Portfolio Allocation / Management

[dreamybear]

I find this interesting coz Becky is the default choice when interviewing WB & she has been doing it for at least several years. Influenced by WB ? *hee hee*

Imho, the % allocation depends on the age & risk profile of the investor too, and it is better for a person to live below his/her means, i.e. if cannot make a lot of money, then have to adjust lifestyle accordingly .... I know it's sad, but that's reality.

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‘I’m 100% in equities. … You’re never going to make enough money if you have 40% of your money in bonds,’ says CNBC anchor
By Mark DeCambre, Published: Dec 21, 2019 8:45 a.m. ET

Merrill Lynch’s head of wealth management, Andy Sieg, says he’s more than 80% stocks in his personal portfolio.....

‘I’m 100% in equities.’ That’s Becky Quick .......

Quick’s commentary, however, is worth noting, coming as the widely held belief that the ideal portfolio mix — 60% in equities and 40% in bonds — has increasingly come into question.“You’re never going to make enough money if you have 40% of your money in bonds,” Quick said. “I have some cash so that I make sure that I have a cushion so that I’m not locked into it, but I don’t have anything in bonds.”.......

And it hasn’t been just Merrill Lynch and its parent B. of A. that have been reconsidering the standard 60-40 portfolio construction. A number of wealth managers and large financial firms have been rethinking the ideal mix of assets in recent months, notes MarketWatch’s Chris Matthews.......

https://www.marketwatch.com/story/im-100...2019-12-19

[BlueKelah]

If anything bonds is just supposed to be like a hedge for risk of equities and usually funds move into bonds when market is high and bubbly like now to de-risk.

Looks like it will be a prolonged period, maybe even next decade of persistent low interest rates and continual "money printing" by central banks. If this continues liquidity from that will likely flow into equities and property assets more than anything else and there is really no impetus to derisk even at market highs as expectation is central banks keep rates low and support stock market.

IMHO over long term unless you are trying to maximise gains it doesnt really matter much. Stocks/bonds/gold/property is all going to go up in price multiple times. a good portfolio mix for wealthy should do ok with a mix of all these investments.

[holymage]

It is a fallacy to believe that stocks always return more than bonds. We have to thank Paul Volcker for that. 

Having said that, it is the behaviour of a gambler to invest in long-term bonds at such a low interest rate environment, not to mention negative interest rates. While most people are extrapolating and assuming a low rate going-forward, there is a possibility that rates will go up should inflation returns.

For the period October 1981-September 2011, the S&P 500 Index returned an annualized 10.8 percent, compared to the 11.5 percent annualized return on long-term (20-year) Treasury bonds. Should you be surprised? Yes. It certainly shouldn't have been the expected outcome. However, the right perspective is that it should have been a possible outcome. Let's see why this must be the case.

There are two other points of interest regarding the noise surrounding the 30-year data. First, the media has ignored the fact that there's an even longer period over which stocks underperformed bonds. For the 40-year period 1969-2008, the CRSP Total Stock Market Index returned 8.8 percent a year, on average, compared to the 9.0 percent annualized return on long-term Treasury bonds.

https://www.cbsnews.com/news/bonds-beat-...s-so-what/

[Dosser]

If anything bonds is just supposed to be like a hedge for risk of equities and usually funds move into bonds when market is high and bubbly like now to de-risk.

Looks like it will be a prolonged period, maybe even next decade of persistent low interest rates and continual "money printing" by central banks. If this continues liquidity from that will likely flow into equities and property assets more than anything else and there is really no impetus to derisk even at market highs as expectation is central banks keep rates low and support stock market.

IMHO over long term unless you are trying to maximise gains it doesnt really matter much. Stocks/bonds/gold/property is all going to go up in price multiple times. a good portfolio mix for wealthy should do ok with a mix of all these investments.

Agree with your post. QE infinity and low interest rates look baked into the future. We have already seen massive asset price inflation, and that is likely to go on under this scenario. However, at some point it has to end, either in inflation (hyper-inflation?) or revolution. Excessive inflation of flat prices in Hong Kong, caused by a combination of low interest rates and the government being so lazy, incompetent or greedy that they have allowed land supply for new flats to plummet over the last 15 years, has destroyed the future prospects of the young and is a major cause of the current discontent. Traditionally, combining bonds and equities has given a degree of insurance against major market corrections. However, if asset price inflation feeds through into general inflation, and central banks are finally forced to raise interest rates, then most assets prices will plunge, including equities and bonds. I am avoiding bonds, but have been building my equity portfolio while, starting this year, allocating a small percentage to gold mining stocks, which i see as an insurance policy. I chose gold mining stocks rather than physical gold as they are easy and cheap to trade and store. They are also effectively a leveraged bet on gold, as their profits are the difference between the gold price and their cost of production, so profits increase disproportionately to upward moves in the gold price. Although the costs of production tend to increase over time and when the gold price rises, the effect of sudden upward moves in the gold price can be dramatic.

[specuvestor]

The killer for equities is when one is forced to sell (asset allocation wise, not stock specific wise) due to margin call, emergencies, fear etc. If one is comfy to hold through a cycle generally will do ok. But then again there's always a cavceat: see Japan when deflationary. And I'm not sure globally we are inflationary as of now.

Bonds and fixed income instrument with laddering is very useful if you have a fixed timeframe for use eg retirement, children education, daily subsistence, etc and trying to time is not desirable. A general rule is to allocate bonds to your age ie 40 years old 40% bonds... 70 years old 70% bonds. But thats a general guide and depends whether one looks to leave a legacy. A 70 year old can argue that probably timing is not exactly desirable I view our CPF SA and OA as somewhat quasi-bonds which some other countries don't have.

As for gold my perspective is similar to Buffett. Many textboooks are written by Americans and gold like most commodities are priced in USD so it is a natural hedge for a USD consumer. But I'm not sure if it is that useful for a SGD consumer. The only palusible time it is usefull is when fiat currency regime is under threat, which is possible under Trump's devaluation type of mindset.

Have a great Christmas VBs!!

[¯|_(ツ)_/¯]

Thank you all valuebuddies. 
Wish everyone a nice and chilled holiday.


1. 100% equity is ok I think. Just need to make sure don't use leverage/margin aka not overly greedy to chase profits should be fine.
In additional, especially for salary man, so long as you have a secured job and continue to pay for your daily means with extra saving, then 100% equity (assume you had identify undervalue company with reasonably good prospect) could be a good strategy.

2. Many people had come up with their way to valuate a company potential against current price to make a buy-sell decision. It would be as simple as NAV, PE and PB. Increasingly, a trend had been established in Singapore, increasing dividend payout. A few companies come into mind: 
a. Micro-Mechanics
b. Straco
c. iFAST
 
The increasing dividend payout will gain more traction moving forward as a lot of OPMI had enough of punting in stock market.
Buying and selling eventually become a job and it's no longer fun.
A clear pattern emerged for collection/collectors of dividend stocks especially in REITs.
A new pattern is emerging for the collection/collectors of increasing dividend stocks.
Of course, the trick is to make sure that the stocks will continue to provide same or increasing dividend.
Question is how do you know?
What are the characteristics or parameters to check whether the listed company can continue to pay the same, if not higher dividend year on year?

3. With #1 and #2, sometime we will make a mistake of falling in love with our holdings.
When it's price deteriorate without corresponding erosion of business result, or
when it's price drop significantly but management had put in place a great strategy to turn up the business,
we are over-confident and dip further into our hard earn $$$ and commit a big amount to buy at the bottom.
Mis-judgement - could be waiting for us sometime soon in the future.
The issue buying a second trench at a significant discount to our first trench aka greater MOS (Margin of Safety) is very appearing especially to our season valuebuddies.
 
Unfortunately, if it's our hard-earn $$$ and we really need to be careful about double down.
Looking back, I count myself lucky as I had received enough advice from our dear valuebuddies to avoid catching a falling knives.

Thank you very much and wish everyone had a nice holiday with 100% equity without leverage.
YMMV

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感恩 
Thanks all valuebuddies for helping me in my investment journey.
I learn a lot from you.

[Porkbelly]

I view our CPF SA and OA as somewhat quasi-bonds which some other countries don't have.

I share the same view. After paying up the remaining HDB loan ( after 10 years ) I had about
30K in the OA. I made the decision to move the lot into the SA against many people's advice ( they had good intentions of course)
This was more than 20 years ago.

As for other "investments", I have always viewed cashflow as a very important criteria. Cashflow from 2 perspectives:
A) Cashflow as a business
B) Dividends paid from the business

Employment salaries must never be thought of as sustainable... and one must constantly seek replacement
income ( usually passive ) and build it up with the goal of meeting lifestyle expenditures, and into full retirement.

Best wishes to all buddies.. appreciate all the sharing, opinions, and viewpoints..

[corydorus]

I view our CPF SA and OA as somewhat quasi-bonds which some other countries don't have.

I share the same view. After paying up the remaining HDB loan ( after 10 years ) I had about
30K in the OA. I made the decision to move the lot into the SA against many people's advice ( they had good intentions of course)
This was more than 20 years ago.

As for other "investments", I have always viewed cashflow as a very important criteria. Cashflow from 2 perspectives:
A) Cashflow as a business
B) Dividends paid from the business

Employment salaries must never be thought of as sustainable... and one must constantly seek replacement
income ( usually passive ) and build it up with the goal of meeting lifestyle expenditures, and into full retirement.

Best wishes to all buddies.. appreciate all the sharing, opinions, and viewpoints..

Probably due to political bias view. Is best to separate politics from finance. When one's collide then ....  lol

.

[holymage]

The killer for equities is when one is forced to sell (asset allocation wise, not stock specific wise) due to margin call, emergencies, fear etc. If one is comfy to hold through a cycle generally will do ok. But then again there's always a cavceat: see Japan when deflationary. And I'm not sure globally we are inflationary as of now.

Would like to caution against the prevailing mainstream thinking that "equities will always go up, as long as one can hold through a cycle".

Imagine buying at the peak of the cycle with that kind of thinking..
Nikkei 225: Oct 1989 (38,915) to Present (23,837) -- The investor holding through cycles will still be making a loss for 30 years!
S&P500: Aug 2000 (1,500) to Jun 2007 (1,550) -- The investor barely breakeven after 8 years! Inclusive of dividends reinvested, it is a merely 1.9% annual return!
S&P500: Aug 2000 (1,500) to Present (3,240) -- Inclusive of dividends reinvested, it is 6.0% annual return!

Historical figures have shown that valuation is crucial, as it determines your returns. 
Japan is the best (extreme) example of how overvalued Japanese assets were during the 1980s, when investors were crazily optimistic about Japan's economic miracle. Nikkei 225 declined 80% over the next 15 years for earnings to catch up with valuation. 

In my opinion, the US stock market is currently very expensive. For the investor who bought in 3,000+, will probably have very poor returns in the next 10-20 years, less a hyperinflation scenario. 

In the short run irrational exuberance will dominate and valuation doesn't matter, but in the long run, the chicken always come home to roost.

[specuvestor]

I don't disagree with holymage and personally through my posts I 've stated that I would time a cycle through asset allocation, especially to cash. But there are others who will stay invested hold through and I don't think that's generally wrong in a sense unless you bought at the peak of a cycle would make it much more diffficult to recover. In an inflationary environment coupled with growth in real terms, markets would likely go higher high over a cycle, but one's annualised return would indeed be determined by a lot by entry price if one decides on a buy and hold strategy, and a big assumption that it's a binary decision with no averaging over the period.

And for foreign investors there's the added component of foreign exchange vs consumption currency. Higher high does not mean the FX adjusted return will be impressive either. A Nikkei 225 investor will be down -5% from Oct 1989 to present in JPY terms, -17% in SGD terms and +20% in USD terms