How to still get Profitable Return when all Global Stock Markets are Down
In case you lose money from your investment in 2018, whether it is stocks or unit trusts, know that it is not your fault. In fact, your disappointment just by looking at your investment portfolio can be a source of ‘joy’ for some other investors. Why? If you only lose 6% then some people who lost 20% would wish to be in your shoes. However, some sneaky financial people may want to make you think you are missing some investing tactics or strategies. I’m here to tell you they’re wrong. Suffice to say they may have their own reasons for wanting to make you feel you’re stupid, but it’s NOT true. Anywhere you invest in 2018, chances are – you’ll lose money because almost every markets around the world are in red (with rare exceptions like Ray Dalio’s Pure Alpha hedge fund) See table below (source: Bloomberg, percentage return computed from year end close vs the year before)
Obligatory disclaimer from CF Lieu: This write up is for informational purposes only and does not constitute a recommendation and advice to buy or sell. None of the information or analyses presented are intended to form the basis for any investment decision, and no specific recommendations are intended. We expressly disclaims any and all responsibility for any direct or consequential loss or damage of any kind whatsoever arising directly or indirectly from: (i) reliance on any information contained in the website, (ii) any error, omission or inaccuracy in any such information or (iii) any action resulting therefrom. That being said – my credibility in advising and managing investment portfolio comes from the fact that in addition to managing multi-millions equity investment portfolio for clients as an independent financial adviser, I’m also sought after by corporate financial organizations (like fund houses, financial associations and reputable banks)for my investment expertise, to conduct workshops & seminars for their internal staff, whom consists of: CEOs, CFOs, Accountants, Investment Analysts, Bankers, Financial Advisers.
How I went from generating hundreds of percent return per day to being content with EPF dividend rate – this is my story (compressed version)
Back in, well, actually, since 2008, before any of the many stocks investment gurus or trainers you know even exists today, I’ve been personally using complex financial instruments like call/put options in US stock market, where making hundreds of percent return in one night is the norm (without battling an eye). See below. This is not to brag but to let you know I’ve been there, done that. Also to enlighten you that whatever short-term-high-returns-sure-win investing strategies that you are probably using would not be repeatable in the long run. If there are such easy, simple-to-execute-always-winning strategies which are sustainable and highly certain for long term, you can bet pension funds with billions of money would have use it already and generate that kind of astronomical returns. Which is also why I’ve retire from over-complicating or over-thinking about things like fancy investment strategies, how to time the market, which best sectors to invest in now, etc.
A fool makes a mistake and never learns. A smart man makes a mistake, learns from it, and never makes that mistake again. But a wise man finds a smart man and learns from him how to avoid the mistake altogether.
Here’s the Brutal Truth which you’ve come to Realize…
If you make 100% in Year 1 and lose 101% in Year 2, on average you still lose. You’ve just wasted time and energy – going back to square. This really, happens more often than you think. It’s called – Regression to Mean
So you may wonder, what works then?
This is really no secret but here’s our portfolio management approach (or strategy, whatever you wanna call it) that had been yielding our clients a positive cash flow throughout the entire 2018. Note that we I didn’t say return. I say – Cash Flow. Just to set the record straight, investment returns, especially unrealized ones, means nothing if there’s no cash flow. Cash flow makes the world goes round, NOT return on investment. Capisce? OK… It’s like this:
Imagine Scenario #1
You have 1 mil of invested asset which throws out 70k/year of cash flow. As long as you don’t sell away this 1 mil invested amount, at the worst, the price of this 1 mil would bounce up or down (say between 1.1 mil to 900k) but it would still give you 70k at minimum. The more likely scenario though, is that every year – this 70k passive cash flow will inch up. Say from 70k to 72k (3%+ growth) in Year 2, then from 72k to 74k (another 3%+ growth) in Year 3….etc. You get the drill. Your initial 1 mil capital stays largely intact because in those 3 years, the consistent cash flow generated from invested capital is sufficient to sustain your daily expenses without actually needing to touch the initial capital.
Imagine Scenario #2
Compare to this scenario where you have 1 mil, but in you need to withdraw 70k every year for your daily expenses. So in Year 1, after depleting 70k, you are left with 930k. Then, this 930k is being invested but due to market downturn, you lose 10% by 31 Dec. So from 930k in Jan, it is now down to 837k in Dec. In Year 2, say you need to withdraw another 70k, which reduces your capital further to 767k. Say you suffer another 5% loss, now it is down to 729k By Year 3, you need to withdraw yet another 70k, whatever is left (659k) gets invested. Your investment recovers when the market is up 10% – so you now your portfolio is back up 725k. Sounds and looks OK on its own but that’s a huge difference compared to scenario 2.
By now you are curious – Does Scenario 1 really exists? Or just building castles in the sky?
Of course it does, and the cash flow it generates is largely unaffected by the market. And the vehicle achieve that is Real Estate Investment Trust (REITs) REITs are usually known as the alternative to brick & mortar real estate property investment. But ever since we experienced the most devastating market drop since 2008 (see table above), people have been asking how to prevent Scenario 2 from happening to them.
While there’s no restriction to who that will benefit from this, from my experience, these group of people normally find it most useful:
Caged Real Estate Property Investors: Hit a Saturation Point (this webinar will show you how to break out from it)
Cash Flow Focused Retirees: Hunting around for Highest FD rate (this webinar will show you the next best option)
Struggling Investors: No time/energy to do research, Low or Negative ROI (this webinar will resolve these issues)
Aware Students: You want to start but you know nothing about property or any other investment (this webinar will get you started in no time)
Veteran Real Estate Property Investors: Lack of time & Stressed out Managing Tenants (this webinar will show you how to reduce stress & time)
In case you’re wondering if REIT investment capital guaranteed or protected?
Nope – as for any investment, the valuation of the invested capital does fluctuate. After all, it is a sector in any stock market around the world. When the Stock market goes down, it could go down as well and vice versa. But here’s a perspective – throughout history, a ‘down’ stock market will eventually recovers and soar higher. In fact, every stock market in the world always recovers after it bottoms, it’s not a matter of ‘What If’s but a matter of when. The ‘when’ is NOT an problem when you have strong (long) holding power. Often, you don’t lose money in investing because you’re wrong. You lose money because you are defeated & penalized by the market for short holding power, versus what the market expects you to hold. Furthermore, you don’t get better results with more investment knowledge. If that’s the case, all economic professors will be the world’s most successful investor. Instead, focus on investment vehicles which deliver the most consistency with decent growth, with least uncertainties or downside risks. Know how to separate wheat from chaff, the useful info from noise.
This upcoming webinar could reveal the glaringly obvious thought process to achieve the above
But if you are someone who are highly skeptical of this, then that’s OK too.
I’m absolutely not trying to change your mind or beliefs. But truly I feel sad for you because that’s probably preventing you from achieving more in life or in investing. Just like this this guy who trolled us on FB and left us a nasty comment. My team and I don’t reply to these comments. It’s not our job to convince these group of people or convert into ‘believers’. Because if our answer exceeds his expectations, he’ll probably say we’re lying. And if our answer is below his expectation, he’ll continue doing it his way anyway. Either way, he’ll be living inside his own cocoon, and the fact is, only people who help themselves can be helped by others. (hint: don’t be like him) Last point I want to share is – most people try to improve through addition (and increased complexity!), when you’ve really mastered something, you’ll learn that improvement comes from subtraction. MORE with LESS. True, if you don’t come from investing background, then investing is not really a walk in the park. The analogy is you still need to go thru proper lessons to drive a car. That takes a month or two before you can navigate safely and confidently in public roads. But you don’t need to go thru years of rigorous learning how to drive a Formula 1 race car (aka the complicated trading strategies using fancy financial instruments) when all you want to do is to drive from KL to Singapore. Ready to start your driving lessons? Register for an upcoming online web class.