolios (for whatever reasons). I wish to keep separate portfolios so that only my growth portfolio is benchmarked against SP500. It’s unfair to benchmark the other portfolios that way.

  • income + stability ptf .. Note income stocks without stability is useless
  • .. aka defensive ptf .. for down turns.
  • international ptf .. probably not worthwhile
  • blue-chip growth ptf .. including TRBCX + a few ETFs. Benchmarked to sp500 [1]
  • speculative ptf .. mostly hot assets including ARK funds. I do (rather than “did”)  hand-pick a few speculative stocks but not exactly to beat SP500.
    • mrna
    • tourism stocks

Some stock picks would be homeless [i.e. hard to classify].

Some stock picks would be multi-homed, like both defensive and high-yield. Don’t bother. Instead, it’s more important to have sufficient allocation to meet the various needs [for income, for protection]

Q: how do I go about creating a “muti-portfolio view” from the combined portfolio?
A: No easy way. So this discussion is kinda academic

— [1] to beat SP500 you have no choice but trade hot stocks. You really need market timing. It requires more analysis, more babysitting (for exit timing). I don’t want to play that game, so I use ETFs as the bulk of my growth ptf.

— DYOC .. My income prt should have dyoc > 5%. Aggregate dyoc doesn’t make sense.

The growth prt would dilute aggregate dyoc.

 

hot stocks: higher beta than div stocks #w1r2

Posted on by tiger40490

See also

This blogpost is about a hot stock’s 1) correlation with broad market 2) volatility. Beta is a useful concept to capture them all.

High volatility stocks are harder to buy-n-forget , and tend to threaten my firewall.

— In a non-recessionary decline/correction, actual dividend amount will probably be stable among my dividend stocks. My firewall is easier to maintain.
— In a recession, high-yield businesses tend to have more robust profitability [1]. High-yield stock P/E tend to stay better than hot stocks on average. High-yield stocks tend to be more defensive and weather-proof. I maintain my firewall largely based on robust profitability. I have more confidence, more peace of mind.

The aristocrats and many other div-stocks refuse to cut dividend even in a recession 🙂

[1] A few hot stocks (MSFT, Oracle) are also robust

T:US is not “hot” by my definition.

— Why do I pit div stocks against hot stocks?
As explained in div stocks widely seen as low-growth #laughing, hot stocks by definition enjoy a price premium due to investor mind share. This price premium tends to depress CDY. Therefore, by my definition, hot_stocks vs div_stocks are almost mutex. (Note this doesn’t mean dividing my stocks into “female vs male”. )

My big positions are all dividend stocks. The relentless pressure from fellow investors stems from hot growth stocks. I have been struggling to incorporate hot stocks into my “system”.
— hot money … mostly hits hot stocks (far more than div stocks). This explains their high correlation with the broad market.

High beta (high volatility) vs high return .. are often indistinguishable.

Cryptocurrencies, commodity futures show the same feature.

— index stocks … are subject to hot money flow via ETFs. As ETF grows in popularity esp. among retail investors, I feel index stocks would get more volatile.
Why? See https://www.nber.org/digest/sep14/do-etfs-increase-stock-volatility (2014) and (2015) https://www.sec.gov/comments/s7-11-15/s71115-1.pdf. Surprisingly, a SP500 ETF is not exactly replicating the SP500 returns. It participates and amplifies that return.

Mufu? An index-tracking mufu would also increase volatility of the index stocks. As 40% new (hot) money comes in, fund manager has to move that amount from cash account to the “stocks account”. To maintain the current composition, she has to buy virtually all the existing names (like AAPL), thus increasing demand for AAPL. With a 30% redemption, she has to sell a huge chunk of her stocks (trying to maintain current composition), thus increasing selling pressure on AAPL.

Therefore, the more “popular” AA stock gets among fund houses, the higher its beta.

Suppose the AA business is under-performing. The company wishes to remain in SP500 (and other indices) because SP500 “club membership” would ensure a lot of blind (hot) demand for AA stocks. When overall market is flush with (hot) money, the index ETFs receive inflows, and passively buy AA according to AA’s weight in each index. In contrast, index-tracking mufu managers would actively evaluate AA and  may or may not buy it, but at least AA is on the radar. Once kicked out of all indices, AA would be under the radar.

As part of sp500 (and other indices) the demand for AA stocks is mostly driven by overall market, rather than AA  business fundamentals !

How about T:US (and other utility stocks)? An index stock, hit with hot money, but low beta.

Without analyzing the data, I guess over the last decades (and the next decades) index ETF has grown far more popular, which somewhat increases the volatility and return of the constituent stocks, which in turn attracts more hot money. Looks like a positive feedback loop. I think that increasingly, the only hope to match (or beat) SP500 involves trading volatile (growth) stocks or trading the same SP500 constituent stocks.

I guess ETFs mostly invest in popular stocks. Over the past decades, the steady increase in ETF participation probably leads to more concentration more gravitation towards the big index-component stocks.
As ETFs become increasingly popular vis-a-vis stock-picking, the popular stocks probably receive even more mindshare and volume than before.
These hot stocks probably become more volatile due to retail hot money.

[22]327>MSFT 1%- #add$50-100

Posted on by tiger40490

— hot growth stock? but more established and profitable than virtually all hot growth stocks

Beware: A big position (like $200) could breach my firewall.

Enjoys a natural moat.

P/E beats most hot stocks.

— CDY 0.8% .. https://www.fool.com/investing/2021/09/23/microsoft-remains-a-top-notch-dividend-stock/ says that MSFT has increased its dividend every year for 12 years straight.

CDY beats most inet stocks
CDY inferior to many tech old_guards

##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.

low-div allure: blue_chips || hot_stocks[def]

Posted on by tiger40490

See also firewall to contain moetf volatility

— low-div blue chips .. There are many very strong and convincing blue-chips paying low CDY or unstable dividend amount.
I hesitate as buy-n-forget is hard .. If price climbs then starts falling, I may be forced to babysit my position.

— low-div hot stocks
In my blogpost, “hot stocks” mean “popular growth stocks”. All of them pay low or zero dividend, due to the high price. Most of them are speculative IMO.

Many tech stocks are hot stocks.

Is it permissible to buy a bit (possibly fractional) of each, in the recreational scheme?

  • $budget — $5 to $50
  • t-budget — 3 to 10m
  • .. pre-clearance is another t-budget
  • learning benefit — after I hold such a stock, I would monitor it once a few months, and pay some attention.

criteria:

  • analyst rating
  • distressed stock is best. Hot stocks often become distressed.
  • the name should be quite familiar to me, otherwise, the “learning” benefit gets lower as the number of my stocks grow. So a new name introduced up by a friend doesn’t qualify.

exit_timing^BnH: K.Hu,Wood,Buffett

Posted on by tiger40490

 

k_babysit4exit

The most common j4 exit_timing are

  1. BB) damage control .. purge bleeding/toxic assets and improve “quality” of your portfolio.
  2. AA) optimize asset allocation .. including cashing out on an _overvalued_ stock.

[[Irrational Exuberance]] P12 talks about “investors who can commit their money to an investment for ten full years”. About half the (Hundreds) analyses in the domain talk about long-term investors, but I don’t know how common they are, like 20%? I think most retail investors are driven by AA+BB to sell within 10Y. Retirement accounts and ETF are something else.

— mostly for BB:

K.Hu’s description of his 2022 timely exit is yet another powerful nudge “You must babysit your stocks, and time their exits“. I don’t buy that idea. I have an opposing view. During the early 2022 decline in SP500, most [1] professional/institutional/smart money have exited or gone short equities, but some x% of the smart money stuck to buy-n-hold. Buffett once endorsed DCA. With DCA, you keep buying down the curve. This is a clash of philosophies.

This “clash” is swept under the carpet most of the time, but becomes a recurring theme whenever I review/evaluate my stock investment. The clash is related to many other recurring themes listed below.

What to avoid to get”marketReturn” explains why any selling is problematic.

[1] herd_instinct .. usually more emotional and less rational, and often lead to price insensitive selling

— hot stocks .. often requires BB. As I said, I am not keen about hot growth stocks, including tech stocks. Out of 200+ stocks I own, about 1% of them are hot growth stocks where I invested more than $100 each.

When I do invest in hot stocks, I am like Cathie Wood, not like K.Hu.

For hot or other stocks, I think most retail investors (not sure about institutional) would sell at a declining market. That leads to over-selling, creating buying opportunities for buy-n-hold guys like Buffett and Wood.

— buy-n-hold .. “3Y hold” rule implies no babysit for exit. After 3Y+, I do sell for AA reasons.

Buffett usually holds for decades.

— analysis or babysit .. entry/exit timing always requires price forecast and Sys2 resources. Some investors (maybe half of them) have to babysit before the exit. Some investors like K.Hu would “analyze” before the exit.

I don’t like babysit or analysis. (I only perform my 3-min due diligence at entry.)

— firewall .. is under threat when (for BB) you try to time the market for exit

— recreation .. I feel BB is toxic and incompatible with recreational investing.
Even AA can be considered incompatible.