This year, I'll break down our 2017 Annual Letter into 5 main sections.
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What Happened To BigFatPurse In 2017??
"Old Wine In New Bottle"
This is the first time we are writing this letter as Dr Wealth.
At the start of 2017, we had officially changed our operating name from BigFatPurse to Dr Wealth after the acquisition in 2016.
This decision was met with a mixed response.
Half of the crowd prefer the more professional name while the other half felt sentimental value in the former name. Whatever it is, we believe that the new name will ease into familiarity eventually.
Often, people think that we had spent a great amount of time thinking about the name of the business. They are often surprise that the re-naming decision was snappy.
We had to choose between BigFatPurse and Dr Wealth. We didn't have any preference and reasoned that Dr Wealth would be a better name as a first impression with more professionalism. We don't play around with your money.
The same people whom you have entrusted all these years are still running the company.
The name is secondary (I mean, what does 'Google' even mean?!).
Gaining trust from our customers, readers and partners are of utmost importance.
Fighting Tech Challenges - Why We Decided To 'throw in the towel" and Move On...
Our intention was to use technology to solve some of the personal finance issues.
There are tons of issues to solve and we chose to attack the investment related issue of performance tracking. We realised that many people do not track their investment performance. Initially, we suspected that it was because they either did not know how to track it, or find it tedious to.
But...as we taught investors and interacted with them, we realised those were just the surface issues, the deeper problem is that most people don't see the need to.
They also do not have a 'ruler' to gauge their investment returns.
For example, how much percentage return should you expect from a AAA credit rated government bond? How about a REIT?
Without this ruler, investors often project unrealistic returns (often more optimistic) from their investments. But they do not measure the performance so many end up investing blindly.
A bigger concern is that an investor cannot tell that a guaranteed 5% returns is pretty much out of this world and it is a likely a scam.
We wanted to build a portfolio tracker. Our Achilles heel was that we did not have a tech guy in our founding team. We spent a year looking for a CTO but unfortunately, could not get a suitable candidate.
Instead of wasting time and resources on fighting a losing battle for a CTO, we decided to drop the tracker project due to a lack of technical expertise.
We would recommend our users to use stocks.cafe as Evan has done a good job improving the platform over time.
Based on our experience, we find it true that Singapore lacks programming talents.
Many companies offshore some of their programming tasks. Luckily the region is able to provide some of these expertise and Singapore enjoys the geographical arbitrage (while it lasts!).
And of course, it comes with their fair share of horror stories. But companies are often left with little choices and it may be worthwhile to accept the risks of offshoring.
What I learnt during Dr Wealth's Fintech experience
Fintech does NOT present the Greatest Threat
This is a year that we see ComfortDelGro and SPH crumble in the face of technological disruptions. It looks more real than ever.
Could banks be the next with the arising Cryptocurrencies, blockchain, roboadvisors, etc?
I will leave cryptocurrencies to the next section as it deserves a section of its own.
This year we saw a handful of roboadvisors being granted licenses to manage real money in Singapore - Autowealth, Smartly and Stashaway (in no order of preference).
Long time readers know that we are not fans of expensive unit trusts and often propose ETFs as alternatives. Roboadvisors seem like a godsend since they charge a low fee and execute the auto-rebalancing for you. We definitely applaud this initiative and are delighted that Monetary Authority of Singapore (MAS) is open to new technologies.
However, I am not too optimistic about the roboadvisors' prospects. Here are 3 reasons why:
- Finance is often an afterthought for most
People do not wake up in the morning and say "I want to buy insurance or invest money".
Only the self-directed chaps (and you, our awesome readers!) are interested about money and would actually do something about it.
But ask yourself, how many of your friends actually actively think about investing their money?
Majority do not. Most of my friends do not.
There's this saying that insurance, and I would extend it to investments, "is sold and not bought".
Hence, I foresee that it would be tough for roboadvisors to reach the mass market.
- If the roboadvisors aren't able to hit the mass market, they cannot make enough money with their low cost structure
Singapore is a small market and may not have the critical mass to support so many roboadvisors.
Scaling to other countries would also mean dealing with various regulators which would drain the already thin resources of startups.
Roboadvisors work better in countries with large population such as the U.S. and China where only a small fraction of the population is required to provide the economies of scale for the companies.
- The key to disrupting the financial industry is to disrupt the distribution channel
Since financial products are sold and not bought, we should be aiming to disrupt the way they are being sold instead.
For example, MoneySmart changed the credit card application channel. Instead of waiting for a telesales team to cold call you, or bumping into salesmen around the MRT stations, people now get card comparisons and goodies when they sign up through MoneySmart website.
Credit cards are way, way more popular than investments because they are associated with spending or retail therapy. The recent rise in ecommerce has also helped credit cards become more popular.
Many of these B2C fintech companies would find it challenging to gain a market foothold if they neglect the distribution channel.
Non-finance Tech Companies Pose the Greatest Threat
If fintech is not a big threat to current incumbents, then who is?
As we have established above, people love to spend money to buy things or experience.
Taobao is one of the most popular ecommerce sites. Since many people are already transacting online, Alibaba decided to build their own payment gateway, Alipay, to get a piece of the transaction fee. Upon its launch, their fintech unit immediately gets millions of users because they already have the distribution channel.
Alibaba didn't stop there. Since people are already transacting online, why not help store their money online too?
Yu'e Bao was thus introduced. It is a money market fund where you earn decent interest. In fact, it is the biggest money market fund in the world. No institution has been able to reach this size in such a short time. Again, it is because Alibaba already got the distribution channel established.
Locally we see Grab moving into payment system with Grabpay. They too have a ready pool of customers whom they have been transacting all these while.
Now, imagine if you were to start a payment system from scratch. How are you going to get the customers? And why should they trust you?
Versus, if you already had customers paying you regularly. Would they be more willing to use your payment system?
With the distribution channel already in place, what can stop companies like Alibaba from introducing roboadvisors in the future? In fact, there are already talks of spinning off their fintech arm next year.
If you are interested in the startup scenes, would like to partake in the growth some of these companies and maybe even be rewarded for supporting them early, you can enroll for the Angel Investing Course.
The Best Investment In 2017
Bitcoin is the best investment in 2017 and few would dispute that. It has truly gone mainstream this year, even financial institutions have come forth to adopt it.
CME and CBOE have launched futures for bitcoin and Goldman Sachs is now opening a trading desk for bitcoin.
Yours truly have also participated in it years ago and sold it this year.
I believe in the future of bitcoin and cryptocurrencies in general. The potential is immense especially with the underlying blockchain technology and smart contracts.
However, I do not think cryptocurrencies are ready to replace currencies because they are too volatile. They should be called cryptocommodities or cryptoassets in my opinion, since they act like digital gold.
In the short term, I feel that the cryptocurrencies are in a bubble. There is irrational exuberance. I wouldn't be investing at this point in time.
As it is almost impossible to value cryptocurrencies, I would thus resort to arbitrary sensing of the excitement in the market. A good time to buy is when few people are optimistic about cryptocurrencies.
We also hold the free Cryptocurrency Masterclass that will give you the full overview of what cryptocurrencies are, and what the hype is about.
Some of our readers were concerned as cryptocurrency is speculative in nature and this move seems like a deviation from our conservative valuation approach.
Here's why we launched a cryptocurrency course:
We see cryptocurrencies as legitimate assets, albeit digital ones, for investors. Having a small exposure to it is acceptable.
We also think that having proper understanding of this new asset class is important, and people should know enough to be able to avoid scams revolving cryptocurrencies.
Hence, the new course has an important role to play.
Improving Investors Education for You
942 have graduated from our courses in 2017.
Introducing the Brand New Factor-Based Investing Course
We have combined some of our courses to form our flagship Factor-Based Investing Course (FBIC). The response has been very good since we launch the course.
We are also pleased that we are the first to adopt a research-based and quant way to stock investing.
We have also written a comprehensive guide on Factor-Based Investing which you can read for free.
UPGRADING the Personal Finance Fundamentals Course
The Bonds course has also been combined into the Personal Finance Fundamentals Course (PFMC) from 2018 onwards.
Investor education continue to be our core offering, and we are looking forward to help more people invest better in years to come.
Dr Wealth Portfolio Performance
Most investors are doing well in 2017.
While the Straits Times Index seemed to do well this year, it has only gained 12% over the past 4 years while our portfolio returned 53%. (investment performance accurate as of 1st dec).
We invested in Singapore, Malaysia and Hong Kong stocks. The return above excludes dividends but includes forex gains or losses when converted to the Singapore Dollar.
We have no intention to change our investing methodology as the returns are still decent, compared to the index returns.
We believe we will continue to beat the indices over the long run.
The investing methodology we used is exactly what we have taught in our Factor-Based Investing Course (FBIC).
We "eat our own cooking" and we hold the belief that there should be 'skin in the game', in the things we teach.
Exciting Stuff You Should Look Out for from Dr Wealth, in 2018
2018 is going to be even more rewarding as a reader of DrWealth.com.
We are planning to launch new, high quality content to you. There will be video interviews with credible investors and short video lessons about investing.
We even painted a chalkwall and converted half of our office into a studio:
Many readers have feedback that our stock case studies are insightful.
Hence we will be rolling out more of these, stating our stand and thoughts about the stocks.
We will also be providing some useful data for your investments on some of our pages (keeping it a secret first!)
Thank you for your support for another year. We are going to give you more high quality investment related content in 2018!
See you next year!