Thoughts on my portfolio

It has been some time since I wrote a post, or more specifically, a post about my portfolio. With some time on hand, I reckon I should pen down my thoughts for my current portfolio, which technically did not change much. The key purpose is perhaps how I should frame my thoughts moving forward.

By the way, I do view writing a blog post as a form of indulgence… since most of the free time I have is spent with the family / taking care of the kids (esp. during the weekends) and going for my weekly swim. For instance, like now, when I am writing this post, it is late at night on a Saturday.

I did write a post about the break-down of my portfolio sometime in March 2020 (wow.. times really fly).

Portfolio Update (read here)

Basically I still view my overall portfolio as a sum of parts. The below pie chart shows the breakdown of my net worth excluding the property (fully paid for) which my family and I are staying in.

Of the different segments, the segment which typically change a lot is the stocks portion. Typically the insurance cash value and CPF portfolio is fairly untouched.

In addition, if I zoom into the proportion of stock portfolio vs war-chest, my war-chest is still rather low.

For the stocks segment, I generally spilt it into 2 portions – Dividend Portfolio vs Story Fund. Actually, to some, this is a wrong way of thinking. As what Warren Buffett has mentioned before about ‘value’ and ‘growth’ stocks. Which I don’t really disagree, however, I tend to view the companies in relation to which stage of growth they are in (eg, Start-ups vs late growth vs cyclicals). It helps me to organise my thoughts at times, especially this recent period, with the pandemic situation still not under control.

“Most analysts feel they must choose between two approaches customarily thought to be in opposition: “value” and “growth.” Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking (in which, it must be confessed, I myself engaged some years ago). In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive.” Warren Buffett, 1992

Warren Buffett: Forget About Value vs. Growth Investing (read here)

The Dividend portfolio consists of 3 parts: Singapore Portfolio / Hong Kong Portfolio / Malaysia Portfolio.

The Story Fund is still relatively small. As the name suggest, I am focusing more on the narratives of the company / business behind the stocks here.

Personally, my strategy is always to establish a dividend portfolio first. This acts as a base from which I can grow the Story Fund. Well, given the past year, whereby growth (Tech) stocks have in general out-performed traditional / recovery stocks… I might have been better off doing it the other way round (eg. focus more on growth then dividend stocks). Oh well. Nevertheless, that was the basic principle then (before Covid-19 outbreak happened).

Although I do not believe in timing the market, I believe there are periods whereby the odds are in my favour and I would allocate more funds into the stock markets.

For example, in later half of 2019, I started allocating more funds into the Hong Kong-centric stocks given the social unrest in the city. In the early part of 2020, I started to allocate even more funds into Singapore listed dividend counters as well as some HK & US listed stocks. See chart below.

Dividend Portfolio

Basically, in recent weeks, there was a marked improvement in the HK counters (in relation to the SG counters) – stock price wise. In addition to the sector rotation from tech to recovery stocks, the Singapore and Hong Kong Portfolios have been holding up relatively well. Although the recent Friday sell off was a let down.

Overall, in 2020, the overall dividend income from the dividend portfolio & bonds, comes in at around SGD 18,566, which translate to around SGD 1,500 per month, after omitting the fees involved. This amount per month definitely come in useful, regardless of the stock price fluctuations. You can check out the dividend income breakdown by portfolios and year here.

I reckon that I have yet to see the full potential of the dividend portfolio passive income, given the on-going pandemic. The dividend pay-out of banks are in general still capped (eg. HSBC, DBS). It is still not back to business as usual for many REITs, developers, utilities and consumer Staples stocks. Hence, DPUs are still not back to pre-pandemic levels or even close to it. Of course, we could be in for a structural change for some sectors (eg. Office / Hospitality, etc), and the DPU levels could remain suppressed for a long time. However, in the coming years I do expect things to get better.

Notable changes in 2020 include the divestment of Colex Holdings (in Aug 2020), initiation in Straco Corporation Ltd (in Dec 2020), divestment of Dairy Farm International Holdings Ltd (in Jan 21). This is on top of addition to my existing holdings in Ascendas, Mapletree Log Tr, Parkwaylife Reit, IH Retail, HSBC, DBS and Lam Soon in the later part of 2020.

Within this portfolio, I tend to classify the stocks into Cyclicals stocks, Recovery stocks, Extreme recovery stocks, and Beneficiaries of the Pandemic stocks. By the way, this is my own personal classification, there is really no right or wrong… so feel free to let me know your thoughts in the comment section below.

Cyclical stocks: Typical business that goes through long periods of ups and downs – typically commodities stocks.

Recovery stocks: Most are traditional business (brick and mortar REITs or banks) impacted by the pandemic. No doubt their businesses are not at a standstill, but it is not business as usual and revenues are under pressure. The future growth is also going to be bumpy. Or in some cases, some divisions of their business is impacted, while others are still doing alright (eg. ST Engineering). I would say the majority of the stocks in my dividend portfolio falls into this basket.

Extreme recovery stocks: I classify businesses which have been extremely impacted by Covid-19 to be within this segment. Depends on how one sees it, it could the sector that is the most compressed at the moment. Any positive news will render a big rise in stock prices (and vice versa). I think of it like a spring that is compressed by an anomaly. A pure office Reit or hospitality Reit, or companies heavily dependent on tourism or the aviation sector will be allocated here.

Beneficiaries of the Pandemic stocks: It is rare but not impossible to find traditional slow growth dividend paying companies that benefitted from the pandemic. No doubt they are generally more expensive (higher P/E), but if the fundamentals are good and growth is there, I don’t like to avoid them. Who knows how long the pandemic will drag on. Or will there be a twist to the recovery story.

It is difficult to time the market, or even to allocate funds into different sectors at the right time. It is also hard to time when economies will recover from the pandemic, it is even harder to time stock price changes (which tend to run independent from economic development in the short term). Eg. some people would argue that the big stock price rise in cruise line or aviation stocks despite their dismal earnings performance is irrational.

So instead of timing, why not focus on quality companies (the better ones in their class)? Although I would say Golden Agri is not one of them (it is one of the big unrealised loss I held on for years).

Nevertheless, I like to read up and observe if there is anything critically wrong with their practices and earnings (while taking into context the pandemic), before doing some purchases (or selling).

In terms of performance, the Hong Kong portfolio, given the unresolved social issues there, has underperformed the STI Index.

On the other hand, the Singapore portfolio has outperformed the STI index for the past 1 year period,

Story Fund

As the name of the fund suggests, in this portfolio, I tend to focus more on the narratives of the business behind the stock here. Price or P/E although still a factor, it is not top in the check-list here.

It is still relatively small proportionally when compared to the dividend portfolio.

Notable changes in 2020 and 2021 include addition to my Alphabet holdings (in Sept 2020), initiation in Alibaba (in Dec 2020), and addition to my Pinduoduo holdings (in Feb 2021).

I have been reading more and more into potential growth stocks which I can dip into. Tech stocks are generally still expensive, the recent sell off allowed me to dip a bit into Pinduoduo, and adding to my current holdings Nevertheless, my point here is to do up a shopping list, and not actively buying. My strategy is always read up, mull over it and build up my conviction before any purchase. In addition, I tend to buy in bits not in one large chunk.

Again, the key words here are “create a shopping list”. Not actively buying.

Sure I could be missing out on opportunities by buying late, and incurring more fees by buying in small amounts. However, we never know if there will be a deeper tech sell off, and with low cost brokers like Tiger Brokerage, it makes trading less costly (although I have yet to use it hahaha).

I like to go for companies that would still continue growing (at a good pace) even after the pandemic induced shift towards tech. So it is not really due to any one time event. The business model must already have an edge or competitive moat (over their competitors) even prior to the lock downs and the worldwide shift online due to the pandemic.

I believe there are many gems in this sector if we are to think long term. Although I am not vested in these, but I have been reading up on stocks like The Trade Desk, Crowdstrike and Door Dash.

Trade Desk for one is profitable (even before the pandemic given its relatively short listing history) with high growth potential in the online advertising segment.

Here’s Why We Think Trade Desk (NASDAQ:TTD) Is Well Worth Watching (read here)

Door Dash has been overtaking Uber Eats in the US in terms of growth due to its focus on giving value to the restaurants. Its scale and the resulting economy of scale over its smaller competitors (eg. Uber Eats, Post Mates, Grubhub and Post mates) is worth noting.

Which company is winning the restaurant food delivery war? (read here)

CrowdStrike’s platform integrates machine learning and cloud computing, creating a product that effectively stops even the most sophisticated attacks. CrowdStrike and Microsoft are regarded as leaders in the endpoint protection market. While Microsoft is much larger and more profitable, CrowdStrike offers the benefit of being platform-agnostic. This means its software is not biased toward any particular operating system — it works equally well in Linux, macOS, and Windows environments.

Why CrowdStrike Now Matters More Than Ever (read here)

Performance wise, I like to view the Story fund from its time weighted return (TWR) performance (or that of the individual stock), which in this case I typically compared it to the S&P 500 ETF.

If I am to just look at the overall percentage gain of each stock, I might be affected by an anchoring bias. For example, my position in Pinduoduo is relatively small, but its stock price performance is exceptional. In fact it is a 2-bagger in my portfolio. Looking at the recent quarterly earnings I feel that fundamentally the business is intact and even performing better than expected, and perhaps I would like to add on to it (even after considering its stock value). However, by adding on to this position, the unrealised gain percentage will be lowered (no longer a 2-bagger). I am anchoring to the recent price and also the percentage stock price gain (or loss). Consequently, this short term mentality might affect my judgement.

However, if I am to consider how the potential of this stock/company might benefit the portfolio from the TWR angle, I believe long term, this stock / company has the potential to outperform the S&P500. In other words, I don’t want to be too much anchored mentally in the past purchase or sell prices. Then it might help me in making a better judgement.

So far, for the past 1 year period, the Story fund has managed to edge out the S&P 500 in terms of its time weighted performance, and outperformed the STI index.

“Investing is a game of skill – meaning inferior players can’t expect to be above average winners in the long run….But it also includes elements of chance – meaning skill won’t win out every time.” Howard Marks

Cryptocurrency

Like most people, I do feel a sense of FOMO (Fear of missing out) looking at the astronomical rise of bitcoin and ether’s prices.

The general thesis floated around now is to have a small portion of your portfolio in crypto to act as a form of diversification and to capture any potential upside. In the event of a crash, you just lose a small portion of your portfolio.

Frankly I did some reading up, created a Binance account and BlockFi account. I also read up on ways to earn passive income (more than 8%) via lending and staking crypto (Ether).

Again the key words here are “creating accounts”.

Crypto investing is still a wild wild west sector, and crypto-currency by itself have no intrinsic value (my personal view). I view this sector as speculation, and driven mainly by psychology.
Nevertheless the relative short history offers many learning points, and ironically the main buy point (at least for me) is the extreme volatility of the crypto price. I don’t really believe in the idea that crypto will act as a counter investment or low beta counterpart to stocks. It is this extreme volatility that makes patience critical, but at the same time, I definitely will not bet the house on it. It is also something, one must be prepared to write off. I am not sure if I will see the same volatility as what has happened to bitcoin price in 2017 again, but it is always possible.

It serves as an alternative to fiat currency investment nevertheless, but it is really hard to pin any intrinsic value to it. I also believe that there are still many (regulatory) hurdles infront of it, prior to widespread acceptance. Depends on how one sees it, it can be good or bad. Again, from a pure psychological point of view, the best time to buy is always the ‘hardest’ time (mentally) to buy.

In the foreseeable years, bitcoin and ether will not disappear, but the next crisis (be it financial, technical/hacking or regulatory) would present a good time.

In view of the actions by the Fed Reserves and the US government in the past recessions (2007-2008 Great Financial Crisis and the current Covid-19 pandemic), I do anticipate some form of loose monetary and fiscal policies again, in the next crisis. In fact, it has always been an uphill task to raise rates (looking at the past decade plus). Having said that every crisis is different, and deeper thought is needed for the resulting volatility (in relation to its context).

Tracking it, reading about it, but yet to pull the trigger.

In summary

I guess I was not really trying to make any point here, but rather to sort out my own thoughts and perhaps to strategize. By categorizing the different stocks into various segments, it does help in organising my thoughts and perhaps let me think on where I can allocate my funds better.

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