Bedokian’s Lessons And Learning Points

Since starting on my journey of trading, and subsequently investing, I have had made a few mistakes, misjudgments and of course, misses. In this post I will share some of these as lessons and learning points for you to take home.

Trading Instead Of Keeping: Apple

Apple was the very first foreign counter that I had purchased since I started my trading back in 2009, where I bought it at USD 158.23 in August 2009. Around seven months later, I sold it for USD 225, making a 42% return, and was very proud of it then.

Well, looking back, if I had kept those Apple counters, it would have become a 30-plus bagger by today, which means per share without split would be around USD 4,430. My next purchase of Apple did not arrive until 2014, and I have been holding that since. For good quality companies, it is, in my opinion, better to hold than to trade, as their growth would be advantageous if your investment runway is long enough.

Beware Of Forex: Citibank

Again, on my trading days, I went into Citibank at USD 4.78 and USD 4.88 in August 2009, with that time the USD/SGD exchange rate was about 1.44. Subsequently, however, the exchange rate went down to as low as 1.20. Even with a reverse split, Citibank’s price did not really improve much, and even though at moments where it went above my buy price, I still made paper losses on forex. Eventually, I liquidated Citibank in November 2011 with a 13.4% loss.

The main conclusion is, beware of forex losses, thus for overseas counters, it is better to look for those whose growth would outpace potential forex losses, e.g. Apple.

Price Action Gone Wrong: Singtel

I bought Singtel during the transition from trading to investing. The first time I got into it was in December 2013 at SGD 3.57, exiting in August 2014 at SGD 4.03, almost 13% gain. Ironically, I bought back a year later in August 2015 at SGD 4.03, after observing that the price of Singtel hovered around SGD 4-ish for the past one year or so. At that point, using my price action model, I had set reentry at around SGD 3.50-ish, thus I had further made entry points in January 2016 (SGD 3.51), December 2017 (SGD 3.57), February 2018 (SGD 3.48), March 2018 (SGD 3.32) and June 2018 (SGD 3.18), with the last two being averaging down acts.

The learning point is that price can go drastically down beyond the range of one’s price action model. At the turn of 2020, even before COVID19 was full blown, Singtel’s price had dropped below SGD 3.00, and had been remaining there ever since. I did go into Singtel again a couple more times for averaging down, but that is all. At this moment the average price stood at SGD 3.015.

The One That Got Away: Meta

When Meta’s price was shot down due to its poor earnings in October 2022, I had smelt blood, but I did not act on it. The few reasons of hesitation were that I had not research enough into the company, and during that time I was looking at other asset classes and counters (e.g., bonds and Alphabet). Till now, within a time span of 20 months, Meta had recovered 430%.

The lesson here is when one of the market leaders had suffered a drastic fall, it is worth to spend some time looking at it. I did not have a position in Meta then (and still do not have now), and was not actively prospecting, therefore I did not really undertake, which by reckoning would have been just a few hours’ effort

Respect, Not Idolize

There is always a GOAT (greatest of all time) or several legends in any field; we have Lionel Messi in football, Albert Einstein in physics, Napoleon Bonaparte in tactical warfare, etc. Other than those mentioned above, you may have your GOATs and legends in your own field of expertise and interest. In investing we have a few greats, too, such as Warren Buffett, Charlie Munger, Peter Lynch, and many others. 

These people are/were at the top of their game due to several reasons. Perhaps they have some skills or “powers” that others do not possess, or their contributions were recognized and impactful, or probably a combination of the former two reasons. Whatever it is, these greats would, in the eyes of those who appreciated them, have a strong sense of charisma, and surrounded by a huge field of positive aura. With this, the phenomenon known as fandom emerges and thus, we see so many people supporting their GOATs and legends.

While it is natural that these positive emotions on a person or a group of people may evolve into idolatry, it is perfectly OK to be like this as we humans are emotional creatures. Although we may like them, it is not advisable to go overboard to the point that one’s life is being dictated by them. Things like stalking or doing drastic things when an idolized great is doing what was not expected of them, are extreme acts one could go to if uncontrolled and unchecked; to put it mildly, an obsession.

In the realm of investing, such obsessions are a definite no-no. We all know that it must be approached with an objective, business-like attitude. The greats are there to learn from, such as the methodologies, the analyses, the rationales and reasonings, and with all these, their success stories. Sometimes, you may have heard of people fawning over the famous investors to the point of following their trades, quoting their quotes (much often without context) and so on, to the point of idolizing them. This is not good.

The great investors, or sometimes called super investors, are just like you and me, normal human beings. We make mistakes, and so do they. They might have “predicted” (read: guesstimated correctly) the fragility of the sub-prime markets back in 2007, or they knew the stock price of a certain electric car company will rise n-fold over a few years, etc. but they do not get it right all the time, yet we have people treating their words and/or actions as the gospel truth or future. This is dangerous, for the only person who is right every time is a certain “Mr. Market”.

Hence, we respect these investment greats for what they had done and taught us, not to idolize to the point of being obsessive and without critical thinking.

Related post:

Do They Know Something That We Don't?

Berkshire Hathaway: The Future

There was a notable absence of a familiar face in this year’s Berkshire Hathaway (BRK) annual general meeting (AGM); he was Charlie Munger, who passed away in late November last year. Seeing Warren Buffett sitting without Munger on stage looked a little weird, as the two investors, whose names were almost synonymous with the company they were (and still are) running, were seen as inseparable. 

Realistically and morbidly speaking, everyone will get to meet their maker sooner or later; and this means Buffett will not be on the stage of the AGM forever. No doubt we would want him to continue (and earn us shareholders huge returns), but we knew this is impossible. Fortunately, succession planning was already in the works, with Greg Abel named as the successor to BRK.

Expectations

Successors are usually judged with the standards and achievements of their predecessors, and naturally they will feel the heat especially if the ones before them were greats. People would expect them to the same, if not, better than their upperstudies. We may be judgmental by comparing between the two, often for the worse as we prefer things that we were accustomed to. 

The tendency to cling on to nostalgia is there, but it is important to know that change is the only constant around. We need to be realistic with our expectations; no matter how much the disciples learnt from their masters, there will always be a hint of difference or deviation between them. The important thing is whether that difference/discrepancy is for the better or for worse, and this must be determined not just within one or two investments over a few weeks or months, but rather over several investments over at least a few years.

Furthermore, expectations are varied from person to person, so on a same issue one could find it better while the other may find it worse. In this case, it is up to the individual investor to decide whether to stick around or to exit his/her investments. 

Going back to BRK, would you think it is still a worthwhile company to invest in post-Buffett period? I would think so, at least for probably another two to three years or so. We need to give them a chance to prove themselves.

Disclosure

The Bedokian is vested in BRK.B.

Disclaimer

“The Emperor Is Not As Forgiving As I Am”

Star Wars aficionados will know this line, uttered by Darth Vader to Moff Jerjerrod, who was overseeing the construction of the second Death Star, at the beginning of Star Wars Episode VI: Return of the Jedi.

The whole dialogue started when Vader arrived at the still-building Death Star, with Jerjerrod greeting him. Vader cut him off with the latter’s greetings and went straight to the point, demanding that the Death Star be completed in quick time, even though it was still on schedule. Despite Jerjerrod’s protestations, it stopped when he was told that the Emperor was coming, and he instantly acknowledged it, with Vader ending the conversation with the above quote.

For those who had watched Star Wars for the first time, before this scene, it was known that Vader would not hesitate to punish incompetence severely, usually with death. The utterance of this line had shown that if crossed, the Emperor would be a worse case in consequences than Vader himself, thus leading to viewers to speculate on what and how the Emperor as a character was.

After so much on Star Wars, what is the investment message that I am conveying?

The Market Is Not As Forgiving

The market is the dimension where we conduct our investing and trading actions in it. It binds and surrounds our portfolios, providing them with returns, like a friend. But it is also a dangerous adversary where risks are abound, and if one is not careful it may swallow your portfolios whole. For the latter point, it will not hear your grievances and knows no sympathy; in other words, it can be unforgiving.

Which is why we should always adopt a business-like approach to investing and trading. This can be hard as we are humans and capable of having emotions, but we really need to be mindful of our feelings when engaging the market. When the market goes north, do not jump on the exuberance bandwagon; when the market goes south, do not follow the fear crowd. Instead, step back, assess objectively and then contemplate the next move.

May the Fourth be with you!

Platinum for Commodities?

With gold and silver rising (and taking a breather) recently, there was talk among my various channels on another overlooked precious metal: platinum.

Platinum is a silver-grey metal which is non-reactive and highly resistant to corrosion, like gold. Platinum has been used for centuries as jewellery, although not as extensive as gold.  Perhaps it is best known for its modern use, that as a catalyst in a catalytic converter in vehicles that still utilize internal combustion engines.

 

Platinum’s performance, at least in price, did not really conform with its precious metal siblings gold and silver. While gold and silver historically were somewhat positively correlated with each other, for platinum, that held true for a while until 2016 or so when it started to diverge (see Figure 1).

Fig.1: Platinum prices (blue) vs gold prices (orange) from 1985 to present. Grey columns denote recession periods. Source: Macrotrends.

Despite platinum being scarcer and costs more to process than gold, there were a few reasons why platinum prices had dropped, and mostly these were vehicle-related; in the universe of catalytic converters, there is another metal that is competing in their use, which is palladium. Also, platinum is used mostly in diesel engines while palladium is in petrol-powered vehicles. With the statistics (based on a few studies) of diesel vehicles emitting more CO2 than petrol ones, the heightened awareness of climate change, and the accelerated adoption of electric vehicles, platinum had seen its functions reduced.

 

Now comes the question: does platinum earn a place in The Bedokian Portfolio’s commodities portion?

 

Going Back To The Basics

The basic premise of having different asset classes within The Bedokian Portfolio is the reduction of risks, and this is achieved via diversification and its related concept, correlation. The commodities asset class, as described in my eBook, is good to own in times of high inflation or hyperinflation, and a safe haven during economic crisis due to its low or negative correlation with equities and bonds, thus as a form of insurance.

 

With this, let us have a look at the correlations between platinum and the other commodities for The Bedokian Portfolio (gold, silver, oil), and other asset classes using their respective ETFs (see Figure 2):

Name	Ticker	PPLT	GLD	SLV	BNO	VT	BND	VNQ	CASHX
abrdn Physical Platinum Shares ETF	PPLT	1.00	0.56	0.70	0.35	0.37	0.02	-0.05	0.19
SPDR Gold Shares	GLD	0.56	1.00	0.86	0.04	0.20	0.57	0.06	0.32
iShares Silver Trust	SLV	0.70	0.86	1.00	-0.02	0.19	0.32	-0.17	0.13
United States Brent Oil	BNO	0.35	0.04	-0.02	1.00	0.17	-0.30	0.19	0.06
Vanguard Total World Stock ETF	VT	0.37	0.20	0.19	0.17	1.00	0.48	0.54	0.12
Vanguard Total Bond Market ETF	BND	0.02	0.57	0.32	-0.30	0.48	1.00	0.50	0.04
Vanguard Real Estate ETF	VNQ	-0.05	0.06	-0.17	0.19	0.54	0.50	1.00	-0.15
Cash	CASHX	0.19	0.32	0.13	0.06	0.12	0.04	-0.15	1.00

 

Fig.2: Correlation (based on annual returns) between platinum, gold, silver and oil, equities, bonds, real estate investment trusts and cash, using their respective ETFs PPLT, GLD, SLV, BNO, VT, BND, VNQ and CASHX, Jan 2011 to Dec 2023. Jan 2011 was selected to be the start date as PPLT was incorporated in 2010. Source: Portfolio Visualizer.

Looking at platinum’s correlation with the other major asset classes, the numbers were low with reference to equities, bonds and cash, and negative to real estate, so it qualifies to be a diversifying asset in a portfolio, like gold, silver and to a certain extent, oil. 

 

It Is All About Exposure

 

Truth be told, platinum was hardly seen by many investors as a hedge against inflation nor a safe haven, judging from the price movements over the years. If you had read enough financial news headlines, in times of crisis, gold was always mentioned first, as over the times it had been associated as such. The price movements of platinum were obvious; in Figure 1, during the Great Recession in 2008/2009 and COVID-19 in 2020, the price of platinum suffered huge drops, only recovering in the latter part of those periods.

 

Platinum prices going up in the later stages of a recession period was a typical characteristic of basic metals, like copper, which signalled the beginning of the next boom cycle. Although one could argue that silver and oil could have that characteristic since they also have industrial applications, for platinum 59% of its use were in just two fields: automotive (41.08%) and jewellery (18.12%)¹, and with the limitations stated in the first section of this post, they further exacerbated its use cases. 

 

On the other hand, silver’s uses were more spread out, and recent news had shown that it was the next go-to precious metal after gold. Same goes for oil with many uses and it is dominating the headlines recently.

 

Is Platinum Still Feasible?

 

Platinum is purportedly rarer than gold, as one source puts it that there are 30 times more gold than platinum on Earth, so by logic the price of gold would be subservient to platinum’s (at least for the most part as shown in Figure 1). However, the points highlighted above had seen the disadvantage of platinum over gold. Perhaps when the markets (and cultures) realise its rarity and begin a paradigm shift towards platinum, then that may be the time to consider it as part of commodities in one’s Bedokian Portfolio. As for now, I would not include it.

 

 

1 – Distribution of platinum demand worldwide in 2023, by end use sector. Statista. 19 Apr 2024. https://www.statista.com/statistics/271231/use-of-platinum/ (accessed 30 Apr 2024)