December 2011 Portfolio Review and FY 2011 Year-End Review

For this year-end review, I will be doing a comprehensive review of various aspects of my portfolio, covering cost, yield and also benchmarking against the STI during various months of the year. The reason for this is to get a better understanding of how my portfolio has been growing to date and over a period of two years, and how my returns have been affected (if at all) by the recent crisis. Another aspect which I will be looking at is the benchmarking as it would indicate whether I should simply stick to index funds or whether I should doggedly continue my pursuit of analysing individual companies and investing in them. Obviously, if my stock-picking skills are so bad that they stink, I would be better off saving my own time buying into ETFs than wasting it on futile analysis. At the same time, at the end of each section, I will also include my 2012 plans and aspirations.

Portfolio Growth

Portfolio growth tracks the growth in my portfolio over the last two years, and it was interesting to compile this to see how I had injected money and taken money out during this period. I started the year 2010 with a portfolio cost of about $151,000, and at the time the market value of the portfolio stood at about $160,000, with a gain of 5.9%. A total of about $51,000 was injected into the portfolio during 2010, and though it looks like there were no withdrawals, a quick glance at last year’s portfolio summary actually showed two divestments – one of FSL Trust and another of China Fishery (for a loss and a gain respectively). The proceeds were immediately reinvested into other promising companies, and 2010 actually ended with a portfolio cost of about $202,000 and an unrealized gain of 20.2% translating into a portfolio market value of $243,000 as at end 2010.

Looking back on hindsight, the performance for 2010 was way better than for 2011, largely due to the Europe Crisis which broke out in 2011 and caused a sharp fall in overall market prices. If we just base on share prices alone, the performance of the portfolio would definitely pale in comparison for 2011 compared to 2010, as the average gain was 13.7% for 2010 across twelve months, while for 2011 it is a mere 8.8%. But note that the money injected into the market amounted to about $40,000, which was comparable to 2010 if you factor in the turbulence in my personal life during 2011, as compared to a relatively calmer 2010. Of course, looking at the market value of the portfolio as at year-end 2011, it was severely affected by the economic turbulence and political uncertainty in Europe, and therefore just registered a gain of 3.2%, for a market value of $250,476.

Moving forward, the aim for 2012 is to at least maintain the capital injections (of around $50,000) as per 2010 and 2011, accelerating only if markets fall substantially, akin to the doomsday scenario of October 2008. From the lessons learnt from the last bear market, I have positioned myself to be always prepared for a major crisis with sufficient cash to take advantage of opportunities. At the same time, as an investor I have to continually keep a watchful eye on the performance of the businesses of the companies in which I own shares. Assuming I inject a decent amount into my portfolio, the cost by the end of 2012 should be around $300,000.

Realized Gains, Full-Year Dividends and Dividend Yield

From the above table, it can be seen that 2011 registered an overall realized gain of $5,600 from the divestment of Tat Hong and GRP. Recall that 2010 also saw a net realized gain of $9,400 but this was due to a larger gain offsetting a smaller loss (gains from China Fishery offsetting losses in FSL Trust); therefore I do consider this an “improvement” of sorts as both divestments resulted in gains, albeit much smaller in quantum as compared to last year. However, readers should note that both divestments this year have been classified as “investment mistakes”, and those who wish to know more details can visit the relevant posts under this category to read up.

As for scrip dividend, thus far only MTQ is offering this scheme among the six companies within my portfolio. For 2011, a total of 2,206 shares were received as a result of me choosing full scrip over cash dividend, and a further 1,000+ shares will be received by me on January 6, 2012 when MTQ’s interim dividend of 2 cents/share is credited to my CDP account in scrip. The scrip price determined for this round is 73 cents/share.

For the entire year of 2011, a total of $14,744 in dividends was received. Note that this does include special dividends from three companies – SIA Engineering (10 cents/share), Boustead (3 cents/share) and Kingsmen Creatives (0.5 cents/share); thus it should not be taken as an “indicative” year. If the special dividends were stripped out, total dividends would fall to $11,540. Based on a monthly average of $1,229, the blended yield is about 6.08%, slightly higher than the recently reported benchmark inflation rate of 5.7% for November 2011. If I assume all dividends revert back to base case (i.e. no change from 2011 for next year, just based on interim and final dividends), then yield may fall to somewhere around 5%+ of cost. Though this will be lower than inflation, it is still quite a respectable long-term yield as headline inflation is not expected to remain above 5% for an extended period of time (historically, it has hovered around 2-3% per annum).

The target for 2012 is to at least maintain the dividend yield, as it is expected that it would be a rougher and more uncertain year. Absolute dividends are expected to remain fairly constant (minus the special dividends), so cash flows should be relatively stable. Depending on whether additions can be made to the portfolio, it may help to bump up the dollar-value of dividends somewhat.

Benchmarking Against STI

The table above is a pretty new one in the sense that I had never before compared my monthly performance against the index before. Since 2011 I have been posting up my monthly XIRR performance against the index’s performance, and obtained a difference which represents whether I had outperformed the index (+) or underperformed it (-). A very interesting observation arose from the above table – for a value portfolio which I am maintaining, apparently the out-performance increases when the index is plunging, rather than rising. Notice that when the index had dipped below the 3,000 mark from August 2011 onwards due to the onset of the Europe Debt Crisis, that was when the portfolio had its best out-performance against the index. The second-widest margin of out-performance was in September 2011, when the portfolio registered a +11.6% gain over the STI, due to the share price resilience of companies such as Boustead, MTQ and Kingsmen Creatives. Amazingly, the largest gap thus far has been achieved at this point in time, with a +12% gain of my portfolio (-5%) over the index (-17%). I am not sure if this out-performance can be maintained in 2012.

One should also note that share price resilience is also a direct result of business resilience, meaning businesses which are adequately capitalized and enjoying steady business even amid hard times can qualify to be considered as “stable” and thus act as suitable investments through good times and bad. Companies which generate consistent free cash flows and which have a strong balance sheet will also see less share price volatility in general, except for the occasional desperate seller who will cause prices to move erratically due to the low liquidity. It is my intention to seek out more of such stable businesses which embody both growth and yield characteristics for my portfolio in future, and which are trading at undemanding valuations vis a vis their future prospects and cash flow generation capability.

Below please find my portfolio as well as corporate summaries for December 2011:-

1) Boustead Holdings Limited – There was no news from Boustead for December 2011. The interim dividend of 2 cent/share was received on December 16, 2011.

2) Suntec REIT – There was no news relating to Suntec REIT for December 2011.

3) MTQ Corporation Limited – There was a minor announcement from MTQ on December 15, 2011 about the liquidation of a subsidiary, MTQ Subsea Technology Pte Ltd, which has been dormant since 2008. Other than this, there was no news from MTQ for December 2011.

4) Kingsmen Creatives Holdings Limited – There was only a minor announcement on December 12, 2011 of a change in shareholder in Kingsmen Korea as a result of the issuance of 7,500 new shares to Mr. Daechul Lee as part of alignment of his interests with the Group’s.

5) SIA Engineering Company Limited – There was no news from SIA Engineering for December 2011.

6) VICOM Limited – There was no news from VICOM for December 2011.

Portfolio Review – December 2011

Realized gains have remained at $69,500 due to an absence of any dividends in December 2011.

For the month of December 2011, the portfolio has decreased by -5.0% (using XIRR in MS Excel to compute) against a -17.0% fall in the STI; thus my portfolio performance has outperformed the STI by +12 percentage points. This was a better performance compared to November 2011, when the portfolio out-performed the STI by +10.7%. Cost of investment has remained at S$242,600 and unrealized gains stood at +3.2% (Portfolio Market Value of S$250,500).

As mentioned previously, January 2012 shall be my last month of blogging, as the intention is to shut down the blog as my workload increases and I increasingly look to more time with my family and friends. I shall probably do a post reviewing and summarizing my investment journey these last 4.5 to 5 years in the middle of January, and my final post on this blog shall be my Jan 2012 portfolio review and summary. Be assured, however, that historical entries will still be preserved and accessible to all, and that this link will still remain active even if no new posts are made.

My final portfolio review (and post) will be on January 31, 2012 (Tuesday).