Warning: Lengthy post ahead.
Let's get the numbers out of the way. I shall provide screenshots of Stocks.cafe, since they allowed me to compare over the relevant indices.
ES3 = Straits Times Index Fund
SPY = SPDR S&P 500 Index Fund
2800 = Hong Kong Tracker Fund
Returns are way out of my expectations this year, and it would be tough to repeat this act in the future. In 2018, I was holding about +12% return, but finished 5.55% largely due to losses from PC Partners. It was more so due to luck in 2018 than in 2020 because my portfolio was more diversified.
Dividends
My investing thesis is geared towards capital gains. Dividends are merely payment for my patience. Nevertheless:
- HKEX holdings contributed 63% of total dividends. The rest came from SGX stocks.
- of the 37% that came from SGX, REITs returned only 5.1%. I do not treat REITs as a distinct asset class per se. I have no special attraction or ability towards or with REITs investing.
- None of the HKEX holdings are REITs, though their dividends is certainly REITs-like.
- Dividends was responsible for only 13.5% of my total return.
Capital Gains
Profit (both realized and unrealized; i.e. sold and still holding, respectively) from capital appreciation accounted for 86.5% of my total returns.
Four companies were mainly responsible for these gains.
- Cross Harbour Holdings was responsible for 15.3%
- Xinghua Port Holdings contributed 24.6%
- Chang Shou Hua represented a measly 9.1%
- Perfect Shape Medical, which is still in the portfolio, contributed most of the remaining returns.
Unrealized Losses
2 holdings are the main culprits: TTJ (-22%) and OKP (-8%). Both companies are soggy cigar butts and I am hopeful that they contribute positively. TTJ is the most disappointing of the lot, as the purchase started in 2017 December. Position in OKP initiated in July 2018.
The thesis is different for these 2 companies. TTJ is in a so-so business, and this sector is currently unfavourable. OKP had a major lawsuit which we hopefully would have some visibility soon. Both are impacted by COVID-19, TTJ being more so.
OKP is particularly promising--Its long term track record is not poor. It has about 79m in cash, 26m in borrowings, and about 6m in payables to settle. That means it has about 47m in cash. The company's market capitalisation is only 53.1m.
So these 2 companies remained the only seeds that has not sprouted. TTJ is a lesson, most of the time you have to pay for those.
Transactions
There are a total of 47 buys and 16 sells this year. I am a net buyer this year, 74% v 26% in number of transaction; in terms of amount of money spent buying stock is 39% more than liquidated.
Buy transactions were 68% buy-32% sold for the previous 2 years.
Concentration & Company types
Top five holdings represented 65.55% of total portfolio.
Blue-chip companies (companies in the main indices) constituted only 6.2% of total stock portfolio.
33.2% of my invested capital are in companies below 100m in market capitalisation.
In fact, I am a small cap investor, as 84.98% of my money are in companies below 1 billion in market capitalisation.
When I classify them by investment thesis:
43.09% of them are cheap by book value, and have some kind of problem.
32% are cheap by cashflows, and they offer a huge dividend.
4.26% is in risk arbitrage. This is a recent purchase of I.T. ltd, a Hong Kong company going private with a partner call CVC holdings.
After-thoughts
My investing strategy relies on injecting capital in stages, into small, unknown, unpopular or problem-laden companies with manageable debt. The problems, and its resolution, provides the catalyst for value reversion.
There are obvious disadvantages with this approach.
It is never going to provide one with explosive gains. Returns from value investing is expected to be subdued in good times, but expect to have little downside during famines.
By investing in small-caps, liquidity is going to be an issue. The spread could be very disadvantageous when it comes to emergency selling.
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Out of curiosity, I went through each and every shared portfolio in Stocks.cafe that had a better return than myself this year. Is there someone like myself, doing simple, classical value investing?
There were a total of about 29 investors that had better returns
25 of them invested in tech stocks or exchange-traded funds
2 of them invested in pharma-vaccine stocks.
1 invested in both of the above
and only 1 special guy invested in Boeing. What a brave guy.
Do note that I merely casually clicked and looked-- there might be mechanical mistakes (mis-clicks!) and perhaps these guys sold stuff (I only looked at what is in their portfolio now, not transactions).
Given that an alarming 86% of them have tech in their portfolio, I guess there is not much of my kind out there.
One of my friends had a very unusual slur about the way I invest: "Your thinking is very linear!" He meant that my thinking is simply too simplified, unsophiscated. He seems to suggest that money can be made in many ways.
In view that many growth stocks enjoyed incredible gains, and equally many trumpeting that "value investing is dead!" doctrine, all can be forgiven if one forgot that value investing is never about making gravity-defying gains.
Value investing is about minimising the probability of permanent loss of capital, compounding small but meaningful gains over a long but reasonable future, so as to achieve a comfortable living.
Let that sink in a bit.
Permanent loss of capital commonly comes from overpaying for assets. I can appreciate the idea of buying a quality product at a slight premium. Take for instance: bicycles. There are cheap trashy ones out there who can't outlast a couple years despite one's careful use. There are certainly bicycles who are quality, priced right, and would definitely adequately return, tangibly or intangibly, on the price paid.
But there are bicycles which are priced significantly higher than its marginal gains, or worse, purely for vanity. These are the Teslas and Bitcoins of today.
So when you do value investing, you should not look for explosive gains, but small marginal ones compounded over time.
How much more money could someone made if they have a 2% gain over another, compounded over 2 decades (my idea of long term)?
Lets start with $1000 and work from there. Using screencaps taken off the moneychimp compounded interest calculator:
6 percent is a reasonable return from an index fund, hence 6+2=8.
The index fund should and always be the tool you compared against. It is the easiest and cheapest way to gain exposure to stocks. Secondly, it is also the safest; investors avoid mistakes by timing, such as investing on popular sectors at all-time-highs.
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Value is a strategy that might pale, as it has, for the last decade. But I am comfortable with it. When market is generally doing very well, I am fine with just a handful percentage lead (this year is really an odd year). When the market is doing poorly, this is where value shines. I am like the slow cyclist that could only outrun a faster cyclist, simply because I do not stop and rest much.
If one could not remain fastidious in her/his investing strategy, she/he would simply float from one popular one to another, and often at the worst timing possible. One thing pretty consistent in the markets is that there is always going to be a popular sector at any one time, but it is never going to stay popular all the time. It was tech this year. The previous year were REITs. You get the idea.
Businesses are what is listed on the exchange. While investors and traders might act in one manner or another from time to time, business owners would only capitalise when it makes sense. Acting like a business owner is never going to go out of fashion.
