Monday, December 10, 2018

2018 XIRR Performance & Networth Updates

Time really flies these days when we are in our mid 30s, pegged by a combination of busy work and heavy loads of watching our children grow as each year past by.

I wanted to wrap things up for the year given that I will be taking a holiday trip to Bali with my family for the next few days until Christmas, and wanted to do a reflection of my equity performance this year before I then wrap things up for 2018 on an overall scale. 

I received some good feedbacks last year on how I presented with my performance review, especially clearly positioning my winners and losers so I thought I’d continued with the same format for this year. 

Please bear with me as this will be a pretty long post.

Overall Market Thoughts

This was a tough and rough year for investors because this was supposed to be an expansion year where interest rates are going higher because the economy is improving and there wasn't a clear sign of global slowdown in the economy yet the market experienced some of the highest volatility we’ve seen in many years due to the trade wars and other stuff.

All major indexes including the DJI, S&P, Nasdaq, HKEX, Nikkei, DAX were all down for the year and STI was not spared either. 

What this means is that if you’d been just holding cash all along this year, you would have outperformed majority of the people. Of course, it is a very narrow angle of looking at it this way because equity as an asset has proven that they have and can perform better than cash in a much longer run. 

A couple of my fellow financial bloggers and close friends that I knew got caught in some of the situations this year unguarded.

There were the suspension of Hyflux incident, then the chronicle of APTT yield whore incident. We also have the Lippo cases of First Reit and some of the rights issue from OUE Comm and Keppel KBS. 

Even banks went down in the face of higher rising interest rate, and most Chinese and HK stocks are impacted by the tension in the trade war.

We don't even need to go to cryptocurrency to make our case.

In other words, investing in this year is tough because even if your portfolio has been sufficiently diversified across industries, you might still be caught this year by some of the incident which played out.

2018 XIRR Performance

Throughout the years, I’ve been implementing strategies that allow me to extract the maximum amount of return with the least amount of risk. I do this by either rebalancing my position or tweaking my strategies from time to time to meet the needs of my portfolio.

This year, I used a dual strategy of both going long on a high dividend companies demonstrated by my X+Y strategy (in case you're wondering what is this, you can read it here) and going short on some weak momentum fundamental companies.

I have yet to find a time to write on the latter strategy but I promise to do so once I have more time in 2019.

My portfolio remained a heavily concentrated portfolio consisting of only 8-9 positions, which remain suitable to my character to date. 

These are very high convictions position and this strategy entails that I take into account the risks and downside as much as possible because all it takes is one or two to blow up my portfolio so I put a lot of effort into watching that risk tails over there. 

This year, my lucky stars continued to provide me with great guidance in the face of many distresses in the market. 

While the Dow and S&P have returned slightly negative to date this year, our local STI index has also returned negatively at about -6.5%.

I was fortunate that my returns this year has outperform them at a decent 18.2% based on the last stockscafe report I checked. There will be some minor adjustment up and down in the next 2 weeks but I reckon it won’t dampen much of the return already locked in.

The long term 8 years return on average is about 18%, so I think I'm keeping up this year pretty close.

This is also the 8th consecutive years my portfolio has managed to do better than the index so I hope to continue this trend next year.

Let me break this down by my top 5 gains and losses details inclusive of dividends (last year I did top 10 but didn’t trade as much this year) 

Top 5 Profit Based on % Gains

The goal in my concentrated portfolio is pretty clear and that is to:

i.) Always on the lookout for an opportunity to make gains; and
ii.) Make sure my top few positions contributes positively to the returns. 

It was also around the same time that I started experimenting on my short strategy in the 2nd half of this year that I found out there was room to maneuver in this opportunity because the market was not pricing in certain downsides that I felt was adamant.

So I tested my thesis to this strategy.

APTT was amongst one of the opportunities that I managed to get in because we all knew earnings were going to be poor and that the company would be facing issues with their cashflow given certain of their debt covenants going to due sometime soon. So I went to take a short position two days before the earnings release with the intention to cover them back immediately after that. The dividend cuts whilst certainly not surprising to many, was a strong catalyst to the downside and I managed to cover back with a decent profits. Still, I have many close friends who were caught by this so I have mixed feelings on it.

The second company I managed to test with my strategy is with SIA Engineering which I blogged recently about it here on their fundamentals and although it was a pretty good gains in terms of % gains, it was immaterial in terms of the $ dollar amount.

The third company I currently have open with my short position is on UMS which I've blogged about it here on the fundamentals and the opportunity with it. I intend to have them closed after their full year earnings result next Feb. It is currently sitting near 10% gains at the moment. 

For my long position, I was fortunate to have 2 out of my top 3 holdings – Vicom and M1 made it to the list. 

Vicom has been one of my important general in this year’s volatile market and I am glad to have this around because it gives me both a decent capital gain and 6% dividend this year. This is probably a good exemplary of what I define by a 6% + 4% company when I gave the talk at Investors Exchange earlier this year.

M1 is probably the dark horse this year. 

When I accumulated M1 throughout 2017 and 2018, it was met with a lot of scepticism because the industry were in a doldrum (see my poor Singtel investment below later) and there are so many competitions out there that it was hard to “gain” from such an investment as an investor. 

I bought and accumulated them because I thought the valuation was cheap enough to give me that dark horse element and a nice 6% yield to wait for it to happen. Fortunately, the patience was well rewarded and after the announcement I sold off my shares at $2.10 to book a handsome profit from it.

Top 5 Profits Based on $ Value

The top 5 profits based on $ gains are pretty much similar to the one above so I won’t repeat again myself. 

The only exception changes is FLT moves up to the list while SIA Engineering moves out from the list because of the $ amount in value. 

I think FLT is another great example of the long term 7% + 3% strategy. 

Top 5 Losses Based on % Loss
Top 5 Losses Based on $

I've had my fair share of losses during the year and the most affecting me was the Keppel KBS due to the rights.

I clearly knew the downside scenario play of rights which I've written a lot in my past articles but was disappointed to have been caught by this when I went in too early in order to catch the mother share price.

Then, I exacerbated my mistakes further by applying for the excess rights too little given that I had limited funds to apply for the excess. When I looked at the rights results, I knew I blew my chances away. If I had played to my game, this could have been averted and I would be in the green.

Now, with all this and a potential tax case arising, this could be fatal if things doesn't go my way. I am still reviewing my position in this and Manulife for the next few weeks to see if I should divert away from that risk tail end.

It's a big lesson to learn and I had to pay for the mistake.

I was also rather disappointed with my Sasseur and Capitaretail China Reit investment because I think the entry price could have been better and the downside risk is pertinent given the trade war and devaluation of the RMB this year.

Again, I will continue to monitor on Sasseur and have them reviewed after coming back from my holiday.

Tuan Sing and Far East Hospitality were the more okay type of losses that I can accept because I think there were macro things that went against them during the year which was unprevented. I called this the "inevitable" type of investment losses I have to incur from time to time.

Networth Portfolio (2011 to 2018)

Overall, I think it's been a pretty decent year in terms of my networth portfolio growth.

The key in a rough market is really to contain your losses and make sure we don't get caught in certain situations that we don't want to.

Things like high risk equities, leverage are all tools that can be dangerous in markets where we put our guards down and am instilling a very heavy discipline when using these sort of tools.

I am fortunate that my losses (apart from Kep KBS which I'm still pissed off at myself urgh) were rather contained within and I found a couple of good opportunities during the year to nullify the impact.

Because of this, I am pleased that I managed to grow my networth this year by about $170k from the start of the year.

Out of that, the gains coming from equities and dividends during the year amounted to about $130k, while capital injection from savings took about $40k.

This is net after all the day to day expenses incurred and the savings portion are excluding CPF (because I always get this question).

Whilst we still have 2 more weeks to end the year, I will record down the networth of the portfolio to end 2018 at $833,750.

Do note that the Dec amount includes my wife's and children's portion of their shares as I have decided to consolidate them for easier reconciliation purpose with the CDP. This amounts to about $50k. Without this impact, the portfolio would end the year at about $783k.

I think 2019 will be another turbulent year because of the many elections that are happening across the Asia region. Still, what I wanted to highlight is in the midst of all the turbulence there are still opportunity that lies upon.

It is up to us to protect what matters when that happens.

Meantime, wishing everyone an early Xmas ahead :)

How has your 2018 performance been? Are there any good lessons to learn that you wanted to share with others?

Thanks for reading.

If you like our articles, you may follow our Facebook Page here

Friday, December 7, 2018

SIA Engineering - Is It Time To Buy This Company After 22% Decline This Year?

SIA Engineering has been an investor's favorite for many years because of their moats servicing the maintenance and repair lines for various different airlines, with their own SIA planes taking up the majority of the recurring business.

It does look like a defensive business because every capacity planes that are increasing each year would have to undergo maintenance one way or another.

Over the years, the operating environment gets tougher due to longer maintenance interval perhaps as the quality gets more resilient for the newer next generation aircraft and there are many more competition in this small niche space of the industry.

The JVs are giving them good growth over the years as the company continues to invest in this segment partnership, notably with Stratasys in the areas of manufacturing technology and Cebu/Airbus for their respective maintenance with the airlines.

This year alone, the share price has dropped from $3.20 to today's low of $2.47, that is a drop of over 22.8%.

If you are someone who held this stock from the start of the year, you'd probably be screwed all over by now.

But is there really no value to this? What would be a good price to enter for this company?

I run my model using the discounted cash flow methodology by forecasting the terminal growth over the next 5 years to 1.2%, with an initial -1% for the first 2 years, then 2% growth thereafter.

I added back the depreciation which is a non cashflow item as well as their investments in the JV & Associates which are quite significant.

Their investments in the various JV & Associates are quite an important element to their business model so it is probably fair to value them separately.

What we are saying here in the DCF exercise is that we will take them out and see how much is the true value of the SIA Eng business.

PER of between 18x to 22x is probably a fair way to value this company with a discount rate of 8%.

What we get is an intrinsic value of about $2.66, which is about 7% higher than today's price.

Do note that this implies some growth into the future so if there's further deterioration to the business, then the value would plunge much further.

For investor, there's probably not enough margin of safety yet in this one.

The company has just recently cut its interim dividend and the balance sheet is weakening.

There's also no sort of catalyst at the moment and there are much better dividend counters out there to buy at the moment.

Thanks for reading.

If you like our articles, you may follow our Facebook Page here

Thursday, November 29, 2018

Is Investing In Growth Always A Good Thing?

When investors like us invest in the stock market, the goal is always trying to grow our wealth over time. 

Investors are generally thrilled by the prospect of growth in general, whether they are referring to their income, savings or even the companies that they invest in. 

We just love things going in the "up" and "grow" direction.

It is so tempting for investors to see their companies growing by double digit each year because i.) they expect the management to take the shareholder’s earnings and reinvest them to propel for further growth or ii.) Higher growth means higher dividends that the management can decide to payout or iii.) the share price would eventually re-adjust themselves to the same valuation. 

What do I mean by that?

For example, Colgate’s share price is $63 today. If Colgate’s valuation based on price to earnings ratio is currently at 20x and the company prospects a guidance growth of 10% per annum over the next 3 years, then the forward price to earnings ratio at the end of the 3 years is expected to be at 14x. Most of the time, the market will not allow such scenario to happen and upon the announcement of the news, the share price would adjust itself to the range up to $84 such that the valuation of the company goes back to 20x. 

Of course, such scenario is a very simplistic way of putting it in mathematical form. 

In reality, we all know that not everything will go according to plan in the next 3 years. 

Well, mostly in that sense.

From a downturn to the economy to the change in the fiscal or monetary policy of the macroeconomic factor or the company could have internal labour, production or acquisition issues that they did not anticipate for. There could be a scandal in the making or a new competitor coming in with better quality and cheaper products. The possibility of any event happening in the 3 years is seamless. 

The problem is the share price has usually priced the news in earlier before allowing what the company can really perform.

The market is often forward looking and that's when most investors get caught in their pants, i.e buying when the valuation is high.

Most investors notice the prospects of a "good" investment only either when their friends tell them or when they read about it on the newspaper. By the time they put their foot on the water, most if not all of the good news have been baked in and the investor is left to pick up the mess should anything goes wrong or if the company is not able to meet the ambitious guidance they project.

Unless you are a damn good timer in exiting the market, the investor who uses this strategy are most likely to end up poorer over time.

Growth investing also has the tendency to caution the day when finally that growth slows down.

You can't have a company that grows perpetually and exponentially higher growth each year. 

At some point, the company is going to register a slower growth and when that happens the market is going to take it quite badly, re-adjusting to the slower growth outlook for the valuation it entails.

I don't have a good strategy to go long on growth companies because I'm always skeptical about either what the management say or what the world might crap on me.

Being in the financial and accounting sector myself doing forecast for the past 10 years of my work experience, I've seen almost every single time the forecast has gone haywire, even if they are only for the next 3-6 months, let alone multi-running years.

It is also extremely difficult to spot on the very few companies in their early stage of growth and then ride on them because it entails a lot more expertise on the sectors you are eyeing for (almost like going for a private equity seed stage).

I'm interested to listen though to the strategy of those who've been investing in growth companies for some time with some measurable success and how they decide to enter and exit and what are their cautious approach to not being caught.

Let me know in the comments below.

Thanks for reading.

If you like our articles, you may follow our Facebook Page here

Monday, November 26, 2018

Investing Action Bias Can Be Detrimental To Your Strategy

I was having a short holiday trip with my family to KL in the past week so I did not particularly overlook the market too much other than quickly checking for news at night when my children has fallen asleep.

At times, I felt a bit guilty for ignoring my portfolio a little while I have some fun on the same side of the world.

Then I quickly reminded myself for why should it be that way.

While it is true that I literally did '' nothing'' to the portfolio, I reminded myself of the strategies I employed for the portfolio which has been working well for years.

My strategy to stick with a defensive dividend portfolio has been a boon bore for most of the days. It goes up a little and down a little in some days but they gradually move up after some years of convinced positioning.

Of course, I also opened a short position for UMS before I went to KL based on a couple of fundamental reasoning I have in my previous article and then I just leave it there for the thesis to work it out.

And then mostly I just leave it aside and wait for the events to play out.

I get on with my other side of life that I have.

Today's article is about how much action does an investor needs to have in order to feel justified that he or she considers certain aspects as trying to achieve.

Of course, it is common sense to everyone to know that most of the actions might not turn into desired results but many did not realise the behavioral aspects of trying to get involved with the herds.

Consider the recent events of First Reit which stole the limelight news in the past week for being the highly most volatile Reits jumping double digit day in and out.

Naturally, with such volatile event, it will be the town topic to talk to for many. Some may be fleeing for exit, while others may see it as an opportunity. Until today, we have not really received a proper explanation for causing such a train wreck other than some credit downgrade for the related associates.

The best action in this case is perhaps then to sit and do nothing until you've clearly visualize in your head the justification you need to buy/sell.

But most just wants to get a piece of the action for sake of "doing something"

This week, the big story is circulating the news about a manufacturing company Hi-P over a privatisation offer.

With such news circulating, it doesn't matter if fundamentals earnings or outlook are going to be good or bad, the share price would fly on such rumor.

Again, naturally it'll be the talk of the town and you'd be silly not to participate in such hot news right?

Does that even reminded you of the once great crypto currency which has now been quiet down quite a bit these days.

The more seasoned investors probably already know about this and are sticking to their strategies. The more experienced traders are probably having the last laugh of the day.

The newbies are most likely the lambs that get the slaughter.

Maybe, it's better for them to avoid the forum crowd, for many of the lions there are lurking, without knowing the consequences they have for "participating" in an action bias.

Monday, November 19, 2018

Investing Is So Damn Tough You Are Right

To say that this has been a tough year for investment is an understatement.

Investing, as a general form of growing your wealth is so damn tough that for one not to be losing money is sometimes already seen as a form of success.

I can totally relate why many people avoided them like a plague because contrary to many popular beliefs, it can jolly well diminish your money.

Imagine yourself being invested in Asian Pay TV Trust at the start of the year, having intrigued by its stuttering share price and a high dividend payout.

You might have thought the dividends they pay out is unsustainable hence you made a decision to project them conservatively at the fcf you think they can give out.

When APTT announces their recent results, the management is even more conservative than you are and slashed their dividends like they did to slaughter a dying pig, causing its share price to fall by 50% in one day.

APTT might be a bad example because the more savvy investors could have been advocating investors to avoid them since their ipo days.

What about a stronger company like First Reit, which owns several hospitals in Indonesia and homes in Korea and has triple net lease master arrangements with a solid industry and sponsor background.

Imagine if you are someone who've just started out and would like to form a sustainable decent dividend paying reits and you come across First Reit as a company that has a great background history in terms of both operational and financial.

You got in at $1.20, thinking a 6.7% yield is decent enough for a hospital industry and then out of nowhere got whacked down by 20% in a week without having any clue or news to what was happening.

That is 3 years of dividend panadol that you need to wait before you even recoup back your capital.

Sounds like a ponzi scheme to many.

For those that turns to arguably one of the safest company in Singapore, Singtel did not fare any better.

Singtel earnings have been dragged down by weaker regional performance and their share price have been languishing low, back to where they are in the last 10 years.

You could argue that you receive a lot in terms of dividends over the past 10 years but that's mostly for consolation.

You know that is not good enough.

At the end of the day, you might just turn to the Singapore Savings Bond and decide to wait until the recession is here but I can tell you that by waiting your skills aren't polished enough to handle such situations when it comes.

You'd be just waiting and waiting and waiting.

Investing does not guarantee that you build up your wealth and I do not have an answer to one that can guarantee that you will.

The environment we face in the next 10 years should make it even harder to make money.

It is so damn tough you are right.

Thursday, November 15, 2018

Recent Action - UMS

This is a recent strategy which I am experimenting on my CFD account which I will be explaining more in detail when I have the time to blog the full implementation on it.

I recently opened a short position in UMS Holdings at the price of $0.66 for 50,000 shares.

This was somewhat a different strategy I have for my main portfolio which focuses on dividend income strategy and will remain the core of it for the most part of things.

UMS has been a very popular stock in the past 2 years due to their recent semi-conductor upcycle, which seen their stocks price goes as high as $1.30+ prior to the bonus offer 1 for 4 sometime during this same time last year.

Since then, their results this year have not been particularly good, with the trade war between the US and China impacting the demand production of their products and some delays in capacity production.

The cut in the interim dividends from 1 cents to 0.5 cents based on their most recent results are probably the most clear signal as their businesses are slowing down and they’ve strayed away from their usual high cash balance in their book to preservation mode as they’ve started to spend some acquisitions this year, which we don’t know what kind of return it might bring back to the company.

In their recent results, sales were down by 26% for the quarter and net profits were down by as much as 41%, most exacerbated by the increasing manpower cost.

Margins for the core business remain largely intact.

Economic conditions remain largely challenging.

In the short term (and am taking a position only for the short term), this is a negative for me as most investors are looking to UMS as an income play more than anything else. 

With an interim being cut, partly due to the decline in business and also cash acquisitions, there are huge possibility that the full year dividends might be cut too as after the acquisitions, they have only $20m cash as compared to $60m a year before. This resulted in them going from a net cash to a slight net borrowing position.

Free cash flow for the 9 months is at $15m and I expect full year fcf to come in just under $20m.

I foresee full year dividends to be cut from 6 cents (which they need $32m) to 4 cents (which they need $21m), which gives them a dividend yield of about 6%. Not attractive enough for me as a long investor and I'd rather sit in the opposite fence of things. 

AMAT will report their 4th quarterly results tonight, which will impress but they have cautioned on the 2019 sales outlook, which will dampen the mood further if the cycle has finally peaked. This is perhaps also the reason why UMS is diversifying their businesses away from one customer through their recent 2 acquisitions.

For now, I am seeing some opportunity to make money by being on the opposite fence of things so let’s see if this strategy would play out on the down momentum.

Will be updating when I close the position.

P.S: If you are interested in opening an account for CFD, do refer to my banner link on my right hand side.

Wednesday, November 14, 2018

Dividend Income Updates - Q4 FY2018

I am writing this dividend update quarterly in an attempt to compile my quarterly dividend performance for the year. 

With a rising cost of living under the belt, in particular with the two kids in tow and hence require some bits of maintenance spend to keep hold, it can be particularly stressful to keep up with the expenses or cash outflow. 

Many times, we are dependent on our sole income which comes from our source of salary which we received monthly. While these may be the norms in the beginning, it is not healthy to be overly dependent on it over long periods of time as it may anytime snap behind your back. 

This is the reason why all of us need to think ways to grow our side income while we can so that we may unravel opportunities that can supplement our monthly income from salary. 

For many, these activities can range from being an Amazon affiliate seller to vlogging for a youtube channel to being a freelance writer. 

Some others in the investment space include investing in alternative assets, bonds or stocks that can give them dividend income on a regular basis. 

For myself, dividend investing has worked very well in the past few years due to the familiarity of the company and regularity of the payout, which I like it very much. 

It has helped me to curb my rising expenses when the need arises and further propel my portfolio growth through regular capital injection via dividends reinvested.

Still, with many get caught in the high yield trap as evident from the APTT incident this morning, it pays to be cautious of the payout that you are receiving.

Without further ado, here’s the Q4 FY18 dividend income details: 

CountersAmount (S$)Ex-DatePayable Date
Fraser Logistics Trust4,168.54 12-Nov19-Dec
Netlink Trust1,251.72 12-NovCFD
Far East Hospitality Trust1,050.00 5-Nov13-Dec
Starhill Reit1,150.00 5-Nov29-Nov
Total 7,620.26

After tabulating the dividends for all the companies, the 4th quarter dividend income came up to $7,620.26.

4th Quarter is arguably the weakest quarter of all, so we should see some better improvement in the next quarter.

With that, the annual dividend income has now summed up to $42,972 for the year, which so far is a record high for the portfolio. 

Together with the past dividends received, the portfolio has now accumulated $124,063 worth of dividends received and this number will keep on growing over the next few quarters and one day will become an integral part of my sustained income to live off. 

Thanks for reading.

If you like our articles, you may follow our Facebook Page here