Sunday, July 30, 2023

The Bedokian Portfolio Blog’s Seventh Anniversary Post

Time flies. It has been seven years since I had started this blog.

For some new investors, these seven years felt like a lifetime, or rather, a full oscillation of the market and economic cycle (or a few, depending on how one sees it). If they had remained sane after this period, then congratulations to them, for their next few chapters of their investing life would be something like this.


These seven years had also seen a few unprecedented events that could be described as black swans (or grey swans as some might put it), such as the COVID-19 pandemic, inflation, interest rates, etc. We also have had minor happenings, good or bad, like the rise and fall (so far) of cryptocurrencies, the rise and rise (so far) of artificial intelligence, the rise and rising trend of green and electric vehicles, etc.


For this post, however, I would not be delving further on the general market and economy, and the fads and trends. Instead, I will focus on something that is practical and may be useful to your own investment journey.


Formalising Your Portfolio Multiverse


If you had initiated your financial and investment plans (i.e., investment portfolio, having CPF contributions, adequate savings and insurance cover, etc.), and followed diligently for the past seven years (and not making any glaring financial mistakes), chances are you would have accumulated at least a low six-figure sum spread across your savings, investment portfolio(s) and CPF (across all accounts).


This conclusion was not plucked from the air; assuming an average starting pay of SGD 1975 for an ITE graduate who started work on the first day of 20161, and with a 5% pay increment every year, 10% savings rate, 20% investing rate with a 5% annual return, 20% + 16% CPF contributions with an averaged 3% yearly rate, by end 2022, this person would have around SGD 131K2. Extending this to polytechnic (SGD 2400 average starting pay) and university graduates (SGD 3375 average starting pay) of the same year’s cohort, the final figure is about SGD 160K and almost 225K, respectively.


By this stage, it is probably time, in my opinion, to have a holistic view of the finances since they had built-up to substantial amounts. It is common for people to still view them separately as silos, which is natural due to mental accounting bias. If one knows how to use it, mental accounting bias is a good thing, which is the basis for my portfolio multiverse concept.


We all know the power of compounding especially through income investing, but most of us tend to think of it happening within a portfolio, or one universe as I would put it. In practical terms, I can see my portfolio using my disposal income is compounding at 10%, and my CPF Ordinary Account (CPF-OA) and Special Account (CPF-SA) is earning a 2.5% and 4.01% interest rate respectively. What if I could take a portion of the 10% returns and plough it into my CPF-OA and CPF-SA, for which the latter to quickly reach the prevailing full retirement sum? In this way we are traversing the various universes of our overall financial and investment portfolio, yet in each universe the laws of it are not the same. In other words, these portfolios are different, but they still work for you as a whole, just that each of them has different rules. To summarise: differentiate, then integrate (no, this is not calculus).


Besides the disposable income portfolio and CPF, one could venture further into other portfolio universes. One common way would be through the Supplementary Retirement Scheme, appealing to those who wants to have tax savings. For those who have skills and/or assets at hand could make use of these to do side hustles or leasing/renting out of assets like property.


If you are a hands-on investor (i.e., active or active-passive, like myself), you could manage the cashflows across the portfolios to optimize your overall multiverse. If you prefer lesser hands-on (i.e., passive or passive-active), you may just let the portfolio go, rebalance individual and across the portfolios on a periodic basis.


1 – Starting salaries of graduates. Parliamentary replies. Ministry of Education. 10 Sep 2018. (accessed 30 July 2023). Pay of SGD 1975 was derived by averaging the 2016 median gross salaries between public (SGD 2150) and private (SGD 1800) of an ITE graduate. Same goes for polytechnic (average of SGD 2600 public and SGD 2200 private) and university graduates (SGD 3550 public and SGD 3200 private).


2 – Calculation of investment returns and CPF interest rates are done on an annual basis for simplicity.

Monday, July 24, 2023

Why Office Rentals In Singapore Are So Resilient?

You may have read news about empty office properties in the United States and Europe, especially after the resulting work from home (WFH) trend that started during the COVID-19 period, and the rising interest rates that came thereafter. Vacancies are going up and rentals are coming down at those places. These brought about the drop of office property valuations, and property-related counters and funds are taking a hit.

Yet right here in Singapore, we see the demand for office spaces is still there, with healthy rents and high occupancy rate in the downtown area. In the real estate investment trust (REIT) scene, we can observe that overseas-based ones, especially those whose properties are in the United States, are under downward pressure as compared to those whose properties are mostly locally based.


There are, in my opinion, several reasons why and all played some part in the net positive of things. 




The first is geopolitical, with Singapore seen as a place of stability and being business friendly over other locations. This strength was already present for the past few decades or so, and it is still present now.


The second is the hybrid work system encouraged by the Singapore government that workers could WFH several days per week. Employees had tasted the benefits of WFH, and employers knew this, thus having a hybrid work location arrangement is a win-win for productivity and morale boosting.


While slightly contradicting to the second reason above, but still relevant, the third one is the Asian work culture at play, where in-person presence is preferred over virtual ones. Even without the culture card, it is cited that working from office could promote better collaboration among staff, and between staff and management.


The last reason can be attributed to the size of Singapore; with public transport, the average maximum time to reach anywhere from point A to point B is around one hour, barring any big jams and delays. With more subway lines being constructed, we may see the average maximum travelling time reducing in the future.


Operationalising Into Investing


Being an investment blog, the most important issue to answer is how to capitalise on this. The most direct way is via REITs and there are a few Singapore-listed REITs available. However, most REITs are not pure Singapore office play (e.g., Keppel REIT also has Australian, Japanese and South Korean office properties) and they likely contain other property types within (e.g., CapitaLand Integrated Commercial Trust has retail properties).


There are many other indirect ways to capitalise as per my associative investing method1: one is public transport (e.g., SBS Transit) and another is retail REITs to capture the spillover effects of workers patronizing these places during mealtimes and/or after work (e.g., CapitaLand Integrated Commercial Trust comes into play again).


One last tip: have you ever wondered why public transport and roads are getting crowded? It is because they are heading to work (and a portion of them are going to offices). And have you noticed why usually on Fridays they are not so crowded? It is because (my anecdotal viewpoint) that most people prefer to WFH on that day.




The Bedokian is not directly vested in the counters mentioned in this post.




1 – The Bedokian Portfolio (2nd Ed), p137-138

Wednesday, July 12, 2023

The Thing About Averages

In the world of statistics, and particularly in investing circles, we cannot escape from the use of averages. A lot of investment philosophies, methodologies and models are very much based on using averages, or “mean” in statistic-speak. It is by far the easiest concept to grasp; many people can associate a given factual number and then extrapolate their projections from there. For example, supposedly the returns of the S&P 500 (using the SPY ETF) were around 7.54% annually for the past 25 years1, we were able to wrap our heads that, assume all things equal, we could get that returns every year for the next 25 years if we started on the S&P 500 now.

However, things are not that simple.


We had learnt back in school that average is the sum of the number of items/occurrences divided by the number of observations. The following is an example of a simple average math example that we may have encountered in our school days. 


Bob’s Diner Daily Profit/Loss for the Week


Profit / (Loss) $















Total Profit/Loss


Average Daily Profit/Loss

$5,600 / 7 = $800


Fig.1: Bob’s Diner average daily profit/loss for the week


From Figure 1, it is correct to assume that Bob’s Diner is earning $800 per day over the course of a week. However, this $800 number is taken from figures of the past seven days, and you could see that there is no “$800” in any of the days. We could stretch it to two weeks or even more, and we might have a chance of getting $800 somewhere in the extended timeframe.


This is where I will bring in the “not that simple” part; obviously, from Figure 1, the average is aggregated from the various amounts reported over the course of the week, and they swing rather wildly around the $800 mark, with differences of between $200 and $1,700. If I had wanted to buy over Bob’s Diner with knowing only of the $800 daily average, I would be in for a shock if I had known the actual daily profit or loss. You can imagine if the amounts in Figure 1 were translated from daily to annual investment returns.


Standard Deviation


To understand more on averages and their relationship with the actual numbers, a statistical tool known as standard deviation, or SD, is used. Standard deviation allows one to see the number of dispersals of the individual numbers with relative to the average. A low SD indicated that the numbers are quite close to the mean, while a high SD means (pun intended) that the numbers were dispersed further from the mean. For Figure 1, the SD is relatively high at 137%.


SD is seen as an indicator to determine if an investment is volatile; too much volatility will give the investor the psychological version of a roller coaster ride, and this puts off risk averse individuals who prefer to play it safe. With this, SD is also seen by investors as a risk metric. For information, the SPY ETF, with an annual return of 7.54% over 25 years, provided a SD of 15.63%1.


Think Long Term


Though seeing such swings on a daily, monthly or annual basis is rather nerve wracking, as investors we see things on a longer term. At the end of the long investment period, at which you are prepared to drawdown your portfolio, is where the average works best, for it is presented as a smoothed out, “looking-back” number. This brings us back to the point mentioned in the first paragraph of being the easiest to understand. The danger of using past averages for projection is mainly due to “past performance is not indicative of future results” clause, but, using the average rolling returns of SPY ETF between 3 and 15 years, it is roughly the same as the 25-year duration1, so the probability of the returns being repeated, ceteris paribus, in the future is relatively high.


1 – SPY statistics from Jan 1998 to Dec 2022. Portfolio Visualizer.

Monday, July 10, 2023


The term “diworsification” first appeared in the book One Up on Wall Street by Peter Lynch, in which he used the term to comment on companies that went into areas that were different from their core businesses, with disastrous results. Soon the word expanded into investment lingo, which described the situation where an investor diversified his/her portfolio to the point that it is not for the better, but for worse. As you may have guessed, diworsification is a word play of diversification, and it meant the dark side of the latter.

For Modern Portfolio Theory which The Bedokian Portfolio and I espoused on, diversification is one of the core tenets of investing, along with rebalancing. The main idea behind diversification is to spread out the investment risk amongst the holdings, so that a portfolio would not be hard hit should one, or a few, holdings collapse. Perhaps in the pursuit of diversification, some new investors may have practised it a little over-zealously, thus susceptible to diworsifying their portfolios.


Diversification, in my opinion, should be in the following order: asset class, regions/countries, sectors/industries and individual companies. To prevent diworsification from happening, it is best that a portfolio, at least in the beginning, should be made up of asset classes only, using exchange traded funds (ETFs). For a small portfolio sizing (four to mid-five figure sum), having just one or maximally two ETFs for an asset class is sufficient, for during rebalancing, it would be straightforward and lesser transaction costs incurred. Selection of the ETF is important and try to get those which give more exposure down the order at a lower expense ratio.


If your portfolio sizing had reached at least a mid-five figure level and if you are comfortable with the portfolio that you have, then just stick to it. You could try to diversify further down the order with specific ETFs (e.g., Asia Pacific ETF, banking sector ETF, etc.) or individual companies, but do consider whether the addition of counters and holdings positively complements your portfolio. If you want to add just for the sake of adding, then there is no point at all.


As long as one remembers why we diversify in the first place, and knows what one is doing, then it would be easy to avoid diworsification.