On Selling

Today, I want to talk about cutting loss quickly. 

Cutting loss is mentioned in "The Art Of Execution" by Lee Freeman Shor. It is a very short book, but it contains very important ideas. The book talked about Assassins i.e. investors who were quick to cut losses. This is because large losses is harder to earn back e.g. To earn back 50% losses, you need to earn back 100%. 

More info on "The Art Of Execution": http://sanjaymeena.io/books/book_notes_the_art_of_execution/ 

https://gavin-baker.medium.com/lessons-on-winning-and-losing-as-an-investor-from-the-art-of-execution-e6aafe817038 

Personally, I experienced the importance of cutting loss quickly in Eagle Hospitality Reit. 

End 2019: 

-- Held shares in Eagle Hospitality Reit. 

-- Share price started falling in late 2019 due to negative news and large shareholders selling 

Early 2020: Share price fell further Sold ~2/3 of my position in Feb-Mar to cut loss End Mar 2020: Stock is suspended. I had ~1/3 position left in Eagle. 

On hindsight, I should have sold all the shares quickly in Jan-mid Mar. After this incident, when there is losses due to unexpected fundamental reason, I will sell half of position first. Then I can take my time to determine if I should sell the rest. This rule was applied to some stocks lately, although the selling may not be fast enough 

Yuzhou Property 

21 Mar 2021: Announced profit warning. Share price fell from ~$3 to ~$2.70 

25 Mar 2021: Provided more details. 

26 Mar 2021: Share price fell to ~$2.3x. I sold half of my position here. 

31 Mar 2021: Sold the rest, after further thoughts and to deploy the money to other stocks 

 AEM 

End Apr 2021: Started building my stake 

Early May 2021: 1Q 2021 report is out and showed unexpected earnings decline. Sold all my stake in AEM, taking a small 8% loss. 

JD.com 

Early May 2021: Started building my stake 

Mid May 2021: Found an error in my analysis. Sold all my stake in JD, taking a small loss 

In summary, I must continue to cut losses fast. In addition, I will continue to have diversified portfolio, as my stock ideas have significant probability of being incorrect.

A Mistake and Update

A Mistake

Recently, I had bought JD.com, thinking that the price has fallen and the PE ratio is lower compared to other internet stocks

After building a significant stake, I found that the lower PE ratio is due to occurence of one-off earnings. This is my mistake that I did not read the earnings report in advance. (Such a novice mistake.) Nonetheless, I had subsequently sold all my stake at a loss (especially in the current down market for tech stocks.) So the lesson learnt here is that I should always review the company's earnings before investing.

Sticking to Value Stocks

Currently, I own Alibaba. My average price is around $228. So I had a loss of around 10%. I will hold on to this stock and see how it goes.

Meanwhile, I will not be buying any tech stocks, as I don't feel comfortable doing so. Maybe I am more of a low PE investor. I am more comfortable buying low PE stocks with some dividend, so that I can collect dividends while waiting for the market to re-rate the stock. If the stock is not re-rated at end of day, I am not likely to lose much, since the expectation is low.

My feel is that in the next 1-3 years, value stocks may outperform growth/tech stocks, especially since growth/tech stocks may be more affected by rising interest rates. Hence, I should not style drift into growth/tech stocks.

Number of Stock Holdings

I mentioned earlier that I am reducing the number of stocks I hold. Currently, I am holding 27 stocks, 8 fewer than in Mar 2021. The ideal number of stocks to hold may be 21 – 25 stocks. I had good returns during 2016-2017 and I held 21 stocks in end 2016 and 25 in end 2017.

	Number of Stocks
At end 2016	21
At end 2020	39
At 5 Mar 2021	35
At 15 May 2021	27

 

Performance

My year-to-date returns as at 15 May 2021 is 14.0%. The returns have suffered a little from my mistake in JD.com and the drop in Singapore shares after the Phrase 2 (Heightened Alert) was announced yesterday.

Interestingly, more than half of my portfolio are HK-listed stocks. In end Dec 2020, Singapore-listed stocks are around half of my portfolio; now they are less than half. This could be because I find more stocks to buy in HK than in Singapore. And I have been taking profit on Singapore-listed stocks such as the bank shares. (I still own shares of Singapore banks but not as large as in end Dec 2020.)