• Home
• New Paradigm
• Fundamentals
• Your Assets
• Goal Setting
• Various Vehicles
• Properties
• Stocks
• Long Term Stocks
• Short Term Stocks
• Trading Options
• Unit Trusts
• Our Current Position
• Buy US Properties
• Buy HDB
• Debt Management

Unit Trusts

Investors in unit trusts are generally long term investors.  In general, unit trusts are safer vehicles to invest in.  As unit trusts consists of a basket of stocks or other vehicles, it is extremely unlikely for it to lose all its value at any point of time.  Due to the huge basket of stocks, I would also label ETFs as a similar vehicle as unit trusts.

In general, most financial advisors would advocate funds that are among the best performers in the past year or years, as their fund managers would be best able to take advantage of the market situation.  I would just like to caution readers here...could any fund manager, however good he is at beating the market, make money when the market is losing money?  (actually the answer is yes.  IF the fund is a hedge fund.  But for the purpose of this section, I would like to emphasize that generally, a unit trust will follow the index which it is tracking.  This means if the index is losing money, the fund will lose money as well...logical?)

This is why I advocate another way to play unit trusts.  As its extremely unlikely for a trust to lose all its value, the way to minimize risk is to buy in when bad news strike, or in a market correction.  I used to advocate to buy in when the trust goes down 30%, and to buy in more when it goes down further, lets say another 30%.    　

However, lately, I advocate a slightly different approach that is based on my trades in very good fundamental stocks, which should be as safe as a unit trust:-

Upon a bad news that causes that particular sector to fall more than 30%, once the drop stabilizes (rate of fall goes down to 10% of the original rate, for example, see Northern Rock when the price falls to about 150p, i labelled it as stabilized)), I would start investing 50% of the money I have for investment. 

I'd continue placing 5% regularly (for a single bad news causing the drop, e.g. when Thailand increased its barriers to foreign fund entry (not sustainable unless they want to lose out to neighbouring countries), Northern Rock suffered sub-prime woes (its asset are worth more than its price), regularly means weekly) (for general bad news like recession, regularly means monthly). 

Once confirmed recovery (this is more subjective, so I would go into it at a later stage), to invest the remaining into the unit trust.

The above only talks on the purchase of unit trusts, but the sales of unit trust should be even more important, which I will touch at a later stage.

(Update on the Northern Rock purchase - a negative example.  I managed to buy in 30% at 150p.  However, due to greed, I wanted the price to drop even further to buy in more.  When it dropped, I wanted to buy in at a lower price.  When it finally increased, I waited for it to fall.  As I was unwilling to buy at prices above that, I ended with 30% of my free income in Northern Rock. (Its at 250p as of the time this update is given) This is a major lesson learnt, not to wait and procrastinate, and if I think its a good deal, just buy.  I will take this lesson and put to use in my next trade, in Lowe's.)

(Final update on Northern Rock - very negative example.  Northern Rock ended up being nationalized, and I lost $12k in total.  Lesson learnt.  Cheap does not necessarily mean good.)