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Wednesday, 28 September 2016

"Bei kambing" passive index investors - Part 2 of 2 (Why STI ETF?)


Why indeed!

There are thousands and thousands of low cost ETFs around the world.

How did you end up with the STI ETF as your one and only ETF for Passive Indexing?

I only know my own backyard

If you are a Singaporean studying/working in the US, and you have decided to embrace Passive Indexing, which ETF would you buy?

Same goes for if you are a Malaysian or Indonesian but is now a permanent resident or naturalised Singaporean - which ETF would you buy?

Mind you, if you are a US citizen, if you go by the same "my backyard logic" to pick your Passive Index ETF, you still have a problem!

There are 3 major indexes!

Dow Jones Industrial Average 30, S&P 500, and Nasdaq. Buy all 3 ETFs?

OK, lets say we leave out Nasdaq. Between DJIA 30 and S&P 500, which would you prefer?


Say that again.

S&P 500.

Shy right? Especially if currently you own the STI ETF.  (Don't worry, what you feeling now is called Cognitive Dissonance. Won't die one)

Bottom-up Country Picking

Singapore in the 70s and 80s was growing its GDP in double digits or high single digits. Do you think as a developed economy now, Singapore will ever hit high single digit GDP growth like when we were part of the 4 Asian Tiger economies?

But if we look at our emerging Asean neighbours, with a time frame of 20-30 years, do you think the SET, KLCI, JCI, PSE will outperform our STI?

Mind you, its still the same market returns we are talking. Just different indexing vehicle.

Imagine 2 Indonesian naturalised Singaporeans - one buy the STI ETF and the other the JCI ETF.  

20 years later, STI ETF doubled; but the JCI turned out to be a 5 bagger... How?

And to add salt to injury, the Indonesian rupiah has strengthened against Sing dollars... Ouch! Song bo!

Top-down Global Focus

OK, you where got time to evaluate different economies one by one. That's why you've chosen Passive Indexing in the first place...

Don't worry if you never heard of Global Multi-Asset Portfolio or Global Market Cap.

But you do know a bit of history. (I hope)

The 19th century belonged to Europe - they colonised the world!

The 20th century belonged to USA - heard of US hegemony? Policeman of the World?

Now which region does the 21th century belongs to?

But Asia is a very big region!

Some will want to exclude Japan - its a slow train wreck... Hence we have MSCI Asia ex-Japan ETF.

Some don't want developing economies; only want "safer" developed economies - then you'll go for the MSCI Pacific Index which includes only Australia, New Zealand, Hong Kong, Singapore, and Japan.

Some will prefer the developing economies in Asia instead; and buy up several ETFs in the region to make their own "aggregated" Emerging Asia Passive Indexing Portfolio.

Some will argue the 3 most populous countries in Asia are China, India, and Indonesia. They will create their own "trinity" ETFs.

And so on.

Earn more; save more

Low cost is like saving more. Of course who doesn't like paying less for more?

Unless you have chosen the Global Multi-Asset Portfolio index - where there is no investor discretion involved - any choice of other indexes will involve an active decision by the investor.

Yes, even the "Look ma! No brains!" default decision to choose STI ETF is an active decision itself - just like deciding to do nothing is a decision by itself.

Call it luck or skill.

Your Low Cost Passive Index Portfolio consisting of one single STI ETF 20 years later has doubled! Whopee doo! 

You were going to brag about it until you found out some idiot went YOLO on the Vietnam Index 20 years ago and is now sitting on a 10 bagger... What the fish!

Probably a newbie youth 20 years ago whose biggest strength was he didn't know what cannot be done!

Oh well... Don't compare... (But in your heart you pretty pissed you lost out to a noob)

What do most bei kambing Passive Indexes do?

They focus on the low cost side of the equation. That's the easy part.

Want to verify whether you are talking to a parrot or to the real McCoy when it comes to Low Cost Passive Indexing?

Ask them about the active selection (entry) process of their low cost ETFs - the earn more part. Wink.

Now you know why most financial bloggers are more comfortable talking about their save more bits. And for the precious few financial bloggers who are able to share, with actual track records, their outsized earn more sexy parts, they'll attract a HUGE following.


C'mom. We all know intuitively that it does not take brains to save more. We just need discipline. But to be able to earn more, that takes skill or loads of good luck.

Of course I've chosen luck.

Tomorrow is Thursday. Which reminds me, must remember to buy Toto quick-pick!


What luck! Just stumbled onto this article:

I think it provides a nice context and perspective to what I've written above. Wink.

SMOL 29 Sept 2016

Monday, 26 September 2016

"Bei kambing" passive index investors - Part 1 of 2

I love to watch documentaries.

For many years, I've always believed gravity is pulling us down to Earth - the Newtonian and main stream view that the common man in the street knows and accepts as "correct".

What do you know?

After watching documentaries on Einstein and his General Theory of Relativity, I've learnt that its in fact the curvature of space-time above us that's pushing us down to Earth...

Of course those of you who studied Physics at tertiary level would already know. Maybe.

Bei Kambing understanding versus Erudite understanding

The same gravity example can also apply to Low Cost Passive Indexing.  

If you look around our blogging community and forums, you can spot these 2 different creatures.

One just have a single STI ETF (single country focus) and that's that; the other usually have several ETFs that include more than one asset class, and covers either globally or at the very least covers one large regional geographic area. 

I rather not point these bloggers out as its better you discover them yourselves.

Low cost is just one part of a Passive Indexing Strategy

If we buy unit trusts from a bank, the usual commission is 5% - unless there's a promotion.

The same unit trust can be easily bought at 1 to 2% commission through on-line unit trust distributors - depending on your order size. Sometimes there are even no-load zero commission offers!


If I buy online can my actively managed unit trust be considered "low cost" now?


The annual management fees are more expensive for actively managed unit trusts than ETFs.

So that tiny 1 to 2% makes a lot of difference?

Of course it does! It we compound it by 20 to 30 years. Fully agree with you!

Now it's my turn to ask you some questions...

On an intraday level, did you notice there can be a 1-2% difference between the daily high and daily low for the ETF quoted price?

So 2 person buying the same ETF on the same day can receive 2 totally different entry prices with difference ranging between 1-2%, can we agree on that?

You know what's coming... Wink.

2 person who do dollar cost averaging on a monthly basis can have a 5% difference in entry prices if one bought on 1st of June and the other 30th of June. Possible right?

And if the same 2 person passively dollar cost average into a ETF annually, the differences in entry prices can actually be more than 10%!

Is it fair to say the "unlucky" passive dollar cost averaging person as "high cost"; while the "lucky" person as "low cost"?

Try compounding the differences for the next 20-30 years... Yeeks!

You tell me, does the tiny 1-2% difference in management fees between actively managed unit trust and ETFs still such a big deal?

P.S.   In part 2, I'll demonstrate why buying a STI ETF is an active decision; and this decision has a even bigger impact 20-30 years going forward than low costs... 

Friday, 23 September 2016

You free on 23 Oct 16 Sunday afternoon?

The good people who invited me as a speaker last year have organised another seminar next month on 23 Oct 2016, Sunday 1-5pm.

No, I won't be speaking again as this time. I think they have found out painfully last year, anything that's free is probably "suspect"... LOL!

Do check out the speakers below:

You know what? It's not free! Thank goodness for that!

Friend, only $20 per person.


Just enter "BLOG50" when you register they will give you a 50% discount?

Yes. Only $10.

Pay a few hundreds for a course preview is "bei kambing; free is "suspect".

$10 is the sweet spot. Ah...

P.S.  I've marked this post as advertorial; but I'm not paid a single cent to write this post. Sometimes its not always about money, money, money.

Although having said that, I'll put on his tab one drink the organiser "hutang" me. Cannot be free. That will lead to abuse...   

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