BigFatPurse - Living A Life of Abundance | Investment, Personal Finance and Success

Millionaire Teacher by Andrew Hallam

Alvin — Sat, 12 May 2012 03:35:00 +0000

You can read about the interview with Andrew Hallam here.

This book talked about nine rules of wealth.

Rule 1: Spend Like You Want to Grow Rich

Andrew defined wealth as having the financial ability to stop working; and having passive income that is twice the national median household income.

He believes that not having a car would give you a financial headstart in life. In fact, he researched that the median price paid for a car by U.S. millionaires in 2009 was US$31,367.

When buying a home, he suggests a rule of thumb is to double the interest rate to figure out if you could still afford the mortgage payments.

Do not spoil your kids! He quoted Thomas Stanley’s book, The Millionaire Next Door, that people who received stocks, cash, real estate or other forms of financial gifts tend to be in a lower level of wealth than those in the same income bracket who did not receive any help at all.

Rule 2: Use the Greatest Investment Ally You Have

Make compounding effect work for you so start to invest as early as possible. “The odds are high that you’ll slowly grow very wealthy.”

“[T]he U.S. stock market has averaged 9.96 percent annually from 1920 to 2010.” With $10,000 growing at 9.96 percent annually, you will have $1.1 million in 50 years.

Rule 3: Small Percentages Pack Big Punches

He is a firm believer of index funds and he reckoned that by spreading your investment in three index funds, you can beat majority of the investment professionals.

Fund 1: Tracks your domestic stock index
Fund 2: Tracks an international stock index
Fund 3: Tracks a government bond index

There were many instances where actively managed funds cannot beat the stock index overtime.

“It was the top-ranked fund [44 Wall Street Fund] of the 1970s – outperforming every diversified fund in the industry and beating the S&P 500 index for 11 years in a row. Its success was temporary, however, and it went from being the best-performing fund in one decade to being the worst-performing fund in the next, losing 73 percent of its value in the 1980s.”

“Then there was the Lindner Large-Cap Fund, another stellar performer that attracted a huge following of investors as it beat the S&P 500 index for each of the 11 years from 1974 to 1984. But your won’t find it today. Over the next 18 years (from 1984 to 2002) it made its investors just 4.1% annually, compared with the 12.6% annual gain for investors in the S&P 500 index.”

There are five reasons why actively managed funds perform worse than the index

Expense Ratio – Need to pay for the staff, office lease, etc. “A fund holding a collective $30 billion would cost its investors (the average Joe) about $450 million every year”.
12B1 Fees – Marketing expenses in a nutshell. “They can cost up to 0.25 percent, or a further $75 million a year for a $30 billion fund.”
Trading Costs – “… the average actively managed stock market mutual fund accrues trading costs of 0.2 percent annually, or $60 million a year on a $30 billion fund.”
Sales Commissions – Some funds charge fees when you buy or sell the fund. This goes to the pockets of the “investment advisors” or salesman in layman terms.
Taxes – Mutual funds in U.S. pay taxes for capital gains. Hence, the more they trade and make gains through buying and selling, the more taxes they incur.

Why investing in mutual funds or unit trusts may not be a good idea?

Why investing in mutual funds or unit trusts may not be a good idea – part 2

Rule 4: Conquer the Enemy in the Mirror

Although the path to investment success seems easy, it is very hard to put into practice. Humans have a tendency to buy when the stock market is rising and sell when the stock prices are crashing.

There is a price for missing out the great market movements when you do not stay invested. From 1982 to 2005, the stock market averaged 10.6 percent returns annually. “But if you missed the best 50 trading days, your average return would have been just 1.8 percent annually.”

90 Days Attribute to 95% of Profits

Contrary to many who fear stock market crashes, Andrew turns greedy. “After 9/11, I wanted the markets to stay down. I was hoping to keep buying into the stock markets for many years at a discounted rate.”

Rule 5: Build Mountains of Money with a Responsible Portfolio

Andrew suggests to own a percentage of bonds in your portfolio that is almost equivalent to your age. For example, if you are 30 years old, you should have 30% or less of your portfolio in bonds.

Comparing short term and long term bonds, Andrew prefers the former. “… buying bonds with shorter maturities (such as one- to three-year bonds) is wiser than buying longer term bonds (such as 10-year bonds). If inflation rears its head, you won’t be saddled with a 10-year commitment to a certain interest rate.”

The true value of bonds is not the interest payment. It is for the purpose of knowing when stocks are cheap or expensive. Over the long run, bond price and stock price are inversely related. Hence, when the percentage of bonds go up and percentage of stocks drop, you have to rebalance the portfolio by selling bonds dear and buying stocks cheap. It works vice versa. By rebalancing the portfolio, you will always buy low and sell high.

The other advantage is that bonds cushion your portfolio during stock market crash. If your drawdown is too big, you may end up in fear and sell your stock holding. A full stock portfolio would have dropped 20.15 percent in a 31-year period (1973-2004) while a 40 percent bond and 60 percent stocks would have a drawdown of only 9.15%. The difference in performance was just 0.7% (average annual return of 11.19% vs 10.49%).

Rule 6: Sample a “Round-the-World” Ticket to Indexing

In this chapter, Andrew talks about people practising index investing in different countries. Read this chapter for the detailed accounts of the portfolio performance.

A couple had families in Singapore and Canada and they set up a portfolio comprising securities form both countries:

20% – ABF Singapore Bond Index Fund
20% – SPDR STI ETF
20% – Canada’s Short-Term Bond Index
20% – Canada’s Stock Market Index
20% Vanguard World Stock Market Index

Rule 7: Peek Inside A Pilferer’s Playbook

This chapter exposes the agenda and motivation in the fund industry to grow their business.

For example, instead of taking care of the client’s interest first, one Canadian bank trained her staff to sell the highest fee fund if the client does not know much about investing.

Even large pension funds are moving away from active management and onto the index bandwagon. “… the Washington state pension fund, for example, has 100 percent of its stock market assets in indexes, California has 86 percent indexed, New York has 75 percent indexed, and Connecticut has 84 percent of its stock market money in indexes.”

Rule 8: Avoid Seduction

There are many investment scams out there and we have to resist the temptation of easy money. Also, he also suggest avoiding things like investment newsletters, high-yielding bonds, fast growing markets, gold, investment, investment magazines, and hedge funds.

Rule 9: The 10% Stock-Picking Solution… If You Really Can’t Help Yourself

He suggests that if you are not able to resist picking stocks, limit it to no more than 10% of your portfolio. This would not affect your overall financial success as long as you are disciplined by indexing 90% of your portfolio.

Buy the book here. Free delivery worldwide.

Can you afford a property in Singapore at current prices?

Alvin — Sun, 06 May 2012 02:22:03 +0000

CNBC produced a slideshow on The World’s Hottest Real Estate Markets and I was not surprised Singapore made the top 10 list.

Call me biased if you want but I really believe the property market is overextended. There are signs of euphoria and history has taught us again and again, what goes up must come down. The masses are always wrong when it comes to investment. The winners will be those who are selling the properties, and not the buyers.

I have summarised CNBC’s findings in the table below.

Rank	Country	5 year price growth	Price per Square Foot (USD)(from globalpropertyguide.com)
1	China	110.9%	$644
2	Hong Kong	93.7%	$1,795
3	Israel	54.5%	$722
4	Singapore	50.5%	$1,553
5	Columbia	39.4%	$195
6	Taiwan	30.1%	$660
7	Canada	28.7%	$770
8	Norway	28.7%	Not available
9	Malaysia	28.5%	$202
10	Switzerland	27.5%	$1,385

Singapore’s median monthly gross income in 2011 was S$2,925. Assuming a typical Singaporean couple is buying a property, their combined income will be S$5,850.

And they do not loan more than 35% of their income (assuming they have no other debts), they can afford a monthly installment of S$2,047.

If they took a 30 years loan at 1.5% interest, they can borrow up to S$593,272 (80% of property price) to buy a S$741,590 property.

No, this buying power would not get them a studio at Katong Regency for $1m, or a 2 bedroom at Sky Habitat for $1.1m, or a studio at The Tennery for $860k.

Looking at the recently transacted property prices, the couple can only afford properties like a 883 sq ft Textile Centre unit at $680,000; or a 474 sq ft R66 unit at $715,000.

We need to do a reality check to keep our sanity.

Travel Investing – Beijing, China

Alvin — Tue, 01 May 2012 09:39:26 +0000

Cars

Beijing itself has more cars than the population in Singapore. It currently has over 5 million cars in the city and to my surprise, I saw a lot of European brands like Audi, BMW and Volkswagen running the streets. There were also the familiar Japanese brands like Mazda, Honda and Toyota. The cabs were mainly Hyundai. I noticed that there is always a Chinese company at the back of these imported cars. I suspect the government has made it mandatory for any foreign brand to partner with a local company. Of which, I think FAW Group has the biggest market share (based on what I observed on the roads) – FAW partners with Volkswagen, Audi, Toyota and Mazda.

The traffic is worse than Singapore and there is a restriction to driving on weekdays according to the car plate number. The car plate numbers can end in 10 variations, that is, 0 to 9. There will be two numbers each day that could not drive. This would put about 1 million cars at home, but it is not sufficient to alleviate traffic congestion during peak hours.

To control the car population, one have to ballot for the right to own a new car. This is similar to our COE system but they do not need to pay for the certificate. So you cannot outbid just because you have money.

The car population in China will definitely grow in the future.

Growth stocks – Wumart

We all know supermarket business is very profitable. I learned that supermarket business’s main profit does not come from selling products. They make most money from selling shelf space to brands. Secondly, they collect a lot of cash at the point of sale and given the 60 to 90 days invoice period, they can deposit these large amount of cash in the banks to collect stable interest payouts.

Wumart is one of the largest mart operators in China. In 2009, Zhao Danyang, a fund manager, bidded $2.1m for Warren Buffett’s charity lunch. He was bullish on Wumart and suggested it to Warren. By the time Danyang returned to China, the Wumart shares soared 25%, or a short term gain of $14m for him.

I learned that the founder, Zhang Wenzhong, got into trouble with the law and was sentenced to 18 years in prison in October 2008 for bribery, embezzlement and fraud. Wu Jianzhong has took over as Chairman since 2006. I did not manage to go to their superstore but they do have smaller marts in neighbourhoods. According to Wiki, “The company has about 430 stores, 330 of which are convenience stores and 100 of which are hypermarkets. The stores are located primarily in the Chinese cities of Beijing, Tianjin and the cities of Hebei province.” I would see it as there are more room for growth.

With the rising affluence of Chinese will demand for more groceries, would Wumart be in a position to capture more market share?

Breadtalk

I was curious to find out how Breadtalk was doing in China. I only managed to see it while traveling on the bus. I also saw Food Republic at Beijing APM shopping centre’s directory but I did not have the chance to visit it. Breadtalk’s growth is highly dependent on their success in China, it is almost a make or break opportunity.

Alternative Investment – Pu’er Tea

Pu’er Tea is recognised as the French wine of Asia. The older the tea leaves, the more valuable it will be. I saw an advertisement that Pu’er Tea was auctioned for RMB 1.6 million. The shop that I visited said that any purchase of 8 blocks of Pu’er tea, there will be a certificate to verify the purchase and after three years, you can exchange for another 8 blocks of Pu Er tea with just 1 block. I am not suggesting that you go ahead and buy Pu’er Tea. I do not understand enough so I will not invest. Likewise, invest only if you understand enough.

Alternative Investment – Crystal Jade

Crystal jade is the top grade jade variety. It is hard and I was told the hardness is after diamond, sapphire and ruby. 90% of the crystal jade comes from Myanmmar and hence, probably cheaper to buy there. These alternative investments are precious only when the society in general accord a high value to them. Otherwise, jade is just another piece of stone.

Booming tourism

Tourism is booming in Beijing and I see buses carrying loads and loads of tourists to the various places of interest. The tour guides could cater to different nationalities and languages. I saw Americans, French, Japanese, Indians, Arabs and even Chinese from other provinces. I have never been to a country with so many tourists squeezing with one another. More people will definitely go to China as this country continues to awe the world with it’s rapid development and culture.

Teacher turned millionaire through simple investing – Andrew Hallam, author of Millionaire Teacher

Alvin — Sun, 22 Apr 2012 00:22:42 +0000

We have Andrew Hallam with us for this interview. He is a Canadian living in Singapore and teaching at the American School. I got to know Andrew and his investing ideas through his book, “Millionaire Teacher”. I love his book and would definitely recommend it to you. It has been one of the bestsellers in the bookstores so do look out for it.

Andrew, is there a double meaning to your book title, “Millionaire Teacher”? Firstly, you became a millionaire with a teacher’s salary and secondly, you are teaching people how to be a millionaire. Was it intentional?

You are actually the first to point out about the double entendre in this title. Initially I just wanted “The Nine Rules of Wealth” but my publisher insisted to promote me as a teacher who became a millionaire. It would push more sales for the book and I was willing to adopt this title after realising there is a double meaning to it.

You do not look like someone who would desire a high standard of living, so why do you focus so much on your finances?

You’re actually relying on your job so that you can eat, drink, house yourself, keep healthy with proper nutrition and medical care. I think the really nice thing is to ensure that at no point you really go absolutely crazy with your finances. Make sure there is always that financial buffer in case you eventually find yourself losing your job, or having your portfolio dropping 30-40% during a significant economic down turn.

You had battled bone cancer in the past. Had that experience changed your life or your approach to money?

Quite a few people have asked me that and I think it’s pretty common when somebody overcomes something like cancer. A lot of people come out of the woodwork and ask whether it had actually changed your perspective on life but it really hasn’t for me. A workaholic who I know quite well, asked about this and I said no, but for a guy like him, it will probably change a great deal. I was just one of these goofy guys with a smile on my face and every day for me has always been a gift. Maybe I’m delusional. In terms of the money, I think money just gives me options to know that if I end up getting sick, I can afford the medical care and even stop working. We’re all in this position where every single one of us will die eventually. I know it sounds like a crazy thing to say but, we just don’t know, none of us know when the end is going to be. It might be this week, or tomorrow. I think it’s very important to live for the moment, but also have complete financial freedom to just stop working as an option. Knowing that I have the financial backing have helped me with the recovery process.

And your investment philosophy is you believe that an average earner can be a millionaire if he starts investing passively early enough. He should just buy three types of index funds. First, equity index of his home county; second, equity index of the world; and third, index of government bonds. He just needs to maintain a specific ratio in this portfolio once a year and do not try to time the market. Am I right to say that?

Yes absolutely, but it’s a hard thing to do. You could be one of those people who set out a nice diversified portfolio of indices and when the markets start to soar, you are thinking of putting fresh money in the market. Your natural inclination is to say to yourself, “oh look my international stock market index is just absolutely boring. I’ve got to put more money in it, it’s doing so well!” Over the past decade, I have realised how hard it is for people to have the disciple not to chase the winning asset class. It is really easy for me to lay this out on paper and guarantee you will beat 95% of professional investors if you follow this strategy. Everybody from Warren Buffett to a whole school of Nobel economic prize winners, know it is an academically irrefutable fact. When stocks are rising, you’ll see so many people on television, and you’ll see so many people writing articles about it in The Wall Street Journal telling you the market is going to go so much higher. Likewise, if stocks start dropping, you’ll get the same kind of mass pessimism that show up on CNBC and on The Wall Street Journal. It is quite frightening for people to rebalance their portfolio. What they have to do is literally be a little bit greedy when everybody else is fearful and a little fearful when everybody else is greedy. On paper we know this, but psychologically very few people seem to actually have the aptitude to follow through with such a plan and that’s a shame.

Yes, I totally agree with that. Recently, the property market in Singapore is very hot and surprisingly, I heard from a friend who doesn’t invest at all got interested in property. That just tells me there is euphoria in the Singapore property market.

Yes. Have you heard of Joe Kennedy before? Joe Kennedy was President John F. Kennedy’s dad and he was a famous speculator in Wall Street in the 1920’s. He had this great saying, when even the shoe shining boy is starting to give stock tips or advice and telling you that he’s winning, it’s time to get the heck out of the markets. And it’s a funny thing because, the widespread euphoria and optimism, really ends up transferring through every age, every sort of level, professionals and working class alike. It is almost like a bizarre optimistic disease that spreads like a pandemic. It is so fascinating because I see real estate at nose bleed levels in two places in the world right now. One would be Singapore and the second would be Australia. The irony is that there are so many people lining up to buy real estate in Singapore, thinking it’s a good investment because it has done well in the recent past. Likewise in Australia, there are so many people lining up to buy the Australia real estate because it has done well in the past. If we look at two hundred years in history, you can pick whatever asset class and you’ll find that people will end up bandwagoning on an asset class because it has been rising exponentially over one year, five years or six years. Typically, those people will end up getting burnt. Most of them pay really, really high price for it. Let’s just assume you bought a property for a hundred thousand dollars and you have collected seven thousand dollars in rent. That is a seven percent yield. This is higher than historical real estate yield. When they rent significantly below or significantly above that, there would be a reversion to the mean. Eventually something ends up going back to what has historically been the standard. If I take this place that we’re renting now, the owners rental yield on this property isn’t around the 7%, but it is closer to 2%. The thought of buying real estate right now from an investment perspective borderlines on insanity, and it’s not far from what we actually see in places like Melbourne. But the sad thing is these places are very popular right now. Conversely, we have extraordinary rental yields in the United States. We have house prices that have plummeted exponentially. To give you an example, on my website I ended up citing a woman I know. She is a financial blogger and writer named Paula Pant. She recently bought a foreclosed three bedroom house in Georgia for twenty one thousand dollars. She put about another ten thousand dollars of work into the home, to paint it and put in new carpets. She hopes to rent it for a thousand dollars a month. Think about the yield on that, she’s going to get twelve thousand dollars a year in rent and her yield was close to 30%. Again, that’s not likely to continue either. At some point in time, homes in the United States, as Warren Buffett suggests, will rise exponentially. US homes will probably be the best value for your money in terms of any investment currently in the world today. But again, are people lining up to buy American real estate? No way, they are lining up to buy Singapore and Australia real estate because they like buying things that have just become expensive.

Totally agree. In your case, how do you keep yourself sane among this euphoria?

I learned a lot and I have some fabulous mentors. I can’t recall whether it was Jason Zweig or Jonathan Clement, who suggested that the financial media is financial pornography. Its job is to seduce you and get you doing things you really should not do. Its job is to entertain you as well, so I have learned to chuckle a little bit. It is both interesting and frustrating for me. I have a friend who has read my book, and attended my seminars yet he said, “hey my emerging market index has risen quite a bit and my bond index hasn’t. I’m actually thinking of selling some of the bond index to chase the emerging market index.” I had to try and talk him down. It was like a guy standing on a ledge about to jump and I had to stop him.

Basically you have to be a contrarian.

If you look at the world’s greatest investors who had long documented track records of success, have actually been quite contrary in nature. Guys like Warren Buffett, Benjamin Graham, and Michael O’Higgins, have definitely been contrarians. The people who were buying Singapore real estate in the year 2003-2004 were contrarians and they are laughing all the way to the bank today.

Who had great influence on your investment philosophy?

I would say Warren Buffett even though I have only met the guy once. I have read everything published about the man even though he has never written a book. He only writes the annual letters to the shareholders. It is just fabulous and I can recommend those letters for they are an amazing read. There is so much calm and absolute wisdom among chaos, and this is a wonderful anchor that I think most investors would be wise to grab hold of. And of course I mentioned in my book, I have also been really inspired by the millionaire mechanic I met when I was working at a part time job. I mentioned him numerous times and I just can’t give him enough credit. It’s just so inspiring to know that if I learned like he did, to manage my money effectively, I didn’t have to sell my soul for a big paycheck or for a job that I don’t like. He loved working on engines and he became a millionaire. So, that was inspiring knowing I could emulate him and love working as a teacher.

Right, so your advice to people is to follow a passion, to do what you love and invest in indices?

Agreed. If I said I’m going to give you three hundred and fifty thousand dollars, would that actually interest you?

Sure, definitely.

Okay, here is the deal. I’ll give you three hundred and fifty thousand dollars, but by making a deal with the devil, imagine I get to take fifteen years off your life, would you actually go for it? Now here is where I connect the dots. If you’re doing a job that you hate, are you really living? We spend at least eight hours a day working. If we hate it, then our employer is actually purchasing our lives. You would rather be spending time with friends and family, hanging out at the beach or doing something that you actually love rather than work, right?

So when I ask this question, “would you give up fifteen years of your life for an extra three hundred and fifty thousand dollars”, everybody says no. Yet so many people would choose a mind numbing job just for the money and unfortunately, they really don’t get it.

We know that not all index funds are created equal. Are there any pitfalls we need to look out for when we invest in them?

I think a lot of financial service companies are jumping on the index bandwagon as they’re starting to recognize that people who know a little bit are actually making steps towards purchasing index products. The industry can actually pull the wool over their eyes, and offer index funds that are actually quite expensive. There’s an organization in Singapore offering an S&P 500 index but you need to pay about 1% per year for the management fee. That’s crazy because it is about ten times more than people ought to be paying for an index fund. Not only that, they charge 2% commission up front.

As the investor gets smart, the mutual fund industry would develop counter measures to mask their products and to trick the investors again. Educators like you will have to teach it all over again to improve the understanding of these products.

Yes it’s frustrating isn’t it? Likewise in UK, there is a well known company that charges about 1% annually as well. So in contrast, my index fund in the US charges about 0.09%. UK investors are paying eleven times more than I am for the same product.

Besides cost, are there other things that we need to watch out for? For example, non-Chinese citizens are not able to own Chinese A shares. There is an ETF in Singapore where you can get access to the top fifty Chinese stocks but I understand the ETF is just buying futures to replicate the actual share performance. The transactions would definitely load costs on the fund. Are there many such synthetic ETFs that we need to watch out for?

There are some and you have to look under the hood of the ETF. You are right, an ETF in some cases do not actually own the equities within that index. There is just that extra element of risk and much of this is based on the solvency of the company you’re buying the index from. Investors should just buy transparent and simple index funds because you never really know what could end up happening with these more complex products.

You mentioned in the book that we need to have a global equity index in the portfolio as well as our domestic index. Since the stock markets are pretty correlated, would it suffice just to own the domestic index alone?

Some people do. Looking at two markets that are closely correlated historically, like Canada and the United States, a portfolio containing 50/50 of both indices will become less volatile and yield a higher return than either index in isolation. You could also take look at 2011 where most country indices dropped double digits during that year but the US market gained 2%. So there are still these differences.

I see. This sort of smoothes the returns and I believe the same reason for the bonds in your portfolio. Most people would find bond returns are unimpressive. Besides reducing volatility, what is the main role of bonds?

It is good that you mentioned this question because I get asked this a lot. People suggesting that the bond returns are only 1% or 2% annually and they don’t want to get into that. First I see bonds as a stabilizer and secondly, perhaps more importantly, my bonds are incredible potent dry powder. They are absolutely wonderful to own when markets plummet. Not because it will prevent my portfolio from dropping as much as the market, I could care less if my portfolio drops or not. When the market really plummets, we have really nice discounts and I can sell those bonds and buy stocks cheap. Having that bond allocation on paper looks like I have got a conservative portfolio, but for me, it was like rocket fuel.

Are you suggesting stock price and bond price are inversely related? During a stock market crash you can sell bonds dear and buy stocks cheap?

They generally are over a long term but not every single day or every single year. I have found that historically, when people are scared and they’re selling stocks, they will put money into mattresses, tin cups, savings accounts and bonds. In each case that I rebalanced my portfolio over the past decade, I found coincidently my bonds had risen in price. For me, it was the Canadian bond index. It was that easy, but again, you have to be emotionally dispassionate enough to do it and that is the hardest part.

Yes, talk is cheap, walking the talk so more difficult than anything else.

Exactly.

You emphasized a lot about rebalancing your portfolio in your book. If you see your bond component getting a bigger in your portfolio, you actually sell some of them and buy more stocks. It is true conversely. Just by rebalancing your portfolio, you are actually buying low and selling high in the process.

Buy low sell high is the ultimate investors’ mantra.

When did you have this conviction that index investing is the way to go and nothing else?

Well, I read John Bogle’s book, Common Sense on Mutual funds, probably twelve years ago and I had a lot of respect for the method itself. But like many young people, I wanted to buy individual stocks. When Warren Buffett suggests you buy quality companies when they are on sale or a company with short term problems, I was able to follow and made those kinds of purchases. My investment results were very good and I was quite reluctant to build a 100% indexed portfolio. My bonds and international equities were fully indexed. Only my US component was individual stocks picked by me. But the more reading and research I did, I discover many stories where guys who are a lot smarter than me and with far better track records of picking individual stocks, eventually ended up getting force fed a huge piece of humble pie. Eventually their accounts got hammered and they actually paid for their audacity of trying to beat the market. Warren Buffett says, “it is always better to learn form mistakes of somebody else rather than learn from the mistakes yourself”. That’s when I stood back and thought – I am already half indexed, I might as well go fully indexed and I will be guaranteed to beat 90% to 95% of professional investors. If 50% is index and 50% is individual stocks, I will never know how I am going to end up doing. But history says eventually I would end up paying the piper, so I ended up indexing the entire portfolio just a year and a half ago.

That was fairly recent. I thought you would have done index investing for a long time.

It was very recent. To keep it in perspective, I did have nearly a million dollars indexed. Even though I was picking individual stocks, I really did have a large part of my portfolio indexed. The individual stocks at the time probably amounted to seven hundred thousand dollars and I actually wrote about it on my blog the day that I sold them all and it surprised a lot of people. I know that it was certainly the right thing to do.

Many people believe they can beat the market, and everyone else except him is the average investor.

They were, but it’s funny because as a financial writer, occasionally I would write these articles on how to beat the market with individual stocks. These are the kinds of articles that actually sell magazines. The investment club’s portfolio that I managed was actually beating the market and some of the similar stocks were recommended in my articles while some were getting killed by the market. These losers could have ended up in my portfolio if I continue to pick stocks. Some people will say they have beat the market for five years or eight years. Comparing it to an overall lifetime of investing, that’s an absolute bleep.

I believe many people have come to you for advice, what were the common problems?

The biggest problem other than not saving enough money would certainly be chasing asset classes. Feeling really good about things that are increasing in price is the biggest problem people face when investing.

Is there a difference between the way Asians and Westerners handle money?

I thought so. I went to an investment fair in Singapore and Robert Miles was speaking and he had forty people to hear him speak. On the other side of the investment fair, it was almost like a big gymnasium where some guy from Hong Kong had some kind of day trading platform, promising to turn your ten thousand dollars into ten million dollars in five years. There were people spilling out of that place and everybody wanted the quick easy profits that they could dream off. I went out that night with Robert Miles and I said, this got to be an Asian thing. I have not seen anything like that before and surely if we held this in New York, Robert would get the big numbers wanting to invest like Warren Buffett. But he actually said, “no Andrew, you’re kind of wrong in that respect, people all over the world are the same. They want the fast, easy buck so whether it was in New York or whether it was in Singapore, you would get more people going for that fast easy dollar promise.”

Is it too late for someone in their fifties to start index investing?

Someone on their fifties who expect to live until they are eighty-five will have thirty-five years to invest. When they retire, they may not be adding money to the markets but they will be selling off some of their portfolio each year to cover living expenses. But they are still going to have their money in the markets in some way for a thirty-five year period Many people in their late years tell me it is too late for them and it really doesn’t matter how much they are paying in terms of investment expenses because the possibility of compounding huge sums of money is completely over – I should have started when I was in my twenties. When I punch my compound interest calculator and show them the money over the next thirty-five years they can make by saving 2% in investment fees simply blows their minds. So to answer your question, it’s not too late.

I understand that you are a runner. Are there similarities between running a marathon and investing for the long run?

Definite similarities. There are runners who just hope to run a marathon someday and they may train whenever they feel like it. What are their odds of actually being prepared to complete a marathon on any given day? It may be a dream, but unless they write it down, set a plan, have an objective and work towards their goal, they’re not going to do it. Many investors actually invest like that. They have no idea what they want at the end of the day, they have no idea how much money they actually need when they retire, and how much money they actually need to invest on a monthly basis to reach those goals. So running and investing require very similar traits in terms of the planning process. Now I am sitting on this couch after pulling an Achilles tendon, and in about ten days time, there is a really big race that I have trained for six or seven months. But I will probably just enjoy a jog instead of running as hard as I can. Life is very unpredictable and I think you cannot rush it. In investing, when people have set backs like losing their jobs, rather than rushing to take extra risks with their investments, people just need to step back, analyze the situation and then logically get back on track without rushing the process.

Are you leading a mini financial revolution out there?

If the entire world read my book, absorbed the material and recognized the superiority of investing indexes over active management, at best only 20% of the worlds’ people would actually bother with indexing. Because with indexing, you will never beat the market and very few people are genetically wired to accept. Maybe a little revolution of sorts, this is only for the people who are actually ready to accept it and emotionally wired to venture down this path. But unfortunately for the majority they will still chase the active management.

In a way, if everyone does index investing, it probably would not work anymore.

Yes, maybe. It would certainly become entirely based on supply and demand, wouldn’t it?

After this book, what is next?

The publisher wants another book for sure. At this stage, I’m just enjoying writing my articles for Canadian Business, the Globe and Mail, and the Asset Builder. I am really enjoying teaching my students and personal finance class. I would also be spending time with my beautiful wife this summer. All these things are keeping me crazily busy.

Thanks Andrew for coming to the show and I wish you a speedy recovery.

Yeah, will do, take care Alvin and good luck with your blog and everything.

You can reach Andrew at andrewhallam.com and you can buy his book, Millionaire Teacher with this link.

UIA – possible scam?

Alvin — Sat, 14 Apr 2012 00:38:01 +0000

I received an email from UIA out of the blue, asking me to invest in the company at a pre-IPO price which is on a 5x discount.

I was wondering, if the opportunity is so good, why would it land up in my email and not snapped up by some other billionaires and millionaires? Sounds fishy to me.

And UIA means Universal Interests Accumulative.

I cringed when I read this para:

By October 2011, UIA reached 204 countries becoming Earth’s default one world currency™. UIA differs from banks because it issues its own currency without having to incur debt and does not charge or pay any interest. UIA’s one world currency™ is safer than other currencies because its value does not fluctuate daily from changing foreign exchange rates.

Another quote:

The Agency has a capital base of $1 Zillion and is the world’s largest investment entity. The Agency is backed by Universe’s natural energy resources, the evolution of humankind and UIA’s growing base of 560,000 agents across 204 countries worldwide.

I checked on their address which is in Sydney Australia and found that it is a serviced office. You can even have the option to pay for the usage of the address or pay a little more to use it as a virtual office.

And then the classic membership fees comes in:

upfront investment required to become a UIA City Partner is AUD250 for an exclusive license from the Company which expires after 12 months and must be renewed every year

National Partner is AUD500 for an exclusive license from the Company which expires after 12 months and must be renewed every year.

Regional Partner is AUD1,000 for an exclusive license from the Company which expires after 12 months and must be renewed every year.

And the ponzi-type of referrals:

Building a UIA economy is the most productive way to make money as an agent as you will receive Monthly Earnings calculated based on 1% of the Monthly Turnover of your UIA economy. Your UIA economy include every person you introduce to UIA and also everyone they in turn refer to UIA. Monthly Turnover means the total monthly sum of all debits and credits transacted for everyone in your UIA economy.

I also noticed google ads on the website. Why would a credible company run google ads on their corporate website?

This is so lame:

U & I = A

The U & I = A epical began during the war between aliens and ghosts in Universe in 1998 where both sides were competing furiously to become the leading specie. U & I = A was created by Jonathan Soon and was used as part of a universal campaign for aliens and ghosts to unify human life. The meaning behind U & I = A is for all to be equal number one as in A. The war ended at the end of 2008 with aliens winning with a continued working relationship with ghosts.

Uian Language

Uian is the universal language for UIA’s globally connected citizens across 204 countries. Uian was invented by UIA’s Founder and CEO Jonathan Soon in 2010 to reduce the language barriers and improve communications between UIA agents worldwide. The Uian Language is developed base on a modified version of English with its own definitions and meanings. The Uian Language has been created with the objective of maintaining positive energy flowing wordings with meaningful substance. The Uian Language, containing a set of wordings when spoken in conjunction with English, produces a smooth conversing tone.

And lastly:

The value of UIA’s one world currency is based on the confidence of its 560,000 agents worldwide and a fixed foreign exchange rate of 1:1 with the world’s 182 national currencies.

I am not sure about you, but I would be very wary of this. I felt responsible to share my concern with you.

Sphinx Asia – possible scam?

STI ETF marks 10-year anniversary and averaged 9.01% annually

Alvin — Mon, 09 Apr 2012 15:11:12 +0000

Received this email excerpt from SGX:

The month of April 2012 represents the 10 year birthday for the SPDR® Straits Times Index Exchange Traded Fund (ETF). The SPDR® Straits Times Index ETF is Singapore’s first locally-listed ETF, and also referred to as the streetTRACKS STI ETF. This ETF allows investors to access the broad market exposure associated with the 30 weighted stocks of the Straits Times Index, in one, single exchanged traded security. This element of efficiency is one reason that ETFs are sometimes referred to as portfolio products.

On their website, State Street Global Advisors provide an indication of the returns associated with the streetTRACKS STI ETF from the inception date of 11 April 2002 to 29 February 2012. Over this period, the Net Asset Value (NAV) of the streetTRACKS STI ETF gained 72.90%. Including the dividend distributions associated with the ETF, the NAV gain is enhanced to 135.21% over the period. Combined, the NAV and dividend distributions of this ETF generated an annualised return of 9.01% over the period.

If you have not started investing, start your monthly investment with POEMS Share Builder Plan and buy into STI ETF. No need to watch the market, just stay still and do not do anything stupid. You will end up richer than investing in mutual fund or ILPs or any other investment scams.

Dr. Doom Talks Boom at Maybank Kim Eng Invest Asia 2012 – 7 Apr 12

Alvin — Sat, 07 Apr 2012 07:22:37 +0000

Maybank Kim Eng invited Dr Doom, Marc Faber, to Singapore for a talk. I did not expect him to speak only 45 mins and charged $44 for the ticket. Although KE also invited prominent figures like Magnus Bocker (CEO of SGX), Pua Seck Guan (CEO of Perennial China Retail Trust), and Ron Sim (CEO of OSIM), they should have mentioned it in their promotional flyers. I suspect the latter 2 CEOs are issuing rights soon.

Mr Bocker encouraged more active trading. Of course, this would bring good business to SGX. He mentioned that 25% of the investors in Hong Kong are active and active means having trades on a daily basis. It is 17% in Australia and 10% in Singapore. I am not sure if I heard wrongly. These percentages look too large in my opinion.

I also disagree with him when he compared equity returns with property returns. Saying that Singaporeans are pro property investors, we should increase our exposure to equity. This is on the premise that the returns from equity in the last 10 years is slightly less than 10% as compared to weaker returns of 5% from property. This is true if there is no leverage. But one rarely buys property with no leverage, and conversely, investors rarely buy equities with leverage. Let’s say you buy a property at $1m and put $200k deposit initially. Then you sell the property at $1.05m and realise a $50k return. Your percentge return would actually be 25% instead of 5%.

Another interesting number that he mentioned was that there are currently 1.5m CDP holders in Singapore. This means that there are 1.5m investors. If 95% of these investors lose money to the 5%, there will be 1.425m losers and 75k winners. More interestingly, most of the 1.425m losers will not be in the market until the market is super hot. If you want to be the 75k winners, you must buy before the losers come to the market and sell them when they want to join in the fun.

Next up was Pua Seck Guan and he shared the properties PCRT has in Singapore – Capitol, CHJIMES, Chinatown Point and 112 Katong. I sense that his strategy is to buy over these aged malls and rejuvenate them. PCRT is expanding in China as it sees many property development opportunities given the rapid urbanisation plans. He said China focuses on the residential property sector and does not have sufficient shopping mall development expertise. This is where PCRT brings value to the market in China. He likes properties within good transportation networks and population areas. PCRT already owned properties in 2 of the 5 High Speed Railway stations in China. He thinks that there is limited upside in first tier cities like Beijing and Shanghai. He sees higher rewards in second tier cities where one can buy land at RMB2,000 per sqm and sell at RMB15-20k per sqm.

Ron Sim shared 4 lessons during his 30+ years of business experience, including the 3 financial crises he went through.

High Point – don’t lose your head
Low Point – don’t lose your heart
Correction Point – don’t lose your guts
Breaking Point – don’t lose your spirit

The highlight of the event was when Marc Faber took the stage.

The monetary easing policies in countries all around the world have unintended consequences. This pushes the interest rates down and chases asset prices up at different times – he acknowledged that it is not possible to know where the money will end up. It would be NASDAQ tech stocks in 2000 and real estate in 2007-08 period. In other words, there will be times where one asset class is in hot demand. It can be equity, commodity, property etc. This is due to the negative real interest rates environment (inflation higher than interest rate) where savers are losing money in the bank. They would have to put their money somewhere to protect the value of money.

He said interest rate and commodity prices are positively correlated. When inflation is high, government would raise interest rate to cool the economy. However, he observed that despite high inflation, US is keeping interest rate low, and this created the negative real interest rate situation. He believes US will continue to print money and hence, he is pro-inflation in the future and expects the market to be very volatile.
Besides racking up huge debts, US is not producing enough and there is a growing trade deficit with China. For the first time in history, the emerging countries are consuming more oil than developed countries. He believes the differences will continue to diverge in ten or more years to come. And the increased demand for oil will create geopolitical tensions.

He thinks that we have come to an era where it is no longer about how much money you can make as an investor, but how little you can lose. He also briefly shared about how he would invest currently. He expects a crash is iminent and would keep some cash for opportunities – he says equities are good buy when the economic outlook is gloomy. This is so when the goverment prints money and devalues the currency to boost the economy. You would be able to make use of the exchange differences and buy more stocks of that currency. He also shared that he would buy real estate in Asia and buy physical gold. He believes keeping to time proven strategy – buy assets at discounts and diversify.

Asymmetry in shorting – Is shorting more risky?

Alvin — Sun, 01 Apr 2012 02:39:32 +0000

Other than the direction, I used to think that short selling is the same on the long side.

I found that is not true and here is why

When you short, you can lose more than your capital

Imagine you short a stock at $50 and it goes to $0. Your gain is $50 or 100% gain. This is the maximum gain you can get. On the other hand, if the price continues to go up to $100, or $200, or $300… You can lose more than your capital with 200% or 400% or higher – the sky is the limit! And this is without any leverage. It is definitely not a position you want to be in.

Yes. Of course you can put a stop loss to it. In fact, you MUST always have a stop loss when you short anything.

On the long side, you buy a stock at $50, the maximum loss you can potentially realised is 100% of the $50 you invested. If it goes to $200, you can enjoy 400% gain.

This asymmetry in profit/loss profile is depicted on the chart below.

Exercise caution when you short! Risk management!

Pay off $250,000 debt in 1.5 years – Collin Seow of Alpha Alliance

Alvin — Sat, 24 Mar 2012 01:58:14 +0000

I got to know about Collin through Yong Sak’s book, “Secrets of Highly Profitable Traders”. I could have interviewed him earlier if I have known him. Nonetheless, I jumped on the chance this time round.

Collin is a successful remisier and he maintains a blog at www.collinseow.com. Besides his brokerage business, he is actively teaching trading at Alpha Alliance.

I believe most people know you as a successful remisier. Would you share your success with us?

When I started my remisier practice, I did not know how to manage client’s risk. Six months into the business, my friend who was one of my clients defaulted on $250,000. My commission at that time was only about $2,000 a month. A $250,000 debt looked daunting in comparison. My friend told me to declare bankrupt together and said we could lead normal lives again after six years. I decided otherwise and worked very hard. I managed to pay off the debt in one and a half years with my broking business and trading profits. If I decided to be a bankrupt, I would not be where I am today.

My strategy was to provide training for my clients, teaching them how to trade the market. This is a win-win situation as they trade profitably, they would continue to be my clients and I benefit from the commissions. As such, many clients have stayed with me for years. Probably I was influenced by my previous job in financial advisory where the approach to client management was more long term. This was unlike what an old remisier who told me that there is a ‘lifespan’ for each client, and he would have to look for another client once the ‘lifespan’ of his existing client ended.

At first, the business will pick up slow because the new clients will trade with smaller sizes after they have learned the correct way to manage risk. Newbies tend to take on too much risk especially when they engage in contra trading.

You are teaching them ‘how to fish’ instead of ‘giving them the fish’. Moreover, without understanding risk, they may just trade way too big on any recommendation or tip. So you have been sowing good seeds by teaching your clients.

Frankly I was not so smart to know that. I just know it was the right thing to do as a responsible remisier.

When did you start trading and why the interest in the market?

I started at the age of 21. Like everyone else, I lost money at the beginning. It was difficult and it was not that I was lazy or stupid. I read many books related to fundamental investing and strategies of Warren Buffett and Peter Lynch. I applied what I read to the stock market and selected Informatics. The company had monopoly in private education business at that time with a good business model and management. The business had no inventory costs and it was pretty simple to operate. I bought the stock at $1.50 and now it is worth a few cents.

Did you develop an opinion that fundamental analysis does not work through that experience?

I do not think that fundamental analysis does not work. Warren Buffett’s strategy is to buy a good stock when it is cheap with a margin of safety. And if the stock price goes lower, he may buy even more. For me, I would not have the guts to average down. In fact, if it goes lower, I would be thinking of selling.

There are many things that are out of control. No one can ascertain if a company can truly turn around. You will need to read between the lines and try to understand the change the management is going to bring about but there is always difficulty for retail investors to access information. You will also need to observe the price movements to determine an entry. I pick up technical analysis at a later stage. I attended the Certified Financial Technician (CFTe) course but it did not make me a better trader, it was the two friends that I met during the course that helped me. One of them is a German who is a hedge fund manager. He told me that all the technical stuff published in books do not work. I got the privilege to sit beside him and watched him how he traded. I picked up some tools for trading and managed to become a profitable trader from then on.

Is it because you believe retail investors have restricted access to information, technical analysis is more suitable for retail investors?

Partly true as news is always delayed. During the accumulation phase, news would not report the big boys are buying. During the public participation phase, there are still skeptical people who would not participate. Until the news is full of bullish sentiments, the big boys are actually distributing to the public.

And your German friend mentioned that the technical indicators taught in books do not work. Why so?

The indicators will not work if you use them as they are. I know Metastock programming and I will always back test the setups to determine the workability. I found many things do not work. They may work in retrospect but in real time, the indicators may still be moving and responding to price changes, resulting in different entries and exits.

I have understand from other traders that the indicators are the same, you need to use them differently to trade successfully.

Yes. You will need to understand how the indicators work to know when is the right signal and when they will be wrong. You will then be able to apply filters to ignore the wrong signals.

Do you mean you need discretion to filter out signals despite using a mechanical system?

No. A mechanical system is rule-based and one should not exercise discretion. If you decide to avoid certain trades, the probability and expectancy of your system will deviate from the back testing results.

Are you still trading?

I am doing more long term trading as compared to the past. I take position when I have a view for the following three to six months. Firstly because the risk management would have limit the size of my swing trades and consequently the profits, it is not worthwhile to spend the amount of time on these trades. Secondly, I would be biased towards my positions if I swing trade with my clients. For the sake of clients and myself, I take longer positions now.

In my opinion, trading will be very automated in the future. The robots can replace the humans spending hours clicking in front of the computer. In fact, humans will always be slower than the robots and the former will lose their edge in scalping strategies. In fact, I like to work on trading systems and not work as part of the system. Trading is an active income, but when it becomes a passive income when I automate it.

Any insight to share on trading?

I went to Las Vegas in Nov 11 to attend a conference where the famous traders speak. One hedge fund trader told me trading is all about making the loss small and the profit big, that is all and the rest is bullshit. I agree. You just need to repeat the process over and over again. There is no 100% accurate system, and you will already be making money even with a 55% accuracy.

Do you use CFDs to go long and short on equities?

Yes.

As a remisier, do you recommend your clients to trade CFDs?

It is a double edged sword since it gives leverage. I always educate my clients to manage risk. Even if the broker gives 5 times leverage, do not use the maximum leverage. You do not want to be in a large leveraged position when you are wrong.

I believe trading is just one part of your portfolio, do you have other investments?

I invest in US properties. I do not actively manage it as I have a friend to oversee them. These are properties that are not done up yet and require renovations. I also invest on a monthly basis with Phillip’s Share Builder Plan (SBP). The returns is very good and I have done this for many years.

Yes. I am also investing through SBP and it is a good product that is rarely publicised.

It is not publicised because the profit is small. For $1,000 or less investment per month, the commission is only $7. I do recommend to my clients but I told them to apply on their own.

What other investments do you have?

Most of them are businesses and partnerships. Alpha Alliance, my training business. A business in algorithm trading for forex market, and a partnership with Fabian Lim for sharesxpert.

Would you share a little more about sharesxpert?

Fabian is managing the business and I contribute by giving the concept and designing the algorithm for the system. It is a medium to long term trading system on the equity market.

It seems like you are having many businesses.

I do not run most of the businesses. As I know people in this industry, my value proposition is to connect people from one network to another, and help to accelerate the growth of businesses.

Since you are not running most of the businesses, how do you spend your time?

The broking business is built on relationship and hence, I spend most of my time with clients. The rest of the time I would research on creating trading systems as I have passion for it.

You give me the impression that you are always actively looking out for new business opportunities.

I would say that the broking business is not going to last forever. In Malaysia, the brokerage commission can be as low as 0.1%. How long would Singapore be able to charge at 0.25% when the commission in the region is reducing? The middleman business is going to be tougher.

Are you working hard to strive for success in life?

There are different stages in life. At one phase, I wanted to make a lot of money and I would strive for it. Nowadays, I want to make a difference to the world – did I leave this place with a plus or a minus? I want to be a candle that light others and it has become my responsibility.

In the book, “Secrets of Highly Profitable Traders”, you mentioned that new traders always get lost in the “wilderness”. It is only after a period of time that they learn what matters most in trading. You took 7 years to get out of this “wilderness”. What were the key processes that allow you to find a successful trading strategy?

Many traders would look for the holy grail that does not exist. They often switch one strategy to another one but they will never find a successful one. Each trader has to develop his own strategy. Who are you? Do not ask if this method work but ask is this method suitable for you. Analogous to kung fu, there are many different styles to fight, and you need to find what suits you the most.

A beginner would still need to try many strategies and methods to know what is available and to discover what suits them.

Yes. In the past, I would tell my students it is pointless to learn more strategies but I realised they would do so anyway. The essence is to do more with less. This is contrary to our experience where we become better by doing more. In trading, it may be beneficial if you spend less time staring at the chart. Some traders make more money looking at daily or weekly charts as compared to intra-day charts.

In my trading course, I talk about 4 Ps that you can change and narrow down for yourself:

Product – Instrument
Price – strategy
Position – size
Psychology

You lost all the money in your account twice. What motivated you to keep trading?

Probably I am stubborn and did not want to give up.

I see something similar to how you dealt with the $250,000 debt – you just do not give up. I believe most people would have taken the easier way out to declare bankruptcy but it was not an option for you. You preferred to bite the bullet and fight it out. Likewise, most people would have given up trading when they lose money. This fighting spirit is essential to become successful in trading.

When my trading account was wiped out, I did go through phases of doubts. I have questioned about trading and if it could really work. I have also questioned whether I could pay off the debt in my broking business? I think I pulled through all these because of moral support from my family and friends.
Was there one lesson that you learned which became the turning point to your trading?

It is about position sizing. You can have a system that is 90% accurate and still lose money. Assume your position size per trade is 50% of your capital, it just takes 2 consecutive wrong trades to wipe out the entire account.

You emphasized a lot on journal writing. Do you still keep a journal?

Journal writing is more for learning about yourself. It is a process of self reflection. It will help you discover something that you do not know about yourself. For me, I cannot have trades on when I am on holidays. I do not want to worry or allocate time to look at it. So after learning about myself, I set certain rules for my trading.

Now, I simply rely on my trading system to tell me the entry and exit prices.

The system will actually tell you? What do you mean?

I have design my trading system to tell me the point to exit and the position size that I can take.

What are the important things to include in a trading journal?

Enter your Entry Price, Target Price, Exit Price and Time-frame, or ETET in short. You will also document the source that led to this trade and write down your set-up. I find it convenient to record directly on the charts as I am more visual. Once you have done this consecutively for 30 trades, regardless of winning or losing trades, the awareness of trading and the understanding about yourself will increase tremendously.

It forces you to articulate your thinking behind every trade, to bring yourself to greater awareness of your actions and behaviour.

Yes, it is to detach yourself from the market. Whenever it involves money, the animal instinct in you will dominate.

But journaling takes a lot of effort and most people won’t do it.

Or some people may just log the right trades and ignore the wrong trades.

Because it is too painful.

You know you shouldn’t do it, and you still do it. You will feel even more foolish to write it down. The hard truth is that there is nothing wrong about the system or method, but the problem lies in you.

You have 3 strategies, namely, retracement, break-out, and volatility. When do you know which to use?

The time frame determines the strategies. For example, a volatility trade is usually shorter, about 2 days.

What do you mean by volatility trade?

The market goes through periods of high volatility and low volatility. We should look for opportunities during low volatility period and when the price range is narrow. You either buy when price break out of the range on the upside or short it when price break out on the downside. You trade the next volatility.

How about breakout method?

For break outs, a stock must make a significant new high such as 1 year; 2 year; or 3 year high.

And retracement method?

When the stock made a new high, price would normally come down or retrace. You enter once it turns back up a little.

Would you say the market changes and you would need to adjust your strategy accordingly?

No, I think that the market is better suited for trending system now as compared to the 80′s. The market tend to move in trends from late 90′s onwards. It is something that I observed but I do not have a reason for it.

You are saying that the market do change, but your strategy should still apply because the principles such as pay-off ratio and position sizing are everlasting.

I would say it may change in the very short time frames. But in the longer time frame, the market is driven by greed and fear and animal instincts would not change. The market goes through cycles and this is the fact.

In a way, the longer the time frame, the less you need to change your strategy?

Yes. In fact it is easier to programme trading systems for longer time frame too.

— end of interview —

Collin can be reached at www.collinseow.com. Do check out his courses at Alpha Alliance.