2024 Review 2: Notes on 2024

 1) Selling Option

I felt that it was a bad idea to sell options to earn income. Nonetheless, I continue to sell options, as I was greedy for some small income. 

I sold put options this year, in hope that if the option was exercised, I can buy the stock at lower price. If the option was not exercised, as share price went up, I earn some small income. The downside is that it robs me of buying at lower price when price falls. It also robs me of the option of not buying the stock if there are bad news subsequently. 

Nonetheless, I managed to earn slightly more than $11K selling options (and not exercised subsequently). More than half of the profits are due to the sale of FUTU call option (at $120 strike price) during early Oct bull market for Chinese stocks. 

2) Unexpected best performer 

My best performer was Oiltek. Bought at $0.24. Sold half at $0.66 and the other half trades at $1.05 now. The large gains were unexpected, as I did not expect the price to quadruple. 

The bought position then was around 2.5% of my stock portfolio. I kept the allocation small, as I was not familiar with the business Oiltek was in. 

3) Aggrieved Loss

I bought China Overseas Property (COP) at average prices $5.7 in Jan. Then, it traded at around 14x PE but with good growth and 36% ROE. I was perhaps too eager and built the position too quickly to  10% of my stock portfolio. 

However, its earnings growth dropped subsequently and share price decline. On hindsight, it was in an industry I was not very familiar with. 

Later, I sold it at average prices of $4.7, taking 18% losses. 

Due to above incident, I built my position slower, and did not buy enough of Trip.com before prices ran up. 

4) Buy what you know. Have stricter criteria and smaller position on what-you-don’t-know

Due to (3), it is very important to buy what I know and what I know is very small. For what I don't know much, I started to have more concerns / stricter valuation criteria before I buy and have smaller position. 

5) Two/three strategies in 2024

My purchases in 2024 mainly falls in 3 categories:

A) Quality / Growth plays with maximum 20 PE. 

I am pivoting from buying cheap/yield to buying quality. Over the years, I find that buying cheap / high yield can turn out to be buying craps. 

B) Value plays where net cash / short-term investments is a large proportion of market cap, has high dividend payout ratio and has positive earnings. 

This ensures that even when share prices fall, I am comforted by significant liquid holdings in company's balance sheet. The high dividend payout ratio reduces the risk of value traps. 

C) Yield plays These are of a smaller proportion compared to (A) and (B).

6) Best investment blog encountered

I like the writings in the blog: https://buggyhuman.substack.com/ very much. The author is a co-portfolio manager with the Pulak Prasad (author of 'What I learned about Investing from Darwin' book). 

The blog preaches (A) buying quality business at reasonable prices and (B) hold them for long, long time. 

I found (B) difficult, as I sold off my IBKR position earlier when I found the valuation too expensive. 

7) Most interesting Twitter/X post encountered

"Larry - if all you ever did was buy high-quality stocks on the 200-week moving average, you would beat the S&P 500 by a large margin over time. The problem is, few human beings have that kind of discipline."

Source: https://x.com/Convertbond/status/1832206028697407641

After I saw the twit, I looked at a number of charts on quality stocks. I found that it is not a bad idea to buy quality stocks on 200-week ma. I bought a small stake in LVMH earlier using this rule.

2024 Review 1: On Aug Flash Crash

I make several sales during Aug flash crash. On hindsight, it is better that I did nothing then. I did not buy back the sold position at higher prices, as it is psychologically difficult for me to do so. 

1) Got out of world index fund (VWRA) in Jul. 

Selling price: $133.4

Now: $139.4

Foregone gains: 4.4%

Then, I was a bit uncomfortable with US equity market, as US share prices seems weak, the valuation is expensive. So I sold off my WVRA position to reduce exposure to US equities, as US market is close to 70% of world index fund. 

2) During Aug flash crash, I panicked and got out of multi-factor world index fund (JPGL).  

Selling price: $37.6

Now: $39.1

Foregone gains: 4%

For (1) and (2), the cash from the sale were either used to buy bond ETF or kept in cash in IBKR. I did not buy back the sold position, as I still think that US market is expensive. 

3) During Aug flash crash, I also sold United Overseas Bank (UOB) shares. 

Selling price: $29.94

Now: $35.84

Foregone gains: 19.7%

Money obtained from the sale are used to purchased China Aviation Oil whose share price did not go up by much.

Then, I thought that there is chance that US enters recession and interest rate may fall significantly. Lower interest rate implies lower net interest margin and thus lower profits for banks. Hence I sold UOB. The later events show that my thinking is wrong. 

Nonetheless, I did not buy back the sold position, as UOB share price went up and I do not have any intention to buy UOB at current prices. 

4) Sold 40% of my position in Plower Bay Tech.

This is to raise cash, so that I have bigger warchest to deploy if world equity market falls further. 

I bought back the sold shares at similar prices subsequently. Hence, no gains/losses.

Now, during this week's US market drop, I did not sell anything. Probably because 

- the market did not fall by much

- I do not have much exposure to US market. 

- I don't think US market will enter 10% correction, given its strong economic growth and positive sentiments around US exceptionalism.

Thoughts on 2025

I can't predict the future. My predictions are often wrong.

I feel that 2025 will be a year of uncertainty

On US

Many strategist felt that in 2025, US equity markets will provide positive returns but less than 2024, despite its current high valuation. 

Some people felt that US will have a correction in 2025, because

- Money rotate from expensive US to cheaper non-US markets

- US may have high inflation from Trump's tarriffs

US economic growth has been stronger than expected in 2024. China economist, Li Daokui, felt that US economy is over-heating, as its unemployment rate is 3-4% now and its medium unemployment rate in the past is 7%. Some US economists noted that the strong US economic growth is due to its govt 6-7% budget deficit spending. 

I feel that US economic growth may slow in 2025, given the slower economic growth in other parts of the world, the likelihood of lower US govt spending (US govt need to cut down its budget deficit), fewer Fed cuts. 

On China

Personally, I felt that China govt has pivoted its policy and will push out more fiscal stimulus in 2025. The question is that will the fiscal stimulus be enough? 

On HK/China markets, given the current valuation, the downside may be small while the upside could be fairly large if the fiscal stimulus met market expectations. So it is a case of 'heads, I lose small, tails I win big'. 

However, given that China has been reluntant to roll out large fiscal stimulus, the chances of 'its fiscal stimulus meeting market expectations' is small. 

On Singapore

Singapore banks will benefit from fewer Fed rate cuts in 2025. However, I do not have any position in SG banks, besides my SRS position in STI ETF. And, I am not keen to buy SG banks at current prices. 

I also wonder what's Singapore interest rate will be like, given that most countries may cut rates in 2025 to counter lower economic growth. 

Singapore economic growth is likely to be slower, compared to 2025, esp if Trump imposed flat tariffs on imports from all countries which will have negative effect on Singapore (which is an export-oriented economy). 

Slight Update

Purchases

Nameson: Added more at $0.90 in early Dec, before it goes ex-dividend. Dividend yield is >10%.

Crowelll Reit (SGD): Added at $2.23 on 20 Dec, using CPF-OA. It is a rare foreign-based reit that could be bought via CPF. 

Euro economy is weak. ECB will have more rate cuts (compared to the US Fed) in 2025. At micro level, Cromwell reit mgmt has been active in divestments / AEI and managing its debts in recent years. I expect Cromwell reit yield to be close to 8% in 2025, as it re-finance its $476m bond at higher interest rate via bridge loan. 

Sales

China Shineway: Sold all at $10.08. Reasons for sale:

- I bought it as value play when it is trading close to its net cash level. 

- Now, it is trading ~25% above my purchase price and its yield is less than 4%. 

- The position is small. Given the above reasons, and I lack knowledge of its prospect moving forward, it is a reasonable point for me to divest.

Recent Purchases and Sales; Thoughts on CICT

Sales

Link Reit: Increase my position. Purchase price is $36.50 before ex-dividend. Dividend yield is around 7.x%

I bought too early, as the share price dropped to $33.x after ex-dividend. Nonetheless, Link Reit has solid management whose incentives are aligned with shareholders. 

Interactive Brokers (IBKR): Sold whole position in two batches at $170 and $192. I felt that the valuation at these prices are too high. At $192, it's trading at 30x PE and 5x book.

Will look to buy back IBKR at around 3.5x book.

Oiltek: Sold half of my position at $0.66, which is around 15x PE based on its 1H 2024 results.

I sold too early, as share price rose to above $1 after it announced great 3Q 2024 earnings.

Currently, it trades at around $0.88. 

Purchases

Sketchers: Bought a small stake at $60, as my sold put options on it expired and was exercised. 

Subsequently, I sold Dec put options at $57.50 on it. I don't mind adding at $57.50 share price. 

Currently, it's trading around $62. 

Thoughts on CapitaLand Integrated Commerial Trust (CICT)

I looked at CICT recently. 

CICT bought 50% Orchard ION for $1.1 billion at 2.7% net yield. Thereafter, it sold Collyer Quay property at $688 million at below 3.5% yield. 

While Orchard ION is of higher quality at Collyer Quay, this seems that the management is buying high and selling low at the expenses of increasing AUM (asset under management).

Given the above, I decided CICT is not for me, as the management's incentives seems not aligned with the shareholders'. 

Disappointed with SReits / Thoughs on T-Bill bought using CPF-OA

 Link Reit (listed in HK) released its 1H results recently. Its DPU rose 3.7%. 

Better than most SReits:

- Mapletree Pan Asia Commercial Trust (MPACT) DPU dropped 11.6%

- Fraser Centrepoint Trust (FCT) DPU dropped 1%

- CapitaLand Integrated Commercial Trust (CICT) DPU rose 2.5%.

Most SReits have this syndrome of 'overseas acquisitions' to increase their AUM and fees for their reit manager. End of day, their overseas assets under-performed  compared to their SG assets. Not sure if this is SREIT's tuition expenses for their lack of competency / knowledge in overseas conditions.

A few weeks ago, I bought FCT at $2.28 using CPF-OA funds*, after a T-bill (bought using CPF-OA funds) matured. Now, it's trading at $2.11. On hindsight, I should be more patient and waited for lower share price. Nonetheless, I will keep the FCT shares, since I am buying it for dividend purpose. As long as FCT's DPU is stable (i.e. did not decline much), I will continue to hold it. 

*CPF-OA funds have restrictions in buying shares. It can only buy certain stocks listed in SGX. It cannot be used for buying shares in overseas markets. 

I have some T-Bills, that are bought using CPF-OA, maturing in Nov and Dec. After maturing, the funds will be shifted back to CPF-OA (which gives 2.5% interest). They will be my warchest to buy index ETFs, when there is a market crash (i.e. 20% or more drop) in future. 

Slight update

Share disposal and purchases

Sold the CCB and ICBC position bought a week earlier. 

Some of the proceeds are used to bought Glorious Sun, which have high amounts of cash and owns CCB, ICBC and BOC shares. (I wrote about Glorious Sun in an earlier post) I feel that Glorious Sun is more worthwhile compared to buying the China Banks directly.

Also bought a small position in Nameson Holdings (1982.HK). It is a knitwear manufacturer, trading at around 5.3x PE and more than 10% dividend. The position is bought for its high dividend yield. 

On T-Bill

I have a T-bill matured last week. Today, I put most of the proceeds back into this week's 6-month T-Bill.

This is because I already have some funds in money market fund and bond ETF (i.e. MBH). So I decide to diversify a bit and put the funds into T-Bill today, even though the T-Bill yield is likely not much (say 3% or slightly lower)

On Current Market

HK market has fall, following the peak on 5 Oct week. Correspondingly, my porfolio value also declined since 5 Oct week. 

Nonetheless, I am still holding on to my HK shares bought before Oct 2024. 

I will continue to hold on to those shares of quality companies. 

For shares bought for their yield / under-valuation only (i.e. not high quality business), I will sell some, if the share prices rise to hit my target prices or there is better opportunity elsewhere.