Bought VUKE as part of dollar cost averaging.
Bought AV as part of dollar cost averaging
Bought LYG to FIFO
First time I day traded. Always good to learn something. Not particularly 'fun' or 'exciting', so I guess I am more suited to dividend investing.
Foreign Stocks
14 Jun: I changed S$ to US$ at the start of the week and started buying ADRs of UK companies.
I considered changing to US$ less risky than changing to GBP. If I changed GBP on Monday, and didn't use up the GBP on Monday, the cost of just holding GBP would be high as the GBP would continue to drop in value which is what happened.
My focus is on companies with decent international revenues, as opposed to a company with revenues mainly in GBP. That meant I added Aviva, Prudential, HSBC, & Vodafone. I also added the Australian bank Westpac as the price was good due to the double fall of share price and A$.
Lloyds, the 'M1 of the London Stock Market' (stocks that analysts love to recommend but price goes nowhere) is more vulnerable to GBP devaluation than HSBC, but if it goes low enough, I think there is a sufficient 'margin of safety' to initiate a position.
There is definitely a downside risk (I think the bookies put it at 30%, and bookies could be more accurate than polls which claim 50-50), but I am buying for the long term. It is not as if a company like Prudential and Vodafone would suddenly stop generating income just because UK votes to leave.
On the bright side. Brexit would also make my country retirement home in UK cheaper (if Singapore temperatures keep on going higher and higher, I think retirement I downgrade to small flat in Singapore and buy a 2nd home in a cooler country), and if I have children that want to go to UK to study, cost is also cheaper.
Singapore Stocks
Added Ascott REIT. I have a decent position in ART and my average buying price is under $1, but looking at recent moves, including their yield acretive acquisitions, I don't think its going under $1 anytime soon. So I've taken this opportunity due to Brexit fears to accumulate a bit of ART.
GLP: Just making use of the last 2 months of no-minimum comm trading on SCB to do FIFO with this counter just for practice and to learn something about trading. Already FIFO last week, and took a new FIFO position at $1.775. I will keep some for long term and set aside some for FIFO practice till 2 August when there is no more minimum commission...
What do we do with our SCB Foreign Shares?
Answer: Keep the forex inside SCB to avoid the forex loss, concentrate all your holdings into 1 dividend reinvesting ETF, hope for better deal from SCB.
I like blogposts that put the answer at the start in case I don't want to read the whole post.
Explanation:
If you angrily sell all your foreign shares in SCB, you get hit by the forex penalty. If you keep too many separate counters, you will get hit by multiple minimum commissions when you want to sell.
So what I am doing is to identify 1 x US$ dividend reinvesting ETF, and 1 x GBP dividend reinvesting ETF. I sell all my other foreign ETFs and use the proceeds to buy only those 2 ETFs.
At worst, if I need to sell it once the min commission takes effect, I have to pay US$10 / GBP10.
But lets be positive and look on the bright side. I am picking big cap ETFs with relatively low volatility, so I should be able to hold them for a very long time until retirement and they may well have doubled or tripled in value by them (power of dividend reinvesting). Then on retirement, I incur a one-time cost to sell and change to S$ and withdraw it.
If I were an bigger optimist, I could hope that SCB comes up with a better deal somewhere down the road (eg: $5 min comm instead of $10) because technology should make trading cheaper rather than more expensive. Who knows whether the TPP (Trans Pacific thingy) will result in more competition from foreign brokers and lower prices.
On the other hand, people say SCB can introduce custodian fee for foreign shares. But I already have my exit strategy, since I only have 2 ETFs, the commission I have to pay is much less (vs my earlier pokemon collection of 8 ETFs [yikes])
Its ok to sometimes take the long view, but make sure all your eggs are not all in the SCB basket :)
Explanation: Why Dividend Reinvesting ETFs?
One of the attractions of no minimum commission is that it was easy to reinvest the small dividends I received from my ETFs. Most ETFs pay quarterly dividends so it was good that we could reinvest dividends simply by buying 1 or 2 shares (probably loss-making for SCB since they have to print contract note with colour letterhead, put in envelope, and post it to us).
Minimum commission makes it almost impossible to reinvest dividends. That means either leave the forex in the account earning hardly any interest, or changing the foreign currency to S$ and get hit by the bid-offer spread.
Because of this, you should not hold any ETF that declares dividends in a foreign currency in SCB.
More details
This month, I have identified the 2 ETFs I want to keep in SCB and hopefully only withdraw them on retirement:
US$ IWDA - World ETF, part of Shiny Thing's recommended portfolio.
XESC - Euro Stoxx 50 ETF, because the Euro Stoxx 50 has a decent dividend yield of 3% (which will be reinvested), and the companies are big and mostly well-known international giants.
My SCB portfolio is mainly GBP, so most of the selling was GBP denominated ETFs. I started slowly selling my other ETFs and got a little bit lucky that after I sold the ETFs, the prices of shares dropped by 1-2%, so I could buy XESC a little cheaper and help to offset the 0.25% sell and 0.25% buy commissions that I was resigned to paying...
Before: SCB no minimum commission
I started off with SCB online trading for foreign shares because there was no minimum commission. But soon, my monthly investment in foreign shares made more sense for me to use interactive brokers for foreign shares. The reason is the forex spread.
If you changed $2000 of $S to US$, and immediately changed back from US$ to S$, you will end up with $2000 minus 2.27% = $1944.60. Meaning SCB takes about S$55 (there is a post in HWZ where user Chopra helpfully posted a table of the various bid-offer spreads.
If you used IBKR to buy and immediately sell, IBKR will take US$2x2=4 comms and you lose maybe 0.1% (or less) to the bid-offer spread, meaning you lose maybe S$10. (rough estimate).
If you change bigger amount, you lose even less. Because whether you change S$2,000 or S$5000, IBKR charges US$2 per forex trade. When you go to large amounts, the comm slowly goes above US$2. At S$15,000, IBKR's comm is less than US$3.
When you see the SCB forex costs, you can see why the IBKR 'activity fee' of US$10 a month is no problem for those that change S$2000 a month because the forex savings is much higher than US$10.
Eventually, you should hit US$100k portfolio size and activity fee is waived after that. Then you can sit back and enjoy your dividends which can be converted back to S$ with minimal forex loss.
After: SCB minimum commission
After SCB introduced its minimum commission, there is even less reason to use Standard Chartered if you are a regular investor who buys some shares every month.
SCB: Minimum US$10 commission per trade plus high forex spread. When you reach US$100k you still have to pay. (2020 update - forex spread is now 0.4%)
IBKR: Pay US$10 a month, and get 5 free trades and low forex spread. When you reach US$100k, no need to pay.
What most people don't notice is that the IBKR US$10 activity fee is equal to about 5 trades of US$ denominated counters in the London Stock Exchange. Each time you buy or sell US$ counter on LSE, the commission is US$1.94.
This means even if you only have $1,000 to invest per month, you can buy IWDA, EIMI, and LQDE (World, Emerging markets, US corp bonds) and you only pay the minimum activity fee of US$10.
If you bought IWDA, EIMI and LQDE on SCB you pay US$10 x 3 comms and the forex spread.
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FAQ on the Interactive Brokers minimum activity fee
It's on their excellent website, but people always like to ask to make sure.
Every month, IBKR requires you to trade so frequently that you generate US$10 (or equivalent) of commissions. I'm pretty sure it also includes the comm for changing your S$ to US$. So this is what you can do every month for the US$10 that you pay:
- Changing S$ to US$ - US$2 comm.
- Buying 1 share or 10 shares of IWDA - US$1.94 comm (Min comm for US$-LSE)
- Buying 1 share or 10 shares of EIMI - US$1.94 comm (Min comm for US$-LSE)
- Buying 1 share or 10 shares of LQDE - US$1.94 comm (Min comm for US$-LSE)
- Buying 1 share of GLD (Gold ETF) - about US$0.30 comm (No min comm for US shares)
- Buying 1 share of BRK.B (Berkshire Hathaway B US$140) - about US$0.30 (No min comm for US shares)
The minimum activity fee does not include live data. Live data is not critical. Google finance has real-time last done data. So you are quite safe to put a buy price 2-3 bids before last done price and slowly adjust upwards. It is very easy to do real-time amendment of IBKR orders.
Initially I subscribed to UK Live data at GBP5/month for a few months. But since I only bought boring slow moving ETFs, I found that the prices really didn't move that much so live data was really not necessary, so I stopped paying and just placed orders 2-3 bids lower than Google last done price and then slowly move up.
Because belief in one's ability is not the same as actual ability
There are people who push a particular stock very hard and there are also overly bullish analyst reports (eg: STI Long term P/E is 15, but this stock P/E only 10 so price should increase by 50% so that the stock P/E is also 15 or something like that - this kind of analysis I also can do).
These people have strong belief. But strong belief does not equal to investing ability.
Many studies have shown that stock-pickers do not outperform the market.
One of the first lessons you learn is to treat stock recommendations from the internet with a pinch of salt. It is really not a good idea to ask for stock recommendations on the internet. At best, you follow the crowd (eg: the China craze before the crash).
Taking things with a pinch of salt doesn't mean ignoring them totally. You should read analyst reports because there is always useful information in analyst reports, just take liquid paper and blank out their target price. (I think this is covered in some investing psychology textbooks).
Introducing the Core-Satellite Portfolio
Shiny Things in the forums advocates an ETF based portfolio since studies have shown that investors don't outperform the market. But stock-picking is interesting. How to balance the two?
As a compromise, you should have a core-satellite portfolio. The core being the STI ETF and the satellite portfolio which are your stock picks. The concept is so simple I hopefully don't need to say any more :)
The satellite portfolio can also reflect your interests. If you are a dividend investor, you would pick stocks that have higher dividend yield than the STI ETF.
If you are into growth, you would pick growth stocks even though their yield is less than the STI ETF.
A little foreign exposure wouldn't hurt but that's made more difficult by SCB not have minimum commission. The compromise would be to look for local counters that derive most of their income from overseas.
Bonds in your Core-Satellite Portfolio & Intelligent Rebalancing
Finally, you should hold some bonds. Shiny Things seems to be the lone supporter of holding bonds (he's releasing an e-book by the way, will update with his link when I have it) and I fully agree with him. Bonds will reduce volatility in the portfolio and also provide reserves that can be sold in case you need to rebalance during a crash.
Eg: $10000 equities, $2000 bonds. If equities crash to $5000 and bonds increase to $2500, you would sell bonds and buy more equities to maintain the 5:1 ratio.
Incidentally, this is a reason why the unit trust First State Bridge outperformed many 100% stocks only stock-picking investors despite the fact that it holds about 50% bonds.
Intelligent rebalancing - when stocks are cheap, deviate slightly from the target 50/50 and go to 60/40 in favour of equities, when market recovers, sell off equities and reset to 50/50. Again, I don't know the full details of the fund's transactions but from their public information, this is what they did...
This is a mistake people make by dismissing unit trusts as no good, they also feel there is nothing to learn from unit trusts - I say, there is something to learn from unit trusts like First State Bridge which has delivered very good long term returns - which is their intelligent rebalancing strategy
Remember, the route to becoming a better investor is to have an attitude that there is always something to learn and not to ignore things you label as 'lousy' (unit trusts, analyst reports).
Collapse of fiat currency and end of the world are not good reasons for buying gold
Are these people serious? Who knows, they never share their investment strategy or portfolio, or whether they are buying a flat or renting (if collapse of fiat currency and end of world coming, better to rent than to buy)
So what is the good reason to own gold? As part of an asset allocation strategy. Since asset allocation strategies often suggest that the portfolio should contain some commodities I started off with about 5% in commodities ETF and then sold ETF and added physical (why pay yearly fees, even if only around 0.50%). Not a very good idea, on hindsight.
Gold just sits in the dry cabinet occupying space and doesn't generate income, unlike stocks, property and bonds. All that sitting around has caused it to drop from 5% to 3% of the portfolio as everything else appreciated.
Instead of commodities, my idea now is to hold ETFs in a commodity dependent economy, Australia. Have decided against holding commodities ETF that does not generate income and charges annual fees.
But if you have to buy gold (and it does look so shiny), the most popular size is 1oz (according to Ernest from Beauty World). I prefer bars to coins due to lower premium over spot gold. Just don't buy too much. After a few years, you'll also wonder what exactly gold does other than to take up space.
