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Monday, 7 October 2013

Why we lose money in unit trusts

If you ask most retail "investors" on their experience with unit trusts, its quite interesting to find out that most are nursing losses. (We can also add in investment-linked-policies while we are at it)

Isn't it interesting that this is so when most major bourses are near their 5 year highs?

What gives?

Some emotional "investors" are even calling unit trusts "ponzi schemes"!?

How about CPF approved unti trusts? Blame CPF?

Are they still "ponzi schemes" when we don't make money after 10 years?

Hey! What ever happened to Buy and Hold? Perhaps 10 years is too short a time frame for "long term" investing?

Or maybe if we don't make money in any investments, it must be a "ponzi scheme"?


Man in the mirror

Kick me if I am wrong, but I am willing to bet you bought these unit trusts before you ever bought your first stock.

If you didn't, I switch to plan B. LOL!

You didn't bought these unit trusts; you were sold to by the friendly bank representative, insurance agent, financial adviser, classmate, relative, or person you call "friend".

No?

Test questions at the time you "bought" your unit trusts:

1.  Do you know the name of the lead portfolio manager?

2.  Do you know the top 10 fund holdings?

3.  Do you recognise these companies?

4.  Got take a glance at the last 5 or 10 years chart of the fund's performance?


The above are basic elementary facts only. I've not even gone on to Sharpe ratio, Beta, Maximum monthly/annual drawdowns, Annual volatility, etc.

You may go huh? Buy unit trusts must know all these?

OK, you are right.

Buy stocks don't have to know P/E, Price-to-book, Yield, look at charts too. Just press the buy button or call our broker will do. (You may want to stop reading now)


If we know what we know now then

I am quite impressed that quite a lot of retail investors are outperforming their unit trust managers!?

Especially if we only look back to the last 5 years (everything looks good if we use 2009 as index 100). 

If you like to do data mining, you may want to use the mean prices of your unit trusts for 2009. Had we bought these unit trusts then, would we be making money like for our DIY stock picks? 

Are unit trusts still "ponzi schemes"?  
 
Did we outperform the unit trust managers?

Perhaps its more a case of our financial knowledge has increased since the early days when we were sold to?

If we are banned from investing in equities and ETFs directly now, I am quite confident retail investors with good financial knowledge can still make money from investing in unit trusts.


A vehicle is just a tool. It's the person doing the driving that matters!






24 comments:

  1. Blame sweet talking Sales people?

    Hard not to believe them. Right?

    ReplyDelete
    Replies
    1. CW,

      I have a thing for heels, throw in tight skirts I am a goner...

      LOL!

      Delete
    2. hey! you are talking on behalf of everyone here. keep quiet!

      Delete
    3. coconut,

      Oh! Apologies!

      I forgot; I single ;)

      You married people have to "pretend": "Honey, I never looked at her! Sumpah!"

      LOL!

      Delete
    4. i carry a photo of my wife (and kids) when she was very young. so when she complain about other younger girls more attractive, i'll pull out the photo and remind her she was more attractive back then!

      it works!

      Delete
    5. its very funny its just strick me that how most people can be brain washed to look at things differently.

      you can sweet talk to them, if you have the patient, to let them believe that a pile of gabage can turn into gold.

      what a fantasy world haha.

      Delete
    6. coconut,

      We all are in the business of selling dreams!

      We "sell" dreams to our partner and children.

      Bosses "sell" us their dreams.

      Businesses are eager to help us fulfill our dreams.

      I dream, you dream, they dream.

      Got dream then can look forward to tomorrow.

      No dream? Why bother waking up?

      Delete
    7. Eh coconut,

      A tweety bird asked me you got Facebook account or not?

      He got something to show you.

      Delete
    8. sorry my friend, no facebook, no nothing on my computers.

      i may sound like technical guy but i'm 50 years old! haha

      Delete
    9. its only trading that i have to sit at my desk in front of my dam computers, when tradings ends, off i go!

      Delete
    10. coconut,

      No worries! Having a life in the real world is better!

      Delete
    11. yesterday we were talking about the 3 counters in AK blog, haha today i have the green light to buy.

      so i told my broker (my brother) to buy on my behalf using half of the money transfered, cos i have no time to monitor them.

      he told me it will be a gamble and i told him that i will split half the profit with him if any. i wash my hand haha.

      Delete
    12. coconut,

      Good luck!

      Intraday, prices can double and dip by half - I see the animal spirits are still strong in you!

      It's good to be young at heart ;)

      Delete
    13. need to hold these idiots until restriction lifted, thats what my bro advise, well....

      its a long term thing you know haha....

      Delete
    14. i usually will not trade stocks if i can't go short, but in this case with the restrictions and so on, my hands are bound, so i already write them off my book.

      its 100% my brokers call!

      Delete
    15. coconut,

      Yup, for an intraday trader, T+3 is eternity!

      Delete
  2. Guys falling for heels and tight skirts. Ladies drooling over hot young hunks. Opposites attract.

    ReplyDelete
  3. Not all unit trusts and investment linked policies are bad. Just need to understand factual details of "potential returns of xxx%" and also understanding the t&c in layman's terms. At the end of the day, remember to only blame yourself when it turns out to be bad investment decision but do remember to compliment when it is worthy investment.

    ReplyDelete
    Replies
    1. Money Honey,

      I agree with you that the same goes for penny stocks and S-chips. And who says buy blue chips will never lose money? It's never about the "labelling". We need to sort out wheat from the chaff..

      When I started out, I spent more time researching on buying a notebook than I spent on buying unit trusts.

      Thankfully I "woke up" in 2003; I now "trade around a core position" on my unit trusts positions.

      With humility, I'm now in the black when comes to unit trusts investments.

      I am not religious. Sometimes I chose unit trusts; sometimes ETFs. It all depends on the "weather".

      Sometimes buying the "market" makes senses. Sometimes it's more a stock picker's market where active management may outperform ;)

      Delete
  4. Hi SMOL,

    I fit your description exactly. I bought my first Unit Trust (China and India funds, unfortunately) more than 7 years ago and I still have to wait for half a year before I can liquidate without significant penalties. And yes, I got it from a lady too. Opps.

    However, I seriously doubt that I can do a good job with Unit Trusts even now since the management fees are really so high. You need some luck to pick a really good fund manager who can overcome the fees handicap.

    ReplyDelete
    Replies
    1. 15 HWW,

      It's similar with insurance. Most would have been sold wholelife policies and years later, with more financial knowledge, we will start to buy term policies and go DIY the investment part ourselves.

      Do you own business trusts or REITs?

      Have you checked the management fees as a % of their AUM? Is it not similar to unit trusts?

      Same goes for regular stocks. The management and the board of directors don't work for "free".

      I focus on finding "talent". I have a business owner mindset when it comes to investing.


      Delete
  5. Hi SMOL

    I used to have unit trusts as well which I cut in a loss. Having said that, I am not going to say that it's a bad investment. I think like you said it serves a different purpose to a different person. Different people different minds different act (does is sound familiar :)? )

    Mine for instance, although the returns were awful and management fees were eating my returns, it provides coverage in terms of insurance to me. So if i were to factor in that as well, it probably is better than what I feel it is. Having said that, I still cut. I think the point is many people who signed up for it were not being educated on the products well by the agent. Hence, the many yuan wang accusations coming in only at a later stage.

    ReplyDelete
    Replies
    1. B,

      Yes, it's never a "bad" investment if we have "profited" from the lessons learned - even if we have lost money.

      Muscles stressed; muscles break.

      Muscles recover; muscles strengthen.

      Quite impressed you have the mental strength to cut and move on ;)

      Delete

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