Investment Policy Statements. What are they? And why should you have one? How can they keep you disciplined and anxiety-free?
Maybe you are a beginner investor, unsure of how to even start getting your financial house in order. Or perhaps you are an old hand in the market, and the recent coffee chat with friends sharing their BTC and GME gains has left you itching to redeem all your retirement savings for a quick punt with Lady Luck.
Either way, a game plan for approaching investments and how they fit into your life can help you navigate difficulties along your investment journey.
7:51 Are you too worried about your investments?
10:14 Are you taking control or losing control of your money?
13:05 The case of YOLO’ing with the market and your finances
17:00 Stories of friends who YOLO’ed
22:24 The winners and losers of speculative investing
26:39 Survivorship bias: not focusing on the whole picture
33:17 What percentage of your portfolio is made up of speculative investments?
37:08 Portfolio diversification, safety net and importance of due diligence with high risk investments
39:49 Staying disciplined and objective with an Investment Policy Statement
54:08 QnA: What is your opinion on SPACs? Grab seems like a safe company but the method of listing through SPACs seems to be dodgy as compared to a traditional IPO.
56:39 QnA: At this point, with high market valuation, and some covid risk and inflation risk, does it still make sense to buy? Why are people still buying the market? FOMO?
59:59 QnA: Why is the market so “red” in the past few months?
1:01:59 QnA: Any exciting plans for Endowus that we can expect in the second half of 2021?
Excerpts from the Webinar:
Timing the entry and exit of speculative market bets (18:47)
Madeline: When it comes to speculative investing, if you don’t have a clear understanding of what you want, you will end up panic selling when the prices start to drop. In some way you do need to time the entry and the exit for speculative bets you don’t really understand or have no zero conviction of. This becomes a difficult decision to make for most of us, especially when we don’t have any kind of experience or understanding of what we are trading in.
Anyways, I'm not saying that you should not invest in speculative investments like cryptocurrencies or single stocks. At the end of the day, if you do your due diligence and decide that this is something you want to add to your portfolio then test it out. The point here is that if you are putting money into an investment because you are worried that you are losing out, you have to ask yourself if that is really the best choice.
Survivorship bias: not focusing on the whole picture (26:39)
Madeline: With regards to survivorship bias, people have the tendency to only look at the good side of things. For example, we don’t usually hear the more non-successful stories when it comes to bitcoin and other cryptocurrencies. This is because no one is going to shout out that they are bad at investing or that they are foolish with their money or not as powerful as those who managed to gain with the same investment. Statistically, you are more likely to fall into the pool of people who aren’t very successful at speculative investing.
Sheng Shi: When it comes to speculative bets, it is very easy for people to fall into the cycle of confirmation bias, whereby we only expose ourselves to information that validates our choices and understandings. People then tend to go back to forums and friends that confirm their claims and what they want to believe in.
QnA: What is your opinion on SPACs? Grab seems like a safe company but the method of listing through SPACs seems to be dodgy as compared to a traditional IPO. (54:08)
Maddy: My understanding is that it is a very popular method right now because it can be faster and it can mean less disclosure among other reasons. However, I personally don’t know enough about it and I usually don’t like getting myself into something I don’t know well enough. I think if you fundamentally feel uneasy about it then you either need to do more research on it to change your mind or you need to realise that this is something not for you.
Sheng Shi: I have a similar view. If I were to not have any expertise about the SPAC then I am just another person who is uncertain about the prospects of the investments. Ultimately, I am a price taker and another person just floating within the markets trying to make a bet because I won’t be able to tell the probability for myself making a profit from it. I would not want to put money that is hard earned at risk with things that I don’t have a very good view on the investment returns.
QnA: At this point, with high market valuation, and some covid risk and inflation risk, does it still make sense to buy? Why are people still buying the market? FOMO? (56:39)
Maddy: If you believe in the premise of why there is a stock market, which is we are trying to allocate capital efficiently to firms and companies that provide value and goods and services that we need in our lives to live the life that we want, then in the long term the market will reflect this premise with high market prices. You will always be looking at high prices because you believe that it will always go up.
I know it can become a psychological pain when we anticipate a correction on a day to day basis. However, even with the case of the world’s worst market timer, if he buys in at an all time high he will still come up ahead in comparison to the past 20-30 years because time in the market beats timing the market.
About the Speakers
Sheng Shi Chiam, CFA
As Personal Finance Lead at Endowus, Sheng Shi Chiam believes that good investment advice and products should be made accessible to everyone. His most recent role was with CapitaLand in a fund management function, where he covered a portfolio of private equity funds, where he constructed and ran financial models to support his team with divestment options.
On the side, he is a frequent Op-Ed writer to the Straits Times, commenting on investing and retirement matters. He graduated in B.B.A (Hons) with a double specialisation in Finance and Supply Chain Management from National University of Singapore and is a CFA Charterholder.
Madeline is an Analyst with the Client Experience team at Endowus, working to connect people with investment solutions that meet their needs. Prior to joining Endowus, Madeline served in the Government as a policy officer, working on institutional management and regulatory reviews. In her spare time, the UCL graduate is an avid Brazilian Jiu Jitsu practitioner.
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