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I am typing this as I am about to leave this oil-rich Middle East Kingdom. For those of you who may not be aware, unlike many of us, the locals here don’t have to worry about retirement because their country which is bestowed with the abundance of oil wealth will take care of them when that time comes. In fact, there is a “reward” for them if they manage to work for 20 years before they retire. The government will give them a perpetual pension (almost equivalent to their last drawn monthly pay). I guess their government uses this to incentivize their citizens to join the workforce.
Furthermore, many of their major expenses in life like an overseas education for their children and healthcare will be taken care by the government. So, it is not surprising to see many of them driving big cars (by the way, petrol is only a fraction of the cost in Singapore), wearing luxury (i.e. expensive) watches, clothing and having the latest IT gadgets in hand.
When one doesn’t need to worry about the retirement or major expenses in life, then delayed gratification is a distance concept. Well, like all things, nothing comes free. It has its own downsides too as we know the complexities of the issues in Middle East and the danger of over reliance on oil revenue.
Anyway, I do feel a bit nostalgic at this moment as I am not sure if I would be coming back here again. This probably explained my exceptional moody feeling for this trip. Contrary to what the Western media tends to portray them, I find the people here are generally very warm and passionate. Some of the people whom I worked with surprised me with their high work-rate and relentless drive. They really stand out from the crowd. They must be driven by a strong internal self-motivation and pride. Some have become my good friends and I will miss them. Well, no one knows the future, so I will take one step at a time.
Life had been very busy while I was here … like most business trips do. So, there wasn’t any spare time to watch the market or perform many trades. But from the glimpses that I got, the markets continue to climb. US, HK, Singapore … you name it. I always wonder what drove them higher and higher. Market momentum?
Recently, I read this article in CNBC – “Fear of Missing Out” or FoMO in short. It talks about investors who are afraid of missing out on the current market price surge and thus they have been pouring record amount of money (US$ 58 Bln to be exact) into the stock mutual funds/ETF in the last 4 weeks. You can read the details via this link: https://www.cnbc.com/2018/01/19/fear-of-missing-out-peaks-as-mutual-fund-and-etfs-flows-hit-record.html
With this amount of money, I can expect the fund managers and the ETFs’ manager to have to buy index stocks to match the performance of the underlying/benchmark index. It feels like a vicious cycle that is feeding itself. The index goes up and more money is pumped in and it pushes the index further. Is this the danger of Index ETFs?
The rise in share price may not be based on improving company fundamentals. ETFs just need to match the index. In fact, there are many “experts” out there (including our very own Temasek Holding and GIC) saying that the markets look toppish in valuation. Hence, if the institutional players are not putting in their own money, then the money must be coming from the people on the street. That sure sounds like an alarm bell ringing to me. I remember this saying from the guru Warren Buffett “Fearful when others are greedy and greedy when others are fearful”.
Another useful reference point for me was this article from a management consulting firm that my colleague shared with me. The consulting firm conducted a survey with hundreds of global fund managers and institutional players and showed that 68% of them felt that the market is overvalued while only 16% thought otherwise. The former is the highest % that they got from this survey tracing back the last few years. To me, this supports my hunch that the market is overheated and it probably will have a major correction soon. Fingers crossed!
By the way, as I am typing this, I saw the newsflash that Dow just closed on another record today. Scary indeed.
So, I have been selling and continue to sell lately. I have trimmed down the value of my “speculative” portfolio by 20% since the start of this year. However, I have kept my “income” portfolios intact as I promise not to sell those stocks. As you may remember, I mentioned in the previous post at I had bought more bond ETFs to my “index” portfolio to balance it up with the rise in the values of Equity and Reits ETFs.
It is interesting now to reflect that I am taking 3 different set of actions for the 3 separate portfolios. If I have not separated them and defined the objective for each portfolio clearly, then maybe I would have only one set of action. So, I am quite happy with this arrangement.
Hey, January is also the dividend declaration month … I am really happy to read about the companies declaring dividends as they report their quarterly results 🙂
How about you? Do you share the same feeling? Are you taking some actions? Is your analysis/hunch revealing a different view?
Hope to hear from you.