Singapore-based financial blog that aims to educate people on personal finance, investments, retirement and their Central Provident Fund (CPF) matters.

Tuesday, 24 March 2015

To the man who placed us on the map

Today, at 3.18 am, Mr Lee Kuan Yew was passed away peacefully at Singapore General Hospital. A man that many people regarded deeply as a visionary and revolutionist, he is also known as one of Singapore's founding fathers. Not only viewed nationally, but also internationally. To put it simply, he was the one who placed Singapore, a little red dot, on the map.

A man of great determination and mettle, he led the pioneer generation of Singaporeans in laying the foundations of the current vibrant and prosperous country. He faced many obstacles of a developing nation: Communism, lackluster economy due to the British pull-out and an uncompetitive workforce. He overcame these numerous setbacks and emerged successful, bringing Singapore to a first-world nation, all within one generation. Few men are able to achieve such results but rare is one who is able to sustain it, when left beyond his control. Many great leaders that brought their nations to new heights often failed to consider succession plans, after which, the country tumbled back to obscurity. However, this man envisioned further that the next Singapore leaders must be able to continue his legacy and put in place a system where he act as an advisor and advocate on the policies of the new generation. This, I believe, is the greatest of all his contributions from Mr Lee.

You might think what is the relevance of a man to an investment and finance blog? 

As an investor, one of the factors to focus on is the stability and soundness of the institutions in the country. It can be the government or the system in place to ensure that investment can take place smoothly. If one has foresight and conviction on the country's stability, coupled with sound investment fundamentals, he can then take a leak of faith and invest in that country. This has proven to be rewarding for those who foresaw the capabilities of Singapore. It is evident in its progress from a third world country to a first world nation. This is also an important characteristic that one must have when investing, the foresight to consider factors or trends that others tend to miss out.

While the nation mourn for its loss of its greatest leader, we must also appreciate the opportunities that he has brought us, making investment product and services available to retailers like us, as well as opening up resources that allows us to learn and improve in whichever niche that we seek.

Thursday, 19 March 2015

ETF Talk by SGX

Dear Readers,

There will be a Exchange Traded Fund (ETF) talk on 28 March 2015 (Saturday).
This talk is held by Singapore Exchange (SGX) and talk will include the basics of ETFs.
The event is from 9am to 11.30am at DBS Auditorium, 12 Marina Boulevard Level 3.

Link to the full event description is below:

As the event is free, we recommend and hope that our readers will be able to attend the talk and learn more about ETF investing.

Monday, 16 March 2015

Key Points of Warren Buffett 2014 Letter to Shareholders

We understand that a lot of our readers do not have the time to read through the whole annual letter by Warren Buffett, the best investor of all time.
As such, we have summarized the key points of his annual letter below for the benefit of our readers! :D
We have only summarised points that we think are important for the average investors.
As majority of the annual letter relates to Berkshire Hathaway specifically, we were able to eliminate a huge part of the letter to the below 7points.
Do read and learn from the Sage of Omaha!

1) Berkshire Hathaway will now not only compare growth in its book value against price growth of S&P500 but also compare Berkshire's market value increase against the S&P 500 price increase.

2) Definition of Investing: "the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power - after taxes have been paid on nominal gains - in the future."

3) " has been far safer to invest in a diversified collection of American businesses than to invest in securities - Treasuries, for example - whose values have been tied to American currency (has fallen by 87% from 1964-2014)."

4) For majority of the investors, "a diversified equity portfolio, bought over time, will prove far less risky than dollar-based securities (treasuries, etc)." This is the best strategy for investors with long-term goals like retirement, with no need to rely on the money for short-term needs.

5) Investors should not fear price volatility. Volatility is dangerous if investors are investing for short-term purposes. However, over the long term, volatility has always been working in the investors' favour.

6) Ways to destroy long-term investors' portfolio:
       a) active trading
       b) attempting to "time" the market
       c) inadequate diversification
       d) paying huge fees to fund managers & brokers
       e) use of leverage

7)"Cash, though, is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent." Always keep sufficient cash reserves for raining days - individual or business.

For a full version of the letter, please click on the link below:

For more on Warren Buffett letters, see below:

Sunday, 15 March 2015

How ETFs are changing the world of activists (Inspired by an article in Economist)

This post is inspired by an article that was in the Economist, edition dated 7 - 13 February. You may read the following article here:

While this is just a sub-topic of the entire article, I believe this would likely be the future of our market if more investors turn towards passive investing via ETFs.

ETF investing may prove to be most rewarding to an investor where it requires the least effort but able to  replicate the market returns, which averages beat the average inflation rate. However, when you are investing into ETFs, the index fund uses your money to invest into the underlying basket of stocks. This means that while you have the ownership of the underlying companies' shares via the index fund, you are indirectly transferring the rights of these ownership to the index fund. This can known as the proxy voting which shareholders would receive every year to transfer their votes to another shareholder by filling up a proxy form. This may save the investor the trouble of managing multiple corporate-related actions, it can also have other implications.

Firstly, the index fund now has the power to change the board directors and influence other major corporate decisions. If the index fund is extremely large, this also means that the fund has huge voting powers that can predominantly change the company. While most passive funds often take a less active role, we can see that they are increasingly being more involved as they realised their responsibilities. As stated in the article, this is still mostly handled by proxy advisory firms, which may be ousted once large funds such as BlackRock and Vanguard start to handle themselves.

You might be thinking what could be the impact of the transfer of voting rights. For one, the index fund might unknowingly change the culture and values of the company if they handle without care. Index funds are usually one of the public shareholders and with their passive approach towards handling corporate decisions, they may be influence by activists via the proxy advisory firms. As such, board members could be changed, undermining the existing culture of the company and implement new disruptions to the companies' existing activities.

With the American market facing this issue, it is highly probable that our market will move towards it, given the popularity of ETFs among retailers.

Feel free to discuss any other topics below that you find interesting in the article as it is predominantly written on activist funds.

Tuesday, 10 March 2015

A random theory of evaluating companies

This is a random thought and theory on how to evaluate and price stocks. It might have majors flaws and I have not done any back testing to certify the credibility and performance. Hence, the title of "random" and I wish to stimulate discussion amongst readers.

As I was sitting through a lecture, I suddenly had a thought of valuing companies by taking either their accounting averages in a business cycle or during their normalized performance year.

Assuming that the company production capabilities and maintains competitiveness, the company should always "bounce back" to normalized rate of operations once the industry or market revitalizes. As such, this might be a more effective of evaluating companies that are the market leaders operating in a down market, since history suggests that almost all markets will trend back to where it declined. Certain industries that are dealing with necessities such as utilities, transportation and F&B are possible targets of such evaluation because these markets have the highest probability of recovering or even expanding.

Assumptions or risks for this "theory"
1. The company is able to maintain competitiveness such that when demand returns, it is still able to retain its previous performance. Such companies are usually market leaders with strong reputation.

2. Industry will revitalize or the market will expand. However, this is not true for all markets. An example is the Japanese markets. It may not apply for industries experiencing technology shifts out where there are alternatives for it or being phased out, such as old TV boxes are being replaced by new LED screens.

3. Furthermore, the time to recover back to previous averages may take years and such has happened in the Great Depression. While this is still an infant theory full of loopholes, it is worth the post to encourage more discussions and stimulate further analysis.

Monday, 9 March 2015

ETF Strategies

We talked about the benefits of investing in ETFs in the previous article.
Link to previous article:
Today, this article will be talking about the strategies that can be employed when using ETFs!
Personally, I am not a technical investor but a fundamental one.
Thus the strategies suggested will not require the use of technical charts etc.

For me, there is a passive approach and a slightly more active approach.
I think both strategies are suitable for investors who do not wish to take a very active role in their investment portfolio (changing only once every half yearly if required)

Strategy 1: Passive Strategy:
I would recommend a buy-&-hold strategy, investing in low cost ETFs that tracks the index (S&P500, Straits Time Index, Hang Seng, FTSE, etc).
You can choose to invest in your country's own index ETF or even better, invest in a global market ETF which tracks the whole world's stock market (allows you to capture the rising emerging market while owning the developed nations' market).
Some examples of global index ETFs include iShares MSCI ACWI Index Fund and Vanguard Total World Stock ETF.
Over the long-term, buy-&-hold still remain as a good strategy!
This can be like a savings plan, investing a little of your retirement savings into a index fund every month.

Strategy 2: Slightly Active Strategy
This approach requires a little more active role every quarter or half a year.
As per written in the books below, there are statistical evidence showing that every once in a while, certain sectors will tend to perform better than the others.
The approach to this is to invest in those sectors when it seems like the right time and try to get out before the sector cools off.
This is tough, especially in getting the timing absolutely right. As per my view, I always think that if I can capture just 50% of the full upside, it is good enough for me. Because I believe that I am never that smart to be able to buy on the absolute bottom and sell at the absolute top!
'Greed is good', over-confidence is not!
You could also use ETFs to invest in certain sectors/industry that you think might outperform the average. you could invest in ETFs that tracks that specific sector to capture that sector's upside.

Of course, which ever strategy you choose to use, it is always best to read up on them first.
I would recommend 2 books that I have read before below.
There are many more books around that are about ETF investing and sector investing.
I have read quite a few of them, but I would strongly recommend below 2.
I recommend reading both because 1 focus more on sectors than ETF while the other focus more on ETFs than sectors - they complement each other well.

For more on sectors than ETFs, this is the book:

For more on ETFs than sectors, this is the book:

These books can be borrowed from most public libraries!
Happy Investing! :D

Monday, 2 March 2015

ETFs are the New Kings

In recent years, there has been a lot of people saying that 'Cash is King'.
Especially now where most markets have hit new highs and interests are at all time low.
However, if you are looking to invest for your retirement or for the long-term, staying invested is key, and there is no better instrument than ETFs!

ETFs are Exchanged Traded Funds.
They are basically funds that are traded on an exchange.
You can buy these ETFs just like buying stocks.

Benefits of ETFs:
1) Diversification -  1 fund investments in many securities, spreading out the risks associated with individual stocks. Eg; a Financial ETF will invest in almost all financial stocks (usually market weighted), which lowers your individual stock risk. As Warren Buffett says, "Diversification is protection against ignorance," and ETFs are a great way for diversification, especially coupled with point 4.

2) Low Cost - these are low cost funds (usually fees of less than 0.5% per annum, excluding standard brokerage fees). Low costs plays a huge role to long-term investment returns. As John C. Bogle, founder of Vanguard funds always say, the key to investment is to buy the market via a low-cost fund!

3) Easy, Simple & Lazy - Skip choosing individual stocks, especially if you are not that well-versed in certain sectors or industries. You can also avoid spending previous time reading up on a company only to end up not investing in the company.

4) Capture upside of a Sector/Industry with Lower Risk - If you think that Technology stocks are going to do well, instead of buying individual stocks like Microsoft or Google, why not buy a Tech ETF that owns them both and many other companies. You may not get the full upside but at least you will not face the full downside!

5) Low Initial Capital Required - If you are just starting out with little capital for investment, you might not be able to diversify your investments properly or cost-efficiently! Eg; you have $200 to invest monthly. The money would probably allow you to at max invest in 2 companies ($100 each) excluding brokerage fees (2 times because it is 2 transactions).
If you invest in S&P 500 ETF however, you are immediately offered diversification to the 500 largest US companies & at a lower cost (maybe 0.5% annual fees + 1 time brokerage fee).

Instead of timing the market (which many people, including me, cannot do well), try to think of investment as a savings plan and set aside a monthly sum for investment into a ETF (preferably index ETF like S&P500). It can go a long way to building up your retirement egg nest, especially if you start young.
As John C. Bogle says, buy the market, buy low-cost, invest for the long-term and HANG TIGHT!