Dec 2023 Portfolio Update: A look back at 2023

Obviously, this will be the final update for the year.

Portfolio Return: +1.99%

Straits Times Index Fund: +1.03%
S&P 500: 24.25%
Hong Kong Index Fund: -15.23%

Current XIRR: 12.6%

Overall, portfolio experienced capital inflows (more buying than selling), significantly more than any other years. This exclude bonds (of which about 1/5 of the portfolio that was used to buy T-Bills for mum).

I am as disappointed as any HongKong stock investor would be. This year marks the third year running which HSI returns negative double digits.

Incase you didn't notice, I lost all my gains against the S&P. It was a very terrible year.

The year started quite nicely for HK actually, +8% in Jan alone. The flickering flame was blown off as the Chinese economy struggled, along with interest rate/inflation worries in the America. 

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Centurion, which never did have a problem with its business during COVID, increased its dividends at last, and the stock recovered just a little. Unfortunately this is also a year where focus is on interest rates, and its bulging debt is a concern. There was also government regulation coming up soon and given my distaste in its major shareholders, I sold. I remain unconvinced that the owners have OPMI in their hearts.

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That disdain and scalding from holding companies with debt carried over with Lendlease REIT, and I sold. I disagree with management that they should be acquiring more assets when focus should be getting its Interest Coverage Ratio in check. Long after I sold, Sky Milan revealed plans to downsize their lease. I think this is the only stock that I "escaped." Unfortunately, it wasn't a profitable investment, since I have invested in the rights issue during their ambitious acquisition of JEM.

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The OPMI issue unfortunately, carried over to my biggest shareholding OKP as well. Its legal windfall was not distributed to shareholders but privately disbursed to management in the form of bonuses. This was by far my biggest anticipation (the legal windfall) and disappointment (when they refuse to give a decent distribution).

Now, OKP's liquidity leaves much to be desired, and letting go of such a large position will take time. I am still convinced that there is value in the company, just that it was suppressed by management. When will management do the right thing? I hope soon.

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After holding on to the Chinese real estate stock for more than 2 years, I finally craved in and sold all my Central China Real Estate holdings, while selling a respectable portion of my Central China Management (a real estate project management subsidiary) stocks. There is still a large amount left, with painfully deep unrealized losses.

This would might never heal and could be a nice reminder that sometimes the problem is too big for an (honest?) owner/manager to solve.

Alibaba had wanted to spin-off its business and then, given the market conditions, decided not to. The stock promptly cratered. What is new? I have not seen a company that big having to go through so many hurdles. No wonder Adam Khoo sold his holdings in China.

But things have a way of changing when you least expected it. Let's see.

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Onto the positive points: I have finally decided to put what I learnt from options into practice. 

Some years ago, I had a nasty experience selling puts on Futu (which I thought was easily worth 40+ USD a share). The stock cratered to the sub-20s, and I was looking at a huge loss.

I bit my lips and took the loss. I covered my sell puts, and did nothing more.

Just days ago, I was selling puts on Tencent. I think selling puts on companies which are compounders, is a less worrying proposition. At late morning, the Chinese regulators decided to solicitate opinions  regarding gaming. This brought back all the fear back in 2021. Intraday, Tencent lost 14%and Netease lost 25%. At the end of the day, I think they are not a bargain / steal at this price, but they are compounders.... market hardly offer these companies cheap unless there are huge problems (with the market or the company itself!)

The screenshot above illustrate a few things
- incredible IV%, and very high IV percentile (it means, this volatility is higher than 97.97% of the past)

- Put-Call ratio of 82.87% (everyone is scrambling to buy puts!)

- IV is severely higher than Historical Volatility.

- Again, only 2 days left when market reopens, before contract expires)

So I learnt, instead of just covering my put, I wrote another In The Money contract. Let me explain with figures:

Initial Sell Put of Tencent at strike price 300, premium = 2.8 HKD, implied volatility = ~25%
After the regulator's announcement, the same contract escalate dramatically, premium = 24-32 HKD. Volatility = 60+%

Cover the put by buying a put = 27 HKD. Net loss is 27- 2.8 = 24.2 HKD

Sell another put at 27 HKD, net gain is 27-24.2 = 2.8 HKD

So this "loss" is somewhat neutralized.

Two things can happen: the market calmed during the holidays and the price recover a little. Otherwise, there is only 2 days left in the contract after the market.

So there is a possibility of a implied volatility "crush", massive theta decay, and possibly price recovery. So there are 3 good things that can happen to me. What is the worst that could happen? I have to purchase Tencent at 300 HKD.

It was during this time that I learnt something about portfolio management. Along with some puts sold on Tencent, I have puts sold on HKEX, Alibaba.HK, and bought some Tracker Fund stocks.

I choose to sell calls on these Tracker Fund. This is a bearish trade, and hence it balanced out the sell puts. To illustrate:

Sell Puts = Believe that price will go up = Bullish.
Sell Calls = Believe that price will go down = Bearish. 

If every position in my portfolio is bullish (i.e. just selling puts), this volatility would completely upend my portfolio. 

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In a couple of days more, my mum would have to go through another medical appointment. As usual, I am worried and could not feel the festive spirit. In fact, I be packing my stuff and going for another shift at food delivery in a few minutes time. Merry Xmas everyone.