Author: Managing Your Money

Blog #33 What You Probably Didn’t Know About the Singapore Stock Market

Let’s be honest. Most investors think they can predict the future. Else, how do you explain the fact that most people hold fewer than ten stocks in their portfolio?  The standard reply that it’s expensive to buy a diversified portfolio doesn’t cut – there is such a thing as exchange traded funds! On the SGX for example, there is the SPDR Straits Times Index ETF and the Nikko AM Straits Times Index ETF, both of which track the 30-stock Straits Times Index very closely and with low expense ratios to boot.  Indeed, why stop at Singapore, a tiny red dot...

Read More

Blog #32 What in the world…?

Here’s a quiz for you. Question 1. Which country was the world’s biggest in terms of stock market capitalization in 1900? a) UK b) US c) Russia d) Australia e) Germany Question 2. Which country was the world’s biggest in terms of stock market capitalization in  2016? a) UK b) US c) China d) Australia e) Germany Question 3. If you were living in 1900 and had to choose one country to invest all your money for the next 117 years, which of the following market would you choose? a) UK b) US c) China d) Australia e) South...

Read More

Blog #31 Dance of the Stock Markets

Is the world getting closer? Are stock markets more correlated than ever before, thereby negating the benefits of global diversification?  If the answer to both of these questions is yes, then you won’t have to worry about which stock market in invest – just buy the STI ETF if you are based in Singapore.  But if markets are not getting closer, then owning just Singapore stocks is not going to be a smart way to grow your wealth or manage your portfolio risk. How to find out? I’ve trawled the data of 17 stock markets other than Singapore from various...

Read More

Blog #30 Why I Love History

I’ve used the phrase “invest for the long-term” on numerous occasions and this is for a good reason. In the short run, almost “anything goes”, making it hard to predict market returns. The difficulty arises because investors are trying to sort out the implications of news, be it economic, political, or policy. Digesting news takes time. This is complicated by the fact that there are investors who trade short-term for liquidity or speculative reasons and not because of economic fundamentals. As a result, returns measured over days, weeks or months are extremely “noisy”.  This is why to understand risk...

Read More

Blog #29 Shock Markets

In my previous two blogs, I highlighted the works of two eminent behavioral economists: Nobel laureates Richard Thaler and Daniel Kahneman. Thaler taught us that we need be nudged to do things today that are good for our future financial well being, like starting to save early for retirement. Danny Kahneman taught us that most people are loss-averse, unwilling to take risk for fear of losing money. Or if they do invest, they cash out too early, thus missing out on the bounteous reward of long-term investing. Today, I want to pay tribute to a third behavioral economist: professor...

Read More

Blog #28 Loss Aversion

I don’t know if Daniel Kahneman (Princeton economist, Nobel laureate 2002) has ever been to Singapore. If he did, he would probably find a lot of similarity between Singaporeans’ kiasu attitude (afraid of losing) and the concept of loss-aversion that he pioneered and made famous. You are loss-averse if you hate losses so much that you either avoid it or deflect the pain of a loss irrationally. This implies that there are two main groups of loss-averse investors which I will call avoiders and deflectors. An avoider is someone who avoids riskier assets like stocks, preferring the safety of cash...

Read More

Blog #27 A Toast to Richard Thaler

This month, the Nobel prize for economics was awarded to Richard Thaler, professor of economics at the University of Chicago, for his seminal contributions to behavioral economics. With this prize, Thaler joins Daniel Kahneman (Princeton, Nobel laureate 2002) and Robert Shiller (Yale, Novel laureate 2013) in making the world take notice what most of us have long suspected – that our brains are prone to making major errors of judgement – often repeatedly, as if we never learn. Such errors are called behavioral biases or cognitive biases. I will simply called them biases. Most of us go through life...

Read More

Blog #26 Quiz Time!

In my previous blog, I shared four basic rules of investing. I’m not done with this topic. But before pressing on, it’s good to pause and reflect on these rules to make sure we understand their rationale and the key takeaways. In that spirit, please take some time to answer true or false to the following questions (answers are provided below). Questions (true or false) Rule #1 Don’t lose money. Therefore, hold most of your money in cash instead of riskier assets. Rule #2 Invest to beat the market index Rule #3 Buy the right stocks at the right...

Read More

Blog #25 An Idiot’s Guide to Investing

Most people are not investors even if they say they are. I make this claim from many years of interacting with people I know and also from volumes of academic research into investor behavior in a field that is now called behavioral finance. To invest is to put money in something where the odds are in your favor. This is opposite of gambling where you know the odds are highly against you, but you choose to gamble anyway for the hope of quick riches. Gambling-like behavior is pervasive in the stock market, my focus in this blog. When an “investor” bets...

Read More

Blog #24 Let’s Goal!

There’s nothing worse that investing with a clear sense of direction. Without a clear investment goal in mind, you may end up just holding cash (the default asset for many people) or tread in and out of the stock market like a short-term trader. Cash is an expensive asset to hold in the long run. For example, an inflation rate of 4% a year cuts the purchasing power of a dollar by half after 18 years. Stocks provide higher real returns than either cash or bonds but unfortunately, many investors of stocks do not hang on long enough to...

Read More

Blog #23 Financial Literacy and Investment Attitudes: Getting the Basics Right

Cash and property are the two main asset Singaporeans own. Cash is an expensive asset to hold in terms of the opportunity to generate wealth for big goals such as financing one’s retirement. And unless you own more than one property, it is best to view the one property you have as a consumption asset. Equities is an asset class that can provide the high average returns needed to build retirement wealth, or any large amount of future wealth for that matter. As we shall see, the average Singaporean fights shy of this important asset class. A recent survey of...

Read More

Blog #22 A REIT Nightmare

In my previous blog, I showed that S-REITs as a group have delivered exceptionally returns compared to the Singapore stock market. But take note of the important qualifier “as a group”. The returns of S-REITs shown in that blog reflect the performance of a diversified index of all S-REITs. The performance of a single REIT or even a small group of REITs can be very different from that of a well-diversified portfolio. The story of Sabana REIT serves as a cautionary tale of what can happen if you put all your eggs in one reit basket. The full name for Sabana REIT...

Read More

Blog #21

REITs offer a liquid alternative to physical property, both in terms of income and ease of transactions (buying and selling). After all, REITs already own a clutch of income-producing properties, the bulk of which are distributed to shareholders. And unlike physical properties, you can easily buy or sell shares of REITs on the stock exchange on any business day. In this blog, I intend to give you a historical perspective of the performance of Singapore REITs (S-REITs). While past returns do not guarantee similar returns in the future, we can’t ignore history either. My period of analysis is from August...

Read More

Blog #20

Can’t afford to invest in property?  Don’t want the burden of a huge mortgage debt, yet envy the rental income that property owners enjoy?  You are not alone. But the good news is that there are alternative way to get exposure to property: Without a huge capital outlay Without having to borrow property loan Earn steady rental income, and Enjoy potential price appreciation How? By investing in property stocks and/or real estate investment trusts (REITs). Property stocks are shares issued by firms whose main business is to develop and sell properties, while REITs are firms that own income-generating properties. Rents...

Read More

Blog #19

Part of the allure of property as an asset class is that with every dollar of your own capital and an 80% mortgage loan, you can pretend you own 100% of the property.  So, if the property’s value rise by 10% over a year, you earn a windfall profit of $5 (10% x $5). And you can brag to your friends that you made return of 500% ($5 over $1) in just one year. Leverage or borrowing money to own an asset is the name game in property. Of course, borrowed money has to be repaid (with interest). There...

Read More

Like us on Facebook

Follow us on Twitter