Investment Eightfold Path - Part 2

As discussed in the last post, we have simply borrowed the above term from Buddhism to help us think about the eight ways to build wealth. The Noble Eightfold Path is actually super profound and I would urge readers to study it for our own sakes in order to pursue enlightenment someday.

For today, we shall discuss from where we left off in the last post. To recap, we have divided the components of wealth-building as per below and discussed the first four:

1. Active Income
2. Cash, T-bills
3. Pension / CPF
4. Property
5. ETFs
6. Stock Portfolio
7. Top picks for the home run
8. Moonshots

ETFs

Exchange traded funds or ETFs would be the best way for any individual investors to build wealth. The way to do it is also to simply buy regularly. I would suggest every quarter or so, when there is spare cash not needed for daily lifestyle, after paying down mortgage, after investing in T-bills, you would want to put some into risk assets to make more returns, then yes, buy ETFs.

It is always best to start with the S&P500, the largest, most liquidity and most well-known ETF which has generated adequate returns since capitalism began.

Stock Portfolio

Investment professionals do not like to buy ETFs. It is their job to beat the index, i.e. by generating more return than the index. So to buy ETF is to admit that they cannot do their job. Warren Buffett certainly won’t buy the S&P500. So, if Warren can do it, so can I. That’s the thinking. But it’s flawed.

I think the way to do this is actually to have two buckets of capital. One to buy ETFs, the other to create your own stock portfolio to try to beat whatever index you want to beat. I would say 99.9% of all investors should not try this.

It is a lot of work. You need to study a lot of companies better than ChatGPT and the next generation of Generative A.I. and you need monitor these companies closely. Frankly, with all our commitments in life, who has time to do this?

Unless you are really interested, really committed and have that spare resource, time and energy and you think you can beat Generative A.I. to it. Then go for it.

Otherwise, just buy the S&P500 or some other broad base ETF.

Top Picks

Once in a blue moon, we see something that makes a lot of sense. This could be an opportunity of a lifetime where there is a huge valuation arbitrage opportunity. We have done the work, we know the risk reward and it makes sense to make an outsize bet on something.

For readers following this substack, it could be Warner Bros Discovery (WBD). I have studied this stock for years. My model shows more than 100% upside. It could even be more. Some time in the past, Warner Bros was the arch nemesis of Disney. If Disney is worth hundreds of billions, today isn’t WBD way too small at c.USD18bn? If I am wrong, the downside seemed limited, but if I am correct, then all the work done should warrant a bigger bet, to make a difference to the portfolio.

The other relatable example would be Nvidia. Many shrewd investors have identified the name a few years ago. It didn’t even have to be an outsized position. If you had just a bit of Nvidia, would you have made a lot of money today. In Singapore’s context, the name was right under our noses - DBS. Singapore banks had gone up 10x if you have held it since 2003, just 20 odd years ago. DBS’ market cap is SGD100bn today.

Of course, hindsight is 20/20.

Moonshots

We are calling the last section Moonshots but it should be thought of an all-encompassing catch-all to cover every possible remote scenario so that our wealth can be preserved and enhanced. Let’s talk about alternative assets first.

For the rest of the post, please visit 8percentpa.substack.com