2024 Review, 2025 Preview And Bob

Another year, another step closer to our step-down age. Here I will share my views for the past year, my opinions of the coming year and an update on Bob’s portfolio.

 

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2024 Review

 

This year would be remembered as the moment when the dreaded I-words in the economy are coming down, after almost two and a half years since the United States (U.S.) Federal Reserve (known as the Fed) started to raise interest rates to combat inflation. Beginning with a surprise move of a 50 basis-point reduction in Sep 2024, the rate cut sent the markets skyward. However, just the week before Christmas, the Fed is signalling the possibility of lesser rate cuts in 2025 in anticipation of potential inflation rearing its head again, which caused a slight tumble in the markets for a couple of days.

 

Still, we are seeing a great bull run in the U.S. and local markets; the S&P 500 had seen an increase of +25.25% year-to-date (YTD) and the Straits Times Index posting +16.33% YTD¹. While the two markets are already on an upward trajectory this year, they are further boosted with the election of a pro-business U.S. president and administration in early Nov 2024.

 

HACK, IPAY & ICLN

 

Going forward in my yearly review posts, I will dedicate a section on the three sectors/industries that I espoused, namely cybersecurity, payment solutions and clean energy, using their represented exchange traded funds (ETFs) HACK, IPAY and ICLN respectively, which I am vested in. The table below (Fig. 1) shows the three ETFs, the YTD performance till 30 Nov 2024, and the compounded annual growth rate (CAGR) from 1 Jan 2018 (nominal and inflation adjusted), since it was at the 2017 review blog post (see here) that I had declared these three sectors to have potential.

 

 

ETF	2024 YTD (till 24 Dec 2024)1	Nominal CAGR (1 Jan 2018 to 30 Nov 2024)2	Inflation Adjusted CAGR (1 Jan 2018 to 30 Nov 2024)2
HACK	+25.11%	+13.43%	+9.45%
IPAY	+27.45%	+8.70%	+4.90%
ICLN	-25.50%	+5.54%	+1.84%

 

Fig.1: YTD and CAGR nominal and inflation adjusted returns of HACK, IPAY and ICLN

 

2025 Preview

 

We could be entering into uncharted waters not just in 2025, but also in the years to come as more geopolitical factors are at play. The world is clearly dichotomizing into two sides of various degrees, with very little room for being in a pure neutral state. Globalization may be dwindling, with autarkic tendencies coming in the form of country, region or even political bloc (e.g., BRICS). These meant that for multinational companies, doing business globally would face obstacles in the form of policy and regulatory risks, not to mention a drop in earnings. For investors who own these companies directly and/or through securities such as ETFs and unit trusts, they may consequently see their investments’ further growth slightly stunted.

 

Yet, not all is lost, and this is where diversification by region/country comes in handy. There are still opportunities in the U.S. markets and on the other side, especially China which is currently the second largest economy around. Being seen as neutral is advantageous especially in places where companies and investments of both sides are traded freely, such as Singapore.

 

Regarding interest rates, if you had read the “2024 Review” section above, the bolded words are deliberately done by me to emphasize that the future is unknown and it is not absolute, so there may be a chance that the number of rate cuts would either increase or further reduced in 2025.

 

Bob

 

As of 24 Dec 2024, Bob’s Bedokian Portfolio had grown to slightly above SGD 125K in value and gained a dividend amount of SGD 3,784.38. Overall, Bob’s portfolio was up 7.25% for 2024. Bob will rebalance on 2 Jan 2025 with another SGD 5,000 injection, so stay tuned to his portfolio.

 

Happy 2025!

 

Disclosure

 

The Bedokian is vested in HACK, IPAY and ICLN.

 

Disclaimer

 

1 – Yahoo Finance, YTD as of 24 Dec 2024

 

2 – Portfolio Visualizer, HACK, IPAY and ICLN between 1 Jan 2018 to 30 Nov 2024 (accessed 24 Dec 2024)

 

Probably The Next Powerful Person In The Market

The most powerful “person” in the market would be Mr. Market itself, for it embodies the entire realm of the financial markets.

(Picture credit: Kaboompics.com from pexels.com)

Just like the story narratives that commonly feature in fantasy novels and games, there is another level of divine beings (sometimes called demi-gods or quasi-deities, depending on which source material you gathered from) below the all-encompassing one. Similarly, such entities do exist in the financial markets, one tier below Mr. Market.

One of them that has the honour to be the next powerful “person”, would be the Fed, short for the United States (U.S.) Federal Reserve. Their near omnipotence led to many investors to follow the famous mantra of “do not fight the Fed”.

With just a few words from the Fed Chairman Jerome Powell on Wednesday, the U.S. markets dropped around 3% later that afternoon. The main perspective from the speech was a possibility of lesser interest rate cuts (purportedly two, out of the planned four) in 2025. The shockwave extended to the local markets on Thursday morning, with the Straits Times Index (STI) dropping from near 3780 at the close of Wednesday to 3720 on Friday evening. This is given since the U.S.’ and our interest rates are positively correlated with each other.

Ironically just a couple of weeks ago, I had commented that a lot of geniuses appeared during the bull market, like mushrooms sprouting after a spell of wet weather. Now with some market pessimism, perhaps I shall dish out some “genius” views on this whole thing.

The Bedokian’s Take

While the Fed have the final say in setting interest rates, they require data and statistics to make the decisions; in other words, the Fed is reactive. If the inflation situation is not as bad as it seems, they might increase the frequency of rate cut to three or back to four the next year. Frankly, if no one can predict the future of the market and economy, I can say the Fed would be at a slight advantage over us in terms of guesstimating.

That being said, or often said by me, these down situations presented moments where one could cherry pick good counters and securities at bargain prices.

However, as at the time of writing this post (Friday night Singapore time, Friday morning New York time), the U.S. market seems to be picking up steam.

Ah well…(shrug)

Investing With Emotions

Yes, you can do that, and I guess most of you would be thinking along this line: 

“Whoa! Wait a moment! Didn’t you say investing must be done on a rational approach, not through emotions?” 

Good question.

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And my answer is: Correct, investing must still be done rationally, but you can capitalise on others’ (not your) emotions to your advantage.

I had mentioned in the ebook that the price of a financial instrument is determined by its demand, supply and market sentiment¹. The emotional factor would come from the market sentiment part; whenever the market is bullish, prices would naturally go up, and vice versa in bear conditions.

It is at these relative extremities that you can consider how to manage your portfolio; when the markets are deemed to be overheated, you could take off some from the table by selling the overpriced securities. And in downtimes, you can look for depressed counters that are still fundamentally strong but got dragged down by negative sentiments. All these actions are also part of portfolio rebalancing, a key component of my oft-preached diversification.

 

1 – The Bedokian Portfolio (2^nd ed), p124

“(Almost) Everyone Is A Genius In A Bull Market”

“Everyone is a genius in a bull market”

This quote was attributed to Mark Cuban, a billionaire investor and entrepreneur. For context, he was commenting on the 2020 post-COVID bull market, which according to him was spurred by the Federal Reserve rather than fundamentals, that brought in many newbie investors into the trading game. The link to the article is under the Reference heading below.

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I am bringing this quote back into this time and day, since we are seeing some assets rising in prices, such as tech equities, properties, precious metals and yes, cryptocurrencies. I have read and heard of some individuals, online and amongst my circle, of them facing boom time in their investment and trading portfolios.

For this, we would congratulate those who had benefitted from the ongoing bull run. Still, we do need to know that it is not just our choices, but also the markets played a part that gave us the happy times that we are experiencing now, so credit must be given to where it is due. 

In good times like now, complacency tend to set in as the notion of fast and easy money is prevalent, leading us to develop mental biases, especially overconfidence and hindsight, which gives a false sense of “control” over the markets and thus, becoming geniuses. Seasoned investors and traders may not succumb to these psychological traps, but new investors/traders, and even those seasoned ones who are swept up by the euphoria, may fall into them. Therefore, it is advisable to stay prudent and cautious even in the face of happy days.

Lastly, as in the reason why I added the word “almost” in the phrase, not all investors and traders are having a field day, for they probably went against the bull market and/or made some wrong choices.

Stay calm, stay focused, stay invested.

Reference

A J Horch. Mark Cuban: ‘Everyone is a genius in a bull market’. CNBC. 20 Jul 2020. https://www.cnbc.com/2020/07/20/mark-cuban-everybody-is-a-genius-in-a-bull-market.html (accessed 8 Dec 2024)

The RTS Question

The issue that is cropping up for retail real estate investment trust (REIT) investors would be the question of the Johor Bahru (JB) – Singapore Rapid Transit System, or RTS, and how this may affect the local retail scene. Scheduled to open in late 2026, the narrative is that RTS would draw some of the shopper traffic away from Singapore shopping malls, due to the convenience of a seamless transport mode into JB via the local MRT subway system.

Screenshot of Causeway Point and Northpoint from presentation slides of FCT’s second half and financial year ending 30 Sep 2024.

One REIT that could experience a relatively large effect would be Frasers Centrepoint Trust (FCT), with its highest earning Causeway Point being the largest mall nearest to the Woodlands Checkpoint, not to mention that another mall, Northpoint City North Wing, is the northern part of Singapore, too. The addition of a deemed easy access means to JB naturally brought concerns to FCT unitholders, with us included.

DBS equities research group had indicated in a report in July 2024 that there is a projected leakage of between 3% and 4% of the 2023 retail sales, with food and beverage (F&B), and services in particular feeling the impact¹. In FCT’s results presentation in October 2024, among some points, it is believed that the northern malls Causeway Point and Northpoint City could give an opportunity for Malaysian retailers to expand their presence locally, and Causeway Point could serve as a connection hub for commuters and shoppers transiting between Woodlands and JB². The range of responses from financial bloggers are varied, from a “all will normalize in time” to “retail scene here is doomed!”, or something along that line.

The Bedokian’s Take

With varying takes on how the RTS affects the FCT northern malls, we could only make calculated guesses (guesstimates) on how things will pan out. The first statistic to get would be knowing the number of Singaporeans visiting JB, and according to a source from the Singapore Business Review, a report stated that around 31% of Singaporeans go there at least once a month³. This is a substantial proportion in my opinion. 

Next, I asked around and heard from my relatives, friends, colleagues and acquaintances regarding their trips to JB, and while the common objective is for entertainment (food, shopping, massage, etc.) for those who went, the frequency of visits is very wide (e.g. once a week to never been there in x years).

Besides for work purposes, the most common finding from my questioning and probing would be the element of time. Most would go only in at the convenience of their own time, such as during weekends, holidays and in late night or early morning hours. The time spent there is not just like an hour or two, but rather at least four or more. Thus, while going into JB, many things are done there as compared to going into a local mall.

That being said, local malls still have a place to fill, catering to either a time too short for an enjoying trip to JB (e.g. going for lunch hour during work, or a quick pickup of an item), or for those people who, for some reason, would not want to go to JB. Though what I surmise here and in the last paragraph are anecdotal, we do not really know how the impact would be when RTS finally opens, and if I really do want to say a piece of the future, it would likely be met with a lot of fanfare, followed by normalisation of the crowd. Possibly there will be some increased frequency of visits for those who goes there often, and probably some converts of those who do not really like going there. Thus, the leakage rates highlighted by DBS is a plausible possibility.

We will see how it goes.

Disclosure

The Bedokian is vested in FCT.

 

Disclaimer

 

1 – S’pore Retail & Retail REITs: More fad than trend? DBS. 10 Jul 2024. https://www.dbs.com.sg/treasures/aics/templatedata/article/generic/data/en/GR/072024/40710_insights_singapore_retail_and_retail_reits_more_fad_than_trend.xml (accessed 1 Dec 2024)

2 – Results Presentation for the Second Half and Financial Year 2024 ended 30 September 2024, p40. Frasers Centrepoint Trust. 25 Oct 2024. https://fct.frasersproperty.com/newsroom/20241025_071259_J69U_TR4IT4NEKBF1OP2M.3.pdf (accessed 1 Dec 2024)

3 – 1 in 3 S’poreans visit Johor Bahru monthly for leisure. Singapore Business Review. 15 Feb 2024. https://sbr.com.sg/leisure-entertainment/news/1-in-3-sporeans-visit-johor-bahru-monthly-leisure (accessed 1 Dec 2024)

Inside The Bedokian’s Portfolio: International Paper

Inside The Bedokian’s Portfolio is an intermittent series where I will reveal what is actually inside our investment portfolio, one company/bond/REIT/ETF at a time. In each post I will talk a bit about the counter, why I had selected it and what lies ahead in the future.

Today’s post is a company that is listed on the New York Stock Exchange called International Paper (IP).

A Chance Encounter

IP is in the business of manufacturing packaging materials, paper and pulp, as well as providing recycling solutions and services. One of the major clients for its corrugated boxes is Amazon, one of the world’s largest e-retailer.

I had chanced upon IP early this year when a video appeared on my YouTube feed introducing it as “how the world’s largest paper company makes 1/3 of cardboard boxes in America” (if you are interested in the video, link to it under Reference below), and it piqued my interest. 

Figures And Opinions

With a price-to-book (P/B) ratio of 1.41 and a forward price-to-earnings (P/E) ratio of 17.21 as of 31 Dec 2023 (the data set that I had used for my initial analysis before the purchase), plus the recent debt-to-equity (D/E) of 69.71% and a current ratio of 1.53, the numbers are more befitting for a Singaporean company than an American one. However, in terms of its revenue and earnings per share (EPS) IP has rather been undulating, with good figures showing in years ending 2021 and 2022, only to go down in 2023 and now slowly recovering towards end of 2024. Same goes for its free cash flow, though they are still in the positive region.

On the financial statement level, IP is not as fundamentally robust as it seems since there are favourable and not-so-favourable variables. While on the safe side it is better not to consider this for investing, I am putting my neck out a bit on this one for its potential, i.e., the environmental factors and economic conditions levels of the Bedokian Portfolio’s fundamental analysis. As of now, IP’s market share in relative to its competitors, within the paper and paper products industry, and basic materials sector stood at around 11%, 67% and 13% respectively for the 12 months ending in the third quarter of 2024¹. Furthermore, while Amazon is flourishing in its other revenue sources, its traditional online retail channel is still currently the largest, and by association IP would benefit by supplying cartons and boxes for delivery means.

Going Forward

IP had clocked an impressive 62.74% rise year-to-date (YTD), more than some of the famous technology companies like Alphabet’s YTD of 20.97% and Apple’s YTD of 23.27% (as of 30 Nov 2024). However, I am looking at IP more towards at least mid-term, i.e. five years down the road. Its acquisition of DS Smith, a listed British packaging firm, would enhance IP’s already existing international presence. Also, price increases slated from 2025 of its products could bring in higher revenues². Last but not least, the incoming American administration favours domestic manufacturing, so IP is for the moment at the right place and time.

All information and data are from Yahoo Finance unless otherwise stated.

Disclosure

Bought IP at:

USD 33.20 at Feb 2024

Disclaimer

Reference

Business Insider. How The World’s Largest Paper Company Makes 1/3 of Cardboard Boxes In America | World Wide Waste. https://www.youtube.com/watch?v=_lsC0aXyY6g

1 – International Paper. CSI Market. https://csimarket.com/stocks/competitionSEG2.php?code=IP (accessed 30 Nov 2024)

2 – Rosengren, Cole. International Paper, Georgia-Pacific try for 2025 fiber price increases. Packaging Dive. 25 Nov 2024. https://www.packagingdive.com/news/international-paper-georgia-pacific-fiber-price-increase-2025/733824/#:~:text=Dive%20Brief%3A&text=International%20Paper%20announced%20a%20%2470,medium%20in%20its%20East%20region. (accessed 30 Nov 2024)

 

Is It A Good Time To Go Into REITs?

With cuts to the interest rates happening, many investors expected that real estate investment trusts (REITs) would see their heydays coming again, after being in the doldrums for much of the past two to three years. Alas, this was not to be. In fact, if you look back even further, Singapore REITs (S-REITs) have yet recovered to its pre-COVID levels, according to the iEdge S-REIT Index (Figure 1).

 

Fig.1: 5-year iEdge S-REIT Index (Source: SGX as of 23 Nov 2024)

By now, if you had noticed that the title of this blog post sounded familiar, you are correct. I had asked (more or less) the same question back on 30 Aug this year, and it is kind of a déjà vu asking it again. If things are on a bargain for quite some time, it does not bode well as their values are seen as stuck without any potential for price appreciation. Or is it?

On a macro scale, several factors contribute to this wave of S-REITs downtrend, but for me I see the two main ones are the incoming U.S. president’s geopolitical and economic policies which are viewed as inflationary in nature (and thus bringing back higher rates, a bust for REITs), and the continued narrative of falling distributions of past quarters. Therefore on the whole, the REITs asset class was dragged down by these concerns, whether will they come to fruition or not.

In addition, as I had mentioned here before, the effects of a lowered interest rate would not be felt immediately but rather at least a couple of years, so there is some “interest pain” felt in the form of costs of borrowing during this phase.

Now back to the question: is it a good time to go into S-REITs?

As usual for my answer, it depends.

Since in general the S-REITs were dragged down as a whole, including those that are deemed fundamentally good ones, which includes having low gearing, resiliency of their properties and potential for higher rental reversions, to name a few. If you are not able to identify which REITs to go for, or going after individual ones is not your penchant, then going for or averaging down on REIT exchange traded funds (ETFs) is another way.

While in general the markets are rising (equities, gold, and yes, Bitcoin) thanks to whom we know will be the next U.S. president, there are still opportunities in other asset classes (like REITs), sectors and industries that are facing a setback. These are the Mondays to look out for to buy in (intelligently, of course), and they would eventually become Sundays again in due time.