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On surge pricing, institutional share classes, and sales incentives

January 20, 2019

Mutual fund investing is similar yet different to surge pricing. We get the same experience but could pay drastically different fees. 

Institutional shares classes: What investors need to understand about different share classes before investing in mutual funds

I hate surge pricing. It is the most brutal when I most need that ride, or when I’m drenched from head to toe from the sudden downpour.

Surge, or dynamic pricing, has become pretty efficient for all modes of transportation. If you have not yet booked your Chinese New Year getaway, that flight to Phuket is now 4x the normal price, not to mention the surging hotel prices too.

We live in an increasingly efficient world, where we can pay huge premiums for the same experience because of the almost immediate reflection of the laws of supply and demand in price.

It seems rather unfair, but it works in our capitalist world.

Mutual fund (unit trust) investing is similar yet different. We get the same experience but could pay drastically different fees.

Even more annoyingly, this is due to sales incentives rather than the laws of supply and demand.

You could be investing in the same fund as your friend, but paying different fees because you’ve invested in different share classes. The funds’ objectives and underlying investments are the same across all the share classes and managed by the same fund manager, but each share class has a different fee (expense ratio) and perhaps minimum investment requirement.

To make it even more confusing, the bank or broker that you buy the fund from may also only be able to offer you certain share classes, depending on the distribution agreement that they have with the fund house, or their internal rules to maximise on sales commissions (trailer fees).

Read more: A guide to getting ripped off: a dictionary on mutual fund fees

Mutual funds commonly have several share classes, but these can generally be categorized into retail or institutional share classes. For example, let's say there is a mutual fund called Singapore’s Money Making Fund (MMF) with the following share classes:

  • Class A is a retail share class with a minimum investment amount of $1000, and a total expense ratio of 2%.
  • Class B is a retail share class with a minimum investment amount of $5000, and a total expense ratio of 1.7%. 
  • Class I is an institutional share class with a minimum investment amount of $10,000,000, and a total expense ratio of 0.5%.

There is no naming convention for mutual fund share classes in Singapore, so you need to read the Prospectus and Product Highlight Sheet carefully to get a better understanding of which share class you are investing in.

The institutional clean share class carries the lowest fees (total expense ratio) of the different share classes of the same fund. Why is there a significant fee difference between the retail share classes and the institutional share class?

The answer lies in sales incentives. One of the key differences between institutional and retail share classes is the trailer fee, which is embedded in the total expense ratio of a retail share class. This is essentially a sales commission that is paid on a recurring basis by the fund manager to the distributor/banker/broker that sold you the fund. This includes popular online fund distribution platforms.

Because of its lower fees, the institutional clean share class inevitably generates the highest returns of the different share classes. Unfortunately, there is usually a high minimum investment amount required to invest in the institutional share class, which is typically around $10,000,000. The institutional share class is usually targeted towards pension funds, hedge funds or large family offices.

Fees matter, a lot: a reminder that a difference in fees of 1% equates to over 300% of return difference after 30 years (assuming a global stock market return).

At Endowus, we believe that all investors deserve access to the best investment products at the lowest cost possible. This is why we built our portfolios on best-in-class institutional share class funds, which are now available to retail investors with a minimum investment of $10,000.

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.


Goldman Sachs’s tactic in Malaysian fraud case: Smear an ex-partner (NY Times)

MacKenzie Bezos could become world's richest woman with divorce (Bloomberg)

Why China rents out its pandas (The Economist)


John Bogle made investors richer — and the financial industry poorer (Washington Post)

The U.S. and China are making Davos a mess for everyone else (Bloomberg)

Four Chinese tycoons just transferred US$17 billion of their wealth to trusts as government toughens up tax regime (SCMP)


Insurers tap startup platforms to open new distribution channels (Business Times)

Singapore home sales face a billion-dollar litmus test (Bloomberg)

CapitaLand's S$11b buy is big, but will it be beautiful? (Business Times)


Amazon ruined online shopping (The Atlantic)


TED: Approaching with kindness (PlayerFM // 52 mins)

Good to Know

The biggest technology failures of 2018 (MIT Technology Review)

Triathlons, ultramarathons and ambitious baking: why is modern leisure so competitive? (The Guardian)

How Hong Kong can solve its waste crisis and become the Silicon Valley of recycling (SCMP)

Our pets: the key to the obesity crisis? (BBC) 

Nike's new self-lacing basketball shoe is actually smart (Wired)

The real cost of cheap groceries (Fortune)

US shutdown: Canadian air traffic controllers send pizza to US workers (BBC)

These are the biggest risks facing our world in 2019 (World Economic Forum)


A (lack) of forecast for 2019

January 5, 2019

It’s that time of the year, when investment strategists all over the world perform an annual ritual of predicting where the markets will go...

“Those who have knowledge, do not predict. Those who predict, do not have knowledge.”
- Lao Tzu, 6th-century Chinese philosopher

“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”
-Warren Buffett, 20th and 21st-century investor

You have probably received a dozen articles on 2019 predictions. It’s that time of the year when investment strategists all over the world perform their annual ritual of predicting where the markets will go in in the upcoming year. They put on their thinking caps and evaluate everything from the global economy, political instability to interest rates. Full of confidence and bravado, they predict what stocks to buy, year-end targets for market indices, and when the markets will tank.

Memories are short and there is naturally little mention of the nearly universal failure to predict with any precision. Their forecasts and clairvoyance are, for the most part, exercises in futility. Predicting the future does not seem to be a strong suit of the investment world.

We looked back at predictions made a year ago for the S&P 500.

In 2018, the S&P 500 returned -4.38%, including dividends, closing out at 2,506.

Of the Wall Street bigwigs, JP Morgan and Credit Suisse were two of the more bullish banks and forecasted the S&P 500 to end the year at 3,000. They were only off by about 20%. Morgan Stanley was the least far off but had predicted a gain of 2-3%, so they still missed the target by over 6%.

2017 was no different - not a single strategist at the top banks saw the S&P 500 Index rising as much as it did. The average gain predicted was 5.5%, versus the actual gain of over 21%.

Isn’t it strange that we never see anyone refer to their prior forecast at the end of the year? Despite all the effort they put into making and promoting it?

A caveat to this statement: In the rare case that the forecaster is accurate (or even just closest), we will hear it paraded in the news for weeks as he or she goes around town, chest pumped, spitting forecasts of the future.

Most of the time, strategists at investment houses will forecast high single-digit returns for the S&P 500, even though the index has fallen outside of the range of most forecasts almost all years. Historically, the US stock market has indeed averaged high single-digit annual returns over decades, so these forecasts do make sense but are clearly meaningless on shorter time horizons.

Most years, returns are not near to the long-term average. Though the long-term average is a good indicator of what to expect in the long-run, few single years fall anywhere close (Read more in our article here).

Career risk also stops the investment gurus from making outlandish forecasts (this is not the case in the Bitcoin world for example, where it was predicted by some to hit US$100,000 in 2018).

Central banks surprisingly do no better in their forecasts. A Brussels economic think-tank Bruegel has shown that ECB forecasts for inflation and unemployment rates have proven to be systemically incorrect over the past 5 years.  Core inflation has remained broadly stable at 1%, despite their prediction of increases since December 2013, when these forecasts were made publicly available for the first time. Other central banks have made similar erroneous forecasts.

It’s safe to say that short-term predictions are fairly worthless, and paying attention to forecasts is a wasted effort. As economist John Galbraith once put it:

“There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”

With a healthy dose of humility, we need to admit that we all have little clue of where the markets will go over the next year.  

Historical data provides a good understanding of the behaviour of asset classes over the long-term. Global equities, for example, have produced a real return of around 7%. But any near-term price movements of 1, 5, or even 10 years are merely noise for the long-term investor. If you believe in the long-term economic progress of the world, then you should own the market through ups and downs, and ignore the noise, or any ‘gurus’ who claim to offer psychic advice.

Just for fun, here is a summary of predictions for 2019:

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.


A phoneless vision: Masayoshi Son floats part of SoftBank to help pay for his huge tech bets (The Economist)

Embracing Apple's boring future (The Atlantic)

This is why economists are increasingly studying sports (World Economic Forum);


Ray Dalio: To help put recent economic & market moves in perspective (Linkedin)

The worst-performing endowments have these things in common (Institutional Investor)

For hedge funds this year, $1 billion is the loneliest number (Bloomberg)


Tesla's Musk says Singapore government has been unwelcoming (Bloomberg)

Banks partner fintechs in quest for digital dominance (Business Times)


How much of the Internet Is fake? Turns out, a lot of it, actually. (NY Mag)


How to be happy: Secrets of Denmark's happiness epidemic (Freakonomics // 37 mins)

Good to Know

1 woman, 12 months, 52 places (NY Times) 

Amateur buyers of fine Burgundy fear a speculative bubble (The Economist)

Lab-grown meat is coming, whether you like it or not (Wired)

99 good news stories you probably didn’t hear about in 2018 (Medium)

Japan’s sushi king shells out record US$3 million at Tokyo’s new year fish auction (SCMP)

Where to go in 2019 (Bloomberg)

“Hindsight is 20/20” - we all love to say

December 15, 2018

Trying to asset allocate tactically by market is not easy. Passively’ owning the S&P 500 only this actually an active decision that forgoes...

Let’s rewind to the early 70s:

Nixon was President.
Mao was Chairman.
Elvis was on tour.
The first pocket calculator was released.
Japan’s stock market was the darling of the investment world.

From 1970 to 1979, Japan’s stock market was up 396% versus the US, which was only up 77%.

Then the 80s happened:

Michael Jackson released Thriller.
E.T. was the highest grossing film of the decade.
The War on Drugs began.
Apple Computer introduced Macintosh.
Japan’s stock market remained the darling of the investment world.

From 1980 to 1989, Japan’s stock market was up 1,143% versus the US, which was only up 404%.  

Japan’s stock market grew so big that it accounted for 45% of the global stock market cap. The US followed at 33%. Eight out of ten of the largest corporations in the world were Japanese.

And the 90s were interesting too:

The World Wide Web arrived.
Friends and Seinfeld ruled TV.
We all bought a Discman.
Microsoft hit its stride.
Global warming became a concern.
Japan’s stock market lost itsluster.

From 1990 to 1999, Japan’s stock market was down 7% versus the US, which was up 433%.

The 2000s were globalising:

The iPod showed up, then the iPhone.
9-11 shocked the world.
Euro was adopted.
Google and Facebook connected all of us.
The global financial crisis.

From 2000 to 2009, Japan’s stock market was down 30%, the US was down 9%, and emerging markets led the pack, up 162%.

Decade-by-Decade Returns of Global Markets (USD)

Over the course of 20 years from 1970 to 1989,
Japan market rose over 6,100%,
US market rose 890%,
and the rest of the developed world rose just over 1,100%.

How would you have positioned your investments for the future at that point in time? It would have been easy to say Japan was overheating after the 1970s, but you would have missed another ten years of Japan’s dominance.

In the following 27 years from 1990 to 2017,
Japan returned a pathetic 120%,
The US returned 1,374%,
and the rest of the developed world rose 1089%.

Trying to asset allocate tactically by market is no easy feat. Some investors say they want to ‘passively’ own the S&P 500 only, but this is actually an active decision that forgoes most of the world.

We prefer to own a truly globally diversified portfolio - one that we can stick with through geopolitical, economic, and pop culture shocks.

It will likely not be the best performing portfolio at some points in time, as it will be dragged down by its level of diversification. But that being said, it will avoid the far bigger evil: periods of missing out on stock market growth in other parts of the world.

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.


How the 0.001% invest (The Economist)

This San Francisco investor wants to revolutionize private equity. Is he crazy? (Institutional Investor)

A surprising push by the invisible hand: Why more companies are doing better by being good (Forbes)

Startups aren't cool anymore (The Atlantic)


2019 forecast: Predictions will be wrong, random or worse (Bloomberg)

Why do so many people fall for financial scams? (The Economist)


Laws of attraction, dating and factor-based investing (Business Times)

Singapore's US$200k starter salaries: Why education pays the price (SCMP)

All together now: The growing co-living scene in Singapore (Business Times)


Jeffrey Sachs: The war on Huawei (Project Syndicate)

Uber is headed for a crash (NY Mag)


TED: What does everyday courage look like? (NPR // 12 mins)

Good to Know

How Tim Cook, CEO of Apple – who buys his underwear in sales – spends his US$625 million fortune (SCMP)

Real crazy rich Asian wedding to cost $100 million (Bloomberg)

Why are we still so fat? (NY Times)

The joy of no-gift Christmas (The Atlantic)

2018 wasn’t a complete horror show. Here are four things that probably got better. (Vox)

Researchers found one way that long-term marriages get happier (Qz)

Your apps know where you were last night, and they’re not keeping it secret (NY Times)

What Singapore-based investors need to know before investing in unit trusts or ETFs

November 25, 2018


 When it comes to investing, Singapore investors have plenty of options to explore since our country is one of the leading financial hubs in Asia. Experienced investors can choose to invest in a diverse range of stocks or bonds, directly on the Singapore Exchange (SGX).

Investors who prefer a more hands-off approach can also invest via their financial advisers, who will normally recommend unit trusts, also known as mutual funds, for them to invest into. Some financial advisers and more recently, “robo-advisors” may also recommend investing in a portfolio of ETFs.

Unit trusts and ETFs are funds that pool together money from different investors for a fund manager to invest, on behalf of the investors, in assets that they believe generate a return for the investors.

Before you decide to park your money in a unit trust or ETF, it’s important that you first understand some of their key characteristics. Doing so can help you identify the right funds to invest in.

Investment methodology
Every fund has an investment methodology. This methodology should communicate the approach that the fund managers will take for their investment decisions. For some funds, this could be something relatively straightforward, such as investing in the equities of the biggest 30 companies in a particular country or region or tracking a certain index.

Other funds may have their own investment philosophies, such as traditional active stock-picking, or systematic strategies.

For example, Dimensional Financial Advisors (DFA) is a global investment manager that believes that the market is already able to do what they do best – reflect all available information into prices. DFA takes a systematic approach to investing and focuses its efforts on creating more value for its clients through its evidence and financial science-based construction of portfolios, delivered in a cost-efficient manner. They systematically tilt their portfolios to buy more stock of companies with certain characteristics, such as smaller size, value, or profitability. They do so because scientific research has shown that they are the only three proven factors of return that improve returns over the long term. They also believe this is an approach they can stick to, even during challenging market environments.

When you invest in a fund, it’s important that you know and understand the investment methodology of the fund and the track record of the fund managers running it. This methodology has to resonate with you. Otherwise, you will be investing in something that does not make sense to you, and when markets become volatile, you may struggle to stay invested

What the fund is investing in
There is a common misconception among new investors that investing into a unit trust or ETF means you are automatically building in broad diversification for your portfolio. This is not always true. You need to have an overview of what your fund is going to invest in. Typically, this can be segmented into a few key areas:

Location: The area or region the fund invests in. For example, the fund could invest globally or in only developed markets, or focus specifically on regions such as the US or Asia, or just single countries like China or India.

Sectors or themes: The industries the fund can invest in (i.e. technology or healthcare) or thematic funds (i.e. ageing or automation). 

Asset classes: Some funds invest strictly in equities only. Some funds invest in bonds or commodities. Others take a balanced portfolio approach, with a mix of both equities and bonds for example.

These are just a few broad areas that you should consider before investing in a fund. You should invest in unit trusts and ETFs which hold assets that you are comfortable owning.

You choose the fund, but the fund manager chooses the underlying investments
This simple statement is one that defines what investing in a fund is all about.

When you invest in funds, what you are essentially doing is choosing the fund managers, instead of the actual individual investments. The fund managers then choose what to invest your (and all the other investors’) money in. Even fund managers managing passive index-tracking ETFs will make active decisions in choosing a sample portfolio of securities to best replicate the underlying benchmark, because it may be too costly to mimic underlying indices entirely.

It’s ironic that many new investors do not pay enough attention to who is managing their money. If people who invest directly are already doing so much research on the assets that they are putting their money into, shouldn’t we be doing as much research on the individuals whom we are entrusting our money to?

When you park your money with fund managers, don’t take it for granted that all funds are equal. You should try to find out as much as you possibly can about the fund and the fund managers. Remember, they are the ones responsible for investing your money and making a return for you.

The fees you are paying
You invest because you want to generate a return and grow your wealth. However, if you invest through a unit trust or ETF, you will also incur an annual management fee (also known as the fund’s total expense ratio). Naturally, these fees eat into your investment returns.

New investors sometimes ignore small differences in management fees, thinking that the difference of 0.5% or 1.0% per annum doesn’t really matter. This is wrong.

Consider the example of an investor who invests $100,000 today and earns a return of 7% per annum for the next 30 years. Here’s how his returns will be impacted by just a small increase in fund management fees:

  • Scenario 1: Fund A charges him a management fee of 1.0%. After 30 years, his portfolio is worth $574,349. He would have paid a total fee of $84,801.
  • Scenario 2: Fund B charges him a management fee of 1.5%. After 30 years, his portfolio is worth $498,395. He would have paid a total fee of $116,129.
  • Scenario 3: Fund C charges him a management fee of 2.0%. After 30 years, his portfolio is worth $432,194. He would have paid a total fee of $141,521.
The management fee is just one type of fee that you pay. For unit trusts, other common fees include initial sales charges, payable when you first invest, wrap fees, as well as redemption charges, which may apply when you redeem units. For ETFs, you will be charged a brokerage fee when you buy or sell. All these additional costs will eat into your investment returns.

In the example above, you can see that a difference of 1.0% per annum in management fee works out to be more than $142,000 difference in returns over a 30-year period. This is based on an initial investment of $100,000 and a return of 7.0% per annum. If the investment is larger and the returns are higher, the fees will be higher as well.

Invest wisely
At endowus, we believe that for long-term, buy-and-hold investors who do not need intra-day trading liquidity, it may be more effective to invest in unit trusts which trade at NAV, rather than trying to time the market when you invest in ETFs and  potentially paying more than what the underlying assets of the ETF are worth.

At the same time, we believe in keeping our costs low, so that our clients keep more of their returns. Our all-in Access Fee is from 0.25% to 0.60%, depending on your assets under advice. This all-in Access Fee includes advice, investment, rebalancing, transfer and brokerage, all at a fraction of the industry average. On top of this, you pay a fund-level fee of between 0.50% to 0.56%, which is charged by the fund managers out of the fund’s daily NAV.

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.

What to expect when you're expecting

November 3, 2018

When you invest, you expect to get the return due for the risk taken.  


We are creatures of habit. When you go to your favourite coffee shop, you expect to get that same coffee, made by that same barista. When you go to that Thursday morning yoga class, you expect to see your favourite yoga instructor. When someone you have never seen before skips into the room and takes the instructor mat, you sigh a little and shake your head before getting on with the class.

When you invest, you expect to get the return due for the risk taken. An example: if you buy an index fund or ETF tracking the MSCI All Country World Index, you will expect it to give you an annual return in-line with its long-term average (minus costs). Though the long-term average is an indicator of what to expect in the long-run, there are very few single years of return that will fall anywhere close.


MSCI All Country World Index annual return minus average annual return (USD)

In the 23 years from 1995 to 2017, only 6 years fell within a 10% range (+/-5% radius) of the long-term average annual return of 9.12%.

Furthermore, the best and worst 12-month return in the period ranged from +59.0% to -47.9%. This is an enormous dispersion of returns.

Each year is made up of 365 days of ups and downs, sweaty palms, hair-raising news, and your beating heart. It is not easy to patiently allow the fluctuations to work themselves out.

Diversification does remove some volatility, but if you expect to achieve anything close to the average annual return every year, you will be sorely disappointed and should probably steer clear of equity markets.

Ignore the desire for gratification in getting what you expect and try to ride out the market fluctuations, knowing that you have positioned yourself for long-term investment success.

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.
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Start-ups ask, ‘Are we making money for Saudi Arabia?’ (NY Times)

How Pony Ma went from Halley’s Comet to building Tencent (SCMP)

Ubernomics: The social costs of ride-hailing may be larger than previously thought (The Economist)


Banks struggle with global payments that look easy for Venmo (Bloomberg)

Paul Volcker’s guide to the almighty dollar (The Atlantic)


Singapore ousts Hong Kong as No. 1 for luxury home-price gains (Bloomberg)

Raise CPF withdrawal age amid growing lifespans (Business Times)

Singapore's PropertyGuru raises S$200m funding from KKR (Channel News Asia)


‘Superstars’: The dynamics of firms, sectors, and cities leading the global economy (McKinsey)

Inside fortress Maotai: secrets of China hard liquor that’s rocket fuel for its soft power ambitions (SCMP)


Blacklisted in China: China's social credit system (NPR // 20 mins)

Good to Know

The story of how Kit Kats became a booming business from Hokkaido to Tokyo — and changed expectations about what a candy bar could be (NY Times)

Superfoods are a marketing ploy (The Atlantic)

In China, the future of retail is already here (Bloomberg)

WeWork's first school teaches math and science but yoga and farming, too (CNN)

Sea cucumbers lead China’s logistics blockchain charge (Technode)

The big meltdown (National Geographic)


Are you skilful or just lucky?

October 20, 2018

With luck on one end and skill on the other, where does investing fall on this scale?

“I think it may be true that fortune is the ruler of half our actions, but that she allows the other half or a little less to be governed by us.”
- Niccolo Machiavelli in “The Prince”


Credit: Jimmy Chin, National Geographic

On June 3, 2017, Alex Honnold scaled El Capitan “free solo” without a rope: he climbed a 3,000-foot vertical granite wall with his bare hands and some chalk, in what is probably the most impressive feat in sporting history. 3 hours and 56 minutes of sheer concentration, strength and most importantly, skill.

Buying Tencent a year ago at $354, and watching it go up 34% in 3 months to $474, then crash 40% to $282 - that can be attributed to good luck followed by bad luck.

The influence of luck on outcomes has been understood for a long time. Despite having every manipulative trick up his sleeve, political mastermind Niccolo Machiavelli acknowledged the role that luck played in successful outcomes in his handbook for future rulers. Five centuries later, Michael Mauboussin wrote about the difficulty of distinguishing luck from skill in business, sports and investing in “The Success Equation”. He shows how different activities sit on the scale of luck and skill: Chess sits on the far right of the chart (pure skill), and slots machines sit on the far left of the chart (pure luck). Where does investing fall on this scale?

Nobel Laureate Eugene Fama and Ken French published a paper ‘Luck versus skill’, where they analysed the performance of over 3,000 US mutual funds from 1984-2006 through the lens of their Fama-French 3 factor model (i.e. adjusted the performance for the excess risk that the funds took).

They discovered that in aggregate, the entire active fund universe underperformed the market by about the fees they charged their investors.  

Naturally, some funds outperformed and some funds underperformed. How much of that outperformance was due to skill and not luck? Professors Fama and French determined that only the top 3% of mutual funds outperformed consistently net of fees. But “the number that did outperform the market with a high degree of certainty was less than what is expected by random chance.” (Source: IFA)

Mauboussin believed that the reason why luck is so important in investing is not that investors are not skilful - it’s actually the opposite.

Imagine if AlphaGo, Google DeepMind’s champion-beating computer program, played against itself. The winner of each game would be more dependent on luck, as skill would be the same. This is an extreme example, but the same applies to investing.

Investors are smarter, more skilled, and have access to more information today. Collectively they have become more efficient at incorporating information into stock prices.  As a result, the outcome becomes more uniform with less dispersion of good and bad outcomes. Mauboussin calls this the paradox of skill (Source: CNBC):

As skill improves, as the average skill level improves, it actually increases the dependence of luck in determining results. Perhaps recognizing the importance of luck in investing (and life) is a skill in itself.

The more dependent an outcome is on luck, the more important it is to focus on the process. If you rely solely on luck, you may get to a good (or poor) outcome with some random probability.

A good process will give you the highest probability of achieving successful outcomes over the long-term. If markets have taught us anything - it is to be humble and admit that we are not all ‘above average’, and we do not know what the future holds. Instead of gambling our hard-earning savings and relying on luck, we would rather invest with and stay committed to an evidence-based disciplined process.

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.
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The Chinese phone giant that beat Apple to Africa (CNN)

It’s better to be born rich than gifted (Washington Post)

Four out of top five most successful women entrepreneurs globally are Chinese (SCMP)


Not filthy rich enough: The billionaires too poor for 2018's Forbes 400 (Forbes)

Hedge fund stars crying uncle gives industry hope (Bloomberg)

The next recession: How bad will it be? (The Economist)


Malaysia’s Rosmah Mansor, Singapore’s Ho Ching: BFFs? You must be kidding! (SCMP)

FA managed portfolio services gaining ground (Business Times)

Singapore outclasses Hong Kong when it comes to minimum home size (SCMP)


Charles Schwab has a $3.6 trillion edge on the Fintechs (Bloomberg)


Moneyland: The shadow world of the super rich and how their money moves in shell companies and offshore accounts (NPR // 21mins) 

Good to Know

Banksy auction stunt leaves art world in shreds (The Guardian)

‘Made in China 2025’: How 5G could put China in charge of the wireless backbone and ahead of the pack (SCMP)

Why would anyone ever pay $558,000 for a bottle of wine? (Bloomberg)

The retreat from meat: Why people in rich countries are eating more vegan food (The Economist)

Jamal Khashoggi: What the Arab world needs most is free expression (Washington Post)

We can now customize cancer treatments, tumor by tumor (MIT Technology Review)

Original Microsoftie: Paul Allen (The Economist)


"I'll invest when the market crashes"

October 6, 2018

No one likes to be the schmuck who invests at the peak, only to watch their investments tumble the next day. But is that worse than sitting in cash?

Why waiting for markets to crash before investing is a losing game

With Wall Street’s longest bull run on record, many readers have asked if they should wait to invest.

No one likes to be the schmuck who invests at the peak, only to watch their investments tumble the next day, and month, and perhaps years.

Meet Bob, the investor we all try not to be. He’s the worst market timer in the world and only invests right before the market crashes.  

(Case study from A Wealth of Common Sense, adapted by endowus)

  • He started investing at the end of 1972 with $100,000,  right before the US market fell almost 50% over the next year.
  • He then invested $100,000 in 1987 (after 15 years of saving), right before the market lost over 30%.  
  • His bad luck continued: He invested $100,000 at the end of 1999, just to see the market lose half its value again.
  • His final investment before he retired was made in 2007, where he invested the $100,000 he had been saving since 2000.  The markets delivered him another >50% loss.

Poor Bob was also unlucky in life.

At the beginning of 2009, after the markets were down 51% since his last investment, Bob was on a ski vacation and had a bad fall. He needed to have a hip replacement, and when he got home, found that his house had burned down.

Bob looked to his investment portfolio and was surprised to discover that he was actually a multi-millionaire - $2.44 million to be exact. He made 6.1x his money despite his terrible luck with a 7.98% annualised return (IRR).

Thinking about inheritance, Bob did not touch his hilariously poorly timed investments and instead decided to live with his children and claim insurance for his hip replacement. As of end September 2018, Bob’s holdings would be worth $11.8 million, 29.6x his initial investment, with a 10.28% annualised return (IRR).

Bob wasn’t such a schmuck after all. He saved diligently and never panicked, which allowed the power of compounding to work for him.

In fact, Bob did a lot better than many of us. According to JP Morgan’s Guide to Markets, the average investor had a 20-year annualised return of 2.6% as of June-end 2018, likely due to speculation and poor investment behaviour.

Market timing is the holy grail of money-making - who doesn’t want to buy low and sell high?  But it is impossible to get right consistently. You’re investing for the next decade or two, not the next month or year.  When the powerful financier J.P. Morgan was asked what the stock market would do next, his answer was “It will fluctuate.” Look at the long-term trajectory of the markets rather than short-term fluctuations.

It’s about time in the markets, rather than timing the markets.

If you hold cash for long enough, you will eventually see markets decline. But you’re betting that you know when the markets are near a peak or trough, and that the pullback will compensate you for the close-to-zero return you’ll get sitting in cash, and that you’ll have the discipline to put money back to work when it falls by a certain level, even if everyone else is taking it out.

Pundits have been predicting for years that a market crash is right around the corner. They’ll eventually be proven right because that’s how markets function. Worrying about investing at the peak of the market is distracting you from what you should really be thinking about: positioning yourself in the markets for the long-term to have the greatest chance of success.

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The tyranny of the U.S. Dollar (Bloomberg)

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Market timing is hard (A Wealth of Common Sense)

Asian sovereign funds carve out more room for alternative assets (Institutional Investor)

Yale invests in crypto fund that raised $400 million (Bloomberg)


Asia-Pac family offices outperform global average (Business Times)

Capitalism, politics and despair: Banyan Tree’s Ho Kwon Ping goes on the record (Channel News Asia)


Why technology favors tyranny (The Atlantic)


Too little, too much: How poverty and wealth affect our minds (NPR // 50 mins)

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How Binance became world’s largest cryptocurrency exchange (SCMP)

Kava-no: Brett Kavanaugh’s own testimony disqualifies him from America’s highest court (The Economist)

Skyscrapers too pricey for bankers are full of crypto startups (Bloomberg)

Zao Wou-Ki’s monumental triptych sells for $65 million at Sotheby’s record-setting sale in HK (Artnet)

The art of the elevator pitch (Harvard Business Review)

Mongolia: 40 years of Asia travel and nothing had prepared me for it (SCMP)

Employers are looking for ‘Influencers’ within their own ranks (The Atlantic)


Do Crazy Rich Asians only invest in real estate? 

September 14, 2018

Owning real estate has been heralded as the ‘best’ way to grow your wealth. But is it really better than investing in the market? 


Unless you’ve been living in a cave, it’s probably safe to say that even if you haven’t watched Crazy Rich Asians, you’ve heard about it. It’s both a depiction of the life of the 0.1 percent and a marketing coup for the Singapore Tourism Board. The Youngs are absurdly rich, and one of the most opulent symbols of their wealth is the matriarch's family mansion at Tyersall Park. It’s an over-the-top, sprawling home in Peranakan style, and so secluded that it can’t be found on Google Maps.  

Owning real estate, or in this case, a mega-mansion, has always been a status symbol in Asia. It’s heralded as the ‘best’ way to grow your wealth, and if all else fails, it’s a fixed asset and roof over your head. Many of the real ‘Crazy Rich Asians’ have indeed built their fortunes on real estate. But is it really better than investing in the market?

You would think that Hong Kong real estate blew stocks out of the water, but this is a misconception.

We always hear wonderful 'get rich' stories on fabulous property purchases, but looking back at the data, they were more likely just fabulous acts of holding on.

Here are some things to think about when investing in property:

  1. Leverage - This is perhaps the largest driver of outsized equity returns in owning real estate, and also the biggest trigger for the 2008 Global Financial Crisis. If you pay $250,000 for a $1 million property, and the value goes up by 10% ($100,000), you have effectively made a return of 40% on your initial investment (excluding any interest costs etc). It’s quite unlikely you will lever your investment portfolio 4x. Remember, leverage is a double-edged sword that will also amplify your losses in a downturn.

  2. Liquidity - Stocks are far more liquid than real estate investments, and prices are transparent. You can buy or sell stocks anytime during market hours, and you can see the bid/offer spread on your screen. You can list your property for months without any buyers, or perhaps the best ‘offer’ for your property is vastly different from the last transacted price. However, the ease of trading stocks also means that you are more prone to poor behaviour and the whims of your emotions. It’s far easier to sell off your investment portfolio in a panic - all you need is a few clicks. You can’t really sell a property in 5 minutes.

Real estate forces you to behave as a 'good investor' given its frictions. Imagine if you had the same frictions when it came to investing in the stock market?

  1. Diversification - Adding real estate as an asset class to your overall investment portfolio can offer diversification benefits. However, unless you are in fact a Crazy Rich Asian who can afford properties in different cities around the world, it’s difficult to diversify within your real estate investment. For most of us, buying one property will make up the majority of our net worth. It’s much easier to diversify when you invest in stocks - you can buy shares of a globally diversified fund with thousands of holdings with just a small amount of cash.

  1. Income - Both stocks and real estate investments can generate steady income from dividends and rental income respectively. There are different risks involved: dividend payouts are not guaranteed, and the amounts are subject to the underlying company’s discretion. Rental yield is subject to supply and demand dynamics of the real estate market, and there can be periods when your property can’t be rented out at all.

  1. Holding and transaction costs - There is a cost to holding real estate - you have to pay maintenance fees, utility bills, insurance, property taxes and more.  It’s also more hands-on work - you have to deal with leaking aircon units, clogged bathrooms, and pest infestations in the garden. Transaction costs are also much higher for real estate - Singapore property agents on average charge 2%  to broker transactions, and there are additional stamp duty costs.

Investing in real estate should rightfully lead to higher returns because you should be compensated for the illiquidity and transaction costs, but that is not always the case. There was a study done entitled “The Rate of Return on Everything, 1870-2015”, where researchers looked at 16 advanced economies over the past 145 years. They adjusted the returns for inflation, included dividend income for equity returns and rental income for residential real estate returns.  

Source: Bigger Pockets

There are real estate tycoons and stock market tycoons.

Both real estate and publicly traded securities  are better investments than staying in cash, and both have a place in your portfolio and in your life. Owning properties is the Asian dream but there are alternatives to think about before just the diving in.

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JP Morgan is gamifying credit scores (Business Insider)


We can all retire as multi-millionaires

August 17, 2018

It may feel almost too overwhelming to think about saving a million dollars for retirement, especially when it’s still decades away.


You can’t just wake up one morning and decide to run a marathon. You set yourself a series of smaller goals before you can get there - from dragging yourself out of bed every morning to train, to building up your stamina and adding more miles to each run.

The same philosophy can be applied to saving for retirement. It may feel almost too overwhelming to think about saving a million dollars for retirement, especially when it’s still decades away.

Time matters.

Time is your biggest ally here in building up a retirement nest egg. Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” Here is what setting a series of smaller savings goal can get you:

Age 22: You’ve just entered the workforce with a monthly salary of $3,400 and two months of annual bonus (median salary for fresh graduates in Singapore). You save 24% of your salary (average savings rate in Singapore) and have made the smart decision of investing your savings into an 80% stocks and 20% bonds portfolio.

Age 29: By diligently investing your savings every month, you have now reached your first small goal of saving over $100,000.

Age 40: You have just hit the $500,000 mark.

Age 47: Congratulations! You are now officially a millionaire.

Age 60: The effects of compounding have snowballed. You have now saved over $3 million.

Age 65: It’s time to enjoy the fruits of your labour - you can retire with a nest egg of over $4.5 million. Assuming annual inflation rates of 3%, this is equivalent to ~$1.26 million in today’s money. For Singaporeans, this excludes what you have in your CPF, where you have been saving 37% of your monthly salary until you were 55. Imagine how much more you could have to spend in your retirement if you had invested part of this.

This assumes your annual salary increases 3% per year and annualised long-term returns of ~7% per annum for your 80% stocks and 20% bonds portfolio. Returns in any given year are far from average, but we are investing over the long-term. As a reference, the average annualised returns for the S&P 500 since its inception in 1928 is ~10%.

There’s a nifty math shortcut to see approximately how long it will take to double your portfolio - just divide 72 by your rate of return. I.e. if you can earn an annualized return of 7.2% on your portfolio, you will double your money every 10 years.

Doubling your money every 10 years by taking some market risk is totally doable.

Unfortunately, you can’t just wake up one morning and decide to be a millionaire today, a year later, or even 5 years later. Your get-rich-quick plan probably isn’t going to materialize. We have written about the impending pension crisis and how we should all prepare better for our retirement. (You can read about it here).

Start small. Start early.  

Harness the power of time in the markets and the snowball effect of your money working for you.

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Source: SCMP

Getting to that money/hammock moment

July 13, 2018

While research has shown that passive investing makes sense for part of your stock portfolio, we think it’s a different story for bonds.  


Warren Buffett thinks that the smartest thing your money can do is climb into a hammock and take a nap. (Of course, he’s smarter than us so he doesn’t do this personally.) While research has shown that passive investing makes sense for stock investing, we think it’s a different story for bonds.

Let’s look at the numbers: Over the past 10 years in the US, the median active bond fund manager has outperformed the median passive bond fund by 0.80% per annum after fees (a meaningful amount). This is compared to the underperformance of the median active stock fund manager versus the median passive stock fund of 0.56% per annum.

10-Year Returns of US Median Active and Passive Managers

Source: PIMCO

We would love to embrace Warren Buffett’s romantic laissez-faire view on investing in its entirety, but as evidence-based investors, we think a little more work is required before shutting both eyes and dozing off.

Not all asset classes and markets are created equally. The bond market is a different animal from the stock market in many ways:

1. Irrational players.

There are ‘noneconomic’ players moving huge amounts of money that do not always act rationally in the economic sense. Central banks prioritize their country’s growth and inflation mandates over portfolio returns. For example, when central banks implemented quantitative easing policies, they bought their own government bonds to boost spending in order to reach inflation targets and stimulate economic growth. This ‘irrationality’ affects the market.

2. Bonds are rated.

In the stock market, the price of a stock reflects all known information on the company. For some reason, we humans decided not to place our trust in the power of markets when it comes to bonds - we allow ratings issued by organisations to help the world decide the ‘quality’ of a company’s bond. Funnily enough, these ratings almost always lag changes in a company’s bond price, which means that the market participants see the changes in a company’s fundamentals before the rating agencies can get around to changing their laggard ratings.

Benchmark indices have to track these imperfect ratings religiously, which is inefficient. We prefer to leverage on the collective wisdom of the market and use the information in prices, as we do for stocks. This means having someone in the driver seat of our bond portfolio so we are not stuck behind an old smoke-spewing truck (the rating agencies and indexes that must adhere to their judgement) when the light turns green.

3. The (lack of) fees.

The general rule is that if fund managers can get away with high fees, they will. Luckily for us, over the years they have lost the ability to justify their high fees due to a lack of outperformance, which has put downward pressure on their share of the pie. The fee dispersion between active and passive managers in bonds is much smaller than in equities, and at a level where active bond fund managers are taking home less (in their fees) than their median outperformance over their benchmarks.

Source: PIMCO

Don’t blindly turn away from active bond fund management. The passive strategy in bond investing unfortunately does not work as well as it does in stock investing.

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The growth of index investing has not made markets less efficient (The Economist)

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Temasek’s net portfolio value hits record high of S$308 billion (Channel News Asia)

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How to fix what has gone wrong with the internet (The Economist)


Richard Thaler: People aren’t dumb. The world is hard. (Freakonomics // 57 mins)

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