2018 Review II

This is the second part of 2018 review

4) Performance

My stock portfolio has -11.9% in 2018, which underperformed STI index (-7%). The reasons are noted in the earlier post, which is due to buying low quality stocks and not holding more cash when market is very optimistic.

Looking at my $1 invested in 2004 to 2018, my average return of the $1 in 2004 is 14.4%. However, on internal rate of return (IRR) basis (i.e. accounting for cash additions to portfolio at different time points), the IRR is 11.3% for 2005-2018.

I expect my IRR to drop in the future, as I am holding more Reits which is more stable but gives lower returns.

5) Portfolio Breakdown

Currently, I have 23 stocks. 26% are in Reits/trust, 23% in property stocks (exclude Reits/trust), 23% in China Banks and the rest in Others.

The Reits/trust are held for stability’s sake. I have bought more property stocks in recent months, as the property counters such as HK Land, City Dev and Hang Lung Property are trading at low price-to-book ratios. On China banks, I think that they are trading at low valuation and hence they are kept in my portfolio.

6) Outlook and plans

I think the market may get lower in 2019.

Currently, I am 55% stocks and 45% non-stocks. If STI fall to 2,900, I will increase my stocks percentage to 60%+. If STI falls to 2,700-2,750, I will increase my stock percentage to 65%+.

2018 Review I

This will be first part of 2018 review.

1) Cutting away low quality stocks

I have been selling off low quality stocks such as the following:
- AusGroup: has high debt
- Geo Energy: I think it lack a moat and takes on unneccessary debt

This is to get back cash, so as to re-deploy to more stable or better stocks

2) Buying low quality stocks at the market peak

AusGroup and Geo Energy were bought at the start of the year, when the market is booming. I think the purchases stem from the following reasons:
- my want to deploy the cash from Cogent privatisation
- my unwillingness to hold cash
- my lowering of standard amid the market peak/optimism.

In future, I should strive to hold more cash and be less willing to buy stocks when market is optimistic, especially when the market has been rising for 2 years.

3) Be willing to be not fully invested when market is very optimistic

I knew that the market was very optimistic during late Jan, as the prices of my stocks were rising almost everyday and the market has been rising for past 2 years in 2016 and 2017.

In future, when similar market conditions arise, I should be more wary and start to hold more cash. This will help to soften the market downturn subsequently.

Negative Returns as at 6 Jul 2018

On 6 Jul 2018, STI has a large drop of 64.9 (1.99%), largely due to the property cooling measures announced by the government.

And, my stock portfolio has become more negative than STI currently. The more negative drop is probably led by the drop in my HK counters due to US China trade wars.

STI ETF Returns to date : around -4.6% incl dividends
My portfolio : -5.8%

During May - early Jul, I sold the following counters:
- ESR-Reit: Sold the remaining ESR-Reit
- Valuetronics: Sold at 0.79, as it dropped from 0.8x and it seemed safer to take profit first.
- Cosco Shipping Port: Sold at loss of -15%. It is sold partly to cut loss and partly to raise cash
- ETFs in HK: Sold to raise cash.

I also bought the following:
- ABC, BOC and CCB: Added to my positions as their prices drop. I continued to like China Banks.
- GSS Energy: A new position bought at $0.151. Its current price is 0.136, so I'm suffering a 10% loss here. Bought it as it seems undervalued if it could develop its Oil and Gas business
- Yanlord: Added more shares at $1.6, $1.58 and $1.50  to my existing position. I continued to like the stock, especially it's CEO has continually bought shares in this stock.
- Tat Seng Packaging: Added more shares at $0.69

Moving forward, I will add on to my positions if the market corrects further. I may also sell off the smallish positions to raise cash, so that I have a larger cash pile to buy stocks if market corrects further.

I will also exercise patience in buy stocks, as the market correction from its Jan 2018 may have legs to run. The last corrections in STI are in Jan-Oct 2011 and Apr 2015 - Feb 2016; both lasted 9-10 months before hitting the low.

Some thooughts on Investing

Tactical Trades

I found myself doing 2 tactical trades lately. I define tactical trades as positions expected to be sold in around 6 months.

The first trade is Singtel, bought at $3.36 and sold at $3.53 yesterday. The second is Valutronics, bought at $0.69. I am hoping to dispose of it at $0.9, if possible.

Both trades are smallish position, unfortunately. I do not have the conviction to buy more, as I do not know if they may drop further at time of purchase.

Variant Perception

Variant Perception, if not wrong, is coined by Michael Steinhardt in his interview many years ago. The idea is to have different thoughts about a stock compared to the general market and hence profit from it.

The above 2 trades seems to illustrate variant percenption somewhat, as at the point when I purchase the stock, I was thinking that the stock price is too low and its outlook may be more favourable than what the market thoughts. Of course, I may be wrong and hence I keep the 2 trades small.

Earning Dividend while waiting for price to close

My recent purchase of Acendas Hospitality trust somewhat reflects the above idea of earning the dividend while waiting for price to reach NAV value. If the price does not increases, at least the dividends will offset my opportunity cost of having my money lock into the stock. Such ideas tend to be low-risk but also low-return.

$1million getting smaller and smaller

Lately, I have been thinking that $1 million dollars is getting less meaningful as it has been getting smaller and smaller. I recalled that when I read the books published many years ago (e.g. Think and Grow Rich published in 1937), such books gave the idea of $1 million being very big and very hard to acheive.

Nowadays, you can see blogs on FIRE having $1 million or a couple of $million. $1 million is really getting smaller and smaller.

Quick Update

Some quick thoughts

Valutronics dropped 17% today from 0.90 to 0.74. Wow. Not sure why it dropped so much. I do not have guts to catch such dropping knife, as I am not sure if there is any fundamental reasons behind the drop

Recently, I think I am quite enthusiastic on Reits. Not sure why.

Sold down ESR-Reit quite a bit due to the unexpected low DPU.

Have been buying Ascendas Hospitality Reit, as it is trading below NAV and has potential of increasing DPU after its Australia residence is developed in 2019.

Also, sold down 500 DBS shares at $29.64. Left 1,000 shares. May sell another 500 share at around $30.50.

Added more Bank of China (BOC). I have stocks on BOC, ABC and CCB. I have more ABC and CCB. So as I want more exposure to China Banks, I added to my BOC position.

Tech crash!? Does not really affect me, as I do not own any tech stocks as it seems.

First Ship Lease Trust, Own it two to three years ago, but sold to cut loss thereafter. Was thinking that it could be a good asset play if it can pay off its debt. But it seems that I under-estimated the impact of debt has on its asset. Looks like I have to be more careful on turnaround stocks with high debt.

Talking about turnaround stocks, I have Ausgroup. This is another stock that I have no idea why its share price manage to gain back the losses after its share price dropped due to share placement. Anyway, I am still holding on to the shares.

Mid-1Q2018 Update

It is interesting that Jan 2018 saw strong returns and the first 2 weeks of Feb gave back the returns. 

Similarly, my portfolio saw 8% returns in Jan before giving all of them back in Feb. Such is the life of an equity invester. 

Sold Postions

- Cogent: As mentioned in last post, I got my monies back after agreeing to sell my stake to Cosco

- DBS: I continue to pare down my stake at $25-$27. Now left with a quarter of my orginial holdings left

- a Malaysian stock: Sold to cut loss

- 800 Super: Sold after its disappointing latest quarter result. On hindsight, I should sell all my stake last year. 

Bought Positions

- China banks: Add to my position in China banks i.e. ABC, BOC and CCB. Now comprise 18% of my portfolio. Will stop adding and look forward to its dividend in middle of this year

- ESR Reit: Bought till it reaches 4% of my portfolio. ESR (reit manager) seems aggressive and may improve the reit's performance in the medium run.

- Hui Xian Reit: Adding on to my position. As noted in last post, I am buying reits due to lack of ideas and to get some yield after getting the funds from Cogent

- Geo Energy: Bought heavily in the Jan-Feb. Now comprise 7.5%. Likely to stop adding. Stock is at around 5 PER and earnings may continue to grow if coal price don't drop much in 2018. Admittedly, it does not have much moat. 

- Ausgroup: Add to my stake to reach 3.5% of my portfolio. It is looking increasing likely to be able to turn around. A key risk is potential dilution if its note/bond holders are paid with equity. 

- Emperor Capital: Add to my stake in Jan. Maybe should have waited till the Feb correction before adding. It is an interesting stock with ROE of around 12% in past 3 years

Thoughts

I think that the bull market is likely to continue but at a more cautious pace. US may increase its interest rates a few times this year and this may lead to volatility in the markets

2017 Returns

2017 Returns

My stock portfolio return is 33.6% in 2017, beating STI return of 21% (which incl dividends). 

(The 33.6% return refers to the return of my 60% allocation to stocks. It exclude the 40% non-stock which are in different (mental) account.)

Dividends provide 2.77% return; hence my return mainly comprise of capital gains. This is not surprising, as I don't consider myself as an income investor. 

As at end 2017, my stock portfolio has 25 stocks. The 2 stocks with largest stake are Cogent and DBS; both comprise 10% each in my portfolio. 

Sales

In 4Q 2017, I sold the following Singapore stocks

- Dutech: I sold all my stake in Dutech at a loss, as I think that Dutech results may not improve in the short term.

- Nordic: I continue to pare down my position in Nordic to reduce my portfolio allocation to this stock

- DBS: Sold a small portion at $24.90. This is also to reduce my portfolio allocation to this stock

I also sold a few stocks listed in HK. 

Purchases

- Aimamps Reit: I bought this in Oct 2017, before their placement announcement. Hence, this position is at a loss currently.

- Roxy Pacific: Added to my stake in Roxy, after the positive DBS analyst report. 

- Cromwell Reit: Bought smallish position at around 0.54 euros on average. This is bought for the dividend yield

- Ausgroup: Bought at 4.2cents, so this is a losing position now. I am treating this as a turnaround. If it manages to turnaround, its share price should rise way above 4.2 cents. If no, then I am prepared to lose a large portion of my stake here. Hence my position here is a small part of my portfolio.

- Fraser Commercial Trust: Bought at $1.44. This idea is from Kyith at Investment Moat, as he has bought into it in Dec 2017. To me, this reit has the possibility of some dividend growth 5 years down the road. And its annual report shows that the management has a record of growing its dividends. 

I also bought some HK stocks, mainly China banks. 

What I am looking at in 2018

I will continue to add to my positions on China banks if their prices fall. So far, China banks comprise less than 15% of my portfolio. For diversification purpose, my self-impose limit for China banks is 20% of my portfolio.

 

I will also be looking for reasonable Reits to buy. I will exclude Reits with less than 6% yield. A possibility is Cromwell. I probably will not add to my position in Aimamps Reit and Fraser Commercial Trust, which comprise 6% and 4% of my portfolio respectively. I view Reits as 'place-holder' to soak up, as I think it is hard to find good stock ideas in 2018 and I want to stick to 60% stocks allocation where possible.