SINGAPORE: I applaud TODAY for the On The Money column, which aims to help readers make better investment decisions. The article “Spread risk through stock diversification” (May 8) offers a timely reminder of the need to diversify and build shock absorbers. To say, however, that if an investor “focuses purely on Singapore stocks, he is foregoing the potential returns of 99.6 per cent of stocks from the rest of the world” implies that the greater the diversification, the better. But what if the 0.4 per cent of Singapore stocks are superior. I think the Singapore Exchange’s listing rules offer better protection against insider dealing than many other exchanges. We can find plenty of diversification across industries and countries within SGX stocks. Also, boosting one’s “shock absorbers” by buying global funds is not that useful. In our globalised world, most markets move in tandem. It is better to have a sizeable cushion of cash. When I started investing in the 1990s, my portfolio included local and global funds and bonds. I found that global funds offered the poorest returns, partly because of the layers of fees I paid the “experts”, who gave me about 3 per cent at best; at worst, I lost money.
My SGX portfolio has given me average returns of 6 per cent per annum from dividends and capital gains over the past 20 years. It is nothing to shout about, but it gives me a comfortable life and beats the returns from all other funds I have bought. I am not trained in finance or accounting. I do not understand the Sharpe Ratio or fancy strategies used by fund managers. My strategy is this: Accumulate cash, study the fundamentals of stocks and wait for black swan events such as the Asian currency crisis, the Lehman Brothers collapse, Brexit and the like. Then I scoop up the counters on my horizon and hold them for five to 20 years for dividends and capital gains. And I have not forgotten the shock absorbers: 30 per cent of my assets are in cash.
