Successful Completion of How to Invest 2013

thank-you

22 Jan Successful Completion of How to Invest 2013

This event was meant to be held last December but I guessed it was a holiday season so the response was not good. We postponed the event to Jan 13 and within 12 hours, 60 seats were taken up and more people wanted to come! It was a happy problem and we managed to secure a bigger venue and we opened up another 50 seats. It was taken up within hours! Thanks for those who had come and I believe you have taken away something useful.

For those who did not manage to get a seat, I will be recapping some of the things I mentioned in the seminar. You can also view the slides.

Review of 2012

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Stock market was bullish for the second half of the year. STI gained 23.5% after including dividends. The most bullish sector is real estate related stocks. REITs have gone up quite a lot and personally I will not invest in them now. REITs may continue to go up but I will not be willing to take that risk when most REITs are over-valued. Read this post.

2013 Outlook

PE ratios of the various indices are below 15 and hence, valuation is still cheap generally. Coupled with liquidity being injected by US, ECB and Japan Central Bank, the stock market is poised to go up. Although stocks have been rising, volume on SGX is decreasing. I believe most money are in property. The Singapore Government has just implemented the 7th property measures to curb property prices. If they are successful, we may see money flowing into stocks.

However, the future is uncertain and I may be wrong. Even if I am right, do not expect the market to go up in a straight line. There will be dips along the way and investors are better off picking stocks at cheaper prices.

Why most investors lose money?

Most investors lose money because they buy high and sell low. They make investment decisions according to their emotions. When they are comfortable to buy, the market would have gone up quite a lot. When stock price sinks, they cannot tolerate the pain associated with the losses and they sell to get out.

Greed causes you to be optimistic and willing to pay above value.
Fear causes you to be pessimistic and willing to sell below value.

4 Strategies

I offered 4 strategies for retail investors which I believe will work out well.

The first strategy is to invest in STI ETF on a regular basis. This is good for people who have small capital and have no time or interest to do their research on investment opportunities. You can find out more here.

Second strategy is to build a Permanent Portfolio (PP). This is good for people who have enough capital (more than $24,000) and do not have the time or interest to do investment research. Most importantly, this is for people who CANNOT tolerate large drawdowns. This single characteristic of PP will prevent you from buying high and sell low. Read more about the portfolio here.

Third strategy is to invest with nil management fee Fund. This is only available for accredited investors (net asset of $2m or $300k annual income). Find out about the fund here.

The last strategy is to build your own all-stocks portfolio. This is only for people with a sizeable capital and are willing to spend a lot of time and effort to do investment research. It is important to pick 20 stocks or more for the portfolio as we are not Warren Buffett. We do not have the acumen to pick the right stocks all the time. We need diversification to protect us from the risk of ruin.

In summary…

My closing remark was that every investor has to find a method that suits his or her time, capital, purpose and personality. I hope you can find such method in 2013.



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7 Comments
  • eric kong
    Posted at 01:36h, 23 January Reply

    Hi Alvin,

    I enjoyed your talk. Please keep up the noble effort and good work in helping retail investors.

    I like your coverage on permanent portfolio, and the use of ETFs for the retail investors. I think 99% of the people should do this for themselves.

    Thank you for inviting us.

    • Alvin
      Posted at 12:19h, 23 January Reply

      Thanks for coming and your kind words!

  • ryan
    Posted at 03:58h, 23 January Reply

    You mentioned that retail investors got it wrong by buying high and selling low. That statement nailed it right on the dot. The question we need to keep asking is: Why? Why did rationality give way to emotions? Are we rational in the first place? After learning hard lessons from Ms Market (I call it Ms because it breaks my heart), I asked why do humans make such clear mistakes? My conclusion is that we are not rational. We are filled to the brim with knowledge and theory but we fail horribly at execution. We know speed kills but yet we speed, we know smoking is bad but yet many light up, we know over eating is bad but yet many continue to satisfy their heart desire, we know that exercising is good yet many hardly stretch their muscles. Thus, we need to be ‘deliberate’ in our investment choices and decisions. We know that risk correlates positively with returns but most of us, over 90%, when we draw our risk to return decision profile, the chart gets inverted. Investors emboldened by rising prices conclude that risk is low thus a negative correlated chart. We need to make a deliberate effort to correct the self inflicting tendencies. I say deliberate because, we have a natural tendency to follow a negative correlated chart in our decision process and if we are not deliberate, we will continue to make the same mistake over and over again.

    • Alvin
      Posted at 12:21h, 23 January Reply

      Yes Ryan. You are right to quote all those examples. We make a lot of decisions based on our feelings so we are not rational :D A lot of psychological biases also get in the way…

  • Ray5168
    Posted at 07:10h, 23 January Reply

    Most of people lose money because they buy high and sell low.

    There are people also lose money because they buy low and sell lower. What goes low may go lower. Don’t just look at price alone, look at value.

  • Dividends Warrior
    Posted at 02:04h, 24 January Reply

    I am using the 4th strategy! ^^

  • 200000 Units, 4 Strategies, a 911 Carrera and the purpose of BigFatPurse
    Posted at 01:35h, 27 January Reply

    […] last weekend and shared four investing strategies with the audience. You can read more about it here. Each of the strategies demand different things from the investor, and what is crucial is being […]

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