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Tuesday, 26 April 2016

Heuristics - short cut or blind following the blind?



When we chit-chat or do bantering at our neighbourhood coffee shop, it's OK to do a bit of talk "male chicken" here and there.

You are welcomed to do it here at this watering hole too.

But when it comes to putting your own money on the line, you may want to do a few more verification questions before you swallow what others say hook, line, and sinker...

Let me share some examples where blindly relying on other people's heuristics may do more harm than good:






Top floor no good; too hot

Often we hear this urban myth shared by parrots who heard it from a friend of a friend or from their ah ma.

Not that their friend or ah ma were wrong, mind you.

Problem lies with you. Did you verify the context and perspective of their feedback?

The 4th storey of 4 storey walk-up apartment is "top floor".

My current HDB flat's top floor is 10 storey.

Contrast it with the newer HDB BTOs where top floor can be 47 storeys!

How about the 2nd level of a 2 storey landed bungalow? Is it "top floor" too?

Feeling sheepish now?



Blue chip stocks are safer

Eh? What exactly is a blue chip stock?

Are NOL, Chartered Semiconductor, Standard Chartered Bank, and Olam considered blue chip stocks? They big daddy owned you know? 

How's that working out for you?

Do you know the differences between a stalwart blue chip and a cyclical blue chip?

I didn't think so.



Warren Buffett says we should do passive index investing

There is a difference between buying into low cost index funds and ETFs. If you can name the differences, it shows you know what you are getting into. Superb!

Some US proponents of low cost indexing have found the S&P 500 too "narrow focused" and have recommended the Wilshire 5000 instead.

And some passive indexing gurus have even warned their US followers not to commit to a single country focus and seek greater diversification by having a global low cost index fund. 

Now what do you think of our STI ETF of 30 component stocks as a passive indexing strategy?

You sure this was what Warren Buffett had in mind?

I wanted fish ball noodles, but can't find; so I bought bak chor mee...

Please don't say bak chor mee is fish ball noodles OK?



Develop your own heuristics

One man's meat is another man's poison.

A mentor will facilitate his mentee to become his own man.

A snake oil shepherd will encourage his followers to become part of his flock.

Cats can't be herded.

Meow.




14 comments:

  1. SMOL,

    Have u wondered why people "followed" others?
    What is the "pull factor" beside their own "push" factors?

    Law of physics applied too in human you know. bigger the mass, the bigger the pull of gravity. The bigger base or amount of money one has, the more right he is in his heuristic. How the hell would he be so damn rich right?

    Forget the wealth if we want to see things more clearly ... Forget the I if we lWant to see the world more clearly Lol

    Ok talking male chicken here

    ReplyDelete
    Replies
    1. Sillyinvestor,

      The majority prefers to seek answers from WITHOUT. Hence we "follow" others whom we think can provide us the answers.

      Then there are those who prefer to seek answers from WITHIN. We prefer to bounce ideas off peers ;)


      Your 2nd last statement is right at the doorsteps of "no planning".

      1. The way some set goals and planning, you wonder whether that tethered person is a "slave" to his own pursuits...

      2. Then there are those who set what "appears" to be very concrete and solid SMART goals. But they love to move the goalposts... Their goals are fluffy as cotton candy in reality.

      3. To set goals and planning well, we need first to SEE things clearly. If not, we are merely climbing a ladder and then finding out its leaning against the WRONG wall!?

      LOL!

      Delete
  2. Hi Jared,
    As usual great food for thought (especially the bak chor mee). Let me pick up on the aspect of passive index investing.

    For me the most useful distinction between “active” and “passive” investing is as follows:
    • Active – an asset allocation strategy with high relative frictions that attempts to “beat the market” return on a risk adjusted basis.
    • Passive - an asset allocation strategy with low relative frictions that attempts to take the market return on a risk adjusted basis.

    We are all citizens of that one world, as such one cannot deviate from global market cap weighting and call themselves a “passive” investor, right?

    The STI ETF alone does not cut it!

    By the way my top floor is damned hot. Sometimes hotter than Salma Hayek dancing on a waffle iron.

    ReplyDelete
    Replies
    1. Andy,

      LOL! In English please!

      My no study definition is:

      Active: I want to beat the rest of you! I am Tarzan! Or-yi-or!

      Passive: You eat what, I eat what. You dress what, I dress what. I'm a school of fish; a herd of zebras. Don't stand out. Quick! Get back in line!


      Exactly! You staying in landed property, the "top floor" also hot what!? LOL!

      That's why you so smart to install solar panels on your roof top ;)

      Got lemon? Make lemonade!



      P.S. I tell you, we just pay lip service to environment blah blah blah. We can easily give incentives to landed property owners to install solar panels like in Germany and we can all sell extra electricity back to the grid ;)

      I'm waiting to see when HDB will install solar panels on the roof tops. The money earned from selling electricity to the grid can go back to town councils to benefit the residents. (I won't hold my breath)

      Don't let people say, when crude is above $100, say environment this, environment that. But when crude is below $50, eh? Why so quiet?

      So its $ talking all this time!?

      Delete
  3. Jared, you forgot about the Janes in your 'no study definition'!

    I fully agree with that lip service. Singapore would have such a huge potential for solar.
    They could easily give incentives, but they don't dare to. Why? Because they fear the response of the majority of Singaporeans. You see, we landed property dwellers are considered privileged (why I am not so sure as condos can easily cost more than a moderate inter terrace). So if the government would give us an incentive the public might not like it.
    By the way the solar panel vendors do not like HDBs. The footprint of their roofs are often too small and blocked with all kind of piping, water tanks and other utilities to make it a bit uneconomical.
    And while we are at it, why didn't the government embrace E-cars and make Singapore the first country that runs almost exclusively on E-Cars? An additional COE category 'E' with prices around 10 K would have done the trick.
    I'd better stop now.

    ReplyDelete
    Replies
    1. Andy,

      In my next life as a blond, blue eyes, with big big ding-a-ling-ding-dings, I would not bother with active or passive.

      I'll let the donkey work his ass off while I spend my time with the gardener, my physical trainer, and the air-con repairman ;)


      You die! You just said HDB roofs have "small" footprints... Hey! LOL!

      Next time you drive pass Queensway/Tanglin Halt, take a look at the blue coloured "roofs" and huge sun blocking panels they erected to shield the water tanks after the upgrading works 10 years ago.

      Those panels and roofs sure look big enough for solar panels to me ;)

      OK, must be fair to HDB. They have started baby steps with selected HDB flats on solar panels. I just thought all new BTOs can come with solar panels designed and incorporated from day 1...


      Well, we may have to wait for a similar event like "Constantine converting to Christianity" before we can see E-cars adopted en masse in Singapore ;)

      We are a "follow-the-leader" society :)

      Delete
    2. You are already dreaming about your next life? A bit too early for that, or not? The air-con repairman? Are you sure about that? I mean, I can see some sense in spending time with the physical trainer.

      Yeah, well I can't help it either that my feet are so big. No, what I actually meant with small footprints is in relation to other options like huge factory roofs or huge solar farms on open fields where there is no lifting required (like what they do in Germany).
      But I do see some first steps into upsizing the footprints. They are currently evaluating to install floating solar farms on the reservoirs in Singapore.

      Delete
    3. Andy,

      LOL! The air-con repairman innuendo is a Japanese "cultural" thing. Shhh...

      Yup, I would like to be an expat's wife in my next life :)


      Touching down to Copenhagen airport, its so nice to see those giant wind mills on the ocean.

      You guys have a head start in Europe ;)

      I'm open to alternative energies just as long it's not nuclear.

      Then you'll see me at Hong Lim Park :(

      Delete
  4. Maybe I shld get you to guest-post on a regular basis since you like to poke so much!

    Haiyoh, wait people anyhow follow what you say and buy Wilshire 5000 how. Big Mac meal, whether upsize or now, still similar mah. If you use the couple cents to buy ice-cream cone, that's diversification.

    Diversification is somewhat debatable for world index. S&P 500 does derive earnings worldwide, so some think that they can just forgo the global index. Whatever floats their boat!

    Bak chor mee or fishball noodles, must taste good!

    ReplyDelete
    Replies
    1. Kevin,

      What are the chances of people anyhow following me at this watering hole?

      First, there are no followers here. Why would they? Where's the free milk or honey?

      Secondly, name the Indian Chief here.

      There's no conductor for we are not an orchestra. We are a jazz band. Anyone can take turn leading the musical improvisations ;)

      I merely start my rifts and others join in ;)



      There you go! If diversification is debatable, then our STI ETF must be excellent!

      With 40-50% market cap on the financials, there's not only narrow single country focus, we have financial sector concentration too!

      If I extrapolate on this thesis, might as well just do dollar cost averaging on one DBS stock and call it passive indexing with one ring to rule them all?

      LOL!

      See? We are making music together!

      Delete
    2. Hey, it should be singtel, not dbs. Lol

      Remind me how chinese emperor diversified his chances to have offsprings by have 3000 wives. Ok, selfishness and lust could be the main reasons but the systems passed down.

      I am still waiting for you to show me how to trade 300% return in a year!

      Delete
    3. Frugal Daddy,

      Whatever makes you happy!

      Come to think of it, our local banks and Singtel are regional players; not global ones like Apple, Citibank, etc.

      Idiot! Who sold our global brand Tiger beer away?



      I thought I already did share on how to get a 10 bagger:

      Buy $1 Toto quick-pick. (No need wear red underwear)

      Strike $10 kacang puteh prize.

      Instant 10 bagger!!!

      :)


      Delete
  5. After staying top floor for 4 years, the only negative I can think of now is during air strike. The bomb will first hit your house. I bet the fellow at underground can survive too.

    ReplyDelete
    Replies
    1. Frugal Daddy,

      Once we have run out of spaces to build beehives to the sky, we'll start to build underground.

      That should please those who are afraid of "heat".

      It's "winter warm and summer cool" ;)

      Although no windows; no view :(

      But we can install LED screens to masquerade as windows with outside view!

      And of course, airstrike proof!


      P.S. Pardon my lack of education, I've never quite understood the purpose of "bomb shelters" in high rise buildings... LOL!

      Delete

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