Diversification or diworsification?

According to Markowitz (he is a Nobel Prize Winner on Portfolio Theory), diversification is the only way to achieve a higher return at the same level of risk. This actually makes more mathematical sense than common sense, and most value investors do not subscribe to this thinking. Let's try to examine whether diversification is actually diworsification.

To paraphrase the essence of Markowitz's theory, basically it means that if you are only willing to accept the risk that you will lose, say 10% of your principal, and a portfolio of stocks and bonds can give you 8% return, the only way that you can earn more than 8% is to invest in other asset classes like commodities, real estate, bonds, private equity, integrated resorts, submarine fiber optic cables and credit card points. (Ok the last 4 are not socially accepted asset classes btw)

In order to achieve the maximum positive effect of diversification, the asset classes should also move in different directions, i.e. when one goes up the other should go down. This way, say if equity markets crack, hopefully bonds or commodities will still help to offset some losses. Ok we all know that's bullshit right?

Buffett and Peter Lynch (he is a star fund manager at Fidelity some time back, quite famous too) thinks diversification is bullshit too. Lynch calls it diworsification. This is bcos all of us have limited time and resources, and it does not make sense to try to invest in as many field as possible since we can only be an expert in only a handful of them. You should bet your entire net worth only when you find a potential ten bagger (a stock that will rise 10 fold) and only if you are damn sure. This way you maximize your effort in research, make money, feel happy and can go buy that Prada bag for your wife and that Ferrari for yourself.

I kinda think that the truth is again, somewhere in between. Diversification helps to a certain extent, but not as good as what is promised by textbook, but if you don't diversify, chances are that one basket that you put all your eggs will break. (Trust me, Murphy's Law works.)

As individual investors, diversification options are actually quite limited, we do not have access to some non-conventional asset classes like commodities and private equity. Most people will have to stick with bonds, equities and cash. Even so I think there are some benefits that could be reaped. E.g. by investing in stocks in the different sectors or different countries. You don't need a 100 stock portfolio to enjoy the benefits of diversification, the textbook says 30, personally I think anything more than 5 stocks should be good enough.

Of course, when the markets correct, like last week, correlation of all kinds of asset classes that you can think of goes to 1. i.e. everything will crack together, commodities, bonds, stocks, real estate, private equity, Toto, CoE, salaries etc. And diversification fails. But by and large, diversification should help to generate a better return for the same level of risk.

See also Efficient Market Hypothesis
and What is the Stock Market

CFD Diversity

Add diversity to your stock portfolio by trading CFDs. CFDs are margined products so a trader only has to put up a fraction of the cost of the stock. A trader can profit from both rising and falling prices in value if the right choices are made. A properly placed stop loss can help to manage any risk.

On Timing, Sizing and Sell Discipline

Today, let’s spend some time to talk about some of the important nitty gritty of investing. This is not the usual fun and games - big ideas, cheap value names or best-in-class companies. Everyone loves ideas, what to buy, deep dives. But what actually brings the dough home is good money and portfolio management. As such, we need to talk about sizing and timing and how we should construct our investment portfolio.

There are three crucial aspects: sizing, timing, capacity and a fourth all-important factor: sell discipline. A lot has been said about how an investment will make money when we buy at the right valuation, but real money only comes into our pockets after we sell. So let’s talk practical about that too. First, it is about sizing the bet.

1. Sizing

Most people do not think too much about sizing and I seldom read literature about sizing which is unclear why given its importance. Perhaps sizing reveals too much financially or maybe we assume everyone knows how to size? But here is what I have figured out over the course of my investment career. Sizing wrongly hurts a lot. It is not easy, it requires practice, everyone has different thresholds and hence we should discuss seriously about sizing.

The first question to ask is how much can you lose and not be affected psychologically? Is it $10k or $100k? Or maybe it is lower or higher. There is no shame about it. If it is $1,000. Then that is your maximum bet size. Don’t mess with your mind. If losing $1,000 makes you unable to sleep, what is the point of playing this game with higher stakes and hurting yourself emotionally and psychologically?

So start with the size that makes you comfortable.

There is a related question which would be if we only bet $1,000, how can we get rich? Well, it will take more than a few ten-baggers and home-runs, but thankfully, low commissions today can make $1,000 bets go far. Back in the days when there is a minimum commission of $20 per trade, it was not feasible to bet $1,000 because you incur 4-6% of transaction cost just by buying and selling. But today, we can do it!

For more practical numbers, let’s use something with some macro-economic basis. I would start with $50,000. That is my maximum bet (not to be confused with initial bet) and a certain delta around that number might work better for you. Why $50,000? Well, it was slightly higher than my first annual paycheck and it is also in the same ballpark as the GDP per capita of OECD countries, which is $42,000 according to the link below.

https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=OE

But let’s talk about first paychecks. That’s more interesting. When I started work about two decades ago and took my first paycheck home. I was so happy, I gave money to my parents. I have enough money for the first time to afford stuff. It feels good. Everyone remembers their first paycheck.

So when I lost on an investment that was bigger than this first annual paycheck. Imagine the pain. Imagine I had to tell my better half I lost that much money. I couldn’t sleep just thinking about it. So that was how I figured out, my maximum loss is $50,000. It doesn’t matter if you think you have done your homework. You know the stock or investment and you are sure it will not drop beyond 50% or 80% therefore using this way to think about a maximum bet size is wrong. No it is not because if you have invested enough, one of those wrong bets will go to zero.

So when you have determined that number. Make sure you don’t ever buy more than that in one investment. Next, we need to build that up over tranches. You don’t put all $50,000 on Day 1 because you will never know if the stock will go down more and you lose the chance to buy at a lower price.

My rule of thumb is to think in baseball batting terms. You have three swings. After that, you are strikeout. Each swing you place 1/3 of the position. Some people like to do more, some less. It depends on how well you can do this, it is a subtle art.

Some people say it means a lack of conviction. If you are sure, just go all in. They have never invested. You go all in, you can get strikeout after the first swing. How does that feel? If you are really confident, maybe you can go 1/2 instead of 1/3 with your first swing. Going all in doesn’t end well most of the time. Trust me, been there, done that. Nope. Didn’t go well.

So if the first swing turns out well, the stock runs, then unfortunately, you cannot deploy the full amount. At least we have benefited. But if it didn’t, this is when the second and third swings will count. Here we will need time diversification.

2. Timing

Timing is about time diversification. You would have done a lot of homework before the first swing. So by and large, there will be enough upside. You know the margin of safety. But to make this work better, say the first swing didn’t go as planned and the stock corrected 10%. Then it pays to wait one month and take advantage of market movements later for the second swing. Of course, you also want to pay attention to the price. If it drops between 10-15% lower, then it is good to get in by averaging down.

There is another reason to think monthly or even longer. We are all busy with our lives, if this is not your day job, maybe spending a few hours once a month to focus and think and then execute is the best option. Don’t go buying today, buy more tomorrow if it drops or sell next week after you made 5%. It takes up too much energy. So set aside a time every month to think and trade. Then move on, come back and monitor monthly.

There are exceptional times when you need to do a lot in a few days. Think March 2020. Pandemonium struck but it was also the best time to buy. It takes guts. You have be able to recognize such times and deploy money well. Most investors will not be able to do so. They have either lost too much to think straight or just scared cold and unable to move. I would say you need to think in terms of your portfolio, not individual bets. Ideally, if you can deploy 50% of your portfolio in Mar 2020, you would have created a huge positive impact. There is no second chance next month. The window will be just days. But it is so scary that it is hard to move a lot. You are figuratively catching a falling knife with your bare hands, maybe even your kids’ hands. So try your best. Test your capacity.

3. Capacity

Besides the capacity of your gut i.e. ability to take losses, capacity is also about the number of bets, stocks, investments, ideas that you want to have. Most laypeople think that a portfolio, especially an individual or retail portfolio should have just a handful of bets. Depending on the individual it could be 10 or 15 bets at the maximum. For some people, it could be just 5 or 6 concentrated bets.

But it comes back to sizing. Unless you can stomach big losses, having say 5 bets, each bigger than GDP per capita of OCED countries is not something everyone can do. Hence a lot more bets at your maximum bet size makes sense. The upper bound could be your capacity to monitor. If you don’t want to monitor more than 10 bets. Then it is 10.

However to enjoy the benefits of diversification, one of the few free lunches in investing, maybe the number of bets should be big. The CFA textbook says it should be 30. But most people may think that is too much diversification. They cannot remember yesterday’s lunch, or 3 things the last writer asked them to remember, let alone 30.

In statistics, recall that we learnt about the Law of Large Numbers. So what is the smallest number that we can to be considered a Large Number? Remember N? Our teacher Mrs Shirley would say N >= 30. So maybe it should still be closer to 30.

Some astute investors don’t subscribe to this. Except for Peter Lynch, who managed Fidelity’s Magellan Fund, became one of the most celebrated successful portfolio manager and he held over 1,000 names. Today, most good investors think that an ideal portfolio should have 10 to 15 names. Warren Buffett said it was 20 for him. So, the idea is to pick your 10-20 best ideas and rake it in. You cannot have 30 best ideas, surely some of them are not best by the time you get #29 on that list.

I do not know which school is right? I do like to stick to the textbooks, maybe it is good to try to get 30. What worked for me is to have 8-10 top ideas and another 8-10 potential top ideas and the last few tail ideas that you want to have it in case they become so big for whatever reasons. This will be the goal for this newsletter. We will aim to get to 30 ideas!

4. Sell Discipline

When we have our best ideas, we were taught to buy and hold forever. “Our holding period is forever.” so says the Oracle of Omaha. No value investors talked about sell discipline. Naturally, I was brought up to think buy and hold.

It didn’t work for me.

Selling is so important. To sell well is perhaps the hardest part of the art. Well, to be fair, Warren Buffett did say never sell the best names and if you must, only sell when:

1. you have a better opportunity

2. you need the money for more urgent matters

3. when the investment thesis has gone wrong or has changed

I am not about to refute the Oracle so the above reasons are definitely the best reasons to sell. But as alluded throughout the article, investment is about timing, sizing and the many nitty gritty important details. So, the big idea is that we don’t have to sell everything all at once. We only sell 1/3 or 2/3 and we can hold the remaining 2/3 or 1/3 forever. We can use time diversification to sell over time when the right reasons present themselves to sell. With this in mind, I have added three more reasons when we should sell.

1. We should sell when valuation is rich → sell 1/3 or 1/2 depending on how expensive the stock has become. We can then recycle that capital to better names, which is #2 below.

2. We should sell to rebalance the portfolio (for me this means keeping bets at $50k if they have grown to $100k, ie lucky me! But we need to bring the notional sum down because losing all that gains back is very bad psychologically.

3. Lastly, we should sell when markets are overall expensive (e.g. Dec 2021). Although it is difficult to do so because at that point in time, we won’t know whether it is at the peak. As such, we diversify the selling, ie selling 1/3 or 1/4 or in different proportions. It is also good to accumulate dry powder during such periods so that we can deploy back when markets turn cheap.

It is important to understand your own style as well. If you tend to be too early when buying, then buy slower with the first bets being smaller accordingly. If you tend to overstay, then start doing bigger first sells. Understand your maximum loss and size according to your most comfortable level, diversify both the number of names and buys / sells over time, figure out your best ideas and structure the portfolio accordingly. When it is time to sell, look closely at valuations and the overall markets and document everything. With these steps hopefully we can get the portfolio to grow well. Target just 2-3% of value up every month, over time it will compound crazily.

Huat Ah!

Random Thoughts on Various Investment Topics

In this post I would like to share my thoughts on my stance on various matters in investing like whether EMH works or not, TA is bullshit or not etc. So let's start!

Value concepts: I subscribe to most value investing concepts like margin of safety, circle of competence, buy things on sale, value-for-money etc. Most of these are very common-sensical and I don't think there is a need to argue with that. If you have no idea what are these, start reading this blog from the first post back in early 2006.

EMH is bullshit: One thing that I do not agree with other value investors would perhaps be the lack of respect for efficient markets. I think that markets are efficient and it's not easy to beat them. The market is the confluence of everybody's viewpoints and this collective wisdom is actually, usually right, at that point in time. However the market also has an investment horizon that is the average of its participants' horizon, which is usually not very long, abt 1 yr I think. This is probably the only reason why value investors get to have an edge, bcos we look at co.s with solid fundamentals that should outlast market's short-termism over time. Still, I don't think it's easy to get much higher than average return of 8%pa.

Chart reading: I used to think that chart reading is pretty much bullshit bcos if you look at past tosses of coins, can you use that to predict the outcome of your next toss? No. But that is what TA is trying to do. However, prices are not like coins and do have some memory so it might predict future prices. But my guess is its predictive power is probably 2-3 days. So, not that useful. The reason why TA can still work is probably self-fulfilling prophecy at work. Lots of participants playing the game with TA and hence prices do bounce off support levels. I did a simple simulation on the comment section of the last post. Basically, it's possible to make positive return using TA but again, you may not beat market returns. Nonetheless, there are pple who can beat the market using TA and I salute them.

Trading rules: I think this is a useful tool but it works only if you fit it to your temperment, style and investment horizon. E.g. cut loss at -10%. Some can be religious and do it everytime. Some cannot, and see -10% become -50% and curse and swear. According to the value doctrine, you should buy MORE when it drops bcos it just got cheaper right? Well it can go even cheaper, like 2008 and 2009 or even 2010. And your initial analysis must be right. ie things have not changed. If things have changed, the stock is no longer at the original intrinsic value that you calculated, then really must cut. Take profit rule sucks I think. If you sell anything with a 20-30% profit, how are you ever going to make the big buck?

Diversification: Again, this is probably where I differ from the guru (ie Buffett). I think this makes a lot of sense. Diversification is said to be the only free lunch in investing. Of course one major shortcoming is that you must have enough capital. Some textbook says around 30 different investments and they must be relatively uncorrelated lah. This is hard, bcos in today's world, everything just follows everything else. Nevertheless, don't put all your eggs in one basket. Yes we have limited time, money etc. You research on this stock so much and buy 1 lot and see it go up 200%. WTF right? But which is more painful, entire savings become zero or missing out 200%? Beware of the Black Swan!

Well, as most would have realized, I don't subscribe to everything on the value investing doctrine. But I think the core of successful investing has to be Graham/Buffett value philosophy. And now is the time to take action as the fire sale is going on!

Balance Sheet and Asset Allocation of a Singaporean Family

Before we go into the asset allocation , let’s take a look at the balance sheet of the Singaporean family. BTW I made all the no.s up and it is not based on any official statistics and no scientific/accounting methodology has been used to come up with the no.s. So please take them with a bucket of salt ok?

Anyways here it is:

Balance sheet of a typical Singaporean family
Assets
Cash & CPF $25,000
Stocks $25,000
Car $45,000
Other assets $5,000
HDB $400,000

Liabilities
Mortgage $350,000
Car Loan $50,000

Shareholders Equity $100,000

Thanks to the real estate recovery in the last 1 year, the typical household now sees some positive equity (as compared to past 10yrs of negative equity for a lot of Singaporean households)

So if we take a look at just the asset part we come to realize that a typical asset allocation/portfolio mix of a Singaporean family is about as interesting as watching a big snake poo-poo. i.e. not interesting at all lah! Anyway, in percentage terms, this would be

5% cash
5% stocks
10% in totally worthless depreciable assets like 1 x Automobile, 2 x Plasma TV and 32,000 credit card points exchangeable for 1 x 60GB white silly looking music player which is also worthless. (btw all these are under Other assets).
and
80% real estate (HDB flat)

If we apply what we have learnt about Modern Portfolio Theory, diversification and Markowitz, the Singaporean household is really quite undiversified and the fortunes of the household is basically determine by how much this little red dot is worth in the eyes of the world.

Fortunately our Government (with a capital G one, don’t pray pray) realizes this (maybe 10 yrs ago) and has planned to make the little red dot the favourite spot for foreigners to come and work and/or invest in our real estate. In concrete terms, 2 important policies made it all successful.
1) The 2 x Integrated Resort (IR) projects
2) The decision to grow our population from 4mn to 6mn pple
And as they say, the rest is history.

So what does it mean for the Singaporean family that is trying to push its asset allocation closer to the efficient frontier? Well if you believe in the almighty of our beloved Government, you can buy more real estate, hopefully somewhere overlooking Marina Bay and Sentosa. If your bet is right, forget about efficient frontier and the rest of the crap, you can start writing your own blog about how you made it and how this blog sucks.

If you believe in Markowitz and diversification, then it’s better to think of how to diversify the portfolio from real estate. Alas, this is not easy bcos RE will probably make up a huge chunk of your asset portfolio and you can only either save a lot more money to invest in stocks or other asset classes, or sell your property and downgrade. I admit both are not very realistic lah. But it’s important to keep this in mind though. And when you have the means to diversify, you should do it.

See also Efficient Market Hypothesis

Minimalism, Decluttering and Portfolio Concentration

According to Wikipedia, Minimalism in art began in the 1960s and the 1970s when a group of artists decided to protray art using the "Less Is More" concept. In New York's Museum of Modern Art, we can see a section dedicated to minimalism. One of the famed artists Robert Ryman painted only with white. He is considered as one of the fathers of minimalist art today.

Robert Ryman's celebrated work

Seriously, I could paint this. My 11-year-old son probably could do better. But I guess it is about articulating the idea, being the first and being able to put in into everyone's mind that less is really more. And so, after a few decades, the minimalism in lifestyle movement took off and moved into our lives. It started with a Japanese lady - Kondo Marie. She is the Queen of Decluttering in the Land of the Rising Sun. 

Kondo's stroke of genius was understanding that most people would not understand why Robert Ryman became a celebrated artist and why minimalism would not work for most people, at first. So she introduced the concept of decluttering. Decluttering is a way to manage our relationships with our stuff. In today's world of ultra-consumerism, we have more stuff than we have space to store them. Sometimes, we don't even have time to use them. We buy tonnes of stuff we don't need and we cluttered up our homes and our minds. 

Decluttering is Kondo's way to simplify. But it is actually also a half step to minimalism.  She put forward a very simply idea: for every item in our possession, we should hold it in our hands and search our feelings thoroughly, we should know whether we actually need it. If we don't, then we say goodbye, trash it and declutter. When we are done if the hundreds or thousands of items in our homes, we should feel refreshed and reborn, ready for a new life.

Kondo Marie

And she's right. So, people started decluttering and some people took it all the way. That was the start of the minimalist lifestyle. Some people managed to reduce their entire possession down to 50-100 items. They use the same soap to wash their clothes, their dishes and themselves. This is serious and minimalism has serious implications. If the majority of people started living this way, then we can see many companies being affected. Consumer names, furniture makers, even Apple. 

But that's perhaps years down the road. Apple should be the most valuable company in the world for the foreseeable future. Even after the stock is down 20%.

The important applicable concept of minimalism to portfolio is actually portfolio concentration. This is a perennial topic that deserved more discussion since I probably last wrote about this 11 years ago in a short post: Diversification or Diworsification. After a decade or so, I guess I found my own answer. In short, the answer is to concentrate to the point where you are comfortable. So this is different for everyone. 

Warren Buffett gave his answer: imagine you only have 20 bullets, how would you invest? That's his answer and since he is the best investor the world has ever seen, maybe the answer is very close to the right answer for most people. The answer could be near having 20 stocks, or 20 investments and make sure you studied them really well and know with very high probability that they would work. 

This right answer also depends on a few things so it's important to know them. For most laypersons, investing is a part-time hobby, so it really takes a lot and a long time to learn which are the right 20 names, so maybe for them, even Buffett's ideal answer might not be for them. If that is so, then it could 20 ideas with a mixture of ETFs and low risk investments like bonds or blue chips rather than 20 individual stock names. Also it's about concentration is these names. Unless you are really, really, really sure, try not putting 50% of your entire net worth into one stock. Warren Buffett did put 30% of his net worth into Berkshire Hathaway in the 1962-1964 after the original owner went back on a promise to pay Buffett the right amount in a tender offer. But Buffett was really, really, really sure. (Of course there is also a twist to this story, which shall be revealed at the end of this post.)

Project 333

In the world of decluttering, another number came up. It's 33 from this movement called Project 333. This project came about for female minimalists. It was a challenge to wear only the same 33 items for 3 months. I looked at this and thought, "Maybe I could do it if I really tried." But I truly admired the ladies who did this and succeeded. I looked at my wife's wardrobe... She probably needs Project 999: wearing 99 items for 9 days? Still, I love her the way she is. We all do right?

Okay, so for portfolios, the right answer is probably 20-30 different ideas, stocks, names. In portfolio management, we also know that diversification is achieved with more than 30 names. This is where unsystematic risks (i.e. risks due to individual names blowing up) are fully reduced and what's left would be systemic risks which no one can avoid (i.e. like global markets falling together) as long as you want to earn market returns (and not fixed deposit returns).

As mentioned, there are some investors who believe this could be 10-15 and not 20-30 and they have actually achieved that. Some are activists, which is understandable since you cannot be active and join the boards of 30 companies trying to push them all to transform. On the other hand, there are investors who hold hundreds if not thousands of names. Peter Lynch and Ben Graham, the father of value investing, are famous for holding very diversified portfolios. I believe that on this spectrum, these gurus would still have the 10, 15, 20 or 30 names that they believe will deliver the bulk of the returns. But they keep the tail to find the 10 baggers or to hold on for other reasons (sentimental ones maybe? Like why I still hold dogs like Singtel and Keppel).

Personally, I belong to the latter. I have 60 odd names and I am actively trying to push up the best 20 names I think should deliver the bulk of the returns in my portfolio. The top names today are companies that have strong business moats and high returns according to my models because they are so beaten down. The largest positions rarely hit 10% of my portfolio and that has worked for me. It is different for everyone, just as the extent of decluttering and minimalism is different for everyone.

So to end this post, let's just spell out some answers again: have as many names as you think is correct for you but also concentrate on the top 10, 15, 20 that will make the most impact. But be careful not have 1 or 2 names becoming so large (like 50%) that it overwhelms everything else. Although Buffett did bet the house on Berkshire, he made rather interesting confession some 45 years later. Here's the explanation from Wikipedia:

In 2010, Buffett claimed that purchasing Berkshire Hathaway was the biggest investment mistake he had ever made, and claimed that it had denied him compounded investment returns of about $200 billion over the subsequent 45 years. Buffett claimed that had he invested that money directly in insurance businesses instead of buying out Berkshire Hathaway (due to what he perceived as a slight by an individual), those investments would have paid off several hundredfold.

Hope this helps! Huat ah!

The Truth Shall Prevail

Value investing is based on an inherent fundamental assumption: that someday, an asset's true value (or intrinsic value) would be realized. Hence buying a stock when it is trading significantly below intrinsic value would yield good return bcos they eventually trade back to its intrinsic value (albeit after a long time and only for a short while). But what happens if the stock never reverts to its intrinsic value? Is that likely? Well I don't have a good answer to that, but let's explore this topic a bit more broadly first.

Analogous to this the concept that a stock eventually reverts to its intrinsic value are similar logics like: the truth shall prevail, good will triumph over evil, hardwork eventually gets rewarded etc. I would think that these tenets should hold most of the time, if not all the time. The issue in the real world is that it can take generations for them to come true. Think Khmer Rogue, North Korea. Think about why some incompetent managers can stay in the firm for years. Or why some evil deeds never get punished (50% of murder cases are unsolved). Well the stock market is efficient, but the reality may not be as efficient.

Khmer Rogue did get its retribution after killing 6 million Cambodians 30 years later, and one or two ex generals are getting trial. One may say that this is too little too late. But Cambodia is finally thriving now with its Angkor Wat and a few hundred other Tomb Raider ruins. But our beloved tyrant in Pyonyang is still enjoying his tyranny. It's been about 20 years of hardship perhaps for the North Koreans? Well I hope I can see some resolution in my lifetime.

Of course, bad managers, they manage to stay afloat for some time but eventually they are either being force to retire or they themselves choose to retire after creating maybe 20 years of negative goodwill amongst colleagues. Yes the damage is done. But what I think could happen is that these people accumulate so much negative goodwill during their lifetime, even though they can be rich and living a luxurious life after retirement or termination, they are not happy. And they die not happy.

As for murder cases, again we can only hope that goodness finally prevail whenever the murderer reflects that he lived a meaningless life, caused only harm and pain to the world and dies a lonely death with nobody to mourn for him, eventually.

The fortunate thing about markets would be that many many participants are judging the stocks, everyday. Hence prices revert to value relatively quicker (but still a good 3-5 years). However there are cases that prices never revert back to value, then shit happens, like the company got taken private at a cheap price (very likely in Singapore). But overall, I would say maybe 70-80% of the time, prices will revert back to intrinsic value over a period of 3-5 years or sometimes a bit longer.

In the case of bad tyrants and bad managers, I guess the problem lies with too few judges. For bad tyrants, virtually nobody can judge them until things get so bad that the people revolt (usually 50 years or more? If we look at the history of China). Or in today's context, global leaders may force a regime change. For bad managers, well perhaps a few bosses on top judging them but not a whole lot efficient. Hence, in my opinion, universal truths can take a long time to prevail. In the worst case, a hundred years.

What is the solution to this?

In the stock market, it would be some diversification, buying enough value stocks so that even if one or two stocks never returns to its intrinsic value, the portfolio should be ok. And that is perhaps why good value fund managers tend to be able to beat the market more often than other managers.

In reality, my current thinking would call for dis-association. Or simply escape from such situations, bcos we cannot live a hundred years to wait for things to revert. I always wondered why North Koreans can endure such shit for 20 years. Shouldn't 90% of the population be gone by now? Indeed I estimated that 0.5% of the population escapes the country every year. But the conclusion I arrived at is that people weigh the risk of dying while escaping vs risk of dying in North Korea and choose the latter. Aside from the great famine in 1993-95, most people have enough food to eat so as they won't die, they have a shelter over their heads, medical is taken care of somewhat. And they adapt. However population growth for the country is near zero or may even be negative. Needless to say, economic growth is also near zero. Well that's North Korea.

As for situations closer to our reality, like in the cases of your bosses happening to be real jerks, pls quit your jobs asap. That is the first step, the 2nd step would be to help the world by revealing their evil deeds such that justice can prevail faster.

Portfolio Strategies to Build Wealth

This article was first posted on 8percentpa.substack.com.

There is an interesting book published in 2020 called the Psychology of Money written by Morgan Housel who was a financial analyst and fund manager. He wrote about simple strategies and how wealth is best compounded over time. There is no need to complicate things and most importantly, we need to just save up and invest simply - like buying the S&P500. Then time will take care of everything else.

"Warren Buffett is a phenomenal investor. But you miss a key point if you attach all of his success to investing acumen. The real key to his success is that he's been a phenomenal investor for three quarters of a century. $81.5 billion of Warren Buffett's $84.5 billion net worth came after his 65th birthday. His skill is investing, but his secret is time." 

- from the Psychology of Money by Morgan Housel

Successful investing may not be about stock picking, or following market news and trends, or all the complicated stuff the investment world likes to do. It is time and discipline, it is not making investment mistakes over that long period of time.

The following is a good quick review for the Psychology of Money:

https://sakshikumari204.medium.com/book-summary-7-the-psychology-of-money-by-morgan-housel-bb39a96558c3

While we already know all this, reading the book made me think very hard about how what we have been doing so far can be even more useful. We have analyzed more than 10 ideas, mostly stocks of companies, some mid caps, covered by analysts. Some Singapore names with little coverage, which could useful to investors in our Little Red Dot. Some really large cap, like Google / Alphabet. A lot of people have written about Google. This infosite won’t be the last to analyze Google. So, how do we make the impact most useful to our defined audience.

For some of us, like Taylor Swift, things can grow so big and the audience becomes everyone. For this infosite though, the target audience could be young to middle age adults looking to build wealth. Analyzing stocks would play only a small part. As such, we need to better redefine how to help young adult build wealth effectively.

We need simple and yet effective investment strategies.

The market is efficient. 80% of professional fund managers cannot beat indices like the S&P500 or the MSCI indices i.e. the generate less returns than market returns. Warren Buffett once said that the CEO of Vanguard, John Bogle who popularized index funds and then ETFs did more than he could ever do for investors. So investing in ETFs should be an integral part of every investor’s portfolio, especially young families’ investment portfolios.

The traditional investment portfolio starts with 60% into stocks and 40% into fixed income instruments. This utilizes diversification and has generated stable long term returns for institutional investors such as endowment funds, insurers and mutual funds. As individuals, we could also benefit from this simple strategy.

Fixed income returns are very attractive today (think short term US Treasury Bills generating 5% and Singapore 6 month Treasury Bills generating 3.8% risk free), therefore, for me, the right starting mix could be: 

• 40% fixed income with Singapore 6-month Treasury Bill as the base and then building up from here 
• 40% stocks with S&P500 ETF as the base and build from here
• 20% risk taking activities including single stocks (such as those we discussed on this infosite) and other investments

We can tweak each category to suit our own needs. If you are more conservative, you can do 50% fixed income. For some, risk taking could be 30%. To each his or her own. Let’s dive into each of these categories.

1. Fixed Income

We have spoken so much about T bills. This is just the simplest no-brainer investment today that everyone should do. In Singapore, this instrument is yielding 3.8% risk free. Simple desktop research on Google shows that the famed 60/40 investment portfolio returned c.9-10% annually over the last 25-50 years. However, it is predicted that future returns could be much lower at c.4% based on the article below.

https://caia.org/blog/2023/06/24/spectacular-past-and-concerning-future-60-40-portfolio

If so, at 3.8% per annum, Singapore T-bills can generate the bulk of the c.4% return! While I personally really like T bills (because it is risk free), there is a whole fixed income universe out there. DBS, Singapore’s largest bank, recently issued bonds at >5% and we have a slew of USD-denominated corporate bonds. But my experience with bonds had been terrible, so for now, I would simply advocated putting most, if not all, of the 40% in Singapore T bills.

2. Stock ETFs

It has been shown time and again that it is very difficult to beat the stock market. The S&P500 has returned 10%pa for more than a century. The rise of index funds and subsequently ETFs came precisely because active management wasn’t able to even just match the returns of the indices Since the first ETFs launched in the 1990s, we now have thousands of ETFs listed on various exchanges.

The largest ETFs have AUMs in the hundreds of billions of dollars and can cater for any investment need one can think of. The following shows the list of the largest and most popular ETFs and as mentioned, we have many, many more to choose from.

The following would be a list of ETFs that our team had followed and is worth doing more work on:  

• NOBL - Dividend Aristocrat 
• EMQQ - Emerging Market Tech 
• HACK - Cybersecurity 
• SOXX - Semiconductor 
• GLUX - Luxury goods

Interestingly there is little in-depth analysis on ETFs online perhaps because it entails too much effort. But this author believes more could be done. It is tedious work though. We need to run through numbers for each and every company in the ETF to come up with the valuation, free cashflow, growth profile etc. As such, our proprietary database will be available only to paid subscribers.

3. Risk Taking Activities

Hitherto our newsletter has focused on this final 20% of the portfolio. Deep analysis is at the foundation of what we do and we shall continue to publish our work on interesting companies and ideas. We hope our skills can also be put into good use by providing value added services on valuation of private companies and businesses. We will also put all the ideas into a portfolio and see how we compare against the S&P500 over time. Similarly, proprietary analysis and portfolio returns will be available for paid subscribers.

4. To sum it up

Time is of essence (albeit in a different way) and if we invest correctly based on the above, we would be compounding wealth at c.8%. Based on the table below, we can expect to slightly double our money in 10 years, more than quadruple it in 20 years and grow it 10x in 30 years. That’s unrefutable math on paper.

In reality it’s a journey. We must remember to smell the roses, spend some of it (there is no point compounding money for afterlife ;) and importantly never risk losing so much that it can bring down the house. And this is a good segue to give sneak preview on the next discussion: property. 

Huat Ah!

This post does not constitute investment advice and should not be deemed to be an offer to buy or sell or a solicitation of an offer to buy or sell any securities or other financial instruments.

Analysing ETFs

It came as a pleasant surprise how SGX had expanded its portfolio of ETFs to 30 from a pathetic 10 when I was looking at it a couple of years ago. Recently, the biggest distributor Lyxor (Soc Gen), announced a further 5 ETFs to be listed. Looking at this trend, one can expect the no. of ETFs to go to 50 in the next 1-2 years, providing retail investors an inexpensive way to diversify and invest globally.

http://www.sgx.com/wps/portal/marketplace/mp-en/products/securities_products/etfs
This link provides a lot of info on the ETFs listed on SGX

At this juncture, I thought it would be good to post something about this investment product which might be one of the most important factor to help one achieve a 8%pa long term rate of return. Here are a few things I thought one should look at.

1. Expense ratio
Needless to say, this is probably the first thing to check. SGX listed ETFs have expense ratios ranging from 0.4-0.9%, which is kind of expensive compared to those in the US (as low as 0.2%) but much cheaper than unit trusts at 1.5% sales charge and 1% management fee. Well Singaporeans always get short-changed, so just live with it.

2. Market maker
Some ETFs listed way back in 2001-2002 has zero trades for the past 8 years without market makers which I think resulted in their failure. Now it's impossible to buy or sell them as there are no buyers or sellers! Even though its a listed product. Then came Lyxor with its market maker (basically some execution party and ensures you can buy or sell the ETF even when there is no counterparty) and viola, ETFs took off and Lyxor now has 50% market share of all ETFs listed in Singapore.

3. Spread
Even though there is a market maker and trades get executed, some times we need to pay attention to the spread. My rule of thumb is that if the spread is more than 1%, then it's a huge transaction cost. It is not something that you can change though. My greatest concern would be that if I hold this ETF for 10 years or more when the whole world has lost interest in it, will the spread balloon? Meaning I can't sell it. I have no answer at this point. Enlightened parties, pls share!

4. Dividends
Some ETFs listed on SGX give dividends, some don't. Personally I prefer dividends, a bird in hand man! Yes academics argue it doesn't matter, it might even be better bcos the dividends get re-invested - you don't get taxed, you get higher compounded return! I don't care, I want income stream and I want it now! Well that's me though.

5. Market Cap
The size of the ETFs determine if its likely that this product will continue to be listed, and I would say go for stuff with like USD 50-100mn in size. If it's too small, there might be a chance that the distributor will delist it. Then it's trouble trouble.

6. Valuations
This would be the single most important factor determining what or when to buy. As with stocks having their PER, PBR etc. ETFs also have their PER and PBR. It is not easy to get those figures (without a Bloomberg) but I think you can try to call their hotline and ask around. My general rule of thumb would be buy at PER 12x and PBR 1.2x. Some ETFs were at this attractive level earlier this year, now they are closer to PER 15x and PBR 1.5x. So wait for them to come down.

7. Components
Ultimately, ETFs are made up of stocks. So it pays to look at what's inside and see if you are comfortable with it. As with most indices, the bulk is actually finance stocks. Like STI is 40% banks maybe 20% Real Estate stocks. Russia used to be the hottest thing in town bcos it was mostly just oil companies. Since what we want is diversification, I would suggest look for ETFs that are more balanced, or buy a few to balance it out yourself.

8. Prospectus
Lastly check out the ETF's prospectus, see if anything is amiss or if there is something bothering you? Give them a call if need be. Usually it's some salesperson that is trained to answer some standard questions but no harm trying and hope they managed to help.

I am also still learning about all these, so knowledable parties pls share what you have learnt. 2009 and 2010 would be a good time to finally put money to work and earn a decent rate of return!

QYLP ETF - Deep Dive

This post first appeared on 8percentpa.substack.com

We wrote an earlier post on this covered call ETF. We discussed how it could be an interesting hedged play to benefit from the continuing rise of the Magnificent Seven and NASDAQ. Today, we will go through the fundamentals, technicals and valuation more deeply.

1. Fundamentals

QYLP is a covered call ETF for the NASDAQ100 (top 100 stocks on NASDAQ) denominated in British pounds (GBP). There is a primary ETF listed on NASDAQ with ticker QYLD and it tracks the index BXNT which is basically the same thing - covered call version of the NASDAQ100. Both QYLP and QYLD pay dividend monthly by writing covered call options of its constituents. Here’s the investment thesis for QYLP:

The QYLP ETF (Ticker: QYLP) is a covered call ETF listed in the UK that tracks the NASDAQ100 but overlaid with the writing of covered calls which generates option premiums that is paid out monthly. It has generated c.7% return over the last 12 months and would be able to contribute stable dividends to the portfolio while providing exposure to the NASDAQ top 100 constituents. While unrelated to activism, this exposure ensures participation in the event of continuing melt-up of the Magnificent Seven and the best run companies in the world today.

QYLP is an Ireland domiciled ETF and has the following fund details (screenshot below). As an innovative covered call ETF, expense ratio is slightly higher at 0.45%. Market cap is decent at c.USD480m (although the primary ETF has >USD8bn in AUM. The primary ticker is QYLD and there is more information for QYLD which is the ticker for the same instrument listed on NASDAQ and the USD denominated version on the LSE. QYLP is the GBP denominated version.

The following table shows the top 10 constituents of the QYLP as of Jul 2025. We can see the Magnificent Seven (Alphabet / Google, Amazon, Apple, Meta / Facebook, Microsoft, Nvidia and Tesla) prominently featured. In fact, the NASDAQ index represents the best run companies on our planet with perhaps a couple of exceptions. In a way, this investment idea is a hedge against missing out on the continuing growth of these greater-than-great companies. Granted the risk is that we are near the peak and should markets collapsed, we will be underwater for a while.

Performance and Track Record

The following charts show the performance of QYLP, QYLD and the QQQ indices. The Ireland domiciled, UK listed QYLP has the shortest track record and the numbers also assume that the dividends are re-invested. At 7+% annualized return, the track record is decent and comparable to the primary ETF (second table below).

Performance of the QYLP ETF listed on LSE with okay track record

The next table shows the performance of the primary index QYLD, listed on NASDAQ and denominated in USD. We can see that the annualized returns are not far from QYLP (above) at 7+%pa. That has been the case for the past 10 years and also since inception in 2013. Both indices are managed by the Korean asset manager, Mirae.

QYLD listed on NASDAQ with longer track record

The last chart shows the performance of QQQ, one of the most popular NASDAQ ETFs and we can see that performance triumphed both QYLP and QYLD by a huge margin. For 10Y, annualized return it was 18.7%! The price to pay for regular dividend income and less volatility is c.10% of return per annum, which is a lot.

That said, let’s analyze some of the positives and risks of owning this ETF.

Positives

Participation and diversification: As alluded to above, the exceptionalism of the Magnificent Seven (Mag7) is something unique in the past twenty years or perhaps the entirety of humankind. Less than 10 companies today generate more than USD50bn free cashflow (FCF) globally on an annual basis and we have almost every member of the Mag7 generating that much. To add, apart from the Mag7, most of the NASDAQ companies in the index are actually best-in-class and might well be the next generation of FCF juggernauts. As such, I believe the risk of missing out is not small and it pays to just have some exposure via this ETF.

To delve delve a little more on this topic, since we pivoted the portfolio to focus on activists, which is inherently a value strategy, there is almost no opportunity to invest in these best of the best NASDAQ names. Yes, one activist had engaged Google and even Microsoft was targeted in the past but activist stocks are usually not compounders. So having c.5% in some of these idiosyncratic strategies is a very pertinent for the portfolio. That’s one reason why we also have physical gold in the portfolio.

Next topic, regular dividends!

QYLP and QYLD’s distribution calendar published on https://globalxetfs.eu/funds/qyld/

Regular Dividend Income: The other attractiveness of QYLP is that we get regular monthly dividend (table above) on top of exposure to NASDAQ. The annual dividend has hovered around 11-14% which is highly attractive to dividend investors. Owning this ETF in the UK, which has no with-holding tax, is also one of the reason why we chose QYLP. Additionally, there is always a base of dividend buyers which ensures liquidity for the ETF. However, we pay a big price for this regular income. We missed out almost 10%pa based on past 10Y track record. Although I believe the gap should close the longer we hold this instrument.

Another way to think about QYLP is that rather than holding cash or T-bills in the portfolio, owning this ETF gives us regular dividends, exposure to NASDAQ and firepower to add to high conviction activist names should interesting opportunities arise in the future.

With that, let's discuss the risks.

Risks

Deviation in performance in performance: While the NASDAQ has recovered and exceeded its previous all-time high in Feb 2025, the stock price of QYLP has languished. I can think of two reasons.

The rest of the post is on substack.

Huat Ah!

2019 Dividend List: 10 Years On

We started this dividend list in 2009 and in a blink of an eye, ten years flashed past. The list had since gone global as there are just that many (or few) dividend stocks in Singapore. Some of them had been bought out, some just weren't strong businesses to begin with and faltered and some others go in and out of the lists and a handful of names remained in it to this day. 

Last year, we dissected global dividend companies and discussed a few interesting names: Coach, Cisco, advertising companies. We see some of the same names this year and sadly, there isn't really good names or stories to share. The list tend to capture past business models with no growth such as brick-and-mortar shops without the new crowd drawing experiential retail innovation like Escape Room, Kidzania etc. I believe this is the key limitation of this list after looking at it for ten years. It spits out past business models and also fails to capture the exciting companies like Google, Live Nation and Netflix.

Well, that's value investing though, we want things cheap, so they don't come without caveats. Most would be cheap for some reason and once in a while we can find a gem. Here's this year's first few names:

2019 Dividend List - Part 1

This year's list featured the same retail and tobacco and old economy companies such as Evraz, a steel company that's at the top of the list. It's probably in a distress situation and the 15% dividend is unlikely to be sustained. Rio Tinto is not about to go bust, so it could be a candidate. Although I always like BHP with its pole position and better diversification across different commodities. So besides Rio, there isn't another name that I am keen to spend more time doing desktop research.

2019 Dividend List - Part 2

The same could be said for the second portion. These are another bunch of old economy names with the more interesting ones all discussed in the last few years: Harley Davidson, Tapestry, IBM and Western Union. BAE systems could be the only stock worth more research given the interest in defense growing as China and Russia try to strengthen their military might to compete with the US. North Korea could also turn belligerent again, who knows. But BAE might have its own issues for the stock to appear here. Or it could just UK's issue again. Given how the Brexit risk loomed larger this year, it's no wonder that this list featured so many UK stocks.

Given the paltry list this year, I thought we could relook at some of the interesting Singapore names. They are no longer featured because of either valuations or margins. To pass the screening, companies need to have FCF yield of more than 4.5% and margins of 8% and sadly, 1-2 Singapore companies failed the margin test while those with high margins are not cheap enough (hence failing the FCF yield criteria). Then, there are some who failed to ROE test (must be more than 10%) as they hold to much cash or equity, which dampens the ROE.

Nevertheless, here's my own curated list of the top dividend stocks in Singapore. I have held some of these for more than a few years and they had generated good dividend return (but unfortunately not too good capital return). So these are ideas for anyone trying to build a dividend portfolio but do your due diligence and double check on valuations and make sure you have a good margin of safety. 

Of the stocks in the list, I would think only Overseas Education would be worth buying today, but it's a micro-cap and there are different risks and considerations as well e.g. liquidity and getting taken out cheap if there's a management buyout.

1. SIA Engineering: Dividend 4.8%, Singapore Airlines' maintenance arm.

2. Vicom: Dividend 6.6%, largest vehicle testing and inspection company.

3. SGX: Dividend 4.8%, Singapore's stock exchange.

4. Overseas Education: Dividend 8.8%, international school in Singapore.

5. ST Engineering: Dividend 3.6%, defense and aerospace, also competes with SIA Engineering.

6. DBS: Dividend 4.7%, Singapore's largest bank.

7. Singtel: Dividend 5.1%, used to be Singapore's largest company. Looking to divest out of this. Wouldn't recommend anyone to buy now.

So, hope this helps, hopefully we have more interesting names to discuss next year!

Here's the past lists:

2018 Dividend List - Part 4
2018 Dividend List - Part 3
2018 Dividend List - Part 2
2018 Dividend List - Part 1
2017 Oct Dividend List - Part 2
2017 Oct Dividend List - Part 1

2017 Mar Dividend List

2016 Dividend List - Part 2

2016 Dividend List - Part 1

2015 Dividend List - Part 2

2015 Dividend List - Part 1

2014 Dividend List

2013 Dividend List - Part 2

2013 Dividend List - Part 1

2012 Dividend List

2011 Dividend List

2010 Dividend List

2009 Dividend List

When Money in the Bank is Not Safe Anymore

This post first appeared on 8percentpa.substack.com. We also provide for monthly investment ideas for paid subscribers.

The last few months saw the spectacular collapses of financial institutions across different sectors and geographies starting with FTX, the crypto-exchange that was a fraud. Sooner than we know, Silicon Valley Bank went into trouble and Credit Suisse needed to be bailed out by its arch-rival UBS. These crises are still unfolding as the repercussions are being felt worldwide. In this post, we hope to highlight the dangers involved and hopefully provide some differentiated advice for investors at the end of the post as we walk through how global financial system came to the current dire situation today based my understanding.

1. In Government We Trust

The modern global financial system today is built on trust. Before that, we used gold. Trust is not easily earned. Bank runs used to be a thing even in Singapore and my grandparents and parents did not put monies in banks until recent times but kept them under their pillows and cookie tins in their homes. My mum still do this today.

From the end of WWII to the 1970s, the financial system was pegged to gold in what was called the Bretton Woods system. The system dictated that all currencies were pegged to the USD and the USD was pegged to gold at USD35 per ounce. This was supposedly sacrosanct and built on centuries of human’s adoration for gold but it came to an end when the US government overspent on the Vietnam War and governments around the world abandoned the pegs which subsequently cumulated in Bretton Woods’ collapse in 1976.

Since then, our currencies are backed by nothing except the promises from governments of the world that the currencies they issued are worth something. Technology then connected the global financial systems via computers and later the internet in the 1980s and the 1990s. This allowed for global transactions to take pace with major banks in their respective countries as the gatekeepers. To summarize, the global financial system today stands on:

i) the trust in our governments and financial institutions

ii) the global interconnected financial web with banks as key intermediaries

2. Financial Web & Contagion

The interconnectedness of this global financial web brings about problems because the whole network is only as strong as the weakest link. Trust is easily broken (which is usually the case) and banks as well as other financial institutions can fail. In the late 1990s, it was believed that a hedge fund called LTCM would cause the collapse of the global financial system if it went bust. The Fed engineered a rescue to prevent that doomsday scenario from playing out. Then in 2008-09, the Global Financial Crisis (GFC) saw how the fall of Lehman Brothers almost brought the whole system down.

Lehman's bankruptcy in September 2008 triggered the acceleration of the GFC which led to AIG, the insurer going under, forcing the Fed to take over the firm. A few days later, money markets and credit funds saw unprecedented withdrawals which again forced the Fed to underwrite everything that people wanted to sell. US Congress authorising a USD700bn fund to buy toxic assets finally stabilized the ship. It was believed that if the Fed and the US government did not use the fund to backstop, the global financial system would collapse. Thousands of banks would fail, just like they did during the Great Depression and unemployment could hit 30%. Millions could be homeless and starve.

It was Armageddon avoided.

But the negative impact still reverberated into Europe causing the economic crisis in Greece, Italy and Iceland. Icelandic banks did go down and required IMF’s intervention. China responded by creating a CNY4trn economic stimulus package which subsequently led to other issues. Lehman’s collapse also hit Asia with the now infamous Lehman mini-bonds hurting retail investors in Hong Kong and Singapore. Retirees invested their life savings with banks that they opened their first and lifetime accounts into these financial products thinking that their monies were safe!

Breaking the weakest link can create contagion across the global system that could bring about the end of modern finance as some believed. Today, we have different pockets of failure that is threatening the system yet again.

Armed with experiences above, powers at be today know that they have to stop contagion because the whole system is built on trust and the system can collapse when the weakest link breaks and brings everything down with it. This is why the US will insure all deposits in all banks big and small and why the Swiss National Bank forced UBS to buy Credit Suisse. There can be no contagion.

3. Unintended Consequences

Despite the best of intentions, we may not be able to prevent all unintended consequences. The Fed chose to save Merrill Lynch and not Lehman Brothers back in 2008 because they believed they could handle the aftermath of Lehman going down as it was smaller. Today, we face similar issues. Credit Suisse chose to gave up on AT1 bondholders which could be disastrous (we will come back to this). FTX’s debacle indirectly led to the issues at Silicon Valley Bank which then impacted Signature and First Republic Bank. Both are in trouble now.

Most of the time, danger lurks in places no one is looking at. No one heard about Silicon Valley Bank until a few weeks ago. Who knows what can go wrong next? Back to Credit Suisse’s AT1 bonds, this is a special type of bonds that is a hybrid between equity and debt. They came about after the GFC to allow banks to issue this special type of instrument to beef up their balance sheet. They were known as co-co bonds back then. Co-co comes from contingency convertible bonds. They provide investors with higher interest (at c.6-9%) but will convert to equity when things go rough.

AT1 or coco-bonds ranked higher than equity but ranked junior to all other debt (see above). But still, they are debt. All finance students know that equity goes to zero first before debt is impacted. But in Credit Suisse’s case, the Swiss decided to write down AT1 to zero but a lifeline is provide to equity holders, turning finance rules on their heads. As such, the USD260bn global AT1 market is going down globally. AT1 is mainly held by Asian investors and banks from Stanchart, HSBC to Japanese banks are seeing their share prices collapsing.

4. How to Navigate from here?

With market valuations still high (see previous post in Dec 2022) and the current woes still ongoing, we are definitely not out of the woods, in fact, we are deep in the forest with no exit path in sight. It is not the time to buy anything. I would sell before buying. Investment ideas should be very well studied which reminds me of my mother’s nagging during school days. The best ideas should then be bought with prudence at a 2-3% or max 5% position of the portfolio each, making sure everything is diversified. But the more important diversification is about putting investments with different intermediaries (or different cookie tins if you like) i.e. different brokers and banks because you do not know if they might go down some day. No one thought Credit Suisse would fail last year.

I think this could be the important takeaway for today. It is a simple rule that has been forgotten over time as the global financial system evolved and we put so much trust into old and new entities without doubt. Back in the days when money in the bank isn’t as safe, my mum (yup her again) would diversify and split her savings into various banks and simply hold fixed deposits and no other types of financial investments. As mentioned, she would also keep some cash at home and buy gold and tangible assets of value.

Today we mindlessly buy structured products thinking they are safe (like Lehman’s mini-bonds) and invest in Bitcoin via exchanges with no proven track record. Maybe moms do know best even in investing and finance!

To end this post, here’s mom’s list of advice: 

i) Study your ideas well 

ii) Diversify your funds across banks and brokers

iii) Don’t buy structured products, just go for the simplest stuff like T-bills, stocks and fixed deposits

iv) Buy gold and tangible assets of value 

v) Cash on hand is king!

Huat Ah!