2022 Portfolio Review

 1) Performance of Individual Stocks Portfolio

2022 Returns was negative at -13.7%, poorer than STI returns of +7.6%. This is because my portfolio comprises mainly HK-based China Stocks and US Stocks.

Year	% Returns	STI (incl Dividends)
2020	3.6%	-7.5%
2021	14.7%	12.5%
2022	-13.7%	7.6%

I raised my cash position in 1Q 2022 to have a more prudent allocation and increase the cash available to take advantage of price declines. In 2Q-3Q 2022, I had used some cash to buy US stocks such as Alpabet, Booking, and HK stocks such as CNOOC and CSPC Pharma. In Oct, I bought HK stocks such as HK Tracker Fund (2800), Fu Shou Yuan and added more to Ping An.

There were also stocks bought and sold in same year, mostly at loss or breakdown e.g. Meta, WBD, OXY, CMGE

2) Position Sizing

In 2021 year-end review, I aimed to have fewer positions this year. But it seems that the no. of positions remain similar.

	Number of Stocks	Top 10 position size
At end 2016	21
At end 2020	39	46%
At end 2021	19	71%
At end 2022	18	72%

 In 2Q 2022, I felt that it is risky to have position that are too large. As such, I strived to cap new positions small

3) 10-year IRR

I look at my 10-year IRR across time. My IRR is lower compared to earlier years, where I run more concentrated and risky positions (i.e less than 10 positions in 2004-11) and had smaller portfolio. In 2012, I changed strategy to be more diversified. In addition, the low returns of SG stocks from mid 2010s onwards probably lead to lower returns in late 2010s

4) Stock – Non-stock Allocation

The above are on my cash equity portfolio.

 I have other stuff such as SRS, ETFs, Bonds, Cash and CPFB accounts.

 Looking at total allocation, I have around 55% stock – 45 non-stock allocation. The bonds allocation rose this year, as I allocated more cash to buy SSB and T-bill when the interest is higher in 3Q 2022 onwards. 

5) Net Asset Growth

I started keeping track on my net asset since 2014. This year’s return is -1%, mainly due to stock losses.

2022 Review - Lessons

 This will be on lessons learnt in 2022

1) Do not buy quality without concern for valuation

2) Do not buying too large position at one go

I bought Tencent and Prosus to around 18/% of portfolio in late 2021, thinking that Tencent is a high quality stock despite that Tencent is quite expensive. My average price on Tencent is around $450-$460. 

However, Tencent fell by a lot in 2022. During the fall, I did not average down since it was a large position in my portfolio. 

So the lesson is that buy quality at reasonable price and buy slowly. Reasonable price can be cheaper at times.

3) Don't follow superinvestor's purchases - you do not have their conviction / they may sell their stake later.  

In 2021, I follow Mr Charlie Munger and Mr Monish Prabrai's purchases to load up on Alibaba and suffer losses. In late 2021, Mr Prabrai sold  Alibaba. 

I sold Baba in early 2022, as I conclude that Baba's moat is affected by JD, Pinduoduo and in southeast asia -- Shopee. The sale was done at a loss. Nonetheless, it taught me a lessson of not following uperinvestor's purchases. I do not have their conviction and they may sell their stake later.  

4) Do not sell put option

This year, I sold put option around 2-3 times. The money earn is not a lot. But the last put option sold -- selling put option for Google @87 -- caused me to not buy Google at $87. 

5) How does it matter to you if you know A or B?

6) Aggressiveness -- when I should get more aggressive

Howard Marks' memo "What Really Matters" provided two insights to me. 

First, does it matter to me if I know when Fed will reduce interest rates? Probaby not.

Second, how aggressive should I be in my positioning or asset allocation? When should I get more aggressive and when less? This is a question which I will focus more time to study next year.

Buying Meta

 I bought a small stake in Meta recently at $118. 

The thesis is that 

1) Meta has stable ad business from Facebook and Instragram that are cash-cows

2) In medium term, there are more monetisation avenues from Reels and Whatsapp biz messaging

3) Meta is a cheap way to gain exposure to Metaverse. If Metaverse fails, sure you lose out on the cashflow invested in Metaverse but Meta's existing business Facebook/Instragram/Whatsapp will still be around

I missed buying at the lows of $90+, as I am not sure of my thoughts on Meta then. By the time I concluded (3), Meta is around $110-$120+ level. 

Thoughts on META

I watch a few Youtube videos on Meta:

Stratechery has an interesting post on busting 5 myths on Meta

Some points

1) Meta has been falling rapidly after its Q3 announcement. The fall seems to be due to higher expected expenses next year, weaker free cash flow and (to some extent) stagnating revenue. Other reason is Meta's insistence in high investment in Metaverse

2) Meta is un-modelable. It has declining financials and its future depends on Metaverse.

3) In short run, Meta is monetising some new products: Reels and Clicks-to-Messanger

4) Metaverse is interesting and probably have real life use case in future when the hardware and software gets better. Imagine one can meet people virtually and see their facial expression, write on virtual whiteboard and avatar showing real faces. Or one can work with laptop but a few large screens in metaverse. (This may affect monitor industry.)

5) Buying Meta is not on its financials, but rather it's on the belief that Metaverse will be a winner for Meta in long run. 

I am not vested in Meta currently. I have not decided if I should invest in Meta. 

 

On REITS and Interest Rate

This post is on Larry Swedroe's article - How do Interest Rates impact on REIT returns? , in case I need to return to it in future. 

Takeways (extracted from the article):

When the initial equity REIT valuation level was low (risk perception high), rising nominal interest rates (indicative of a stronger economy) were associated with higher equity REIT valuation (higher NAV premium, higher P/FFO and lower implied CAP). 

REITs’ future three-year returns were negatively related to the level of the nominal rate—a higher level of the nominal rate was associated with lower future returns and vice versa. 

If rising rates reflect strong economic growth, the expected returns to REIT investments might also be good. This could reflect stronger demand as well as the likelihood of a falling risk premium, which causes valuations—for example, price-to-earnings ratios—to rise. 

On the other hand, if interest rates are rising because inflation is growing faster than expected, the markets could become concerned that the Fed will begin tightening monetary policy. That would likely put a damper on economic growth and probably cause a rise in the risk premium, which causes valuations to fall. Thus, there are some periods when rising interest rates are likely good for REITs, and some periods when they are likely to have a negative impact. 

The current period is akin to what was described in last para -- rising interest rate due to high inflation. 

Likely to see lower returns for SG reits down the road. 

Philosophy, Market, Cash Account and CPF investable Global Stock ETF

Philosophy

I come to realise that if I am buying individual stocks, I should strive to buy the best business and not buy value stocks. 

It is not that value stocks don't work. They work but they need a lot of stock positions to work, as some value stocks may turn out to be duds. If I want to buy value stocks, it is better to buy value stock ETF, so that I will not be overly affected if the value stocks I hold turn out to be dud. 

Market

The US market fell further, after the Sep Fed meeting and people realised that the Fed is serious on raising rates till inflation is tamed.

My buy plan is to buy stock ETF and selected US stocks in tranches, as market decline. Not buying HK stocks, as my stock portfolio is heavily tilted to HK shares

Purchases made recently:

- VWRA (global stock etf) bought at $94.5

- Googl bought at $99

- BKNG (Booking) bought at $1,755

I am also selling non-core position to shore up cash.

Sales made recently

- Occidental Petroleum sold at $63.7. (Slight profit, as I bought at $60)

- Micron sold at $50. Partial sale to reduce stake to acceptable position. (Loss, as I bought at $58).

Cash Account

As I plan to buy US stocks in future, I need US dollars. I converted some cash to USD at Interactive Brokers (IB). IB provides interest rate of 2.58% (BM - 0.5%) for USD cash > $10K. If Fed raise interest rate in future, IB's interest rate should rise accordingly. 

CPF investable Global Stock ETF

Many years ago, when I was in my last year of university, I lament that I cannot use CPF-OA to buy gobal stock etf, which will have lower expense ratio compared to unit trust

Now, times have changed. One can use CPF to buy global stock etf in Fundsupermart or Endowus etc. 

I look around and it seems cheapest to buy Infinity Global Stock Index Class C using CPF-OA at Fundsupermart. Because it does not carry any annual platform fee and its annual management charge is 0.2%. 

If US market fell 40%-50%, it is time for me to use CPF-OA warchest to buy this index fund. 

Started Buying

 Have dipped into my funds to started buying:

1) JPGL -- a multi-factor index fund listed in LSE. I am pondering between JPGL and IFSW (another multi-factor index fund). Decided on JPGL, as its max holding in a single stock is around 0.6% which means that it is more diversified. 

If you look at morningstar on the portfolio characteristics, JPGL scores higher on low-volatility factor, while IFSW scores higher on quality factor. Can't say which factor is better.

2) USSC -- a US value small cap fund listed in LSE. I bought LSE-listed ETF, as they may be domiciled in Ireland and hence I can save on US dividend withholding tax. 

Recent news noted that US small cap value seems to have higher ROE than US small cap growth. Given this, I think that US small cap value is cheap currently.

Sold:

1) Meta, at breakeven prices. Decide to let this go, as I don't really like the FB business

2) Essex Bio-tech. Wanted to sell and then use the proceeds to add on to my position in CNOOC. But CNOOC has run up. I will hold on to the cash then.

On T-bills, have bought

1) 1-year T-bill issued in Jul. It provides 3.1%, which is not a bad yield

Will also be buying the 6 mth T-bill this week. This will means that some of my funds are tied in T-bill till Jan/Feb next year. 

Given that SSB has been capping the amounts in recent months, it is easier to put funds into T-bills instead. 

Half Essex Bio-Tech, thinking on 10 year bond

 I had halved my stake in Essex Bio-Tech today, as it releases a profit warning yesterday night. The decision was also due to possibility of it writing off some of its investment in a drug and my thinking that if I am to buy the stock, I will own half the stake I have.

I thought of buying 10 year Treasury bond, as US seems to be heading for recession and inflation seems to be slowing. However, I am not knowledgeable on bonds. I cannot tell how much I can lose in bonds nor how much I can gain on bonds. Thus I should pass.

I bought SG 6mths T-bill. The auction results is out and the cut-off yield is 2.66%. This is higher than last month's 2.3x%. Now the question comes if I should continue to buy more T-bill or I should hold the cash, so that I can buy stocks if market decline. 

Sold Rex International

Sold Rex International today at 0.255, as it falls below my stop-loss. It was a small position and I had put a mental stop-loss, as I bought it due to high oil prices but I am not very knowledgeable about the company.

In addition, Rex is much smaller than oil majors, which means that it has higher risk.

The sale and loss have reminded me that I should be more reluntant in buying stocks. Whenever I discover a new stock idea and had the impulse to buy, it is better to wait and set a lower buy point. And I should only buy stocks of companies who are of good quality. 

In addition, if I do not have strong conviction in the stock, it is best for me to put a mental stop loss i.e. treat the market price trend as knowing more than me. (Hmm, if I do not have strong conviction, why do I buy the stock in first place? It must be due to greed and over-confidence.)

Updates on Sales and Purchase in June 2022

Just updating my sales and purchases made in June

Have sold the following

- Micron -- sold half of my stake in mid-June to reduce risk of lower prices in downturn. Turns out that this move is correct now, as Micron share price falls after it provides lower guidance

- HRNet -- sold half of my stake in mid-June to raise cash. 

- Prosus -- sold all my stake, after its share price rises, as it is selling Tencent to buy its own stocks. I buy Prosus mainly for its Tencent stake. Took at loss here. But as my Tencent stake is a significant proportion of my portfolio, selling Prosus is a good chance for me to reduce concentration. I am keeping Tencent position for now. (Tencent position is a loss-making position; average buy price is $450)

Bought the following. Most are smallish position, except CNOOC

-- OXY, Rex Intl and CNOOC. They are bought as hedge. Rex Intl was bought at 0.345, so it was a loss making position. CNOOC bought due to its dividend. OXY was a Warren Buffet purchase

--United Hampshire Reit.  Buy mainly due to its high dividend yield and properties mainly in US (USD is getting stronger as interest rate rises). I will skip Euro-based Reits for now, as euro is getting weaker.

-- WBD. It's a recent merger between Warner Bro and Discovery. It has good content (e.g. DC Comics) and good distribution channel from Discovery. Down-side is that it has high debt. Thesis is that it will have cashflow to reduce its debt in next 2-3 years and market will re-rate it, as its balance sheet improves.

-- YFH Financial. Bought at $0.43. It's a value play with price-to-book of 0.4x. Its directors are buying. Downside is that it owns China debt/loans which are opaque. 

Moving forward, I am still waiting for market to go lower, to hit my buy prices of various stocks / ETFs before buying smallish position. My personal view is that this bear market has legs to run. 

Bear Market Average Decline

 Ben Carlsen's blog post has interesting statistics on average S&P decline for recessionary bear market (-39.4%) and non-recessionary bear market (-26.1%). 

Now S&P is just entering bear market territory. 

Gameplan for Downturn

[First post on 21 May 2022, updated on 17 Jun 2022]

Plan for purchase during downturn

1) Index Buying: Additional Stake at 12% lower

    1st Stake: When S27 (S&P 500 ETF) hits $383, use SRS to buy. 

    2nd Stake: Buy when VWRA reaches $85

    3rd Stake: Buy when VWRA reaches $75

Point 1 stopped. I changed strategy to wait for S&P 500 to either (1) wait for 33% YTD drop first or (2) for market to bottom. How to know market has bottomed. One way is to see higher bottom in S&P 500. This approach will miss the market low, but it prevents me from buying too soon and has lower psychological pressure down the road. 

US stocks

2) Google: Additional Stake at 15% lower

    1st Stake: $2,300 - Bought

    2nd Stake: Buy when $2,000

    3rd Stake: Buy when $1,700

3) Interactive Brokers: Additional Stake at 15% lower

    1st Stake: $58 - Bought

    2nd Stake: Buy when $49

    3rd Stake: Buy when $42

4) Meta: Additional Stake at 15% lower

     1st Stake: Buy when $185 -- Bought

     2nd Stake: Buy when $157

     3rd Stake: Buy when $134

Thinking as at 17 Jun 2022

As interest rate and inflation rise, US economy should slow. As Fed interest rate rise and economy showing evidence of slowing, stock prices face more downward pressure and earnings may slow or drop.

I think that the market has not bottomed yet. Of course, I may be wrong.

My current allocation is around 50% stock; 50% non-stocks. So, if market has bottomed, I will enjoy some uplift. If market dive, I have cash to deploy into market.

In the meantime, I will buy SSB (Singapore Saving Bonds) in batches. As one can always redeem the full principle of SSB, its value will not decline like traded bonds, as interest rate rises. 

Others

REITS -- if risk-free interest rate rises to 3.5%-4%, will reits like MIT, MLT retain current prices? I think their share prices are likely to drop more, so that they can offer significant spread between dividend yield and risk-free interest. Will look at these reits when they can offer 6% yield.

O&G -- I bought some CNOOC, (smaller) Rex Intl and Occidental Petroluem. These are bought as hedges for the high inflation. Will know in the future if these purchases are correct or not.

ARA Hosp Trust -- Bought a small position recently. It's a recovery and inflation hedging play. Its share price is around the same as 2021's; there should be more demand for hotel stays in 2022 summer based on reports. In addition, prices for hotel stays should rise as inflation rises. 

Investment Clock Guess, Balancing

Where is the investment clock/cycle now?

China/HK -- 5-7 o'clock

US -- 2-3 o'clock

Singapore -- 10-11 o'clock

Balancing and Prediction

Nobody knows where the market is going next. On hindsight, everyhing is obvious. But when you look ahead, everything is foggy.

Regular balancing between different asset is the counter to market unpredictability / market risks. Balancing is also the counter to cyclical behaviour i.e. the tendency to buy stocks at higher prices during bull market and the tendancy to sell stocks during bear markets.

First Update in 2022

 Returns

My individual stock portfolio is down 11.7% YTD. The losses are mainly due to HK stocks like Tencent. 

The individual stock portfolio is 45% of my total wealth. My total wealth also have other asset like CPF, cash, bonds (mainly SSB) and index fund/ETF. YTD, my total wealth is down 3%, as the stock losses are alleviated by my income.

A Mistake to Buy Asia High Yield Bond 

I bought a smallish amount in Asia High Yield Bond ETF. After I bought it, it went 10% under-water. It is a mistake to buy it, as high yield bonds have high correlation with stocks and I have large allocation to stocks.

SSB Step-Buying

As interest rates are increasing, leading to SSB interest rates rising higher each month, I will buy some SSB each month and redeem the SSB (with much lower interest rates) bought last 2 years.

Gold Buying

I have been slowing accumulating Gold ETF (GLD). In the past, I would not think of buying gold, as it has no interest and does not produce anything. Now, I change my thinking, as gold can be a hedge against inflation and is a good diversifier (as it has low correlation with bond/stocks.) Moving forward, I should aim to have 5% of my total wealth in gold.

My View -- Cash may be the safest asset now

Cash (and CPF) may be the safest asset in the current environment of rising interest rate and high inflation. While the high inflation will erode the real value of cash, bonds/stocks are affected by rising interest rates. Commodities may be a good asset in current environment but I am not familar with commodities and commodities have large run-up in price this year.

Other Thoughts

Recently, I have been thinking of shifting my asset allocation to something closer to 'Permanent Portfolio' (=25% each in stock/bond/cash/gold) or 'All Weather Portfolio'. While such portfolio could have lower returns compared to 60/40 portfolio, it has lower volatility/drawdown and provides greater peace of mind.  

I am also increasingly of the view that I am better off with investing in world stock etf like VWRA. Maybe I will reduce the size of my individual stock portfolio and allocate more funds to index fund/etf. 

 

2021 Review Part 2

On Individual Stock Portfolio

Currently, I have some Singapore stocks purchase in 2020 or early 2021, hoping that their prices will rise as we exit Covid. In 2022, if these stocks’ prices rises as we exit Covid hopefully, I will sell them off.

In addition, I hope to continue to search for stocks with quality business and will create a watchlist on them. If their prices are right, I may initiate a position.

Eventually, I hope to own stocks whose earnings are materially higher 10 years from now.

Others

As I have around 14% cash, I will put the cash to buy more SSB in 2022. Probably I will buy some SSB each month in 2022 to average out the yield. In addition, I may redeem a 2 SSBs that have low yields as they are subscribed in mid 2021.

I may also put a portion of the cash into Endowus Smart Enhanced to earn higher interest. In addition, I may sell some SRS stock holdings and put them into Endowus Core Dimensional, which is a world equity fund with low expense ratio, to get more diversification.

Thoughts on 2022

I think that interest rates around the developed countries will rise in 2022, due to higher inflation in late 2021.

Cycle-wise, I feel that US equity market is quite expensive relative to historical PE ratio and hence it should be near the top of the cycle. For China stocks listed in HK, they seem to be in around the trough of the cycle, as their stock prices have dropped a lot in 2021.

Singapore stocks should be around the average of the cycle, I guess.

I do not have views on other countries, as I am not familiar with them