The Other Kind of Income

When markets become volatile, it is easy to find ourselves checking portfolio prices more frequently than usual. The numbers move, the headlines change, and suddenly the portfolio seems to demand more attention than it normally does.

 

But how much of our portfolio returns actually come from dividends and distributions, and how much comes from price movements? It is a question that is surprisingly easy to overlook.

Picture generated by ChatGPT and Meta AI

Two Ways a Portfolio Makes Money

There are broadly two ways an investment portfolio generates returns: capital appreciation and income. The oft-cited formula is simply: total returns = capital gains + income.

 

The key difference is that income can be realised without selling the underlying investment. A share price can fall tomorrow, but a dividend that has already been declared is not directly affected by tomorrow's closing price. Dividends and distributions are not guaranteed and can be reduced or suspended, but over time, a portfolio built to generate income can provide a stream of returns while the underlying investments remain vested in the markets.

Making Money While One Sleeps

In the Bedokian Portfolio, passive income is an important objective, as stated at the top of the blog. The five asset classes: equities, real estate investment trusts (REITs), bonds, commodities and cash, serve different purposes.

 

Both equities and REITs provide dividends, with the former having higher potential capital growth; Bonds give a stabilising effect when equities and/or REITs are weakening, while still earning coupon payouts; Commodities, though it is a non-yielding asset class, give the necessary softening of the overall portfolio from volatility; Cash, though acting as a pool of liquidity, could still be an interest-bearing instrument.   

 

Not Losing Sleep Over It

If an investor has to sell investments to fund every dollar of spending, market prices become critical at the point of withdrawal. A downturn can therefore become more than just a paper loss. With sufficient passive income, some expenses can be funded without having to sell the counters.

 

A thing to note, however, is this: Passive income does not eliminate market risk. It reduces our dependence on market prices when one needs money.

 

This is where the traditional Safe Withdrawal Rate (SWR) framework meets the real-world psychology. While an SWR model generally assumes withdrawals from the portfolio to fund retirement, relying on income generated by the portfolio can provide an additional buffer, reducing the need to sell during sharp market drawdowns, at least from my perspective.

The Connection to Financial Independence or Step-Down

This becomes particularly relevant at the point of financial independence, or a partial one in the form of a “step-down” in our lingo, when employment income starts giving way fully or partly to portfolio income. The objective is not simply to reach a particular portfolio value, but to build a portfolio capable of generating sufficient and sustainable income while still allowing capital to grow.

 

Capital appreciation tells us how much the portfolio has grown. Income tells us what the portfolio can do without having to sell it. And perhaps knowing that our portfolio can continue to provide for us, even when markets are unsettled, is another way of sleeping well at night.

Related post

The Rationale Of The Asset Classes: The Bedokian Portfolio 300th Post Special 

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Disclaimer

A Portfolio Is More Than A Collection Of Counters

Sometimes I wonder whether investors treat their portfolios too much like a hobby collection; I own this counter. I own that counter. I have some of this, some of that, and perhaps a few more things because they look interesting.

But are they actually building a portfolio, or are simply collecting investments?

Picture generated by Meta AI

Think About a House

Imagine this analogy: The house is the portfolio, the rooms are the asset classes, and the furniture inside each room represents the individual investments or counters.

A bedroom, for example, may contain a bed, wardrobe, bedside tables and a chair. Each piece of furniture may be good on its own, but putting five beds and no wardrobe into the room does not make much sense.

The same applies to a portfolio. A good investment does not automatically make a good portfolio addition. If I already have plenty of exposure to a particular sector, country or macroeconomic factor, adding another good counter with similar exposure may increase concentration rather than diversification.

The Furniture Has a Purpose

In the Bedokian Portfolio, the five broad asset classes are equities, REITs (real estate investment trusts), bonds, commodities and cash. Each represents a different room in our investment house, and the individual investments are the furniture within those rooms. The allocation determines how much space each room gets. The selection guidelines then help us decide what furniture goes into each room.

So the hierarchy is rather simple: Portfolio first. Asset allocation second. Individual investments third.

Before buying another counter, perhaps one should ask: Does it fill a gap in the house, or am I simply buying another piece of furniture because it looks attractive?

Core and Satellite

There is also a way to think about the “Core and Satellite” approach.

As stated in The Bedokian Portfolio eBook¹, exchange traded funds (ETFs) typically form the core, while individual counters form the satellites. Going back to our house metaphor, the important furniture such as beds and wardrobes can represent the core, providing the main structure and purpose of the room. The bedside table, lamps and other pieces can represent the satellites. They provide additional functionality or character, but they are not the foundation.

Similarly, the ETFs provide broad exposure that forms the foundation, while individual counters allow for more specific exposures or opportunities.

A counter can also appear indirectly in both. For example, an individual company may already be part of an ETF, while a separate holding in that company provides additional exposure. The important point is understanding what each piece of furniture is doing in the room.

A House, Not a Furniture Store

A portfolio should have a purpose, an allocation and a structure; it is not simply a collection of counters sitting in a brokerage account (or a few). One does not furnish a house by buying every piece of furniture that looks good. The rooms come first, then what each room is for, and finally how everything fits together.

Investing is not that different. Buying a good investment is one thing. Putting good investments together is another.

Related posts

Active Or Passive? It Depends

The Quandary of Rebalancing

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Disclaimer

1 – The Bedokian Portfolio (2^nd Ed), p135-137

Probably The One Monthly Report To Look Out For

If one is a technology sector investor, especially among the hype of artificial intelligence (AI), one monthly report would likely be of interest to those vested. That report is the monthly revenue report of Taiwan Semiconductor Manufacturing Company, better known as TSMC.

 

Screenshot taken from TSMC 2020 Annual Report cover

While monthly reporting is a rarity in the United States or in our local markets, it is a mandatory requirement imposed on companies listed in Taiwan. With TSMC being bounded by this rule, and its importance in producing the chips powering the technology sector/industry and the current AI trend, the reports come in useful as a leading indicator of its clients’ potential earnings.

TSMC’s customer base is relatively concentrated on a few players that we know: Apple, Nvidia, Broadcom, etc., and these companies are driving the AI narrative. Hence, an increase in TSMC revenue means that the customers are demanding more of its manufactured chips, right?

Well, not really. Increased revenue from providing chips downstream may not translate to customers selling more products or services utilising the chips. A couple of reasons explain why this is so.

The first is stockpiling: a customer may be building up its inventory in anticipation of future demand, so these do not translate as additional profits reported. Next is pricing: with chips, especially the higher end ones, an increase in price with the same quantity ordered could be seen as revenue increase on the surface.

Still, the blog post about TSMC’s monthly revenue report brings forth one of the concepts of the Bedokian Portfolio: associative investing¹.

In associative investing, the view is that every factor and component in the markets and economy are related to one another to a certain degree. In TSMC’s case, its downstream effects may play a part in the customers’ earnings, while its upstream players such as the suppliers may see increased revenues if TSMC orders more raw materials and parts. Sidestream wise, one could observe the competitors and their financials; if everyone is earning, it means the general inclination is the sector/industry that is supporting is likely expanding.

While TSMC’s monthly revenue report serves as a high-frequency, invaluable barometer for the health of the AI supply chain, interpreting it requires nuance. By looking beyond the headline numbers to account for lead times, pricing shifts, and ecosystem ripple effects across upstream suppliers and downstream clients, investors can effectively apply associative investing to gain a clearer, well-rounded edge in the technology sector.

Disclosure

The Bedokian is vested in Apple, Nvidia and Broadcom.

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Disclaimer

1 – The Bedokian Portfolio (2^nd Ed), p137-138

Here We Go Again

The United States Federal Reserve has raised interest rates by 25 basis points to a target range of 3.75% to 4.00%, its first hike since July 2023. It also signalled that another hike could come before the end of 2026¹. The decision comes against persistently elevated inflation, with higher energy prices adding to the pressure alongside resilient economic activity and investment.

I have covered the effects of higher interest rates before, here and here.

Picture generated by ChatGPT

 

In general, higher rates can put pressure on interest-rate-sensitive assets such as bonds and real estate investment trusts (REITs), while also affecting selected equities through higher financing costs and valuations. Cash and short-term government securities, on the other hand, can benefit from higher yields.

REITs Issues…Again

This has got to be one of my nth posts on REITs.

As a leveraged asset class, REITs tend to attract attention whenever interest rates rise. Higher borrowing costs can hurt, while higher bond yields can narrow the yield premium investors demand from REITs. It is therefore not surprising that Singapore-listed REITs have continued to struggle.

In chat groups and online discussions, I have come across investors who appear to have given up on them. Still, this is where one should step back.

View In Totality, Not Parts

It can be demoralising to see one's REIT holdings going down. If REITs are part of the intended portfolio allocation, however, falling prices may cause their weight to fall below target. From a portfolio perspective, this could present an opportunity to add than to abandon them, assuming the underlying REITs still meet the investment guidelines.

The idea is not to buy simply because prices have fallen; rather, it is to rebalance the portfolio towards its intended allocation, while considering the valuation and quality of the individual counters.

A falling asset class is not automatically a bargain. Nor is it automatically something to avoid. The more useful question is not about why REITs are falling, but rather what the portfolio looks like now.

This is why I keep coming back to the importance of viewing the portfolio in totality. Markets will continue to move, interest rates will rise and fall, and REITs will probably continue to give investors reasons to complain. That is nothing particularly new.

The portfolio, however, is supposed to provide the bigger picture.

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Disclaimer

 

1 – Cox, Jeff. Fed approves interest rate hike, signals one more to come this year. CNBC. 16 Sep 2026. https://www.cnbc.com/2026/09/16/fed-rate-decision-september-2026.html (accessed 18 Sep 2026)

Inside The Bedokian’s Portfolio: Arista Networks

Inside The Bedokian’s Portfolio is an intermittent series where I will reveal what we have in our portfolio, one company/bond/REIT/ETF at a time. In each post I will briefly give an overview of the counter, why I had selected it and what possibly lies ahead in its future.

For this issue, I will discuss about the NYSE-listed Arista Networks (ticker: ANET).

 

Screenshot taken from Arista Network’s 2025 Annual Report cover.

Part of the AI Revolution

Most people tend to associate artificial intelligence (AI) with chip producers, hyperscalers and large language models. ANET, however, is what I would describe as a “picks and shovels” company in the AI ecosystem. It provides networking equipment and software that allow the servers and accelerators within large data centres and AI clusters to communicate with one another.

Since ANET is classified as a short- to mid-term AI play, we placed it under the Trading Portfolio, with the possibility of integrating it into the investment Bedokian Portfolio should its fundamentals continue to hold. This was somewhat like our Nvidia entry a couple of years ago.

Fundamental Analysis (Bedokian Style)

Below are the results generated by the Growth Indicator app, showing the numbers according to The Bedokian Portfolio’s selection guidelines for growth investing. It also displays AI generated insights of the market share, sector/industry SWOT analysis, and macro factors, of which are part of the Environmental Factors and Economic Conditions levels of The Bedokian Portfolio’s fundamental analysis:

 

 Screenshot from report downloaded from the Growth Indicator app. Click to enlarge view

 

A Light Amber status means that ANET fulfils three out of five selection guidelines, which at first glance, the counter seems average and nothing to shout about. Looking deeper into its financials tells a different story: ANET has reported growth in diluted earnings per share (EPS) from USD 1.65 in end 2023 to USD 2.75 in end 2025, with a trailing 12-month diluted EPS at USD 3.16. Free cash flow (FCF) wise, it has increased from nearly USD 2 billion in 2023 to USD 4.25 billion in 2025. The surprising thing from ANET, and a rare structural feature in United States technology sector is the low debt-to-equity (D/E) ratio.

 

The points covered in the previous paragraph can be seen in the other two passed conditions: positive FCF and constant or reducing D/E ratios for the past three years. Addressing one of the two failed guidelines, the return on equity (ROE), I had stated in the eBook that a higher ROE needs to be looked into detail due to its higher net income may be attributed more to liabilities than equity¹. However, for ANET’s case, the concerns are moot due to the low D/E.

Considering the above, a qualitative call is made on our end to override the concern of a higher PEG (1.44).

The Future

The burgeoning AI space, coupled with its deemed essential role of being a pick/shovel, are giving expanding opportunities for ANET. As mentioned earlier, this counter is primarily a trading play, so our set target price for release is around the USD 240 to USD 250 range. If ANET’s moat widens and/or further catalysts are identified, a longer-term hold is contemplated.

Disclosure

Bought ANET at:

USD 195.00 at Sep 2026 

All figures are obtained from Yahoo Finance unless otherwise specified.

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Disclaimer

1 – The Bedokian Portfolio (2^nd Ed), p152-153

Short Take: Bonds, Yen And Interest Rates

Introducing a new series called Short Take, where I try to explain complex goings-on in the financial markets and economy in digestible bits, and tie them back to the Bedokian Portfolio investment philosophy and methodology where relevant.

Kicking off the series: a concise look at recent rising yields and the Japanese yen.

Picture generated by Nano Banana and Chat GPT

Global bond markets and currency values are undergoing significant shifts. The United States (U.S.) Treasury yields remain near multi-year highs due to economic strength, government borrowing, and sticky inflation, while Japan’s 10-year bond yield recently breached 3%, a level unseen since 1996. Meanwhile, the U.S. Federal Reserve (Fed) policy rate stands at 3.50–3.75%.

These moving parts are interconnected and ripple through global portfolios in the following ways:

The Yen Carry Trade

For years, investors borrowed cheap yen at low interest rates to invest in higher-yielding U.S. assets. If the rate gap narrows, either via Fed cuts or Bank of Japan tightening, investors may unwind positions and buy back yen. That could contribute to volatility similar in nature to what was seen in August 2024.

Broader Market Impact

Rising U.S. yields increase corporate and real estate borrowing costs while making fixed income more attractive relative to equities. Higher Japanese yields may encourage domestic investors to repatriate capital from foreign markets.

Singapore Portfolio Implications

Local investors feel this through elevated borrowing costs for Singapore real estate investment trusts, higher domestic bond yields, and currency fluctuations that alter the Singapore-dollar value of foreign holdings.

The Bedokian’s Short Take

Macroeconomic factors form the economic conditions layer of fundamental analysis in The Bedokian Portfolio¹. Rates drive bond yields, rate differentials drive currencies, and currency movements drive capital flows across global markets.

However, analysing macro conditions is about understanding risk transmission, not forecasting market directions. The most one can do is guesstimate. No one can consistently predict central bank moves or currency movements. The goal is to build a resilient, diversified portfolio across distinct asset classes that can withstand economic uncertainty, rather than reacting to short-term market noise.

Related post

The Economic Machine Analogy, Dimension And Degree

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Disclaimer

1 – The Bedokian Portfolio (2^nd Ed), p91-93

The Equity Baggers

Coined by legendary fund manager Peter Lynch in his 1989 book One Up on Wall Street, "bagger" is a term borrowed from baseball, where the number of bases reached by a runner measures the success of a play. Applied to investing, it describes share counters that have increased by a multiple of the original buy price. Thus, a two-bagger means the price has doubled, while a five-bagger indicates an increase of five times the purchase price.

 

 

Picture generated by ChatGPT

For this post, I will share three counters in our portfolios that have reached at least a two-bagger status, based on the average buy price against the current price as of market close on 28 Aug 2026. For USD counters, the average entry price is based on the current forex rate of USD/SGD 1.00/1.27. It is worth noting that the following counters were not bought in one shot, but rather across separate tranches. Hence, there were some tranches that had hit multiple baggers, while others gained less than 100%.

Here are the three counters:

Counter #1: Apple (Bedokian Portfolio)

Average entry price: USD 96.74. Current price: USD 319.70.

Apple is one of the longest continuously held counters in our Bedokian Portfolio since 2014. Apart from a partial divestment in March 2024 and some buybacks just a few weeks later, it has still achieved an overall gain of 230.47%.

In hindsight, Apple's relative lag in the artificial intelligence (AI) race paradoxically gave it a "technology counter without the AI hype" safe haven status¹. The company recently announced a refreshed Mac Mini and Mac Studio range, and the new incoming CEO, John Ternus, is likely to present new iPhones in the coming days, which may include the company's first foldable model.

Counter #2: OCBC (CPF-IS Portfolio)

Average entry price: SGD 12.11. Current price: SGD 31.07.

OCBC is one of the three local banks attributed to the strong performance of the Straits Times Index over the past couple of years. Achieving a bagger status for a local blue-chip counter (in this case, 156.56%) within a short timeframe is quite rare. Our last entry price less than a year ago in September 2025 was at SGD 16.45; now it has almost doubled this number.

The current price-to-book (P/B) ratio for OCBC is approximately 2.17, which among the three banks stands in the middle, with DBS at approximately 3.07 and UOB at approximately 1.27. In my view, the current price looks elevated on a P/B basis relative to historical norms. That said, some investors may point to the forward dividend yield of 3.03% and the bank's guided stable-to-improving income outlook for FY2026 to justify further interest in this counter.

Counter #3: ASML (Bedokian Portfolio)

Average entry price: USD 770.13. Current price: USD 1696.16.

Only four tranches were accumulated between June and September 2025, and the gains within approximately a year stand at 120.24%; a result that is, frankly, an impressive one. I had written about ASML back in June 2025 (read here).

ASML possesses what is arguably the most formidable moat in the field of lithography; it is the world's sole commercial supplier of Extreme Ultraviolet (EUV) lithography machines. This EUV monopoly, coupled with AI-driven demand expansion and a record huge order backlog (around EUR 38.8 billion), has propelled its share price to where it stands today. The main concern is that the current price may be somewhat overvalued: at a 5-year expected Price/Earnings-to-Growth (PEG) ratio of 2.07, so my view is that future price appreciation may not be as rapid as what the past year has delivered.

The Bedokian's Take

Hidden in plain sight across the three counters above are two main factors contributing to their bagger status: economic moat and the power of compounding.

Among the three, Apple and OCBC share elements of both moat and compounding, while ASML's rapid gain over the past year or so is more directly attributable to moat, specifically the market's repricing of an irreplaceable technology monopoly. Therefore, when looking for counters with bagger potential, ensure that the company has goods or services that people genuinely need, and give it the time required for its value to be reflected in the price.

Disclosure

The Bedokian is vested in the above three companies.

All figures are obtained from Yahoo Finance unless otherwise specified.

Try out the Growth Indicator, Equities Indicator and S-REITs Indicator screening app for FREE. You can use it as a web page or save it as an app-like bookmark on your home screen of your computer, tablet or mobile for faster access.

Disclaimer

1 – Wearden, Graeme. Apple becomes second $5tn company as investors flee AI stocks. The Guardian. 28 Jul 2026. https://www.theguardian.com/technology/2026/jul/28/apple-second-ever-5tn-company-as-investors-flee-ai-stocks  (accessed 27 Aug 2026)