2017 Summary

The last two months were extremely volatile as my portfolio suffered 1.0-1.5% drops very frequently. In the end, I managed to pip STI by 2.93%. The smaller sum that I invested for my mother lead STI by well over 5%. The purpose of this blog is educational so I am organising it into 3 parts

a) portfolio strategy

b) short-comings

c) possible changes in the future

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a) Portfolio Strategy

• For the entire year, only stocks in SGX were traded.
• Priority given to the balance sheet over earnings
• Wide diversification; certain stocks have higher weightage due to higher confidence, or the market was kind enough to lower its price, henceforth reducing its risk.
• Companies of all sizes were considered; smaller companies were preferred for their simpler business and higher price inefficiency due to neglect or unpopularity
• Sustainable dividends
• Management with skin in the game
• Low price to tangible book ratio (60 cents to a dollar or less)
• An increasing Net Asset Value (NAV).
• Low to no debt. Numerically, anything close to 40% debt-to-equity is high.
• This is optional, but the company could have problems, but are likely to be temporary. A wider diversification is adopted for these stocks.

The last point, about companies with problems, is worth discussing. The market is efficient most of the time. This efficiency is stronger with the large-cap companies which has plenty of attention from institutions and the general public. Statistics says that majority of my countrymen do not invest, hence retail investors are overwhelmingly smaller compared to professionals/institutions. It is the institutions that move the price.

The key point is that it is difficult to recommend a buy or even hold such companies' stock . The power of the markets lies in the hands of institutions and professionals and whether they will think in the interest of their clients is debatable, and being average is less risky than trying to be contrarian-ly. 

I find that when a company (investment firms included) is large, the probability of it prioritising process or "proper procedures," over logic is strong.

The greatest advantage of a retail investor is that we can afford 

• to think independently
• the patience. 

The pay-off for purchasing stocks of companies under problems is that the payback can be significant. For some popular companies, this could a rare buying opportunity (except during corrections and crashes).

This portfolio did not include or take into consideration...

• Growth stocks. Companies like AEM, mm2, China Sunsine and Best World were not bought even though they were very popular and profitable among the crowd. 
• Macro trends. The electronic or developer boom did not influence myself to buy certain stocks. The portfolio's approach is entirely bottom-up.
• Specific preference for any industry

Growth stocks are excluded because they are too difficult. It is far easier to tell if a stock is cheap, rather than if the growth is a) worth the price b) sustainable. Generally, I hate crowds. I am motivated more by the game than the rewards.

Macro trends and industry preference were disregarded because I do not have any circle of competence.

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b) short-comings

• There are very few companies in SGX that are cheap by book value. As such, the capital employed for this portfolio is very small (since diversification has to be wide). Cash constitute a large part of my portfolio.
• Since large diversification is needed, trading cost made up a significant 0.6% of my total portfolio size.
• It can be exhausting to read numerous articles and only act only very few of them. Due to lack of discipline, certain companies were bought even though only rudimentary statistical research was done. This results in small losses, but they were avoidable. 

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c) Possible Changes in the Future

Search the world for deals, and practice diligence in my buying. With a more thorough approach to investing, I am likely to consolidate most of my positions into a concentrated portfolio.