Thursday, October 31, 2013

Big FX Trade #2

All right, so back to the drawing board I went.

The picture here below is the current trade set-up that I have going on right now in the FX world.


So the pair is the USD/CHF. I've actually been in and out of this pair over the past few days because it does seem like it has bottomed out, so I was trying to go long with it, while capturing short daytime swings in it as well. So far, I've had mixed results.

Since everyone was just waiting for the FOMC announcement, trading the past few days and the last week has been quite erratic. Regardless of the Fed decision, I knew that it translate to either dollar strength, or dollar weakness.

I've decided to really simply and dumb down my trading style. I was hearing from DDTrader in the Live Analysis Room on how he knows some people who only trade based on slow stoch crossovers and have been reasonably profitable. Now, I was intrigued by the simplicity of the method he mentioned, so I went to fish around myself. I can't remember who was the interviewee in LAR, but the number that I got for the slow stoch was 10, 3, 3.

I set my slow stoch to those settings and I surfed around many pairs, and true enough, I do find this method a very simplistic, but reasonably reliable and accurate indicator. It can't follow huge trend movements, but it fares quite robustly on turnaround for less volatile pairs, especially on the daily timeframe, I felt.

Anyway, with this new-found knowledge, I decided to test it out. I identified the USD/CHF to be the most promising pair for dollar strength, and the USD/CAD for dollar weakness. Both pairs seem to be in a turnaround, with the Swissie already looking to correct upwards, while the Loonie looks like it was just about to make its major turnaround.

I pulled up both screens, set alerts on both pairs at pivot resistances and supports, and I just waited for the FOMC announcement. After the announcement took place, it wasn't long before the Swissie gave out alerts to go long, but I waited for a bit more confirmation before I entered into my positions. It did go against me almost the moment I entered in, but since then it has been pretty much positive.

You can see my entry points based on the small like blue triangle sort of things on the graph.

My current target is to hit back at the 50% retracement line off September highs and October lows, but I'll look out for clues based on the slow stoch. It might cue me to exit and take profits earlier, or to stay longer past the retracement level for more profits. I'll have to see how it goes.

I'll have an update for you guys once I exit my position. All the best out there in the market!

Wednesday, October 30, 2013

Why I Like Dividend Stocks

So, it may be quite bewildering to many people regarding my equity allocation. It seems that they are all dividend payers, so why is that?

I have a strong belief that dividend payers have better adjusted risk returns and overall better performance than the other average stock over an extended period of time. Plus, the steady dividend payout indirectly lock in gains and helps with dollar cost averaging within the security.

I've just read a post from DIY Income Investor, and he links up this interesting read from Allianz regarding dividend stocks.

I think after reading this, I feel like I have a lot more conviction to enter my equity positions. Perhaps I might just do that tomorrow, after the whole FOMC settles down the market and the plays are clear. It comes in also at a pretty nice time, at the end of the month, so I can watch its full 1 month returns! Hmm, sounds good to me now. Might just execute that soon!

Loophole in the Phillip System?

I think it's strange, but I might have just discovered a tiny loophole in the Phillip system.

For all their unit trusts, they charge a standard front end load of 0.75%, which is pretty much about the lowest loading fee charged by any of the fund distributors in Singapore.

Some of the banks charge as high as 5% if done in person, or with financial advice. Others charge less if done online and without assistance, or if you know you a Relationship Manager that is fine trimming down their own commission. Even then, I doubt that the rate that you can get is less than the 0.75% offered by Phillip.

I think one of the main reasons why they have this low fee is because of their low maintenance and no-frills website that they use. They also automatically re-invest dividends instead of paying them out. While that may seem like a bad deal to some, I've already highlighted that this is the surest way to defeat the greedy demons inside of us that will hinder the effect of compounding returns. So the lower fees and re-investing is actually to the long term investors advantage!

So enough with all the talk, what is this loophole then?

Well, I just realized that the fund switch fee is pretty much a flat standard 0.5%. That means that if you have any existing funds with Phillip, you can take a 0.5% haircut off that fund and transfer your holdings from one fund to another.

Hold on, wait a minute. You pay a 0.75% front load fee, and then you have to pay an additional 0.5% switch fee if you change fund. How that does that help in any way?

If you asked that question, then your mathematics pass and you can do investing yourself. Congrats! The real kicker here is that some funds are on promotion, and you pay 0% loading fee! So hold that thought...

While the 0% loading fee itself is a fantastic deal and is extended to quite a large number of bond funds, the loophole comes in if you purchase a 0% load fund, and switch to a fund without a promotion. That means you technically only pay 0.5% and you save a 0.25%.

Okay fine, come and blast me now. 0.25% is peanuts. In terms of the $1000 minimum investment, that's a paltry $2.50. But if you're see it like me, this small amount adds up for virtually no hard work at all!

Of course, this has yet to be tried, tested and proven. So tell you what, I'm going to test it out. I am going to stick my own money on the line just so that I (and maybe you) can save that 0.25% in the future. Why? Well, every small bit counts, and by doing this, you're going to see a 0.25% improvement in your portfolio. And what better way to encourage investing by seeing healthy green profits in your portfolio, eh?

I've purchased 2 lots in the UOB SGD fund, and I will be looking towards redeploying this funds in the near future to switch-in to either top-up or enter new funds. Firstly, the UOB SGD fund has 0% loading fee. Secondly, the fund to me feels rock solid. It's slow and steady, but by gosh, it is steady. It has yet to print me a figure that was below it's previous NAV. I may strongly consider this as a higher yielding "cash" haven, specifically to switch into funds with the flat 0.75% fee.

So much things to look forward to over the next few days, though my CFD account is blowing up, I think I'm more embracing the fact that I've written it off as happy gambling money to keep me busy, and not part of my assets anymore, haha. That doesn't mean I've given up trying to recoup my losses on it though! I am going to restrict myself to a tight restriction of only 1 pair a day. I keep losing focus, which is so bad for my bottom line.

FX Updates

Honestly, I thought things were looking up, but they haven't really been yet.

I got screwed over yesterday by the USD/CHF. Within the time frame of 2 hours, the pair dropped like 70 pips, then rallied over a 100 pips. Crazy crazy crazy!

All my fundamental trades are going horribly because of the volatility.

I know events are not supposed to throw me off. There's been major trading events happening every other day for the past few years, so I need to wrap my head around a proper way to trade these markets.

Also got to be more patient, argh.

Btw, didn't get my IPO shares either. Back to the drawing board for me.

Monday, October 28, 2013

My First IPO

So, I just finished applying through my local bank for my first IPO!

The IPO closes tomorrow at noon, and by the end of the day the balloting results should be out, and the balance money not successfully allocated should return back nice and comfy into my account.

Firstly, I think that I am looking for a quick buck. Considering the meteoric rise of the other pawnbrokers' IPOs, I think that it is definitely possible for me to make a fair bit from this IPO launch.

If the global markets doesn't correct, or has a quick correction, I might just hold the shares a bit longer before I sell them off.

We'll just wait and see if I successfully got through the application!

[Valuemax @ $0.51]

Sunday, October 27, 2013

This Weekend

This weekend, I finally got a break from the markets. No need to keep up with news about government shutdowns or other crazy things like that.

Work has been a lot easier since coming back from my overseas business trip at the start of the month. Hopefully, things eases up more soon and I can get faster approval to push through my work down all the clogged and slow pipelines.

Social life hasn't been too bad too. I still go out at least once a week to meet up with friends. And I'm back to my exercise routine, though the damn earbuds finally pooped out on me recently. I ought to go out to the store and get a new pair when I'm free. Perhaps this weekend.

I should get down to planning a nice short holiday soon, it's been a while since I traveled somewhere.

So, I guess on my normal life, things seem to be going pretty well. I'm finally getting used to managing my investments in a less emotional way and approach things more rationally.

Of course though, I still do my 2nd job, which is night time trading on levered CFDs. Don't worry about me folks, I've already written off the money in my account as gambling money, and I'm just using it as a platform to keep me entertained, while also getting involved in international news. At least by me indulging in this and also having a cap on my gambling limit prevents me from running around the city amock and keeps me out of trouble from doing other things, I say. The biggest thing that it helps me with is to not be itchy fingers with my longer term investments.

I realized that since I started in this game, I've been a real rookie, reading and believing too many things as if it was gospel. Now after paying my "tuition fees" to the system, I think I am a lot more mentally and emotionally prepared to face the market, just like all the other traders out there.

My proper investments are doing fine, but definitely not the scale it would be if I'm more confident of its performance and robustness. However, I'm sure that as time goes on by, I will be more and more comfortable and believe more in my own portfolio, so I can eventually scale in more of my capital and have it appreciate!

Saturday, October 26, 2013

End October Predictions

Well, most of my doomsday doom and gloom predictions don't come true, so let me try something else.

The US dollar has been so weak lately, but it is currently at a multi year support line. Trend lines are meant to be broken, but just bare with me and my train of thought.


If my predictions are right, the US dollar should be quickly gaining back strength and momentum after pressing lower for maybe a few more days or a week. Once the dollar strengthens, gold will be priced back downwards, and this nicely coincides with its seasonality chart.



The first graph shows that the technical analyst predicted that gold should be breaking out on the triangle that it is in. However, I think that it will rebound and head towards the the $1250 range before taking off for the end of the year.

To me, what this scenario tells me is that commodities will be a good time to buy into for a long position in mid November once the dollar strengths to push down gold prices.

When the dollar strengths, the US indices will feel a pinch and have to head down, we should check if it is confirmed. The indices will be at lows, with dollar at highs, and gold at lows. Gold ought to blast off first, which will weaken the dollar and improve the indices. But, once the indices see the explosion in gold, people might start to panic and the market might collapse. A collapsing market will also bring with it a weaker dollar.

I should be waiting for a nice oversold signal in USD/CHF, and slowly scale in my position once I can see the dollar gaining traction. Once gold hits my target, I should be exiting the fx trade, purchasing my commodities and turn my attention towards the yen crosses. Most likely by this time, we will be at the spot where the USD/JPY is at the top of its triangle too. However, I think that instead of breaking out, it might break down instead due to all the fx carry trade in the yen crosses. If this happens, the indices will be tumbling for sure, and we have to lookout for the fallout and figure which is the trade we want to be on.

Or, this could all be just a load of crap. If the US dollar continues to be crappy, I think the trades to go for is either the EUR, GBP or AUD since they have macro fundamentals to support them. NZD has stately officially that it wants to weaken its currency, while AUD has mentioned the same thing. The pound is overdue for a correction and the EUR is quite lofty, but I can see myself buying into it upwards to the 1.41 range, and then things will get crazy.

Anyway, I think too much for sure, haha.



October is Ending

I think this month has been a pretty crazy up and down month for me in terms of FX. At the start of the month I was doing pretty well with my FX trades. The massive miss on the Cable short, as well as my Russell shorts really just blew me out of the water. It sounds horrible that I've pretty much lost 75% of my capital so far, but I have strong resolve that I can slowly work my way back to being profitable. So far, with each successive lost, I am learning more and becoming a better trade. I've finally booked in some profits that is keeping me just around my 25% of my equity mark. I am determined to slowly build up my account and hone my skills, and I want to do this without adding in more capital. This will really make me work towards my goal, and I now have a few pointers just for me to throw out.

  • don't look at anything less than an 1 hour time frame. The 15 min should be used only to confirm an entry point, and the 5 min only to confirm an exit point.
  • daily and hourly charts should be in sync, then just wait for the right opportunity.
  • it is better to wait for the right set-up, than to go into something just to lose money.
  • no trade is still an active decision that separates the trigger happy from the pros.
  • watch out for major news events, and make sure you set a SL if you're trading it.
  • it is better to be stopped out and retake the initial position once the trend is over
I think as long as I can keep reminding myself these rules, I will start losing less by getting out of trade that are not in my favour, as well as identify the winners with more certainty.

On the other side of things, my actual long term investments seem to be doing okay. As of now, my portfolio asset allocation is about 80% there. I'm waiting for more conclusive evidence to enter into my last 2 equities positions and get a proper commodity fund.

With the bulk of my fund purchases this month (8 funds added, for a total of 12), that means that the sales charges have kicked down my returns this month quite a bit, as well as most of the funds being bought at the mid and near the end of the month. With each additional top up to the fund, the sales charge will push down even less and less, until it would barely have a 0.1% effect on the monthly returns. This month's effect should be about 0.25% depressing on the returns, on top of the only half month gains.

I'm looking forward for my month end review, as well as planning my rebalancing for perhaps mid Nov, it looks like it will be the low of the commodities cycle then, I might be loading up on an extra portion then while slowly value averaging my portfolio.

Hopefully by the end of the year, I can have about a nice figure comfortably and earning returns above the bank rates but without the stress involved. Perhaps if I can keep this up for the next full 2 years, I think I might be able to get my own place at the next housing slowdown... honestly though, I hope for a mega market crash and meltdown, and hopefully by portfolio is really as solid as I think it is, and that I can pre-empt any crazy situations that comes around.

Tuesday, October 22, 2013

Finally All In Bonds

I know bonds are a lot more safe and less risky than equities, which is exactly why I've finally filled up all my bond asset classes as of today!

I've finally filled in US bonds and TIPS, so that means I've got my bond position all nicely diversified across 6 bond classes, namely:

  1. US Bonds
  2. International Bonds
  3. Emerging Market Bonds
  4. TIPS
  5. Global High Yield Bonds
  6. Global Corporate Investment Grade Bonds
I am fairly confident that these bonds should be able to provide me a nice appreciating base on my capital. The only thing that can really screw me over on all of this is rising interest rates, which I actually do not foresee rising too rapidly in the near term future. Hopefully, interest rates can rise a a few bp every other week, instead of a sudden ramp up.

I have also got into a position in Asia Pacific equities. Even though the equity portion of my portfolios are so small, it still gets me worried if I'm entering at a horrible time, haha.

Anyway, that just leaves me with 2 equity positions left, as well as the commodities sector! I have to admit, I am thinking of investing into mining stocks as well as the agribusiness. I don't know if they hold a true place in my portfolio... I am actually guess that they dont, hah.

Monday, October 21, 2013

Portfolio Strategy

Assuming that all 12 of my asset classes are perfectly balanced, I will be having a 8% allocation in each class that totals up to 96%, with a 4% remainder.

So, what does one do with this extra 4%? I'm trying to come up with rules and structure for my own portfolio that gives me a bit of flexibility to identify opportunities and use that to increase my returns, while also not deviating too much from my prescribed school of wisdom that preaches diversification and the unknown future.

Firstly, I suppose that only one single asset class shall be up to 12%. That is the upper limit to any class allocation, and only 1 asset class may take up this 12% positioning. If nothing is compelling me to bet on that class, I may distribute the remainder 4% to 2/2, or 3/1 or 2/1/1 or even 1/1/1/1.

Secondly, if specific classes of assets can be forecasted with a high likelyhood of underperforming or overperforming, another asset class must be forecasted in a similar fashion to perform the opposite way. In such a scenario, it would deem fit to shift allocation from the potentially underperforming asset class to the potentially overperforming asset class.

Eg. EM bonds are predicted to face a huge loss admist taper talks, while Global HYs are predicted to capture this inflow and ride the economic recovery upwards. In this case, base allocation of EM bonds would drop from 8% to 6%, while HYs are ramped up from 8% to 10%.

An any one point of time, there shall not be more than 3 of these scenarios taking place at the same time. Which means, there can be only 1 reigning speculative asset class with a 12% allocation, 3 asset classes pinned to outperform with 10% allocations, 3 potentially underperforming asset classes at 6% and the remaining 5 class will be status quo.

This will ensure that although I try my hand as shifting around allocation, I don't lose out from the main benefits and purpose of my portfolio construction in the first place.

Lastly, if a catastrophe is impending, like a massive equity meltdown like in the great financial crisis, it would only be prudent to convert all holdings to be effected into cash, and if it is foreseeable that a particular asset class will be benefiting from this, it should be allocated into that class with caution. In cases of doubt, remain diversified or in cash. This scenario is purely only for emergency purposes, which I foresee to be happening perhaps once a decade?

Oh, I almost forgot that I will be allowing the holdings to naturally float around the 6-10% range until it is time to rebalance.

Rebalancing should be occurring as an entire portfolio review once a year, and as value averaging as an ongoing exercise when funds are available.

Don't Worry, Be Happy Portfolio Mid Oct Updates

As of recently, I have added in positions into the global corporate and high yield positions, which are attractive to me as they have been 5% drawndown from their recent peak, and their historical maximum drawdown is 9% and 7% respectively.

I have also purchased a position into a long duration (7 years) in emerging market debt. Historically, it has had drawdowns off 14% off its peak. It's last major drawdown was 12%, and it is now 10.5% off its recent peak.

For all the above 3 bond funds, I did not even have to pay any sales charge, so 100% of my capital went directly into buying units into these funds. To top that off, the funds also seem to just be recovering from their drawdowns and hopefully price will be steadily increasing after taking that big hit. Therefore I am doing a value play here. However, the ascent of the high yield is looking giddy, so I think it might be a cause of concern.

Lastly, I also have finally ventured into equities, making my first purchase with Fidelity. The main reason here is that I think Fidelity does outperfom DWS, it has a smaller allocation in the US, the payouts are more frequent (better DCA), although this won't be a concern especially if I buy into the hedged non-distributing shares of DWS. The rationale for this purchase is that although the bear inside me is telling me that this isn't a good play in the medium term, it is also telling me that there are short term benefits to be had until the next taper scare. So this is a momentum play for a bit, though it is still underweight in the grand sense of things. Small enough for me to monitor and get a feel of going on, and also small enough that if it implodes, it won't hit my portfolio hard.

I am looking for that gut feeling reversal in internal affairs before I decide to enter the Asia Pac ex Japan equities, as well as looking towards the EM breakout before I get into those equities as well. This is the same for commodities, and I would even say for gold miners. At this point, gold miners will be under the commodities portion because they are technically a leveraged play on gold. But given that miners are so massively drawndown and their valuations are crazy, I don't see how badly it can turn out to be buying something on that deep of a discount.

I'm looking forward to month end to update my portfolio, benchmark as well as publish my factsheet!

Saturday, October 19, 2013

The Forex Bet

So, here I am reluctantly posting out the update of my big forex trade that I mentioned in an earlier post.

Basically, I was short the GBP/USD. Things was okay, though I was in the red a lot more than I was in the green.

Who knew that when the debt ceiling debate an the American shutdown was over, that the US dollar would COLLAPSE?

One would think that after all the pessimistic sentiment of the dollar during the shutdown, lifting it would provide a nice relief rally, wouldn't it?

So, the dollar collapsed and I got totally blown out of the water. I have to admit that I am currently very demoralized about trading CFDs now.

I suppose I will indulge in the ASX and DAX strategy by CMC, but as of now, I don't foresee myself adding more capital into this account for a while. I'm much more focused on getting my actual long term investment portfolio up and running!

Five Minutes A Day Trading (5MADT) Strategy

I have no idea how I stumbled upon this page, but it is actually a blog written by CMC Australia! It's a wonder why I haven't come across their blog earlier.

Anyway, I saw this pretty straightforward and simple strategy that they are advocating for simple traders with no time to spare, and they have some backtests to supplement their methods, so I find it all very compelling.

Listed below are the hyperlinks to their strategies.

EUR/USD in August 2012
Germany 30 DAX in February 2013
EUR/USD in June 2013
Australia 200 ASX in October 2013 (ongoing)

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The EUR/USD trades at 1pm Singapore time.

This trade assumes that European traders usually get the direction of the day wrong, and the profit loss ratio is set to 3.2 / 1.

Buy trade: 1pm closing price, market order -11 pts, SL -12 pts from entry, TP +39 pts from entry
Sell trade: 1pm closing price, market order +25pts, SL -12 pts from entry, TP +39 pts from entry

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The DAX trades at 9.15am Berlin time (GMT +1), but they have daylight savings from April to October, so they are GMT +2 now. That means this strategy would be effective in Singapore time at 3.15pm until 26 October and 4.15pm from 28 October onwards.

This trade assumes that Australian traders usually get the direction of the day right, and the profit loss ratio is set to 3.2 / 1.

Buy trade: 9.15am closing price, stop entry +17 pts, SL -11 pts from entry, TP +35 pts from entry
Sell trade: 9.15 closing price, stop entry -10pts, SL -10 pts from entry, TP +35 pts from entry

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The ASX trades at 10.15am Melbourne time (GMT +10), but they have daylight savings from October to April, so they are GMT +11 now. That means this strategy would be effective in Singapore time at 7.15am.

This trade assumes that German traders usually get the direction of the day right, and the profit loss ratio is set to 2.4 / 1.

Buy trade: 10.15am closing price, stop entry +4 pts, SL -5 pts from entry, TP +12 pts from entry
Sell trade: 10.15 closing price, stop entry -6pts, SL -5 pts from entry, TP +12 pts from entry

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These trades look quite good to me, and I might consider adopting them, especially the EUR/USD and the DAX trades, since I would be able to quickly take a 5 minutes break at work to fulfill this!

I will actually start monitoring the DAX trades from Monday onwards, and embark on it if results are positive once daylight savings has ended. It's too confusing for me, haha.

Friday, October 18, 2013

My Portfolio Benchmarks

For my Don't Worry, Be Happy Portfolio, I've decided to use a few benchmarks to gauge how well I am doing.

The first benchmark is the Nikko AM Shenton Short Term Bond Fund. The reason why I chose this is because it's own benchmark is the 3 month SIBOR. It is also clearly investable, it has a small management fee and it is rather safe, stable and steady. This was one of the main funds that I was considering dipping my toes into as a step up from my bank account and more "risky" than a money market fund. The fund has ever had a drawdown of 4.3% before, so it definitely isn't risk free. However, with the short duration and high credit rating, it is quite insulated from shocks in the system.

The second benchmark is actually quite exciting. It is the Nikko AM Eight Portfolio C. This fund is actually a 60/40 mutual fund which is actually quite globally diversified, largely based on market cap. I would think this looks like one of the simplest and yet most comprehensive asset allocation as funds goes. It was one of my top picks in the tactical asset allocation category. I am very sure that this benchmark will give me a run for my money. It looks like a very robust 60/40 strategy.

My last benchmark might be over the top for me, but I consider it the granddaddy of asset allocation, and it is the Blackrock GF Global Allocation Fund. It has had a fantastic run, especially in its longer USD class shares, coming in at about 7.5% annualized returns, which is something that I wish I could hope for! I must say that their strategy is a lot more active than mine, but if I want to roll with the big boys, I at least got to measure how I stand up to one of the biggest ones, eh?

Personally, I would like to have a CPI benchmark, perhaps something like CPI + 4%, but like what Arnott says, that is more of a goal, rather than a benchmark, since it is not investable. I will definitely still be looking to see what my returns are, and hopefully how much above CPI they are returning, most likely at the end of every year once the CPI statistics come out!

Thursday, October 17, 2013

MH's Don't Worry Be Happy Portfolio

So, I would like to update my portfolio and name it the "Don't Worry, Be Happy" Portfolio.

Why? Well, the main aim for this portfolio is for me to continually invest and grow it in the long term, with the risks according to my risks appetite. For me, I won't worry, and I'll be happy. I'll be able to sleep at night.

I know I've been updating my portfolio a lot, but here it is again in full, just for my own sake as well. I forgot to mention that I will be adding in Asia ex Japan equities as well, because I feel that entire area has been strongly neglected and just lumped as "Emerging Markets" even though that is not the case.



ClassNameTER



US eqFidelity Global Div Fd A - MINCOME SGD1.5%
EAFE eqDWS Invest Top Dividend S2H(P) SGD1.5%
Asia ex Jap eqFirst State Dividend Advantage1.5%
EM eqJPM Emerging Mkts Div A (Mth) SGD (Hedged)1.5%
REITsFirst State Global Property Investments1.5%



Global HY bondsLegg MasonWestern Asset Global HighYield Fund Q dis SGD-H1.25%
Global IG CorpSchroder ISF Glb Corporate Bond Fd A Dis SGD Hedged0.75%



EM bondsUOB United Emerging Markets Bond Fd SGD1.25%
Foreign bondsTempleton Global Bond Fund A (mdis) SGD - H11.4%
US bondsJPM US Aggregate Bond A (Mth) SGD (Hedged)0.9%



TIPSFidelity Global Inflation Linked Bond Fd A SGD Hedged0.5%
CommoditiesDB Platinum Commodity USD R1C-C1.35%




Total TER1.24%

The reason why I think I can don't worry and be happy is because the portfolio is:
  • diversified across asset classes
  • equal weighted and not market cap weighted
  • dividends are reinvested
  • expense ratio is palatable
  • easy to track
  • simple to rebalance
So those are my reasons for my portfolio so far. I will definitely look towards understanding it a lot more, as well as setting rules and boundaries for myself, so that I don't run amock. Oh, and a benchmark too.

Blast from the Past

I was just wondering how things have actually been going for asset allocators, so I took a quick spin around the web and managed to churn out these 2 interesting finds.

First one is from none other than Blackrock.



The picture here is just in case you're bloody lazy to click my link on top. This is the best updated .jpeg that I could find on the web, because I'm too lazy to take a screenie of the most updated one with 2013 figures.

However, if you mosey over to the latest figures (the ones that I will talk about), you can see that the diversified portfolio is at the lowest end of what one might consider as a reasonable return. Portfolios above it yielded less than 50% better than it, while portfolios below performed less than 50% of it.

Next up, we have some tables from Ritholtz, once again showing similar results. The origins of those statistics came from the Washington Post, so a separate source. There is another table at the link which shows fixed income returns as well.



Basically, seeing these tables again have made me more comfortable with my decision to seriously explore and put to use methods of asset allocation when investing, be it in equities, fixed income or throughout my whole portfolio.

Albert Einstein said...

“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”
Honestly, I am rather skeptical that he actually did say it, but I think it is something that most people have come to believe that is true, especially when you look at the effect of exponentials on money. Nothing makes a heart beat faster than seeing money triple in that time that you would think would only make it double.

Anyway, if you have been reading my posts (I doubt it), you would know that I've modelled my ideal asset allocation portfolio to include mostly dividend paying funds, so that I can accumulate cash and allocate and rebalance more efficiently.

However, this morning when I logged into my account, I made the startling discovery that the dividend payouts due to me from my bond funds - oh horror - have been reinvested! Now, I never knew that the dividends would be reinvested, and I don't recall signing up for any reinvestment scheme, though that actually might be useful. So, I went searching around the site for an explanation, and I found the FAQ which states that

"In Phillip Unit Trust, all dividends will be reinvested, unless funds have only payout dividend option"

All right, now that sort of changes things a bit, doesn't it?


Now, I was almost just about to reach for the phone and start questioning my platform company about this, when I remembered something that I read on the Monevator's website before. The most compelling article that he wrote that quantifies his support for compounding interest (and hence, dividend reinvestment) is here. The next wonderful piece that he wrote is regarding the psychology of dividend reinvesting, which he tackles through Inc and Acc units here. Lastly, he also wrote an interesting piece about his dividend HY portfolio here.

In the first article, he strongly makes his case for starting early, due to the time factor of compounding interests. He advocates leaving your money alone and allowing dividends to reinvest. Although the effects are minuscule now, they will snowball and have a huge effect in the future.

In the second article, he advocates adopting Acc units instead of Inc units. Acc units allows you to decidedly defeat the inner demon within you that might avert you really following through your dividend reinvestment plans. By not having dividends physically coming in to play with, no wrong can be done and you won't be able to be up to any mischief. It also gifts you the gift of being disciplined without putting in any effort.

In his last article, he makes a clear distinction between an income dividend portfolio, as opposed to long term investing portfolio. I think this is really applicable to me, and a timely reminder to once again tell me that I should not be expecting my long term portfolio to be spurting out tons of income.


After re-reading his articles, I think instead of giving Phillip that call and trying to get payouts instead of reinvestment, I will just leave it as it is. 

Dividend reinvestment will
  • force feed me discipline
  • reduce my transaction costs
  • engage in passive dollar-cost averaging within my investments
  • force me to monitor payouts made and new units accumulated
  • compound my returns 

With that said, I think I will be actually looking towards opening up a SCB account to start my income portfolio, since now I have made a clear distinction between a long-term portfolio, and an income generating portfolio.

Monday, October 14, 2013

Big Forex Trade #1

I actually have had a previous huge forex trade a while back. I pretty much caught the entire strong ride of the AUD/USD run up from it's low at just under 0.9 to around 0.93+. I pretty much entered and exited trades the whole time to lock in profits and continue going for the ride. At the end of the trade when I finally called it quits, I had made around 300 odd pips to finally end off with an amazing 140% ROI. I was patting myself on the back for days.

Now, I'm not going to say I'm a good CFD trader. In fact, I'm a horrible one. Other than that amazing trade, I've lost tons and tons and tons of trades when I first started. If I'm not wrong, I lost 24 of my first 26 trades until I finally hit the AUD/USD payload. The good thing was back then I kept my stops quite tight to prevent me from losing too much capital.

After that, I've got a lot more bold, and I made some horrible calls on indices especially, and I've been totally in a the red since the crazy US government shutdown.

However, I'm still in it to win it, plus this is all gambling money anyway. As much as it pains me to lose this money, at least it keeps me from messing around with my other money, so that's a plus, isn't it?

Well, now I'll be sharing with you my current trade that I'm already betting on. It is the GBP/USD, and I'm shorting it.


So, as of about Thursday last week, I entered into a short trade at around 1.593/4. Since then, the trade has been mostly moving against me, but it is respecting the 1.60 resistance, while also having a hard time breaking the 1.5927 support. My stop loss is above another layer of strong resistance and also a weak resistance, lying just above the main shoulder at 1.61.

Technically, the set-up is looking quite good on the day chart. The pair recently topped out on 1st Oct, and it seems to be on a decline since then.

RSI values on 18th September and 2nd October confirms that the Higher Highs have RSI Lower Highs, which translates into a bearish divergence. RSI is also below 50%, although it is pointing upwards.

MACD is red and above zero, meaning that it has room to continue downwards. Slow Stoch is also showing a downward bias, with the white line leading the red line.

Timeframes on the hourly and lower shows that is is ranging for the past 2-3 days within the 2 strong supports and resistance.

Fundamentally, this ranging is likely due to the markets waiting for a clearer picture coming out of the US. I personally don't really think that the US will default on it's debt. If it does, then I really wouldn't mind taking this small bet and losing, in exchange for watching the world burn. I am a very contrarian trader, I feel, haha.

Since then, the probability of the US default is very low, I will expect this pair to range until some strong information develops that pushes it over from one side to the other. In that case, we should be seeing the pair break down past the support and head pretty much for my 1st take profit zone.

The reentry plan for the 2nd target is simple. I will be taking ALL profits when it hits the first target. I will also be setting a limit sell entry for half the current amount, so that if it runs straight for the finish line, I'll be in it too. The stop loss will be the first reasonable area in case of a possible stall and start. In the event of a pullback, I will be entering short again, but this time at the peak of the pullback, following the same method aiming for the 2nd target.

Looking at how things are going and the scale of things, I doubt a resolution will be had anytime soon. From the arrows I drew on my graph, I'm only expecting to hit the first target at the end of this week, followed by the 2nd target at the end of the month - of course assuming that all goes well.

This is my first time sharing my current, on-going live trade, I hope I can have something to show for it!

Yet Another Post on Asset Allocation

I just love Mebane Faber and the posts that he writes about.

Last week, I was JUST looking at the exact same asset allocations strategy which he just updated here, but I couldn't find it again until he posted it!

Now, this is an asset allocation strategy that I would really feel comfortable with and be able to sleep well at night. The allocation is very mathematically based, and the results are also very pleasant to look at. I think managing to outperform the traditional 60/40 is quite an achievement for most portfolios.


MH's Updated Portfolio

Hi all,

Back again to my favourite topic of asset allocation.

After much thought, I think it has dawned upon me that instead of using ETFs as part of my portfolio, I will be enlisted the use of funds to replace them instead.

Firstly, they start up costs of ETFs are so high. To efficiently engage them, I will need about 6k to minimize my costs.

On the negative side, this means that I will not be buying the market, and therefore my returns will not be the market. However, the funds will of course try to mimic the underlying and outperform if possible, but I'm not really risking much in hopes of that.

I think it would be great to be the market, but I would be content making decent returns above inflation, which I think will be my goal.

On the plus side, I will be get distributions regularly, which I will be using for value averaging my portfolio.

So here are the 4 mutual funds that I will be replacing the ETFs with.


ClassNameTER



US eqFidelity Global Div Fd A - MINCOME SGD1.5%
EAFE eqDWS Invest Top Dividend S1Q SGD1.72%
EM eqJPM Emerging Mkts Div A (Mth) SGD (Hedged)1.5%
CommoditiesDB Platinum Commodity USD R1C-C1.35%


Sunday, October 13, 2013

Rebalancing Opportunity Index

Now, along with the lines of the market timing to enter and exit a market, this ties in very closing with rebalancing as well.

As James Picerno and Mebane Faber both points out, rebalancing is important to make sure that you get don't overweight in any particular sector to ensure that you reduce exposure to something that might well be on it's way to a bust, but also ensuring that your portfolio is doing what it's supposed to be doing, which is to remain diversified.

I am very keen to take a page from James' idea of portfolio rebalancing, but I will have to look into a way to accurately, easily measure such opportunities and find out how it can translate to give me a rebalance signal.

The Monevator has an excellent article on rebalancing. He has tons more very layman, useful articles and I love his site. But anyway, it is value averaging, something that I am very much a fan of, instead of dollar cost averaging. DCA is much less scientific and can in a way, defy logic.

Now, perhaps I can find out a way that is simple, easy to generate values, logical and translatable to investment action with all the information I have been accumulating!

Equal weighting, rebalancing, minimum variance, momentum strategies.... I have my mind has a good workout tonight when I'm sleeping!

Timing the Market

Now, as much as I relish the idea of passive investing and just collecting monies at the end of the month / quarter / year, I think that market timing is something that all investors have to question themselves about it at one point or another.

Sure, you can be paralyzed and have inaction. Basically, your choice of not investing results in a large opportunity cost, and well, you can also think of it as the cost of being liquid and safe.

Not only in inflation eating away at your money, but it is also not earning you anything.

But let's look at the flipside for a while shall we. What happens if you invest your money at the wrong time in the market? Epic major drawdown, that's what can happen.

So, sure conventional wisdom tells you that in the long run, your assets will appreciate over time. However, I am also a firm believer of a true value, and that price fluctuates around this mean. If you purchase stocks that are so extended from it's mean, you're bound to generally outperform the market.

Sure, the underlying asset is fantastic. But the value of this asset can be translated into price, and you can be paying too much for a fantastic asset. There has to be a upper limit of price on any asset, and anything purchased above that is just not logical.

I am very pleased to stumble upon this particular find, which I will share with you. It is the $OEXA200R technical indicator. There is accompanying documentation here and a recent update here.

In essence, it is a pretty simple indicator, and I think that's the appeal it has to me. It is also somewgat a leading indicator, so it gives forewarning before something happens. I think this is actually the indicator that I've been looking for to give me an idea of what is going on in the US stock market. With that said, I think it has given me renewed patience to sit tight and wait for the market to make a correction.

In the mean time, I think I will finally start investing into the bond funds that I was talking about. I think that although interest rates are going to increase, I actually think that they will remain low for quite an extended period of time.

Thursday, October 10, 2013

Money Honey's Portfolio Upgrades?

Well, now that I've got my core assets and vehicles already thought out and in place, I feel quite gleemingly happy with myself. After all, I would say with a fair amount of confidence that I would be able to buy and hold these assets into the long run and be relatively happy with their returns in the end game.

However, of course doing better is well, even better right? So, after clicking around and surfing the web a bit, I stumbled upon this interesting article. It is titled Adaptive Asset Allocation, or AAA.

I like AAA so far, it is very quantitatively based, and therefore logical, rational and of course comes with less bias-ness than something qualitative. What I also like about this article is that the authors have actually also analyzed the Permanent Portfolio here and here, which in my books, gives them both credibility and knowledge. Their results is very similar to the table I constantly refer to from Mebane Faber's asset allocation post, which is here.

So, in their article, they used 10 asset classes and a variety of methods, mix and matched to produce ideal results. They are rebalancing, equal weighting, volatility weighting, min variance and momentum strategies. I must say though, that the end results looks very tempting. More time and brain power is needed for me to extract out their rules for their AAA model.

In another 2 articles
here and here, they also talk about asset allocation. What I like about these articles are their clear and simple reasoning on their portfolio construction. Lots of data and links, I definitely can spend a fair amount of time here. The comments below are also constructive as well.

And finally, we have a
paper on combining value and momentum strategies together, very interesting stuff. According to them, they have significant evidence to believe that a combination of value and momentum strategies can provide positive alpha to a portfolio. The only thing that doesn't look good though is the high portfolio turnover rate.

I'll take a better look at these articles later, but I still like the first one the best. Of course, wouldn't the winning combination be a bit of everything? I must say though, that the idea of minimal rebalancing, portfolio turnovers leads to lower transaction costs, and also less effort. Both of which, are things that I believe if I can reduce now, will lead me to have a more positive experience and returns in the long run.

Investing with next to minimal effort to get above average returns and a protected drawdown? Sounds crazy doesn't it, but that what I'm going to hope for! I'm super curious about the momentum strategies, especially buy and sell signals. Well, just something else for me to read up on then!

Wednesday, October 9, 2013

MH's Portfolio

So, after those posts on asset allocation, I've being doing some research on the sidelines and I've come up with a list that a Singaporean investor is able to carry out! All this requires is an account with Phillip so that you can purchase the unit trusts. Sure, there's banks and other places that offer the same unit trust too, but they have higher sales charges and some even have platform fees. I do believe that higher expense ratios are a drag on long term performance and should be kept to a minimum.

Anyway, here's the list that I've made so far, still in the works though!

ClassNameTER
US eqdb x-trackers MSCI World Index UCITS ETF0.45%
EAFE eqdb x-trackers MSCI World Index UCITS ETF0.45%
EM eqdb x-trackers MSCI Emerging Markets Index UCITS ETF0.65%
REITsUOB United Global Real Estate Securities1.2%
Global HY bondsLegg MasonWestern Asset Global HighYield Fund Q dis SGD-H1.25%
Global IG CorpSchroder ISF Glb Corporate Bond Fd A Dis SGD Hedged0.75%
EM bondsUOB United Emerging Markets Bond Fd SGD1.25%
Foreign bondsTempleton Global Bond Fund A (mdis) SGD - H11.4%
US bondsJPM US Aggregate Bond A (Mth) SGD (Hedged)0.9%
TIPSFidelity Global Inflation Linked Bond Fd A SGD Hedged0.5%
Commoditiesdb x-trackers DBLCI-OY Balanced UCITS ETF0.55%
Total TER0.85%

So, let's just have a quick summary overview. 

Tuesday, October 8, 2013

Lessons Learnt

Don't trade the US hours, the whole country is broken!

I'm just really gonna wait for the perfect trade set-up. Just going to wait for the perfect set-up nowadays.

Slow and steady, I want to make back my capital and prove that I can do it!

Sunday, October 6, 2013

Technical Trades

Update 10.30pm: AHHHHH, fell in love with the downside, got totally BURNED by the crazy ass US stocks again. From being up 14% today, I'm now only up 3.5%. Sigh, more than 50% to slow and steady head back to my initial capital.

These are my current technical trades:

GBP/USD: Short inter-day trading, pre-mature intermediate trade, exit on price close above 18EMA, get ready for reversal based on regular bullish divergence (hourly)

NZD/USD: Short inter-day trading, exit on first out, but regular bearish divergence supports a further fall down. May keep in play if price closes below 18SMA and still in profit.

Russell 2000: Short inter-day trading, exit on first out. Regular bearish divergence in the daily. However, will still exit on first signal. The markets are funky, and stocks unlike currencies, have a general uptrend bias. Will look for more signs of weakness in the coming days.

Less just do things simple, and we see how things go from here! Money management spreadsheet is up, technical rules are up, now just need my account balance to go up! I will be publishing my results if I can.

Links: Regular divergences and Hidden divergences

Saturday, October 5, 2013

Dumb Money stop being dumb, when it realizes it is

I can't remember where I read the quote, but I think it's very applicable to me. I've been very much using dumb money to do my Las Vegas trading.

After beating myself up over it, I've come up with a few implementations for myself to help improve my baseline and profit margins.

Setting up Command Centre
I've finally got about to setting up my usual dual monitor set-up that I've been all too familiar with for the past 3 years in university. Needless to say, I feel so much relieved and more efficient now that I have 2 screens up and running. I no longer have to alt-tab constantly to check what's going in the market, while looking at other things. This should help me improve by basically allow me to process information more efficiently and also react faster to changes in the market.

FxStreet Live Analysis Room
I accidentally stumbled upon this while looking for some tables as well as research, but I actually quite like it so far. It's a nice atmosphere, and it's good knowing what people out there think, since everyone has different views and analysis. I'll use it mainly to look me look out for set-ups that I might be missing.

Money Management
I have decided to engage in proper money management in terms of my intra day trading. This means mathematically calculating optimized stops, as well as margin used and take profit as well. I should be using a Google Excel template for this.

Technical Analysis Refresher
Realizing that I'm too panicky, and merely reacting to the market so rashly based on crazy trends, I have now decided to totally mechanicalize my thought and execution process. I shall be refining my thoughts and my process here, while possibly actually making an online archive or my trades and their outcomes. Actually, it sounds very exciting, I might just actually do that!

So now that I am down so much money, I am determined to prove that I am able to recover my losses and get back into the green, even if I have to do it slowly and steadily.

Stop losses and mechanical trading!

Leveraging is dangerous

Remember my Las Vegas account?

When I first started, I was down 20% almost immediately. But I managed to catch wind of a fantastic trade and pretty much rode it, as well as plowing in my unrealised profits to even leverage my bets higher, and pulled at at almost 300 over pips. Very prettily came out with about 120% profits.

I added in more capital, to of course increase my profits, since of course this is all percentage based bets if you think about it. I was doing well, on and off, breaking back even to my initial profits after almost a month.

Since the US shutdown news, I've been making HUGE bets on the market, which isn't going too well at all. Who knew that after a shutdown, stocks rally? I got stopped out and about 1 pip after that, the market reversed. Just to piss me off.

From being almost up 25% earlier this week, I'm a steaming seething pissed off guys looking at my capital cut down to just 60% of its size.

Main takeaway from this? Keep stops tight to kick you out when you're wrong, but loose enough not to kick you out from the volatility. Also, the markets are bloody broken, nothing makes sense.

Bad news is good news, good news is great news? Bloody shit.

I think I'm gonna sit out the stock market and just go back to good old currencies with both fundamentals and technical analysis in my favour. Making just only last bet on the stock market, and I'm not gonna bother about it anymore til it starts crashing. Bloody shittt.