The Only Answerable Person On One’s Investment Is To Oneself

On top of financial news channels and websites, there are also hundreds, if not, thousands of, blogs, video channels and chat rooms/forums discussing about investment and trading in general. While most of these resources are informative, there are some which, put it mildly, trying hard to prove or disprove certain viewpoints. A healthy discussion/debate is constructive and learning points can be taken from them, but there exist participants where his/her convictions on certain opinions are so strong that he/she would commit most or all resources just to make a point.

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Frankly, this “I will prove that I am right by (doing something)” existed way before the internet came about, or even newspapers and smoke signals. The propensity to prove correct one’s assumption/prediction is one of the basic human biases known as overconfidence. Amplified by the easy access to mass communication tools and means, it could also develop into stronger narcissistic tendencies, which includes the hyper-aversion to “loss of face”. 

These traits and behaviours in the world of investing/trading are a definite no-no; yet, despite these basics, there were those who fell into such traps. With social media and the deemed credibility that comes with it, the negative impact of having a wrong outcome is very great. This is why mistakes are usually either glossed over, or defended with more vigorous “convictions”, to maintain the presumed invincible aura. When we are investing or trading, we are doing it for ourselves. When we are showing it the world, we are sharing the tools and tips so that we can learn from one another.

Borrowing a famous saying about fooling someones and everyones all the time or sometimes, I had modified it to the following:

We can be always right some of the time.

We can be sometimes right all the time.

But we cannot be always right all the time.

Remember the title of this blog post.

Is It A Good Time To Buy REITs Now?

Yes, interest rates are (very likely) going to be lowered, judging from the message given by the United States Federal Reserve last week. Soon, financial news and blogosphere were filled with questions like the blog title above, or something similar. It is natural for investors to ask such a question as REITs, or real estate investment trusts, are a leveraged asset class, and a fall in interest rates meant that cost of loans would go down, which subsequently increases distributions.

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To answer the question, I would dish out the same old answer which I love to dispense; it depends. Ideally, a good time to buy REITs would be when they were at their lowest and/or weakest. Using the iEdge S-REIT Leaders Index, during the past five years, the two weak points were sometime in March 2020 (COVID-19) and October 2023 (accelerated interest rate growth). Granted that these were hindsight views and true bottoms are very hard to catch, but with sound fundamental analysis implemented (REIT financials, environmental factors and economic conditions), plus a bit of price action model at play, chances are higher of getting at least around the deemed bottom of the moment.

If you did not catch the bottom, rest assured; if you had vested earlier in the REITs in your portfolio, now is a good time to average up, provided that the current prices ticked off your valuation checklist, and there is a great potential that your selected REIT prices will rise. If you had not, however, and/or not that good in analysing REITs, then perhaps you can start off with REIT ETFs (exchange traded funds), which currently there are five listed in the local Singapore Exchange. As the REIT ETFs are, to a certain extent, seen as representatives of the asset class, making periodic entries into them (monthly, quarterly, half-yearly or yearly) would at least give you exposure, thus for this method, “any time to buy REITs is a good time”.

Ethical Investing? It Depends On Whose

In recent years there was a spike in interest on ethical investing, which comes in different names and sub-forms such as sustainable investing, ESG (environmental, social and governance) investing, green investing, etc. Many institutions offered mutual funds and exchange traded funds (ETFs) focused on such investment principles, examples of which would be the iShares Global Clean Energy ETF (ticker: ICLN) and the Lion-OCBC Securities Singapore Low Carbon ETF (ticker: ESG.SI) in our Bedokian Portfolio.

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Although there are set standards on what ethical investing is, based on quantifiable numbers such as ESG scores, or industries directly or indirectly related to the cause (like our ICLN for green energy and ESG.SI for low carbon), ethics overall is still very much open to interpretation and subjectivity. While there are general beliefs in what “ethical” means, like not investing into tobacco stocks as an illustration, it would be surprising to find out otherwise if one digs deep enough. An ex-colleague of mine refused to invest in real estate investment trusts (REITs), on the rationale that “bad landlords” increasing rents would contribute eventually to increasing prices and costs of living (it is his viewpoint, so please do not complain on me for this). Another anecdotal story (a friend of a friend) refrained from buying large cap stocks due to the “bad corporations” image (do not flame me for this, too).

As what some said, the best investments are the ones that could make you sleep well at night. Not only this adage applies to the financially healthy companies, but also those whose businesses benefit many, i.e., making money in a “cleaner” sense (quotes emphasized by me as this is subjective).

In the Bedokian’s opinion, if the investible assets and financial instruments are open and legal, it is up to the individual investor’s views and values on determining what ethical means to them.

 

Disclaimer

Cash Is King…For Now

The past few days had seen the markets taking a deep dive far more spectacular than those in the Olympics. Whatever the reasons presented; the United States jobs report, the unwinding of the Yen carry trade, the potential of a further blowout in the Middle East crisis, etc., panic is seen among investors and traders. The VIX index, colloquially known as the market fear index, spiked more than 200% over the past few days.

As mentioned before, short of a nuclear winter, an alien invasion or a Chicxulub-level asteroid hitting Earth, life still goes on, and the markets will eventually recover and back on track for their upward trajectory. The main concerns right now should be thinking of what discounted asset classes/counters to buy, and finding the cash to get them, instead of lamenting on the unrealized capital losses one is holding onto.

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Having an ample amount of cash is important in such market sell-off conditions, for it is the best financial instrument to acquire other asset classes without compromising its present value. While in times of boom, having too much cash would result in what is called a cash drag, i.e., the opportunity cost of keeping cash rather than being deployed in assets yielding higher returns. In times of bust, however, it is illogical to sell off a depressed counter to buy another depressed counter, so cash comes in useful here.

For The Bedokian Portfolio, the 5% to 10% cash component is there for this moment, for it acts like a war chest of sorts to take advantage of in down markets. This cash portion is not to be mixed with your daily uses, emergency fund and savings for your discretionary needs, and once inside, it should stay in the portfolio until it is planned for drawdown. It is fed by dividends from equities, distributions from real estate investment trusts, coupon payments from bonds and interest payments from bank accounts or treasury bills, and lastly your own cash injections.

Whatever the markets throw at you, find that sliver of opportunity and capitalize on it. Keep calm and stay invested. 

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.

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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.

 

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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.

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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)