Sunday, July 15, 2018

After Action Review : Investors Exchange 2018



Yesterday was a blast !

I remember some familiar faces and I am quite happy that some of the folks who showed up a year ago showed up again to give us support.

Here are some deeper thoughts on yesterday's event :

a) We should have staggered the fluffier talks with the hardcore ones 

I think there was only one major area of improvement that all the organisers agreed with after the event. We should have ensured that a fluffier talk always followed through a technical discussion on investment. This way the audience will not lose their concentration in the middle of the conference.

b)  The general knowledge of the audience was quite impressive

Organisers commented that my quizzes were very hard. It was quite a big risk to put up a picture of Arthur Schopenhauer and ask the audience who he is - after all, you are mostly finance folks. But I was pleasantly surprised that this audience could not only tell their German philosophers apart, but were also able to identify Sigmund Freud and Victor Frankl as well.

The point I wanted to make from this exercise is that personal finance is a broad field and you can find nuggets of wisdom to fields as far as psychotherapy and philosophy.

c) Clarifications on the STI ETF and the equal weighted STI portfolio

Shifting from a capitalisation weighted strategy to an equal-weighted strategy results in superior performance. This was the reason why the folks in the US created an equal weighted strategy involving the S&P 500 stock counters (Code : EWI).

The STI ETF is not a diversified portfolio because it is a capitalisation weighted index.  Larger companies are given a higher weightage. The banks together form about 40% of the ETF. Because of herding behaviour of STI ETF investors, more money will be poured into banks due to the way the ETF is being structured. This may be one of the reasons why the STI ETF's 10 year annualised performance was only 4.44%.

If instead of buying the ETF, you divide your money into 30 parts and you buy each of the STI ETF component stocks in equal parts, you are no longer biased toward the larger blue chips. Your allocation to banks would be limited to only 10% of the your portfolio. Backtested results of this strategy show a 3% improvement over the STI ETF annually.

Also, if you adopt an equal weighted strategy, expect to lose 20-25% of our portfolio in a particularly bad year. (1 in 40 years) This is a reasonable risk to take.

The broad concepts like bullshit jobs and life-energy exchange shared in yesterday's event will be mentioned again in future blog articles.

So do keep a lookout on this blog.




4 comments:

Gabz said...

Hi Chris,

Glad to have listen to your presentation on the ETF portion. That really got me thinking on the ETF portfolio strategy that I used to hold on too.

Hope to hear more from you soon!

Christopher Ng Wai Chung said...

No worries, my next event will be in August.

Chun Siang (Jacky) said...

hi Thanks for the thought provoking talk during IX.

one of your recommendation is to buy the 15 cheapest STI stocks based on PE, and rebalance the portfolio half yearly.

I thought half yearly seems rather frequent. how about annually? Wonder if you have done any back test on that?

What about the other strategy of the 15 cheapest STI stocks based on PB? Any comments?

thanks.

Christopher Ng Wai Chung said...

Well, I did not test annual rebalancing.

I do not think the results will be significantly different beyond lower brokerage expenses.

There are definitely other strategies and I will share them in future talks.