The Next Big Crash - Are You Prepared?

(09-06-2013, 09:15 AM)Penguin Papa Wrote:

(09-06-2013, 08:42 AM)hyom Wrote:

(08-06-2013, 06:25 PM)Temperament Wrote: Ya lol! Who say buying an Index fund is always safer than buying an individual stock? Is STI ETF safer?

Or we can also ask "is stock investing safe over the long-term?"
Some financial salesmen who sells equity-related products will pull out a chart showing the long-term performance of STI. Their sales pitch goes like "As long as you ignore the short-term fluctuations and hold on, your investment will work out. See this multi-decade performance of the STI, S&P500 etc". Of course, they always leave out the Nikkei. I am wondering, even if Nikkei is included, we should ask "did the average Japanese fund managers who charge more outperform the Nikkei?"

Whether equity investment works or not is very much dependent on timing and geography. Long-term Japanese investors lost after the bust in the 1990s. Nikkei hasn't recovered back to pre-bust level yet after more than 2 decades. Long-term Nasdaq investors lost after the dot-com bust in 2000. Nasdaq hasn't recover back to pre-bust level yet after more than 1 decade. It took Dow Jones 2.5 decades to recover back to its pre-bust level after the great crash in 1929. Retirees are finished if they invested at the wrong time.

Besides timing and geographical risk, don't ignore political risk. The worst groups of investors that I can think of in history are the Chinese and Russian investors before the eve of the Communist takeover. They lost everything. 100% permanent loss of capital. To add insult to injury, they were punished and discriminated for their wealth by the Communists. For rich people who are unconcerned about wealth inequality, think of what happened to the rich when society revolts providing the catalyst for the emergence of the anti-rich Communists.

What will you suggest or do to avoid these "traps"?

No good answer for that.

For me, I take responsibility for my own money and not leave it to financial advisers who may be driven by the wrong incentives. Help your own money, not get others to help ... unless interests are well-aligned. Unfortunately, the financial services industry is plagued by conflicts of interests. Almost a hundred years ago, books entitled "Where are my customers' yachts?" were decrying the amount of fees that financial advisers helped themselves to their clients' money. Today, almost a hundred years later, these books are still very much relevant. It is amazing how little has changed in the world of money after 100 years.

I think the best bet for equity investors who do not want to put down time for their own money is to buy an ETF/index fund that tracks the country's stock index. Too bad if you happen to be a Japanese. However, the odds are in favor that the equity investor will do better than if he left it to the typical mutual fund. If you are an accredited investor and has access to reputed/trustable fund managers (perhaps our d.o.g who has sacrificed time in making quality posts free of charge), then you can consider allocating a portion of the assets to him/her.

(09-06-2013, 09:27 AM)hyom Wrote:

(09-06-2013, 09:15 AM)Penguin Papa Wrote:

(09-06-2013, 08:42 AM)hyom Wrote:

(08-06-2013, 06:25 PM)Temperament Wrote: Ya lol! Who say buying an Index fund is always safer than buying an individual stock? Is STI ETF safer?

Or we can also ask "is stock investing safe over the long-term?"
Some financial salesmen who sells equity-related products will pull out a chart showing the long-term performance of STI. Their sales pitch goes like "As long as you ignore the short-term fluctuations and hold on, your investment will work out. See this multi-decade performance of the STI, S&P500 etc". Of course, they always leave out the Nikkei. I am wondering, even if Nikkei is included, we should ask "did the average Japanese fund managers who charge more outperform the Nikkei?"

Whether equity investment works or not is very much dependent on timing and geography. Long-term Japanese investors lost after the bust in the 1990s. Nikkei hasn't recovered back to pre-bust level yet after more than 2 decades. Long-term Nasdaq investors lost after the dot-com bust in 2000. Nasdaq hasn't recover back to pre-bust level yet after more than 1 decade. It took Dow Jones 2.5 decades to recover back to its pre-bust level after the great crash in 1929. Retirees are finished if they invested at the wrong time.

Besides timing and geographical risk, don't ignore political risk. The worst groups of investors that I can think of in history are the Chinese and Russian investors before the eve of the Communist takeover. They lost everything. 100% permanent loss of capital. To add insult to injury, they were punished and discriminated for their wealth by the Communists. For rich people who are unconcerned about wealth inequality, think of what happened to the rich when society revolts providing the catalyst for the emergence of the anti-rich Communists.

What will you suggest or do to avoid these "traps"?

No good answer for that.

For me, I take responsibility for my own money and not leave it to financial advisers who may be driven by the wrong incentives. Help your own money, not get others to help ... unless interests are well-aligned. Unfortunately, the financial services industry is plagued by conflicts of interests. Almost a hundred years ago, books entitled "Where are my customers' yachts?" were decrying the amount of fees that financial advisers helped themselves to their clients' money. Today, almost a hundred years later, these books are still very much relevant. It is amazing how little has changed in the world of money after 100 years.

I think the best bet for equity investors who do not want to put down time for their own money is to buy an ETF/index fund that tracks the country's stock index. Too bad if you happen to be a Japanese. However, the odds are in favor that the equity investor will do better than if he left it to the typical mutual fund. If you are an accredited investor and has access to reputed/trustable fund managers (perhaps our d.o.g who has sacrificed time in making quality posts free of charge), then you can consider allocating a portion of the assets to him/her.

Thanks!

(09-06-2013, 09:27 AM)hyom Wrote:

(09-06-2013, 09:15 AM)Penguin Papa Wrote:

(09-06-2013, 08:42 AM)hyom Wrote:

(08-06-2013, 06:25 PM)Temperament Wrote: Ya lol! Who say buying an Index fund is always safer than buying an individual stock? Is STI ETF safer?

Or we can also ask "is stock investing safe over the long-term?"
Some financial salesmen who sells equity-related products will pull out a chart showing the long-term performance of STI. Their sales pitch goes like "As long as you ignore the short-term fluctuations and hold on, your investment will work out. See this multi-decade performance of the STI, S&P500 etc". Of course, they always leave out the Nikkei. I am wondering, even if Nikkei is included, we should ask "did the average Japanese fund managers who charge more outperform the Nikkei?"

Whether equity investment works or not is very much dependent on timing and geography. Long-term Japanese investors lost after the bust in the 1990s. Nikkei hasn't recovered back to pre-bust level yet after more than 2 decades. Long-term Nasdaq investors lost after the dot-com bust in 2000. Nasdaq hasn't recover back to pre-bust level yet after more than 1 decade. It took Dow Jones 2.5 decades to recover back to its pre-bust level after the great crash in 1929. Retirees are finished if they invested at the wrong time.

Besides timing and geographical risk, don't ignore political risk. The worst groups of investors that I can think of in history are the Chinese and Russian investors before the eve of the Communist takeover. They lost everything. 100% permanent loss of capital. To add insult to injury, they were punished and discriminated for their wealth by the Communists. For rich people who are unconcerned about wealth inequality, think of what happened to the rich when society revolts providing the catalyst for the emergence of the anti-rich Communists.

What will you suggest or do to avoid these "traps"?

No good answer for that.

For me, I take responsibility for my own money and not leave it to financial advisers who may be driven by the wrong incentives. Help your own money, not get others to help ... unless interests are well-aligned. Unfortunately, the financial services industry is plagued by conflicts of interests. Almost a hundred years ago, books entitled "Where are my customers' yachts?" were decrying the amount of fees that financial advisers helped themselves to their clients' money. Today, almost a hundred years later, these books are still very much relevant. It is amazing how little has changed in the world of money after 100 years.

I think the best bet for equity investors who do not want to put down time for their own money is to buy an ETF/index fund that tracks the country's stock index. Too bad if you happen to be a Japanese. However, the odds are in favor that the equity investor will do better than if he left it to the typical mutual fund. If you are an accredited investor and has access to reputed/trustable fund managers (perhaps our d.o.g who has sacrificed time in making quality posts free of charge), then you can consider allocating a portion of the assets to him/her.

Quote:ETF/index fund that tracks the country's stock index[/b].

i have thought of not buying only STI ETF, but also HK and ASX. Do HK & ASX have equivalent? If have, what are their historical performance? One thing i do not like or worry are who will be the custodians of my shares, for HK. & ASX. other than CDP? How safe are they?
Thanks.

(08-06-2013, 04:31 PM)swakoo Wrote: [Image: z?s=%5eN225&t=my&q=l&l=off&z=m&c=%5ESTI,...&region=US]

OMG! Nikkei lost for nearly 3 decades!

Somehow, the above chart is becoming the main focus of attention, with the conclusion being made that investing in ETF may not be a good thing after all....

Yes, I do agree that if one had invested in Nikkei ETF some 30 years back, you'd be worse off even till today, especially more so with inflation. But, think back what was the happening at Nikkei back then? What kind of PE were we looking at? Well, if one had only become interested in investing when the bubble is blowing hard and fast and invested in Nikkei ETF, thinking that it's a safe way of participating in the stock market.... Further, if one had only invested in Nikkei ETF prior to 1990 and then subsequently stopped putting in more funds, then yes, I really can sympathise with them....

However, let's look at the 5-years performance,

[Image: z?s=%5eN225&t=5y&q=l&l=on&z=l&c=%5ESTI,%...&region=US]

Not too bad now? STI don't look that great either... The past year chart by swakoo paints an even better picture for a 1-year time frame,

[Image: z?s=%5eN225&t=1y&q=l&l=off&z=m&c=%5ESTI,...&region=US]

So, I don't see it as a matter of whether which country's ETF is good or bad. We still have to look at market valuations. If we were to buy when valuations were high (imagine PE = 50 -100), the outcome becomes logical with or without hindsight... Further, I suppose it'd be a good idea to buy the ETFs at some regular intervals to average out the peaks and troughs? Isn't that what's being recommended by some of the investing greats??

Can anyone explain why Nikke Index is like that for almost 3 decades? i think we can not find any parallel in the world. (Sorry, i just say it without google). Or why Japan is so different from the rest of the world? Or is it not?

(09-06-2013, 11:10 AM)Temperament Wrote: Can anyone explain why Nikke Index is like that for almost 3 decades? i think we can not find any parallel in the world. (Sorry, i just say it without google). Or why Japan is so different from the rest of the world? Or is it not?

Cannot explain. . Think answer to this question deserves the Nobel prize. Nikkei is the effect while the cause is macroeconomics.
Best literature of Japan problem that I have read.

www.amazon.com/gp/aw/d/0470824948

Also Krugman's responsibly irresponsible.

web.mit.edu/krugman/www/japtrap2.html

heard that during 1990 before the big crash their blue chips were trading to like 100-200 times earnings !!!

(09-06-2013, 11:10 AM)Temperament Wrote: Can anyone explain why Nikke Index is like that for almost 3 decades? i think we can not find any parallel in the world. (Sorry, i just say it without google). Or why Japan is so different from the rest of the world? Or is it not?

Over the past 3 decades,
- Sony Walkman got replaced by Apple IPod
- Nintendo Gameboy got replaced by smartphones
- Japanese dumb cameras also replaced by smartphones
- endless list of replacements .....

(09-06-2013, 11:10 AM)Temperament Wrote: Can anyone explain why Nikke Index is like that for almost 3 decades? i think we can not find any parallel in the world. (Sorry, i just say it without google). Or why Japan is so different from the rest of the world? Or is it not?

Cannot explain. . Think answer to this question deserves the Nobel prize. Nikkei is the effect while the cause is macroeconomics.
Best literature of Japan problem that I have read.

www.amazon.com/gp/aw/d/0470824948

Also Krugman's responsibly irresponsible.

web.mit.edu/krugman/www/japtrap2.html

(09-06-2013, 10:43 AM)KopiKat Wrote: So, I don't see it as a matter of whether which country's ETF is good or bad. We still have to look at market valuations. If we were to buy when valuations were high (imagine PE = 50 -100), the outcome becomes logical with or without hindsight... Further, I suppose it'd be a good idea to buy the ETFs at some regular intervals to average out the peaks and troughs? Isn't that what's being recommended by some of the investing greats??

The Nikkei PE ratio was on par with bubble standards around late 80's so it's true that market valuations then should have been a warning sign.

Also true if one can time the Nikkei well there are gains to be made.

However even if one buys the Nikkei ETF at regular intervals over the past 20 or 30 years, performance would have been dismal.

But let's expand the horizon to the past 60 years. See charts below:

Nikkei 225
[Image: japan-stock-market.png?s=nky&d1=19500101&d2=20130630]

Dow Jones
[Image: united-states-stock-market.png?s=indu&d1...2=20130630]

Over the past 60 years, both Nikkei 225 and Dow have climbed from zero to around 13,000-15,000. So if one was old enough, buying these country ETFs regularly over the past 60 years, it is probably not as bad as over the past 20-30 years.

---

(09-06-2013, 09:58 AM)Temperament Wrote: Do HK & ASX have equivalent? If have, what are their historical performance?

Should have, here's their historical performance:

[Image: z?s=%5eN225&t=my&q=l&l=off&z=m&c=%5ESTI,...&region=US]