Successful Investing in Unit Trust (Peter Lim)

8/8/2019 Successful Investing in Unit Trust (Peter Lim)

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Successful

Investing inUnit Trust



Explaining Equity Fund

• How do you explain Equity Fund to anilliterate person?

• What is Equity?



When a person Invest in EquityFunds.....

• What are they really Investing in?

• Equity Funds invest in Equities, calledShares or Stocks.

• What is Shares / Stocks?

• Fractional Ownership of abusiness.



Fact of Life

• Inflation will be around most of the years inour life.

• Inflation = prices goes up.

• Consumer pays more, but owners makesmore.



Causes of inflation to profit

• Before Inflation

• Selling Price

= $ 2.00

• Cost= $ 0.80

• Gross Profit= $ 1.20

• After Inflation

• Selling Price

= $ 4.00

• Cost= $ 1.60

• Gross Profit= $ 2.40



To Invest

Successfully

for theFuture,

Learn from thePast



In 1926, If you had put $1,000 ineach of the 4 investments below, 68

years later you’ll have:• Treasury Bills $ 11,680 (3.68%)

• Government Bonds $ 28,360 (5.04%)

• Corporate Bonds $ 40,340 (5.59%)

• Common Stocks ?

$ 800,530 !! (10.33%)

(Source: 21st Century Investment, by FrankArmstrong)



Inflation Adjusted Returns

from 1926 to 1993:• Treasury Bills $ 1,430 (3.68%)

• Government Bonds $ 3,480 (5.04%)• Corporate Bonds $ 4,940 (5.59%)

• Common Stocks $ 98,100 (10.33%)

(Source: 21st Century Investment, by FrankArmstrong)



What if in 1926, your $ 1,000 earnsthese rates ?

Annualised Return Amount

• 3.68% $ 11,680

• 10.33% $ 800,530

• 20% $ 242 Million• 30% $ 56 Billion

• 40% $ 8.6 Trillion

Any “investments” that promises above 15% per year, should be screened with extreme caution.



Lessons Learned

• Common stocks (called as shares/ stocks/ equities) representsfractional ownership of a business.

• Over a long term, Common stocksgives the highest return, becauseyou’ve got the company’s growth onyour side.

• You’re a partner in a prosperousand expanding business.



Equity Fund : Historical Charts



Equity Fund : Historical Returns



How to minimize

Risk in

Equity fund



Case Study: Public Savings Fund(PSF)

• A representative of an Equity Fund,because since the fund manager invest atleast 70% in Equity most of the time.

• More than 29 years history (The fund waslaunched in 1st April 1981).

• The fund invest mainly in Blue Chips (thebiggest companies in Malaysia).



Yearly Return of PSF

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

1 9 8 1

1 9 8 3

1 9 8 5

1 9 8 7

1 9 8 9

1 9 9 1

1 9 9 3

1 9 9 5

1 9 9 7

1 9 9 9

2 0 0 1

2 0 0 3

2 0 0 5

2 0 0 7

2 0 0 9



Yearly Return Analysis of PSF

Average Total Return 10.6%

Best Total Return 102.8%

Worst Total Return -33.3%

Total Periods 29

No of Positive Periods 19 65.5%

No of Negative Periods 10 34.5%



Yearly Return of PSF(Overlap by months)

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

A p r i l - 8 2

A p r i l - 8 4

A p r i l - 8 6

A p r i l - 8 8

A p r i l - 9 0

A p r i l - 9 2

A p r i l - 9 4

A p r i l - 9 6

A p r i l - 9 8

A p r i l - 0 0

A p r i l - 0 2

A p r i l - 0 4

A p r i l - 0 6

A p r i l - 0 8

A p r i l - 1 0



Yearly Return Analysis of PSF




Total Periods 339





Rule No. 1:

Invest for

Medium to Long

Term

(3 years or more)



3 Years Return of PSF(Overlap by months)

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

160.00%

A p r i l - 8 4

A p r i l - 8 5

A p r i l - 8 6

A p r i l - 8 7

A p r i l - 8 8

A p r i l - 8 9

A p r i l - 9 0

A p r i l - 9 1

A p r i l - 9 2

A p r i l - 9 3

A p r i l - 9 4

A p r i l - 9 5

A p r i l - 9 6

A p r i l - 9 7

A p r i l - 9 8

A p r i l - 9 9

A p r i l - 0 0

A p r i l - 0 1

A p r i l - 0 2

A p r i l - 0 3

A p r i l - 0 4

A p r i l - 0 5

A p r i l - 0 6

A p r i l - 0 7

A p r i l - 0 8

A p r i l - 0 9

A p r i l - 1 0

Year

T o t a l R e t u r

n



3 Years Return Analysis of PSF




Average Annualised Return 9.7%

Best Annualised Return 35.2%

Worst Annualised Return -11.9%

Total Periods 315





5 Years Return of PSF(Overlap by months)

-50.00%

0.00%

50.00%

100.00%

150.00%

200.00%

250.00%

300.00%

A p r i l - 8 6

A p r i l - 8 7

A p r i l - 8 8

A p r i l - 8 9

A p r i l - 9 0

A p r i l - 9 1

A p r i l - 9 2

A p r i l - 9 3

A p r i l - 9 4

A p r i l - 9 5

A p r i l - 9 6

A p r i l - 9 7

A p r i l - 9 8

A p r i l - 9 9

A p r i l - 0 0

A p r i l - 0 1

A p r i l - 0 2

A p r i l - 0 3

A p r i l - 0 4

A p r i l - 0 5

A p r i l - 0 6

A p r i l - 0 7

A p r i l - 0 8

A p r i l - 0 9

A p r i l - 1 0

Year

T o t a l R e t u r n



5 Years Return Analysis of PSF







Total Periods 291





Chance of Losing Money(based on previous slides of PSF)

• 1 Year Holding Period = 36.0%

• 3 Years Holding Period = 22.5%




• Conclusion: The longer you own your fund, thelower the possibility of losing money.



Chance of Losing Money

0.0%5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

1 2 3 4 5 6 7 8 9 10

Holding period (in Years)

% o

f L o s s P e r i o d



But why …..?

• Why after 3 years (or 5 years), somepeople investment in Unit Trust haven’t

shown a +ve return?



For Example:

• A person invest in PSF on 3rd April 2000,RM 100k. (excl. Service Charge)

• After 3 years (on 1st April 2003), marketvalue is only RM 70.9k.

• Why is it so?Is it because PSF is a bad fund?



Understanding P/E Ratio

House A

• Price

= $ 100,000

• Annual Rental= $ 4,000

House B

• Price

= $ 200,000

• Annual Rental= $ 10,000

Which is a better buy, and why?



Investor’s Return vs Fund’s Return

• Study by Dalbar: Avg. Investors earnbelow avg. Market returns.

• 20 years ending 31st Dec 2008:

– Market Return = 8.35% a year.

– Investor’s Return = 1.87% a year.

• Why?



Conclusion from Dalbar Study

• Investor’s Behavior Causes Poor MarketReturns – Most people are excited AFTER the market

has gone up, pouring money in Equity Funds. – When market goes down, they pull money

out. Bear market, even worse!

– Chase Trends, leading to “Buy high, Sell Low”

– Over react to Good and Bad News – Emotional Reaction causes illogical

investment decisions.



Quotes

• “The Investor’s chief problem, and even

his worst enemy, is likely to be himself”.

– By Benjamin Graham.

• “Those who have knowledge, don’t

predict. Those who predict, don’t have

knowledge”. – By Lao Tzu



3 main reasons for people’s bad /

negative returns in Equity Funds

1. Buy “High” (usually ONLY lump sum)

2. Buy at high, then current Price is “Low”,

(or sold/ switch out of Equity at “Low”

Price)

3. Combination of the above two.



2 Ways to overcome “Buy High”

syndrome

1) Spread your purchases (Dollar-CostAveraging), or

2) Don’t overpay (P/E above 20)



DCA monthly for 3 years, then sellmonthly for 3 years

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

M a r c h - 8 7

M a r c h - 8 8

M a r c h - 8 9

M a r c h - 9 0

M a r c h - 9 1

M a r c h - 9 2

M a r c h - 9 3

M a r c h - 9 4

M a r c h - 9 5

M a r c h - 9 6

M a r c h - 9 7

M a r c h - 9 8

M a r c h - 9 9

M a r c h - 0 0

M a r c h - 0 1

M a r c h - 0 2

M a r c h - 0 3

M a r c h - 0 4

M a r c h - 0 5

M a r c h - 0 6

M a r c h - 0 7

M a r c h - 0 8

M a r c h - 0 9

M a r c h - 1 0

Year




DCA then Sell, 3 years of PSF







Total Periods 280





DCA monthly for 5 years, then sellmonthly for 5 years

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

160.00%

M a r c h - 9 1

M a r c h - 9 2

M a r c h - 9 3

M a r c h - 9 4

M a r c h - 9 5

M a r c h - 9 6

M a r c h - 9 7

M a r c h - 9 8

M a r c h - 9 9

M a r c h - 0 0

M a r c h - 0 1

M a r c h - 0 2

M a r c h - 0 3

M a r c h - 0 4

M a r c h - 0 5

M a r c h - 0 6

M a r c h - 0 7

M a r c h - 0 8

M a r c h - 0 9

M a r c h - 1 0

Year




DCA then Sell, 5 years of PSF



Worst Total Return 11.7%



Worst Annualised Return 2.2%

Total Periods 232



Ch f L i M



Chance of Losing Money(based on DCA, then sell monthly of

PSF)

• 3 Years Lump Sum = 22.5% – 3 Years DCA, then sell monthly 15.0%

• 5 Years Lump Sum = 16.2% – 5 Years DCA, then sell monthly 0.0%

Chance of Losing Money



Chance of Losing Money(based on DCA, then Sell Monthly)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%30.0%

35.0%

40.0%

1 2 3 4 5

Holding period (in Years)

% o

f L o s s P e r

i o d

Buy and Hold DCA your purchases, and sell monthly



How about Returns?

• Ok, chance of losing money (and thus“Risk”) is reduced.

• But how about Returns?



Annualised Returns

Lump Sum

Holding

Period

Average

Returns1 Year 10.4%

3 Years 9.7%

5 Years 9.9%7 Years 10.0%

10 Years 9.5%

DCA, then sell monthly

AverageReturns

3 Years 10.2%

5 Years 10.5%



Alternative No. 2:

Don’t Overpay

( P/E above 20)(when you Invest)



3 Years Return of PSF + Don’t Overpay

(Overlap by months)

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

160.00%

J a n u a r y - 9 0

J a n u a r y - 9 1

J a n u a r y - 9 2

J a n u a r y - 9 3

J a n u a r y - 9 4

J a n u a r y - 9 5

J a n u a r y - 9 6

J a n u a r y - 9 7

J a n u a r y - 9 8

J a n u a r y - 9 9

J a n u a r y - 0 0

J a n u a r y - 0 1

J a n u a r y - 0 2

J a n u a r y - 0 3

J a n u a r y - 0 4

J a n u a r y - 0 5

J a n u a r y - 0 6

J a n u a r y - 0 7

J a n u a r y - 0 8

J a n u a r y - 0 9

J a n u a r y - 1 0

Year

T o t a l

R e t u r n

Y R A l i f PSF



3 Years Return Analysis of PSF+ Don’t Overpay







Total Periods 98





5 Years Return of PSF + Don’t Overpay

(Overlap by months)

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

140.00%

160.00%

180.00%

200.00%

J a n u a r y - 9

0

J a n u a r y - 9

1

J a n u a r y - 9

2

J a n u a r y - 9

3

J a n u a r y - 9

4

J a n u a r y - 9

5

J a n u a r y - 9

6

J a n u a r y - 9

7

J a n u a r y - 9

8

J a n u a r y - 9

9

J a n u a r y - 0

0

J a n u a r y - 0

1

J a n u a r y - 0

2

J a n u a r y - 0

3

J a n u a r y - 0

4

J a n u a r y - 0

5

J a n u a r y - 0

6

J a n u a r y - 0

7

J a n u a r y - 0

8

J a n u a r y - 0

9

J a n u a r y - 1

0

Year


5 Y R A l i f PIX



5 Years Return Analysis of PIX+ Don’t Overpay



Worst Total Return 10.9%




Total Periods 76



Ch f L i M



Chance of Losing Money(based on previous slides of PSF)

+ Don’t Overpay





All 3 RulesRule 1: Invest at least 3 years

Rule 2: Don’t overpay (anythingabove 20)

Rule 3: Don’t undersell (anything

below 16)



Quotes by Warren Buffett

• "If you think about it [i.e., the markets], youget these huge swings in valuations. It's theideal business arrangement, as long as you

don't go crazy. The 1970s wereunbelievable. The world wasn't going toend, but businesses were being given

away. Human nature has not changed.People will always behave in a manic-depressive way over time. They will offer

great values to you."




• Most people get interested in stocks wheneveryone else is. The time to getinterested is when no one else is. You

can't buy what is popular and do well.




• The future is never clear, and you pay avery high price in the stock market for acheery consensus. Uncertainty is the

friend of the buyer of long-term values.



Conclusion

• Current P/E is at average P/E.However, interest rates (as a benchmark) is atone of the lowest rate in the history.

• At current price, the risk of losing money overthe next 3 to 5 years is Negligible.

• P/S: This can only be applied to a welldiversified Equity Fund. Worse applied toindividual companies!



Road to Riches

• The Poor – buy 4D, Toto, Lotteries,Casino.

• The Middle Class – save in Banks, EPF,Sukuk.

• The Rich – Owns 4D, Toto, Lotterycompanies, and Banks!



Thank You!



Disclaimer

• Past performance is no guarantee of future performance.

• Performance are no NAV to NAV, without servicecharge.

• Data are obtained from FP Advisor, and the accuracy ofthe data determines the accuracy of the analysis.

• Where P/E of the market is not available or doesn’tseems to be correct, an estimate is used.

Successful Investing in Unit Trust (Peter Lim)

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