In investing, stick with the familiar while always learning

INVEST in what you know is generally a good mantra to follow. I got burnt when I first started actively buying shares in the 1990s, by mainly speculating in Malaysian counters that traded here on the Central Limit Order Book (Clob) International.

Clob was an over-the-counter market set up to enable Singapore investors to continue trading Malaysian shares after the Kuala Lumpur and Singapore stock exchanges parted ways. Trading in some Clob counters was highly speculative – prices could quickly double, sometimes driven by rumours. 

In the aftermath of the 1997 Asian Financial Crisis, Malaysia banned the trading of Malaysian shares on Clob International as an unrecognised exchange. The de-recognition of Clob took place alongside harsh capital controls in Malaysia that prohibited the conversion of the ringgit outside of Malaysia.

Emerging from the Clob debacle, I did not lose faith in buying listed equities. What I have done since is to generally buy what I know. This means home-turf bias, as in buying Singapore equities. Also, as I have worked for over 25 years in either property or banking, property and financial counters feature large in my stock holdings.

Ark and crypto

But, in life, it can be good to be curious and learn new things. Leaving one’s comfort zone can be rewarding and exhilarating. Think about picking up a new hobby, changing careers or going off the beaten track when travelling. 

Embracing the spirit of adventure, I tried doing something different when I bought an exchange-traded fund (ETF) that is traded in the US – Ark Genomic Revolution ETF (ARKG) – in early 2021. Sadly, I am down about 70 per cent on this investment.

My investment rationale was sound. I wanted a play on game-changing innovation. ARKG is an actively managed ETF, which invests in companies that are focused on improving the quality of human and other life by incorporating technological and scientific advancements in genomics into their business. 

I bought ARKG because of Cathie Wood, who is the founder, chief executive officer and chief investment officer of investment management firm Ark Investment Management, which manages various funds including ARKG. 

Wood’s investment strategy is compelling. With innovation causing disruption, the strategy focuses solely on investing in disruptive innovation. Wood is a backer of Elon Musk’s electric car-maker Tesla, for example. 

ARKG invests in companies such as Teledoc Health, which provides healthcare virtually, and Ionis Pharmaceuticals, which focuses on ribonucleic acid (RNA)-targeted therapy. RNA is a nucleic acid that is essential for the coding, decoding, regulation and expression of genes.

In trying to learn something new and play on future trends, I have toyed with investing in crypto assets or crypto-related plays. The vision of a decentralised system for verifying that the parties to a transaction have the money they claim to have, while removing the need for traditional intermediaries, such as banks, sounds alluring. 

I found Sam Bankman-Fried, who is the founder and former CEO of FTX, a cryptocurrency exchange, fascinating. Bankman-Fried said he was pursuing “earning to give” as an altruistic career, and planned to donate the great majority of his wealth to effective charities over the course of his life. FTX’s mission was to develop a platform for cryptocurrency trading which is robust enough for professional trading firms and intuitive enough for first-time users.  

To date, I have not invested in the crypto space. Hence, I am unaffected by FTX’s filing for Chapter 11 bankruptcy protection. Also, I was too late when considering participating in an Asian crypto-related fund.

Nonetheless, my misadventure to date with ARKG does not mean that one should avoid investing in areas outside of one’s existing comfort zone. After all, there will be faster-growing entities in sectors where there is exponential growth. Equally, one may be familiar with sunset industries where no counters are worth holding.

Building domain expertise

Perhaps the challenge is a tall one. How do we become knowledgeable on a particular geographic market or a sector, so we can invest with conviction in a country or sector? Can we find time and access the right networks to develop expertise on lithium batteries or South-east Asia? Can we build domain expertise in clean energy or artificial intelligence or India?

Investing is often painful and humbling. With a wrong move, one could lose plenty of money and see one’s self-esteem take a hit. Making bad investment calls makes me moody and have self-doubt.

Still, investing can yield rewards as one may pick winners that generate strong capital gains, possibly due mainly to luck. By investing in bonds, real estate investment trusts, investment properties or dividend-paying stocks, one receives steady passive income to help fund retirement needs. Moreover, one would hope that investments provide a hedge against inflation.

Between mid-2010 and mid-2022, the number of Singapore citizens aged 85 and over grew by a compound annual growth rate of over 6 per cent to 59,434. As many of us prepare to live potentially long lives, actively managing investments is useful not just from a financial viewpoint.

From the perspective of mental health and well-being, managing investments can generate harmful effects. One may get stressed by unexpected policy changes, geopolitical events and central-bank actions that cause sudden large movements in the market value of one’s investments. 

Still, on balance, I think actively managing investments as one ages can help mental well-being. With investing, there are constantly new things to learn. One needs to be engaged with developments in the world. With loads of information to devour and analyse, one’s time is easily and usefully filled, and the brain is constantly ticking. 

In sum, managing investments helps keep the mind sharp even as one ages. Maybe managing investments, with its ups and downs, will keep me going when I get old.

As we look to welcome the Year of the Rabbit, I hope to make investment calls with conviction, as well as find time and energy to get educated on promising markets.