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...

No?

Josephine Teo’s data of Singapore Elderly’s Low CPF Payout is Depressing?

We see what we want to see.

It reminded me of the story why steel helmets for soldiers were reintroduced to soldiers during WW1.

During medieval sword fighting times, of course everyone uses metal helmets. But with the invention of the muskets and other firearms, metal helmets and armour were considered obsolete...

In 1914, there were in fact no major armies using a steel helmet.

Once hostilities started, steel helmets were quickly deployed.



You wouldn't have guessed based on the battleground statistics of the injured soldiers at the beginning of the conflict before steel helmets were reintroduced.

On the list of the injuries sustained by injured soldiers during combat, few injuries belonged to head wounds.

If head injuries were low on the list of injuries, why then the focus to offer protection to the heads of soldiers?



Make a guess why?

If you genuinely clueless, its probably a tell why you suck at fundamental investing... You can't read the numbers.

Britain's 99-year leasehold on Hong Kong

OK, to be precise, only the New Territories was leased to Britain for 99 years in 1898.

Both the Hong Kong Island and Kowloon Penisula were ceded (freehold) to Britain in 1842 and 1860 respectively.



Would you for one minute shed a tear for Britain who, for more than a century, had invested and developed Hong Kong to what  it is today; suddenly find themselves with an asset that has ZERO value once its returned to China in 1997?

And to think Britain had invested in big scale infrastructure projects like MTR, the new Hong Kong International Aiport at Chek Lap Kok Island, and that wonderful connecting airport express rail!

Ya hor! Its like doing a major renovation om your 99-year HDB flat when the lease is expiring soon in less than 20 years!?



Don't you worry. India was once upon a time the crown jewel in the British Empire. That's a sugar-coated way to say the wealth and splendor of London was built from the wealth transfer from India to Britain.

Make a wild guess when those mega infrastructure projects in Hong Kong were awarded, which companies got the tenders? 

Want to bet whether China was concerned when Britain early don't build, late don't bulid, all of sudden decide to build the new airport to be completed only in 1998? Wink.



99 years is a long time. How much wealth (value) we extract from our 99-year leases is only limited to our imagination and creativity.

If we do nothing and sit on our asses for 99 years, who to blame if we got nothing in return?



From an investing perspective, if you can't figure out how to profit from 99-year leases, you may want to stay clear of stocks dealing with toll road concessions, port concessions, mining and logging concessions, oil and gas exploration concessions; etc... 

Drum roll please.

And especially REITs!

Tell me how many of their properties are freehold?

So you not concerned one day the "assets" that are on leasehold will revert to ZERO?

Eh?

Eh your head!

If you are only superficially financially literate, please don't jio others to follow you. 

Like what we like to say in Army, "Smart can oredi; don't act smart!"





P.S.  Some of you may want to think for a moment why Britain "had to" return Hong Kong Island and the Kowloon Penisula when they are essentialy "freehold"?

Yah, its written black and white clearly they were CEDED to Britain by... who? The Qing dynasty!

I'll leave you alone to figure out the implications even when you have a freehold property, and what happens when you rely on promises made by people who are no longer around when its your time to collect. Wink.

Get Rich Fast Vehicles - A Trip Down Memory Lane

I will be hitting the big 50 end of this year.

Like all "uncles", I too like to reminisce about the good old days...

I see the community is currently enamoured with trading of Penny Stocks, CFDs, and Forex. Which makes sense as a little capital can win a lot - provided you don't bust your trading account first.

It wasn't so long ago (Oh shit! Its been 10 years already?) that Options were the rage... That's until the students sued their "shepherd" for being a charlatan... Options never did recover their mojo ever since. Its now been replaced by CFDs and Forex.

Before Options, it was Contra Trading. Now a dying art. How many young 20 somethings of today have traded Contra? You may never have head of it even!

When I started "investing" at 1999 during the dot.com boom, it was mainly Peter Lynch this, Peter Lynch that. Everyone was into "Growth Investing". That's the realm of 10 baggers! There was little mention of Warren Buffett - who was lagging and under-performing big time...

Then things took a sudden dive. And out of now where, everyone sort of became "Value Investor" reborn?

I find it ironic, even to the point of comical, that after a 8 year bull run since 2009, people are still parroting "value". Really? 

Of course, it would be remiss of me to not mention the growth and popularity of Low Cost Passive Indexing. Its not my cup of tea. And looking at the trading volumes of the two STI ETFs, its not for the majority either!

However, in the States, Low Cost Passive Indexing is gainig market share at the expense of Hedge Funds. I guess most Singaporean "investors" did not get the memo? Or maybe the majority of us think we're the next Warren Buffett?

That's the investing/trading vehicles of the decade side.

How about careers and jobs?

I remember when I started working during the end of 83, the classified papers have lots of advertisements promising you can be a millionaire by becoming an Insurance Agent. Remember those cowboy days?

Then MAS clamped down the excesses of the insurance industry.

Next came the property industry during the great property boom. Using the same trickery, they promised you'll be a millionaire if you join their agency! Workshops and seminars were recruiting platforms, "Come! Join me and I'll make you rich!"

MAS too clamped down on the property industry's hyperbole.

Like chopping off the head of a Hydra, two more will grow in its place.

Yup, multi-level marketing jumped in to fill the void. Norni juice this, anti-oxidant vitamins that. Anyone still buying vitamins from MLM setups today?  

Internet Marketing was the next one. This one I gotta laugh! It's so easy to spot the smarter students. These smarter students after taking the course will in turn offer their own Internet Marketing courses to others!!! Now that's how you make money off Internet Marketing! LOL!  

Now? I see less job advertisements that promises you a millionaire career. I suspect its because most Singaporeans are now better educated. If you are tertiary educated, why on earth do you need to do sales?

Since most people have a reasonably well paying job but its not something they enjoy, snake-oils have found its much easier to sell you "get rich schemes" than promise you a well paying career.

Hence the proliferation of scams like Gold Trading, Land Banking, Ostrich Farms, Binary Options and what not!

Totally legit, but still smell a bit "scammy", we have operators that promote overseas properties, forex, CFDs, and other derivatives that target "bei kambings" only. No way will they have courses that target advance investors/traders... Then the "bawu" will be obvious to all!!!

Now that's a red flag for you! Wink!

Don't fire until you see the whites of their eyes!

In the American Revolutionary war, Colonel William Prescott commanded the American rebel forces in the Battle of Bunker Hill against the British forces.

Low on ammunition, William Prescott gave the below (now famous) order to his men:

"Don't fire until you see the whites of their eyes!"


Remember, in the 18th century, they were using muskets - not rifles. Muskets are smooth bore firearms; the shorter the range its fired at an enemy, the more accurate and lethal the shot would be.

This is easier said than done.

Imagine the enemy marching towards you. You can see them clearly. You naturally instinct is to panic and fire. 

If you miss, imagine the horror while you are furiously re-loading your firearm, the enemy has closed even nearer to you and is now taking aim at you... A volley before the bayonet charge. Mama!


By the way, once the ammunition ran out, the Americans retreated. Technically, it was a "victory" for the British, but the British sustained much heavier deaths and wounded than the American side. 

Morale is higher on the American side.



Investing and Trading

Isn't this what we agonise and go through as investors and traders everyday?

Fire too early, we get stopped-out or suffer the gut-wrenching disgust with ourselves seeing red all over our portfolios.

Fire too late, we find ourselves standing at the platform looking like idiots as the train peals away without us...

Do we conserve our resources or throw everything (and the kitchen sink) at the first sign of an opportunity?

When low on resources, do we retreat to live and fight another day? Or do we stand our ground come what may? Ego versus objective?

For those of us who have been in the markets for sometime, we know how's it like to "win" the battle but lost the war...

And weren't there times we were glad and morale super high when we have "retreated" from the markets?
 

Cultural Revolution and Benchmarking

Anyone remember the story of that taxi-driver who shared he earned $7,000 a month?

Then it was discovered the $7,000 were his best months; not the average per month... 

Hold this thought.


It never fails to tickle me pink when I read about self-professed long term "investors" are so enthused into comparing annual performance returns, benchmarking this, benchmarking that.

It can become like during the Cultural Revolution in China. 

"Next year my annual production will be 10% higher than last year!" village A chief shouts. 

"Our village will hit 20%!!!" exclaimed village B chief with an even louder voice.

Village chief C stands up in a superman pose, one arm on his hip and the other pumped up to the sky, "Our village will strive for 50% increase!!!"  (Is this or-yi-or Tarzan power or what?)

Everyone claps; everyone cheers!


Long term benchmarking for long term investors

I often poke this CW qian-bei whenever he writes about goal settings and KPIs. That's because it's a wonderful tool used by land owners and puppet masters on their minions. But why would free man use it on themselves? (That's another story for another day)

Long Term Benchmarking for Long Term Investors

But I have to give credit where credit is due. His kung fu deep or what?

Do you judge the performance of a marathon based on the timing of the first 2.5 km?

Annual performance results are merely milestones; not destination.
 
The minimum period for CAGR is about 10 years - around 2 Bull/Bear cycles. 

Huh? So long... No fun one! 

Well, if you want bragging rights that you beat Warren Buffett and Peter Lynch last year, don't let me stop you. Like they say, face is what others give you; shame is what you brought upon yourself. Cultural Revolution benchmarking! Who shouts the loudest wins (just don't ask about delivery...)

Far from being a party pooper, if you starting your journey, just have fun and make as many mistakes as you can during the early stages of your journey. Numbers per se don't mean as much as the learning along this journey of yours.

Whether your strategy today is dollar cost averaging, buying into low cost index funds, dividend stocks investing, DIY value or growth investing; it's mostly based on trust.  

A day will come when you will have your own mind-flip, epiphany, paradigm shift, "a-ha" moment or whatever you choose to call it.

That's when you can verify the actual results of your trust. 

Trust but verify.

This is the time you either exclaim "This shit really works!", or you go dejectedly "I have to make a change... This is not working as well as I thought...."

If anyone and everyone can do it, we would have to import more foreign talent as no Singaporeans would be working after 40. Or?


Short-term benchmarking for short term traders

Traders are more practical. Especially if trading full-time. You can't buy anything with percentages, so it's always about "show me the money!"

Day traders are more interested on improving themselves from an average $50 per day to $200 per day, to $1,000 per day trader. 

Something is not right if day traders ask for annual performance returns in percentages...

For swing traders, it would be like our tax-driver in the beginning - how much we make on average on a monthly basis..


Who uses annual performance returns in percentages?

If long term investors and short term traders don't use annual returns in percentages as their main KPI, who the freaking hell use it?

1) Professional money managers. Duh? Their annual performance bonus is based on it. Have you heard of year end "window-dressing"?

2) Salespersons and promoters. I'll let you figure this one out yourself.

Who needs a bailout?

On 15 January 1998, Suharto signed a deal with the IMF for another bailout package full of unpopular austerity measures.

The body language of the then IMF Managing Director Michel Camdessus says it all.

After this "for your own good" treatment from IMF, most countries in Asia have  beefed up their reserves so they don't have to be talked down to ever again. 

With the recent "bailout" of Cyprus, it's good to be reminded of the painful costs of a bailout.


It goes for sovereign states as for individuals.

 
  


 

Sparrows, spiders, and unintended consequences…

During China’s Great Leap Forward campaign from 1958 to 1962, there was this campaign to rid China of 4 main pests:

1)      Rats

2)      Flies

3)      Mosquitoes

4)      Sparrows

Unfortunately, the Chinese leadership realized too late that sparrows not only eat grains (that’s why they were on the list), they also eat insects too!

Without the checks and balances of nature, the locust population mushroomed and it contributed to one of the greatest man-made famine and catastrophe of human history… Over 30 million Chinese perished due to starvation during the Great Leap Forward years… More Chinese died than the whole of World War II!!?? Talk about well-intention gone bad…

When I moved into my studio apartment in Athens, I noticed there were spider webs on the 2 windows that let light into the room. Yucks!

Since I am not a big spider fan (who is?), I decided to “sheltox” the spiders and remove the cobwebs. Guess what? During summer evenings for the past 3 years, I am now terrorized by kamikaze mosquitoes in the night! I guess they must have slipped through the gaps in the windows…

When once upon a time the spiders’ webs would have done me a great service… I now “sheltox” myself in the dark whenever I hear the buzz of the mosquitoes…  Realization came too late. The spider never did me any harm; the mosquitoes did more damage. Sigh…

Now your turn! Have you done anything in the past that you thought would be good for you, but only to realize that the unintended consequences are even worse!?

For those of you lucky enough not to have this “ah ha” experience, you’ll know when you know it!

P.S. You can read this post in any way you like – depending how deep you want to “mind fxxx” yourself. From the high macro social-political level, to relationships, and down to the your investing/trading oops moments  J

Let our children learn “that” language so they don’t fall behind

The English language at Elizabethan times was merely a local “dialect” that’s part of the Germanic language family.

For the nobility and the intellectuals in England at that time, French was used instead to set themselves apart from the “common folks”.

It’s with the advent of Shakespeare that the English developed the self-confidence that it’s OK to speak with pride in their mother tongue.  

Of course, another main driving force of this new found confidence and self-believe is it coincides with the reign of Queen Elizabeth the first - when Britain defeated the Spanish Armada in 1588. Spain was the strongest and wealthiest European power at the time.

This set forth the foundation for Britain to rule the waves and the expansion of the British Empire, challenging the other European powers for world domination (Land grab? It’s definitely not spreading democracy and world peace!) And who can forget the spectacular naval victory at the Battle of Trafalgar during the Napoleonic wars?  

New markets emerged for British traders and manufacturers. (Although I wouldn’t call it free trade)

The sun never sets in the British Empire. This empire was so vast that even after the sun did finally set for the British Empire, English is now the most widely used language today – just add all the countries in the British Commonwealth plus USA and you can see how many countries have English as their first or second language. OK, Americans may have a different opinion as they speak “American” – not English. It’s a bonus! So we include additional countries that speak “American” – Taiwan, Philippines, Korea, Japan, and the Caribbean countries.

It’s a combination of three factors: cultural renaissance, economic power and military might that elevates a language to global prominence.

And for those non-British people in the colonies that can speak English, they have more opportunities opened to them and they enjoyed a different social status amongst their “local” peers.

Fast forward a few hundred years to today, and we see a new power emerging from her sleep…

I am amazed at the number of Koreans, Japanese, Europeans, and Americans that are now learning and speaking “that” new language during my travels and work assignments.

Perhaps a financial legacy that we can leave behind to our children has nothing to do with dollars and cents. It’s a gift of language?

Note: I am not advocating giving up English. Oh no! Britain went into decline long ago, but English is still widely used. English will not go away anytime soon. Yes, even if USA one day is no longer the sole superpower of the world.

If you call yourself an investor or trader, surely you would understand diversification or making a hedge. So encouraging our children to be bilingual – in English and “that” 2^nd language could be a wise move.

Heads we win; tail we win too!

We have the land, they have the book

I remember hearing this quote from the BBC when they were doing a story about an African anti-colonial freedom fighter leader many years ago. The freedom fighter said:

“When the white men first came - they had the book, we had the land. Now we have the book, the white men have the land.”

No, I am not going to write about colonization or fighting for independence. I missed that boat in the 50s. Born at the wrong time.

But still it stuck in my head…

Let’s apply it to our financial decisions.

We have the cash, and after meeting someone (distant relatives and well-intentioned casual friends are the most dangerous!), did you notice if we are not careful, we often depart with our cash and come away with something the Red American Indians have also discovered after signing peace treaties with the white men:

Words written on water.

You may want to take a moment to pause and reflect.

There are many well-intentioned sermons to part with our cash –especially those that are stroking the inflation fears – that holding cash now is “foolish”.

Before we rush to buy “trinkets” from the snake oil salesmen, you make want to take your own counsel first.

P.S. I have hedged against inflation. The point is not to do nothing; but only act through your own volition. And there lies the key to true financial freedom – taking personal responsibility.