Tag: t_prdctvAsset

make every dollar work hard4u@@ #SBH

Posted on by tiger40490

See also priorities in stock trading

It is Perfectionist and unrealistic to make every dollar work hard for us. Many experienced investors (few are wise investors and even fewer are real “experts”) stay invested, having very small amount of idle/unproductive/unemployed cash, like 12x monthly expenses. See https://tanbinvest.dreamhosters.com/24728/12x-monthly-expenses/

For decades, I have lots of USD or SGD sitting in bank accounts earning below 0.5% pa. asset%allocation: imprecise snapshot=best shows my cash allocation at around 15%, much higher than equities. Used to be 50%. I have long accepted low return in exchange for “excess liquidity“.

I didn’t complain. I usually complain only when I lose capital or lose liquidity (as defined in liquidity[def]: how I gauge illiquid products) .

* memorable eg: I remember the professional analysis of AllianzIncomeProtector. The annualized return turned out to be very poor. (I think cpfLife may also show a low annualized return, despite the high DYOC.) I probably don’t mind that low return. However, I do mind the horrible liquidity[1].

* memorable eg: Buffett’s IBM “mistake” shows an embarrassing but positive return on this IBM investment. Not spectacular but no disaster either.

I think these are some of the key reasons I don’t see myself as an “aggressive investor”. So not every dollar (sometimes not even half the dollars) in my possession is working hard. When my cash “productivity rate” did hit 90% (i.e. 90% of my spare cash deployed into /productive/ assets), I sometimes had my fingers burned:

  • In 2021 I deployed all my spare cash to FSM bond funds. About 80k is currently stuck.
  • I had a 150k position in the supposedly safe Allianz HY fund. Stuck for years. I lost liquidity and lost capital, but in terms of e2etr [end-to-end total return], probably up to 1 to 5% loss only.
  • I only invested about 40k with Jill, in contrast to 6-figure commitment of other investors. We lost capital.

— If I carry a 250k mtg at 2.5 ppa, but have 250k idle cash, then I would feel the pressure to make the idle cash more productive.

— Jolt: SBH in HDB.. why I can easily save 100k but won’t spend 100k on a new HDB? I wanted the 100k to be more productive, working harder to generate returns.

After Susan’s discussion, I feel 100k invested in a SlightlyBetterHome is different from “excess liquidity” mentioned above. This 100k will be non-productive for decades 🙁 In fact, part of it is cost (reno/fees), rather than investments. The rmSelf tends to neglect the xpSelf.

  • Investments are the focus of the evaluative rmSelf;
  • Those costs were incurred to provide experienced wellbeing of the xpSelf.

time=onYourSide iFF…#patience #stableAppreciation

Posted on by tiger40490

 

k_babysit4exit

My friend Kun.H is the first one to remind me this vague yet powerful factor (See my Feb 2021 mail below). Warren Buffett also mentioned some variation of it. He wants to buy-n-hold for decades. IFF you choose wisely, then the assistance of Time can be effective and quick. I think ValueInvesting often shows powerful examples but not everyone is able to follow ValueInvesting principles.

— BnH: time is on your side if you buy and hold. If you try to time the market to exit, then time is probably not on your side.

Assuming BnH is a good thing, BNH proves to be much easier with real assets due to higher tx cost ?!

For both BGC and khm investments, I need many more years than initially planned (10Y). Luckily, I invested at age 41 and later, so I have a long runway.

— swans and price stability
With speculative assets, I don’t feel time is on your side. See https://tanbinvest.dreamhosters.com/1786/durability-asset-appreciation/

— ChineseBambooTreeParable .. is more relevant in pff than in other domains, because:

  • buy-n-forget .. you need due diligence to pick the seed. After that, you don’t need to babysit.
  • there’s an effective “system” at work, with the power to grow the asset. No such “system” outside the pff domain.
  • in pff, from Year 1 you can see the current value:) In the classic CBTP, the current value is $0 for four long years, i.e. no immediate result 🙁

Q: which asset classes are economically no-growth ?
* gold and oil … supposed to be scarce commodities with increasing demand, but the market may take decades to reflect that.
* bccy
— is time on your side in these asset classes? It depends on your horizon and other factors.

  • Time is usually on the side of productive assets, unless the payout rate is not growing enough.
  • U.S. stocks in general yes, but non-US tend to have long trough, so during your lifetime, Time may not be on your side.
  • U.S. index ETF .. long-term trend exceeds expRatio, so yes Time is on your side.
  • (see also mail below)
  • zero-coupon bond? Its value approaches par, but it is dubious to say Time is on your side. I guess in a volatile market, you can just hold the bond to maturity and therefore Time is on your side.
  • rEstate in developing countries — yes (but probably not in most parts of U.S. See blogposts on Brian.)
  • .. For rEstate, Time can be a lifetime 😉
  • REITs .. yes the rental payout gives hope that Time is on your side.
  • small amount of physical gold (so that I can keep at home at very small negative DYOC)? Time may not be on your side as gold long trough can last decades.
  • mufu? with expense ratio time is on fund manager’s side
  • FX? No
  • annuity like CpfLife? probably yes. The longer you live, the more payout you receive.
  • endowment and other insurance products? questionable
  • .. Note there’s a high expense ratio in all insurance products, worse than mufu.

—– Letter to Kun.H
I like your comment about “have time on our side”. Mutual funds have an erosive expense ratio, so time is on the fund manager’s side 😉

To have Time on my side, one of my habits is buy-n-hold. (A related habit is buy-n-forget, as explained in the earlier mail below. If I must babysit my positions, then Time is not really on my side.)

Q: Do stock markets show long-term growth more than inflation?
A: Not sure. Depends on the region and the timeframe. Most authors use U.S. equities history over the past 100 years. What if they only look at the last 20Y? What if they look at another region beside the U.S.?
A: Beware of survival bias. There are thousands of growth stocks (including fake and failed growth stocks) in the last 50 years, but if we include all stocks across all equity markets, the long-term trend would look less convincing, less foolproof.

In contrast to growth stocks, look at T:US. Not much of a long-term trend,  but it delivers a consistent dividend, following a sustainable DPR (dividend payout ratio). Looking at my dividend stocks like T:US, I feel “Growth is overrated and based on flawed analysis but dividends seldom lie.”

Our friend, Time, is a big help in dividend stocks — If the business has healthy profit, cash flow and DPR, then time will prove that the stock is worth buying. Its valuation will tend to grow with the overall market, perhaps at a low beta.

With growth stocks, Time is even more helpful. Beware
* we must pick the real growth stocks not fake ones (with dividend stocks I mostly look at track record only)
* we may need to baby-sit them after we buy (less baby-sitting for dividend stocks… buy-n-forget)

It’s easier to be patient with an investment when it generates periodic cash incomes.

You raised the excellent question about bonds. High coupons are usually on long bonds… where inflation (Time) is NOT on our side. In contrast, about half of my dividend stocks could hopefully grow with the stock market. Both dividend amount and stock price would grow. Nevertheless, there is indeed a chance that my dividend stocks underperform bonds.

With both growth stocks and dividend stocks, we need to have Time on our side and we need patience.

My objective is not windfall appreciation. My objective is a dependable income, like retirees. For my objective dividend stocks are safer. I believe Time is on my side. Time will tell.

zero-sum games, Productive_Asset[def] #bccy,gold

Posted on by tiger40490

I still believe that on the secondary market, stocks and bonds ain’t zero-sum games, because each of these products generate new wealth/profit out of thin air — NZSG[non-zero-sum games]

  • In contrast, I believe options and futures do not have such trends and therefore zero-sum. I would say for all of these derivatives, there’s no income generated out of thin air like bond coupons.
  • long-dated oil futures .. inflation-based growth asset. ZSG.
  • casino game .. Classic zero-sum game
  • bccy ..  speculative growth asset, related to inflation and FOMO. ZSG.
  • Rental rEstate .. productive asset. Also a speculative growth asset based on FOLB. People’s desire for better home is insatiable mostly due to FOLB.

A related concept is productive_asset — assets that generate  net-positive current payout

  • div stocks
  • rental rEstate having positive cash flow
  • coupon bonds, and short duration zero bonds
  • bank deposits

— stocks .. There’s a general trend of long-term appreciation. We can see the trend based on official closing price (fair valuation).

Many early stage hot tech stocks are not productive. They are speculative assets, driven by FOLB.

Dividend cashcows, are productive_asset. They can also be growth assets. Utility stocks, oil stocks, tobacco stocks, eReit.

Value stocks are still growth assets, (in theory) based on earnings growth.

— bonds + bond mufu .. NZSG. They are suitable for insurers, foreign reserves,

If, hypothetically, the bond coupon is so low as to be wiped out by transaction costs, then between the buyer and seller, this is a zero-sum game.

— How about physical gold coin? If you keep it at home for 50Y, then it is likely to appreciate. This likelihood is the same if the gold coin changes hands over the 50Y. Therefore, trading gold is not zero-sum game.

Fundamental reason behind the NZSG —  accounting_currency (denomination currency) inevitably loses value against gold. If two school boys trade marbles and cards it’s clearly a zero-sum game, but now they receive one point for each game and those points give them special privilege . Counting by the points the trading is NZSG.

gold .. inflation-based growth asset. ZSG.

Now, bbcy also generates no income, but is it an inflation hedge like gold?

 

 

bx=1@the pillars@retirement planning #Joshua

Posted on by tiger40490

Hi Joshua,

  • If I pass away (the ‘simple’ scenario) —- I would leave behind enough for my wife and kids, including 1) the payout from my corporate group term life 2) my CPF + DPS 3) my small CI insurance 4) MyCarePlus
  • If I hit a critical illness —- then hospitalization cost would be covered by 1) Aviva MySheild, in addition to 2) corporate insurance 3) my small CI insurance
  • If I become disabled and unable to work —- then hopefully MyCarePlus plan would kick in with $5k/month.

Beyond these insurance protections, it would be fake to name insurance as the base of my portfolio. Instead, the base of my portfolio is diversified rental properties. They are inflation-proof, generate steady (hopefully stable) income, and can be cashed out with a lead time (unlike insurance plans). These properties may present some tantalizing vision of windfall appreciation, but I am not enamored with windfalls… I stay grounded and I keep a distance from that tantalizing vision.

Another small but life-saving component is contingency cash reserve. I don’t need a lot of cash so far because I’m debt-free basically all my life.

Actually, The real bedrock of my long-term financial planning is career longevity including dev-till-70.

So beside my properties as the base, my contingency reserve, CPF and insurance coverage are my 3 pillars. On top of these pillars and the base, I have built a small diversified portfolio of stocks, bonds and alternative investments.

Term Insurance can’t be the base because it is nonproductive. I liken insurance premium to option premium. Insurance means low-cost, high-leverage risk coverage.

Insurance is excellent diversification. Therefore, I hold a few term insurance plans with zero surrender value. I usually strip off the savings and investment portions as they represent horrible liquidity and paltry return… basically poor leverage. Even if I were patient enough, these investment portions generate such paltry cash flows that I would sink in half a million dollars just to receive a thousand dollars a month.

— risk_capital is a new concept in 2021. If I must name the assets to provide a foundation beneath my risk capital, then

  • insurance plans
  • HDB + Beijing homes
  • CPF
  • contingency reserve

Clearly this foundation is different from the earlier “base”.