Momentum Won the Day But Becomes Stale in 2018

Sticking With Winners Is What Won in 2017’s Stock Market https://www.bloomberg.com/news/articles/2017-12-29/momentum-stocks-stole-show-in-2017-with-whiff-of-dot-com-mania

There are two types of momentum: stale and fresh momentum.

Momentum in academia is defined as assets that rose or fell in the last 12 months. There is plenty of research that they tend to continue in the same direction in the subsequent 12 months. E.g. stocks that rose in the last 12 months tend to continue to rise in the next 12.

However, one must differentiate between fresh and stale.

Stale momentum is assets that prior to the 12 months, was rising in the last 12 months. That means from t-24 to r-13 assets were already rising.

Fresh momentum means prior to last 12 months, they were falling for previous 12 months. That means t-24 to t-13 they fell, t-12 to t-1 they rose.

Stale momentum assets tend to run out of steam after 4 months, if you count from March 2016 which was the start of the momentum, March 2017 to March 2018 is considered fresh momentum. But from March 2018 onwards, the odds of momentum continuing is poor after 4 months. Hence July 2018, we could see momentum failing. Hence it reinforces my view that we have entered a dangerous period in 2018 and we should see a major correction at least in the second half of 2018.

Stay tuned. Meanwhile, ride the trend.

Working Towards SGD10m Networth

Having counted what I've invested and what I'm worth, I realise that I'm slightly below 5m of networth. Cashflow wise, I'm producing a nice number that's probably less than 500k. But I had to work so hard for it.

In order to move towards the 10m mark I will have to accelerate my pursuits. The more cashflow generating businesses and assets I have, the better I will be. 

3m of net assets should generate roughly 150k of passive cashflow easily by right. If I work it right I should generate close to 250 - 300k of cashflow. 

If I hit around 5m of net assets I should have around 500k of cashflow. 

I have 2 properties that can potentially en bloc and harvest around 1.7m of equity. One of which is in Geylang which will probably happen in the next 5 years. The other one may take another 10 years. 

Nothing block busting is going to occur the next 5 years unless I embark on a wildly successful business.

I realised that my return on equity is only 3.6%. Real estate alone is not generating enough cashflow obviously. Several issues came up:

1. Apartments in Australia were a let down. They were bought off plan and between 15 - 30% more expensive than existing homes. Capital gains were obviously poor because I bought them more expensive.

2. Rental yields were barely higher than interest rates. I forgot that in overseas, mortgage rates were usually much higher than the LIBOR or cost of funds.

3. Body corporate, or service charges were usually double that of Singapore's, thereby wiping out any cashflow.

4. Generally, apartments other than those in London, where capital gains were fabulous, were a let down. Luckily we turned to houses which provided ROE of around 10 - 15%.

From now on, we had to go for projects with higher ROE than 4%. Our development project in London yielded 20%. 

Speeding Up The Journey To Be Financially Free

In the last few months, I've completed another transaction. I now own over seven investment properties and one residential property. IRR is roughly 30% because of leverage and rental income. Every single property of mine yields higher than the borrowing cost. At least 75% of them produce positive cashflow after deducting all expenses.

My financial investments is doing around 22% IRR.

Yet, when I calculated my networth, it is still much lower than I had expected. I've started my investment journey in 2006 and intensified it in 2013 with a buy-hold-refinance-buy more strategy. Four years on from 2013, no doubt I've made over USD2m but it is still well below being financially free, cashflow still unable to replace my income. In other words, I'm still in the work force.

There are other ways to make it bigger:

1. invest in en bloc properties. You can earn over S$2m per property if you pick the right ones. But there's no guarantee that whatever you pick will be loved by developers or your neighbours will be willing sellers.

2. Strike lottery.

3. Run my own advisory firm. This is in the plans and it will be one big way for me to hit wealth much faster.

Don't get me wrong. Money is not everything. It allows me freedom to do charity. To help others. To help my family. This is the end goal.

6到12个月的时间，可能看到一个陡峭的权益纠正，但我可能是错误的

自2000年以来，我们看到每两到三年的差距就在20-50％之间。

2000  -  2001年9月，50％修正（熊市）。

原因：以CAPE比率记录高股本估值。新兴股市上涨100％，科技泡沫。 9/11恐怖袭击

2002  -  2003年6月，MSCI世界（熊市）的30-40％改正。 SARS，企业渎职。冒牌开始牛市。

2007年11月 -  2009年2月，MSCI世界（熊市）修正约60％。大衰退次级崩溃从美国开始。美国的股票估值并不高于中位数。

2011年5月 -  2012年9月，修正约20％（大修正）。欧元区危机。海啸在日本。全球复苏缓慢

2014年11月 -  2016年8月，大约10％的修正（大修正）。新兴股票和商品受美国利率上涨的影响。

马克吐温说：“历史很少重复，它只是韵律”。

在2018年，我们应该看到至少20％的重大调整。即使中央银行准备重新降息。我们在恢复周期中非常迟。这就是为什么：

1.差不多十年的低利率和量化宽松政策导致了亚洲的债务泡沫。我们看到石油和天然气新加坡天然气行业慢慢陷入违约。中国的高企业债务和违约行为迄今已被政府席卷全地，但持续了多久？

2.发达国家的CAPE或周期性调整后的价格收益率的估值是自1929年刚刚大萧条之前和2000年以来科技泡沫高度的最高水平。

3.全球IPO的涨幅越来越大，表明公司认为估值接近高峰。公司倾向于上市，以退出公开市场。

大量的资金追逐昂贵的资产。我们看到私募股权基金，开发商投标资产的收益率非常低，为3  -  4％。一旦利率上升1％，这些项目立刻就没有意义。

以下是牛市可能持续一段时间的原因：

通货膨胀仍然是良性的。由于自动化，工资并没有快速上升，所以与2005年至07年不同，美国的工资增长率不会比3  -  4％。

在市场上仍然有很多的恐惧。分析师，CNBC和彭博社的谈话负责人正在宣扬公牛的结束。对公牛的结束表示太多的担忧。这必须是最讨厌的公牛。

新兴市场股票，如俄罗斯，土耳其和巴西，仍然远低于估值的中位数。预计它们每年的名义回报率将达到10％至16％之间，相比美国的2％，这相当令人印象深刻。

在这个周期的这一部分，我们做什么？

全球经济放缓（2002,2009-10），买入股票。他们是第一个恢复。买地用于未来发展。购买像建成建筑这样的硬资产，因为收益率高达9-15％。没有竞争对你的出价。购买商品买高收益债券。

全球经济下滑（2003年至04年，2011年至12月），出售一些股票，但并非全部，因为收益开始压缩，购买硬资产。随着地价的上涨，开始将土地发展成为建筑物。 2009年买入的开发商利润率最高。

全球经济复苏（2005年，2013  -  15年），停止购买硬资产，因为它们不够流动，不足以迅速退出。只购买具有重建潜力的物业。开始销售你的项目。保持你的商品。利率已经开始上涨，但持有你的高收益债券。

全球经济升温（2006  -  07年，2016年至18年）。开始出售一些非常低收益的硬资产，例如商店以3  -  4％的上限率。快速出售您的项目，如果不将其出租。出售股票等流动资产。仅投资于ETF，单位信托。任何液体的东西。不要坚持亚洲的非流动性高收益债券。

第一个迹象出现（2007年11月）。迅速卖出股票。你现在应该出售一半的硬资产，希望把所有的项目都卖掉。保持非常流动的债券和平衡的资金。替代品如CTA非常方便。您可以开始缩小股票ETF。开始销售商品。

全球经济放缓开始（2008年6月）。现金，投资级债券，CTA，短期股权。开始在街上寻找血液。机会加倍

6 to 12 Months' Time, May See A Steep Equity Correction, But I May Be Wrong

Since 2000, We see a steep correction every two to three years of between 20 - 50%.

2000 - 2001 Sep, 50% correction (Bear Market).
Cause: Record high equity valuations in terms of CAPE ratio. EM equities rallied 100%, tech bubble. 9/11 terrorist attack.

2002 - 2003 Jun, around 30 - 40% correction of MSCI World (Bear Market). SARS, corporate malfeasance. False start to the bull market.

2007 Nov - 2009 Feb, around 60% correction of MSCI World (Bear Market). Great Recession. Sub Prime meltdown started from the US. Equity valuations in the US were not extremely above median.

2011 May - 2012 Sep, around 20% correction (Big correction). Eurozone crisis. Tsunami in Japan. Slow global recovery.

2014 Nov - 2016 Aug, around 10% correction (big correction). EM equities and commodities hit by rising US interest rates.

"History Seldom Repeats, It Merely Rhymes", so says Mark Twain.

We should see a major correction of at least 20% in 2018. Even with Central Banks ready to go back to rate cutting mode. We are extremely late in the recovery cycle. Here's why:

1. Almost a decade of low rates and quantitative easing have resulted in pockets of debt bubble in Asia. We are seeing oil & gas sector in Singapore slowly going into defaults. High corporate debt and defaults in China has so far been swept under the carpet by the government but for how long?

2. Valuations in terms of CAPE or cyclically adjusted price earnings ratio in the developed world is at the highest since 1929 just before the Great Depression and 2000, the height of the tech bubble.

3. IPOs are at an increasing rate worldwide, indicating that companies feel that valuations are near peak. Companies tend to IPO to exit into public markets.

4. Lots of money chasing after expensive assets. We see private equity funds, developers bidding for assets at very low earnings yields of 3 - 4%. As soon as interest rates rise another 1%, the projects immediately do not make sense.

Here are the reasons why the bull markets may last a while longer:

1. Inflation is still benign. Due to automation, wages are not rising as fast, so we don't see 3 - 4% wage growth in the US, unlike in 2005 - 07.

2. Still a lot of fear in the markets. Analysts, talking heads of CNBC and Bloomberg are touting the end of the bull run. There is far too much worries to signal the end of the bull. This must be the most hated bull run ever.

3. Emerging market equities, such as Russia, Turkey and Brazil are still well below median in valuations. They are projected to produce between 10 and 16% return per annum nominal, which is quite impressive, compared to the US' 2%.

In this part of the cycle, what do we do?

Global economy slowing down (2002, 2009 - 10), buy stocks. They are the first to recover. Buy land for future development. buy hard assets like completed buildings because yields are super high at 9 - 15%. No competition for your bids. Buy commodities. Buy high yield bonds.

Global economy hits trough (2003 - 04, 2011 - 12), sell some stocks but not all, buy hard assets as yields start to compress. Start to develop your land into buildings as land prices rise. Profit margins for developers who bought in 2009 is at the highest.

Global economy recovers (2005, 2013 - 15), stop buying hard assets because they are not liquid enough to exit quickly. Buy only properties with redevelopment potential. Start selling your projects. Keep your commodities. Interest rates have started to rise but hold on to your high yield bonds.

Global economy heats up (2006 - 07, 2016 - 18). Start to sell some hard assets that have very low yields, e.g. shops at 3 - 4% cap rates. Sell your projects quickly, if not rent them out. Sell some liquid assets like stocks. Invest only in ETFs, unit trusts. Anything that's liquid. Do not hold on to illiquid high yield bonds in Asia.

First signs of trouble emerges (2007 Nov). Sell of equities quickly. You should have sold half your hard assets and hopeful sold all your projects by now. Keep very liquid with bond and balanced funds. Alternatives like CTA come in very handy. You may start to short equity ETFs. Start selling commodities.

Global slowdown starts (2008 Jun). Cash, investment grade bonds, CTAs, short equity. Start looking for blood on the streets. Opportunities galore.

Hong Kong is Booming, While Singapore is Withering

http://www.scmp.com/news/hong-kong/economy/article/2094139/hong-kong-economy-smashes-forecasts-first-quarter-2017-grow



If you have recently visited Hong Kong, you will find that in the CBD, around 30 - 40% of people speak Mandarin, not Cantonese. This was not the case say four years back. Five star hotels like Four Seasons are filled with PRC tourists and business people. Expensive restaurants like Joel Robuchon are patronised 90% by PRC. Expensive fashion boutiques are filled with tourists.

In contrast, Singapore's shopping malls are empty in the central. Singapore's economy grew at a measly 2% per year the last three years whereas Hong Kong's grew by 4%.

100 billionaires are produced in China every year. They are also the youngest ever billionaires, on average in the late 30s and early 40s. Often once rich, they endeavour to send their families overseas, kids to the best overseas universities. It also means that they will set up businesses in Hong Kong. There is a lot of money awaiting talent to manage. Family offices are set up in Hong Kong, run by Hong Kongers. They decide what percentage to allocate to each region.

Singapore probably receives 10% of the funds that Hong Kong receives. Our finance professionals are jobless as western MNCs consolidate and move to cheaper locations. In the 80s and 90s, Singapore saw high net worth individuals from Southeast Asia flocking to Singapore. Its economy boomed. This wave has slowed to a trickle. Hong Kong is seeing the same inflow from China, but 10x more than Singapore ever saw in the 80s and 90s.

The next decade belongs to Hong Kong. Singaporeans who are highly trained professionals should consider uprooting themselves to live in Hong Kong / China. It is a chance of a lifetime to tap on this wealth. One should situate at the source of the river Ganges, which is in the Himalayas. By the time it flows to south India, water is muddied and undrinkable. 

It's Now A Better Time To BUY Stocks Than Properties.... If You Know How to Invest

Acquiring a property with 15% ROE is a good thing. But property is illiquid. There's a lot of effort involved for financing. If you have capital gains of 5% per year, 7% NOI, you can achieve 31.8% IRR for sure. But it's not easy to sell when things go wrong, and the time and effort required to maintain it suggests that I'll be happy with 25 - 30% IRR for stocks.

That's what I believe can be done for stocks, ETF and unit trusts. 25 - 30% IRR. It's liquid. Eventually when the market crashes, I will have enough liquidity to pick up properties at 10 - 30% discounts. But timing is extremely important for stocks. One cannot miss the major down turn and must get out before it. 

Rally to Continue

I've been looking at Gilead and Talked recently. Gilead turned around after declining by over 40% from USD120 in 2015. It is now USD72 and definitely worth a buy. The company is in the process of producing HIV, Hep C drugs. ROE 74%.

Talked gapped down recently due to a scandal involving a oncologist. Once it gapped from 0.74 to 0.66, a window has opened.

EWZ is Brazil ETF. It fell from 40 to 32. If you buy at 33, it would have been over 10% up at 37 now. Brazil's expected return is over 10% per year, 3rd cheapest ETF in the world behind Russia and Turkey.

The rally is incredible. It is unlikely to pause until 2018. I am prepared for whatever happens but we shall be brave for now! 

Going for Cashflow Instead of Capital Appreciation

Stocks and unit trusts are for liquidity. Generating 5% of dividends, 20% of capital gains is well and good for financial instruments.

I realise also that investments should be run like a business. My net profit margin for real estate is currently around 20%. I should improve it to around 35%. That means my EBITDA to Interest Expense should be above 1.5x. I should lower my gearing or go for high cashflow properties that yield above 15% in future. Eventually I should get there.

After holding on to my properties for above 7 years, it is also time to harvest or sell those that are well in profit or have not much upside left.

I don't intend to increase my exposure to Singapore properties. Below is a list that I draw up. It is very much like the PE to Growth Ratio by Peter Lynch, the legendary stock investor. Cap rate + projected rent increase - borrowing cost gives me the "differential". The bigger the differential, the more underpriced a city is.

Singapore is in the "SELL" zone. This means that I should either lighten up my exposure or sell before I buy. Singapore is let down by negative rent increases due to oversupply, and a very low Net Operating Income or Cap Rate.

Cities like London is still a "HOLD" as chronic shortage cause rents to continue to rise. Yields may be low, but the speed of the rent rise makes up for it. Australian cities like Melbourne and Brisbane are "SELLs", hampered by very high borrowing costs and low rent rises (due to elastic supply).

The cities I would focus on are Birmingham, Manchester, Dublin and Belfast. The most interesting city is Dublin, which is set to draw investments out of London due to the Brexit. It has a low tax rate vs the EU, and its economic growth is a phenomena 7 - 10% per year, faster than Singapore's.

City	Rent increase	Cap rate	Borrowing cost	Differential	Decision	Rank
Singapore	-2.50%	2.50%	1.80%	-1.800%	SELL	13
London	4.00%	3.00%	3.50%	3.500%	HOLD	5
Birmingham	3.00%	5.50%	3.50%	5.000%	BUY	3
Manchester	2.50%	6.00%	3.50%	5.000%	BUY	3
Hong Kong	5.50%	0.75%	3.50%	2.750%	HOLD	9
Melbourne	2.00%	3.00%	4.25%	0.750%	SELL	11
Brisbane	1.00%	4.00%	4.25%	0.750%	SELL	11
Auckland	5.00%	2.90%	4.85%	3.050%	HOLD	7
Christchurch	3.00%	4.00%	4.85%	2.150%	SELL	10
Lisbon	2.00%	4.30%	3.50%	2.800%	HOLD	8
Dublin	4.00%	5.90%	3.50%	6.400%	BUY	1
Belfast	2.00%	6.50%	3.50%	5.000%	BUY	2
Edinburgh	3.50%	3.50%	3.50%	3.500%	HOLD	5

Time to Scale Up!

We are in the midst of acquiring a freehold house in Birmingham. The cash on cash return with 70% leverage is around 15% per year. If I assume capital appreciation of 4% per year, the IRR rises to 30% per year. Of course it is good income but not exactly passive!

First, the acquisition is time consuming. If you are getting a mortgage, you require lots of documentation with banks. Even if you are not, you still need to engage the solicitor. It takes about 10 to 20 man powers to acquire a property and if you are drawing an income of SGD15k per year, that's SGD750 per hour of work!

Second, value adding to the property, such as extensions, loft conversions, fixing the bathroom etc requires another 10 man hours to monitor even if you outsource to a project manager. The value add of such a strategy through improved rentability or cashflow can be anywhere from 20 - 30% IRR.

Third, even if you outsource the management of the lease you still have bills to pay, such as council rates, monitoring the agent's performance. It could cost you any where from 2 - 4 hours a month!

It's not exactly stress-free unlike stocks.

There is also a lack of liquidity so to sell a property takes anywhere from one month to one year!

I would do both, invest in stocks and buy properties. Stocks can achieve around 15 - 30% IRR but have great liquidity if you invest in heavily traded stocks. But in a bear market you can be down by 50 - 70% if you forgot to cut loss and if you leverage on stocks, you can get wiped out and lose your pants! Property is forgiving. Even if you buy a lemon, you could recover and make a positive return over a longer term like 10 years.

The lesson we've learned is that we need to scale up for properties. It is less efficient to acquire small properties but better to acquire an entire block of apartments, serviced apartments, private rented sector housing, or commercial property. you make the same effort whether you acquire a GBP130k property in Birmingham or GBP13m of commercial property outside of London! I'd rather be drawing an income of SGD1.5m per year of salary from one transaction than SGD15k per year! 

Sell Down of Tech ETF

I made a call to sell off the tech sector, including Apple, Alibaba last week. The valuations were extremely high and I rode on a 40% upside over 1 year.

I also noticed that European Equity ETF is beginning to sell off.

I doubt if this is the start of a huge bear market like those seen in 1998 (EM Markets), 2001 (9-11), 2003 (SARS, Enron), 2008 (GFC). I doubt that even a medium rated correction like those seen in 2011 (European Crisis), 2015 (EM sell down) will occur. Perhaps a 10 - 20% correction but no more.

Perhaps the medium or big one will come in 2018. I don't know.

The property market seems to have stirred to live in Singapore. I believe it is a flash in a pan.

1. supply is still abundant while population growth is slowing down.
2. Singapore's GDP growth is still less than 3%. Jobs growth is strongly correlated with demand for housing.

3. rents are still falling. If prices rise, it mean that yields are compressing. Not good in an environment of rising interest rates.

It is however, a good time for investors of en bloc properties, which are usually over 30 - 40 years. Developers from abroad are hungry for land bank. Chinese developers do not care if profit margins are less than 10%. They just wish to "roll their money" in Singapore.

I am about to acquire a freehold house in Birmingham for GBP130k, 8% nett yield and 15% return on equity. It is a great piece of investment as far as yields are concerned.

A Bull Run That Just Won't Go Away

Three more rate hikes in 2017. Two in 2018. The Fed overnight rate will move to 2.00 - 2.25% by mid 2018. The yield curve (difference between 2 and 10 years US Treasury yields) will invert and we should have a recession by late 2018 or 2019. The bull rally for the US which began in 2009 Feb, will officially end in 2018. A bear market, defined as a correction of over 20%, will occur finally.

While many investors marvel at the over valuation of US equities and the length of the bull rally which began in 2009 Feb, it is actually quite similar to the bull rally of 1994 - 2000.

Why is this so? If you look at the charts of various indices since 10 years ago, stock markets have not been strongly correlated at all. NASDAQ, which floundered from 2000, finally made a come back from 2009. It is by far the best performing with 8.2% return per year.

S&P500 is second with 4% per year.

However, the recovery has been uneven. Europe, Stoxx 600, has been the worst performer with -2.8% per year. It's CAPE ratio is among the lowest in the world, in particular Italy, Spain, Turkey. The recovery was punctuated by major corrections in 2011 during the European Crisis and the Big Correction of 2015.

Asia x Japan and Emerging Markets hardly fared better. EM dropped by -00.8% per year. Asia x Japan up by 1.3% per year. Valuations for Europe, Asia x Japan and EM are a lot more reasonable vs the US.

There is probably more legs yet for the rally, until perhaps 2018. It may surprise many. I am not one to time the markets. I am at around 25% equities, 75% bonds. But I will move towards 35% equities soon. Within equities, I will focus on EM, Asia x Japan and European funds. Within bond funds I will focus primarily on EM.

The trend is your friend, until the end....

Here It Comes Again, The Bull That Just Won't Go Away

This time, it is the result of the first round of French elections that spurred the latest recovery of stocks. Europe is leading the way. I will wait until 7 May, second round of the election,  before I go back into European equity funds.

BEST PERFORMING FUNDS (LAST UPDATED APRIL 26, 2017)
Best Performing (1 WEEK)   Fund Name % Fidelity Italy A EUR 9.19 Fidelity France A EUR 8.55 Henderson Hzn Euroland Fund A2 EUR 7.39 HGIF Turkey Equity Fund SGD CL AD 6.83 HGIF Euroland Eqty AD EUR 5.96	Best Performing (1 month)   Fund Name % Amundi India Infrastructure Fd SGD Cl AS 7.89 Fidelity France A EUR 7.08 Henderson Hzn Pan Europn Prop Eq-A2 EUR 6.95 HGIF Turkey Equity Fund SGD CL AD 6.72 Henderson Hzn Pan Europn Prop Eq-A2 USD-H 6.04
Best Performing (3 months)   Fund Name % Amundi India Infrastructure Fd SGD Cl AS 20.56 HGIF Turkey Equity Fund SGD CL AD 20.08 Eastspring Inv India Discovery Fund SGD AS (H) 15.36 First State Regional India Fund 15.35 HGIF Indian Eq SGD AD 15.18	Best Performing (6 months)   Fund Name % Blackrock World Financials A2 USD 22.53 Parvest Eq USA Mid Cap Classic Cap H SGD 20.05 Parvest Eq World Finance EUR 19.62 Blackrock European Spec Situations A2 GBP-H 19.02 Parvest Eq USA Mid Cap Classic Dis USD 18.01

A Mid Term Pull Back of Equities Likely

There are tentative signs that a pull back of between 5 - 20% is likely for most equities. S&P500 is definitely pulling back, so is Europe and Japan. Many small caps in Singapore are beginning
to tumble after spiking up. The correction is likely to last 1 to 6 months but is unlikely to be the start of a bear market.

My asset allocation for unit trusts is roughly 40% equities, 60% bonds for now. A big bear market of over 20% in correction is likely to occur at the end of 2017 or early 2018. Stay safe.

Nine Things to do in Your 20s to Become a Millionaire by 30

http://www.independent.co.uk/life-style/9-things-to-do-in-your-20s-to-become-a-millionaire-by-30-a7377801.html

A very good article that I wished I read when I was 20. It's never too late! 

How to Invest Risk Free into Equities

I've thought about certain circumstances where a stock has risen beyond fair value and continued to be overbought. I was worried about pullbacks wiping out my capital. Take for example, if I went long into Apple at 100. It is now 141 and overbought. USD100k turned into 141k. What do I do next? I could sell all of my Apple and harvested USD141k. But if Apple rallied to USD150, I would have lost a further USD9.

An alternative is to remove USD100k. Keep USD41k in Apple and let it run. The rest of the exit rules apply. If it rises to USD150, I would have made a further USD8k. If it falls back to 100, I would have my profit reduced to USD30k but my principal remained in tact.

I could do that for every stock I buy until my entire portfolio is risk free! 

New Algorithm Produces 40% per year

I've combined several factors to produce abnormal returns; 1) size (small caps tend to be under researched and hence less efficient in price discovery), 2) value (cheaper price to book for example), 3) market factors (macro factors) and 4) momentum.

Momentum is really the secret sauce that minimises my downside and maximises upside. It is an algorithm which I use. The simple rule is, "cut your losses, let winners run".

My unit trust portfolio is easily up 15% this year as well.

I don't see a major bear market yet. Maybe second half of 2017. But I'm going to put my neck on the line that it will be from 4Q 17 to 1Q18 onwards. This is because I mapped this EM equity recovery to the 1998 - 2000 EM rally. This decade is similar to 1990 - 2000. 

My Next Adventure

A property mentor told me that if I invest in individual homes, it becomes scattered all over different cities. Operating the business becomes crucial and efficiency is difficult to achieve. Think of 10 roofs to fix, 10 boilers to replace. Owning a building is better as the land content supersedes the operational aspects. Think of 1 roof to fix, 2 staff to keep in a building of 50 apartments, or 100 student pods, or 50k square ft of office space.

My next dream is to start a fund to own buildings. It could be serviced apartments, student pods or apartments. The next three years will be exciting. 

What's Going On? Stock Markets Skyrocket in Countries That Had Election Shocks

I'm back. It appears that markets in the UK rallied to all time high after Brexit, and S&P500 rallied too to a record high after Trump's victory. Both incidents are counter intuitive! However, I can explain that economics are often uncorrelated to stock returns. Stock markets are forecasters of future economic returns 6 to 12 months into future.

Both events are likely to cause inflation. It's a roll back of globalisation and in the short run, wages will rise. Long run, trade wars erupt which means domestic economy suffers.

My asset allocation is around 70% equities, 30% bonds. Stock markets are at overbought territory and a pull back is to be expected. But I'm not expecting any bear market soon.

Inflation however is rising. We could see rate hikes in the US and UK this year. Finally, all inflation ends in a crash as yield curves invert worldwide. I expect this to happen late 2017 early 2018.

Yet I do not know if the yield curve continues to be a predictor of future growth. QE has changed all this. I will be very vigilant now. 

Do Not Attempt to Forecast

Forecasters are no better than highly paid fortune tellers. Do not be deceived. Follow momentum and valuations. Fundamentals are important. Getting something cheap increases the chances of outperformance over time, and the level of capital gains. Charts indicate when the catalyst acts.

2017 has started well for all sectors except Asian bonds. I am holding fast to the theory that the momentum will carry us up to the second half of 2017. Beyond that, we could see a huge correction. Something more damaging than 2011 and 2015. Perhaps the bear will come.

I'm up 30% for the year. It's been a good 13 months for me. 

How to Treat Leveraged ETFs

I was disillusioned with Direxion and Velocity ETFs. They are leveraged 3x. Sometimes 4x. Look at RUSL, from 22 to 111 within 1 year. Vs RSX, from 11 to 22, which is 100% same period.

I realised that for leveraged etf, if you are right, you can make a lot. But if you are wrong, you can be down a lot more. It makes it very difficult to recover. That's why lots of leveraged ETFs got reverse stock splits. Because their prices collapsed by 90% - 95%.

Yet, it is illogical that I can make money in Funds and ETFs, but not in leveraged ETFs. Finally, I realised that the way to treat leveraged ETFs is to treat them like buying a call or put options. They have an expiry date and over time, they are worthless. It's more like warrants in fact because the expiry dates are usually 1 to 2 years. Leveraged ETFs usually do well if the trend is in its favour for a year or two. After that, it burns out when the trend turns and ends up lower than the start. Ultimately, they are worthless and the stocks reverse split several times. Warrants is similar. They have a shelf life of several years and thereafter worthless if below strike price

For sectors, I would cap it at 20%. For single stocks, 10% of portfolio. For leveraged ETFs, 3% of portfolio.

If my portfolio is 1m, I would cap energy sector at 200k. First State Global Resources for example. For single stock, e.g. Miyoshi, I'd cap it at 100k. For ERX, I would cap it at 30k and be prepared for it to expire worthless.