Kyith put out a good post on conviction which coincidentally was something that has been on the back of my mind for the past few weeks.
What Is Conviction?
Conviction (noun) – a firmly held belief or opinion
In investment, the conviction that I have is my compass. Kyith put out four points in his blog post on gaining conviction, and yes – it could be a double edged sword. Where does mine come from? To me, conviction comes from understanding. Research and homework, an insanely huge amount of it, to get my doubts addressed.
To me, the other three points are merely complementary because there is no one else that I trust more than myself. If I can’t even convince myself, it would be a recipe for disaster when the sky (or market) comes crashing down.
On Index Investing & Robo-Advisors
I have written a fair bit on index investing, and nothing has been able to shake my conviction on it since I first stumbled on it in 2013. I started buying at the peak. Up and down movements. Even sideways. Life goes on for me, as always. The same conviction has naturally extended to robo-advisors when they went mainstream in Singapore last year.
The signs were obvious for all to see that these new investors who were being furiously on-boarded would sooner or later realise what they were really getting into. Comparing returns barely a few months after investment? Too low! Some would exclaim.
It was inevitable that they soon faced its first minor hiccup last month when the stock market experienced a minor correction which scared the heck out of investors who hopped onto the robo-advisors bandwagon. Robo-advisors scrambled blog posts and Facebook updates to soothe jittery investors.
Robo-advisors like AutoWealth, StashAway and Smartly have their work cut out for them, and hopefully they realise that they are going to need that continuous education to keep on going, and I’m dead serious. All they need to do is to check out Facebook groups or the HWZ forum to see what people are posting. The February correction is nothing. When the real crash comes, that conviction is going to be tested. Weak hands are going to fold and cash out at the market bottom.
And then there is the impact of foreign currency. With a chart that looks like the one below, returns are going to be impacted. To be more accurate, it is actually not the currency that the ETFs are denominated in e.g. USD that’s important, but that of the underlying assets.
I bet no one will complain if the chart is in the opposite direction and USD has gained the exact same % against SGD, right?
Robo-advisors isn’t the holy grail. Nothing magical about them, either. The stock market crashes? Robo-advisors will burn too. Stick with your target allocation and DCA though the tough times, and robo-advisors will recover. And we’re talking about years here, not months.
I have always wondered why the majority of my peers who are into investments don’t have the slightest interest in cryptocurrencies. Is it due to the lack of understanding of it?
To state the obvious, I have far lesser conviction on cryptocurrencies on the whole as an asset class due to the uncertainties surrounding blockchain technology. But I have no doubt that certain tokens, platforms, projects and use cases will survive the test of time. But which one then? There are literally hundreds to choose from at the moment, and more new ones every day.
Unfortunately, market sentiment has no room for reason and logic. At the
height depth of the cryptocurrency correction in early February, a small position that I had taken looked like this, and that’s after averaging all the way to the bottom.
Imaging the Straits Times Index at 2,100 points today. That’s right, now you’re getting it. Is that considered as having conviction? Well, that was a project I truly believed in after weeks of research, and I ain’t giving up on it. A test of conviction, you can call it that.
Gonna end off my random ramblings here. One last thing to add – safety first! To take leaf out of CW8888’s book : “In investing, account size matters.” If we have a large enough account size, we can afford to dip our toes into alternative asset classes that provides high returns at high risks. If not, steer clear.