Author: Managing Your Money

Blog #53 Let’s Talk About Momentum Trading

I tested a popular contrarian trading strategy in blog #50 using Shiller’s PE ratio and found it wanting. The flip side of contrarian is momentum trading, which involves buying stocks after they have risen and selling stocks after they have fallen. So, momentum is about “going with the flow”, instead of against it. Since the contrarian strategy doesn’t seem to deliver the goods, you may wonder whether momentum trading will do the trick. This blog will attempt to answer this question with data. As before, my data is from Robert Shiller’s website and consists of (a) the price levels of...

Read More

Blog #52 Does Goggle Hold Your Ticket to Riches?

Google’s search engine has replaced the encyclopedias that I grew up with in the 1970’s. Nowadays, one goes straight to Google for answers on just about anything, including of course news about stock market and what other investors are thinking about the stock market.  You can probably see where I’m heading – Google search is literally ‘big data’ at your finger-tips, perhaps the ultimate place to become insanely rich by finding exploitable connections between financial variables. So, how good is Goggle as a source of information for predicting stock prices?  This is what I want to talk about today.  I...

Read More

Blog #51 Can You Always Trust What You See?

Confidence leads to trades. If you think you are endowed with a superhuman ability to forecast stock prices, you will most likely want to monetize your talent through picking stocks, timing the market or using charts to divine where stock prices are heading. While some investors do seem to have this gift, research conclusively shows that the vast majority of us sadly do not. So why do so many ordinary folks persist in thinking that they can pick stocks or predict stock market patterns? As I briefly explained in my previous blogs, it is human nature to want to...

Read More

Blog #50 Timing the Market vs Time in the Market

Its time to put the Shiller PE ratio to the test.  As mentioned in my previous blog, Shiller calculates a special PE ratio which he calls P/E10. He defines this ratio as price divided by the average of ten years of earnings (a moving average) and adjusted for inflation. Price refers to the index level of the S&P 500 index, and earnings are those of the 500 constituent stocks. The PE15 trading rule is a contrarian strategy that buys the index when the PE is below 15 and is out of the market when the PE is above 15. It is...

Read More

Blog #49 Is 15 a Magical Number?

Remember this guy? He is Robert Shiller, Yale economist, author of the bestseller, Irrational Exuberance and co-winner of the 2013 Economics Nobel Prize (see blog 27).  Shiller has spent a big part of career studying episodes of insanity in the stock market, especially periods when stock prices went into orbit, reaching levels that were way above its long-term price-to-earnings (PE ratio). Take a look at the following chart and you will see what he means. This chart is downloaded from Shiller’s website just this week. The jagged line is the PE ratio of the S&P 500 index from Jan 1871...

Read More

Blog #48 A Random Walk on the Stock Market

Did you wonder how the ‘fake’ stock prices in the previous blog were generated?  Statisticians have long noticed that stock prices bump around in a way that can be described as a random walk. Random walk is the technical name given to a statistical process where the object fluctuates in a totally unpredictable manner, much like the results from tossing a fair coin (the chance of each throw landing on a head (H) or tail (T) being equal to 0.5). As anyone who has thrown coins in their spare time knows, occasionally one sees ‘nice’ sequences like HHHH or...

Read More

Blog #47 Try this on Your Chartist

In my previous blog, I showed that investors tend to chase trends but don’t do a good job relative to a passive buy-and-hold investment strategy. Since you may not be convinced by research based on aggregate data, here’s a simple test of your prediction skill.  Below are eleven charts of daily “stock prices”. Only 5 of these charts are the prices of real stocks. The rest are fake prices, generated based on a random process much like flipping an unbiased coin. The test: identify the 5 real stocks (answers are at the bottom). Answer: Series number 3, 5, 7,...

Read More

Blog #46 Fool’s Game

Most of us aren’t investment geniuses, so a passive “buy-and-hold” strategy will beat “active” investing hands down most of the time. But we are restless creatures; buy-and-hold sounds like a boring cop-out. Active investment is about market timing and stock selection. It is the stuff that mutual fund and hedge fund managers do for the fat fees they charge. Legions of ordinary investors also try to pick stocks and predict markets on their own.  How these individual and professional investors actually perform has piqued the curiosity of academic researches for decades. Fortunately, we do have a trove of hard...

Read More

Blog #45 Are Index Trackers Created Equal?

Investors who don’t want to pick stocks have a simple and attractive investment option in the form of index trackers. An index tracker is a fund designed to investors exposure to a basket of stocks that comprises an index. This means investors get the benefits of diversification at (usually) relatively low cost.  For tracking the popular Straits Times Index (STI), the lowest cost options are two ETFs traded on the SGX – the SPDR Straits Times Index Fund (SPDR STI) and the Nikko AM Singapore STI Fund. The average total expense ratios (TER) of these two ETFs in the most...

Read More

Blog #44 Humpty Dumpty Markets

I want to revisit an aspect of global equity diversification that I haven’t covered in my previous posts. This is the fact that diversification will not protect you from losses if the global economy tanks. As the nursery rhyme says, “all the king’s horses and all the king’s men could not put humpty dumpty back together again.” Market risk is what investors bear when they hold a diversified portfolio. Just as a rising tide lifts all boats, a crashing tide dumps all boats! That is the bad news.  The good news is that global diversification may still offer better protection...

Read More

Blog #43 A Fresh Start for Investing

I’ve devoted quite a lot of space to the topic of long-term strategic investing (the discussion runs from Blog #35 and I’m not done yet!). The reason why I’m harping so much on this topic is because I’m wedded to the idea that investment should be simple (but not simplistic).  There is a huge difference between them. Simplistic investing implies that one is naive, easily influenced by hearsay and sound bites, buying stocks for no better reason than everyone at the office water cooler is buying, flipping your stocks like burgers, chasing hot markets and so on. These are...

Read More

Blog #42 Fresh Starts

It’s back to school for everyone.  And I mean everyone. Because there is such a thing as the School of Life – learned wisdom from personal and shared experiences to see us through the vicissitudes of life. The first months of the year are times when many people come up with resolutions and lofty goals, with the good intention of sparking new beginnings in the way we manage our expenses, investments and sundry habits. Unfortunately, if you’re like most people, your January resolutions will likely vanish into thin air before the first quarter ends. That’s okay, according to psychologists. Just...

Read More

Blog #41 How Would You Like the Year to End?

It’s that time of the year again for reflections and resolutions. How did your year go? Okay, that’s too broad a question.  Let me rephrase. How did your investment plans do?  Does it look like you will end this year with regret over missed opportunities? Or much rejoicing over capital gains?  Or with equanimity and thankfulness? I chose equanimity and thankfulness trying my best to be calm, composed and thankful for whatever has transpired during 2017. Did I have any regrets over missed opportunities? That’s actually a silly question to ask, even without looking about at the meteoric rise of bitcoin. At...

Read More

Blog #40 Exotic ETFs: Who Ordered That?

I had coffee with an old friend the other day. Midway through our conversation, the topic turned to exchange traded funds (ETFs). Diversified bond and equity ETFs are something I’ve mentioned quite a bit in my recent blogs. My friend is financially savvy and didn’t want another exchange on standard ETFs like those that track the S&P 500 or the STI. He wanted to talk about something sexier: ETFs that offer investors exposure to private equity (PE). PE comprises venture capital (VC) funds that invest in start-ups and buyout funds that take public companies off the exchange. It conjures images of...

Read More

Blog #39 On the Lifetime Retirement Investment Scheme (LRIS)

The Lifetime Retirement Investment Scheme (LRIS) provides another avenue for CPF members to invest their OA and SA savings. At the time of writing, this scheme is not in operation but soon will be. LRIS is meant to simplify investment choice for CPF members. Although the CPFIS has good intentions (to provide members with a wider range of investment options), the take-up rate under this scheme has been dismal. For example, as of Q3, 2017, only 1,252 members were CPFIS investors. Their total investment amounted to only $22 billion, a paltry sum compared to the aggregate OA and SA balance...

Read More

Like us on Facebook

Follow us on Twitter