*Official* Shiny Things club

[Shiny Things]

Shiny the problem with bank bonds is that their price is way above par and does not give good interest. So we have to buy into crap bonds right?

No. Nonononono. This is called "reaching for yield", and it's a terrible idea. Even if you're earning extra yield, you're still buying a crappy issuer - and with yields as low as they are, the bond yield from a crappy issuer isn't going to compensate you for the risk of that crappy issuer defaulting and taking your bond investment with them.

Hi Shiny, Yup I started on IWDA as you suggested. I got into a little EuroStoxx50 too.
Just figured if I do that both, means I should start look at S&P500.

Well, hang on - if you're buying IWDA, you're already buying those Eurostoxx stocks. You don't need to double up - and you especially don't need to double up with an S&P 500 ETF, because something like one-third of IWDA is the S&P 500.

Dafug, man that is expensive. Stanchart declined my account opening. Time to go check IBKR.
Looks like POEMS only good to DCA ES3... even then is at least $6/mth in fees.
IBKR is just $2.50 for SGX counters??? https://www.interactivebrokers.com.hk/en/index.php?f=commission&p=stocks1
Or did i miss something?

Yeah - as Perisher mentioned upthread, you can't trade Singaporean products on the SGX unless you have an address outside Singapore.

Noted between S27 vs. CSPX. Spread aside, for educational purpose. is there an advantage to pick an SGX listed ETF over an LSE ETF? Assuming all else equal.

The advantage is actually the other way, if you have US assets in your ETF; LSE-listed (and Irish-domiciled) ETFs get more favourable tax treatment on their US assets because of the tax treaty between the US and the UK. Singapore ETFs don't get the tax discount that UK ETFs get.

As for capital preservation, I would think it's even more important in your early years than later. You're probably better off in safer investments when you're younger, preserve your capital, grow it carefully through savings and, most importantly, compounding. Then, you can diversify into more risky investments.

I mean, once you get to $1 million plus, what's a 50% hit? Not much. You wait a few years and you make it back.

You have $50k at age 30, lose half of that you're in trouble. You have a huge opportunity cost right there because you lose out on the compounding of that missing $25k for the next 40 years.

So I'm not going to argue with you about your stocks-vs-bonds allocation thing, except to say that I feel like putting your money into the most volatile asset class, when what you need is a steady income and no capital losses, seems unwise. But I need to jump on this last point, because this is just completely the wrong way up.

Think of it like this.

We're investing for retirement here. So when you retire, you're no longer working, and you need to live off your investments - that means you need investments that can throw off, let's say, $30,000 a year. At a 3% withdrawal rate, that means you need about a million bucks to be able to retire and live off your investments.

And let's say you're 100% in stocks, and suddenly the market tanks 50%. Your 3% a year withdrawal suddenly goes from $30,000 to $15,000. Or if you want to maintain your lifestyle, you have to pump the withdrawals up to 6% a year - and that means you're digging into your principal, spending the money that was supposed to stay in the market for the rally. You're at serious risk of running out of money.

On the other hand, if that 50% drawdown hits when you're young, you lose $25k in your example. But you make it back pretty quickly - like you said, "you wait a few years and you make it back", and the key thing is because you're young, you can afford to wait for the market to come back. Big losses when you're young are fixable; big losses when you're old are not fixable.

If you're retired, and you're living off this money, a 50% drawdown is going to mean you'll have trouble paying for food. When you're retired, you can't afford big drawdowns. That is why you want stocks when you're young, and bonds when you're older.

The first pages of this Vanguard paper on their target-date retirement funds (which use the same idea of a "glide slope", though it's a bit more complex than "110 minus your age") have plenty of other good theoretical backing for the idea.

But at this point I think we're going to have to agree to disagree. Let's check back in 40 years when we're both retired?

P.S. Is Japan out of recession yet?
P.P.S. June is almost over and the Fed has yet to raise interest rates. When is the next milestone date which everyone is looking to?
P.P.P.S. I'd play around with a spreadsheet on this but my Excel skills are rusty to begin with and the new version is a mystery to me.

Yes, in fact it's growing like a wildfire; probably September, but in theory every meeting is in play now; I don't think this needs a spreadsheet but yeah you might want to have a crack at this.

 

[ston12345]

Hi Shiny, Yup I started on IWDA as you suggested. I got into a little EuroStoxx50 too.
Just figured if I do that both, means I should start look at S&P500.

If you're already on IWDA, you probably shouldn't do S&P500 as well cause IWDA has much of its holdings that are in the S&P 500 ETF.

IWDA holds 56.84% in US securities so i'd say you're pretty much covered in that region.

Edit: Whoops! seems like Shiny got back to you on this already!

 

[Perisher]

But at this point I think we're going to have to agree to disagree. Let's check back in 40 years when we're both retired?


Yes, in fact it's growing like a wildfire; probably September, but in theory every meeting is in play now; I don't think this needs a spreadsheet but yeah you might want to have a crack at this.

Finally, some adults who acted like one. Not every disagreement has to end up in hurling abuse and personal attack and spam over every thread available.
If only some guys in this forums can take things less personally, we did all benefit from all the sharing. A clash of viewpoints need not be a all out 'I'm right you are wrong and you are XXXX' war. Attack the topic, the views, the subject at hand, avoid as much as possible the person.

 

[Shiny Things]

On the other hand, if that 50% drawdown hits when you're young, you lose $25k in your example. But you make it back pretty quickly - like you said, "you wait a few years and you make it back", and the key thing is because you're young, you can afford to wait for the market to come back. Big losses when you're young are fixable; big losses when you're old are not fixable.

If you're retired, and you're living off this money, a 50% drawdown is going to mean you'll have trouble paying for food. When you're retired, you can't afford big drawdowns. That is why you want stocks when you're young, and bonds when you're older.

There's another way of looking at this that I didn't think of until I read the Vanguard paper. Imagine these two people, both of them fully invested in stocks, and stocks suddenly drop by 50%:

* Age 30, $50k in the market, and you lose $25k;
* Age 65, $1mio in the market, and you lose $500k.

Vanguard points out that the first person still has 35 years' of working life ahead of them. $25k is a big hit relative to their portfolio, but they can go back to work for a couple of years and make that back. Younger people can afford to take the risk of bigger drawdowns, so they can afford to invest in stocks and capture those higher returns.

But for the age-65 person, losing $500k is a nightmare. They'd have to go back to work for decades to make that money back. That's why older people should mostly be in bonds: they can't afford to take those huge drawdowns associated with investing in stocks.

 

[doody_]

There's another way of looking at this that I didn't think of until I read the Vanguard paper. Imagine these two people, both of them fully invested in stocks, and stocks suddenly drop by 50%:

* Age 30, $50k in the market, and you lose $25k;
* Age 65, $1mio in the market, and you lose $500k.

Vanguard points out that the first person still has 35 years' of working life ahead of them. $25k is a big hit relative to their portfolio, but they can go back to work for a couple of years and make that back. Younger people can afford to take the risk of bigger drawdowns, so they can afford to invest in stocks and capture those higher returns.

But for the age-65 person, losing $500k is a nightmare. They'd have to go back to work for decades to make that money back. That's why older people should mostly be in bonds: they can't afford to take those huge drawdowns associated with investing in stocks.

Yes, what I was thinking as well. A 25k loss to a 30 year old can probably be made back within 2-3 years, a 500k loss to a 65 year old is as good as gone forever as they have lower earning power (or maybe even retired and unable to go back to work)

 

[djchris]

There's another way of looking at this that I didn't think of until I read the Vanguard paper. Imagine these two people, both of them fully invested in stocks, and stocks suddenly drop by 50%:

* Age 30, $50k in the market, and you lose $25k;
* Age 65, $1mio in the market, and you lose $500k.

Vanguard points out that the first person still has 35 years' of working life ahead of them. $25k is a big hit relative to their portfolio, but they can go back to work for a couple of years and make that back. Younger people can afford to take the risk of bigger drawdowns, so they can afford to invest in stocks and capture those higher returns.

But for the age-65 person, losing $500k is a nightmare. They'd have to go back to work for decades to make that money back. That's why older people should mostly be in bonds: they can't afford to take those huge drawdowns associated with investing in stocks.

That's all about risk appetite right? If we are at a stage where we can't afford to lose our gains, then it's time to take our chips off the poker table.

 

[anschluss2001]

Hi Shiny, thanks for taking time to reply to all the queries!

What do u think of contagion risk of a grexit?

Do you know if there is any limit to the duration for which you can short a stock using IB?
Which stocks do you recommend shorting in the context of a contagion?

I am currently looking at shorting PGAL. Any suggestions?

 

[Shiny Things]

That's all about risk appetite right? If we are at a stage where we can't afford to lose our gains, then it's time to take our chips off the poker table.

Yep. That's one way of putting it - you can spin it as "reduced risk appetite", as "human capital vs financial capital" like Vanguard does, or as "can't afford the drawdowns"; they all lead you to the same conclusion.

Hi Shiny, thanks for taking time to reply to all the queries!

What do u think of contagion risk of a grexit?

I think if there is any contagion, it'll be a great buying opportunity.

For a bit of context on where things stand at the moment, here's what I wrote in another thread:

They won't make it to the referendum. As things stand right now, Greece is going to default on the IMF loan on Tuesday, so the ECB will pull the central bank's ELA lines, so the Greek banks abruptly become insolvent and the only real solution is to pull the ejector seat on the euro.

And even if they do make it to the referendum without falling out of the eurozone (maybe because they declare a week-long bank holiday), the bailout plan they're voting on will have been withdrawn the previous Tuesday along with their ELA lines, so they'll be holding a referendum on a plan that doesn't exist any more.

Greece has blown themselves up; the shrapnel just hasn't reached them yet.

Since I wrote that last night, the ECB has said they're not increasing Greece's ELA lines today, and Yanis WhatTheFakis has told a BBC reporter that they're considering either capital controls or a bank holiday - upshot, Greek banks probably will not open on Monday morning. If this happens, though: don't panic. It doesn't affect you.

Do you know if there is any limit to the duration for which you can short a stock using IB?
Which stocks do you recommend shorting in the context of a contagion?

There's no hard limit; the only limit is if and when the lender decides to recall the stock you borrowed.

I am currently looking at shorting PGAL. Any suggestions?

(For anyone who's WTF-ing, PGAL is an ETF that tracks Portuguese stocks - and Portugal is pretty much the next target if Greece leaves the eurozone.)

Yeah, I would suggest not doing that.

Couple of reasons:

1) It's a high-risk trade. You're going to get run over as soon as Mario Draghi pulls out his "whatever it takes" bazooka again - and the odds are he will, because Portugal is in pretty dire shape but it's not nearly as bad as Greece. They'll aim to cut Greece loose and cauterise the wound; they don't want Portugal to fall out as well.
Because of that, you'd seem to have a lot of downside and not much upside. PGAL has already gone from 18 to 12 in the last year; if the Eurozone mayhem fixes itself it could be back at 20 before you know what's hit you.
2) If you absolutely must do this - if you really want to get short Portuguese index delta - there are better ways to do it than shorting PGAL. The US stock market doesn't open until the afternoon in Europe, by which time all of the mayhem in the Portuguese market will have already happened; and shorting PGAL will cost you about 4% p.a. in stock borrow as well.

The absolute right way to execute this one is by selling the PSI-20 index futures on Euronext; unfortunately it looks like IBKR doesn't offer access to Euronext Portugal.

Honestly mate I wouldn't bother with this trade idea. The market's going to have moved by the time you can get it on, and the downside on this one is a lot worse than the upside.

A few pieces of perspective:
* The massive tumble in the Shanghai stock market over the last few weeks has wiped out probably a trillion dollars in wealth - close to two trillion if you include Shenzhen. The entire market cap of the Greek stock market is somewhere less than fifty billion dollars. But you don't hear twenty times as much screaming about Shanghai/Shenzhen as you do about Athens.
* Greece has been a pretty much nonstop economic disaster for at least the last two hundred years, if not more. Josh Brown has an absolutely golden quote in his "don't panic" Greece piece right here:

To a person with any historical awareness, being told that Greece is on the verge of a default is like hearing Dean Martin is on the verge of a martini.

So, guys: don't panic about Greece. Europe will survive even if Greece tumbles out of the eurozone and starts printing drachma notes. (I quite like "Formerly Known as Drachma" for the new currency name - or FKD.) If European stock markets melt down on Monday morning, or Tuesday morning, or Wednesday morning, it's going to be a buying opportunity, not a selling opportunity.

 

[pyrelight]

Which euro etf would you suggest this meltdown occurs then?

 

[reinphd]

and the index does plunge a lil' (;

 

[Shiny Things]

and the index does plunge a lil' (;

Yeah, it's time to back up the truck on European equities. The market has gone from priced-for-perfection to priced-for-apocalypse.

The DAX is going to open something like 4% lower and the euro's off 2%, so the DAX in SGD terms is something like 6% cheaper than it was yesterday. Greece isn't going to do a thing to profits at Merck, or BMW, or Adidas - so you're getting the same company, the same profits, but 6% cheaper.

I'm gonna wake up tomorrow morning and get busy rebalancing when NY opens up - bonds have rocketed higher and equities have sold off, so it'll be time to take profit on those bonds and buy some cheap stocks.

In the punt book, I launched some March fed-funds futures as well - those traded all the way up at 99.60 at one point, and the odds of no hikes or one hike by March doesn't justify that pricing. (For that matter, Dec 2020 eurodollar futures are now pricing an interest rate barely above 3%, which seems a bit rich as well. The whole strip seems a bit rich - now's probably a good time to lock in fixed interest rates if you're a borrower, or sell bonds if you're an investor.)

 

[Erwinlow]

Hi Shiny Things, if Grexit happens, what would the effects on the pound be? Still going really strong now.

 

[neanea]

shiny which europe etf to buy?

 

[geddit]

shiny which europe etf to buy?

Same query but I like to know if there are good USD denominated Europe ETFs?

What are your thoughts on Lyxor MSCI Eur (JC5)?

 

[cookieemonsterr]

any idea which euro denominated etfs worth going for?
for some reason, SCB doesnt load many german etfs on DAX..

 

[limster]

For European ETFs, XESC/XESX or VERX. Apart from low TER, I also look out for good volumes, which is on reason why I started off with XESX first instead of XESC but XESC volumes are close enough nowadays.

These ETFs don't include UK. I prefer to buy UK separately via the very low cost VUKE.

Europe still not cheap though can start accumulating. Earlier this year I think Europe was decent value but there was a crazy bull market so this is more of a much needed correction. But I will continue to accumulate to ensure proper portfolio balance.

 

[Perisher]

For European ETFs, XESC/XESX or VERX. Apart from low TER, I also look out for good volumes, which is on reason why I started off with XESX first instead of XESC but XESC volumes are close enough nowadays.

These ETFs don't include UK. I prefer to buy UK separately via the very low cost VUKE.

Europe still not cheap though can start accumulating. Earlier this year I think Europe was decent value but there was a crazy bull market so this is more of a much needed correction. But I will continue to accumulate to ensure proper portfolio balance.

Any USD denoted Europe ETF that is domiciled in UK?
VEUR? VGK?

 

[neanea]

You know or not?

For European ETFs, XESC/XESX or VERX. Apart from low TER, I also look out for good volumes, which is on reason why I started off with XESX first instead of XESC but XESC volumes are close enough nowadays.

These ETFs don't include UK. I prefer to buy UK separately via the very low cost VUKE.

Europe still not cheap though can start accumulating. Earlier this year I think Europe was decent value but there was a crazy bull market so this is more of a much needed correction. But I will continue to accumulate to ensure proper portfolio balance.

 

[The Accountant]

Any USD denoted Europe ETF that is domiciled in UK?
VEUR? VGK?

Don't think there is.

here's a list of ETF that tracks MSCI indices

 

[Shiny Things]

Same query but I like to know if there are good USD denominated Europe ETFs?

What are your thoughts on Lyxor MSCI Eur (JC5)?

No. No synthetic ETFs ever, especially when there are easy-to-trade alternatives.

shiny which europe etf to buy?

If you're going to buy one, buy CSX5 on the LSE. No, there's no EUR-denominated alternative, so if you have to go through Stanchart's too-wide FX spreads on EUR, don't bother. Don't forget, IWRD exists, and it owns all those juicy European equities.

This is a part of your complete portfolio, it's not "you should pile all your money into European equities". It's "if you have an allocation to overseas stocks in the first place, now's a good time to rebalance into Europe because wow has that thing fallen out of bed".

Hi Shiny Things, if Grexit happens, what would the effects on the pound be? Still going really strong now.

NFI honestly. I wouldn't think it would be all that much?