Tag: t_hotAsset

popular, high-return, quick-profit assets

wiseInvestor[def]: RPR profile #zqbx^xx #w1r2

Posted on by tiger40490

Interns can hit more profits, perhaps by trading cryptos or hot tech stocks…

pain (as opposed to risk and reward) also includes anger.

As I grow older, I am more aware of my pains in investment.
10% loss generates more pains in me than 10% gain can generate happiness.
No pain no gain. I still have 40Y+ to live, so I need to take on some risky assets such as SP500, or Sgp rEstate

k_investor_selfEval

See also

Too broad to be useful? Will focus on my idea of wise investor [mellowing up], which is mostly about 1) breakaway from convention wisdom, or wrong priorities [i] … and 2) risk profile self-discovery.

In addition, 3) Pain is also center stage of becoming “wise”, but behind the scene and less talked about. Various psychological pains [including stressors] are part and parcel of investing.  Those pains need to be  managed. Unexpected, unmanageable pain can be classified as One special risk.

[i]A wise investor understands that her own priorities [Risk/Pain/Return profile] are subtly unique and invariably different from the stereotypical investors. Therefore, a lot of “other investors’ priorities” are the wrong priorities for her. see also

— risk: over-commitment of personal time… A wise investor recognizes the risk of regrettable ROTI, even with the firewall intact
— risk: infatuated investors .. wise investors understand this tendency in herself
— risk: liquidity risk .. often requires large allocation to low-return assets. See make every dollar work hard4us @@
— other risks not specific to the “wise investor”:

  • long-term inflation risk .. See my Nov 2021 mail to Edmund
  • personal legal risk .. A wise investor would not lose sight of this risk.

— pain: stressors in eq-investing has a small section on “wise investor”. A wise investor would notice her internal stress sensitivities and work on stress prevention/reduction/protection.

Disambiguation : in this blogpost, “risk” refers mostly to financial risks; mental/health risk is classified as psychological pain.
— pain: firewall .. handles multiple risks and pains that I won’t list.
— pain: missing the boat on some high-growth assets
pain: FOLB by the cohort
— pain: setbacks .. (various types) A wise investor accepts them as facts of life in investing. She could choose to avoid certain assets forever [FXO, commodity futures..] Like R.Xia, she could decide to stand back and watch certain hot assets after losing money. No right or wrong.
— expected return .. if (a big if) and when all risks are understood and under effective monitoring, then the target return is a simpler question.

To reduce risks and pains, for some wise investors (or older investors), risk_capital could be a very small allocation. The smaller this allocation, the less pain/risk. My HY/PE is one example. Therefore, expected return is largely determined by the personal pain/risk profile.

Non-risk capital would go into low-return liquid assets including contingency_reserve. Some wise investors would find the low return painful.

jolt: It’s no shame to allocate 90% to low-return liquid assets.

I want to be an aggressive wise investor, with growing equity portfolio and rEstate portfolio.

jolt: equity portfolio doesn’t have to beat SP500. A wise investor won’t insist on that as a priority.

hot assets .. require a lot of wisdom and cool-headed detachment. Missing the boat is quite common and acceptable.

Q: Is zqbx [working towards higher returns] or passive acceptance of low returns a quality of some wise investors? 
Jolt: A: yes to passive acceptance. Investing is not personal improvement, not a noble cause, so I don’t associate it with zqbx.  However, I don’t like “lazy” investing. Some due diligence, some PP learning (separate section in this blogpost), some personal growth is part of being a wise investor. It requires effort, focus and dedication, but not zqbx.

— learning .. is a valuable bonus, not always necessary and not always possible.
Jolt: A wise investor may invest in 9 different “things” and learn nothing in depth from half or all of them. Note the different types of learning
— xpSelf has joys from learning and at moments of “short-term”[ii] profits like doses@delight. A wise investor recognizes that. By definition, a wise investor is 100% judged by the rmSelf.. These joys may not be significant to the evaluative rmSelf are are mostly forgotten.

[ii]In contrast, “long-term” profits by definition are very few, and much harder to achieve. For example, I had many joys with Jill’s HY/PE, and FXO, but mostly forgotten. The long-term result seems to be  a negative return.
— what experts to trust .. lots of theories make sense but are not really practical. Some academic theories have limited validity — most eq investing theories use U.S. stocks only, with a few (to a few hundred) thousand data points only. They don’t even recognize regime change.

— small number of experiences.. I told Caroline of  Propnex that most rEstate investors are not wise because we can’t try too many times, esp. compared to stock investors. After one or a few tries, we are experienced, but not necessarily wise.

Buffett said each person has a punchcard and 20 punches to make, and a few good punches would be enough!

==== some patterns of my bad bets. (I keep this section here as relevant.)

  • tx costs.. see https://tanbinvest.dreamhosters.com/18406/3episodes-of-non-recreational-trading/
  • non-positive DYOC .. see https://tanbinvest.dreamhosters.com/18406/3episodes-of-non-recreational-trading/
  • HY/PE poor transparency or regulation .. But German PE, Dr Soo’s first, E12 .. didn’t fail.

See also ## key variables in my bad/good bets
— eg sReit .. good transparency, highly regulated.
The blue-chip sReits have good bid/ask spread
— eg bccy .. bad bid/ask spread and fees; zero DYOC; poor regulation
— eg (neutral experience) US HY mufu .. real net DYOC was 1-3% considering fees and NAV erosion

##hot^beloved asset classes 喜新厌旧 #w1r2

Posted on by tiger40490

Scenario: for years you have invested in some beloved _good_[1] asset classes. Now you hear some friends getting better Returns. Initially you didn’t get affected, but the more you dwell on those return numbers, the less satisfied you feel about your beloved old friends.

  • Analog 2: reliable beloved old bike vs a newer, fancier vehicles.
  • Analog 3: a venerable alma mater with a focus on quality and graduate employment vs a rising-star college with a growing reputation, like Nanjing, or NTU
  • .. Well, in the (competitive) landscape of tertiary education, reputation is built over decades.
  • Analog 1: Applied to sexual relationships, we would say 喜新厌旧. The greying, 任劳任怨, trustworthy, dependable, predictable spouse is THE long-term partner. Note some of the adjectives apply to asset classes too.

If this tendency becomes a problem, then it is good to keep a cool head 冷静 [critical thinking] about the asset classes. Whatever high return is usually unsustainable and become inferior to our beloved old friends over the long horizon. The high return is sometimes less legitimate and provides a breeding ground for gambling.

[1] Good generally means reliable [legitimate], and suitable for your financial needs. What becomes beloved depends on your nationality [availability], your personal experience and risk appetite. It can be bonds, Reit, local rEstate. My own top 5 (unranked) would include

  • cpf-SA
  • integrated shield plans + MyCarePlus .. high leverage
  • U.S. stocks
  • HDB + SEAsia rental rEstate
  • USD and SGD cash
  • — some also-rans:
  • bond mufu .. acceptable for parking
  • eq mufu .. good for ex-US
  • China rEstate .. poor NRY
  • gold, U.S. rEstate .. not bought yet

— eg of hot /enhanced/ returns:
Some use high leverage. Some follow Reddit and invest in non-blue chip tech stocks like electric vehicles or blockchain tech.

I guess those assets are less secure than buying real assets on margin, such as gold, oil or rEstate.

I don’t use margin or leverage at all.

In the bccy domain, getting_in_early (FOMO being another side of the coin) is a key reason for some of the enhanced returns. But the risk of pump-n-dump is very real.

firewall to contain moetf volatility #Sachin

Posted on by tiger40490

volatility in MOETF can add to stressor profile.

Once a few months I hit an all-at-once situation

——

My friend Sachin.K asked how I build a firewall around my stock portfolio.

A firewall is built to contain the volatility to within a portfolio (which tends to spill over), to support buy-n-forget, to prevent excessive babysitting, and protect our sleep, our concentration at work, our family time… A firewall is crucial if we want to keep recreational investing as recreational.

  • focus on DYOC. If I can hit 8% DYOC, then over 5Y cumulative div would recover 40% of my capital
  • check dividend trec
  • ask myself periodically “Can you sleep well if total committed amount depreciates by half?” If not then sell some stocks. Overcommitment is a necessary (but insufficient) condition of excessive babysitting.
  • stand aside if price rises after I buy. This reduces the risk of firewall breach.
  • — some generic tips on diversification in depth. Real diversification strengthens the firewwall from the “inside”
  • diversify using large variety of single stocks, not ETF. In a down turn, I will hope to have a non-trivial number of positions above water
  • avoid high concentration in one name. Buy incrementally if price falls after I buy
  • avoid high concentration in any sector
  • diversify internationally, to reduce correlation with SP500
  • — generic tips on portfolio protection
  • prefer defensive stocks, hopefully recession-proof
  • build up a buffer in price appreciation. Buffers can absorb impact of market crash

— My stance on hot growth stocks
I keep very small exposure to hot stocks, perhaps 1-5% of my NAV. Hot stocks tend to be overpriced and more volatile. They are almost always low-yield, hard to buy-n-forget.

In good times, these stocks tend to outperform the indices, and leave my portfolio /in the dust/. Talking to investors in those stocks can be uncomfortable, so I remind myself

  • Those fellow investors often invest only small amounts (like $1k) in a given “high-flyer” stock. I too own some high-flying stocks in small quantities.
  • Those fellow investors often bought fairly late, so their actual return is probably not as high as in the media.
  • The extra return comes at a high emotional cost (like sleep, family time…). This is similar to the WonderWomen1984 dreamstone — You get a wish granted, but pay a heavy price.

In bad times (can be any time, even amid the good times), these hot stocks tend to fall faster. Hot stocks, by definition, attract hot money. Hot money comes fast and goes fast, often driven by news. They are the trouble-makers that threaten to break my firewall. Owning a hot stock looks almost like riding a tiger. I worry more about my peace.

 

[20]div stocks widely seen as low-growth #laughing stock

Posted on by tiger40490

utility stocks including T:US need to pay high CDY as they are seen as low growth, which dampens investor demand

VZ is seen as higher growth

—-

For two stocks each generating $5/share in annual dividends, BB is trading at $100, AA at $500. (BB could be O:US or T:US..)

In all cases, dividend per share is decided by management, in each dividend season, even if PnL is negative. In contrast stock price is decided by the market i.e. buyers and sellers, supply^demand.

I feel the market views BB (a blue chip utility such as T:US or IBM) as low-growth, past-the-peak, boring/uninspiring. Therefore, investors demand a 5% dividend yield as compensation to forgo the growth opportunities elsewhere. Consequently, relative to growth stocks, BB is under-priced — good for dividend investors like me.

The fact that 4% div yield is widely considered high-yield implies that bulk of the market prefer high-growth stocks, to the extent that 1% or zero dividend yield is widely accepted. I think most of the market don’t care much about current income (rent or div..) and much prefer windfall profit.

Not sure about other stock exchanges, but I guess U.S. stock market is mostly about growth. A small fraction of the investors care about current income. When I show my 5% current income to friends, they probably walk away laughing that it’s nothing compared to the 100% return they made or heard about, possibly in BTC.

Very loosely, Most of the popular (hot) stocks in U.S. are high-growth, low-dividend. A lot of growth stocks have high P/E, unable to support a dividend.

— value investing? I get the impression that many value investors (following Buffett’s principle or not) would find the high-growth stocks poor value.
Many high-growth stocks have zero or negligible free cash flow.

attractive growth assets always selling hot@@ #mind-share

Posted on by tiger40490

See also owning property^simple REIT

I often hear people say “if as you said this investment scores high on so many aspects and without serious low scores, then price must be high“. Basically they don’t believe there are bargains. But there are bargains!

One of the (possibly biggest) underlying factors is the combination of “unfamiliar uncertainty + mind share”, which is a form of financial risk. Uncertainty by itself is common — credit risk and market risk are all uncertainties but better understood.

Indeed, if all attractive assets are well known to all investors, then yes they would be expensive. In reality, there’s highly uneven distribution of information, so some good assets get very low mind-share. The lesser known assets and locations are seen as less reliable, less understood, less researched, less predictable and significantly more risky.

For an example of well understood, front page, uncertainty (rather than unfamiliar uncertainty), consider USD before rate hike. Is the prospect of rate hike fully priced into USD? I doubt it. You say “if people are so sure about the rate hike, then USD must be expensive already”. On the day of rate hike, USD still shoots up. Before the rate hike, there was significant uncertainty about the rate hike, depressing the price. This uncertainty is Not unfamiliar.

Now let’s look at unfamiliar uncertainties.

A simple example is Jill Lim’s real estate products with guaranteed returns + principal protection. Credit risk is the only risk. The debtor is unfamiliar, so pricing isn’t expensive in terms of guaranteed return. (Some investors would still say pricing is too high. They ignore that a bank product would give 2% p.a. guaranteed return over 2Y, rather than 12%.)

Now Consider a property in a remote part of Cambodia. We know the country is politically stable and on an upward trajectory, not yet taking off. A lot of upward potential in valuation. But this good part is not priced in. The uncertainty is very high — we have no confidence about the promised take-off, esp. in this remote location.

Now consider downtown Phnom Penh. You see the development under way — Less uncertainty, but still the number of people who can see the positive signs is a fraction compared to that of Singapore. This location is not seen as a safe bet compared to other countries. Therefore demand is significantly lower.

Now consider the Phnom Penh shop unit with rental guarantee — Less uncertainty, but many people still question the reliability of the guarantee, due to unfamiliarity of the developer. Also, there’s very high uncertainty if this location can reach 25% of Beijing’s valuation. Once again, attractive, but price depressed by unfamiliarity and uncertainty and very poor mind-share.

Now consider the Philippines esp. BGC — 20 years more developed than Phnom Penh, similar to Singapore CBD — lower uncertainty. Developer is a more familiar name. BGC condos are attractive to many, so bid mind-share. Some people say the price is already inflated, but still the uncertainty and unfamiliarity are both high. Investors who see the positive signs are willing but most casual observers aren’t — mind-share issue.

Now what if the asset is denominated in USD? One uncertainty removed, but essentially the same situation.

If a property/asset is familiar to many, and likely to appreciate, then i agree the price will be very high — consider  HK, Shanghai, Ldn. The determined skeptic would still find uncertainties in these locations. Nothing is 100% sure to appreciate. A 90%-sure-thing would be pushed very high until there’s very little upward potential.

Illustration — Consider a fictitious stock with consistent dividend history + growth potential. The price would be high. See my post about dividend and growth potential

Illustration — unfamiliarity and uncertainty keeps the demand lower in emerging property markets. Very few investors bother to research on these locations. Most property investors prefer the familiar market in home country. Familiarity is one of the biggest driving forces behind property demand. As a result, Singapore, HK, Shanghai, Beijing… have too many affluent investors drawn to properties. They know the local market so well they bid up the prices beyond global cities like London, New York, Sydney, Toronto.