Before I get any hated comments for my above statement, putting your eggs into the same basket is applicable and rational in instances where:

• you have lesser capital for investment 
• you have been investing with less than 6 months experience
• you have a long term horizon to invest for the future

1. Buying Stocks / REITs All From The Same Sector / Industry

Imagine spending your money to buy 10 shares of SHOP, 10 shares of AMZN and 10 shares of BABA shares. Or buy 10 shares of TSLA and 10 shares of NIO at the same time.

What do the above cases have all in common? They are all from the same industry! 

The first case is all are in the E-commence space while the second case is all are in the EV space. If the EV market has a downtrend or when a market sector rotation happens, you will see both your TSLA and NIO prices to go down at the same time.

For Singaporeans, a simple case will be buying into 100 shares (1 lot) of OCBC, 100 shares of DBS and 100 shares of UOB. All three are big banks in the financial sector in Singapore. Unless you have huge amount of free money to spend to buy all three at once, why will you want to buy all three while you are trying to build up your portfolio from scratch? 😂

I personally bought both OCBC and DBS at the same time last year. Now thinking back, I felt I should either go all in for OCBC or DBS instead of trying to get a bit of both and so call 'over diversify' in this case. Yes, you might be thinking along the lines where both OCBC and DBS are different companies but they are still in the same financial sector. When the pandemic happened last year, both are affected at the same time if you get where I am coming from. 

2. Buying Stocks From Different Sector / Industry But >10 or >20 Stocks

Imagine you buy 5 shares each for the following companies: FB, BABA, TSLA, MSFT, NIO, GOOG, FVRR, JD, QQQ, SPY, ARKK, ARKG etc

The issue here is do you really think you have the time to really put in effort to read up on their financial performances and monitor their stock performances of each company that you bought shares of the above? The answer is clearly 'No'. 

If you have a 9am to 9pm full-time job or have family commitments etc, you definitely do not have the time to manage your this portfolio of 12 stocks. There are some in this list that are speculative in nature, some are tech, some are ETF, some are overlapping stocks etc.

At the end of the day, you will start to lose track of the performances of this portfolio and will not make the right decisions which is to get the maximum return from your portfolio.

Basically I made this mistake very early in my investment journey where I bought I think 10+ different individual REITs company stocks. It was super difficult to monitor each and every one of them unless I am a full time investor looking at charts every day but this was not the case. Diversification will lead to your own demise and this is more evident as a young investor who is still finding your feet. 

Best to focus on a handful xxx amount of stocks that you know you can manage on your own, rather than buying so many and losing count of your investments. Remember, quality is more important than quantity! 

3. Buying Multiple ETFs / Robo-Advisors 

Guys, always focus on quality than quantity in investing!

Thought of buying abit of each of the following ETFs: ARKK, ARKG, ARKF, ARKW?

or how about buying VTI and VYM?

My friend, chances are that you have bought into ETFs that have some of the same companies in both of the ETFs and its overlapping each other. Overlapping ETFs are the ones that we want to avoid. 

This is the same for Robo-Advisors. There are many mushrooming in the market now such as Stashaway, Syfe, UOBAM, Endowus, Moneyowl, DBS / OCBC Robo etc.

In the past, I was using three Robo-Advisors at the same time and I made the decision to cut down to two instead as having so many which is not beneficial at all. From two I cut back to one and now I exited 100% from Robo-Advisors.

How I did the cut was to pull out the list of assets that both Robo are investing my money in. I went to compare their returns over 10 years and chose to keep that Robo that gave the higher return and the one I felt had the higher potential to go further in the future.

4. Having $10,000 Split Into Buying >5 Different Asset Classes

Let say you are just starting out to invest and you have set aside $10k for this after factoring in emergency funds and savings etc. 

SG example 😁

You take: 

• $2000 to invest in MCT shares (MapleTree REITs)
• $2000 to invest in G3B shares (STI ETF)
• $2000 to invest in SSB (Gov Bonds)
• $2000 to invest in Syfe Cash+ (Cash Management)
• $2000 to invest in Syfe Equity 100 (Robo-Advisor)

First look at this, you might think that this is a good diversification method as you spread out your risk into 5 different asset classes.

You might want to relook at this, think again and ask yourself questions.

Why only allocate $2k so little into Bonds that needs to be held for 10 / 20 years before expiry to gain the full bond coupon payouts? 10 years is a long time and to just put in $2k really does not make any sense at all. 

Why put $2K into Cash+? Why not $4k into SSB or $4k all into Cash+?

If I am young and able to take some risks why not put $6K directly into Syfe Equity 100 to maximise my returns in one area instead of splitting evenly into Bonds, Cash Management etc

Do you get where I coming from? 😀

$10,000 is not alot of money and to over diversify into 5 different asset classes with each asset class only given $2k. In reality, how much returns can that asset generate with that smaller amount of fund allocation?

Not only that, 5 different assets means you have to monitor 5 different things at one time. Its not very productive and it consumes your time which can be used to watch more Netflix for some hahahaha. 😂

Another example.

If you want to purchase Cryptocurrencies with $10,000, how will you do it?

A: $5,000 into BTC and $5000 into ETH

B: $10,000 into BTC only or ETH only

I will do it method B hands down. Focus on one coin and maximise its returns. $10,000 is a small sum of money, to split it into more than 1 coin in my opinion is not the most wise choice to do so unless its $100,000 then it will be a different story.

5. $500 Split Into >1 Asset Class  

This is the same as point 4. 

If the amount to invest is so small eg. $500, I will discourage you to split into 2x $250 or 5x $100 to invest. The amount is just too little for each investment and there will be no economies of scale in returns. 

I believe some of you will do this at some point in your journey at the beginning as this was what I did when I first started out due to not knowing the unknowns out there and trying to do this to make some cautious baby steps. 😁

6. Buying 1 Share For Multiple Stocks

This will link back to my pointers for 4 and 5.

Not knowing the unknowns and trying to make baby steps by buying 1 or 2 shares of different companies to diversify your risks. 

Means having the mentality to just buy 1 share of eg. TSLA and if something goes wrong, its just 1 share.....

Number 1: you are buying too little shares per company. If the company share price increases, you don't earn much capital gains (no economies of scale).

Number 2: Of course when the company share price drops, you don't lose too much and this makes you feel better.

Its obvious that number 2 is the key driver that make you purchase stocks in this manner. Understanding the company and why you buy their stocks by reading their fundamental analysis and entering the market at a price that you are comfortable with using technical analysis is the key to overcoming this problem.

There are no right or wrong. Is just from my experience, for now I am more focus on doing concentration in buying stocks rather than to buy many stocks at smaller amounts.

Nevertheless after going through the list above, please do your own due diligence before investing as always. 

In the previous two blog posts I introduced the first 8 types of investing tools in my matrix. If you have not read it yet, click here for part 1 and click here for part 2. 😂

If you feel that you are not yet ready to start, read my 'Is One Ready to Invest' blog post. Click here. 

Here are the last 4 tools which I will share more below.

• Dividend stocks are stocks that can come in all forms of industry and companies. REITs share similar characteristics as dividend stocks. Read my previous blog article to find out more. Click here

• One big characteristic of these is as a shareholder, you will be rewarded with dividends either every quarter/semi annual/ annually. 

• Stock price fluctuation is not important in this case and we do not earn from capital appreciation (if prices do grow that is a plus but not a must) and all those buy low and sell high crap that you come across online.

• One example is OCBC bank (this is not a stock recommendation). Its last price was 10.32 SGD as of 29th Jan 2021. 

• If we see the past historical price for OCBC, we noticed that this stock has been hovering over this same exact price somewhere in year 2013, 2015, 2017, 2020 and now at 2021. Prices are usually stable (there are exceptions) and predictable.

• If you are buying this stock and hoping for its stock price to rise to 30 SGD per share one day then I think you should stop dreaming. The data speaks for itself. You are buying the wrong stock, using the wrong strategy and please re-think your game plan! 😢

Google.com

• A good dividend stock company is one that has displayed growing revenues and growing dividend per share trend for the past few years.

• As dividend yield is make known upfront to us buyers, it is easy to calculate upfront roughly how much you will earn even before you invest in that stock.

• Taken from Dividends.sg, dividend yield of OCBC share was 4.25% in 2020. Lets say you plan to purchase 5 lots (1lot = 100 shares) of OCBC shares using your CDP account, 10.32 SGD per share * 500 shares = 5,160 SGD has to be first invested to purchase the stock. (exclude transaction fees as I am just showing an example here haha). 

• 4.25/100*5160 = 219.30 SGD per annum of dividends you will receive as a shareholder of OCBC. This means that your gains are in fact fixed and predictable! You know by investing in 500 shares of OCBC you will get back exactly 219.30 SGD if the dividend yield was 4.25% in year 2020 and nothing more or nothing less in this case. 😂

• The more shares you owned, the higher the dividend yield you will get to enjoy. Its as simple as that so that's what I decided not to focus so much on this at the moment. Yes I am earning more than what I got from the bank savings account but you really need a large sum invested (I will say at least 10K SGD) into this for a longer term (about 3 to 5 years) to really reap the benefits of compounded dividend investing. 

• This is not a new kid in the block. They have been with us since 2009 but it first gained worldwide popularity in 2014/2015 when their prices started to surge. 

• Recently in the 4th quarter of 2020, popularity of crypto started to rise again especially for Bitcoins and Ethereum. (*this is not a get rich scheme, dont FOMO and buy when you do not know what you are doing).

• I have watched some of the gurus online but as of now I have not seen any of them able to perform a clear fundamental or technical analysis on Bitcoins or Ethereum. The Crypto market is still at an infancy stage so please invest only a small sum of your portfolio in this. There will be some people who will YOLO and put 100% of their money inside but please bear your own risk if the prices drop one day which no one will know when acutally. 

• Of course part of the reason why Crypto prices are rising is because more institutional companies are recognizing and accepting the usage of crypto. eg. DBS bank is even launching a digital exchange due to the demand of crypto.

Blockchain.com

Blockchain.com

Blockchain.com

• From the three charts, the number of people opening a Crypto wallet has been increasing from 2018 to present. The price and market capitalization of Bitcoin has been on a upsurge since the 4th quarter of 2020. 

• Crypto is a form of digital currency and its traded in a decentralized platform called Blockchain. This has nothing to do with stocks and the stock market. Thus, it can be used a hedge against inflation and stock bear market similar to why people buy gold to preserve their cash as a store of value.

• Both Gold and Bitcoin have some similarities in terms of having a limited supply and they have to be mined making them valuable in value. With the Gold market capitalization at 10.6 trillion USD, Bitcoin has potential to grow further in the next decade with a current market capitalization of 642 million USD.

• There are many Crypto scams going around online, it is easy to get deceived online so please be careful when you are buying Crypto. There are legitimate websites available such as Gemini and Binancesg. All of these are online 'wallets' to buy and sell crypto. 

• There are two ways to store your Crypto. First is store them directly with the Crypto exchange and add a second layer of security such as 2FA to make it more secured. The second is to store them offline, away from the exchange directly onto the Blockchain itself and using a hardware wallet key to access to your coins in the Blockchain.

• The Crypto market is opened 24 hours everyday unlike the stock market which is closed on weekends. Due to the volatility of Bitcoin and people FOMO-ing to enter, Bitcoin prices can fluctuate alot about +/- 1000 USD or even 2000 USD per hour. 

• One local example is the Straits Time Index (STI) comprising of the top 30 largest performing companies in the Singapore stock exchange. I have written a blog article on this. Click here if you have not read it. :)

• One overseas example is the Vanguard S&P 500 ETF (VOO) which represents the top 500 companies in the US.

• One industry active ETF is ARK Innovation ETF (ARKK) where specific stocks that meet its criteria will be included as part of this ETF.

Google.com

• ETF offers diversification as multiple companies are in this same basket. eg. if 300 companies out of the 500 companies in VOO are making losses due to covid, but if the top 200 companies in this ETF are still making money, it can offset the losses of the bottom 300 companies. Hence, its possible for the overall ETF to be positive and its share price will continue to climb and increase in the longer term.

• ETF has a self-cleansing effect where weak performing companies will be removed every quarter/semi-annual/annually and gets replaced by higher performance companies in its waiting list. Hence, companies in the ETF are usually the better ones although there are still weak performing blue chip companies out there.😂

• Depending on which ETF you purchase, there are some ETF which is dividend based while some ETF is price appreciation based or even both. You have to do your own research to see which one you want.

Good luck in your journey! 😃

In the previous blog post I introduced the first 4 types of investing tools in my matrix. If you have not read it yet, click here to find out more. 😂

The following investing tools that I have indicated below will require you to put in more effort, calculated risk and knowledge to effectively utilize them to produce their intended returns. 

BE PREPARED TO WORK HARD, TAKE ACTION AND GET SOME GAINS! 😃

5. Futures

• Futures is a ultra high risk investment product. Please do not try this for any kind of beginners. 😪 I REPEAT, please avoid at all cost if you have little experience with stock picking, doing the fundamental & technical analysis of stocks. 

• I tried this when I bought into Crypto Futures. This can earn alot if you know what you are doing as it uses a high risk feature called 'Leveraging'. I am not going to go in-depth into this for now hahahaha.

• Leveraging is a double edge sword with unlimited profits and losses. It allows you to purchase more units with a smaller sum invested eg. a margin of x20 / x40 / x60 etc of your invested amount. If your investment has achieved positive results, your returns will also be higher due to the leverage. 

Shares of Stock A is currently priced at $3.00 and you intend to buy 5,000 contracts of Stock A using Futures at the Ask price of $3.00. Assuming you set the margin for Stock A at 10%, then the initial margin you have to put up will be 10% x $3.00 x 5000 = $1,500.

 

If you were to buy the same shares of company A using normal stocks on cash market, you would be required to put up $3.00 x 5000 = $15,000.

 

In this situation, you have leveraged 10 times. This effectively frees up your capital instead of putting in so much money to buy the shares. (Philips CFD, 2021)

• However, leveraging can also cause you to lose more than 100% of your invested sum of money. If your investment turns sour, you can lose more based on your chosen leverage margin of x20/ x40/ x60 etc. It can one shot wipeout all your investment balances at one go if you didn't put any stop loss in your investment. 

• I burned my fingers trading this and it wiped out my entire Future's account balance to zero in a blink of an eye. 😭

BTC Flash Crash on 28 Oct 2021

This is one of the reason why leveraging is so dangerous and risky in my view. Look at BTC chart on the 28 October 2021. The price of BTC was moving upwards from the 58K USD mark to the 61k USD mark. Out of nowhere in a matter of just 7 minutes long, there was a flash crash where the price of BTC suddenly dropped from 61K USD to 57K USD. 

This effectively wiped out many retail traders’ Stop Loss orders. Most likely a big whale/institution has the power to do such a move. Imagine you are leveraging and this happened to you. Your whole entire Futures portfolio could get wiped out to zero USD left in your account. When you open your own Futures account to see zero balance left and it is definitely not a happy experience that anyone wants to encounter. 

6. Options

• I am referring to Stock Options trading where it gives you the ability to exercise your 'rights' not the obligation to own stocks during a limited time period.

• This requires you to monitor your options regularly and its not suitable for those who wants to trade passively.

• Best to be proficient in both fundamental analysis to calculate the stock's fair value and technical analysis to read the price candlestick chart. Candlestick reading is a must to trade rationally. 

• You cannot purchase Options in the Singapore market.

• This allows you to buy the options of stocks (not owning their shares) at cheaper prices compared to buying the actual stock of the company using the 'leveraging' feature as well.

• There are two types of option methods. First is to buy Call/Put options and the second is to sell Call/Put options

• For buying Call/Put options, you can make money at any direction in the stock market. If this is done correctly, you can achieve higher returns (eg. 0% to 500% returns) compared to purchasing the stock itself as each option lot represents 100 shares. You have the rights to 100 shares and this magnifies your returns while your losses will be limited to your premiums (principal sum) paid to own the options. (unlimited profits and losses limited to your premiums paid)    

• Just to show an example of earning 6,198 USD (444% returns) in profits for buying one lot of call option with a premium cost of 1,395 USD and closing the option at 7,600 USD.

• For selling Call/Put options, this has higher risk and please avoid trading this if you don't own 100 shares of that particular stocks. You will gain a fixed amount of premium as profits. Sell put options: you will have the obligation to buy the shares if the market price surpasses your strike price. Sell call options: you will have the obligation to sell the shares if the market price surpasses your strike price. (limited profits and unlimited losses)    

• Growth stocks or super growth stocks are not your average stocks in the market. They are labelled as 'growth' for a reason. 😁

• They must possess some form of economical moat or their business models have disrupted the existing way businesses are run in order to gain that monstrous growth.

• Best to know how to calculate the stocks's fair value to know when to buy stocks at discounted prices. However, its not a mandatory requirement to buy at 'discounted prices' as their prices will always rise in the longer term. 'Time in the market is better than timing the market'. HAHAHA 😂

• Growth stocks are not immune to bear markets but due to their superior economical moat, they are able to bounce back quicker than others during bear markets.

• FAANG (Facebook, Apple, Amazon, Netflix, Google) is just one example in our daily life where we use eg. Facebook, WhatsApp and Instagram etc to connect with others and place advertisements to reach out to potential buyers in the internet just to name one. 

• These kind of stocks usually do not issue any form of dividends to shareholders (some do) as the company is focus on gaining market share and grow further. You will earn the capital gains when the share price goes up and this will usually take months to see the fruits of your labour.

• As there are no leverage, you have to pay alot more just to own the shares of the company compared to Futures & Options trading.

8. REITS (Real Estate Investment Trusts)

https://www.timeout.com/singapore/shopping/guide-to-funan-singapore

• REITs are companies that own different kinds of real estates and properties. You can purchase their stocks on the stock market. The bigger players in Singapore are CapitaLand Integrated Commercial Trusts & Acendas etc.

• There are many types of REITs such as Retail, Office, Industrial, Residential, Hospitality and Healthcare etc.

• Usually REITs stock prices will not fluctuate much and will remain stagnate unlike growth stocks. One who owns REITs will profit from the dividend payouts and not from the capital gains. Thus, REITs stock owners will not be bothered when the stock prices go up or down in the short term. 

• REITs are not disaster-proof and their revenues were severely affected during the border closure / circuit breaker in year 2020 where retail malls were forced to shut and people were informed to work from home instead.

• One main traits of Singapore REITs is they must payout 90% of their taxable income back to their shareholders every year. This gives us a stream of steady income annually.

• Only dividends earned from Singapore REITs are not taxable for Singaporeans. 😊 If you purchase REITs from the overseas market, please be aware that there are withholding taxes to pay depending on which country you purchase from. 

• REITs is a capital intensive investment as you have to own alot of their stocks to enjoy the economies of scale in the dividend payout.

• For example, if the dividend yield of a REIT is 4% annually, holding just 200 shares will just give you a mere 8 SGD return which is not significant but it will still beat the core inflation rate and prevent your cash from losing its value if you understand where I am coming from. 😀

Click here to go to part 3 where I will share more on the remaining investing tools in my matrix. 😎