2nd Quarter 2020 : Portfolio & Dividend Update

A Shrinking “Panadol”!

I think this is the predicament for all of us as “income or dividend “ investors, seeing our dividend received have a big "cut" or totally disappear like the case of “HSBC”.

We have noticed that most REITs start to be more prudent in their latest distribution and conserving more cash during this Covid-19 pandemic. So far, banks like DBS still trying to maintain their quarterly dividend but I guess at some point, they also would have to cut their dividend if this crisis prolongs.

As investors, we will also need to be more “realistic “ in our expectation, a 6-7% yield of stocks might become a thing of the past, especially if we look at the “ultra-low “ interest rate environment.

Look at the interest rate for the latest SSB ( Singapore Saving Bond ), for 10 years AAA bond is merely around 1%. Just guess how much you will get from the bank’s FD rate? Suddenly, I felt more than happy and contented with my money in CPF accounts which gave me an average of 3.3% for all three accounts annually. (of course bear in mind that interest rate from CPF is also not guaranteed and subject to revise)   :D 

image credit to seedly.sg

This Month's Singapore Savings Bond (SSB): Interest Rates And How To Buy <source: seedly.sg>

Based on the past trend, an equity risk premium of 3-4% could be reasonable and that would give us a stock (REITs) yield of around 4-5%, which I am quite happy to have it. So, maybe we should not expect to get $0.33 /quarter of dividend from DBS from next onwards, if they maintain, it will be a bonus for me.

In my previous blog post ( here ), I have mentioned that everything is “unprecedented “ undercurrent situation and many traditional economic/financial model will be challenged and some may need to be rewritten. Our working environment, consumption behavioural, way of communication & interaction, cooperate, business model, will also see an “unprecedented” change and shift in the way we do things.

If you are planning for retirement, a traditional 4% withdrawal rule may need to be adjusted as cash flow or returns from equity will be much lesser, judging from the paradigm shift from what we are doing now vs future.

This Is A Time For Survival Not Yield

We begin to see more and more companies file for bankruptcy especially from those industries badly hit and affected by this COVID 19 crisis , ranging from Airline, Shale Oil, Retail and Hospitality to many more.

Retail bankruptcies from Covid-19 may just be beginning <source: qz.com>

As investors, I think now the most important thing to consider when making any investment decision will be “ survivorship” other than cheap valuation like dividend yield or price to book value.

Nobody really knows how this pandemic may end and things unfold, the situation may drag much longer than what we expected. Even developing the vaccine is also not easy with so much uncertainty and unknown about this new virus, as it keeps mutating. Much initial research has shown that Covid-19 is not just a virus causing “ respiratory problem”, but more than that. Scientist and medical experts around the world are still in the early stage of trying to understand this virus, not to mention the challenges they face in developing an effective vaccine.

Covid-19 isn't just a respiratory disease. It hits the whole body<source:cnn.com>

From blood clots to 'COVID toe': Experts confounded by series of medical mysteries <source:straitstimes.com>

Hence, having a diversified portfolio is much more crucial and important at this point of time, with so much uncertainty out there.

Quoted below from Howard Marks on his latest Memo.<link to full Memo>

All We Don’t Know

As everyone knows, today we’re experiencing unprecedented (or at least highly exceptional) developments in four areas: the pandemic, the economic contraction, the oil price collapse and the Fed/government response.  Thus a number of considerations make the future particularly unpredictable these days:

For investors, the future is determined by thousands of factors, such as the internal workings of economies, the participants’ psyches, exogenous events, governmental action, weather and other forms of randomness.  Thus the problem is enormously multi-variate.  Take the current situation with its four major components (Covid-19, the economy, oil and Fed), and consider just one: the disease

·         It would be foolish, amid such uncertainty, to make overly confident predictions about how the world economic order will look in five years, or even five months. 

Or maybe Voltaire said it best 250 years ago: Doubt is not a pleasant condition, but certainty is absurd.

//Unquote //

Hence, it is important that not to be “overconfidence” to have a very concentrated portfolio that betting in any particular stock or industry. A more diversify or balance portfolio will be better undercurrent “unprecedented “ situation. We should also pay extra attention to companies with higher debts and weak cash flow. When a company stop to have any revenue out of sudden, having high debts would kill. Also, at this moment, maybe is better to look for companies which have “multiple sources” of income (e.g conglomerate type of company) instead of relying on just single income or business like airlines or hospitality.

So , is dividend investing dead?

No, I don’t think so, the dividend will still continue to play an important role in our valuation for any investment. In the long run, those companies with strong and decent cash flow will still prevail and triumph, except that if we can identify such companies under the current situation where things will look so much different post-COVID-19.

More Investing and Less Speculating

Yes, because of my overconfidence and stupidity, I lost -$185K in Eagle HT and this is my biggest blunder after losing more than -$127k in Hyflux 6% CPS. But as I mentioned before, Eagle HT is a very “speculative “ move for me, those buying it must with their eyes wide open because of weak and unproven “sponsor”. With my belief and overconfidence in REITs that having a hard asset, I keep averaging down till this became one my biggest position before I cut lost at -65% in March when all REITs suddenly collapsed, even some blue-chip REITs also down by more than 30-40%. I also cut lost on ARA HT ( another US Hospitality REIT ) with a loss of -$76K (-61%).

There are no excuses for my foolish on this, with weaker fundamental and sponsor, COVID 19 had hastened the demise of Eagle HT with just one single punch.

I have to learn how to invest from scratch, all over again… I need an “Investing 101” !!

Overconfidence (and of course my ignorant & arrogant ) is my biggest enemy in investing.

Overconfidence is the mother of all psychological biases <source:psychologytoday.com>

Dividend & Portfolio Update :

Dividend 1^st Qtr 2020 :  $50,626.43  ( $36,971.59)

** Revised as to exclude dividend from Eagle HT

Dividend 2^nd  Qtr 2020 :  $51,683.83

** Including dividend from HKEX = $20,134.63

TTL Dividend 1^st HF 2020 = $88,655.42

image credit to : Izquotes.com

This is the lowest amount to be received in 2^nd Qtr since 2016 as it normally ranged more than $60K.

With most of the REITs are conserving more cash, the DPU pay-out been reduced from 20-70%. I think this will continue for quite some time and we may expect even bank to trim their dividend in coming quarters.

As of 14^th May 2020

STE Portfolio YTD Return : -24.5%

STI YTD: -21.75%

FTSE S-REIT (FSTAS 8670) : -19.81%

As of today, my portfolio under-performed STI by -2.75% ( - 7.44% including the dividend, base on ES3’s TTM dividend yield of  4.69% )

TTL Holding: 45

Top 10:  56.8%

Top 20 : 78.0%

STI Cumulative Return since 2007: 57.2%

FTSE S_REIT Cumulative Return since 2007: 130.8%

STE Cumulative return since 2007:170.9%

I have reduced my REIT holding from 44.7% to 23.0% and at the same time increased my exposure to Bank/Finance to 33.9% ( from 14.8% ), Conglomerate to 10.9% (from 7.5% ).

I also bought more HKG share in March/April, hence increased my % of the portfolio in HKEX to 38.6% from 29.6% previously. Increased holding in BOC HKG / CK Infrastructure and added CKH / CK Asset and Hang Seng Bank.

This is also the reason why there was a jump in my dividend to be received from HKG in 2^nd Qtr to $20,134 and $18,103 (already announced in 3^rd Qtr).

What is The % of Your War-Chest?

Guess this is the most common question one will receive from friends or peers among the investment community. I think the answer is very much depending on your “risk tolerance “ and your forecast ( guesstimation ) about the market’s direction. Some may have a very optimistic forecast that fully vested now and some may choose to have more war-chest and predicting that market may collapse by another -50%. No right or wrong, as I mentioned before, I don’t have the crystal ball to tell how the market will perform, it all depends on your “risk tolerance “ and up to a level that allows you to sleep well at night.

“Quote Of The Day “

“In my younger days I heard someone, I forgot who, remark “sell to the sleeping point”. This is a gem of the wisdom of the purest ray serene. When we are worried it is because our subconscious mind is trying to telegraph us some message of warning. The wisest course is to sell to the point where one stops worrying ” Bernard Baruch

Cheers !!

STE

Hey … you never tell us what is your % of war-chest now? Ops !! is around 11.5% at this moment, but again, is very personal and depends on your own situation …. :D

At least at this moment, I still stay the course and just doing some portfolio rebalancing, but who knows, I may just turn pessimistic suddenly and increase my war chest to 50% level… things remain very much uncertain and COVID 19 keep mutating, we may need to move fast, sometimes.

Appendix:

Portfolio Holdings as of 14-May 2020 :