What A Gr-Eight(h) (Half-)Year!

30 July 2024 marked the eighth anniversary of the blog, but due to work commitments, I had decided to post this two days earlier.

My anniversary blogposts had somewhat become a keynote of sorts, filled with the goings-on of the market and economy, some cliché advice and an occasional preaching of our investment philosophy.

For this round, I will share firstly on the three buys that we made in the first half of 2024 and the rationale behind them (with some takeaways for your learning). Secondly, I will share a bit on where our step-down journey is at, and lastly, a glimpse of my probable next work.

Picture generated by Meta AI

The Glorious Three

Sounds like a bad tag line but I needed to give it like what others gave the terms “Magnificent Seven”, “FAANG”, etc. So, what are our Glorious Three stocks for the first half of 2024?

#1: Apple

At the end of 2023, Apple was poised to hit USD 200, but alas it was not to be. Then due to a slew of bad news ranging from weak iPhone sales, ban of iPhone’s use in certain quarters in a certain country, and the perceived “same old” new products, the price went down and languished to a low of USD 164.08 in mid-April 2024. Then after a positive 2Q24 report along with news of share buybacks, it rose again, and further turbo-ed with the introduction of Apple Intelligence, also called AI. 

I had indicated here that we had added some positions to Apple at USD 165 when it hit our targeted buy price, and as of 26 July 2024, the price had risen 32.1% to USD 217.96. Never mind the lawsuits brought upon by regulators and authorities; never mind the deemed “nothing new” product and service ranges, and never mind the negative news surrounding it, for the fundamentals of Apple are still strong in my opinion currently, given the wide moat of number of users and their adoption of the ecosystem. 

The lesson here is if a fundamentally strong counter is down due to probable short-term reasons, or being dragged along with the rest, it is a good time to relook and enter at a determined price for averaging.

#2: Salesforce

In end May 2024, Salesforce, a cloud software vendor, reported a revenue of USD 9.13 billion. However, this fell short of the US 9.17 billion expected, and despite its earnings per share of USD 2.44 beating the estimated USD 2.38, the share price fell from USD 27x to around USD 21x.

Salesforce was not in my investment radar but rather an opportunistic trading play. Like the case of Apple, Salesforce was battered just because of certain bad results and news while still holding onto relatively good fundamentals. Thanks to a YouTube video commenting on it, and after quick research of my own, we initiated a trading position at USD 215.66. As of 26 July 2024, the price rose to USD 262.71, a 21.8% increase. The target price to let go of Salesforce is between the USD 280 to USD 290.

The learning points here? There are two: One, fundamentally good companies’ prices do not stay low for long, for eventually they will rise back to their (perceived) value. And two, sometimes you could get some tips and “a-ha” moments by reading or watching other sources and opinions, and by combining your own analysis, could facilitate your next investing or trading decision.

#3: Nvidia

This company needed no introduction, and it is still the talk of the market as being the darling stock in the AI revolution. While knowing about its “to the Moon and Mars” rise over the last few years, I did not really look at it, until someone had provided me a tip back in early March 2024. Just like the case for Salesforce, I did my fundamental analysis and although I felt Nvidia’s valuation was high in my opinion, its near monopoly and first mover advantage in the AI processor scene, plus the lackluster performance of its other competitors, made it a compelling case to enter, which we did at USD 935.50 (pre-split) a few days after receiving the tip.

Subsequently, on 10 April 2024, TSMC, one of the largest chip foundries in the world, posted a jump in their March sales. With Nvidia as one of its major customers, this jump could translate to a highly possible revenue jump for Nvidia in its coming reporting, and we averaged down at USD 867.17 (pre-split) on the same day, taking advantage of the price weakness. After splitting, we entered again in June at USD 122.50, and in July at USD 118.00. Initially a trading play, Nvidia had shifted over to our investment portfolio.

The main takeaway for Nvidia is more on the associative investing which I had said about a few times before, which in this case the fortunes of TSMC are positively correlated to that of Nvidia’s (and Apple’s, too). By creating a relationship of sorts among the companies and their sectors and industries, we can see the symbiotic links and identify opportunities more clearly.

 

Step-Down Plan Status

Attributing to the bull run (partially due to the Glorious Three) and the liquidation of two investment-linked plans (which were not factored in our initial step-down planning), our Bedokian Portfolio’s projected year-end value was surpassed by 11.6% by the time of this post. It is great that the target for this year had been reached at this point, but such growth cannot be expected every year, for there will be downtime along the road to our step-down goal. 

Hence, we would view this as a growth buffer that could be cushioned against future drawdowns. As we had stated here our assumed growth is 4% annually with capital gains and dividends, which is a very conservative estimate, and it is a number that can be easily averaged even as a diversified portfolio. For reference, the annualized performance for equity indices like the Straits Times Index and the S&P 500 over a 10-year period was 4.24%¹ and 12.86%², respectively.

 

Future Writing Plans

As you may have noticed in my eight years of writing, there are some issues and points which were written again and again, like a broken record. Things like the psyche of the investor, diversification, rebalancing, etc. are oft mentioned topics. Yes, these may be boring, but they are also necessary to keep reminding oneself in the journey of investing.

I had mentioned here that I might be writing about a trading portfolio either as an additional chapter in future editions of The Bedokian Portfolio, or as a companion e-book. On top of this, I have an additional plan of coming out something on advanced investing. When will these be published is not confirmed yet, but I will announce it on this blog once they are done (maybe some months or years later).

And lastly, back to the blog, you may have noticed that I had introduced more pictures (mostly AI generated) in my posts. This is one way to add some graphical flavour on an otherwise monotonous-looking wall-of-text, or shall I say “beautifying” the blog. Hope you like this new minor modification.

Cheers to all!

Disclaimer

1 – SPDR Straits Times Index ETF factsheet. 30 June 2024. https://www.ssga.com/library-content/products/factsheets/etfs/apac/factsheet-sg-en-es3.pdf (accessed 28 Jul 2024)

2 – SPDR S&P 500 ETF factsheet. 30 June 2024. https://www.ssga.com/library-content/products/factsheets/etfs/us/factsheet-us-en-spy.pdf (accessed 28 Jul 2024)

 

All About Price: The (Price) Margin Of Safety

This is part of my intermittent series on price, one of the most important and commonly encountered considerations in investing and trading. For this post, I will talk about the deemed “price” margin of safety (or price safety margin), and the accompanying concept called “freehold”.

I had mentioned about the price margin of safety in my post on Apple (post here). To have this margin in the first place, a position has to be initiated on a counter, which was selected based on one’s sound fundamental analysis. Subsequently, when the price moves up to its new level due to the company’s value or growth story, the margin is formed.

A few concepts can be derived from this “price” margin, a couple of which are psychological in nature. Let us have a look at these concepts.

 

Picture generated by Meta AI

Concept #1: “Freehold”

“Freehold” in some investors’ lingo meant that the initial capital on an investment had at least doubled, either through capital gain, or dividends or both. Since the investment had paid off itself, it is deemed as “free”, and the price margin of safety stands at 100%. While the thinking is purely psychological, the next step is what to do with these gains. If the growth story continues, then it could just sit there and continue to evolve to multi-baggers with a huge capital gain, or some or all of the gains can be redeployed, either on itself via averaging up (see Concept #2) or on other counters.

 

Concept #2: Averaging Up

If the belief of a continued growth story is there (with an analytical basis or “guesstimate”, of course), then one could continue to average up the counter. Though by averaging up, the price safety margin would be reduced, but overall it is still lower than the present price. 

For example, let us say that one bought 100 shares of  Company A at $10, and after a while the price rose up to $20, thus having this 100% gain. Since fundamentally Company A has a long way to go in its growth, an additional 100 shares were bought, thus making the average price at [(100 x $10) + (100 x $20)] / 200 shares = $15, which is lower than the present $20.

 

Concept #3: When The Going Gets Tough

Conversely, if the price is heading downwards, one would have to see his/her average price overall. Given the example in Concept #2, when the price of Company A falls to $18, there is still a $3 price safety margin as buffer ($18 - $15 = $3), and it would still be in an overall profitable position if the decision to liquidate is there, though some may comment the loss of $2 as an opportunity cost of not releasing it earlier.

However, when things get tough, one would also need to see the reason(s) behind the fall, and if the company is still fundamentally sound, then it is not an excuse to exit (unless he/she is one of those panicking investors that shouts “run for the hills” at the very sign of a price downtick), but rather a chance to do the opposite of Concept #2, which is averaging down. This is logical, for the price would most likely go back up, and in turn, create a larger price safety margin overall.

 

Concept #4: Coverage By Dividends

Relating back to Concept #1, the use of dividends to provide the price safety margin is based on the total returns equation, which is capital gains + income, where the income part are dividends. Supposedly, looking at the performance of a company’s share price, if the price remained constant throughout the past year, but it paid a 5% dividend yield at the same period, then it could be assumed that the price margin of safety is 5%.

It is not wrong to view it this way, though looking deeper we need to know why the share price did not budge; is it because there may be some future valuation issues, or is it because no one gives a hoot on this counter? The reasons could be varied and mixed, though not all are seen as negative.

 

As an active investor, one need to scan, scrutinize and scour one’s counters, whether inside the portfolio or on the watchlist.

 

Check out the other posts in my All About Price series.

All About Price: Introduction & Valuation of Value 

All About Price: Buyer/Seller Remorse and Premorse

All About Price: The 52-Week High/Low

All About Price: Reversion To The Mean

All About Price: Bottom Fishing

 

Illiquid Liquidity

The term may sound like an oxymoron, but what I meant is the pool of cash that cannot be withdrawn or spent easily due to regulatory reasons. With this reasoning, one of the first things that come to mind for a local would be one's Central Provident Fund (CPF) monies, and the next would be the Supplementary Retirement Scheme (SRS) funds.

Picture generated by Meta AI

But these pools can be invested, though subjected to selected financial instruments and for CPF, quantum quotas. Currently CPF is paying at least 2.5% for the Ordinary Account (OA), and 4.08% for the Special Account (SA).

 

Whilst for my case I would not use the SA for investing given the relatively high and almost riskless rate, the 2.5% yearly returns for OA can be statistically surpassed depending on the duration and type of assets invested, though with an element of risk. Similarly for SRS, which are typically under the prevailing bank savings account rates (now is less than half a percent), the impetus to invest it is even greater.

 

As the saying goes, make money work harder for you. Granted that placing them as they are (i.e., inside OA and the SRS account) would still bring the dough albeit on a safer side, I would like to have more by taking on some risk and volatility. This is for getting a higher amount when OA (at least from age 55) and SRS (for me from age 62) turned liquid, which in turn increase the funds to supplement our step-down/retirement phase of life.

 

Related post:

 

Should I (Really) Invest My CPF? (Part 1)