Ep 78: 3 Types of Investment Strategies: Which Fits You?

Okay. So there are many, many different strategies. I do not want to narrow to say everything is down to this three, yeah. There are many different ways. And even within this three general big groups, there are many, many different subgroups  because of varying ideologies and, you know, varying strategies and whatnot.

And before we begin, I just want to segregate the idea of trading versus investments. So I see them very differently because to me, trading is a kind of work, right? So it’s an ongoing kind of work that you got to keep up with. You’ve got to track the market, you’ve got to do a lot of those things.

So to me, trading is a skill, it’s a job, you know, you’ve got to do it.. So yeah, kind of like self-employed. But when people invest, the central ideology really is to just kind of buy into something and wait, wait for the thesis to play out, wait for the asset prices to go up and invest. 

So put your money to work and not like work alongside your money, all right. So to me, trading is a whole different class of discussion and I separate them out. So I’m not saying traders are not like doing a good job with their money. I’m just saying trading is very different from how I see investing, which is essentially just putting your capital into different places. So invest your money, shepherding your capital. 

Also, I’m really happy to more and more people are talking about this, like talking about money, talk about finances and investing. At least that’s the general vibe that I’m getting from, like, you know, random CNY gathering, which is great, right. Cool stuff.

And I hope the podcast has contributed to that. But more importantly, before we talk about investing, I want to kind of remind everybody that, hey, you must have your emergency funds together, your savings, have your basic term insurance, have a stable income, right. All these are fundamentals. They’re very, very important. And if you have not checked out the earlier episodes, the legacy ones, you can scroll all the way to the front, the first 10 episodes cover a lot of these kinds of stuff. And to me, why I think that was very important, because I drew from my personal experience. So when I first started investing, I had $30,000 sitting around.

And I jumped in with 15, right? So $15,000 into the market. And I literally was relying on a friend to kind of click my first trade and turns out my first trade was an options  contract. And I Iater learned that…siao siao ah, that is pretty crazy, man, because I barely knew what I was doing. And this guy was a lot more seasoned, just decided to execute an options contract for me, which is a derivative, right. And that’s a different discussion another time.

But through that process, I had a lot of sleepless nights wondering what’s going to happen, right. Because dude, I barely knew what I was  doing. And I only had $30,000 and I have half my life, essentially, half my net worth was in the market. And I didn’t know what was going on. 

So I’m not telling you to pick your own stocks or execute options. I’m not saying that those things are not good, but I’m just trying to say that if you have not sorted out some of these fundamentals of like having your basic income, your insurance, your savings, et cetera, it’s very hard to sleep la, right? Because it’s like, you’re putting everything, your life in it, which is why a lot of people become very emotional, there’s a lot of FOMO, and there’s a lot of drive and eager to, to just kind of make it work, all right. 

So I want to make sure that everybody sorts out their basics and then, you know, invest with your spare cash and your life is way, way easier. So I’m a pretty big advocate of sorting out the basics before you invest. So after you sorted our your basics, you have all these extra cash sitting around and you feel like, okay, yeah, I’m going to get started. I’m going to start to invest my money and make it work for me, right. So then you have to decide what kind of strategy to use.

So amongst all the strategies out there, I feel that generally they sit into three groups. And the first group of people that we’re going to discuss are the stock pickers. So it’s like, I pick my own stocks. I’m not very active anymore because I’m so busy doing all the content and then my co-founder also pick stocks also, Chung.

And then, you know, some of our friends pick stocks, I’m sure you’ve heard a lot of stock pickers that come onto our shows. And that’s amazing, right? So whether you are picking growth stock value stock, dividend stock, whatever, does not matter, because those are just based on your thesis, but the very basics of picking stocks have some commonality and some of the similar work that you have to put in, right?

And if you want to be a stock picker, you need to realize that at the very very least right, investing will now become a part-time job, okay? So like I said, traders are a very different bunch of people, right. And traders, they do it very actively. So there’s a lot of monitoring, a lot of things that they need to look into.

And to me that is very active income. So it’s kind of like a full-time job or like a second job. But if you want to be your own stock picker, right. You now have to kind of see investing like a part-time job, right. Means you have to do your homework, you have to study. It’s kind of like studying part-time or kind of like running a side hustle on the weekend at the very, very least.

So at the very, very least to be a stock picker, right? You need to be able to read financial reports like companies’ annual reports, and you need to be able to understand financial statements and you need to be able to make some basic evaluations. Of course, understanding the business, understanding their modes, understanding the sector.

If you can be even more hardworking, you can go read up on some of the management, what did they do in the past and what is kind of their track record? Did they meet the basic requirements or becoming good management? So there are many, many small little points. And we’ve talked about this pretty extensively. You can check out episode 36 and 56 for more information, but most importantly, you need to understand that in order to pick a stock, the fundamental belief is that you are trying to buy into a business through a stock market. 

So in order to buy into a business, you need to be able to understand the business behind it. You cannot be just randomly buying a ticket, right? To me, that is not investing la. That is like, you know, taking the casino online. Which as what a lot of the older generation, they do. They just buy something they’re very excited about it la, buy SQ la, buy Sing Tel, cannot die wan. I’m not advocating that kind of random buys, but more importantly is if you want to be a stock picker and you truly believe in the whole idea of picking your own stocks and buying into good businesses, you need to do your homework.

It is not a simple thing that you just stick it and run. So this way of investing really only works for people that are very diligent and genuinely interested in business and finance. And most importantly, actually has free time after work, or if you’re still in school, right. Has free time after school.

Because the thing is for many people that… for us, right, we are all young, 25, 35. Most of us are around this age and we’re in our early days of trying to carve a career. Meaning, right, we don’t want to stay a minion forever, right? We want to want to progress into management and find something that we can, you know do very well and make progress.

And in order to do that, we actually have to spend a lot of time improving ourselves, right. Reading stuff in our sector, going for relevant programs or networking, joining associations, going for events, you know, you know, like the work out of work. So dude, man, it’s like extra part-time work already. So for many people that are trying to carve their career, they will find it very hard to pick stocks and this may not be their best choice.

It can get really, really tiring, but okay. If you choose to do so, it is not impossible. You just got to recognize that you got to take time and, you know, make it progressive, like be chill about it because just to give you some context, I picked my 10th stock about a year into my stock picking journey.

That means within the first year I only picked 10 stocks. I took a long time to like, just study the company one by one, of course I didn’t have a lot of money la, so a bit scared also when I first started. So I picked really, really slowly and mind you, I had a lot of free time at that point in time. So my first few stocks were like Starbucks, Facebook, Disney, which I still own today. So yes, humble flex [laughs]. 

Stock picking has its learning curve. And it is true that if you pick good stocks, they can benefit you very well over a longer period of time. But one thing I want to note based on my interaction with many of you guys is that a lot of people are telling me that, hey, I will put my money with the robo-advisors first.

And then meanwhile, I learn how to pick stocks and then I transit into, you know, stock picking or, you know, I will pick my own ETFs first and then transit into stock picking. Okay. I don’t think  that is a bad strategy, but I need you to recognize that there is no skill sets transfer in this process, right?

You’re not going to become a better investor just because you put your money there and then try to pick socks. So stock picking is a very different skill set, and you’ve got to be able to study companies. Most of the ETFs are a lot more macro in terms of the skill sets that is required and the knowledge that is required.

So it’s not exactly transferable, but I don’t think it’s a bad way to start. Just recognize that there is no advantage for you when you invest in an ETF market and then think that, you know, you’re going to be a better stock picker just because you have already invested in the ETF market. 

Which brings me to the second kind of investors that you can become, which is to be that broadly diversified ETF guy, the macro big guy. Okay. So I want to clarify that broadly diversified does not mean equally diversified. You can have 50% in a Singapore ETF, and then you can have lay another 20% in a US ETF and other 25% in Hang Seng ETF, depending on what you are trying to do.

So it can spread across geography. It can spread across sectors and there are many, many ways to do it. It is not as simple as just buying an index fund, right? So there are a lot of ways to go about using various ETFs. Of course, the fundamental is the index funds. You’ve probably heard them here and there, but what I’m trying to kickstart this point and to clarify is that you still need to form your own investment thesis for this, right? 

So there’s still some work going into this. You still need to understand some of the investment basics. So one of the best ways to start, if you want to be that broadly diversified ETF guy is to just go and look at what the robo-advisors are providing. So they will have their own composite.

They will buy different, different ETFs based on their investment ideologies. Or you can also go and look at some of the big guys, right? So like Dalio, Ray Dalio is huge in the space and all the big guys will publish their investment thesis and their investment  allocation. So the different ETFs that they buy, because most of them are macro and you can just go and see what do they buy and use that as a good starting point.

There are also a lot of articles out there that kind of analyze their portfolio. You just put “Ray Dalio’s portfolio” and then everything comes out and then you can just kind of maneuver your way from there. So that’s a good place to start. Importantly, you need to understand that to be an investor in a broadly diversified ETF strategy, there are a few things you need to understand. 

Okay. The first thing is that there are actually still many, many ETFs. So while there are many, many stocks, there are about 7,600 ETFs out there la, so it’s still not a walk in the park, okay. You still need to go through and you need to learn and there are two major ETF groups out there, right?

One is your index funds. The other are your theme funds. So index funds, I think we talk about it pretty extensively. It is really about copying the broad stock market index, right? So like we in Singapore, we have the Straits Times Index, which is 30 of the top companies in the Singapore stock exchange.

Or we have S&P 500, which is like the “500 of the best US companies,” you know, blah, blah, blah, and then Hang Seng, which is a Hong Kong index. So yeah, all these different index are just trying to give you an aggregated information of how the stock market is performing. Kind of like, you know, how many distinctions in school or like the average performance in the company, they are merely measurements la, right? 

So you cannot actually buy the index but you can buy the funds that are copying the index. And we’ve talked about this. You can check out episode 30 to look at some of the basic pointers in choosing index funds. So essentially our fund measurement companies that put together a fund, that’s trying to copy the index. So this is usually the base of most of the broadly diversified ETF strategy. 

And the other big group of funds in the ETF space are your theme funds, right? So from your healthcare sector funds or your energy sector funds, or the very famous Ark investment fund, you know, there are different, different themes and they’re all backed by a certain belief, right?

So whether is it trying to get all the healthcare companies or trying to get all the energy companies or trying to, you know, find disruptive technology. So different, different funds are thematics and they get a little bit more complicated, based on their wastage, based on what they’re trying to do and based on their fees.

So I’m not going to them specifically. I think we’ve talked about this quite a bit across the different, different episodes, all the investment episodes, you probably hear a little bit of them. But one thing you need to note is that you definitely need to read the fund write up, right? So they will have their fund introduction. What is their investment ideology and check out the fees. 

So some fees can be pretty expensive, like 0.8%, you know, 0.7%, 0.6%. which is pretty, pretty expensive. But most of the theme funds are around that range. Okay. So usually in a broadly diversified ETF strategy, that will be a mixture of index funds and theme funds, a little bit of bond funds, depending on different, different stuff that they buy.

So you have to build your own investment strategy that way, okay. But who actually will this benefit the most? So I think the people that will benefit the most from this strategy are your what I call intelligent generalists, which means the people that are happy to do some reading, actually interested to try to figure out what’s going on, but don’t want to spend the whole day, you know, like stock pickers, you know, actively have to sieve through one by one by one. People who will read The Economist, happy to read The Straits Times, Business Times, you know, listen to podcasts like yourself.

So I think most of us are what I call the intelligent generalists. People that are willing to learn different, different aspects. And this strategy probably fits a lot of people. And one of the benefits, some of the benefits are it’s definitely cheaper. So relative to whether is it your robo-advisors or looking for financial planners to help you do your planning, if you can do a little bit of work and try to read up on these kinds of strategies and read up on the various index funds and the theme funds, the cost to buy an index fund. Very basic ah, the index fund  strategy, the cost to buy an index fund is maybe 0.04% of your capital size. Meaning if you invest $10,000 in an S&P 500 index  fund, youpaye $4 a year.

So it’s very, very cheap, right. But if you don’t want to do the fund thing, you don’t want to read up and learn and whatnot, you can always outsource the work, right? Find your fund manager, look for your robo-advisors, look for your financial planner and they charge a range of 0.5 to 5% a year. So yeah, you get an idea, right? 0.04% versus 0.5-5%. 

So if you outsource work, definitely you have to pay more. But at the end, at the fundamentals, they are also picking ETFs, just that they’re professional and they have a professional team to do it. So I think if you are the kind of person that is interested to read, interested to, you know, stay on top of what’s going on in the world and happy to learn some basics and choosing your own index ETFs or your index funds, then great for you.

I think this is one of the best strategies and although I’m a stock picker, I actively push this strategy because I think most people will fit this strategy. But of course, if you’re trying to, you know, beat the market and be very active in terms of trying to build your own portfolio and pick your own stocks, hoping to kind of compound for the longer term, then yeah, stock picking is your thing.

But for everyone else, I think most people listening to the podcast will fit this way of investing, which is your broadly diversified ETFs. And the last strategy for most people that’s trying to start investing, it is the robo-advisors and AKA, you are not an investor when you put your money with the robo advisors. 

Let me clarify. Okay. So I think a lot of times when people think they choose to put money with their robo-advisors, right, they think they’re investing. But actually you are, you’re essentially outsourcing the investment work, right? So you have this bunch of money sitting around, but you’re so busy, you have no time to do all these things and you have no interest in trying to read up index strategies or ETFs, or pick your own stocks, because those things are extra work, right? You want to spend time with your kids. You want to spend on pursuing your career. You want to, you know, do whatever you want to do. And you genuinely have no interest in being an investor.

But then you keep hearing people say, hey, you should invest, you should invest. So then if  you are that kind of person, then I think the robo-advisor strategy works perfectly for you, right? Because you’re essentially just outsourcing your work. Of course, fundamentally you have to pay a little bit more, right? So the fees are a little bit higher. But my thoughts are, if you are that kind of person, you have some extra cash, just go with the robos.

Why? Robo-advisors have done an amazing job in terms of trying to lean down their operations, lean down their compliance process. You know, you could just download an app, sync your info, and then ta-da, things can just happen like that. So you don’t really need to do a lot of work and all these definitely, you know, what we call in the financial world, it’s called the middle office, the people that are doing all these paper work, that are clearing all these things, right. They are bridging the front office and the back office, right. 

Essentially you cut out all these guys and then you can hire a very sophisticated bunch of investors or like fund management kind of people, the top of the top, to share their advice across a much broader group of people, because of your apps, because of your centralized managed strategies. Which is what a lot of financial advisors or financial planners cannot do, okay. For lack of better way to put it, I’m not against financial advisors, but the general FAs and FPs out there, they cannot rival the investment rigor of a lot of these guys that are working in the robos. 

They just generally cannot afford to hire this kind of top talent, because what really happens when you invest with like, your FAs or your FPs? They have a marketplace on the back. After you put your money with them, they or their advisory company will go to the back end and then pick the different ETFs for you. So they will pick the unit trust, they will pick the ETFs, whatever, for you. And so they essentially act like an investment analyst and they do all those things for you.

But actually, they spend most of their time doing sales. They spend most of their time reaching out to people, which is not a problem, but that’s a skills difference, right? You want people that is doing your investments that are good at investments. They are not like good at doing sales or client servicing.

So to me, robo-advisors changed this whole landscape of people that are just trying to outsource a non-investor investor. And yeah, I think they are giving the fees that the traditional humans cannot give, because humans need to feed their family, for lack of a better way to put them. But this way of doing investing is probably one of the best ways for most people that are just trying to start up to invest their money but don’t really want to do it extra work. 

Of course, there are also problems with robos, and I will talk about that next month where we focus on digital finance. And I think there are some problems. Based on personal experience and based on what I’m observing, robo-advisors do have some general problems, but it is not about the human touch. It is not about being close with your investment advisor, because those things don’t matter. 

When I’m choosing an investment advisor, I’m choosing an investment or a company that’s trying to manage my money. I want to choose for brains, not for the human touch, not for the shiok, not for the comfort. I want to get the best people and robo advisories at this moment in time has given some of the best rigor for the cost associated with it. Which is why I think if you have some money sitting around and you want to invest but you don’t know where to start, and you don’t want to put into the work, you’re not interested to learn all these things, then go for the robos, outsource the work and pay the little, little fee. That’s great. 

With that, I hope you have a clearer idea of the different strategies that you can go about to start your investment journey. And number one, we’re going to reiterate, right? Number one is stock picking, right. So if you want to pick your own stocks, you got to recognize that you’ve got to read financial statements and grow your business acumen and, you know, kind of do the work.

But over time, maybe the upside potential is a lot more serious because personally, I’m a stock picker, and I think I’ve been having a pretty good ride over the past few years. And I’m very happy to share with you my portfolio, just come to the Telegram group and ask. 

Number two is to go for the broadly diversified strategy. Broadly diversified ETF strategy. And that will entail you to, you know, understand some of the macro trends, understand index funds, and it’s not as complicated, but you still got to do some work, so perfect for the intelligent  generaliss that is happy to read The Economist, New York Times, Straits Times, and listen to podcasts.

That’s why I’m very active in pushing the strategy. You can go ahead and learn from Ray Dalio or different  different guys, just go and search on Google and you will find a lot of pretty good resources. And number three is just go for the robo advisors, be a non-investor investor. Why do I say so? Because you’re not actually doing the work, you are outsourcing to quote unquote, the current best people for the retail guys out there today. So I hope based on this short little 20 minutes, you have a clearer idea of what kind of investor that you can potentially be and create that life you love. Take care, see ya!

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Test test. Awesome. Yes. So I actually came back to the studio to record this episode because there were so many people that was just asking, how to start, how to start, how to start. Then I realized, oh dude, I’ve talked about all these different ways to invest, but I have not really kind of filtered down who will fit what strategy. 

So I hope after today’s episode, you have a much clearer idea of who will fit what, and find your way of investing or not investing, kind of outsource it to robos. So all these being said, it is not hard and fast and I’m not a professional, right? So that’s something that you need to know. I’m not professional, everything is for education and entertainment purposes only, but generally this is the current strategies in the market.

So I hope you learn and find the way that you can invest and live the life you love. Later this week, we have another great friend of mine that is coming on to talk about stocks once again. So I’m a big stock picker. So a lot of my friends are coming on to talk about stock picking and he will talk a lot about, you know, valuations and trying to understand companies.

And he actually has a very different strategy, because he only has 8 to 10 companies at any one time. So very concentrated strategy, not like Ser Jing, Ser Jing pretty broad. I’m also pretty broad relative to him. ‘Cause I got 30 companies, he got 10. So it’s very different and I think he has some good insights for all of us.

And see you later this week — book review I pushed to next month la. [Laughs] Take care, bye! Happy Chinese New Year.