Ranking of financial markets in 2023. My observations

Here are the results of financial markets that I tracked in 2023, using tools I developed for personal use. The links to the tools will be provided. I have uploaded them to Github Pages and they are available to the public free of charge, with no advertisements.

Stock indices performances are reported after adjusting in USD for fair comparison.

Top ranking of stock indices in 2023 (USD-adjusted) https://advdne.github.io/stock_indices_github/dist

Bottom ranking of stock indices in 2022 (USD-adjusted)

The top 20 stock indices were all positive, with Nasdaq100 at the top gaining 53.81%. A In 2022, Nasdaq100 was the 2nd worst stock index at -32.97%. It was a strong rebound for Nasdaq100 in 2023.

Japan Nikkei225 gained 28.24% in nominal terms in 2023 and would have been ranked 2nd best performer on this metric. However, after adjusting for USD, Nikkei225 gained "only" 19.24% and the ranking dropped to 15th.

Japanese Yen depreciated against USD by 7.02%. When investing in Japanese stocks, the depreciating effects of the Yen cannot be ignored.

            Bottom ranking of stock indices in 2023 (USD-adjusted)

The past 2 years(2023, 2022) have been terrible years for China/HK's stock markets.

China's ChiNext index is China's version of the U.S's Nasdaq index. The purpose of ChiNext index is to track high-growth, innovative stocks on the Shenzhen Stock Exchange.

A year ago (2022), the worst stock index was China's ChiNext index. One year later (2023), the worst stock index is again ChiNext index.

In 2022, the bottom 10 stock indices were littered with the names of Chinese stock indices (ChiNext, A50, CSI300, Shenzhen Composite, Shanghai Composite). One year later (2023), the same Chinese stock indices appear on the bottom 10 list. New additions in 2023 on the bottom 10 list include Hong Kong's Hang Seng index and Hang Seng China Enterprise index.

Since the 2019 large-scale mass protests in Hong Kong, the Hang Seng Index has suffered an unprecedented 4 consecutive down years (2020 -3.4%, 2021 -14.08%, 2022 -15.46%, 2023 -13.82%)

For long-term investors, it may be a good time to buy some HK stocks to take advantage of the low valuation. A rebound driven by mean reversion is due. A lot of pessimistic HK investors who want to be out should be mostly out by the 4th down year.

For shorter-term traders who are usually momentum-oriented, who is to say a 5th consecutive down year cannot happen again, given the strong momentum? Momentum traders may want to wait for an initial strong rebound first, then get in.

Top ranking of currencies versus USD in 2023

https://advdne.github.io/forex_github/dist

The top 2 currencies in 2023 are exotic pairs - Mexican Peso USDMXN and Polish zloty USDPLN. I do not know much about them to comment.

Both the Mexican Peso and the Brazilian Real appeared in the top 5 currency list in the past 2 years (2023, 2022).

Bottom ranking of currencies versus USD in 2023

Bottom ranking of currencies versus USD in 2022

The worst currency in 2023 was the Argentina Peso USDARS (357.42%!). One year ago (2022), the worst currency was also the Argentina Peso. The countries making up the worst 4 currencies of both years are the same. These countries are Argentina, Turkey, Egypt and Pakistan.

What's common among these 4 countries with fast-depreciating currencies?

Ultra-high inflation!

2023 Annual inflation rate  https://twitter.com/WinfieldSmart/status/1742587136614735969

These 4 countries are among the top 10 countries with the highest inflation in 2023.

Ranking of commodities in 2023

2023 has not been a good year for commodities in general. Natural gas fell 64% in 2023. Unfortunately, it did not help much in lowering the electricity utility bill despite Singapore generating about 92% of its electricity from natural gas.

Ranking of cryptocurrencies in 2023 https://advdne.github.io/crypto_github/dist/

Ranking of cryptocurrencies in 2022

All the top 10 major cryptocurrencies in 2023 made triple-digit percentage gains. The top crypto Solana scored 922.44% gain. One year ago, Solana suffered a loss of 98%. Cryptocurrencies can be very profitable if you are a good trader.

The recovery in 2023 from 2022 lows was incredible for cryptocurrencies.

Phone habits and practices to protect money from online hackers/scammers

There have been several news reports about Singaporeans losing money to online hackers/scammers. SGD1.4 trillion has been lost to scams globally. Singapore victims lost the most on average. This is a risk we cannot ignore.

I will talk about the habits and practices I adopt to reduce this hacking/scamming risk.

• Ensure smartphone settings are set to minimize security risk

The most dangerous device to be hacked in my possession is my smartphone. I guard my phone with the same level of security as I did for my rifle during National Service today.

If you own an Android phone, this is the most important setting to avoid being hacked and losing money.

Disable the "install unknown apps" option. It will prevent accidental installation of malware which allows scammers to gain access to your bank accounts. This is how you disable the "install unknown apps" option. Go to Settings. Search for "unknown". Then select the appropriate option. Make sure that all apps, especially browsers and messaging apps (WhatsApp, Telegram, SMS) are disabled from installing unknown apps.

This option should be disabled by default but do not assume. Check it out and confirm it has been disabled.

I did this for all my loved ones. Do this for your elderly parents because they are the most vulnerable group.

• Do not install apps that are not from official app stores like Google Play Store (Android phones) or Apple App Store(iOS)

Most of the hacking incidents I read result from users installing an app not from the official app stores.

If you are using an Android phone, do not install any app not from Google Play Store.

If you are using an iPhone, do not install any app not from Apple App Store.

If phone users followed this simple rule, probably 90% of the hacking incidents I read about would not have happened.

• Don't install apps unnecessarily even if they are from the official Google Play store

Less is more when it comes to phone security. The fewer apps installed, the lesser the risk of being hacked.

There is no guarantee that the official app stores can screen off all the apps with malicious intent. Here is a list of criteria I use before installing an app from Google Play Store

• Apps are from large, reputable companies(Google, Microsoft) or government agencies
  
  Obviously, these organizations will not steal your money.
  
  
• More than 100,000 downloads
  
  If the apps do not meet the first criteria, then they should have at least 100,000 downloads. Most of the apps I have on my phone have more than 1m downloads.The greater the number of downloads, the lower the risk of them being malware.
  
  

• use biometric (or fingerprint), not password, authentication

Malware can intercept passwords as you type them but it cannot if you authenticate using your fingerprint.

Whenever I have the option to use fingerprint authentication, I will do so. I will not buy a phone which does not support fingerprint authentication.

• Enable app notifications on banking/financial services

I enable notifications on all financial transactions as much as possible. I go to all the banking, credit card, brokerage, and money-related websites I use and ensure that the settings are made in such a way that the smallest financial transaction will trigger an alert to my phone and/or send an email.

This way, I can take immediate action when a hacker starts stealing my money.

• Switch the phone off or put it into airplane mode when I'm sleeping

If a hacker managed to gain access to the phone, the most likely time to steal is during the victim's sleeping hours. If the hacker tries to steal during the day, the app notifications will alert the victim.

By switching my phone off or putting it into airplane mode, the hacker cannot steal my money while I am sleeping.

• Avoid answering incoming phone calls starting with “+” sign prefix

Most of the incoming phone calls starting with “+” sign prefix are automated calls which are likely scam calls. The moment I hear an automated voice, I hang up the phone.

I do not answer incoming calls from an unknown number unless I am expecting an important phone call.

• Avoid clicking on links in SMS

Clicking on phishing links in SMS can lead to accidental malware installation, if the "install unknown apps" option is not disabled.

I installed the Scam Shield app from Singapore Police Force to reduce the incidents of scam calls and scam SMSes.

• Scan phone, PC/laptop at least once weekly for virus/malware

I set a calendar event to remind myself to scan for viruses/malwares on my phone and computers to do this at a specified time each week. I try to do this with discipline without fail so that in time, it becomes an ingrained habit.

Please share these practices around if you think they make sense and are helpful.

Reminiscences on my experiences with FTX. Could have escaped 100% but ...

Originally published on Feb 18, 2023

In an earlier post, I wrote about how I made a stable income on FTX before the whole fraud unravelled. It is easy to learn the wrong lessons in investing because an investor can make money despite being very wrong. Customers of FTX who escaped with some profits should not gloat about it. They were wrong and should count themselves as lucky. I was lucky. Regardless of whether the outcome was good or bad, this disaster calls for post-mortem reflections.

Right till the end, I never suspected Sam Bankman-Fried (SBF) to be a fraud even when the bank run was intense. I was duped. Thankfully, I assumed that crypto was unsafe and was constantly on alert to look out for warning signs.

I registered as an FTX customer in 2021. From the beginning, there were already signs that something was wrong. When I wired money to FTX Blockfolio last year, the recipient was "Alameda Research". Alameda was SBF's hedge fund. SBF was the biggest shareholder of both Alameda Research and FTX. At one time, Alameda was the biggest trader on FTX. This was a huge conflict of interest. Although Alameda was the main market maker in FTX, SBF had long insisted that the two businesses operated independently of one another. How can the two businesses be independent of each other when both can access the same bank account?

I chose to ignore this warning sign. As long as FTX does not go bankrupt, my delta-neutral positions at FTX will be safe. My main concern was counterparty risk. SBF doing shady stuff with Alameda does not affect my style of trading as long as FTX is financially sound and in no danger of collapsing. It was not unreasonable to expect some shady business in an unregulated industry, particularly one that deals with money. I was prepared to take this risk.

There was something about SBF that made me worried. He appeared on the cover of several prominent business news magazines. There have been past instances when appearing on the cover page marked the peak of a CEO's career. In some cases, the CEO turned out to be a fraud! Hello, Elizabeth Holmes and Sam Bankman-Fried.

I even warned SBF on Twitter about the cover page curse 3 months before the collapse out of concern for my money on FTX. He probably did not notice as I am a nobody.

https://twitter.com/ajs/status/1554101866581184512

I monitored FTX news on Twitter closely. If you want up-to-date news about crypto, Twitter is the place to go, not mainstream media. By the time news hits mainstream media, it is too late.

One fine day on Twitter, I came across this news article from Coindesk. It rang the loudest alarm bell about FTX. Alameda had a highly questionable, weak balance sheet. On the surface, the balance sheet looked fine with $8 billion in liabilities backed by $14.6 billion in assets. On closer look, much of its assets were FTT tokens and FTT are printed by FTX itself. $2.16b of the FTT was used as collateral and if the price of FTT crashes, Alameda will be liable for a big margin call. If Alameda falls, the contagion will spread immediately to FTX given their close links.

Now, I had a useful and easy reference point to monitor FTX counterparty risk. This critical reference point was the FTT price. If FTT starts to fall at a worrying pace, get the hell out of FTX. I relied on Luna and UST prices as warning signals to get the hell out of Anchor. Relying on market signals to get out of danger has saved me several times in the past and it did not fail me this time. This explains why my blog name is "Market Observer".

In hindsight, I should have withdrawn my funds from FTX when the negative news article from Coindesk was released but I did not. The lending rate of some coins in my crypto portfolio spiked up around that time. I remembered DOGE lending rate at FTX.US even shot up to 2000% during one particular hour near the end of October. The funding rate for perpetual futures also went positive. I was earning good interest from both lending spot tokens and shorting perps in my delta-neutral trades.

Before the FTX collapse, FTT had a relatively smaller price fall than other cryptocurrencies in the crypto bear market. The relative price strength of FTT gave me some confidence that Alameda was safe at the moment. I decided to wait for SBF's response to the damning Coindesk news article which was published on Wed, 2 Nov 2022. By Sunday, there was still no reaction from SBF. The part that made me most nervous was that the FTT price had started falling fast. Between Saturday afternoon (5 Nov 2022) and Sunday afternoon (6 Nov 2022 Singapore time), FTT fell more than 10%. This is a large amount compared to its normal volatility.

At this point, I decided to get the hell out of FTX on Sunday afternoon.

One alarming aspect of Alameda's balance sheet was that the sheer amount of FTT held on Alameda's books itself exceeded the total market capitalization of FTT in public circulation. Alameda and FTX had an interest in supporting FTT price. They certainly were not selling FTT. I believe most retail investors' FTT holdings were staked at FTX to enjoy lower commissions and other platform benefits like mine. So, they cannot be the ones selling. I wonder who was selling down FTT that weekend to cause the rapid price fall. Whoever it was, it was probably a big whale. The answer was out by Sunday night.

https://twitter.com/cz_binance/status/1589283421704290306?

 With a small public circulation and a large whale who wants to sell out everything, FTT was toast.

When CZ's tweet triggered a bank run on FTX, I was not out yet. It took me several hours to unwind my delta-neutral positions on FTX. I had to unwind bit by bit to get a good exit price and each time, I had to wait for the right trading set-up to exit. I slept only 2 hours that night.

I was only able to withdraw a fraction of my funds from FTX to my DBS bank account. Most of the money was still stuck in the withdrawal process as reflected on FTX webpage after 12 hours. By this time, there was an intense bank run going on. My body was shaking.

My engineering training instilled in me the good habit of building redundancy into a system to ensure reliability. Always have backup systems ready. Thus, I had other crypto exchange accounts as a ready backup for fund deposit in case I want to withdraw funds from FTX urgently one day. I turned to withdraw the funds to my backup crypto exchange accounts instead of the DBS account. Again, the withdrawal was always stuck in progress on the FTX webpage. My heart rate shot up.

I took a few deep breaths. I remembered when I was self-learning how to write smart contracts, I could view coin withdrawal status on the blockchain. When I looked at the transaction status, it said something like "Error. Insufficient funds." Hmm ... maybe the amount I tried to withdraw was too large. So, I cancelled the withdrawal ticket on FTX and initiated another withdrawal with a much smaller amount. This time, the withdrawal went through after waiting for about 15 minutes. I still remembered this was on Monday night (7 Nov 2022 SG time). By withdrawing bit by bit each time, I managed to withdraw most of my funds by the next morning (8 Nov 2022 SG time).

I could have withdrawn everything but I did not. Why didn't I?

Just 1 week before the FTX collapse, FTX made an announcement that caused me to believe they were not scammers running a Ponzi scheme.

 

https://twitter.com/FTX_Official/status/1587249585885679616

Prior to this announcement, customers were earning a 5% yield on the first USD10m worth of cryptocurrencies in the FTX Earn programme. With this announcement, the 5% yield is limited to only the first 100k. Big whale customers who had millions in their FTX account to enjoy the 5% yield would be withdrawing down to $100k since the yield has dropped to zero beyond $100k. I thought if FTX were running a Ponzi scheme, they would not have made this policy change as it would cause a mini bank-run among their whale customers. Ponzi scammers will be hatching plans to attract more funds instead. Hence, I deliberately left some funds on FTX even though I could have withdrawn everything during the bank run that caused their collapse. My funds are now stuck and I have written them off to zero.

Many people thought CZ's tweet was the trigger that caused FTX's collapse. Sometimes, I wonder if the tweet announcement on the FTX Earn 100k limit was the one. FTX will be vulnerable to a bank run after this announcement because the whales will be withdrawing. If an enemy is waiting for an opportunity to strike, this will be it. The very next day on 2 Nov 2022, Alameda's weak balance sheet was leaked in a news article, highlighting how vulnerable they were on FTT token price. 4 days later, a major competitor struck at the heart of FTX's weakness by announcing they are selling down their FTT holdings. 5 days later, FTX declared bankruptcy.

I am not implying that this enemy caused FTX to go bankrupt. CZ was the trigger, not the cause. The root cause was SBF himself.

I am still puzzled today why FTX made this policy change to limit the 5% yield to the first $100k. Hopefully, someone can explain this mystery to me one day.

Reminiscences and reflections on my experience with FTX. Why I liked the platform until it collapsed

Originally published on Dec 18, 2022

FTX has been exposed as a fraud and is now bankrupt. I have lost my funds on FTX, although I withdrew most of it before the collapse. I owe it to myself to reflect deeply on this event. I also owe it to my readers because I wrote 2 positive articles(1, 2) on FTX in the past. I was not paid a single cent for writing the articles. I wrote them on this financial blog because I was a happy customer of FTX.

Some people gloat over the investment losses of others. Some people get resentful when others are profitable. I do not wish to indulge either group. Hence, I do not wish to talk about how much I eventually made or lost from FTX. This information is relevant only to me. The important content is the lessons to be learnt from this disaster.

Why was I so enthusiastic about FTX? My experience with FTX has been wonderful until the fraud unravelled. I was making a stable income on the FTX platform in the bear market of 2022 when every asset class lost money. I confess I am a selfish person. I cannot reveal in detail how I did it on FTX when the strategy was still working to avoid returns from being driven down. I do not mind revealing it now since FTX is gone.

How I made a stable income from FTX in 2022

Previously, I wrote favourably about the lending feature of FTX. Users can enjoy good yields by lending out their crypto assets on FTX. However, this alone is not enough to provide a stable income. You can lend out for 20% yield but if the crypto asset crashes 50% (and most did in crypto winter 2022), you will still sustain heavy losses. To solve this problem, I shorted the underlying crypto assets through perpetual futures on FTX. This way, I will not lose money regardless of whether the cryptocurrencies are moving down or up. This strategy is known as delta-neutral trading. It is common knowledge. Nothing special here as most crypto traders knew about it.

The secret ingredient was FTX.US

FTX.US had consistently higher lending rates for some crypto tokens than FTX.com. I think this market inefficiency existed because Americans had difficulty accessing perpetual futures due to regulatory restrictions. Many non-Americans are not aware of FTX.US because they thought it is mainly for Americans. The crypto offerings at first glance are inferior to what is available on FTX.com. Many non-Americans will not take a closer look.

To find out which are the crypto tokens with high lending rates on FTX.US, I wrote software using FTX API to monitor the lending rates on FTX.US

After identifying the tokens, I bought them in the spot market and shorted the equivalent amount with perpetual futures on FTX.com. The tricky part about shorting perpetual futures is the funding rate. When the funding rate is negative, shorts have to pay. When the funding rate is positive, shorts get paid. A good situation is when the delta-neutral trader gets paid for both lending out the spot tokens and shorting the corresponding perpetual future. Unfortunately, in the crypto bear market of 2022, most perpetual futures traded with negative funding rates because shorting is more prevalent in bear markets. To identify the tokens that traded with favourable funding rates for shorting, I wrote software to monitor funding rates on FTX.com using FTX API.

When the funding rate gets too negative to the extent that the delta-neutral position starts to lose money, I will unwind the position. This in and out action can lead to high commission. Fortunately, FTX has this promotion that reduces maker fees to zero if the user staked enough FTT tokens (I lost all the staked FTT when FTX collapsed). In other words, if I place a limit order and wait for the order to be filled, the fee paid is zero.

The trickiest part I faced in the delta-neutral strategy was executing the trades to enter and exit the positions. To take advantage of zero maker-fee orders on FTX, I had to place limit orders and wait for orders to be filled. I had to determine whether I should buy first, then sell or sell first, then buy. Sometimes I made and sometimes I lost. I am no longer able to access my FTX account, so I cannot find out whether I made or lost in the end from these executions. I enjoyed the market challenges and gained some day trading experience(Day trading is something that I would not recommend to most people) as a result.

FTX did not charge fees for withdrawals unless they took place on Ethereum blockchain. I was able to move tokens free of charge between FTX.com and FTX.US using the Solana blockchain.

When I could not find good trades for the delta-neutral strategy on FTX.com and FTX.US, I will place my USDC stablecoins in Blockfolio app to earn 5%-8% yield in the FTX Earn programme. Funds in Blockfolio can be withdrawn at any time when I spot delta-neutral opportunities.

In a bear market year when all asset classes fell, low-risk income from delta-neutral trading was a godsend until the FTX fraud unravelled.

I will stop here for the moment. In part 2 of the article, I will cover my self-reflections on the FTX fiasco.

Ranking of financial markets in 2022. My observations

Originally published on Jan 1, 2023

Here are the results of financial markets that I track for 2022.

Top ranking of stock indices in 2022 (USD-adjusted)

The ranking of the stock indices is adjusted to USD. An investor can make good gains but the gains can be lost from a depreciating currency. Investors cannot ignore currency movements. Ignoring them will lead to a distorted reflection of the purchasing power made from their investment gains.

2022 has been a sea of red for stocks worldwide, as can be seen from the year-to-date performance of global stock indices. It is an achievement if you managed to break even this year in your stock portfolio.

Straits Times Index(STI) is the pride of Singapore in the terrible bear market of 2022. STI is ranked 3rd in 2022, though the 4.77% annual gain is not impressive considering the risk involved. Today, one can easily get almost risk-free gain of above 3% from 12-month bank fixed deposits and Singapore Savings Bonds.

The number one stock index performer goes to Turkey's Borsa Istanbul 100 which gained 111% USD-adjusted. It gained almost 200% in nominal terms. One distinguishing feature in Turkey's economy in 2022 is high inflation and tumbling currency. Inflation reached as high as 85.5% and the currency tumbled 29% against USD. I think the strong stock market gains were strongly driven by Turkish investors using stocks to protect against the ravages of high inflation and a weak currency.

Bottom ranking of stock indices in 2022 (USD-adjusted)

The worst-performing stock indices in 2022 are related to technology stocks. The worst 2 are Chi-next(tech index of China) and Nasdaq100(tech index of U.S). Bottom 3rd and 4th are Korea's Kospi200 and Taiwan's TSEC weighted index. Korea and Taiwan are countries strong in technology product exports to the rest of the world.

Top ranking of currencies versus USD in 2022

USD was already strong last year (2021) and its strength continued into 2022. 2022 is the year of the U.S. dollar, thanks to the Federal Reserve's moves to raise interest rates aggressively to fight inflation. The onslaught caused most currencies to depreciate against the USD in 2022 except commodity-based currencies and the Singapore dollar. Like Straits Times Index, the Singapore dollar(SGD) made Singaporeans proud again. Singapore is the only country with no commodity export that has an appreciating currency against the USD in 2022.

Singapore does not set its own interest rate. The central bank, MAS, relies on fixing the exchange rate to fight inflation and it did well. With Singapore's strong reserves, I am confident SGD should be one of the stronger currencies that can weather the onslaught of a strong USD.

 

Bottom ranking of currencies versus USD in 2022

Japanese Yen was weak last year (2021) and its weakness continued this year. Last year, it dropped 11.47% against USD and it continued to tumble 12.2% this year. It used to be a safe haven currency which will rise in a bearish year for stocks like 2008. This year, it did the opposite. The weak Yen should make Japan a cheaper place for tourists to visit.

Besides enjoying a relatively strong stock market and currency in 2022, Singapore's housing market defied the global real estate downturn caused by soaring mortgage rates. This is despite strong, consistent government measures in the form of taxes and lending restrictions over the years to curb rising property prices.

https://www.forbes.com/sites/jonathanburgos/2022/10/31/singapore-housing-market-defies-global-downturn-and-curbs-amid-soaring-rents/?sh=214f26186920

While it is impressive that the major asset classes such as stocks, currency and real estate in Singapore have done relatively well in bearish 2022, I would rather see the Singapore property market tumble from the top rankings. This is nothing to be proud of. High property price is a major cause of the high cost of living in Singapore. It imposes a high social cost on young people and young couples. High mortgage debt and unaffordable housing cause youngsters to lose hope for the future. It discourages them to have kids and the sense of hopelessness may cause some of them to lie flat. People who lose hope for the future stop working hard.

I do not think rising property prices are a good thing. The real estate investment gains enjoyed by the older generation are offset by the higher cost of living imposed on the younger generation. Young people are our future and if they feel bleak about the future, we have no future. Although I am not affected by rising property prices as a property owner with no mortgage debt, rising property prices will still affect me. When my kids grow up and they struggle with rising property prices, their problem will become my problem.

I expect high property taxes and lending restrictions on property purchase in Singapore to continue as the government is aware of the social cost caused by high property prices.

Ranking of commodities in 2022

2022 was a good year for commodities. Unfortunately, this was a major factor that contributed to inflation. Energy prices made good gains in 2022 with brent oil rising 35%. What is interesting is how much energy prices have come down from the 52-week high. Oil prices have slid more than 22% from the 52-week high. Natural gas prices are down more than 58% from 52-week high! Energy commodities are already in a bear market. This is telling us that commodity prices are finally coming down as a result of the slowing economy squeezed by high interest rates. This is a sign that inflation may be coming down.

Ranking of cryptocurrencies in 2022

Cryptocurrencies are in a sea of deep deep red in 2022. The top-performing major cryptocurrency is TRX and it is down by 28%. The rest of them are down by more than 50%! I myself had narrow escapes with crypto investments (Anchor/UST, Hodlnaut, FTX) that caused almost 100% loss to investors who did not exit in time.

I believe the asset class that caused the most damage to investors, especially big institutional investors, in 2022 are fixed income long-term government securities.

Ironically, the 20+ year Treasury bond which is supposed to be risk-off fell more than risk-on S&P500 during Oct.

https://twitter.com/leadlagreport/status/1581251807765938177

This asset class is a strange world to me. It moved from a strange world of negative yield to another strange world where yields rose so much so fast that risk-off assets(Treasuries) lost more money than risk-on assets(stocks) in a risk-off year. I cannot comment much on a world which I find strange.

Market timing has been a good risk-management strategy for me in the 2022 bear market. Pros and cons of this approach

Originally published on Nov 15, 2022

When I talk to financial advisors and fund managers, a common advice they give is "Do not time the market" or "Market timing does not work".

They have a financial incentive to persuade their clients that market timing is bad.

Buy-side financial advisors/asset managers earn their fees based on how much assets they manage or AUM (asset under management). If clients sell their investments and move into cash, AUM drops causing fee income to drop. Small wonder financial advisers dislike clients who time the market and move into cash. Financial advisers are financially rewarded to advise clients to make new investments monthly regularly as their salary comes in. This way, AUM will grow on a steady and stable path. Fees will follow upward. In a bear market when the client is complaining of losses, it is in the interest of the financial adviser to advise the client not to panic and hold on to their investment. Even better, if clients have surplus funds, tell them to buy more to take advantage of the investment opportunity. If clients follow this advice, AUM may even grow despite the bear market. So will income for the financial adviser and asset manager. It is not surprising that dollar-cost-averaging(adding new investments at regular time intervals) is a favourite investment approach recommended by financial advisers.

I emphasize I am not implying the financial adviser is not giving good advice. Certainly not. What I am saying is they are inclined to give biased advice when they say "Market timing is bad", or "Don't panic, don't sell in this bear market" because they are financially rewarded to be biased. Let me be honest about it. I am no angel myself. If I were a financial adviser myself, I will do the same.

A good investor should have an independent mind and not be too reliant on financial advisers. When it comes to money, it is everyone for himself. No one is keener to grow his own money than himself. Others will persuade you that it is in your interest to act in a manner that is in their own interest. Whether it is really in your interest can only be best decided by yourself if you do your own homework and exercise the knowledge with an independent mind.

I arrived at my own conclusion about whether market timing is a good investment strategy or not. It depends on the individual. Ultimately, it boils down to knowing yourself and what fits you best. I personally chose to be a market timer but I qualify that statement by saying I believe regular monthly investing in stock indices regardless of price fluctuation suits the vast majority of retail investors.

In my opinion, market timing is suitable for people who love the financial markets and do not mind spending time to monitor/research the markets. I can spend several hours without feeling bored because I enjoy the process. Unfortunately, there is a price to pay for this. Due to the time spent on it, it can be a distraction to your career. Family time also suffers. In contrast, a passive dollar-cost-averaging investment approach into stock indices consumes much lesser time and the returns can be just as high, in many cases higher, than active investing, particularly in a bull market.

Where market timing shines is during bear markets. Diversification is no protection in a bear market because almost every asset class will go down. In 2022, the best place to park your money is in cash, preferably in safe-haven currencies. Although this has been a negative year for me, my losses were not high compared to the general market because I did not hold on stubbornly to my investments as they go down.

A market timer will start selling his investments at the early stage of a bear market and by the time the market is near its bottom, the market timer will be enjoying high cash levels to deploy when he senses that the market is on the road to recovery(see my latest market sense on a possible recovery). Unfortunately, there is a downside to this approach. The market can rebound after the market timer sells out. If this happens, then the market timer must have the discipline to buy back at higher prices to avoid being out of a bull market.

It is always possible that the market falls back after buying or rebounds after selling. I see this as the cost of risk management. Getting whipsawed by Mr Market is the bane of a market timer. I prefer to take the risk of being whipsawed and move on than be stuck on an investment that stays flat for 25 years as a buy-and-hold investor. This can happen even for stock indices which are supposed to go up in the long term. See what happened to Hang Seng Index.

https://twitter.com/Market0bserver8/status/1584422168833638400?

On a side note, I am confident that Hang Seng Index will make a strong recovery soon from the 25-year low made on 24Oct2022 and am happy that my cash holdings are at a high level today to take advantage of the impending rebound. I have worked with Hong Kong people before and the good impression they left me gives me confidence in Hong Kong's future.

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moomoo Cash Plus invests in Fullerton Cash Fund

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Watch how this pump-and-dump stock was dumped. My own experience with scammers. Tips on avoiding being scammed

Originally published on Nov 10, 2022

Recently, I received a telegram message about someone losing USD40,000 in a pump-and-dump stock scam.

He was not the only victim.

I opened up the daily price chart of 2195.HK (Unity Enterprise) to study this pump-and-dump scam in action.

Daily price chart of 2195.HK (Unity Enterprise)

The pump in 2195.HK started around the middle of March 2022 at the price of HKD0.30. The stock was then pumped up to a gain of 423% in the next 6 months. As the price runs up, it gets easier to make victims believe false good news spread by scammers about the company and induce the victims to join in the pump. Victims will make money initially, and then they put in more money, further pumping up the price. On the fateful day(29 Sep 2022) of the dump, the stock hit an intra-day high of HKD1.26, then crashed to close down at HKD0.25 at extremely high volume. It crashed by 78.63% within a day! The victims lost everything.

If you zoom into the 5-minute price chart, you will realize there is no time to react even if you are monitoring the stock very closely.

5-min price chart of 2195.HK (Unity Enterprise)

The stock crashed 78% within 5 minutes from 1550hrs to 1555hrs. Most of the day's trading volume was concentrated within that tiny 5-minute window and that day's volume happened to be the highest in the stock's trading history. I believe the scammers analyzed Level 2 market data and determined that the bid volumes at the prices below the last done price before the dump were enough to absorb the dump within that short 5 minutes.

Investors who set a stop loss at an appropriate price should be able to exit with a better price but I expect the slippage to be terrible.

Stop-loss orders are good for investors who are too busy to monitor the markets but know at what price they want to exit. Suppose you bought a stock at $10. You want to sell the stock at $9 if it falls below this price to manage your risk. You can use a stop-loss order to set the exit price at $9 and if the market hits the exit price, the system will automatically sell your stock at $9. Sometimes, there will be slippage and you will get a worse price. The worst slippage happens when the stock is dumped fast and furious, like in the pump-and-dump 2195.HK crash.

Not all brokers support stop-loss orders, so make sure your broker supports it. I use stop-loss orders frequently myself.

Moomoo is one of the brokers who support stop-loss orders.

https://www.moomoo.com/community/feed/103167817613317

I am using this example to illustrate the use of a stop-loss order. Please do not get the wrong idea that stop-loss orders will protect you if you hold a pump-and-dump stock.

When it comes to pump-and-dump stocks, the best policy is to avoid them.

I have received several private messages from strangers on telegram whom I suspect to be scammers. I usually ignore them but on a few occasions, I engaged them to experience how these scammers operate.

The picture in their telegram profile is usually a beautiful woman to capture your attention. When a beautiful woman approaches you, you will at least entertain her for a while even though alarm bells are ringing inside your head.

Nowadays, it is easy to use AI(artificial intelligence) to generate pictures of beautiful women who do not even exist today. Here is an example.

Picture of a beautiful woman generated by AI

At the rate at which AI technology is progressing, we will be seeing picture-perfect gorgeous online scammers soon.

The scammers usually start by asking you questions to find out whether you fit their profile of a victim. They want to spend their time productively by choosing the right targets.

About 2 years ago, one scammer on telegram, let's call him S, asked me whether I am into stocks and if I invest in Hong Kong stocks (the pump-and-dump stock he recommended was a HK stock). I said yes, and S proceeded to recommend me a great teacher who has been sharing great stock tips. S said he has gotten rich from the generous sharing of this wonderful teacher. (He is appealing to his victims' greed and hope that they can become rich like him too). S kept persuading me to join a chat group created by the teacher. (It is easier to manipulate your mind in a group setting when different individuals say the same thing. Most of us do not want to be the odd one out in a group so that we can fit in socially). I suspect there will be several people in the group pumping the same stock and persuading me to join in and poking me if I did not. I did not join the group because I did not want to expose myself to an environment that makes me vulnerable to manipulation.

S gave me a stock tip and advised me to buy 0804.HK buy before the price shoots up. The stock did rise initially. So, if I had acted on his tip, I would have made some money initially. Luckily, I did not because the stock suddenly crashed over 22% one day (23Sep2020) and went on crashing another 33% in the next 4 days. It is now down about 86% since Sep 2020.

Some tips on avoiding pump-and-dump stock schemes

• Be on the alert when a stranger sends you a private message offering you tips on what stock to buy.
  Why should a stranger share secrets to help you get rich free of charge? If an investment is a high-probability win, he will keep it to himself and buy all he can himself. Why share it with strangers and dilute his own gains?
  
  
• A pump-and-dump stock is usually illiquid because illiquid stocks are easier to manipulate. It seldom has more than USD0.5m 50-day average turnover.
  
  
• A pump-and-dump stock is usually a low-priced stock because they tend to be less liquid and easier to manipulate. Low price means below HKD2 for HK stocks and below USD5 for U.S stocks. Be careful when a stranger online offers tips on stocks that fall into these low price ranges.
  
  
• The business fundamentals are not impressive to justify the pumped-up price. When the price of a stock goes up a lot, the sales and/or income trends are usually also upward. This is not the case for the pump-and-dump stocks I encountered. Take 2195.HK for example. The revenue has been in a downward trend over the past 4 years.
  
  

• 

  2195.HK past annual revenue.

  
  

The trend in the net income and operating cash flow in recent years do not paint a pretty picture either.

2195.HK past annual net income

2195.HK past annual operating cashflow

Most victims met the pump-and-dump scammers through social media or messaging apps. Please remain vigilant in your online interaction with strangers.

The stock research data (price charts, financial statements) used in this article is available free of charge to all moomoo customers using the moomoo app.