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 

2021 Review of Portfolio

 This will be a review of my holdings this year.

1)      Performance of Individual Stocks Portfolio

 

My stock portfolio rose 14.7% in 2021, over-performing STI ETF (13.2%). My return was as high as 23% in mid-June 2021, lifted by bullish sentiments in HK small caps. However, it was pulled down in 2H 2022 by China stocks listed in HK

Year	% Returns	STI ETF (incl Dividends)
2019	8.4%	9%
2020	3.6%	-8.6%
2021	14.7%	13.2%

 

Probably, I should not be comparing to STI ETF, as my portfolio has mainly shifted to non-Singapore stocks. (In 2020, Singapore stocks are still half of my portfolio.) I guess that I will stick to the comparison to STI, since I have been comparing to it for many years.

 

 

2)      Position Sizing

 

Excluding odd lots, I have 19 open positions in my individual stock portfolio. Moving forward, I think my stock portfolio will have fewer than 19 position, as I prefer more concentration in stocks that are good businesses.

	Number of Stocks
At end 2016	21
At end 2020	39
At end 2021	19

 

 

3)      SRS, ETF (VWRA) and Non-Stock Portfolio

I have other stuff besides my individual stock portfolio. It comprise

·         SRS account (mainly STI ETF and a few stocks which I don’t trade much)

·         ETF (VWRA)

·         Bonds – mainly Singapore Savings Bond (SSB) and Astrea IV-VI Bonds listed in SGX

·         CPFB accounts

·         Cash

 

4)      Approx 60-40 Allocation

 

I have sticked to approx. 60% stock to 40% non-stock portfolio allocation.

I wanted to reduce my cash allocation to more bonds. However, I do not want to buy into bonds ETF in environment where interest rates are expected to rise in future. I will put more cash into SSB and money market account next year to earn higher interest rates.

 

5)      Net Asset Growth

 

I started keeping track on my net asset since 2014. My net asset has been growing annually.

 

The 2021 increase in net asset is driven by stock portfolio returns and my wages this year.

 

2021 Review Part 1

Strategy Re-set

2021 is a year where I reset my investing strategy. I reset my strategy in 2012 to be more diversified. In 2021, I reset my strategy to buy quality business and own them for many years. This is still works-in-progress, as I still own 20 stocks currently.

My number of stocks owned should continue to decline over-time

Re-Thinking about Losses in Market

I used to fret a lot about losses. Now, I still fret but hopefully lesser, as I re-frame my thoughts. The re-framing is -- If I own a quality business that is growing annually, it does not matter if the business is priced lower or higher today. Because I am not looking to sell it. 

If the business is priced much lower, with no detioriaration to its business quality, the market is offering me a chance to buy more at good price.

Cash/Equity Allocation Matters

I reviewed my allocation from 2014 onwards. My cash allocation were around 20% in 2014-17. If I had invested higher proportion of cash into equities, I will be richer now. Hence, I should strive to lower my cash proportion.

Currently, my cash proportion is still quite high at 14%. Hopefully, I can reduce them to 10% in 2022.

Owning Great Business for many years

I read Nick Sleep's letters recently. The key takeway is on owning great business for many years to let the compounding work. Another takeaway is owning business who are quality capital allocators. 

Extract from the letters: "The biggest error an investor can make is the sale of a Walmart or a Microsoft in the early stages of the company’s growth. Mathematically, this error is far greater than the equivalent sum invested in a firm that goes bankrupt."

"The “super high-quality thinkers” are our best guess of those firms whose shareholders could abdicate their right to trade stock (allocate capital themselves) sure in the knowledge that their capital will be well allocated for years to come within the businesses. This list is a group of wonderful, honestly run compounding machines. We call this the “terminal portfolio”. This is where we want to go. The question is, why is this list not the same as the current Nomad portfolio?

This is not an easy question to answer. But let us return to the church analogy for a moment. When we think about companies, the over-riding analytical consideration is the quality of the business and quality of management’s capital allocation decisions. The longer investors own shares the more their outcome is linked to these two metrics."

Changing Investment Approach

Before 2012, my investing approach is to buy low PE stocks and my portfolio was  concentrated in less than 10 stocks. However, in 2011, I suffer large lossess from S-chips. 

From 2012-2020, I change my investing approach to be more risk-averse. I diversified my portfolio to more stocks. I started buying stocks more for their dividends. I bought bank stocks. 

However, in recent years, I found that my portfolio returns have dampened. I am caught by a few times with large price declines in stocks with high dividend yield. This does not seem to be the direction I should be going.

In 3Q 2021, I started to change my investment approach to the following:

1) Buy growth/quality companies 

-- Buy when their prices are at recent low. 

-- Their business will be growing for the next 5 years, 10 years or longer

-- I will hold them for 5yrs, 10 yrs or longer to benefit from the compounding of their earnings

-- I will hold meaningful position ranging from 7% - 20%

-- As a result, my portfolio will be more concentrated

2) Special Situation

-- These will comprise smaller proportion of my portfolio, maybe up to 20% at most. It depends on whether I can find these stocks

-- The stocks will be kept till the price has run up (i.e. has turned around) or the event has sort-of completed.

-- Such stocks can be companies that suffer from temporarily from external shocks e.g. Covid-19 and may recover in the future. 

3) Stocks to avoid

-- Stocks with low P/B but nothing much else going for it. These are mostly property developer stocks. I find that I don't really make money on such stocks.

-- Stocks with high dividends but nothing much else going for it

It may take 2-3 years to transform my portfolio to the above strategy. My portfolio currently have 

-- small % that are dividend stocks. I will likely keep them, if I do not need the cash to buy other stocks

-- small % of 'Other' stocks. They are not really growth/quality companies, maybe just business growing at 6-7%. I will keep them for now, since I do not need cash to buy other stocks. 

Selling and buying

Selling Shimao and Sinopharm

Sold my position in Shimao (a small stake) due to the following reasons:

a) Price has dropped a lot, causing me to lose confidence. 

b) It could face higher costs of financing, due to Evantgrande and other property developers' issues in making coupon payments

c) China pilot property tax may lower demand for property

d) It is a non-core position. Selling it reduce my concentration in China/HK stocks and reduce the number of stocks I have.

e) Helps to raise cash to buy Intel

Sold my position in Sinopharm (a small stake) due to the following reasons:

a) Price is falling, causing me to lose confidence. 

b) Reduce my concentration in China/HK stocks and reduce the number of stocks I have.

c) Helps to raise cash to buy Intel

Start to buy Intel

Starting to buy Intel, as

a) Reviews suggested that Alderlake is slightly better or at least not worse off compared to Zen 3. This increase my confidence in Intel turnaround

b) Intel CEO has a clear plan to turn around Intel. The key issue is execution. 

Will restrict the position to 3-5%, as it is uncertain if Intel can execute its plan on time. 

Bought Asos (4% position)

Buying Asos during Sep-Oct, as

a) The stock price is relatively low

b) Nick Sleep connection

c) The company has a target to almost double its $4bn revenue to $7bn in next 5 years.

Will not be adding to the position due to the following risks

a) its current CEO has left

b) its earnings will be affected by rising logistical cost in the next few quarters

c) rising competition from similar competitors e.g. Boohoo 

Bought Micron (7% position)

Buying Micron in Oct-Nov, as

a) Its in portfolio of famous investors

b) RAM demand is growing due to digitalisation, EV etc. 

c) Industry is close to oligopoly, which may be more disciplined on its supply and hence reduce the impact of the boom-bust cycle

Will not be adding further, unless price drops. 

China Tech Stock Crash

China tech share prices have fallen heavily in the past week due to investors' fear arising from China government regulations on edu-tech companines and increasing regulations on internet companies.

I have some China stocks. My portfolio have fallen 5% in the past week.

In the past 1 week, I have sold China Feihe (cut loss, as I lack the conviction to hold) and some Singapore shares to raise cash to buy China tech stocks.

I have bought more Alibaba and Tencent. Also initiated position on Autohome and Lufax; they are associated companies under Ping An which I have also have some shares in. 

In retrospect, I am taking the opportunity in this tech crash to veer my portfolio more to China tech stocks. 

In addition, I will add 2 rules when buying shares of new companies

1) Will I sell if the stock fall by 20%? If yes, I should not buy the stock

2) Does the business benefit its customers? If no, I should not buy it. (This is to weed out companies whose fundamentals may be eroded by government regulations.)