Index Investing - Conservative Investment?

[MrValue]

Index investing?? I only use it to invest my CPF ordinary account and the only ETF index fund that is approved is the Streettracks STI ETF.

I'm doing the same thing, buying STI ETF using only my CPF funds.
But it is a real pity that only Streettracks STI has been approved under CPFIS.

I've been waiting for the other ETFs to be approved under CPFIS, and have wrote to CPF board and Lyxor 2 yrs ago. But the bureaucrats at CPF board still refuse to approve more low cost ETFs

[PassiveReturns]

Hi PR,

As mentioned in my post, i didn't own any index funds or ETFs.
But my idea is to invest in STI & HK index fund or ETF in SGD and SSE index fund in RMB.

Appreciate if anyone can share any info on the above.
Thanks;

I see & thks.

[ag88]

still prefer plain'o stock picking
lost the link but there is a piece of research which shows that quite a number of funds out performed the s&p 500 (substiantial percentage say some 50% of fair/decent grade mutual funds) during the run-up since mar 2009. however, over a v long term say 20 years, it's probably harder to do that but i guess few people stay in a same portfolio of stocks that long

the logic is that in a big index like s&p 500, if u can choose perhaps a subset of that which perform better it would have already beat the index. so that's quite easy, no need to be a really shrewed stock picker.

the logic of stock picking vs index investments is that it enforces a discipline to research the background/financials of the company, the business etc for FA based value investing, which accordingly is good for value investing success

just 2 cents

[PassiveReturns]

I hold a slight different point of view.

I read in quite a number of books, and all cited that, many studies have been conducted and been arrived at the same conclusion - it is very very difficult to beat the market in general, over a long haul of time.

If this is so, I think it is better to stick to the unbeatable - the market index itself.

Furthermore, since huge amount of time and effort need to pour into researching potential outstanding companies, but may not yield a great difference from Index Investing, I may as well spend them on other better opportunities.

Hence, for me, I think Index Investing is a very attractive and smart way to grow our wealth.

[yeokiwi]

There are some great examples here in this forum that did very well in active stock investment.
Dydx, d.o.g. and many others.

d.o.g. had revealed his fund performance and I think it is great.

Index investing still requires proper fundamental analysis of the index stocks and the long term prospects of the particular sector that the index fund is targeting. An investor that invested in Japan index funds in the 90s probably would not get very far till date.

The last 7 years of Singapore stock market is blessed with incredible economic growth that is unlikely to be duplicated again(Hopefully, I am wrong haha...). Those who have invested in STI index in the last 7 years will probably beat many people that did active stock investment or trading. But, going ahead, I am not so optimistic to see STI at 5,000 pts.

Stock picking is quite a good hobby and contrary to what people believe, it is not really that much of a hassle to gauge the fundamentals of the company.
Anyway, just like index investment, stock picking still requires some form of diversification to reduce the risk in any one of the stocks going underwater

[PassiveReturns]

yeokiwi, I think I can't dispute what you have said. I think it's more of a personal choice, haha. For an average investor like me, I think index investing is much more suitable for me as I do not have much time (and maybe more lazy) to do intensive research on individual companies. Anyway, trying to beat the market is not the main aim of my investment purpose, but I do hope I am able to create some wealth along with the general market performance.

[Musicwhiz]

Stock picking is quite a good hobby and contrary to what people believe, it is not really that much of a hassle to gauge the fundamentals of the company.

Haha yeokiwi,

Well I view stock picking and selection as an intellectual exercise, and it's really very stimulating for the brain. Of course, the ultimate aim is to generate a decent return on investment, but if someone were to ask why I did not just stick to index investing, I would reply with what I said above.

And also, I disagree that it's not a hassle to gauge fundamentals. It takes quite a bit of digging and study to determine if a company is really worth investing in. Just my own perspective.

[yeokiwi]

Hi MW,

Your stock analyses are very thorough and detailed that are much better than many paid analysts. For my case, my analyses are much more simple(current PE, estimated forward PE, current NTA, hidden NTA, management quality and most importantly, DIVIDEND!).
My simple analyses are complemented by holding on to as much as 25-30 stocks at anytime.

With a larger stock count, even with one or two failures in stock selection will not seriously affect my networth.

The overall performance of this strategy in the last 8 years is pretty awesome to me.
I had calculated that even if I had saved all my monthly salary and not spent a single cent from the time that I entered work force about 13 years ago, I would not have achieved the networth that I am having now.

[thinknotleft]

HI valuestalker

I have toyed with the idea of buying ETFs before for emerging markets, but I give up after learning that CPF cannot be used for most ETFs.

Nonetheless, if you are interested in passive investing, it may be better to look at larger geographical areas such as Asia-Pac, Europe, USA, Emerging Markets (EM) etc, and not our tiny Singapore (or STI).

As most unit trusts underperform their benchmark for EM, I was very interested in using CPF to buy the EM ETF at one point.

Another idea you may wish to consider is to buy (or switch to) markets with lower valuations. Fundsupermart do post their derived PERs of different geographical website in their website from time to time.

There are other discussions in this thread on index/passive investing vs self-active investing. Personally, I see index/passive investing as additional diversification in the geographical dimension, since I mostly purchase stocks listed in Singapore. It will be difficult and time consuming, if I extend my stock selections to other stock markets. Hence, I see index (and unit trust) investing as additional diversification geographically to my portfolio.

[valuestalker]

Hi thinknotleft,

Yes, I agree with you.
For me, i want to expose myself to China & Hongkong market due to Mr. Market's depressed view on property bubble in China.
Eventually, if you look holistically, China is and still will be the fastest growth in at least next decade.

Sadly, i still can't find any China index fund or ETF denominated in RMB.

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Hi MusicWhiz,
Agree with you also.
Investment should be simple but NOT necessarily EASY.
That's my idea of investing in market as a whole.

I did bottom up investment also, but mostly for Indonesian companies.