kcchongnz blog

Is it good to invest using Robo Adviser? Kcchongnz

kcchongnz
Publish date: Sun, 26 Apr 2020, 05:59 PM
This a kcchongnz blog

Hi to all my book purchasers,

I have informed you that for those book purchasers of mine who wish to ask me any question for the next two months regarding the content of the book, I will answer them according to my best ability.  This is another question from a book purchaser.

 

Hi KC

I just go to Chapter 4 of your book, and reading your book bring back to me a lot of memories (sad memories) when I come across names such as Idris, Rahman, etc etc)

You pointed out that over the long-term stocks outperform using the index as benchmark. Hence is it fair to deduce that one should always buy index stocks?

I have “invested” in a lot of stocks that is as good as “hangus”…Setegap, LCL, LHI, Perisai, and many more.

To a wage earner who neither has the time to master the art of day trading and reading charts, what are his options? What do you think about robo advisers such as Stashaway?

Thank you

Regards

Soo

 

Mr Soo,

From your statement above, you are probably not far away from my age group when those stocks bring back bad memories in our investment journey. The following image is a good reminder.

Hence, it is a good thing that you start to read my book to learn about the fundamentals of investing, treating buying a stock as investing in part of a business. That is the right path of investing. I am sure it will alter the outcome of your investment experience.

The KLCI Index consists of a basket of 30 biggest stocks listed in Bursa in term of market capitalization. Hence the KLCI Index represents the performance of those stocks, which because they are the biggest stocks, it generally represents the performance of the general market. But I don’t mean one should always buy index stocks.

There are hundreds of stocks, those lower market capitalization stocks, are not in there. Some of them outperform the KLCI and some of them don’t. If you can pick more of those which can outperform KLCI in the future, you will outperform the general market.

That is the purpose of value investing in picking individual stocks as propagated in my book, “Invest like a stock market guru: The complete value investing guide that works!”.

 

I am sure with your experience of so many years dabbling in the stock market above as mentioned by you above so far, you should realize that making money in the stock market is not an easy thing to do. Listening to rumours, following stock tips etc. is a sure way to lose money in the stock market. Here is an article for you to ponder about,

https://klse.i3investor.com/blogs/kcchongnz/2020-04-13-story-h1505955007-Don_t_listen_to_stock_tips_kcchongnz.jsp

“Mastering the art of day trading and reading chart”, in my opinion, only very few people can do well and successful in that. Very few indeed. I have shown you in my book, Chapter 4 on numerous researches on the slim chance of success of day trading and the pure use of charts in making investing decisions. That is why according to statistics and as described in the “Preface” of my book, I mentioned that according to research, 90% of individual investors lost money dabbling in the stock market.

So, Mr Soo, you were not alone in losing money in the stock market. That also includes me 20-40 years ago.

Hence, to answer your question, as a wage earner, who has no knowledge, or time to master the fundamentals of investing (not only reading chart), it is best not to speculate in the stock market on his own. Why? He will sure lose money. Speculation in the stock market is a zero-sum game. You must know who your opponents are.

What about if one still wishes to invest in the stock market without having the time and knowledge?

I believe the use of Robo Advisers as mentioned by you is a much better alternative.

 

Robo advisors are wealth management platforms that automate the process of investing money on the user’s behalf with little or no human intervention. It generally helps investors to invest mainly in various kinds of Exchange Traded Funds (ETF) in US and some bonds all around the world.

A typical robo advisor will start out by identifying the user’s financial circumstances and ascertain his personal risk profile and from there it will help determine what investment portfolio or ETF is best suited for the person. Chapter 3, Page 46 of my book has some descriptions of ETFs, their advantages and disadvantages.

Robo advisers started just 2-3 years ago in Malaysia. Currently, there are 3 robo advisors in Malaysia licensed by the Securities Commission to provide their services locally, namely, MYTHEO, StashAway and Wahed Invest. There will be more in the future.

The attractiveness of investing using Rob Advisers is convenience, passive and best of all, low cost which is below 1% a year, with no upfront fee like unit trust funds/managed funds, and hence the performance of portfolio will be generally slightly below the performance of benchmarks the ETF follows of about 1%. In the past few years, investing through Robo Adviser appears to be doing well due to the rise of the stock market, especially in the US.

Robo Advisers also provides the advantage of diversification benefit investing in ETF.

For those who wish to earn a little more to invest himself, there is no other way except to spend some time and effort to learn about the fundamentals of investing. With some practice and experience, I am quite confident that they can do better.

There are many resources in the internet including many good books on learning about the fundamentals of investing. Here is one,

This book is a very comprehensive book encompassing almost all aspects of fundamental investing, from personal finance, investing options, history of stock markets, risk management, analysis and interpretation of financial statements, various relative and absolute valuation techniques, proven successful investment strategies, and much more.

This book is on sale in the major bookshops such as MPH and Popular.

The books I have were all sold out. The next print will be available next month. You may contact me to pre-order a copy if you wish at the following email address.

ckc15training2@gmail.com

This may end up as your best investment.

I always believe the below,

 

KC Chong

 


 

Discussions
Be the first to like this. Showing 2 of 2 comments

supersaiyan3

Why people likes to speculate (while the total expected return of owning a well balanced portfolio long term definitely outperform speculative fairy tales that often burst eventually)? It is because, for ordinary working class, the expected returns must be good enough to make their time worthwhile.

Say Jack's salary is RM5000 a month, RM10,000 is invested. Jack would expect 2-3k or more profit a month to make his time worthwhile. Invest in a well balanced portfolio, say earning a decent 15% p.a., that's make Jack's profit RM125 per month. Just not attractive enough for Jack.

(However, that RM125 per month is going to last very very long time. )

As Warren Buffett said, people doesn't like get rich slow.

2020-04-26 23:45

Nonare

I wonder if a stronger statement AGAINST roboadvisors is warranted.

Firstly, roboadvisors offer no real added diversification. You can buy a single S&P 500 ETF and you are properly diversified. You don't need more than 500 stocks. If you wish you can also buy ETFs with 2000 stocks. Why pay a robo advisors to buy or rotate a bunch of ETFs?

Secondly, 1% mgmt fee is high relative to just buying S&P 500 ETF at 0.03% mgmt fee. That is 33x more. Compounded over 10 years, a 1% fee will cost you at least 10% of your asset. It is only worth paying if you can convince yourself that the roboadvisors can enhance your return above and beyond the 1% they charge you which leads me to the next point.

Thirdly, it is unclear and highly doubtful that the roboadvisors have the "algorithm" or the "formula" to beat just holding the S&P500. I have not seen a single robo advisor explain their algorithm properly and explain why it will justify their 1% fee. By the way, having an algo that will beat the S&P is a very big deal. To have an algo that beat S&P by 1% (that's the robo raison d'etre) is a big statement. The pension funds around the world will clamor for your algo.

All the robo has shown are fancy UI and basic financial planning. No real theory and definitely no real track record to back it up (which they should be happy to show and tell if they have an algo because it can be thoroughly backtested). And if they don't have an algo, then behind the digital facade is just humans doing dubious asset allocation and market timing. Where is the robo then?

Ben Graham said

“An investment operation is one which, on thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”

Do the robos meet this requirement? Have they explained why by investing with them, you can do better than just holding S&P? Can you yourself, as an investor, explain why?

If I'm giving money to Buffett, I can say "he looks at company as a whole ownership of a biz not individual stock ticker. He believes each biz has an intrinsic value, some easy to calculate, some hard. He will buy those whose asking price is lower than the intrinsic value by a margin of safety just in case he make a mistake"

Can you say the same of the robo? Can you be sure their algo won't lose you money? Can you even explain their investment strategy? If their funds are down 40%, would you top up? If not, it's just a investment scam/speculation behind a digital facade

2020-05-28 15:19

Post a Comment