Saturday, 4 April 2020

Indexing versus Individual Stocks

I think I shall give him a new nickname. I'll call him the Ant Man!

Why reinvent the wheel when I can steal with pride?

Look at the chart below:

Covid-19 Bear Market 2020 - Round 2 Coming??? 

CW's chart is great to gauge our risk/reward profile.

STI index fund or ETF

The advantage of buying a Singapore STI index fund or ETF is it can't go to zero - unless the whole Singapore island disappear under the sea?

But to get a 2 bagger, we'll have to buy around STI 1,500 and wait for mean reversion back to 3,000.

To triple our money, its a scary buy at STI 1,000 - yes, not that far from 1997 Asian Financial Crisis level!!!

I hope you didn't have any illusions of scoring a 10 bagger using an index fund or ETF!

OK, its possible. Buy in your 20s at STI 1,000, and hope STI will hit 10,000 in your 60s?

But in your 20s, how much can you invest? 

Its those in their late 40s or early 50s that have real money to bet, but you'll have to pray for long life like Dr Mahatir...

Then again, you can always gift your STI index fund or ETF to your children, if you believe in buy only - never sell. Ever!

Individual stocks

If you are great at stock pickings, you don't need to wait for STI 1,500 or 1,000. At any level also can! Penny stocks anyone?

You can ask around, there are some astute ones who bought individual stocks in 2009 are sitting on 5 or 10 baggers during 2018. That's provided they sold. Wink.

That's a lot better than buying the STI index at around 1,500 and "merely" getting a 2 bagger ++...

But then again, if you are not so good, individual stocks can go to zero. Trust me, I know...

There's no free lunch. 

You win big; you lose big.

Choose your poison

So there you go. 

Like in a casino, walk to your preferred gaming table, Place your bets!

Just don't be like that young 20 something fresh from school with FIRE dream to retire at age 35, have made wonderful SMART goals, and detailed planning for each and every milestones, only to have chosen the poison of STI indexing... Eh?

I've said this too many time in the steering group when reviewing the goals and action plans of our young shepherds,

"Are you aware your ladder is leaning against the wrong wall?"



  1. Hi SMOL,

    You reminded me of a twitter poll conducted by Wallstreetplayboys asking readers how much, in USD, is their asset allocation to crypto. The majority selected the 1k - 5k option.

    Hilarity ensues.

    1. Unintelligent Nerd,

      Yes, its hilarious. That's why you flex in percentages ;)

      If one bought Bitcoin at USD 1,000, its more powderful to brag you've a 6 or 7 bagger than to share you've "only" made USD 6 to 7K...

      That's not exactly lifestyle changing...

      On the other hand, these people could be the "smart" ones. I mean if all your friends are into cryptos, you'll feel left out.

      So to fit-in, you just buy a nano bit and can join into the "yalor, yalor" chorus!

      If cryptos crash and burn, its just a little scratch. Heng ah!

      P.S. I suspect some "lau kok kok" are doing the same for equities. At their advanced age, they are merely risking perhaps 5 ot 10% of their networth.

      "Investing" is just a social "escape" for they have no friends, have no other interests, or hobbies. At least now can join forums and talk "dragons and phoenixes" ;)

      I hope I'll have the wisdom to do the same when I'm into my 70s or 80s. Then I'll switch to percentages!


    2. Hi UN,

      When something has high uncertainty, of course cannot dump whole networth inside la.

      Don't forget crypto is dominated by the big whales / sharks. If cannot be shark then just be ikan bilies, don't be fatten up and then eaten up. LOL

    3. Hi UN,

      You are back commenting! How have you been lately? It's my bad that we talk about crypto so much (offline) in the past years! Dont be overly focus on crypto lah... focus on your old friends here.

  2. SMOL,

    It's also true for the downside. The 10 baggers will only be true if you pick the right individual stocks and all become 10 baggers. If you buy 10 stocks and you only get 1 right, the overall result will not be 10 baggers. Worst still, you pick only one individual stock and it happen to be the wrong one, there you go your hard earned savings.

    1. Yaruzi,

      Ah! You are talking 10 baggers at individual stock level and 10 baggers at portfolio level ;)

      There are those who practice not letting a single stock be more than 5% of a portfolio as part of risk management.

      Which is great if a stock went to zero, the maximum loss at portfolio level is "only" 5%...

      But if a stock went to 10 bagger, then its "only" a 50% gain at portfolio level. Mind you, 50% is not too shabby! But still... Considering how hard it is to score a 10 bagger, a bit of waste?

      When youth who doesn't know what cannot be done, have no problem plonking 30-50% into a single stock, then its a case of win big or go home!

  3. Well, gotta say it's pretty funny to read when people plan for stuff like when they're going to get married, when they're going to have kids, when they're going to get that promotion ;)

    In gaming terms, indexing is probably the right "specialization/skill-tree" for the right "class", the Savers who focus on increasing income. Indexing is like the crushingly slow, damage-over-time (DOT) i.e. hit you to death with a teaspoon, compared to high-DPS glass-cannon multi-baggers!

    1. Kevin,

      You find it funny too?

      I guess its a case of being "damaged" by too much schooling...

      Swallowed hook, line, and sinker the tools used by landowners to make sure their shepherds, and these shepherds in turn on their flocks, to do as they were told....

      Landowners don't "limit" themselves like that. They use fuzzy, fuzzy, grey, grey Dreams or Visions to drive themselves ;)

      I like your gaming analogy!

      Indexing is indeed the damage-over-time (DOT) kind of play style.

      Inflict bleed, fire, or poison debuffs on your opponents, and PATIENTLY wait for them to die out OVER TIME...

      If you want instant gratification, then the high DPS glass-cannon build would be more favourable. But if we can't one-shot our opponents, look out below!

  4. SMOL,

    "I hope you didn't have any illusions of scoring a 10 bagger using an index fund or ETF"

    I beg to differ ... No guts no glory (shown in percentage terms for more impact). And it's based on a relatively staid S&P500.

    Ultra adrenaline junkies can go for 3X leveraged on Nasdaq, Tech, Emerging Mkts, China, oil, gold, commodities etc.

    But gotta be a non-panda or non-koala, and learn how to eat grass, earthworms & insects! LOL!

    As for those that plan milestones from 1 hour up to 50 years down the road types ... I had the fortune & misfortune to work with such people.

    They are those that normally start with 12 A's in A-levels, scholarships to Ivy League, and practically a middle-mgmt starting position in civil service or large banks / MNCs.

    Torture if they are your bosses, neutral if same level, and great if your subordinate (until they overtake & climb on top of you, that is LOL).

    1. Spur,

      Well, you are the ETF specialist at this watering hole. You would know, wouldn't you?

      ETFs are wonderful vehicles created for TRADING, aren't they?

      Please don't give "bei kambngs" ideas...

      Its already bad enough some assumed ETFs are suitable vehicles for long term buy-and-hold... Probably confusing them with index funds?

      Don't enourage them to start with LEVERAGED ETFs!

      The ETF industry has gotten a bit out of control... I think we now have more ETFs than individual stocks!? LOL!

      It never ceases to amaze me - want to trade uranium stocks, there's an ETF for it! Want to trade utilities, there are ETFs for them too!

      I hear you. Those who over plan to death would not venture too high in the corporate world. Hence most of them are here seeking FIRE to escape ;)

      But they are indeed great as subordinates. If not, who will dot the "i"s and cross the "t"s for us?

  5. Hi SMOL,

    Passive Indexing - slow, steady, no brainer... and as you said, can't go to zero unless the whole island sinks.

    Pick multi-bagger - painful work, risky (unless well-diversified), can high alpha but also high beta, may not even have Panadols to take in bad times.

    Only in times like this (market crash) does option 2 sounds more appealing, I guess?

    1. Rainbow girl,

      If I suck at stock picking, even if STI went below 2000, I would not know how to make money...

      Imagine thinking REITs were cheap only to caught some that went the way of Hyflux?

      No. We are who we are. The point is to choose the poison that suits our own feet best.

      My poke is when we pick our poison like the STI ETF, to expect it would help us to attain FIRE QUICKLY is a bit of "intellectual slowness"?

      Unless one goes for those x2 or x3 leveraged ETFs like Spur spoke of?

      Let's use me as an example.

      I can't trade one day up +4% and the next day down -3% kind of markets.

      To trade profitable in such markets, I'll have to be an intraday trader - which I'm not.

      So what can I do?

      Sit it out on the sidelines lor!

      Not making money is better than losing money ;)

    2. [My poke is when we pick our poison like the STI ETF, to expect it would help us to attain FIRE QUICKLY is a bit of "intellectual slowness"?]
      Yes, absolutely. Even more perplexing when FIRE pursuers go the path of topping up their CPF account for 'better returns'.

      [one day up +4% and the next day down -3% kind of markets.] - That's good for quick small profit taking. :P

    3. Rainbow girl,

      I can sense the trader instinct in you ;)

      Intraday trading is not for me; I too old liao.

      You on the other hand has youth on your side!

  6. To buy that many stocks all the way down to STI 1,000 is capital intensive.

    Indexing down to 1,000 is possible for many of us.

    1. CW,

      I've already poked you at sillyinvestor's blog.

      I don't listen to what you say...

      I listen to what you do ;)

      So far, I've only seen you making entries and exits at individual stock level.

      You think why I poked at my previous post, don't ask what happens if STI breaks below 1400 (its rude) for those who have planned to buy X amount of stocks at each successive lower STI Y levels?

      You now tell me its capital intensive?


  7. Jared, agree with you. Just told my friend the same thing that STI ETF is hard to get double bagger. STI ETF is for my SRS account, hopefully the % yield higher than CPF. And buying at 2.5K and down should be a pretty safe bet.

    The only worry is when SRS due, and there is a big market crash and STI is 1.5K at the time when I wanted to cash out!

    Individual picking of stocks is better. Many good stocks out there that are battered. Covid harms retail REITS now, but knowing S'porean's "por", if they dont go to malls, what are there to do when lives go back to normal? Hardly imagine SG can dont go to malls forever.

    1. RolF.

      That's the biggest fear and worry - no matter what type of poison selected - is the EXIT.

      For those of us who wish to CASH OUT one day, and not pass it to our children and their own children, we are practicing market timing whether we like it or not...

      Imagine year 2020 is what we've planned to "golden basin wash hand", then this Wuhan virus is a BIG fly in the ointment!!!

      That's the price of earning that extra yield over the CPF rates ;)

      Investing is not saving,


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