Tuesday, September 8, 2020

If I Had To Choose - STI ETF or One of its Components?

It has been a while since I wrote so often.

While I talked about the Risk of Investing in ETF in the last post, I particularly mention about STI ETF. So I thought I should clarify my position and also address a particular question that I believe members of my Fundamental Scorecard Telegram Group will be interested (And maybe you who are reading this post).

While everyone is busy looking at the US market tonight, I am writing about STI ETF. While everyone is raving about S&P 500 rising from the dead, here I am writing about STI ETF which is trying to go lower everyday.

To start off, I don’t disagree in investing in US markets now. In fact, I encourage it. But one must make the purchase with the mindset that “this could be a permanent loss of capital” (Atas sentence cause I watched too many Guru Youtube lately). So you should only press the buy button IF you know the company well enough. This has also been what I have been preaching to everyone in the Fundamental Scorecard Telegram Group.

On a side note, I already place my GTC purchases last Friday. So everyone can rave about the US market tonight, I shall stay away from the noises.

So back to the main topic – why mention STI ETF?

Let me go back to Warren Buffett's most famous phase – Be fearful when others are greedy. Be greedy when others are fearful.

Now that everyone is ignoring STI and even SG market, maybe it is time to look at them again. That’s all. I am not saying you have to make purchases, but I am telling you to consider them now.

Obviously, it is not only what Warren Buffett mentioned. It is also due to 3 particular reasons.

1. SG Blue Chips ranges between low and high – Yes this is what I am saying. SG Blue Chips tend to ranges between high and low. There are many reasons behind why it ranges. But if you pick any SG Blue Chips, you will probably see the pattern. Then again, we have some like DBS that just rise and rise – that is an outlier.

2. Buy low and sell high. - Do I really need to explain this?

3. We will Bounced Back - If you don’t believe that Singapore will rise back, then are you saying, you will lose your job soon and the Singapore economy will collapse. Nevertheless, the Food court at PLQ still has a lot of people today. Bubble tea is still striving. Orchard Road is still packed. – So yes, we will bounce back.

So, this goes on to the next S$1000 question that I have been thinking - whether to add more of the SG Blue Chip (that is already existing in my portfolio) or STI ETF?

Do note the pre-requisite of the question above is that you must have an existing position of a component of the STI ETF in your portfolio.

The answer lies in my last post and my belief stated above.

In my last post, I said there are systematic risk in investing in ETF. If you chose the ETF route, you have to accept the risk. 

As mention above, I said my belief is that you should know your company well before buying.

Thus, if you don’t know the 30 companies well in the STI, why purchase the STI ETF? To diversify, you can DIY? 

The only reason I see someone who should invest in an ETF is because he/she already have their hands full and like to take the easy way out or just want to take the easy way out. Hey, there is nothing wrong with that. You can watch my youtube video here where I use 6 questions to explain how one should invest.

Furthermore, if you look at the components of STI ETF, DBS contribute 16%. Right now, in my portfolio (Yes I index my portfolio), OCBC also contribute roughly 13%. In my experience it is VERY HARD for an index to rise if the significant contributor do not move UP.

So with DBS being the outlier of the STI (even the SG market), do you think it can shoulder the burden of lifting the other 29 SG Blue Chips, especially companies such as Singtel, Sembcorp Industries, SIA, Hongkong Land, Genting Singapore and Dairy Farm?

Ok – You may counter this argument that there are other rising stars like Mapletree (whatever) Trust and SGX. But I generally believe there are more weak companies (especially during this Covid-19 Pandemic) than strong companies.

With that I hope I made my point across. If there is a need to choose, I prefer to average down in an existing SG blue chip now rather than buying into the ETF. 

However, if you hold on to the STI ETF instead and have a DCA strategy, you may want to Double Down during this period WITH GOOD BUDGETING. Please do not eat Maggie Mee in order to double down.


If you like to join my Fundamental Scorecard Telegram Group, please find the link in my previous post.

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