Common Sense Investing (CSI) 

A tribute to the legendary investor and original creator of the index fund, Jack Bogle.

“If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle,” Warren Buffett once said.

I found a lot to like about The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns. 

Mr Bogle was the founder of The Vanguard Group and is famous for creating the world’s first index mutual fund in 1975, the Vanguard 500 Index Fund. The logic of his index fund was to invest in a large number of stocks, all the stocks comprising the S&P 500, to make money from the combination of their growth and dividends. 

This is a departure from the more common view of investing in undervalued stocks to make money from an increase in their stock value.

His secret to investing is there is no secret. When you own the entire stock market through a broad stock index fund with an appropriate allocation to an all bond-market index fund, you have the optimal investment strategy. Discipline is best summed up by staying the course.

I prided myself as a Common Sense Investor and I will give you my take on Common Sense Investing.

Common Sense tells me that most, if not all forecasts are wrong

With the start of 2019, comes the usual "stockperts" on stock market forecasts for the coming year. Just like every year, rest assured someone is going to quote the usual DBS/UOB/OCBC, Sats, STEngine and Singtel, just like the past 10 years. Certainly, this year REITS will definitely GG.

My problem with analysts and most fund managers are that it is becoming common knowledge that all forecasts are wrong; Return forecasts over time frames like one year or less are not able to be relied upon.

With ultimate full confidence, they explain what stocks to buy, when a recession will come along, what the Federal Reserve is going to do, and when the market is going to tank.

In fact, there are folks who tabulate the analyst's prediction. Anyone who uses these forecasts for investment decisions should seriously reconsider their investment process.

In order to remind you why you should be ignoring the 2019 forecasts, let’s consider some of the more shocking predictions of 2018:

S&P 500

The median forecast price for end-2018 had been 2,950 points, for a 2018 calendar year return of 10.3%. 

The realized return for 2018 was -4.38%.

You should be happy if they can even call the direction of stock markets correctly. 

For the S&P 500, strategists have gotten the direction wrong in 11 of the last 20 years, meaning they are right only nine times out of 20. They are basically no better than the flip of a coin when predicting the direction

https://ycharts.com/indicators/sandp_500_t...

Bitcoin

Crystal ball-gazers had predicted that bitcoin would rise to US$75,000 (560 per cent return) by end-2018, and to US$750,000 (1,000 per cent return) by end-2019.

At the end of 2018, bitcoin stands at US$3800 (-70% return).

Politics

A lot of folks claim that "Kee Chiu" will win, but we have an interim winner in Ah Heng.

Gold

Peter Schiff is an investment manager, author, media personality, and outspoken advocate for investing in gold and has been forecasting gold at $5,000 an ounce since at least 2010, based on his prediction of a huge surge in inflation. (It now trades at about $1,238.)

SGX

At least 100 participants took part in TII 2018 SGX's forecast, only 8 came out green.

To be clear, I don't claim that I can predict the stock markets any better but why should any investor waste time with such futile exercises? My advice when you see a forecast: Mark it down on a calendar then come back to it a year later. This lets you review how good or bad it was. It’s a great exercise in accountability. Anyone who claims to be able to predict stock markets over the coming year is, in my view, selling snake oil. 

Common Sense tells me Singapore REITs will not go under in 2019

Singapore REITs has had one of the worst performing years in 2018 with only a few (iReit, Dasin, FCT, MCT and CMT) out of the 45 REITS/Trusts posting positive returns. However, if there is any consolation, it is that REITs have continued to prove that they are more resilient than the STI if you add back the average dividend yield of 6.3% as compared to the average dividend yield of STI stocks of 3.4%. 

While I still keep track of SREITs to deliver performance based on growth in revenue or NPI or Distributable Income, I am also watching their ability to grow on the DPU. In the DBS Reits 2019 annual report, the Year 2018 has been a record year for acquisitions with the SREITs collectively acquiring close to S$10bn worth of assets.

This will partially drive a projected acceleration in DPUs from 1.9% in 2019 to 2.3% in 2020. 

Supporting higher DPU growth is a cyclical upturn in rents across the different property sub-markets as supply pressures ease, offsetting headwinds from higher borrowing costs.

FED is set to increase interest rates twice in 2019 in line with consensus compared to a more hawkish four hikes before. 

The more dovish FED will set the tone for SREITs to perform well in 2019, with an expectation of compression in yield spreads. The average debt cost for SREITs has also changed very little from a year ago, thanks to a competitive

lending environment and a high proportion of fixed debt.

Common Sense tells me to buy the dip, seriously do not work.

It is always depressing for most investors who prefer a smooth ride to a turbulent one. But volatility is a necessary condition if you want to deploy a strategy known as buying the dips or BTD.

The rationale is simple, the best way to make money in the stock market is to purchase excellent companies and keep them as long as possible. Sell only if you need to cash out. When you buy a stock, you should think of yourself as a partner in a business. Wouldn't you rather pay a low price than a high one for the shares? If you take a long view and you believe in the company, then you should love a low price.

BS, period.

If you have seen the 10 year challenge for SGX AveJoe has compiled, we have big boys in Wilmar, Sembmarine, SPH and SIA. Buy blue chips and the best way to take advantage of a BTD strategy is through Dollar-Cost Averaging is really a laughing joke.

It is not just home biased, Mr Market often offers a low price as a signal that something terrible and irreparable has happened to the business. It happens in the US market too. Take General Electric (GE) for example. At the start of 2018, it was trading at $32. By Jan 2018, it had fallen by half. If you had bought on that dip, you would have suffered a big loss.

Others include Schlumberger Limited, the oil service giant which has dropped sharply over the past four years. Tech stocks are not spared. Does APPLE present an excellent BTD opportunity? 

Symantec, the cyber-security giant with a PE ratio of 13 are down by one third since Oct 2017.

The decline brings to mind another Wall Street cliche: trying to catch a falling knife.

Summary

Just to sum it all up, today with all the craziness surrounding value investing, it is important to be reminded of the basics of investing. Jack has a simple message "buy the stock market and hold it". 

While this approach may not be appropriate for all investors it is probably the best approach for the majority.

Until Next time, k tks bye

Grandpa

Original Post: https://www.investingnote.com/posts/1220317