Thursday, 9 June 2022

Stock Index Versus Individual Stocks


We are often told stocks always go up.

And this is TRUE!

Of course there are 2 tricks to it.

1.  You need to use a long time frame. 100 years is best! (If you were wrong, its your clients' grandchildren who will be threatening to sue, but by that time, you will be long gone...) 

2.  Always use a stock index.

Of course readers who are i9 multi-core will have guessed what I'll be writing next and don't even have to bother reading further...

For readers who are single core Pentium like me, let me explain by applying History to investing.

You do know that empires come and go. Even empires so mighty and great that no one can believe will decline and fall one day...

Remember Rome? How about the Tang dynasty? Or more recent the British Empire?

If empires and countries do rise and fall, how are you so confident that the individual stocks that you own will always go up in the LONG term?

Remember Kodak and Polaroid? Or Motorola and Nokia?

There's not much money to be made by telling clients to buy an index fund or ETF. 

Hence snake oils show long term charts of stock indexes, but charge you fees and commissions to recommend what INDIVIDUAL stocks you should buy (and never sell).

See how you got "manipulated"?

This is a common Jedi mind trick used on unsuspecting bei kambings...

Now its so much easier to spin Buy-and-Hold; think Long Term; when its Lower, just buy More!

These are comforting words when staring at your portfolio in the red...



  1. Smol,

    Stocks indexes always go up?!? ;)

    Wow! Russian stocks beat the pants off US! Oh that was when the tsar was on the throne in St Petersburg.

    (Actually this is the price-only charts. US stocks paid much higher dividends in olden days, and on a total return basis, both indexes were about the same. The great-great-grandparents of today's Wall St Bets meme stockers & crypto mooners were yield hogs ... imagine this!)

    But then this happened.

    Hitler made Germany great again. Retook the crown as largest economy in Europe. Unfortunately he didn't know when to stop.

    Shanghai index going to the moon! Unfortunately the currency being in taels kinda hint that this is not your Shanghai index. The Shanghai stock market closed in Dec 1941 when the Japs took over, and even after WW2 the old exchange with the original companies never re-opened. In 1949, all companies left on the mainland were nationalised.

    Ahh! The land of sushi. Japan got lucky thanks to the USSR. US didn't totally dismantle Japan's industrial base or shut down its stock market as it wanted Japan to be a buffer to communist expansion during the start of the Cold War.

    As for the 1989 Nikkei top, with the devaluation of the yen, maybe we'll see it again by 2030. The euphoria of Baby Boomers in their late-30s/40s will be passed over to Millennials as they hit their late-40s/50s. No need to wait till grandchildren lol!

    So yes, even the mighty S&P 500 will fall one day ... and keep falling ... and falling.

    (Btw, does anyone here over the age of 40 remember the 2000s when Asian & European & Latin American & even African stocks were beating the pants off S&P 500 for years??)

    So how? Invest in the whole Earth lorr.

    The catch? You would be very disappointed over the last 10 years of your life.

    Significantly less than 3 bagger compared to what could have been almost 4 bagger.

    As Smol says. "There's a price to pay for risk mgmt!"

    1. Spur,

      Wow! You sure know your history!

      One big takeaway - war sucks!

      Second, be on a look out for communists in our midst. If they come to power, they'll nationalise everything! Yeah, even my humble HDB flat will belong to the State, never mind the listed companies I got shares in...

      Thirdly, charts sell!!!

      I can use a chart of CPF and show bei kambings that CPF always go up one, and people will actually swallow it!

      Only a minority who can think will ask to see CPF inflation-adjusted charts. Damn it!

      Its amazing when people knew instinctively nothing lasts forever, yet when it comes to the stocks they owned that are under water, no worries! I'm in it for the LONG TERM!

      And I thought LONG TERM is the enemy as LONG TERM we all die?

      Cannot retire early too :(

      Anyone interested in FIRO? Financial Independence; Retire Old?

      Oh well... The power of denial is strong when it comes to Faith-based Investing....

  2. Collect dividends and over long term either it is always up or remain constant. LoL!

    1. CW,

      I'm sure the Venezuelan, Argentinian, and Turkish dividend investors are very happy with their ever increasing dividends in local currencies year after year!

      Remain constant?

      That's the holy grail and hope of ordinary citizens riding the ComfortDelgro bus...

      If $1 today can buy the same amount of goods/services 30 years down the road, we don't have to brave the markets' volatility to try and protect our purchasing power...

      Just shove cash under our mattresses can oredi!

      But what do most central banks around the world do? They target 2% inflation every year!?

  3. SmOl,

    Hmm.. but ETF is only as strong as the underwriter. ...

    Empires come and go, companies come and go too. Most of them last longer than our lifetimes

    That's why they say 生得逢时

    Red flags picked up, hard to differentiate between competitive loss or market cycles.

    Learn as much as possible humbly that's all we can do

    1. Sillyinvestor,

      Ah! Counterparty risks...

      Remember the heated debate between synthetic and physical ETFs?

      Old fogeys and youths who know the differences between them will know which to avoid ;)

      If savings at our banks got counterparty risks, what more to say about other assets?

      I know many will believe that cannot happen in Singapore...

      Well, those panic policy holders queuing outside AIA office Robinson Road to cash out their policies during 2008 GFC may have a story to share.

      Nobody believed Lehman can go under too...

      Depending on others to bail us out is not an investment strategy; unless we are too big to fail ;)


Related Posts Plugin for WordPress, Blogger...