Official Shiny Things thread—Part IV

[BBCWatcher]

I find your arguments lacking in coherence. You defend the global index, yet makes allowance for people to overweight their local stock market by more than 50 times it's global weight, even though they may not be in drawdown stage.

Uh, I’m the one arguing against that much. You must have me confused with someone else.

In 2019, if my math is right, stocks listed in Singapore represented about 1.5% of total global stock market capitalization. I could see 1.5% (zero over/underweighting) to 20% weighting within a portfolio of someone expecting to retire in Singapore. At the maximum 20% that I could tolerate, that’s about 13X. “Maximum I could tolerate” means “the cap on defensible,” in my view. That’s not “must do.”

You defend long term index investing, and yet use point data of how Dalio is doing this year to point out why he isn't credible. Really?

OK, how’d he do last year?

I’m pointing out a basic fact: GDP weighting based on the national location of listing stock markets makes no sense. It means you hold less Nestle simply because it’s “Swiss” and more B&G simply because it’s “American.” That’s just dumb, supremely dumb. Where the stock exchange happens to be located essentially doesn’t matter. Nor does the country where a company happens to be incorporated. (What’s the GDP of the Cayman Islands, Bermuda, and Gibraltar?) No, the real businesses are what matter. Apple most likely makes more profit in China on iPhones than all the world’s other smartphone sellers put together make globally. Who gives a damn that Apple happens to be headquartered in Cupertino, California? It fundamentally doesn’t matter. What matters are real businesses, their profit, their prospects. And if Jollibee figures out how to sell more chicken and make more profit in India than anybody else, fine, great, I win. I’m not trying to second guess the evolution of global enterprises with some patently obviously dumb GDP-to-stock-listing-market weighting. (Nestle v. B&G, explain that one.)

 

[BBCWatcher]

To be fair to Ray Dalio, I don’t think he’s arguing for national-GDP-to-stock-market-location weighting. I assume he’s realized the sheer insanity of that idea with respect to Nestle v. B&G Foods and many other examples. Or at least I hope he has. No, I think he just wants to hold more stocks listed/traded in stock markets that happen to be located in China, more than market capitalization weighting would advise. And that’s what hedge fund managers are paid to do: they deviate from indices. You don’t need to pay a hedge fund manager to track an index.

 

[limster]

I find your arguments lacking in coherence. You defend the global index, yet makes allowance for people to overweight their local stock market by more than 50 times it's global weight, even though they may not be in drawdown stage.

You defend long term index investing, and yet use point data of how Dalio is doing this year to point out why he isn't credible. Really?

In the end, I doubt I will convince you (and frankly, never meant to), but just thought I'd point out the irony.

For some people, there is only one way to invest. Anyone who doesn't follow his way is wrong. Dalio is wrong, and even Malkiel, who wrote Random Walk Down Wall Street is wrong.

Myself, I believe that there is more than one way to invest. Read the books by Bolton, Lynch, Buffett, Malkiel etc, understand their strategies and thinking. You can also look at bloggers who are transparent about their portfolios. But in the end, please make your own decision .

Don't let people tell you there is only one way to invest and everyone who doesn't follow is wrong.

 

[FrostWurm]

Don't let people tell you there is only one way to invest and everyone who doesn't follow is wrong.

I recommend going to r/wallstreetbets to find the fastest way to become a millionaire or a beggar

 

[chrisloh65]

Yes I did and I am now a multi-millionaire. Have you?

I recommend going to r/wallstreetbets to find the fastest way to become a millionaire or a beggar

 

[0x0011]

So many covid vaccines news recently, any stock/ETF recommendations for recovery play?

 

[Shiny Things]

Hi ST/all, have been following this thread for 2-3 years. There’ve been several excellent contributors (eg ST, cfleee, hwckhs, BBC) who usually give relatively on point, detailed and insightful replies.
[...]
To overcome HWZ’s limitations and perhaps mature this group into a DIY DCA interest group (and less of a fan vs critics’ arena), could we consider moving this group to “less anonymous” platform that offer us more control and also allow us to have some group admins (eg ST cfleee hwckhs)? For example, Telegram? (One of the robos recently started a telegram group for its users and it is working quite well).

Couple of counterpoints: Telegram’s not as easy to discover, and it’s not indexed by Google (which is a big way that people come across this thread!); and if I’m being honest, I’m not sure Telegram is “less anonymous”?

I get the appeal, but I think this is the right place for this forum to stay (short of me setting up an entirely separate forum).

Hi ST, I have a question on SAR that I can't figure out and wonder if you can provide some insight.

The problem is that I don't know how to deal with stock appreciation rights. You see, on the day I choose to sell the company stock, my SAR might be under water hence I wouldn't execute. Say if the cost to my SAR is $10 and the current stock price is at $8, when should I execute? Should I do that as soon as it's positive, $10.01? I would get only 1 cent in this case. I'd rather wait for the stick to rise. If it doesn't, my downside is capped at 1c. No big deal. But then if I wait the stock price to rise, I'm technically timing the market...

Uh, good question. This is normally the point where I’d say “ping me and we’ll do this as a consulting arrangement”, but we can spitball it in public if you’d like.

The SARs are basically a call option, as I understand it from your post. Are they coupled to the stock somehow - you get both RSUs and SARs? Or do you just get SARs?

Dalio is not the only one advocating adding China to your portfolio.

Malkiel, the passive indexing guru, and author of Random Walk Down Wall Street also advocates for adding China exposure. When it comes to China, he points out that the news in the USA is extremely negative on China. So it is no surprise that many US investors parrot the negative views they get from the US media.
[...]

While I get what you’re saying, and I’m certainly not opposed to having some China exposure (it’s VWRA’s third biggest allocation!), I don’t agree with the argument you’re making (that China looks cheap because the USA is full of haters).

China looks cheap because the market is heavy on banks, and Chinese banks trade CHEAP. Most other sectors of the Chinese market—tech, consumer staples, consumer discretionary trade pretty much in line with where those sectors trade in the rest of the world.

But the CSI300 is >30% financials and 11% tech + communications; while the SPX is basically the other way around (38% tech + communications, and 10% financials). And those financials trade far cheaper than the equivalents in the USA—Chinese banks trade at a P/E ratio of around six-and-a-half, while the US financial sector trades at a PE ratio around 14.

The reason those Chinese banks trade so freakin’ cheap is basically because Chinese government policies are squeezing the banks’ margins; and because nobody seems to know exactly how bad the loan books are and how much the banks will be able to offload to the AMCs.

In short—saying “China is cheap” amounts to saying “Chinese banks are cheap”, which amounts to saying “the market is mispricing Chinese banks’ loan books; the default rates and recovery rates will be better than expected, and also the government will take its foot off the banks’ neck and let them actually earn some money”.

If you think that’s right, you can make a really targeted bet by buying CHIX US, GlobalX’s China Financials ETF. This gets you the exposure to the main “Chinese stocks are cheap because...” theory, and doesn’t expose you to idiosyncratic non-financial risks like Jack Ma putting his foot in it AGAIN, or people realizing that Kweichou Moutai’s main product tastes like paint stripper.

(Or, because you’re going to get absolutely rogered on the US dividend tax (it yields >3.5%), you can build it yourself by buying the H-shares: an equal-weighted portfolio of Ping An, CCB, ICBC, BOC, and CMB should get you close enough.)

So many covid vaccines news recently, any stock/ETF recommendations for recovery play?

I think you might be a bit late tbh? The time to put on the COVID recovery plays was before we had two >90%-effective vaccines ready to hit the market.

 

[newjersey]

If you are willing to listen to REAL professional investor (and not fake professional investor who got very annoyed when we pointed out loop-holes in her investment strategy and arguments, one of which is super anti-Chinese and anti-China but keep talking up US and US stocks, and her large group of brown-tonguers):

https://markets.businessinsider.com...lio-china-underweight-yuan-2020-10-1029655860
Billionaire Ray Dalio says 'almost everybody is underweight on China' and gives advice on how to invest in the world's 2nd largest economy
Saloni Sardana
Oct. 7, 2020, 05:15 AM

Billionaire investor Ray Dalio said "everybody is underweight on China" but he thinks the "right type of balance" investing in China can yield positive results.
"Our approach is, we call it the all-weather approach, it's a certain balance in which you achieve balance without lowering the expected return. From that, you want to make the tactical moves," he said.
Dalio thinks the Chinese yuan will gain international usage outside of China in the face of a weaker US dollar.


https://markets.businessinsider.com...sonable-bullish-china-view-2020-11-1029790990
Billionaire investor Ray Dalio believes Ant's IPO suspension was reasonable - and says not investing in China is 'very risky'
Shalini Nagarajan
Nov. 11, 2020, 12:03 PM

Ray Dalio, founder of the world's largest hedge fund Bridgewater Associates, lent support on Wednesday for China's sudden decision to suspend Ant Group's historic $37 billion listing.
Dalio said there's a risk of being too lax on innovation since Ant is a "whole new concept in terms of banking."
He also said not investing in China would be hugely risky, because a lot of money-printing in the US is threatening the dollar's reserve status.
Dalio, who has long advocated going all-in on China, said "people have accused me of being biased, naive, and in some cases unpatriotic. I think I'm just being objective."

Ray Dalio's portfolio is well diversified.
Bridgewaters hold a portfolio of us$130b+.

for him to recommend all-in on any single instrument, I would imagine that his hedge fund would shrink to us$1.3m the next day.

ignore-ren.

 

[Okenba]

Uh, I’m the one arguing against that much. You must have me confused with someone else.

In 2019, if my math is right, stocks listed in Singapore represented about 1.5% of total global stock market capitalization. I could see 1.5% (zero over/underweighting) to 20% weighting within a portfolio of someone expecting to retire in Singapore. At the maximum 20% that I could tolerate, that’s about 13X. “Maximum I could tolerate” means “the cap on defensible,” in my view. That’s not “must do.”

Your math is wrong. Or perhaps VWRA is severely underweighting SG and you need to call up Vanguard to complain that they're not following the global index.

In an AsiaPacific etf, SG is 2.6% to Japan's 60%. In a world etf, SG makes up about 0.33% If you tilt 20% of your portfolio, you overweight it by 60x it's global weight.
How in the world 0.3% became 1.5%, I don't know.

Incidentally, China's global weight is about 5.6% and the only figure I see is limster mentioning that 10% could be a valid part of your portfolio if you DYODD.
That's like 2x overweight. Versus 60x.
And asking people to DYODD. Versus "because you live there".

OK, how’d he do last year?

For this, I assume readers all see your great efforts to provide 100% more data points to address our concerns of long term investing being refuted by a single data point. Now we have two. Yay.

One more thing to point out. While it is clear that China is "VWRA's third highest allocation". It's allocation in IWDA is a big fat 0%. Why isn't anyone sounding out about how that is clearly against the global percentage? Clearly against "letting the index speak for itself"?

To take this further, limster mentioned 10% allocation to China. And 100% IWDA for stock allocation is a very common recommendation around here.
If someone has 90% in IWDA, and 10% in China, are we still going to bang on about how they are not following the global allocation?

 

[jacky817]

Hey, I'm also looking at taking on more risk by focusing on some country / sectors specific etfs. I currently have around $100ksgd in vwrd at 28 years old; I am definitely capable of handling risks.

Maybe something like S&P 500 since it has been doing better historically, or maybe healthcare /tech etfs.

Hope to get some inputs from the members here.

Posted from PCWX using Ilovennp

This is just my personal take: Overweighting toward a certain sector doesn't really make sense coz you'd be kinda speculating on the social, economic, political and a myriad of factors of that particular country or sector. It sounds like a crazy difficult economics thesis that no one will get right until viewed and analyzed in hindsight.

It's easier to think that the whole world economy will improve steadily because well, capitalism, than to claim that a certain country/sector will outperform. Coz you'd need a hell lot more info and analysis to make that claim.

Of course you can turn to the fama-french paper and pick your poison, but i'm not sure how much it guarantees higher return since it's been so long and it's by definition taking past data.

Next, here is my possibly controversial idea here. Why not consider putting a small position, say 1-5%, and try to find one single company stock which you think has a high probability of reaching 10-100x in 10 years? I actually think this is more practical to analyze than trying to identify a particular sector. Coz now you're in the realm of trying to understand a business, its financials, cashflow, its moat, management team, its mission and vision. I think all these are doable for an individual as long as you put all your focus on finding that ONE company, and not a ton of half-ass researched companies.

 

[newjersey]

Next, here is my possibly controversial idea here. Why not consider putting a small position, say 1-5%, and try to find one single company stock which you think has a high probability of reaching 10-100x in 10 years? I actually think this is more practical to analyze than trying to identify a particular sector. Coz now you're in the realm of trying to understand a business, its financials, cashflow, its moat, management team, its mission and vision. I think all these are doable for an individual as long as you put all your focus on finding that ONE company, and not a ton of half-ass researched companies.

this is how most people are wrecked...
stick w what ST prescribe.
if only stock pickings is so easy, everyone would be rich to hell and back already.
the reality is most people are idiots, except they don't know it or are in denial.

this is why i am a long-term fan of what ST prescribes.
have you looked into the eyes of idiots who did stock-pickings without understanding what they are buying?

CPA, CFA, CFO, lawyers, doctors, all these dumbos.

THEY ALL DON'T KNOW WHAT THEY ARE DOING, BUT THEIR PRIDE / EGO PREVENTS THEM FROM THE TRUTH.

all true stories as this is from my anecdotal account.

whoever reading, i hope you benefit from my sharing.

don't be a dumbo and try stock-picking.

you are most probably employed and tied down to some good job and having some routine that you mistaken for stability.

it's not necessary to make it into the baller league in life, it's not where happiness lies.

stick to ST's book, it provides slowly but surely.

 

[Okenba]

this is how most people are wrecked...
stick w what ST prescribe.
if only stock pickings is so easy, everyone would be rich to hell and back already.
the reality is most people are idiots, except they don't know it or are in denial.

1-5% is play money. There are many people who advocate passive index investing who nonetheless are okay with the idea of play money to get the speculation out of their system. Your milage may vary.

While advocating sticking with what ST prescribed, my understanding is that he prescribes IWDA, which is a developed market index, not a global index. So just be aware that you're not quite buying the whole world. Nothing at all in China for eg.

 

[newjersey]

1-5% is play money. There are many people who advocate passive index investing who nonetheless are okay with the idea of play money to get the speculation out of their system. Your milage may vary.

While advocating sticking with what ST prescribed, my understanding is that he prescribes IWDA, which is a developed market index, not a global index. So just be aware that you're not quite buying the whole world. Nothing at all in China for eg.

well, the reality is... buying a whole world index is pretty stupid.

in fact, i don't agree with buying a developed world index, i mean... seriously, how many of us are busting in funds?

that said, i can understand from ST's angle and i think financial investing should be taken as a backburner type of attitude sort of instrument.

if something prescribed is too wacky, i would voice out in public good.

so far, the only constant is... the little angry bird with a '65 tag.

 

[limster]

well, the reality is... buying a whole world index is pretty stupid.

in fact, i don't agree with buying a developed world index, i mean... seriously, how many of us are busting in funds?

buying whole world index is stupid and you don't agree with developed world index ... ok... so that rules out VWRD/VWRA and IWDA as ETF options. Not sure what's left...

 

[streetfighter]

Have to agree with you that most people are dumbos, even for those with cpa, cfa & they better off stick to ST dumb but steady approach.

Those who are smart can pick stocks & get rich faster though.

this is how most people are wrecked...
stick w what ST prescribe.
if only stock pickings is so easy, everyone would be rich to hell and back already.
the reality is most people are idiots, except they don't know it or are in denial.

this is why i am a long-term fan of what ST prescribes.
have you looked into the eyes of idiots who did stock-pickings without understanding what they are buying?

CPA, CFA, CFO, lawyers, doctors, all these dumbos.

THEY ALL DON'T KNOW WHAT THEY ARE DOING, BUT THEIR PRIDE / EGO PREVENTS THEM FROM THE TRUTH.

all true stories as this is from my anecdotal account.

whoever reading, i hope you benefit from my sharing.

don't be a dumbo and try stock-picking.

you are most probably employed and tied down to some good job and having some routine that you mistaken for stability.

it's not necessary to make it into the baller league in life, it's not where happiness lies.

stick to ST's book, it provides slowly but surely.

 

[streetfighter]

This "because nobody seems to know exactly how bad the loan books are" sounds like typical west news propaganda to smear Chinese banks without evidence just because they are cheap. They cannot read these banks financial reports? Lol
Oh just remember they can't because they written in chinese

Couple of counterpoints: Telegram’s not as easy to discover, and it’s not indexed by Google (which is a big way that people come across this thread!); and if I’m being honest, I’m not sure Telegram is “less anonymous”?

I get the appeal, but I think this is the right place for this forum to stay (short of me setting up an entirely separate forum).



Uh, good question. This is normally the point where I’d say “ping me and we’ll do this as a consulting arrangement”, but we can spitball it in public if you’d like.

The SARs are basically a call option, as I understand it from your post. Are they coupled to the stock somehow - you get both RSUs and SARs? Or do you just get SARs?




While I get what you’re saying, and I’m certainly not opposed to having some China exposure (it’s VWRA’s third biggest allocation!), I don’t agree with the argument you’re making (that China looks cheap because the USA is full of haters).

China looks cheap because the market is heavy on banks, and Chinese banks trade CHEAP. Most other sectors of the Chinese market—tech, consumer staples, consumer discretionary trade pretty much in line with where those sectors trade in the rest of the world.

But the CSI300 is >30% financials and 11% tech + communications; while the SPX is basically the other way around (38% tech + communications, and 10% financials). And those financials trade far cheaper than the equivalents in the USA—Chinese banks trade at a P/E ratio of around six-and-a-half, while the US financial sector trades at a PE ratio around 14.

The reason those Chinese banks trade so freakin’ cheap is basically because Chinese government policies are squeezing the banks’ margins; and because nobody seems to know exactly how bad the loan books are and how much the banks will be able to offload to the AMCs.

In short—saying “China is cheap” amounts to saying “Chinese banks are cheap”, which amounts to saying “the market is mispricing Chinese banks’ loan books; the default rates and recovery rates will be better than expected, and also the government will take its foot off the banks’ neck and let them actually earn some money”.

If you think that’s right, you can make a really targeted bet by buying CHIX US, GlobalX’s China Financials ETF. This gets you the exposure to the main “Chinese stocks are cheap because...” theory, and doesn’t expose you to idiosyncratic non-financial risks like Jack Ma putting his foot in it AGAIN, or people realizing that Kweichou Moutai’s main product tastes like paint stripper.

(Or, because you’re going to get absolutely rogered on the US dividend tax (it yields >3.5%), you can build it yourself by buying the H-shares: an equal-weighted portfolio of Ping An, CCB, ICBC, BOC, and CMB should get you close enough.)



I think you might be a bit late tbh? The time to put on the COVID recovery plays was before we had two >90%-effective vaccines ready to hit the market.

 

[streetfighter]

I am also scratching my head reading these from a self proclaimed vvhnwi.
May be as vvhnwi he has better investment choice? Care to share?

buying whole world index is stupid and you don't agree with developed world index ... ok... so that rules out VWRD/VWRA and IWDA as ETF options. Not sure what's left...

 

[d5dude]

I am also scratching my head reading these from a self proclaimed vvhnwi.
May be as vvhnwi he has better investment choice? Care to share?

I'm self proclaimed SDUMHNWI, you want my investment advice?

 

[streetfighter]

Please share here.

I'm self proclaimed SDUMHNWI, you want my investment advice?

 

[BBCWatcher]

This "because nobody seems to know exactly how bad the loan books are" sounds like typical west news propaganda to smear Chinese banks without evidence just because they are cheap. They cannot read these banks financial reports? Lol
Oh just remember they can't because they written in chinese

It has nothing to do with "propaganda." Shiny Things is explaining why Chinese bank stocks are trading at low multiples to (purported) earnings. The market consensus view is that these banks have comparatively low value since investors are concerned about their credit exposures, and they have reason to be concerned. It's not because nobody can read Chinese financial reports and other evidence; it's because they can. After all, these bank stocks are listed and traded in stock markets that happen to be located in China. Investors in China who speak, read, and write Chinese are the ones valuing these banks at low multiples, too. Mostly investors in China, actually. Investors outside China have relatively little influence over these bank stocks' valuations.

If you disagree with the consensus of investors around the world including in China about these valuations, as Shiny Things already pointed out you're certainly free to take long positions in Chinese bank stocks (unless you think the current valuations are too high). He even told you the ways to do it if you're interested in such speculation.