Official Shiny Things thread—Part III

[celtosaxon]

Do u guys feel a V shape or U shape

V shape... not a popular point of view, but I am optimistic that things will bounce back faster than expected.

 

[Purplestars]

Just hold only. Keep your DCA on point

How can Club, Cinema and Bar workers keep their DCA on point now?

Useless strategy!

 

[chemtt]

Just finished ST’s book (thanks Joshua for the well written book!), I’m a first time investor myself. I’ve a few points that I’m confused over.

Let’s say if I’m DCA-ing SGD 1K every month into IWDA with IBKR (for my global equity portion), the method taught in the book is to invest every month into whichever asset is falling below its allocation. This means that one month I can be investing in local equity and another month in global equity, then how do I even manage DCA into IWDA every single month?

Also I understand that if you’re investing more than 1k per month, we should go with IBKR instead of SC, but is this amount in SGD or USD? Also what happens if I want to invest exactly 1K SGD- will IBKR or SC be better?

 

[crystalnox]

Let’s say if I’m DCA-ing SGD 1K every month into IWDA with IBKR (for my global equity portion), the method taught in the book is to invest every month into whichever asset is falling below its allocation. This means that one month I can be investing in local equity and another month in global equity, then how do I even manage DCA into IWDA every single month?

You won't be able to, it's more on a best effort basis to DCA every month but you've also got to keep an eye on brokerage costs. You can however do that with IB, since trades are so cheap and you're charged that $10 activity fee every month regardless of whether you trade or not.

 

[crystalnox]

Also I understand that if you’re investing more than 1k per month, we should go with IBKR instead of SC, but is this amount in SGD or USD? Also what happens if I want to invest exactly 1K SGD- will IBKR or SC be better?

If you're doing DCA every month, IB is going to be more worth it. If you're alternating between buying ES3 and IWDA monthly, then your SCB costs will be halved and it might be cheaper to go with SCB. (6xUS$10 vs 12xUS$10)

SCB charges US$10 +7%gst +~0.5-0.8% fx spread per trade
IB charges US$10 flat monthly whether or not you trade that month

 

[chemtt]

I see, thank you so much!

I’ve a few other questions, hope to have clarification on them:

I’m currently buying IWDA LSE from IBKR. Just to confirm that this is trading on LSE but it’s US denominated, so the min commission per trade is USD 1.7?

Then forex fee of USD.SG will just be a flat USD 2?

So if I just do one trade of IWDA in one month, the commission incurred will just be USD 1.7 + USD 2, which will be included as part of my USD 10 monthly account maintenance fee, so the extra fee that I’ve to top up is USD 10 - 1.7 - 2 = 6.3?

If you're doing DCA every month, IB is going to be more worth it. If you're alternating between buying ES3 and IWDA monthly, then your SCB costs will be halved and it might be cheaper to go with SCB. (6xUS$10 vs 12xUS$10)

SCB charges US$10 +7%gst +~0.5-0.8% fx spread per trade
IB charges US$10 flat monthly whether or not you trade that month

 

[crystalnox]

I see, thank you so much!

I’ve a few other questions, hope to have clarification on them:

I’m currently buying IWDA LSE from IBKR. Just to confirm that this is trading on LSE but it’s US denominated, so the min commission per trade is USD 1.7?

Then forex fee of USD.SG will just be a flat USD 2?

So if I just do one trade of IWDA in one month, the commission incurred will just be USD 1.7 + USD 2, which will be included as part of my USD 10 monthly account maintenance fee, so the extra fee that I’ve to top up is USD 10 - 1.7 - 2 = 6.3?

https://www.interactivebrokers.com/en/index.php?f=1590&p=stocks2
0.050% / USD 1.70 minimum

https://www.interactivebrokers.com/en/index.php?f=1590&p=fx
0.20 basis point * Trade Value / USD 2.00 minimum

Yes on the last point.

 

[Shiny Things]

News from this side of the pond: markets are rocketing higher because it looks like the Senate and House are going to be able to agree on a substantial stimulus package for the US economy. We're not out of the woods here yet, but a deal is looking likelier than before.

This reminds me of the failed TARP vote in 2008. I was over in the Dresdner London dealing room (god rest its soul) and we were all watching the markets tank as the first TARP vote failed—“no bailout for you!”. The S&P 500 ended up dropping 7% that day.

The House members realized what they’d done, and a few days later waved through basically the same bill by a huge majority.

This seems to be what’s happened this time around as well. The Democrats did their thing, voted down the first bill… then, when markets tanked, everyone came back to the table. (Pleasingly, it seems like the bill that’s about to get approved has _huge_ stimulus attached to it, which might be enough to tide businesses over as long as it takes to social-distance away COVID-19.)

For what it’s worth, I’ve been buying stocks all the way down; bought a bit more yesterday.

I’ve noticed an interesting dynamic here. When markets are going up, we saw a lot of people saying “oh, no, everything’s too expensive, I’m going to wait for a crash / wait for a dip / whatever before I start buying”. Now the downturn is here, people are saying “oh, no, I’m not going to buy here, everything’s too uncertain, it might go down further”.

I bang this drum so much that everyone’s probably getting bored of hearing it, but this is why it’s helpful to have a rule that you can stick to. If you’re making automatic investments, you don’t need to worry about “oh, should I buy or wait?”. If you’re rebalancing regularly, you don’t need to worry about “oh, should I buy stocks here or sell them?”.

No matter how long the COVID downturn lasts, the people who do best out of it will be the people who are consistently investing, and not panicking and talking themselves out of buying.

Like this:

Think in 1929, stock crash very fast then still slowly drop for almost 10 years before recover? Is so then very scary, can't start DCA now, better wait.

You don’t know whether this will be 1929 (where markets took time to recover) or 2008 (where markets bounced back within months). If it turns out to be 2008, you’ll have missed the greatest buying opportunity in a decade.

I would take a bet of waiting for at least 6 months instead. Let's see whether you are right.

I’ll take the other side of this. If ES3 is up in six months’ time (25th of September), I win; otherwise, you win. Hundred bucks?

I’ll even give you a head start. Instead of using the close yesterday, before the incoming stimulus bounce, let’s use the close today (25th March)

I just put in a buy trade at DBS Vickers.
Noticed there are clearing fees and trading fees.
Are these fees standard across all brokers?

Yep. These fees are charged by the exchange and passed on by brokers. (Some brokers might bundle them into the trading cost.)

Fed already announce Unlimited QE
It’s printing money like confetti Qe to infinity and beyond!!!
That’s what I have been posting several times over the last few years

HAHA MONEY PRINTER GO BRRRRR

(I love that meme. Seriously, run the money printers! Too much money right now is not a problem; the problem is that the economy is going to stop dead for a few months. We should do everything necessary to bridge that gap, and then once the economy is back on its feet, we can figure out how to wind back the stimulus measures.)

Seriously though, if you think “the Fed is buying everything in sight” is going to drive the price of everything up, that would suggest you should buy stocks. Bringing inflation and economic growth back to thwould be fantastic for stocks.

Bond traders used to say “don’t fight the Fed”, it might be time for equity traders to learn that lesson too.

if the fed is lending out cash at unprecedented levels at close to zero, can't banks just loan them out to all systematically affected industries/companies who otherwise are profitable during normal times?

Yep, that’s the idea - that’s exactly what the Fed is trying to do. (They’re even basically offering to backstop the loans.)

If you’re lending to businesses that are generally good businesses, but are temporarily tight on cashflow, that’s fabulously profitable because the businesses will be able to pay you back as soon as cashflow un-tightens. The question is whether banks are willing to make those “bridge” loans; having a Fed backstop on small business lending would make them a lot more comfortable.

I'm looking to invest some capital I have in equities (roughly 20-30k), maybe 50% local 50% overseas. Some of this will be for dividends, some will be long-term holdings. What brokerage should I use? For local I'm looking at SCB or FSMone. Overseas either SCB or IB. I cannot figure out what's the best option.

You’re a bit small to get value out of IBKR for your overseas stocks, so I’d use Stanchart.

Hi Shiny, Thanks for your contribution and advises. I have read your book and have been following the forum for quite few months.. I am an Indian, residing in SG for few years. Not sure where I would be settling down.
Any advise on the asset allocation?
Should I still stick to 40:40:20 proportion of IWDA:ES3:MBH based on your 110-age factor?

India’s an interesting one. Generally, if clients are planning to retire in an EM country, I nudge them toward a global portfolio rather than going all-in on their local currency assets. Not that EM countries can’t be good investments - they can be great investments! But in your case it makes sense to go something like 80-20 IWDA / LQDA instead - a “global” portfolio, with no single-country focus.

Once you figure out where you want to retire, you can tilt your portfolio toward that country.

it appears to be a good time to enter (at least slowly if not lump sum). I have 50k SGD to invest. Any advise on how to spread out the investment in terms of timing?

Sure. Generally it’s a good idea to spread these investments out over a few months, just so you can avoid buyers’ remorse if it goes down more. (Markets are volatile, and you might find that the market goes down after you buy the first tranche. This is fine; it can happen.)

Given the strong usd to sgd, would it make any diff to vest regularly into the GBP denominated one instead ?

It wouldn’t make any diff. You’d still want to use the USD one.

Think of it this way. Because the USD is so strong, you have to spend relatively fewer USD to get the same lump of stocks in IWDA.

However, does anyone feel that if you buy S&P500 ETFs or even Nasdaq ETFs, it would provide you with better growth in the long run?

It has in the past, but that doesn’t mean it will in the future. US stocks in general, and the Nasdaq composite index in particular, are very heavy on technology stocks that have been extremely trendy over the past few years. This will not continue forever; eventually tech will stop being trendy, and something else (consumer staples? Banks? Resources?) will become trendy.

This is sort of answered in the FAQs at the top of the thread, as well.

1)Am buying iwda using warchest in the next few MTHS. Should i sell my sgs bond to buy sti now since it's low now? When int start rising, buy back local etf bonds during rebalancing?

Nope. If you already own local bonds, you can hang onto them.

2)At present crisis, the movement on mbh seems to be fast n furious n Nikko abf seems holding better than mbh. Cant imagine when interest start to rise. First, will Nikko abf be a better candidate?

Not really. It doesn’t matter whether interest rates go up down or sideways, high-grade corporate bonds (like those in MBH) tend to do better over the long term than government bonds.

Second, will it better to put 50% on idtl n local bonds each for the sake of better portfolio performance

No. Owning global bonds basically just gives you a huge lump of currency risk for not much benefit.

3)I'm doing 6mths mthly purchases now using my sgd. After Im done, I be having sti n sg bonds in SGD n iwda in USD.
So how do I calculate my % portfolio at the end of the purchases and also during rebalancing, since assets mixed are in usd n sgd?

When you’re buying more or rebalancing, you can just check the USD/SGD FX rate on that day and convert everything back to a SGD amount.

When i look at TWS charts for some Nasdaq stocks, data for pre-market & after-hours trading are not shown.

Do you guys buy US stocks during the normal trading hours Only?

You should. (I mean, Singaporean investors shouldn’t really be buying US-listed equities anyway.) But trading outside normal market hours is considerably riskier than trading while the markets are officially open (9:30-4pm NY time).

Just finished ST’s book (thanks Joshua for the well written book!), I’m a first time investor myself.

Welcome aboard! We were all newbies once, don’t worry.

This means that one month I can be investing in local equity and another month in global equity, then how do I even manage DCA into IWDA every single month?

Think of it as dollar-cost-averaging into the portfolio as a whole, rather than into each individual stock.

Also I understand that if you’re investing more than 1k per month, we should go with IBKR instead of SC, but is this amount in SGD or USD? Also what happens if I want to invest exactly 1K SGD- will IBKR or SC be better?

SGD. And Stanchart’s better if you’re right on the line (in fact, the line has gone up a bit since the 2019 edition, thanks to FSMOne’s new low-cost RSP), but if you anticipate your monthly investment is likely to go up in the future, you might want to jump straight to Interactive.

Hi Shiny,

Thanks for the words of encouragement and advice!

Sorry, still slightly confused. Could you explain how I will have more money than I did before? Apologies as I am still unsure how accumulating ETFs work as my portfolio currently only consists of Singapore blue chips and ES3.

[…]

So sticking to this example, had ES3 been an accumulating ETF, gone up to $5, and round trips back to $2.60,

Ah, here’s the thing. Let’s imagine there’s an accumulating ES3, that trades right next to ES3.

If ES3 went from $3 to $5 to $3, the “accumulating ES3” wouldn’t go from $3 to $5 to $3. It would go from $3 to $5 to $3-plus-whatever-dividends-have-been-paid-along-the-way.

The STI pays about 4% dividends right now, so let’s imagine that you buy some ES3 and some “accumulating ES3”, and you go off to the pub for five years. To make the math easier, let’s say the STI doesn’t move in those five years.

You’ll end up with:

• Some ES3 shares worth $3;
• Sixty cents of cash from the ES3 dividends;
• Some shares of “accumulating ES3” worth about $3.65 (because of compound interest on the dividends).

Even if ES3 round tripped from 3 to 6 to 3 in those intervening five years, our “accumulating ES3” didn’t do that: it round tripped from 3 to 6 to 3.65 instead.

AUD is now emerging market currency
1y at 20 vols and skew at -7

I spy an FXO guy! Where’s your bid for the 1yr 15-delta AUD riskies, just in a retail amount, friendly customer?

This is a false dichotomy.

The next best step should not preclude cashing out now if one expects an even deeper loss by holding.

This is the exact mentality that you want to avoid, because your expectations are being set by what's happened to you already.

Right now, everyone is in the depths of despair. It's totally natural to say "oh everything is terrible and things will keep going down". But you're only feeling that because things have gone down so far so fast, and people have a thing called "recency bias"—you remember the things that happened recently more easily than the things that happened further in the past. And the recent past has been filled with doom and gloom and 25-30% losses, so you feel that that's going to happen again, and your instinct is to sell and make the pain stop.

The truth is, though, that if you cash out you'll almost certainly miss a chunk of the rally back. You, and I, and everyone else in here, are not good traders. You don't know how close we are to the lows; whether there's about to be a big rebalancing flow into stocks or bonds; whether the recovery will be slow or fast; whether the market is being too optimistic or too pessimistic (it might be too pessimistic!).

The advantage you have over everyone else is that your horizon is so long that you can afford to ride out the losses. That's a big advantage, and you're not going to exploit it by hiding under the bed. How are you going to exploit your advantage?

Hi shiny things what are your thoughts of the dollar milkshake theory since u used to work in fx trading

I’d never heard of it before, and frankly now that I read about it it feels a bit incoherent. The general principle (that the dollar is a safe haven) is pretty uncontroversial, but I’m having trouble understanding how that leads to “USD will go up!” in both strong economic growth (when the Fed is tightening) and weak economic growth (when the Fed is loosening but capital is flooding to USD).

Also it throws in a gratuitous reference to “USD and precious metals will both go up!”, which, no. That’s a) nonsense, and b) gives away the game: the “dollar milkshake theory” is goldbuggery wearing a mask.

I am piqued by both methods and had time to do further calculations (using S&P 500 historical chart).

So it seems like for less volatile trends (or more regular DCA), DCA up > DCA blindly. For more volatile trends, DCA blindly > DCA up. And bear in mind in terms of commissions paid, DCA up is cheaper than DCA blindly because there are less trades involved for DCA up (DCA up commissions are about 30% cheaper than DCA blindly). Although the differences overall are too minute to care.

Conclusion
In a perfectly smooth market trend (that contains at least 1 downtrend), DCA up always win. DCA blindly will start to win when a certain market volatility is reached, and increases its lead as the market's volatility increases even more. So yes that explains why regular DCA is useful during volatile periods. And regular DCA is also the better option for most investors.

The other thing I’d add is that you’ll want to take the actual declared divs into account, otherwise I think we agree.

On that note:

According to:
https://www.investopedia.com/ask/answers/040915/does-sp-500-index-include-dividends.asp

The S&P 500 index calculates total returns and thus assumes dividends are reinvested, although the ETFs that track that index don't do that.

Yeah, the S&P 500 that everyone quotes is a “price return” index (i.e. doesn’t include dividends). You can see the difference by going to Yahoo Finance and graphing ^SP500TR (including dividends) against ^GSPC (without dividends).

How can Club, Cinema and Bar workers keep their DCA on point now?

Useless strategy!

Firstly: if you’re a laid-off bar worker or cinema worker, I have sympathy. Life is tough right now, and you shouldn’t feel obliged to keep to a regular investing plan if you can’t afford it. This is an extremely tough downturn; it will be tough for everyone; and you need to take care of yourself first. Ideally you’ll have an emergency fund you can dip into, but if you don’t, that’s okay too. Taking care of yourself is your first priority.

Secondly, Purplestars, your “useless” comment was, itself, useless. I haven’t seen you giving any constructive suggestions about how to make a better strategy, though. It seems like you’re just looking to tear down other people, and you don’t have anything to add. If you’re not going to stop fighting and be civil, you’re going to get banned.

 

[highsulphur]

It's difficult to dca when market is down 8% one day and up 10% the next. The day you choose matters so much

 

[doody_]

My current strategy is decide on a sum to invest, then break it up into certain trigger points. This also means I have to determine a "rock bottom" price.

For example, 100k into STI ETF, and I think rock bottom is 1600. I would buy 20k at the following points: 1600, 1800, 2000, 2200, 2400.

 

[flowerpalms]

Its not difficult at all. You dca for long term and dont time the market. Market go up or down when you invest, so what? Ya so what?

Just invest and hold then wait for the next month lah to do the normal investing. Calculate which fund has most shortfall etc etc. Or if is May and Nov then work on rebalancing

It's difficult to dca when market is down 8% one day and up 10% the next. The day you choose matters so much

 

[flowerpalms]

Dont chase after the bottom you so sure from 1600 will go up? Wont go down more? And what if ur 1600 nv come? Just like those waiting for iwda to hit $40. Eternal wait?

Just invest. Time in the market. Don't time the market

My current strategy is decide on a sum to invest, then break it up into certain trigger points. This also means I have to determine a "rock bottom" price.

For example, 100k into STI ETF, and I think rock bottom is 1600. I would buy 20k at the following points: 1600, 1800, 2000, 2200, 2400.

 

[flowerpalms]

If you still want to buy more, there is a way but do it without timing the market.

That is to adjust your investment amount. And stick to regular dca once a month.

 

[BBCWatcher]

It's difficult to dca when market is down 8% one day and up 10% the next. The day you choose matters so much

Not really. Over a 30+ year investing trajectory you’ll have 360+ monthly buys. One buy “missing” a big daily move isn’t going to matter much, and on average you’ll hit more than you miss. That’s what dollar cost averaging does. Indeed, volatility tends to be helpful for DCA.

 

[highsulphur]

My current strategy is decide on a sum to invest, then break it up into certain trigger points. This also means I have to determine a "rock bottom" price.

For example, 100k into STI ETF, and I think rock bottom is 1600. I would buy 20k at the following points: 1600, 1800, 2000, 2200, 2400.

It's a dangerous strategy. If it doesn't hit 2200 and rebound back to 3000 after 6 months, you would have bought 20% only

 

[highsulphur]

Not really. Over a 30+ year investing trajectory you*********ll have 360+ monthly buys. One buy *********missing********* a big daily move isn*********t going to matter much, and on average you*********ll hit more than you miss. That*********s what dollar cost averaging does. Indeed, volatility tends to be helpful for DCA.

Should one increase the frequency to every fortnight or even weekly during these times to deploy excess cash to mitigate large day to day swings? Rather than betting on just one day of that month?

 

[flowerpalms]

No need. Continue dca once a month. If you have excess cash then adjust ur investment amount

Should one increase the frequency to every fortnight or even weekly during these times to deploy excess cash to mitigate large day to day swings? Rather than betting on just one day of that month?

 

[BBCWatcher]

Should one increase the frequency to every fortnight or even weekly during these times to deploy excess cash to mitigate large day to day swings? Rather than betting on just one day of that month?

Generally not. If your income from work is semimonthly (twice per month), and if each buy overcomes any minimum commissions, then sure, buying twice per month is fine. But if you're on a monthly payroll cycle then just align with that.

 

[highsulphur]

Generally not. If your income from work is semimonthly (twice per month), and if each buy overcomes any minimum commissions, then sure, buying twice per month is fine. But if you're on a monthly payroll cycle then just align with that.

Not from income but from excess savings

So not not unlike a windfall so to speak

 

[razoreigns]

Firstly: if you’re a laid-off bar worker or cinema worker, I have sympathy. Life is tough right now, and you shouldn’t feel obliged to keep to a regular investing plan if you can’t afford it. This is an extremely tough downturn; it will be tough for everyone; and you need to take care of yourself first. Ideally you’ll have an emergency fund you can dip into, but if you don’t, that’s okay too. Taking care of yourself is your first priority.
.

Hi Shiny,

To be fair, I have been thinking through this issue quite alot too and it's been a worry. When you get laid off, you can't DCA anymore, at a time when equities prices might be at the lowest. However, you have been DCAing at high prices when economy was good. Such risk has to been managed. The 6 month emergency fund is to cover 6 months worth of living expenses, not inclusive of DCA investments. To mitigate this risk, would you recommend to also keep a buffer of funds to cover monthly DCA investments (6 months?) when laid off?