August 2020 Updates

Hi friends,

I would have to request a change. Instead of the monthly update on the last Saturday of the month, I plan to change it to the last Wednesday instead. This is as my side hustle - tuition takes up my entire Saturday and I simply cannot find the time to write the article. 

But yes, in recent news, the US seems to have another round of stimulus check that is on the way. What this might mean to the market is that I can foresee another round of rally in the stocks. Also, Intel has decided to stop manufacturing their own chips (Thank goodness, they hadn't been making good chips for a looooooong time.) Outsourcing their chip to TSMC (A Taiwanese company) for the manufacturing.

So let's talk about my portfolio for the month:

1. Stashaway (Invested $3,302, current value $3,491) - The growth is starting to slow

2. Stashaway Simple (Invested $12,554, current value $12,644) - Holding my cash now

3. Coasset (Invested $1,000, expected return of $1,090 in 2020) - They delayed the payment (I might be giving my views on the company in a future post. It isn't positive)

4. Funding Society (Invested $1,881, current value $1,169) - Biggest loss that I have. Guess peer-to-peer is really really risky :')

5. Endowment (Invested $6,000, expected return $6,556.4 in 2022) - Coming out soon 

6. FSMone - Nikkoam STC Asia REIT ETF (Invested $2,048, current value $2,253) 

7. Kristal.AI (Invested US$2,826, current value US$2,838)

8. Singlife Endowment (Invested $10,000, current value $10,000) - This one doesn't seem to be 2.5%... 

Alright, my returns (total) = a measly 0.14% - DARN YOU Funding Society 

My optimistic account = 2.19% - YAS, k la. I am slowly dipping my cash into the stock market now. heh. So I will anticipate more volatility in my portfolio as well. 

I am expected to end my internship by the end of the 1st week of August. This internship is an experience that I am really thankful for. I say this as I often venture out of my comfort zone to gain new exposures in my role as an engineer in my internship. This period of time also gave me a new perspective on financial planning (This is due to the long journey time to work, I read like around 10 books in 3 months - something that I can never imagine). I must and I will max out my investment portion in the future when I start working so that I can achieve financial freedom as soon as possible. I have never felt so motivated before.  

I will be writing an end-of-internship reflection in this blog as well, detailing the personal impacts that both companies had on me during my time with them. So do keep a lookout for them. 

Till then I hope that you will continue to stay safe in this period and that you will remain healthy and hungry for oppurtunities in the market. 

Till next time,
Stay vested, stay frugal my friends.

Dionysius

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Books by the Giants:The Little Book of Common Sense Invesing

Hi friends,

Today's book is written by John Bogle, the man who found Vanguard and the first index fund in history, "The Little Book of Common Sense Investing - The only way to guarantee your fair share of stock market returns". In this book, John Bogle used simple, easy-to-understand mathematics and data to show us why he firmly believes in a low-cost, diversified index fund approach of investing is the way to go for the common investor. 

What I love about reading this book is that Mr Bogle's use of "Don't take my word for it", which quoted influential investors like Warren Buffett, Benjamin Graham, Peter Lynch, David Swensens at how they support his way of investing. Furthermore, he likes to use analogies to drive his point across. Furthermore, as I am a believer in taking a passive approach to investment (using index funds), the words written by the father of index funds carried a significant weight

What I didn't like so much about it was how preaching the book sounded, especially in the later chapters. This is as almost every chapter would refer to studies or stats that support using index funds to invest and the conclusion would be the same - Investing using index funds is the way to go. Like, come on, I already know that. But if I were to think from the POV of someone who does not know anything about investing, I will not find it boring. 

Here are the 5 principles that I have learnt from this book (other than index funds/ETFs are the way to go):

1. Enterprises' growths, not speculations determine the long-term market returns:

Returns from the stock market can be grouped into 2 parts - a) Investment Returns b) Speculative Returns. Investment returns can also be split into 2 more parts - 1) Dividend Yield and 2) Earnings growth. So what Mr Bogle did was to examine the S&P 500 all the way from 1900 to 2010s, on a 10-years basis how each part contributes to the total market returns of the index. 


As you can see, of the 9.5% annual returns of the stock market, 9% is based on investment returns, speculative returns (measured in P/E) only accounts for 0.5%. Furthermore, Mr Bogle has pointed out that for a period of negative speculative returns, the next decade would have a positive speculative return of around the same magnitude - This means that the speculative returns generally cancel out each other as time goes long enough. 

So yes, when we invest, we are looking for growth in businesses, not just because the price went up and everyone is buying it (which is similar to what Benjamin Graham said). 

2. In investment, you get what you don't pay for:

Over a 15-years period, Mr Bogle referring to the SPIVA report, over 90% of actively-managed funds are outperformed by the comparative S&P indexes:


The reason for this, he argues, is because of the high fees associated with actively-managed funds that caused them to lose out to their passive funds counterparts. 

The fees of mutual funds are as follow:
Expense Ratio (management fees, operating expenses) ~ 1.3%
Sales Charge ~0.5%
Transaction charge, brokerage comms, bid-ask spread ~ 0.5% - 1%
Tax ~1% (due to the high turnover rate of 78% of actively-managed funds)
The reason why we are often ignorant about the fees when:

• Market returns are good (when market returns are good eg. 10%, we would not care about the fees, but not when the market suffer a loss of and we still have to pay for the fees)
• We focus on the short-term performance of the funds (when we chase after the next hot mutual fund)
• The fees are hidden (usually behind complex technical languages)

For those still harp on investing through active-managed funds, Mr Bogle has these guidelines: a) low-cost (low expense ratio) b) low turnover rate in the portfolio 

3. Reversion to the Mean:
For this principle, Mr Bogle stated the observation that the short-term returns of stocks would equate to the long-term average returns. What this means is that for a period of large returns, the next period would likely have lesser returns due to this principle. Hence, we can expect a lower rate of return for the next few periods due to this principle. 


Exhibit 9.2 is given Mr Bogle's prediction of the returns of the US stock market in the next 10 years since 2017, which is around 4% after accounting for inflation at 2%. 

Do note that this principle is not just applicable to index funds. This principle accounts for actively-managed funds as well, which explains why some managers can do some well in one period, but won't do well for the next period. 
#sorry, the pdf split this into 2 pages. But we can clearly see that over a 10 year period, funds that do well, do not stay well.#

4. Not all index funds are created equal (GASP!)":
Yes, index fund is the way to go because of their low fees and diversification. But for this principle, Mr Bogle is trying to warn us about index funds that deviate away from the two criteria that made them so attractive

5. ETFs vs Traditional Index Funds (TIFs)

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