Monday, January 16, 2012

Should we invest outside Malaysia? ...... Part II

People who want to manage their own money like to take control of their destiny. They don't trust the fund managers. They think fund managers are making themselves fatter each year while fund investors remain bamboo thin. I agree with those sentiments but I won't go into bashing fund managers on Monday morning. I think you can do a good job for that. Three or four important concepts to remember when investing in mutual funds in general. It's applicable to foreign fund investing as well.

The first concept we got to differentiate is fund performance vs investor performance.

A fund performance is calculated based on the date the fund was launched. The fund can be around for 10 years in this example and they can claimed that they have superior long term performance of how they can return RM 2,500 if you invested with them an initial sum of RM 1,000, roughly 9.6% CAGR. That sounds good. No dispute -- damn good in fact. Don't forget that if you invested with them when the fund was 8 years old with NAV of the fund was RM $ 2,300, your CAGR return is only roughly 4%. How come? 9.6% is a fund manager return and 4% is an investor performance. The base of gains/losses is set at the date of fund launching date for a fund manager. The date of investor making a purchase and gains/losses calculation belongs to his/her performance.

What I'm saying timing is everything. Timing is very closely related to sentiment. Most of us like to chase the girls with red mini-skirts -- hot. Well, who doesn't ???except you need to pay the price for it. I suppose no further elaboration needed with this visual.

Buy into foreign funds have no difference when that country or investment concept is depressed. China big cap funds for example are clearly very undervalued now except it is very testing because your money isn't growing! Do you dare to do dollar averaging now?

The second concept is diversification. Diversification is for birds, Warren Buffett would tell you. I would agree to certain extend if you are really super-competent in your area. Most of us will need to be humble, accepting that we score C across many categories. We need to diversify a little bit to prevent us making stupid mistakes. The rule of diversification is to make sure low correlation with what you are holding now.

The third concept is asset allocation. How much do you want to allocate for foreign assets? Personally, I have 80% invested in Malaysia and 20% invested in foreign mutual funds or ETFs(some sort of mutual funds that mimic an index).

The forth point is forex. Whether we like it or not, we need to pay attention to this. I was one of those who got impatient to venture out when our government liberalized the forex control. The feeling was like a bird being freed from a cage. It's the same reasons-lah: hopeless government, expensive Malaysian stock market, better investor protection, boasting about my investment skills, ego stroking, etc........A lot of my returns were eaten up by forex loss. From RM 3.80 to 1 USD to RM 3.05 to 1 USD, that and initial loading fees already put me in disadvantage situation. I do not think I lost money but after spending a lot of time and efforts, it's break even that I got forced me to be more realistic.

As usual, I hope my brutal honest views can help you a bit in your deliberation. I certainly have no intentions to put anyone down except force everyone to be naked in front of a mirror to make an honest assessment. After you have done that and if you think you are fit for it, don't hold yourself back. Just go for it! Happy investing and good luck!


CTBFF said...

Wow, I didn't expect such an elaborate reply to my question, not on a Monday morning! Thank you. You're an awesome blogger. N your opinion got me thinking about the other aspects of investment which i overlooked.
Are you a stock analyst?

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