Formulation of my investing strategy

Finance blogs

When I have the time, I would like to read personal financial / investing related blogs. There is actually a finance blog-roll in one of my blog page. After some time, I can sort of get a feel of the distinctive style of each of these bloggers.

Some sites / blogs tend to be more informative and detailed, such as the Fifth Persons, Investment Moats and Financial Samurai.

Other tends to be more personal, informal, and not as lengthy, such as STE’s Stocks Investing Journey, A Path to Forever Financial Freedom (3Fs), Mr. Money Mustache: Blog, and Mr Tako Escapes. Sometimes, the post itself may not even relate so much on investing or techniques on investment. For instance, the blogger from Mr Tako Escapes will just blog about his activities with his kids and the meals he makes, or the blogger Mr Money Mustache talks about his son’s education, etc. Each blogger has his/her distinct way of writing. Some style of writing is more of a ‘in your face’ kind of style while others are just more relaxed, personal style.

Event driven strategy

Beyond the blogs, I also like to read business news. Sometime when I reflect back on my style of investing, I sort of understand why.

I don’t think I adhere to any strict discipline of investing. Some people like to define their style of investing as growth investing, dividend income investing (or dividend-growth investing)… some practise DCA (Dollar cost averaging), some do lump sum strategic investing etc. Some invest with a time span of years, some trades with much shorter holding periods.

I reckon at the core, in terms of the principle of investing (not speculation / short-term trading), in a very broad sense, I reckon I am searching for dislocation from the normal value.

The blogger from STE’s Stock Investing Journey has a way of showing charts, whereby the indexes go above or below the trendlines, and take interest when prices dip below the -0.5 SD to -1 SD lines.

There is this mini documentary about Daniel Seth Loeb, an American investor, hedge fund manager, and philanthropist. He is the founder and chief executive of Third Point, a New York-based hedge fund focused on event-driven, value-oriented investing with $14.8 billion in assets under management, as of June 2019.

You can fast forward to 10:25min of the below video.

Dan utilises an event-driven strategy as he has deep knowledge of how certain industries / companies work. He is always looking for strategies to achieve alpha performance (over the market performance). To do that he needs an edge eg. ‘ unique information’ or some kind of intervention to the company that create more value.

He attributed his success to his ability for pattern recognition which comes from experience looking at companies, industries and situations that work.

Events for my own portfolio

I reckon most people (including me) do not have as much deep knowledge of many the industries / companies as Dan Loeb.

However, in certain situations / events I do believe it does present opportunities to us (retail investors). If we are invested in the market long enough, by investing during these periods of events, we can see the realisation of the true stock values over time. Typically stock prices are way off the values anyway (non linear by definition).

Many times, my instinct is wrong, but I do hope I get better as times go by. I am especially bad (in terms of timing) at selling my stock holdings and increasing my warchest.

So yes, when I reflect back, especially in recent years, I can see this recurring pattern as to how my investment allocation increases according to certain specific events. True, this is not an exact science, and I often get my timing way off….

The STI index peaked at around April 2018, started trending down after that, was kind of range bound in 2019, and started crashing in Feb-March 2020, before recovering much of the losses in 2021.

The US Markets, specifically S&P500 has more pronounced volatility. It trended down in the later part of 2018, but generally was on an uptrend in 2019, before crashing in Feb – March 2020.

2018 was not a good year for stock markets. Factors that contributed to the poor performance include: President Donald Trump’s trade war with China, the slowdown in global economic growth and concern that the Federal Reserve was raising interest rates too quickly all contributed to a pessimistic reaction from the stock market.

6 factors that fueled the stock market dive in 2018 (read here)

I started selling my stocks and increasing my warchest some time in April 2017 and kept increasing my warchest allocation to early 2018 (read here) as I felt then that equities were on the expensive side, and market volatilities are low. And all through 2018, the ratio of warchest is high. In Jan 2018, ratio of Stocks to Warchest is 35:65. In Dec 2018 (read here), ratio of Stocks to Warchest is 20:80.

However, by holding on to my warchest, I missed the uptrend (specifically in the US markets) in 2019.

apenquotes.wordpress.com/2019/10/27/income-investing-and-hong-kong/(opens in a new tab)

While markets in Singapore are range bound in 2019 and markets in the US are on an uptrend in 2019 (and at all times high), in Hong Kong on the other hand was sinking into a recession in the later part of 2019 due to the on-going social unrest and protests. The economy in Hong Kong contracted in the second quarter 2019, almost certainly did so in the third quarter, and the data is still deteriorating.

So yes, the ‘event’ happened in Hong Kong, one of the first city to fall into a recession even prior to the pandemic. And by end 2019, I have created for myself a Hong Kong dividend portfolio. Frankly, I was not expecting that.

Income Investing and Hong Kong (read here)

Hong Kong Dividend Portfolio (read here)

The next event will of course be the infamous COVID-19 pandemic, which I allocated more of my funds into creating a Singapore dividend portfolio and a Story fund focussing on US and HK listed growth stocks.

So far these stocks are doing well, and I have deriving dividend from them along the way. Of course, it will not be as stellar as compared to a portfolio which is primarily focused on speculative growth stocks of cryptocurrencies. Anyway, there will always be better performers elsewhere. The focus is to stay the path and hone the skills.

We encounter these ‘events’ on a recurring basis. Some call this as an event based strategy. I have also come across people describing this as investing ‘in cycles’.

To tie in which I have mentioned earlier about me being keen on reading news… I reckon it is primarily because I am searching for these events. More often than not, these events just pop up even without me searching.

Not all events are created equally

Not all events have impact on stock prices, or put it in another way, cause any significant dislocation from their mean values, if we use the analogy of reversion to mean in stock values – and that is if we believe in such. There are growth stocks that will perpetually not revert to their mean value:p

For example, the recent expansive set of antitrust reforms introduced by a bipartisan group of House lawmakers on 11 June 21 against big tech companies (Amazon, Apple, Facebook, and Google). The five bills propose to prohibit discrimination by dominant platforms, forbid anticompetitive acquisitions that curtail innovation, prevent Big Tech companies from leveraging control across multiple business types, and update filing fees for tech mergers.

This piece of news in my opinion hardly make a dent in the big tech stock prices (yet).

Lawmakers unveil major bipartisan antitrust reforms that could reshape Amazon, Apple, Facebook and Google (read here)

Bipartisan bill seeks to break up Big Tech’s stranglehold on innovation (read here)

In addition, with the rise of social media, the definition of ‘event news’ is getting more and more vague. For example, the recent rise of meme stocks like Gamestop and AMC whose price volatilities are attributed to a group of reddit traders from Reddit’s WallStreetBets. Or the fluctuations of bitcoin and dogecoin prices caused by Elon Musk’s tweets.

Frankly, for me, it is hard formulating any strategy base on these social media feeds.

It used to be much simpler. News were basically news from the mainstream news media. Now the lines or definition is blurred. These days, we probably get part of our ‘news’ from the social media, be it Facebook, Twitter, Tik Tok, Telegram messenger, Blogs, etc

Well, as to whether the dislocation of the stock prices is indeed a true reflection of the eventual value of the stock… only time will tell. I am sure not everyone will agree to my strategy in investing in Hong Kong specific stocks.

In the meantime, I guess I will just keep reading the news, searching for ‘the event’ and formulating my own thesis. Even now there are various themes at specific pockets of the equity market, from certain Chinese Big Tech stocks to ignored Recovery plays (price stagnant for ages)… provided that one has the patience.

Since I don’t think I have special insights into specific companies, I tend to rely more on major events (country specific or global events), hopefully to tune up on the margin of safety.

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