Friday 30 September 2016

From the frying pan to the fire - Unit Trust to ETF

For those of you who have actual investing experience with unit trusts, and I mean 5 to 10 or more years worth of personal track record, there are 2 main reasons why you lost money.

See if you can identify with them.

1.  You were sold to...

When listening to people who complained about their bad experiences with unit trusts, its like listening to how they were sold "bad" insurance policies...

They most probably also bought these unit trusts from a tight skirt with chiffon blouse sitting pretty in a bank; and paying the max 5% sales load! 

Of course you have no clue they could have bought the same exact unit trust from an online unit trust distributor for 2% sales load or less.

In English, snake-oils call such customers "blue-eyed Swedes"; and in Singlish, we say "bei kambings" (little white lambs).

We spin our sales talk, customer swallow hook, line, and sinker. No challenge, no objections, no verifications, no nothing!!!

You make a good, better, best customer! We love you!

2.  You wished you had sold...

Be honest now.

Unless you were so unlucky the first day you bought your unit trust until now you have always been under water, the reality is that at some time or another, your unit trust got make money right?

Remember BRIC? Brazil, Russia, India, China?

How about that time when the India stock exchange was on a bull run and almost every other bank were recommending India focused unit trusts?

Commodity and gold unit trusts were also quite popular during 2009 to 2011... We almost had a commodity guy running our sovereign wealth fund remember?

Got made paper profits right?

And that's despite the 5% sales load and the annual management fees of 2% or more!

I don't recall hearing you complain about "costs" then...

Doing the same thing; expecting a different result...

Now that low cost ETFs are "fashionable", you are now switching out from your unit trusts to ETFs.


1.  Other people buy you buy. How is it any different from being sold to?

Again you never do your own homework...

2.  Have you ever thought of when to sell your ETFs? 

Want to bet history will repeat itself?

3.  If you had based your thesis on statistics - majority of active fund managers underperform their benchmark indices - why didn't you follow the CPIS statistics that majority of retail investors can't even beat the CPF 2.5% hurdle rate?

CPF not charging us any annual fees. No fees versus low cost... Some more no capital loss. Zilch! You still not biting?

See? You are being selective in your usage of statistics! That's not passive... Wink!

And we know what they say about statistics....


Wednesday 28 September 2016

"Bei kambing" passive index investors - Part 2 of 2 (Why STI ETF?)


Why indeed!

There are thousands and thousands of low cost ETFs around the world.

How did you end up with the STI ETF as your one and only ETF for Passive Indexing?

I only know my own backyard

If you are a Singaporean studying/working in the US, and you have decided to embrace Passive Indexing, which ETF would you buy?

Same goes for if you are a Malaysian or Indonesian but is now a permanent resident or naturalised Singaporean - which ETF would you buy?

Mind you, if you are a US citizen, if you go by the same "my backyard logic" to pick your Passive Index ETF, you still have a problem!

There are 3 major indexes!

Dow Jones Industrial Average 30, S&P 500, and Nasdaq. Buy all 3 ETFs?

OK, lets say we leave out Nasdaq. Between DJIA 30 and S&P 500, which would you prefer?


Say that again.

S&P 500.

Shy right? Especially if currently you own the STI ETF.  (Don't worry, what you feeling now is called Cognitive Dissonance. Won't die one)

Bottom-up Country Picking

Singapore in the 70s and 80s was growing its GDP in double digits or high single digits. Do you think as a developed economy now, Singapore will ever hit high single digit GDP growth like when we were part of the 4 Asian Tiger economies?

But if we look at our emerging Asean neighbours, with a time frame of 20-30 years, do you think the SET, KLCI, JCI, PSE will outperform our STI?

Mind you, its still the same market returns we are talking. Just different indexing vehicle.

Imagine 2 Indonesian naturalised Singaporeans - one buy the STI ETF and the other the JCI ETF.  

20 years later, STI ETF doubled; but the JCI turned out to be a 5 bagger... How?

And to add salt to injury, the Indonesian rupiah has strengthened against Sing dollars... Ouch! Song bo!

Top-down Global Focus

OK, you where got time to evaluate different economies one by one. That's why you've chosen Passive Indexing in the first place...

Don't worry if you never heard of Global Multi-Asset Portfolio or Global Market Cap.

But you do know a bit of history. (I hope)

The 19th century belonged to Europe - they colonised the world!

The 20th century belonged to USA - heard of US hegemony? Policeman of the World?

Now which region does the 21th century belongs to?

But Asia is a very big region!

Some will want to exclude Japan - its a slow train wreck... Hence we have MSCI Asia ex-Japan ETF.

Some don't want developing economies; only want "safer" developed economies - then you'll go for the MSCI Pacific Index which includes only Australia, New Zealand, Hong Kong, Singapore, and Japan.

Some will prefer the developing economies in Asia instead; and buy up several ETFs in the region to make their own "aggregated" Emerging Asia Passive Indexing Portfolio.

Some will argue the 3 most populous countries in Asia are China, India, and Indonesia. They will create their own "trinity" ETFs.

And so on.

Earn more; save more

Low cost is like saving more. Of course who doesn't like paying less for more?

Unless you have chosen the Global Multi-Asset Portfolio index - where there is no investor discretion involved - any choice of other indexes will involve an active decision by the investor.

Yes, even the "Look ma! No brains!" default decision to choose STI ETF is an active decision itself - just like deciding to do nothing is a decision by itself.

Call it luck or skill.

Your Low Cost Passive Index Portfolio consisting of one single STI ETF 20 years later has doubled! Whopee doo! 

You were going to brag about it until you found out some idiot went YOLO on the Vietnam Index 20 years ago and is now sitting on a 10 bagger... What the fish!?

Probably a newbie youth 20 years ago whose biggest strength was he didn't know what cannot be done!

Oh well... Don't compare... (But in your heart you pretty pissed you lost out to a noob)

What do most bei kambing Passive Indexers do?

They focus on the low cost side of the equation. That's the easy part.

Want to verify whether you are talking to a parrot or to the real McCoy when it comes to Low Cost Passive Indexing?

Ask them about the active selection (entry) process of their low cost ETFs - the earn more part. Wink.

Now you know why most financial bloggers are more comfortable talking about their save more bits. And for the precious few financial bloggers who are able to share, with actual track records, their outsized earn more sexy parts, they'll attract a HUGE following.


C'mom. We all know intuitively that it does not take brains to save more. We just need discipline. But to be able to earn more, that takes skill or loads of good luck.

Of course I've chosen luck.

Tomorrow is Thursday. Which reminds me, must remember to buy Toto quick-pick!


What luck! Just stumbled onto this article:

I think it provides a nice context and perspective to what I've written above. Wink.

SMOL 29 Sept 2016

Monday 26 September 2016

"Bei kambing" passive index investors - Part 1 of 2

I love to watch documentaries.

For many years, I've always believed gravity is pulling us down to Earth - the Newtonian and main stream view that the common man in the street knows and accepts as "correct".

What do you know?

After watching documentaries on Einstein and his General Theory of Relativity, I've learnt that its in fact the curvature of space-time above us that's pushing us down to Earth...

Of course those of you who studied Physics at tertiary level would already know. Maybe.

Bei Kambing understanding versus Erudite understanding

The same gravity example can also apply to Low Cost Passive Indexing.  

If you look around our blogging community and forums, you can spot these 2 different creatures.

One just have a single STI ETF (single country focus) and that's that; the other usually have several ETFs that include more than one asset class, and covers either globally or at the very least covers one large regional geographic area. 

I rather not point these bloggers out as its better you discover them yourselves.

Low cost is just one part of a Passive Indexing Strategy

If we buy unit trusts from a bank, the usual commission is 5% - unless there's a promotion.

The same unit trust can be easily bought at 1 to 2% commission through on-line unit trust distributors - depending on your order size. Sometimes there are even no-load zero commission offers!


If I buy online can my actively managed unit trust be considered "low cost" now?


The annual management fees are more expensive for actively managed unit trusts than ETFs.

So that tiny 1 to 2% makes a lot of difference?

Of course it does! It we compound it by 20 to 30 years. Fully agree with you!

Now it's my turn to ask you some questions...

On an intraday level, did you notice there can be a 1-2% difference between the daily high and daily low for the ETF quoted price?

So 2 person buying the same ETF on the same day can receive 2 totally different entry prices with difference ranging between 1-2%, can we agree on that?

You know what's coming... Wink.

2 person who do dollar cost averaging on a monthly basis can have a 5% difference in entry prices if one bought on 1st of June and the other 30th of June. Possible right?

And if the same 2 person passively dollar cost average into a ETF annually, the differences in entry prices can actually be more than 10%!

Is it fair to say the "unlucky" passive dollar cost averaging person as "high cost"; while the "lucky" person as "low cost"?

Try compounding the differences for the next 20-30 years... Yeeks!

You tell me, does the tiny 1-2% difference in management fees between actively managed unit trust and ETFs still such a big deal?

P.S.   In part 2, I'll demonstrate why buying a STI ETF is an active decision; and this decision has a even bigger impact 20-30 years going forward than low costs... 

Friday 23 September 2016

You free on 23 Oct 16 Sunday afternoon?

The good people who invited me as a speaker last year have organised another seminar next month on 23 Oct 2016, Sunday 1-5pm.

No, I won't be speaking again as this time. I think they have found out painfully last year, anything that's free is probably "suspect"... LOL!

Do check out the speakers below:

You know what? It's not free! Thank goodness for that!

Friend, only $20 per person.


Just enter "BLOG50" when you register they will give you a 50% discount?

Yes. Only $10.

Pay a few hundreds for a course preview is "bei kambing; free is "suspect".

$10 is the sweet spot. Ah...

P.S.  I've marked this post as advertorial; but I'm not paid a single cent to write this post. Sometimes its not always about money, money, money.

Although having said that, I'll put on his tab one drink the organiser "hutang" me. Cannot be free. That will lead to abuse...   

Tuesday 20 September 2016

Position Sizing and Diversification

First, read this Bloomberg article:

I know, you not interested as you don't have $250K to buy into bonds in a single pop.

Wait, there's a hidden message you are missing.

That's risk management.

What if the accredited investor has 10 million dollars in liquidity (do not count property assets)? Buying an unrated bond and losing 100% of that investment of $250K is not disruptive to his/her lifestyle right?

Some of you may  have participated in peer-to-peer lending. It's the same "greed" as our accredited investor - you hungry for yield mah!

Can tell who is savvier between the two peer-to-peer lenders below?

a) Commits $5K into one single company yielding 10%.

b) Commits the same $5K but splits them into equal $500 into 10 separate companies yielding the same 10% at portfolio level.

If you have answered b), may I ask you if 1 or 2 companies default, is it still savvy to lend money to unsecured borrowers at 10% interest?

Now you know why credit card companies charge 25% interest per annum. Wink.

I think you getting it now...

If big wallet invests 50K into Swiber stock and that position is 2% of his total portfolio, he'll probably shrug it off as a learning opportunity if Swiber goes belly up.

But if you thin wallet invests the same 50K into Swiber because you "monkey see, monkey do"; and that position is 50% of your portfolio, well, you can't complain to anyone because you know the retort back, "He ask you to jump into the river, would you?"  


Yup, that's why they say diversification is the hedge against ignorance, stupidity, and surprises!

OK, some bonus questions before you go to test whether your knowledge is superficial or at conviction level. You know what they say, a little knowledge can do more harm than ignorance...

Here we go:

Is owning 30 stocks in a portfolio diversified enough?

Especially if 40-50% of that portfolio is geared towards financials?

And you have no clue what is Narrow Country Focus risk?


Thursday 15 September 2016

Investment letters used as tools for fraud

Its not about being cynical.

It has everything to do with financial literacy.

Imagine how it would look if you go round helping your financially "illiterate" friends and family members; only to find yourself a victim of a fraud...

Yes, there's nothing passive in verifying which investment newsletters are genuine, which are fraudulent in nature.

The ability to parrot the exact Investopedia definitions of financial terms does not make one "financially literate".

Can you figure out the reasons why people behave the way they do:

1)  Hedge fund managers go on public media to share their investing thesis;

2)  financial bloggers revealing their recent buys and sales;

3)  sell side analysts plugging certain stocks of the month;

4)  financial educators (who are not financially free themselves) ever so eager to help you achieve yours?

How to read people better?

Do they teach this in school?

Why yes!

Still remember your literature and history classes?

Oh yes! Watching Game of Thrones definitely counts!!!

Show me one successful and super rich business owner who doesn't understand human nature. Wink.

Tuesday 13 September 2016

Wells Fargo will stop setting product sales goals???

Wells Fargo will stop setting the sales goals that bank employees say led to pressure to open millions of fake customer accounts.

But, but, but...

How will we shepherd our flock if we don't use a leash or iron collar on our flock?

Don't look at me!

Wrong insect. I'm a grasshopper, remember?

Yes, I'm a critic of Peter Drucker's Management by Objectives.

OK, I'll concede that if I'm a land owner, I'll be all ears if someone sells me a better way to manage my shepherds, and make them respond better to my carrot and stick. And MBO is one interesting "koyok" (snake oil) being peddled.

But I for one fails to understand why anyone else (that means you if you not land owner class) would be willing to put on leashes and iron collars on themselves?

Perhaps an example will make it easier to comprehend:

A manager relies on goals and planning.

A leader illuminates his vision.

Thursday 8 September 2016

I want children to play

That's grasshopper philosophy.

And don't worry tuition giving friends.

Just like the driverless car, I don't think we will do away with taxi-drivers, bus captains, and train drivers anytime soon. Just look at the "signalling issues" we have with driverless trains...

Confucian societies need hierarchy. And thus ranking.

Panic only when they do away with President Scholars.

Tuesday 6 September 2016

First Singaporean Board Game To Hit High Street Stores

Technically this post is not an advertorial - not paid $ and I didn't even get a free drink!

But I'll still label it as an advertorial.

This way, the good folks at Capital Gains Studio may remember and buy me a drink next time we cross paths. Wink.

And no, they didn't hint or coerce me into writing this post. It just happens I'm on their media release email blast list.

So, if you free from 1-6pm this coming Friday, you may want to drop by Takashimaya to check it out.

Monday 5 September 2016

For those of you who have atrocious handwriting

Ha! I was right after all!

Always thought it was so intuitively.

Mind you, it does not mean we are smarter. It just meant our brains are faster than our hands.

I'm the man with the slow hands. And easy touch.

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