Portfolio Review (Aug 2023)

Review of my Portfolio (31/08/2023)

Total unrealized profit: +%2.6

YTD performance: +25.7%

Added in August

Goal 1: ( $58,101.15 / $66,186)⚔️

Growth Portfolio: XLK, QQQM, XLC, BABA

Dividend Portfolio: A17U, AU8U, C38U, J91U, OV8, ME8U, 500, Allianz income & growth, United global durable Equities

Portfolio Weightage

Dividend Recieved

Goal 2: ($7,434.58 / $11,000)❤️

Dividend recieved in Aug = $1,569.66

This is a tough year, lot of dividend cut, i feel i will miss the target 😢

Opinons

• Based on historical data, August and September tend to be a bearish month. Thus, is a great opportunity to add more shares during these months before the strong rally.

• When US crash, there will also be ripple effect on equities of other countries.
• SReits which had already under pressured by high interest may offer a even higher discount due to the overall market drop.
• China equities may have a high probability of dropping again during this period. Liquidity trap, deflation, high unemployment rate?
• The public media will always find justification for any market condition.
• What really matter is the companies you invested in are making money and will continue to make money.

• The tech sector have a major sold down so i added some $XLK and the technical setup look nice (10 Aug).
• Added some QQQM (16 Aug) look like a support at this level.
• I have no ability to time the bottom, i have the ability to not buy at the very top. 😂

• For individiual stocks, i used to do my own DCF model, but now i just used online tool (link below) for convenience, i dont need to ON my laptop 😂.

https://finbox.com/NASDAQGS:AAPL/models/dcf-growth-exit-5yr

• Look like GOOGL and META are still undervalued (Below the lower limit). The rest are fairly valued.
• I can either buy individual company or XLC which is heavy weight on both companies.

My Investment Strategy Breakdown

• I had always adopted a buy and hold, long term strategy. Thus it is important to have proper allocation, so no matter what happen to the stock market, life still goes on.
• i seldom sell, when i sell mean i notice i had make a mistake. 😆
• "Long term" can have different defination to individual, as an investor is important to first define it.

• There is no single investing strategy that will work in all market conditions.

• Currently, I mainly focus on big cap and blue chip companies. Which have a higher probability to withstand short term headwinds because of stronger financial strength.
• In my opinon, picking small cap companies will required much more in-depth research and also have less tolerance for error.
• However, i will start to diversify my dividend portfolio to non-Reits and non-banks stocks.

• Most singapore large, blue chip companies like cannot make it 😆, so i may venture into small to mid cap with strong balance sheet, track record and have a moat (locally).

• Growth and value investing are actually indistinguishable, they are both parameters in the same DCF equation.
• I wont invest in unprofitable companies because it is difficult to value. DCF may not be sufficient, math may become too complicated.
• DCF model work extremely well on companies that consistently grow its revenue, earning and free cashflow year over year

• Thus it doesnt matter if you invest in small cap, mid cap, large cap or the latest trend, what only matter is the price you paid must be reasonable and you are able to ride the volatility.

• In general, market can either go up, down or sideway and an investor can benefit either by dividend or capital appreciation.
• Sometime is not easy to get capital appreciation in a bear market, dividend will become an important component.
• Thus the reason, i have two separate portfolio for this purpose.

Dividend Portfolio

• Singapore stocks can be quite stagnent, i can understand why people feels dividend investing is slow.
• Waiting for the 4% dividend payout 2 to 4 times a year and seeing the portfolio in the red for a long period of time can be demoralising compare to owning US equities which is more exciting.
• I create a dividend ladder, by staggering the dividend payout so i can get paid every single month.
• In the dividend ladder, which consist of high yielding stocks and dividend growth stock. Where i had discuss it previously the good, the bad and how to identify it.

• Psychogically, it will feels much more motivated to keep buying, i wont need to do any trading to generate cashflow or care about market volatility.

• Why i dont purely invest in the index? Because with constant cashflow monthly, it is easier to guage when i will be ready to FI.
• I dont expect magnificent capital appreciation from this portfolio, majority of the returns should be in the form of dividend.
• The objective of this portfolio is to compound cashflow.
• I dont need the cashflow now, but i am building a perpetual, self-substaining portfolio.

Growth Portfolio

• Closet indexing is actually a strategy that used by the fund managers to decieve retail investors into buying actively managed fund that "outperform" the index inorder to charge a fee.
• While is impossible for retail investor to replicate a closet index fund, I mainly focus on the top 6 largest companies because they usually grow their earnings much faster and consistent than the rest of the S&P500.
• Past performance dont guaranteed future performance, but given the index is so heavily weighted to these mega-cap stocks, if they tank, likely the market will tank too.
• Higher beta stocks will usually have a higher expected returns based on CAPM, provided you paid at the correct price.
• Thus DCF model is one of an important tool to value a company for entry.

• The stocks i picked have a large beta, meaning it will be more volatile than the general market.
• Indexing, QQQM, ensure my portfolio will have a higher correlation to the index.
• Picking individual name may experience 60-70% drop, while it post great buying opportunity. It may also mean underperform in the short to medium term.
• Example $AMZN which had been trading sideway since 2020 and crash more in 2022 due to interest hike. $META crash to below $100 when it missed its earnings, but that is a V-shaped recovery.

• I will never know how long a company will remain mispriced.

• Looking at Peter lynch's Magellan fund and Warren Buffet's Berkshire, both portfolio are more volatile than the market.
• At certain point of time the portfolio will underperform the market, experience huge draw down, but the porfolio are highly correlated to the market.
• When market down, the portfolio will down more, when market is up, the porfolio will up more. Historically, market is up more than down, thus the probability of outperforming over long term is high. Provided your portfolio is highly correlated to the index.
• Over the long term, the total returns will beat the market. The key is to ride the wave and not get in and out of the market.

• Sector rotation strategy is an active and blend strategy. I mainly use it during recovery state or when there are a major crisis.
• There are a total of 11 sectors in S&P500, but i only focus on 3 sectors that i willing to buy and hold.
• The sectors should correlate to the index over the long term, because they are the components of the index.
• In theory, market go through cycle, sectors will perform differently in each economic condition. Example: buy Energy during bull market because the price will be depressed.
• But in practice, it is very difficult to judge at which stage we are in, the economy have too much moving mechanism.
• I will only know when the price of the sector start to diverge from the index indicating a major sell down.
• Then use simple technical analysis for entry. As demostrated in the opinon section on $XLK

• Turnaround investing, unlike the strategies mention above, focus on absolute returns over relative returns.
• i have to be a contrarian and been a contrarian can sometime be wrong. So i have limited allocation to these type of investment.
• When market had already at it extreme pessimism, the probability of going up will be higher than down. But when will it goes up, i dont know.

• This type of investing strategy may underperform the general market for short to long term, but the potential reward will be big, if i am right.

• For technical analysis, i just uses very common indicators, (1) moving averages, (2) support & resistance, (3) MACD and (4) william %R.

• Nothing too fancy, i just want to have a feel about the market sentiment before entry, even if the stock is at fair or undervalue.

Conclusions

• I designed my growth portfolio to be highly correlated with the index but with higher beta, in addition i try to buy at a reasonable price.
• Will i outperform the index in the long term? I have no idea, but i think have a good probability. 🤭 That is my wishful thinking. 😂

• However, to determine whether i can achieve financial independent, i will still use my dividend portfolio as a guage, because it is easier to project.

Previous Review

https://seedly.sg/opinions/portfolio-review-july-2023/