April 5, 2012
How This Recommended Fund Meets Two Of Three “Holy-Triangle” Objectives

Article Link.

I’ll be honest, this article did not feel like one of my most inspired of writings. Most days, I love to write, and spew brain farts all over the internet, where they will coagulate and fraternise with other brain farts and eventually coalesce into someone else’s mind…or dissipate like so many other flimsily flatulent theses. (Which is what flimsy theses should do. With grace ideally. But with defensive posturing, far more often.)

But no matter how much you love your craft…sometimes it just. Feels. Like. Work. And that’s where you separate the professionals from the amateurs, because the professionals will get it done, even if it feels like work. And yes, I just patted myself on the back. Self love is important - if you don’t, no one else will.

Anyway back to the article. The new idea in this article is rolling returns. It’s not a new idea, but certainly not one that’s commonly used in the industry, at least not publicly. The general idea is to look into the past, and assuming you have a population of investors who bought into every possible price, we can see what percentage of them would be looking at positive returns. The only input variable is the holding period, and its a fairly process, albeit repeated ad nauseum.

Sure there could be a better way, and I’m hoping the person who finds a better way will be generous enough to share it with the world. (I’m not holding my breath on that one though.)

12:01am  |   URL: http://tmblr.co/ZStP6wJ47SVT
March 13, 2012

tumblrbot asked: WHAT IS YOUR EARLIEST HUMAN MEMORY?

I don’t remember the earliest. The most vivid I had was my mother smearing the asian equivalent of a jalepeno on my mouth to stop me from sucking my thumb.

12:55am  |   URL: http://tmblr.co/ZStP6wHtSx2a
March 13, 2012
This Homegrown Talent Could Be The Best Fund Manager You’ve Never Heard Of *writer’s commentary*

So I got back from reservist, and voila, I’ve officially been put in charge of marketing and content. No one ever said things wouldn’t be exciting at the work place. But with my new role comes a certain degree of adjustment.

I can’t write as much as I used to, at least, not without endangering my fragile state of sanity. And getting back into writing was kind of the whole point of the blog to start with.

But like Aberdeen’s marketing campaign says - stay calm carry on.

(The phrase itself was actually used in an old WWII poster. The phrase has since made it into popular culture. I’m of the opinion that the phrase works better in wartime than as an investment slogan.)

So more recently I looked at the Nikko AM Shenton Asia Pacific and did a write up on it. The gist of the story is the fund manager had one heck of a track record back in the 90s, and expectations are that he’ll repeat this performance with Nikko.

One thing I left out was a breakdown of the fund’s holdings, versus the benchmark,  MSCI APxJ. I pulled recent factsheets to compare their holdings. Why I look at holdings is not so much to determine whether the fund manager agrees with my own views - I’d be worried if he did, because I’m no market genius - but more to determine if he tends to stick to the index.

There’s a huge debate about ‘closet indexers’ and how fund managers are so afraid of underperforming a benchmark that they’d rather lose by holding popular funds than win by holding unknown funds. I’m really not in the best position to attempt that argument because 1) I’m not a fund manager, and 2) as a fund investor, my ultimate exposure is to the fund’s NAV movements, and not the fund’s underlying assets. 

I think there are quite a few people who will disagree with me on Point 2, and they’re welcome to  do so as long as they have a well-reasoned argument for it - the comment box is below.

Benchmark factsheet: http://www.lyxoretf.com.sg/fileadmin/user_upload/ETF/SG/MONTHLY/AEJ_monthly_February_12_Sing.pdf

Fund factsheet: http://www.fundsupermart.com.sg/main/admin/buy/factsheet/factsheet370005.pdf

Since all the information I’m about to discuss is freely available to public, I feel fairly safe making a few observations:

1. I can’t tell anything from the ‘top holdings’ - the benchmark lists the top 5 with percentage holdings, and the fund lists the top 10 without. 

2. I can’t see much from the ‘sector allocations’ - the benchmark uses a different classification from the fund. The only thing of note is the 40%+ the fund holds in ‘others’, which I think are holdings that are too small and diverse to list. But I can’t really verify this using the latest annual report, which is dated 26 September 2011.

3. At a country level, I can see the fund deviates quite a lot from the benchmark. The fund has exposure to only 6 markets - Australia (19.3%), China (24.7%), Korea (12.8%), Taiwan (9.9%), Hong Kong (6.7%) and Singapore (16.9%) - along with 3.7% in cash and another 6% in ‘Others’. The benchmark on the other hand has 12 markets which suggests to me the fund is relatively concentrated in terms of its allocation. Of course, this is only based on observations of the fund’s country allocation. It’s an incomplete picture.

The general point I’m rather haphazardly making is the fund is unlikely to perform in line with the benchmark.

Whether this is a good thing or a bad thing is entirely a matter of future performance and therefore beyond the capacity of your humble commentator.

12:45am  |   URL: http://tmblr.co/ZStP6wHtRUqw
February 26, 2012
Rethinking Risk – 2 Practical Measures for Individuals

When I first came across the concept of risk, as understood in investing, I was bewildered, and in many ways, I still am.

Within the world of investing, when one speaks of risk, invariably, the word ‘volatility’ will crop up. Volatility is, “a measure for variation of price of a financial instrument over time.” (source: http://en.wikipedia.org/wiki/Volatility_(finance))

Now, if I understand the mathematics correctly, it measures the standard deviation (deviation from the mean) of price over a period of time. I won’t go into the exact mathematics because 1) I don’t entirely understand it, and 2) I don’t like saying too much about things I don’t understand. What I do understand, is that volatility does not measure loss.

This is significant to me, because I place much higher priority on how much I could potentially lose, than on how much a price deviates from its historical mean.

The question is which would I be worried more about?  A) Losing money, or B) watching price fluctuations. Warren Buffett’s first rule of investing states, “Don’t lose money.”

Which I think is a reasonable point of departure.

Measuring Risk

I love Singapore’s libraries. They’re air-conditioned bastions of comfortable sofas and plush leather seats. Plus, they have really clean toilets, which is a big plus for a public space. If you can avoid detection by the grumpy security guard, you can catch a nap. Or if you surreptitiously camouflage your cable to a nearby power socket, you get to charge your ipad while putting in new floors in your Tiny Tower! (I’m currently at a modest 133 levels)

Sometimes I find a book that puts a little wind in my sail, like 7Twelve by Craig L. Israelsen. In one particular chapter, he talks about measuring risk, and proposes two more measures of risk, on top of volatility.

Worst-case return

Answers the question, how bad can it get?

The worst case return is calculated given one’s holding period. Over a period of time, say a 5-year time frame, we define a holding period, of say 6 months, and generate the 6-month return, with the starting point that moves daily. That gives a range of 6-month return numbers, and from there, it’s a matter of identifying the worst 6-month return based on historical data. This sets up an expectation for how bad things can get.

In 7Twelve, Israelsen uses a holding period of 3 years, and calculates worst-case returns based on cumulative return (the total gain or loss from the start of a period to the end of a period).   As Singapore has few funds with enough data to support a 3-year holding period, I’m pretty much limited to funds with a 10-year track record. For purposes of most investors, I’ll go with 1-year, 3-years and where possible, 5-years.

Frequency of loss

Answers the question, how often will it be bad?

The frequency of loss is calculated given one’s holding period.  Over a 5-year time frame, and given a holding period of 6 months, we can look at how many times this 6-month return is negative. This sets an expectation for how often you’d expect to see an investment dip into negative territory, over a 6-month holding period.

Isrealsen used 3-year rolling holding periods in 7Twelve, and within the limitations mentioned previously, it’s a perfectly legitimate holding period to use.

From the Individual’s perspective

As an individual, I have neither the training nor the aptitude to make full sense of the complicated technical terms that professionals employ. There’s no shame in that – humanity wasn’t built on the merit of math alone. The challenge is to find simpler ways to express important concepts like loss, and risk.

As always, if there are better ideas out there, I’m keen to hear them.

4:39pm  |   URL: http://tmblr.co/ZStP6wH391KE
February 18, 2012
Markets in a strong uptrend in recent weeks. I took a position in India, through HGIF Indian Eq SGD AD, which is a stronger performer in an upmarket than other funds. So at the moment, I’m almost fully invested in terms of my portfolio, with about S$500 leftover. 

Markets in a strong uptrend in recent weeks. I took a position in India, through HGIF Indian Eq SGD AD, which is a stronger performer in an upmarket than other funds. So at the moment, I’m almost fully invested in terms of my portfolio, with about S$500 leftover. 

9:45am  |   URL: http://tmblr.co/ZStP6wGaoCQY
February 12, 2012
2-and-a-half Reasons why No One Makes ‘Sell’ Calls

‘Sell’ is a dirty four-letter word in the active management business.  For my purposes, ‘selling’ means converting any non-cash asset into a single currency. To clarify, I’m not referring to the art of investing, where buying and selling are day to day business, but the industry of investing, where various parties market investment products to the investing public.

Cynics will attribute this to business factors, and that active funds have no interest in encouraging investors to sell out of their fund. This is only partially true – no doubt there are some industry participants who think the only people who should ever sell are salespeople.

But for the large part of the industry, who still retain an interest in doing the best they can for their clients, it’s difficult to call ‘sell’ for at least 2.5 reasons. There may be others, and I’d love hear from you if you have one.

#1 Calling ‘Sell’ is unpopular, and difficult to do accurately

From an analytical point of view, it’s incredibly difficult to call a ‘sell’, because long-term, equity markets have an upward bias, and perma bulls tend to be right (and popular) more often than they’re wrong. Perma bears, tend to be wrong more often, and downright annoying when they have ‘told you so’ smeared on their faces while everyone’s portfolios are down 30%. And individuals who oscillate between bulls and bears get labeled as ‘pigs’ and get slaughtered.

#2 Access to weakly-correlated assets means selling isn’t always the best option

From an investment perspective, selling is taking a long position in cash, which is, at best, a low-yielding asset.

Don’t get me wrong, there are definitely valid reasons to sell, such as to fund a purchase of anther asset that opens up a new set of lifestyle opportunities (house, car, self-improvement or family) and in such cases, one should take one’s returns and turn it into something simultaneously more valuable and intangible.

But within the realm of investment and investing, selling is going long cash, which, as previously stated, is at best a low yielding asset. The one big advantage of holding cash is liquidity – ammunition for when the Street bleeds. And with that advantage comes a drawback – missing out on returns from higher-yielding assets. For common example, a pair of weakly-correlated assets such as equity and bonds, both of which post higher-yields or returns than cash.

The idea is if you’re bearish equities, then switch into bonds, which will return better than cash. The supporting assumption is that bond prices move differently from equities, as bond markets tend to be more concerned with default risk than equity markets, and hence, less speculative.

#2.5 Selling in and out is not very good as a standalone strategy

I’d put this as half a reason, because fund managers do, by and large, buy and sell equities for cash equivalents. So it is a valid strategy, just one that requires a largely prohibitive amount of research and resources to carry out effectively.

For most individual investors, myself included, trying to buy into and out of the market using the same methods as fund managers is unrealistic. I certainly don’t have the smarts to argue with the intellectual giants that run some of these funds (I’ve met a few), and I’m not interested in the profit margins of the sector of the moment nor the debt ratios of the underlying holdings.

My own core portfolio is fully invested in a number of good quality funds with exposure to two weakly-correlated asset classes – equities and bonds.

But that’s just me

So that’s my two (or two and a half) cents worth on the topic.

My own views notwithstanding, I’m fairly sure there are other good reasons why it’s difficult to sell. Or perhaps there are other reasons why selling should be a key part of any investment strategy. I don’t have all the answers, and I love hearing from readers.

5:30pm  |   URL: http://tmblr.co/ZStP6wGHvq45
February 7, 2012
Back To Basics, chapter 1 *writer’s commentary*

Sometimes it helps to start from scratch and recall what it’s like being a total noob all over again.

I marvel at how I got into the unit trust industry. My boss took a running leap of faith when he decided to hire a bald ex-editor/tutor/freelance scriptwriter with an interest in investing and precious little else in terms of finance background.

Back when my knowledge in unit trust investing was sorely lacking, I would pick UTs like they were counters on a stock exchange. Like a dart-wielding monkey drunk, it was more or less whimsy that guided most all of my earlier investment decisions.

And back then the only portfolio was the recommended fund portfolio, which I still find complicated and impractical to implement, especially if you’re starting out with less than S$5000.

Pre-2008, I didn’t properly grasp the need to diversify. In the realm of stockpicking, Warren’s wisdom holds true - too much diversification is a signal of an insecure fund manager, or at least one that has trouble finding sufficiently high-conviction investment opportunities. (If any fund managers out there want to correct me on this point, you are most welcome to comment. This is a conversation, not a dictatorship.)

But if the goal is to structure a diversified portfolio, then diversification means you create multiple sources of return that will flow (more or less) independently of each other.

It took me a financial crisis to figure that one out. I sometimes wonder what my boss was thinking when he made that leap :P

Article: http://www.fundsupermart.com/main/research/viewHTML.tpl?articleNo=6262

12:14am  |   URL: http://tmblr.co/ZStP6wF_cPmk
February 1, 2012
What The Worst-Performing US Equity Fund Of 2011 Has In Common With Warren Buffett *writer’s commentary*

Original article on Fundsupermart here (link).

It’s not often that I get to talk about the type of maniac whizzbangery that goes on in my head when I write.

Most financial writing consists of staid, plain speaking articles that may be high in informational nutrient, but absolutely zero in literary taste. Actually a good amount of financial articles are zero information and even lower in taste.

So as a writer for a website that makes its money selling financial products, the challenge is to find an hook strong enough to keep the reader reading till the last word.

Enter the totem: Warren Buffett. Everyone knows him. Hell, Pixar practically modeled a cartoon character after him.

I watched ‘Up’ and I remember the crotchety old man as “Warren”. So sue me, I have a limited imagination.

Fact is, Berkshire Hathaway is one hell of an investment. But, like all investments, it has its ups and downs, and its ultimately its the long term that counts. So when an otherwise sound fund drops 18%, sometimes it helps to put that disastrous performance in context. 

Just to be clear, my article was not trying to defend the fund, neither did it argue that, “because Warren underperformed, so it’s okay if other US funds underperform.”

Investing is a zero sum game - every cent lost by one is a cent gained by another - so Warren’s losses was someone else’s gain, and collective underperformance is no excuse for individual underperformance.

The key takeaway is that it is reasonable to expect a fund (or any other investment) to post negative returns. And sometimes horribly negative returns. And it would be a mistake to ditch the fund just because it is in negative territory one in five years.

Of course, there’s the caveat that if the fund consistently fails to perform, then you should drop it like its hot, drop it like its hot. But if you couldn’t figure that out yourself…well, there’s always fixed deposits.

9:35pm  |   URL: http://tmblr.co/ZStP6wFj5ryZ
January 30, 2012
Testing out the US Election Year Strategy, chapter 2

Previously, I came across an election strategy via a facebook post (link).

Very briefly, the strategy is:

Entry: 27 months before the end of an election year.

Exit: 31 December of election year.

And I tested it on S&P500 data from end-2000 to end-2011. In the election year of 2004, the strategy returned 42%, while in the election year of 2008, the strategy returned -36% (all returns in SGD terms, dividends reinvested).

Well two trades of a strategy is hardly representative, so I pulled more data, all the way back to 1980, to test the strategy. I threw all the data into a chart to make it clearer (and it makes a nice little thumbnail for the blog post :D).

That much data yielded me a grand total of 8 trades, one of which has yet to reach the exit target.

All in all, the results are not bad. The strategy gave a positive return in 6 of the 7 completed trades, and while the 2006-2008 trade was negative, -36% was not a bad return, considering many portfolios and funds lost more than 50% of their value.

My own portfolio at the time lost more than 70% of its value.

So what does all this mean? Well, if you believe in the reasoning given in the original study (link), which states,

Because of the consistency and predictability of administrative actions and campaign rhetoric and their anticipated influences on the economy, investors have come to assume better times for business conditions, corporate bottom lines, and stock prices in the period prior to a presidential election and a less robust period following those periods. Thus, a four-year stock market cycle seems to have become a part of the investment landscape since the mid-twentieth century.

,then chances are, 2012 will continue to see pretty decent returns, after a relatively lackluster 2011 for the US market.

Is it a forecast? Nope.

Something worth considering if you’re looking to get into the US market? Yep.

8:07am  |   URL: http://tmblr.co/ZStP6wFb4uqr
January 27, 2012
My background v1.1

I’m not a fan of self-indulgent posts, but I do believe in setting up enough background, so readers know enough that I’m a little bit more than a disembodied voice on a page.

Early in life I was blessed by a one-sided relationship with numbers (it wasn’t her, it was me), and I was cursed to be the spurned lover of all things numerical for much of my academic life. It was a relationship fated to end in tears, teeth gnashing, and many late nights in NUS, spent making up for all the C’s I accumulated taking university math modules. Love knows no reasons.

Eventually I came around to the realization that while math was a brick wall to my amorous advances, language on the other hand, was a happy-go-lucky filly of negotiable virtue, and I went about becoming an editor - rewiring grammatical short-circuits, tightening the pipes of leaky logic, and picking up the nasty habit of overusing metaphors and puns. 

After I had worked for a few years, I learned editing alone would not sustain me. The lifestyle of a starving writer only sounds good on paper, which only tastes good till page 3 or so. And if I was planning to live a lifestyle beyond thrifty sustenance, I would need to learn about money. 

At the time, there was an influential book by Robert Kiyosaki, Rich Dad Poor Dad. I read it from cover to cover. Pored over its pages, and paid dues, dabbling in MLM (by which I mean suckered) and generally coming to the hard-learned conclusion that I was simply not interested in being a business owner.

Sure, I like people in general. I like knowing I’ve made a difference in someone’s life, and all that. Where I was found lacking was in the department of dominance, by which I mean being willing to intimidate (mentally or otherwise) or impose my will on another person.

Leaving me squarely in the quadrant of investing.

8:07am  |   URL: http://tmblr.co/ZStP6wFQKvZ-
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