The first half of the year is almost gone and doomsday never
arrived. Instead, stock prices continued to make new highs. A parking spot in Hong Kong gets sold for a record
HK$5.18 million (US$664,300), costing more than some Hong Kong homes - and housing there is already the least affordable in the world. A new 100-year Argentina (one of the most regular defaulters in
history) sovereign bond apparently was 3.5x oversubscribed. Investors simply do
not believe in the Fed’s hawkish zeal, and so the party continues.
Anyone who remained invested in the market should have seen pretty
decent returns so far this year. I thought I was totally nailing it, until I
generated some numbers to see how I stack up against the index:
My report card (as of 28
June 2017):
The blue bar is the XIRR of all cash flows from Jan until 28 June
for my portfolio (I'm slightly bemused that it's such a nice round number), while the red bar is the annualised year-to-date return of
the SPDR STI ETF. It is indeed disappointing to be lagging the index, and after some scrutiny I attribute it to poor timing - buying in too early. Clearly this result explains why there has been raging debate over active vs. passive investing.
With hardly any yield on cash and limited avenues to generate returns, for
the common retail investor at least, this long upcycle has likely resulted in
most of us being long and overweight equities. The slow nominal growth however,
induced us to complement it with an income focus (thus the popularity of REITs
and dividend stocks). A quick browse through of the local finance blogs and
sell-side research reaffirms this view - and leads me to
wonder if everyone has the same positions. In fact, it’s my biggest worry now,
especially with the pervasiveness of passive index investing. Downside has
actually risen, as any sell-off would lead to everyone trying to get out of the
same door at the same time. (Meanwhile, upside is limited with everyone having
bought already.) You may argue that you are in for the long term and will ride
through the cycles, but how confident are you that you will not hit the panic
button when shit happens, especially when money can be pulled out with only a few clicks? To be honest I’m not that confident myself. Plus, my emotional control hasn't really been put to the test yet. I draw comfort though from the knowledge that I do not depend on my portfolio for liquidity. Do read this post on spare cash by GoHuat if you haven't.
Cheers
YoloHuat
Source: Singtel 
