2020 – Game Plan

So we are in the first month of 2020.

What will the market be like this year? Well, for me, no point thinking about it … what is important is what is my strategy forward. To be frank, I am still mulling over it.

Broad Outlook

We have the US markets reaching new highs frequently, while some of the Asian markets have languished.

For one I think the Sg REITs is not undervalued (given the run-up in 2019). And I probably won’t be taking a stake in it, unless it is for diversification. On the other hand, there are still values to be found in the HKEX and some local dividend stocks are looking not overvalued.

Much of the attention in 2019 I felt is on Sg Reits which no doubt had a good year. And you can’t miss it with many financial bloggers who are heavily invested in Sg Reits highlighting that.

I recalled back in late 2017 and early 2018, I was slowly moving away from equities. To quote my blog post published on 1 Jan 2018:

“The reason why I am reducing my stock holdings is primarily that I feel that equities are on the expensive side, and market volatilities are low…. again, there is no science about it.”

Today we are in 2020. Approximately 2 years.

So what has happened?

STI Index

• SPDR Straits Times Index ETF (ES3)

2018: For that year, the price of this ETF dropped by approx. 10.4%. Its dividend yield was 3.45. (Net approx -6.95% return)

2019: For that year, the price of this ETF increased by approx. 5%. Its dividend yield was 3.66%. (Net approx. 8.66% return).

If I just look at the ETF price: On 2 Jan 2018, the opening price of the ETF was $3.45. On 2 Jan 2020, the opening price of the ETF $3.286. So price-wise, there is a drop of 4.75% drop (if we don’t factor in dividend).

If we factor in dividend, the total dividend for 2018 and 2019 is $0.233 per share (0.113+0.12). So total change per share (price + dividend) from the start of 2018 to start of 2020= $0.069. An approx 2% return for 2 years (if we factor in dividend and did not reinvest the dividend).

Moved sideways in my opinion.

REIT ETF

• Lion-Phillip S-REIT ETF (CLR):

2018: The price of this ETF dropped by approx. 8.5%. Its dividend yield was 2.99%. (Net -5.51% return)

2019: The price of this ETF increased by approx. 15.7%. Its dividend yield was 6.64%. (Net 22.34% return).

If I just look at the S-REIT ETF price: On 1 Jan 2018, the opening price of the ETF was $1.08. On 5 Jan 2020, the opening price of the ETF $1.181. So price-wise, there is an increase of 9.4% (if we don’t factor in dividend).

If we factor in dividend, the total dividend for 2018 and 2019 is $0.112 per share (0.035+0.077). So total change per share (price + dividend) from the start of 2018 to start of 2020= $0.213. An approx 19.7% return for 2 years (if we factor in dividend and did not reinvest the dividend).

It does show the power of dividend.

What will the next 2 years be like? Would I be better off holding on to bonds (give me 2+% yield anyway), with much less mental strain? We can value the tangible numbers/profits, but hard to value the intangible (mental strain).

Moving Forward

Sector-wise I am eyeing bank stocks, HK property & Reits, local dividend stocks. I feel that bank stocks act as a counterbalance to other stocks which tend to drop when interest rates rise (typically REITs, properties and generally stocks with more debts on their balance sheets). Bank/finance stocks although technically, not at rock bottom price-wise, have not soared as much.

Some of the local dividend & growth stocks are starting to look attractive again price-wise. Nevertheless, that does not mean I won’t be buying any of the local REITs (for diversification).

How will the stock market pan out in 2020? I have no idea. I have been reading articles that state that QE4 has started and the repo crisis.

• The Fed will be growing its balance sheet again, but don’t call it ‘QE4’ (read here)
• ‘QE4’ and $US270 billion of cheap money fuelling market weirdness (read here)

I always feel that the US markets are priced too high for comfort.

And no point spending too much time thinking about the world economy.

All I know is that if the market tank, I will still be buying stocks albeit at a faster pace.

Local vs Overseas Stocks: There is a reason why I created a Hong Kong income portfolio recently. Some of the counters are knocked down due to the unrest in HK. Price-wise, quite a no. of the HK centric stocks I bought in late last year are turning green, although that is really not what I am focussing on (which is the dividend income streams).

As I don’t use Standard Chartered Online Trading or FSMone to purchase stocks from the HK market, there are monthly fee (of $2 per counter per month), and each time the dividend is issued, the broker takes a small fee / small percentage, even though Hong Kong does not impose withholding tax on dividends for the stocks I bought. In the big scheme of things, these can be covered by the dividend – but still, it is a nagging thought at the back of my mind.

Ultimately, I intend to balance out or be more focus on creating another Singapore income portfolio. I probably won’t be increasing the no. of HK stocks. Recently I bought my first local dividend stock for this year – an extremely small position in DBS.
Portfolio allocation: The proportion of my war chest is significantly high as compared to my stock holdings. That can be a good or bad thing. In the long term, it would be a drag to the overall performance. Although the war chest technically is still earning income (via bond interest), it would not be able to match the performance of stocks’ performance in the long run.

Given the above broad outlook above, what I will be doing is to incrementally park the excess cash each month (salary minus expenses) into stocks, while trying not to touch the war-chest. If opportunities arise this year, I will convert part of the war-chest to stocks. I still like having a significant war-chest, but I think proportion wise I need to diversify into more equities. My aim is to build up monthly passive dividend income.

I was recently notified of my bonus, so will be getting a lump sum soon. Having thought about it really hard… I reckon I will stick to my monthly amount for buying stocks (which is not much). To continue building up my passive dividend income (although there aren’t that many cheap or reasonably priced stocks).

So far most people surveyed in Investing Note will purchase stocks with their bonus.

Somehow the below article just sticks with me.

• A taxi driver retires at 33 after amassing 40,000 HSBC shares (read here)

To quote the above article:

“He started buying HSBC stocks when it was trading at around HK$150 a share. He has pursued his plan even though the stock price plunged at one point to HK$33, sticking to his commitment regardless of the market’s ups and downs.”

Having said that, I will be moving the bonus/remainder amount to SRS then my war chest.

留得青山在，不怕没柴烧 (as long as the mountain is green, there will be firewood)