2020 Review

 2020 Review

My stock portfolio return is 3.6% this year, beating STI. However, my portfolio returns pale compared to return of other markets like US and world index like VWRA.

Year	% Returns	STI (Incl Dividends)	Remarks
2019	8.4%	9%
2020	3.6%	-8.6%	Covid 19 in 2020, the 3.6% has accounted for the sums added to my equity portfolio in 2020

 

The poor return can be due to a few reasons:

1)      My portfolio does not have much of internet stocks like Tencent, Alphabet etc. It comprise mainly of dividend stocks, Singapore banks i.e. old sector stocks. This is because I always find the PER of internet stocks too high for me

2)      Around 50% of my portfolio is in SG stocks and SG market returns are probably not as good as the world’s for the past decade.

As the stock market decline this year due to Covid-19, I have pumped cash into my equity to take advantage of lower market prices. The added amounts to my equity portfolio are around 23% of the 2019 starting portfolio value

 

My net asset (comprising equities, bonds, cash including CPF) rose by 10.6% in 2020. The increase is mainly due to my wages.

In terms of allocation, around 66% of my assets are in equities. The allocation for cash and bonds dropped as I divert the amounts to equities mainly during Mar-Apr 2020. I sold some Singapore Savings Bonds (SSB) for this. On hindsight, given the super low interest rates now, I should have used more cash instead and sell less SSB.

 

	2019 Allocation	2020 Allocation
Equities %	57.1%	65.6%
CPF %	23.3%	23.0%
Cash %	12.1%	8.9%
Bonds %	7.5%	2.4%

 

The cash allocation % is relatively high at 9% due to my wages and I did not divert a lot of cash to equities and bonds in 2H 2020.

 

Nonetheless, I had wanted to increase my stock allocation to 65%. The current 66% is close to my desired allocation %.

 

 

End Apr Thoughts

Plan moving forward

Currently, my stock allocation is 63.5%, higher than the 57% allocation at end 2019.

I plan to stick to the current allocation and do nothing for now. This is because I am not sure if we are going to see a lower bottom down the road. I am not sure how fast the global economy will recover.

If we see a lower bottom, I will have some funds to buy shares at lower prices.

If there is no lower bottom, I still benefitted from stock market recovery.

Performance and Positioning

My stock portfolio as at end 1Q 2020 is -20%, close to STI's -22.6%.

Currently, my portfolio is -15%, as the market recovered from its lows.

I hold 39 stocks, a more diversified portfolio compared to end 2019 (26 stocks).

I am not sure how things will be moving forward. Will we see a second wave in 2H 2020? Will we see a L, U or V-shaped recovery?

Given the unknown, I will avoid travel-related stocks and hotel stocks for now.

Warchest Deployment and Thoughts on SReits

STI has dropped 25% year-to-date.

Warchest Deployment

I have deployed around 30% of my warchest in Mar 2020 so far. The warchest includes my CPF-OA investable funds.

Some of the warchest funds are in SSB and will need some time to redeem.

For the rest of my warchest, a possible action plan going forward:
STI 2,150 - 2,300: Deploy 1/3 of remaining warchest
STI 2,000 - 2,150: Deploy 1/3 of remaining warchest
STI below 2,000 : Deploy 1/3 of remaining warchest (CPF-OA investable funds)
STI below 1,800 and no more funds: Deploy rest of CPF-OA into unit trust or STI ETF


An alternative Plan B will be:
 1) Wait for market to stabilise with price breaking 20-day moving average before deploying rest of warchest

Hmm, not sure which plan is better?

Anyway, I will not make any purchase for the next few days. This is to let my cash position stabilise, so that I have more accurate picture of my remaining funds.

S-Reits Thoughts

While the market have crashed, the reits below are not cheap at P/B basis

Ascendas Reit: 1.16 P/B
Mapletree Commercial Trust: 1.00 P/B
Mapletree Industrial Trust: 1.33 P/B
Mapletree Logistic Trust: 1.11 P/B

I am not sure why the 4 reits above is trading at book or above book value during market crash. I guess that the 4 reits above are a 'crowded' trade.

The Capita reits are cheaper at P/B basis.

CapitaComm Trust: 0.80 P/B
CapitalMall Trust: 0.85 P/B

Anyway, the above reits are not in my watchlist currently. I am just expressing my surpise at seeing reits trading above NAV at the current moment.

Observations on the Market Crash in 2020 (On-going post)

Intially, people think that the corvid-19 spread will be contained in China and Asia.

One day, it spread to South Korea via a church in South Korea. Weeks later, Italy have suddently a lot of cases. The spread then went into other European countries and US.

US and European market started to drop.

Seperately, one day, Saudi Arabia and Russia could not agree on oil cuts and the market are flooded with oil. Oil prices dropped rapidly from $55 to $30. And this lead to further drops in market.

Then we saw rallies of 8%-10% in a single day in US market. But the market continue to drop.

In Singapore, the banks dropped first, down 10%, down 20% ... Needless to say, the travel-related shares like SIA, SATs, China Aviation oil also fell heavily.

Then the reits started to fall too and then the decline become more rapid. Cromwell Reit -- reit of Eurporean properties -- fell by 16% in a day, as Europe are affected by the virus.

Globally, there are expectations for airlines to go bankrupt if Govt does not support the airlines. This is due to nobody travelling around. Italy has nationalised their airline.

20 Mar 2020: Asian market rose, as US markets rose in previous day. Some reits rose up by more than 10%. E.g. Cromwell reit rose by 37% in a day; quite crazy. Anyway, the US market dropped 4% later on 20 Mar. Asia market is likely to drop again on Monday 23 Mar.

23 Mar 2020: Asian market dropped. STI dropped 7.4%. iEdge S-Reit INdex dropped 7.7% similarly.

26 Mar 2020 (Thurs): STI has rose for 2 consecuetive days (Tue and Wed) before sliding a bit today. Compared to Monday's 2,231, STI is 11% higher at 2,484. Govt has also announced Resilence Package of $48 billion with support for land transport and aviation industries. Stocks like SIA and SATS are safe given the support from the package.

28 Mar 2020 (Sat): US indices fell 3-4% on Fri, as US covid 19 cases rises and exceed China's. Likely to see STI fall on Mon. Saw a podcast by Josh Brown mentioning that for the market to recover, we should see Italy covid 19 cases to drop and then US covid 19 cases to drop.

2 Apr 2020 (Thu), am: The US market rose on 30 Mar (Mon) but fell on Tue and Wed (1 Apr). People have attribute the rising US market last week and on 30 Mar to non-economic factors such as end of quarter rebalancing.

Howard Marks has an interesting memo "Which way now?" (dated 31 Mar 2020), and he noted:

Nevertheless, the market prices of assets have responded to the events and outlook (in a very micro sense, I feel last week’s bounce reflected too much optimism, but that’s me).  I would say assets were priced fairly on Friday for the optimistic case but didn’t give enough scope for the possibility of worsening news.  Thus my reaction to all the above is to expect asset prices to decline.  You may or may not feel there’s still time to increase defensiveness ahead of potentially negative developments.  But the most important thing is to be ready to respond to and take advantage of declines.

27 Apr 2020 (Mon): The market has slight decline last week. The highlight of last week is that oil price has reach negative $30+ as the futures expire and buyers need to find storage for oil causing negative prices.

Thoughts on the current market downturn

We are currently in a bear market due to 

(1) coronavirus spreading to the US and Europe [main factor]

(2) Oil prices plunge as Saudi Arabia and Russia fall out over oil prices

Thoughts on current situation

I think we are likely to enter recession this year due to lower economic activity, as people are staying at home due to the coronavirus, the supply chains are affected, lower productivity as people are working from home or in split teams etc

Nonetheless, in the long run or if we imagine looking at the current situation in 2025, the coronavirus impact is likely to be small and contained through a year. 

Steps moving forward

I have been buying stocks as the market falls. Insofar, based on my stock portfolio value as at start of year, I have added another 6% to stocks. Even though that my purchases have been losing money as stock prices continue to drop. 

Moving forward, 

(1) I will continue to buy stocks slowly. This is because it generally takes some time for stocks to travel from peak to trough. Maybe this time stocks will hit trough faster given the speed of stock prices decline. 

I do not know when the stock market will trough. If the market continue to fall for quite some time, my stock purchases will continue to lose money. I am fine with this, as the losses should turn into gains when market recover. 

Neither do I know when the market will recover. If the market recovers fast, then I will be buying less. 

(2) I may need to encash some Singapore Savings Bonds if I run out of cash. My current cash holdings allow me to add another 15% of stocks (based on my stock portfolio value as at start of year). 

(3) If the market declines reach STI index 1,500 (an unlikely scenario), I may be tempted to use CPF-OA to buy stocks. 

Strategy Change

Interesting Blog

Recently, I have been reading the LT3000 blog (lt3000.blogspot.com). The blog has very interesting articles like the preference to be 100% invested,  the philosophy of buying less than perfect companies at very discounted price (e.g. buying a 5/10 company at 3) and having tiny position

Strategy Change

As I mentioned earlier, 8% of my stock portfolio was in Eagle Hospitality Trust before the large drop in Nov 2019. This prompts me to re-think my position sizing, in that I should have a smaller position in Eagle and other stocks. 

Moving forward, I will change my position sizing to 
- at most 3% of portfolio for reasonably value stocks (0.5 value < price < 0.8 value)
- at most 5% of portfolio for deep value stocks (price < 0.5 value)

The above will be a guide to my position sizing. If I think that the stock carries more risk, I will limit the position size further. 

Looking at Stocks

I have been looking at Hong Kong stocks recently, as I find that there are some interesting counters that give rather high dividends and has low PE ratio. 

For example, Sun Hung Kai (86) gives more than 7% dividend and is around 6 PE ratio.