2018 Portfolio Review and Reflection
As we leave 2018 behind and roll into 2019, first and foremost allow me to wish all A Very Happy & Prosperous 2019.
I am sure 2018 was a tough year for all investors as compared to 2017 where most of us may end up having a negative return on our investment portfolio. This is a big contrast to 2017 where we have achieved double digits growth in our portfolio. If you are still enjoying double-digit +ve return this year, congratulation !! you must be an exceptional and extraordinary good one in picking winning stocks.
STI closed at 3068 in 2018 with -9.9% return since early 2018. For me, my portfolio ended up worse than STI with -13.2% (including writing-off of $117K of Hyflux 6%CPS ) vs the return of +24% last year. This year will be the second year where my portfolio under-performed STI by 3.3% and another year was in 2013 where REITs was badly hit.
2018 was an eventful year where we have seen market moved like a roller coaster with STI up by 7+% initially in Jan and turn south towards the end of the year with -9.9%. Issues like trade war, fears of rising interest rate, US mid-term election, correction of Tech stocks ( FANGs ) and “tweet from President Trump “ continue to influence and move the market.
Some of the world stock markets entered “bear territory “ of -20% correction from the peak. As I blogged about it in early 2018, the valuation of these develop market were in the high side ( here ), (here ) , (here ) and now seems the US market has gone down to below +1SD but still far from long term mean.
It is foolish and pointless to do any prediction on how the market will perform in 2019, just be ready and get your war-chest ready if the market continues to underperform in 2019.
As I mentioned before, if you are in early-stage or “wealth accumulation”, it might be a good opportunity for you to keeping buying especially now the STI is moving below mean level. But for me, since I am more than 80% vested, I will need to be more patient and have discipline in deploying my war-chest. ( Link: My blog about how I deploy my war-chest).
The market is really volatile throughout 2018 where I have seen my portfolio value up and down with ragging from +$206K in profit to loss of -$440K and the end of the year. One will really need to understand the “market cycles” (Link: Worrying Too Much About Market Fluctuation ) and have stomach for this, else this may not be the game for you.
You will need to stretch your investment horizon longer by not just looking at one or two year’s return, even 5 years mean nothing. If you look above table , excluding the “black swan “ event in 2008/09 , the market has been up and down with 3 times in double digits negative returns in the past 9 years. One may still have around 38% return ( adding dividend of around 3% p.a) for STI. Although 4+% return p.a may not be that spectacular but is still considered a decent return if being compounded under such low bank FD interest environment after GFC.
If you were a little lucky like me that buying more during GFC, your return will show the stark difference and I have just done a quick calculation of my Portfolio’s XIRR since 2008 (11 years ) = +15.3% ( this was much lower than +18.4% since my last update in Sep 2017 due to -13.3% dropped in 2018 )
My blog about “Time” and “Timing” in the market….(Link: My Investment Strategy )
## I would like to re-emphasize here the important of dividend in investing as it contributed 75% of my total return since 2008.
The Power of Dividend : ( Link: I have blog about it before …here )
“Decade By Decade: How Dividends Impacted Returns Looking at average stock performance over a longer time frame provides a more granular perspective. From 1930–2017, dividend income’s contribution to the total return of the S&P 500 Index averaged 42%. Looking at the S&P 500 Index performance on a decade-by-decade basis shows how dividends’ contribution varied greatly from decade to decade.”
The Long-Term View Dividends have played a significant role in the returns investors have received during the past 50 years. Going back to 1960, 82% of the total return of the S&P 500 Index can be attributed to reinvested dividends and the power of compounding, as illustrated in FIGURE 1.”
|image credit to Morningstart.com|
Of course, The Important of Human Capital and The Power of Saving are equally important in your journey to achieve F.I . Why not F.I.R.E ? for me, F.I is a must but R.E is an Option, one may choose to continue working if he/she like the job and enjoy working environment. Some may choose to spend more time with family or doing some other things he/she have passionate about.
Not All “Dividend stocks“ are Created Equal
In searching for dividend stocks, we tend to fall into a “value trap” that overlook the sustainability of the dividend payout. Always remember that the payout must come from “cash flow “ and not the debts.
One of the highlights in 2018 was the episode of the dividend cut from Asian Pay TV which resulted in the share price to plunge by close to -50%.
Too Greedy For Yield : Lesson Learned
A 6% Coupon rate at a discounted price to par is just too tempting that resulted in $117K write-off as I mentioned in the beginning of the blog. Investing in Hyflux 6%CPS is really a big gamble and mistake for me, which I have to learn even after 18 years of investing. I was too “over-confidence “ that they will find ways to redeem the CPS else the coupon rate will step up to 8% if fail to do so, but the management fails to do the refinancing or selling asset to raise fund to redeem the CPS , the rest is just the story….
Always remember that “ Stocks are stories, Bonds are Mathematics “…… look at their balance sheet and cash flow statement, if the issuer will be able to pay you the coupon rate and redeem it eventually.
Catching a falling knife
Another big corporate event happens in 2018 was the buy-out of M1 from Keppel & SPH .
Keppel Corporation and Singapore Press Holdings (SPH) announced on Friday (Dec 28) their "firm intention" to make a voluntary general offer of $2.06 per share for the remaining M1 shares that they do not own.
Have to admit that I underestimated the impact of “price war” once the government announced the new license for 4th Telco in 2015. I keep averaging down the stocks and end up losing -$14K (after dividend) for M1 and -$2.4K for Star Hubs.
As I repeatedly mentioned, the market is moving in cycles and could be very volatile in the short term even years, a -10% to -20% drop is quite common and unpredictable. Not every year we will see green in our portfolio, we will need to be mentally prepared for that.
2019 will be another unknown for us, some may be still bullish about the market but some seeing the market continue to be volatile and moving south. Since ancient times, we like to do prediction and forecast on what will be going on with our health, finance, career and love.
Here you go… :D