How to enhance the odds of investing success

The following section is extracted from the interview and the content has been edited for brevity and clarity. Third-party speakers’ opinions in the interview do not represent Endowus; Endowus accepts no responsibility or liability as to its completeness or accuracy.

Here are some snippets from the conversation between Apollo Lupescu, Vice President at Dimensional Fund Advisors and Yulin Liu, Investment Lead at Endowus. 

Dimensional Fund Advisors and its academic-driven approach

Yulin Liu: Dimensional is one of Endowus’ key partners. Can you give a snapshot of Dimensional's global presence and how you work with advisory firms like Endowus? 

Apollo Lupescu: Dimensional is not a household name and in fact, it's not just in Singapore but even in the US. We are in the top 10 largest investment managers in the country and manage roughly about US$720 billion. However, people don't know us because part of the business model that we have adopted from day one was to really work with institutional investors. 

For the past 25 to 30 years, we've started to work with a very select group of financial advisors and treat them almost like consultants for large pension plans and, really look at these advisers as being almost like a coach or a consultant for families and individuals. 

Beyond the business model, what is interesting about Dimensional and what sets us apart is that we're the most successful cross-fertilisation between the academic community and rigorous scientific research, and the practical world of investing. Over the years, we've been associated with five different Nobel prize winners in economics who work very closely with us.

The founders of Dimensional were the first to take these academic ideas and create the very first index funds and there was a realisation there were inefficiencies around index funds. So that's why Dimensional moved beyond the index and created a strategy that is designed to outperform, but not through picking stocks. 

Read more: True giants of the investment world: Buffett, Templeton, Booth, Bogle, Swensen

Is investing an art or science? 

Dimensional Fund Advisors is known for being grounded in its robust academic research, which is the root of its evidence-based investing. 

Yulin: Many people think investing is an art rather than a science. What do you think? 

Apollo: What investing has to do with pragmatism. When you make a decision to invest or not invest, in my opinion, it cannot be based on a hunch or belief, it has to be based on some numerical data. In that respect, we're very big believers in a data and evidence approach to investing. 

That's the scientific part, the data part is absolutely that. But there's absolutely an art to the way that you take these ideas, and you implement them in the real world. 

Yulin: Do you believe in inherent trends and patterns in the market? 

Apollo: There was a moment in time when successful investing was about looking at different stocks, and let's analyse individual companies or trends and see what we like out there and cherry pick a handful of stocks that would be the best ideas and would make the most sense and leave on everything else.

Today, everything has changed. Information travels to investors almost instantaneously and the odds of finding a manager who can pick stocks are very low. What the system that the academics in Dimensional pioneered was a different type of research. In that particular type of research, what we are interested in is not necessarily anyone's particular stock, but a larger basket of stocks. 

It's perfectly fine to own these great ideas and stocks. The trouble is, because the information is so competitive, it reflects what the consensus is on the valuations. So rather than research individual companies, what Dimensional and the academics have done because of the computing power and our databases is analyse much larger baskets of stocks and groups of stocks. 

Investing, in my opinion, today it's no longer about researching individual stocks, but getting a sense of much broader groups of stocks, something that's become known as asset class investing. 

Read more: Core and satellite investing

Goodbye FOMO and behavioural-led decisions

Yulin: The S&P 500 Index was up 26% in 2023. With high market valuations and mixed sentiments, what key principles should investors bear in mind?

Apollo: Our view is that you have to take a step back and the first big lesson on investing is not necessarily to concentrate on a handful of stocks. While the Nasdaq was up 44% last year, it was also down by about 32%. In other words, when you concentrate you have a wide range of outcomes, you can either make a lot of money or you can lose a lot of money. And we think that successful investing is about avoiding extreme outcomes. And to lead into what we believe that investors should own these companies, you don't want to miss out on them in a more diversified way. 

The two big lessons that we believe in: 

1. We believe in global diversification. We believe that one ought to own as many stocks around the world as possible and not concentrate on any one stock, or any one investment.

2. Investors need to be disciplined and not chase what they do well.

If investors are disappointed that the global portfolio did not do the 44% [like what Nasdaq did], all you have to do is take a step back. A lot of investors missed that [by not staying in their portfolio] and for people without an advisor like Endowus, it's really hard for them to stay in their seats. 

Geopolitics and elections: Their impacts on markets

Yulin: With geopolitical tensions and policy uncertainties on the rise, how should investors navigate these events?

Apollo: I can say that legitimately, that concern will lead to an economic downturn. When you think about your paycheck, when you think about running a business, the value of your property, a lot of these things are probably going to take a big hit for local folks.

What's interesting to me is that when we looked at the same issue through the prism of an investor, I think that's a little bit of a different question. Because investing means that you are buying ownership in companies. And if you are an investor, we recommend not limiting ourselves to any one country but rather exploring opportunities around the world.

What we advise investors is to have a globally diversified portfolio, where the percentage that you put in different stock markets is commensurate with the value of companies that you can buy and sell. And in that respect, the largest chunk would go to the US.

Yulin: With the US presidential election around the corner, what's going to happen?

Apollo: If you were to look at the data, because we looked at data, let's start with this idea being an election year, does it mean that it adds additional uncertainty to investors? We have good data going back about 100 years.

When you look at the data, it seems that even in the years when the market dropped during the election, there was something a lot bigger going on in the world and the election itself. To me, it really should put some perspective, whenever it comes to politics. It’s so much about emotions because it touches our deeply held beliefs and our core identity. 

As an investor, you have to be so careful not to make emotional decisions; look at the data and look at the numbers. Because of that, we caution people not to make moves with their money just based on politics and elections.

Why bonds make sense

Yulin: How should investors think about allocation between cash and bonds? 

Apollo: We really believe that bonds should be part of their portfolio. With bonds, you're lending your money to corporations, and governments who want to borrow money. When you do it, there's a contract that specifies there is a specified interest rate that you will make on your money, and how long before you get your money back.

The question is when those bonds mature, and they need to reinvest, and which rate will they reinvest? Well, this 5% stay for a long time. A lot of investors are doubting, so enjoy it now. And if you have short-term needs, absolutely take advantage of this. Most plans that we see also have some intermediate needs, that's not over the next six months or a year. 

If you have a need, let's say, one to five years, I think bonds still make a lot of sense. And if you have a five-year and beyond horizon, it absolutely also makes sense to consider the stock market.

Everything that you do, whether you buy stocks, bonds, CDs, or deposits, it should be based on a plan, not on a whim. Having a plan is the most important thing in investing.

Watch replay

Want to learn more about investing in market highs through an evidence-based approach? Watch the replay of our webinar with Apollo Lupescu, Vice President at Dimensional Fund Advisors and Yulin Liu, Investment Lead at Endowus. 

Stay committed to your long-term plan

In the midst of market highs and uncertainty with the current divided investor sentiment, investors are left concerned about how to think about their exposures and portfolio allocations. However, it is important that we do not try to time the market and stay invested for the long term which has been evidently proven in Dimensional’s track record and Endowus’ investing philosophy.

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