Author: Lazy Singaporean

Why you should not invest in the STI

Assume there are only two stocks in the world, Stock A and Stock B from Company A and B respectively. Company A is big, owning 90% of the workd’s output, while Company B owns the other 10%. If you were to invest into each company, would you: (a) buy Stock A only, (b) buy stock B only, (c) buy both stocks in the proportion of 90-10, or (d) buy both stocks in equal weightage? Different types of investors If you went for Stock A, you are likely to invest in blue-chips. These companies are stable and give out dividends....

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How will this decile of low P/E stocks perform?

Many research has been done on how low P/E stocks consistently outperform the market over the long run. For instance, Roger Ibbotson, in his Decile Portfolios of the New York Stock Exchange, 1967 – 1984 Working paper, sorted all stocks according to the Price/Earnings ratios into deciles. He then tracked the returns of each decile over an 18-year period. What he found out was that the lowest P/E decile returned 14.08% on average annually as compared to the NYSE which returned 8.6%. The highest P/E decile returned 5.58% instead. Coming up with the lowest decile of P/E stocks in...

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The simplest (and probably most proper) way to passive investing

Forget about thinking about how best to structure your portfolio of ETFs. The truth is, buying ETFs does not mean that you are investing passively. If you have heard of the sector rotation theory, you would probably know that people are investing into sector ETFs at different times of the year. What passive investing is meant to be In the true spirit of passive investing, you should be continually investing into the same portfolio, and not selling it. In the same token, your portfolio should be also be truly diversified over every sector, every country, and every market, market...

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Backtesting the value-cost averaging strategy on 10 years worth of STI data

Previously, I had written a post on what value-cost averaging is and how it can be another viable alternative to dollar-cost averaging. In this post, I want to backtest this strategy against 10 years of STI data. Value-cost averaging? In dollar-cost averaging, we invest a fixed amount of money into the stock market each period, purchasing variable units of the investment. In value-cost averaging, we will invest an amount of money so that the value of our investments will be the same as if we had saved up a fixed amount of money every period and not investing it....

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1 important takeaway from the Nikkei story

Some people make it seem as though index investing is the holy grail of investing Is index investing the easiest way to invest? Many experts, including Warren Buffett, agree. Investing into an index comprising of one’s own country’s equities seems like a sure bet to invest well. But what if, you have to be a Japanese and invested in the Nikkei since 30 years ago? But it could well have caused tremendous disappointment At the start of 1984, the Nikkei traded at an adjusted price of 10,196 JPY. It went on to climb to a peak of 38,916 in...

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How I made 130% returns from this one stock

Familiar headline? The headline was made to entice people to click. For many other websites, after users click, they get sold to a product, and then part with their hard earned money. How often do we see headlines such as this? Taken from:¬†http://highvelocityprofits.com/secret-investing-strategy-can-deliver-130-returns/ After visitors get hooked, they go on to put a disclaimer that goes something like this: not all our investments make money, but these are just some that do. Isn’t it so easy to sell something if I can write like this too? An half-truth is still a lie What if I told you, the headline...

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Why the currency of your investments does not matter

Let’s start with a simple example Say there are two ETFs which are perfectly identical in their holdings, cost, dividends, and thus returns. However, they differ only in the currency they are traded in. In this regard, would buying them give us the same return, or a different return? The short answer is that the returns will be exactly the same. Let’s use a simple scenario whereby one ETF is traded in Singapore Dollars (SGD), and the other is traded in US Dollars (USD). Further assume that the ETF has only 2 shares, and both shares are from China....

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The 1 investing rule from the Swiber saga

News about Swiber appear almost everyday I did a Google search, and all these results came out. Seems like Swiber is quite a hot topic these days. So what is the hype about Swiber? In one sentence: Swiber, an O&G company, has defaulted on its bonds, which were sold to many individuals in Singapore. What can we learn from the Swiber episode? There are many news report about how individuals have bought Swiber bonds, and ended up hurt by the default. This news report particular talks about Singapore’s not-really-rich being burned by Swiber bonds. When individuals buy the bonds,...

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Does the stock market always rise in the long run?

Why does the stock market always rise in the long run? To understand this, I turn to William Bernstein’s book, “The Four Pillars of Investing”. According to Bernstein, the Gordon equation is the irrevocable law in investing. Put simply, the total growth of a stock market is equal to the sum of the dividend yield and the dividend growth of the stock market. The stock market is made up on individual companies whose shares are traded. Each year, each company makes a profit, and gives out a portion of their earnings to shareholders as dividends. The rest of the...

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What is the Boglehead Singapore 3-fund portfolio

The Singapore 3-fund portfolio explained The Boglehead Singapore 3-fund portfolio is an adaptation of the Boglehead 3-fund portfolio, which was suited for American investors. The Boglehead 3 fund portfolio basically uses 3 funds, in order to achieve global diversification, and thus receive the market rate of return. It was named after the main advocate of index investing and the founder of the Vanguard Group, John C Bogle. John Bogle strongly recommends low costs for investments, because costs reduce the long-run return of any portfolio. There are three funds in the Boglehead 3-fund portfolio: – Domestic stock index fund –...

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Am I an anomaly amongst Singapore investors?

The weirdness of the SGX survey Last month, I received an email from SGX. I was asked to participate in a survey by them, and I would win a prize if I was lucky. The survey took no more than 5 minutes, and I answered the questions as accurately as possible. Many questions were asked, and mostly geared towards asking how often I trade, and what is the reason for trading? These were also the questions that I couldn’t answer, because I only buy, and never sell my investments. I could have answered this particular question a little differently...

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7 tips to achieve early financial freedom

1. Set aside an emergency fund As its name implies, this fund will be used only for emergencies. Those events that happen out of the blue, taking you unaware. Some examples would be like getting into a car accident, or a wisdom tooth extraction. Use this emergency fund to pay for such emergencies and avoid having to take on debt or borrow from relatives and friends. If this fund runs out of money, make sure it is replenished again first before making other financial decisions. Not having an emergency fund is like paddling against the current 6 months is...

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CPFIS not "fit for purpose" – DPM Tharman

CPF Investment Scheme to be reviewed I refer to this article by the Straits Times: here. There are three main takeaways after I read the news article. Takeaway 1: Most people would do better just leaving their money in the CPF OA He noted that, over the past 10 years, more than 80 per cent of members who invested via the CPFIS would have been better off leaving their money in the Ordinary Account, which earns a guaranteed 2.5 per cent each year. About 45 per cent of those using the CPFIS even made losses over the same period....

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The complete guide to planning your insurance

I have spoken before about the Financial Planning Triangle. Basically, we need to have protection first before wealth accumulation. Insurance is the bedrock of the triangle, where one needs to have protection before one can try to grow his or her wealth. It might be a little scary on planning your own insurance. So, in this post, I will be showing you how you can get the calculations, so that you will not get tricked by any dishonest financial advisers out there. More specifically, I will be showing you: What are the various types of insurance? How do I...

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Does active management win passive management? What experts know but don’t want you to hear

Just last Sunday, the Straits Times published an article on the “7 habits of successful investors“. In it, it lists down many characteristics, but the last one has caught my attention. It says that “go for active management”. I am part angry and part disappointed. Angry because such an article could get published passing through editorial checks; disappointed because everyday, people fall prey to the authority bias, tending to trust the experts who have a hidden motive. I say this because the report was published by Allianz Global Investors, a fund management company. Today, I will like to try...

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