see open blog
t_jolt is often temporary for a few months to years.
I think in every case, some risks are underestimated. Shiller may consider it questionable investor learning.
Sure-win mentality breeds the gambler behavior
eg: Is SP500 ETF a sure-win? Many American investors seem to feel that way.
eg: Is DIVA an arbitrage, sure-win?
eg: Q to H.Luo : Is Singapore condo a sure-win? I think many investors use maximum leverage to invest in Singapore condos. Sure-win due to Ponzi nature. https://tanbinvest.dreamhosters.com/26043/sg-home-buyers-max-out-mtg-quantum/
— Single stocks:
eg: Is Singapore IPO sure-win? This was one of my first “sure-win” bets.
eg: when Singtel shares were offered to the lay public, some probably considered it a sure-win. Utility stock backed by government.
eg: in 2020, my wife picked SIA as a sure-win stock.
I think with the exception of U.S. retirees the stereotypical retail investors would consider stock-picking only for growth, not passive income. To them, a stock is either high return or nothing.
They ask me “If not attracted by quick profit or windfall profit, then why stock-picking? Why not some other assets?” They hear about dividend investors’ stories, and value-investing stories, but most of them decide to focus on high growth stocks.
Kun.H said “dividend is a secondary attraction/motivation.” The main reason to consider any stock is invariably capital appreciation, hopefully a windfall. Kun is more intellectual and more analytical than other retail investors. His comments are articulate. I think his views represent many intelligent, well-read investor.
Tianjue said many investors have a reasonable, human desire beyond stable, dependable dividend. I guess it’s a higher desire for … windfall profit! I guess it’s similar to higher desires like lottery, bigger home, top college,,,,, These higher desires drive up hot asset valuation to unreasonable levels.
Because these desires are based mostly on emotion, they can become irrational. Compare to Value investing.
Consider investing $500 into 25 growth stocks. To support firewall and buy-n-forget, I would need to limit each position to below $20. Beware of the risk of temptation.
k_X_car_dependency
If you are used to car dependency and now I ask you to imagine a life without private car (but with car sharing, occasionally car rental etc…) you will think of many challenges. One of them is the lost convenience of Walmart, or Target. These are two of the several superstores that I have used. Look at the alternative solutions — they provide for most of the situations including some special situations.
Therefore, car-free living in a city underserved by Walmart may sound like a livelihood issue, but it is not really. I lived in East Orange, Porter Square, Boston, Brooklyn for years without any of these superstores nearby.
— alternative: similar stores on my commute and on our Chinese grocery shopping trips .. These trips are likely to pass by several shopping districts.
— alternative: smaller stores within biking distance
The superstores are sometimes located beyond my bike access in some suburban cities. I seldom choose to live in those rural cities. If I do, then there are always smaller (still sizeable) stores near my home, though price could be slightly higher.
I can go to nearby shops and big stores for most of my needs, and reduce Walmart trip to one weekend per month.
— alternative: planning for scheduled trips .. in https://tanbinvest.dreamhosters.com/wp-admin/post.php?post=21798&action=edit one American author said “I have started making this trip once a month. During the month I will make a list so that I will remember what I need”
— alternative: online shopping … can be cheaper and simpler. I just don’t know when I would start using it. I did go online to buy laptops, pills, baby powder, chia, batteries…. Good return policy.
— price tag .. Walmart is known for low price. Target is slightly higher but still affordable. The big warehouse stores [BJ’s / Costco / Sam’s ] are even cheaper. So without a car, is our burn rate going to be higher? No.
k_ETF_assetClass
Mostly based on https://www.fool.com/investing/2019/02/09/how-are-sp-500-stocks-chosen.aspx
When a retail investor buys an ETF tracking sp500 or DJIA, she is mindless, but the sp500 and DJIA indices are not mindless. They are (not 100% passively) managed by smart professionals. Buy-n-forget SP500/DJIA ETF relies on the index committee as stock pickers.
— SP500 composition is (unlike other indices) not simply adjusted mechanically every few quarters
— SP500 doesn’t automatically become tech-heavy even when tech stocks grow to dominate the U.S. market
The committee wants sp500 to remain representative of the entire U.S. large-cap market.
I suspect that some admission criteria were introduced to disqualify tech stocks.
— Entering SP500, Profitability matters .. With few exceptions, companies must be profitable to get in. A key stock-picking criteria.
— Exiting SP500.. It’s much harder to get kicked out of the S&P 500 than to get in
“Addition_criteria are for addition to an index, not for continued membership. As a result, an index constituent that appears to violate criteria for addition to that index is not deleted unless ongoing conditions warrant an index change.”
— SP500 committee have discretion .. “The people who make up the index committee are some of the (TB: top 1000) most influential people in the financial markets”
See also %%riskTolerance: which countries feel OK
DCC[developed commonwealth countries] refers to UK/Aus/NZ/SG
I often feel inferior and second-class about my overseas rEstate portfolio, but it is vague and possibly irrational. Let’s pit my portfolio against theirs.
Paradoxically, in a closer look, mktRisk/NRY/appreciationPotential are not the key yardstick, in the presence of currency hazard .. legwork .. credit risk… economic derailers
Legal cost is much lower than rich countries, though legal process is often less efficient.
— same initial cash outlay: SGD 900<-1000k
Perhaps 2<-3 condos vs mine [Bj + SEAsia]
— 🙂 🙂 currency hazard .. See %%riskTolerance: which countries feel OK
— 🙂 🙂 debt burden. https://tanbinvest.dreamhosters.com/26043/sg-home-buyers-max-out-mtg-quantum/ shows that majority of Singapore home buyers take on the maximum debt burden, to maximize “investment”
— 🙂 cross-currency LIR[ Loan IR] hazard .. See %%riskTolerance: which countries feel OK
— 🙂 prime locations .. see Eynesbury by Resimax as an example
— 🙂 commercial not residentail
— 🙂 taxes are lower
— 🙂 local agency remuneration is lower.
— 🙂 Legal cost (lawyer fees++) is much lower than rich countries, though legal process is often less efficient.
— 🙂 If I have to travel there for sight seeing or problem resolution, total trip cost is lower.
— 👎👎 country-risk::economic .. more mature developed economies
— 👎 country-risk::legislation .. developing countries tend to impose capital control, foreign ownership restriction
≈≈ liquidity ..
👎 presumably less developed market and probably harder to sell than in UK/Aus without a loss
🙂 lower tx costs [fees] require a smaller price gain to break even
🙂 My low-quantum units presumably are affordable to more buyers, therefore easier to sell without loss
≈≈ NRY .. no clear winner..
Before covid, I can only guess UK/Aus NRY (post-tax) is about 2-5% excluding LIR, considering vacancy rate…
🙂 My Cambodia NRY is superior
==== minor factors
— 👎 country-risk::legal .. but after the initial years, FHR improves
— 🙂 geo-diversification .. no clear winner. They might be concentrated in one country, at most two
H.Yi and Ash.S both mentioned something about “trading time for money”. The proposed alternative is to make your money work harder to provide for livelihood [3], so you don’t need to do it yourself. So you could spend your time on something else. What’s that something else? For me, it is some form of office work, rather than endless vacation. Therefore, I willingly trade time for … something to engage me.
[3] If we could _control_ exclub comparison, then livelihood burn rate can be taken care of already, so we don’t need to trade time for money since last year.
— babysitting still required… in reality. Very few nonwork incomes are truly passive and buy-n-forget, like CPF.
In the proposed alternative, you still need to spend time managing your portfolio. Some people like to say “It requires only 30min a day” but I suspect that’s partly exaggeration partly cheating. The individual needs to commit herself, review past trades, apply mental energy, take it on as a serious business.
REIT and div-stocks require babysitting when DYOC declines.
Rental properties (like mine in SEAsia) require some work with the local agents.
If the passive income stops being passive, then you are still trading time for money. That includes rental property management and day trading.
See also
This diagram from wikipedia is a better diagram than the pyramid. In poverty (left end), physiological and safety needs dominate. Sometime in our adolescence, belongingness [ social inclusion/acceptance, exclub/FOLB …] tend to dominate, when the lower needs go “underground”. Fairly soon, esteem_needs become dominant. This phase often lasts indefinitely and is seldom , if ever, overtaken by self-actualization needs for most individuals.
— livelihood .. as defined in my blogposts are mostly about 1) safety 2) belongingness, love (family). Esteem_needs are not strictly livelihood. If you draw a vertical line somewhere in the graph, you may notice a ranking in terms of “needs intensity”. Unlike the pyramid, the higher needs are more intense.
— safety needs in my observation .. include retirement inflation, medical inflation, clean air, sanitized safe housing,,,, as described in livelihood[def2] x-class #S.Liu . As such, it is usually above (i.e. more important more intense) than esteem_needs
My T_defense tag collects many non-trivial reflections of safety concerns.
— esteem_needs .. Maslow noted two versions of esteem_needs. The “lower” version of esteem is the need for respect from others, and may include a need for status, recognition, prestige, and attention. The “higher” version of esteem is the need for self-respect, and can include a need for strength, competence, mastery, self-confidence, independence, and freedom.
— Q: when middle-class immigrant parents work so hard to send their kids to a branded college, how does Maslow theory explain it?
Esteem_need is One element .. like a badge of honor. It satisfies the (lower and higher) esteem_needs of parents more than the grown child.
My fundamental belief — a luxury college education only slightly enhances the grown child’s capacity to meet her own livelihood needs. However, many parents overrate that education-as-enhancement , like it would transform the child into a higher human being… a major misperception. I think many of these parents feel their own socioeconomic status is not in the upper class (上层社会 exclub) but a branded college education would raise their offspring into upper class.
I had first-hand experience (3 years!) in an expensive college. I know my fellow graduates are not fundamentally higher than lesser-known college graduates. A good high school would provide a more conducive environment during the formative years, but by age 18, most kids already know what they want, and won’t be highly influenced by the local culture of the university. A branded university does help the graduate get into good companies.
— Self-actualization .. left a vague impression on me even though I once read it extensively in my school (college?) days. I even photocopied the relevant chapters of his book. This need is elusive and ivory-tower.
My concept of Chn’s middle class is mostly-urban, white-collar, usually college-educated. A concept confirmed in a book by XS.L (梁晓声 Xiaosheng.Liang).
When I interact with my relatives, ex-classmates, /repatriated/ ex-colleagues, repatriated young graduates (acquaintances) … I often have a vague, unfounded livelihood assumption that the Chinese middle-class has some advantages + some disadvantages[2] vis-a-vis SG middle-class counterpart, but on balance equally well-off. This assumption has a theoretical cornerstone — the middle-class’s definition. This definition implies that the middle-class in any country is well-off (小康富足) although the numerical criteria depend on location. Those criteria are vastly different in Bayonne vs 天津 vs 建德 vs Cambodia vs Manila due to PPP-FX.
[2] A lot of times, I could feel a strange sense of inferiority. Highly distorted and irrational. This is the same illusion as (not similar-to)
In this blogpost, I want to point out some of the hidden but crucial differences between SG and Chn middle class livelihood. Not a Chn-watcher, I won’t go in-depth. Mostly based on hearsays, but from trusted sources such as serious intellectuals.
— 🙁 Difference: housing … The most intriguing difference. If a Chn middle class family of 3 could avoid buying a 2BR home [3] in a tier-1 city, then livelihood pressure can be tolerable. I just don’t know how many of the urban middle-class can avoid it. They are drawn into it by some invisible force, unable to free themselves.
[3] XS.L specified 70 sqm 居住面积 for an a stereotypical white-collar young couple planning to have kids, but XS.L didn’t say Tier-1 city.
Tier-1 city’s home price is comparable to, if not above, SG condo (at least 100% above HDB flats) but typical Tier-1 city salary is still lower than SG. The price tag is so large as to require contributions from 3 generations of a middle-class family, as XS.L confirmed. When we compare livelihood, this price tag is the elephant in the room.
I used to feel this peer pressure was exaggerated by the media, but XS.L, my parents, and my Chn bachelor colleagues all confirmed that this peer pressure is both pervasive and entrenched.
A major factor is mate selection, which affects entire families! Girls often demands not only a tier-1 city dowry home, but a 100 sqm [grandpa said, 建筑面积] home. So if you have a bachelor son, can your family avoid “it”?
— personal medical reserve .. This is not a SG^Chn difference per see, but quite relevant.
In the late 2000s, my mom said CNY 400k (si4shi2wan4) was a good-enough medical reserve for each retiree, on top of public health insurance (reimbursement-based). Such insurance has coinsurance, and numerous exclusions such as elective treatments [imported medication, supplements,,].
In early 2022 my dad recalled that consensus figure among retirees of that time — regardless of the medical condition, if CNY 500k is spent over and on top of insurance, and still the life can’t be saved, then it’s reasonable to give up. As such CNY 500k was a reasonable last-resort personal medical reserve, for millions of well-informed Chinese retirees.
Fast forward to 2022, CNY 500k-1000k of family savings is common according to my dad, living in Beijing. I think this improvement in savings reflects (medical++) inflation, rising income, rising wealth esp. in rEstate.
in 2019, Yihai’s California friend (mid-40’s) bought a USD 1.85M home for his family of three. Household income is not that high — Apple engineer + accountant wife.
I guess they have no choice.
20% down payment = 370k. Mortgage installment would be $7k/month. Yihai used the term “mortgage slave”… At this price level, home ownership is impractical for many residents. Many would need to stay rented.
Looking at tri-state, at 700k price level, I would still consider it beyond me. So lease-spread is the way to go. Otherwise, consider condos.
Nirav pointed out that because of sky-high property costs, general retail prices will go up, same as the price differential in city center vs suburbs.