Saturday, August 25, 2018

July 2018 Portfolio Snapshot

As promised, I present below my revamped portfolio after my six and a half year hiatus. I will not be using this post to go into details on each new position, but it is more to highlight how the portfolio has evolved over the years where I have added to existing positions, and also initiated on new positions to hold for the long-term. Note that the portfolio has also expanded from the six positions I held as at end-Jan 2012, to the current eleven (11) holdings that I now own. This is in line with my intention to diversify my holdings instead of concentrating too much on a few core positions, as events had occurred in the intervening years which made me realize that there is only so much you can know or control. There are other reasons for increasing the breadth of the portfolio, which I will detail in later sections.

As can be seen above, I have included two additional columns (but only in this July version) - the profit % after including dividends and also the CAGR (i.e. holding period return) for each position. This gives more colour and also helps to explain how my philosophy in being prudent and holding good companies over the long-term translates to decent (but not spectacular) holding period returns. Most importantly, I believe that these companies can weather a bad storm and economic crisis and still be able to emerge battered but relatively unscathed, due to their strong Balance Sheet and prudent Management style and also low debt levels.

One notable aspect is how my cost has increased over the years, from the $252,800 to the current $469,474. This was the result of disciplined additions over the years to the portfolio, while limiting divestments mainly to the three companies mentioned in the previous post. My philosophy is to continue to increase my stakes in well-run, prudently-managed companies which are under-appreciated by Mister Market, and over the years this has translated into investments both in existing holdings as well as new holdings. The idea going forward is to continue to add to the portfolio in a disciplined manner to raise the cost base in order to improve the overall absolute dividend.

The reason for the realized gain being significantly higher (from $69,550 as at end-Jan 2012 to the current $201,653) was due mainly to dividends, and was not a result of stellar capital gains from any one security. In fact, though the initial years 2012-2014 saw very good performances, this was dampened by 2015 and 2016 where performance lagged badly when certain companies within the portfolio suffered from business issues and competition. That said, the state of the portfolio now is such that the companies within suffer from woeful neglect and a lack of sell-side coverage, and has priced in most of the pessimism over the last 18-24 months; therefore I would argue that most present very good value if you have a 3-5 year time horizon with limited downside potential (barring a sharp and unexpected recession or downturn where investors are forced to sell their holdings).

The dividends received over the years have been compiled as follows:-

2012: $14,185
2013: $17.680
2014: $16,709
2015: $15,387
2016: $23,215
2017: $24,585
2018: $12,448 (year-to-date, accounts for received dividends)

Total 2012-2018 (YTD): $124,210

Another notable difference is the use of my CPF Investment Account, which was only activated this year. As I have already paid off my HDB loan in late-2015, I managed to accumulate a sizeable balance in my CPF OA account, out of which only 35% can be utilized for equity purchases.

The emphasis over the years has been capital preservation with a constant focus on risk. It is always important for me to protect my downside and avoid losing money than to shoot for the stars and end up crashing into Earth like a supernova. Of course, having a concentrated portfolio of 6 companies back in 2012 meant there would always be significant volatility associated with the portfolio, which explains the returns fluctuating wildly over the years.

My returns profile is as follows:-

2012: +35.0%
2013: +41.5%
2014: +3.5%
2015: -23.4%
2016: -1.7%
2017: +12.1%
2018: -8.1% (YTD July 2018)

Total portfolio CAGR from 2007-2017 = +7.1% per annum (inclusive of dividends)

The strong performances in 2012 and 2013 were due mainly to positions in MTQ and Kingsmen which increased significantly, and the large drawdown in 2015 was due in part also to the subsequent crash in oil prices which caused a sharp re-valuation in MTQ and also the luxury spending troubles which plagued Kingsmen in late-2015, causing NPAT to fall over the last three years and dividends to be cut from the 4c/year level to the current 2.5c/year level. 2016 and 2017 were years where I built up the portfolio to become more diversified and robust, relying on less concentration than before, though my largest positions still accounted for around ~40% of the portfolio. REITs were added just last year in order to form a stable base of dividends but also with an element of growth, as the gearing levels for these REITs allow for debt headroom for M&A and each REIT also has a long WALE with higher overall occupancy rates. I will be describing some of these new positions in detail in subsequent posts, and will also be revisiting existing positions which I have held since 2012 (namely Kingsmen Creatives, VICOM and Boustead) to check on the thesis and why I would still be adding to two of them.

A summary of transactions since Jan 2012 is provided below:-

2012 & 2013

No additions or divestments


·         Increasing stake in Kingsmen Creatives
·         Purchase of Straco Corporation
·         Divestment of SIA Engineering


·         Acceptance of scrip dividend from Boustead Singapore
·         Dividend-in-specie of Boustead Projects
·         Purchase of Design Studio Group


·         Increasing stake in Design Studio Group
·         Increasing stake in Boustead Projects
·         Increasing stake in Boustead Singapore


·         Increasing stake in Kingsmen Creatives
·         Purchase of iFast Corporation
·         Purchase of Frasers Logistics & Industrial Trust
·         Purchase of Keppel DC REIT

2018 (Year to Date)

Increasing stake in Kingsmen Creatives
·        Subscription to and acceptance of rights issue (1 for 10) for FLT
·        Purchase of NetLink NBN Trust
·        Purchase of Boustead Singapore (CPF Investment A/C)
·        Purchase of Kingsmen Creatives (CPF Investment A/C)

I would like to emphasize again that the portfolio has been structured to withstand a large drawdown and to remain resilient in the face of economic shocks. It is NOT geared towards high returns and to capture maximum upside. The main aim is to buffer against downside by purchasing companies with strong balance sheets, good cash balances and which generate healthy amounts of FCF.

My next post would be the month-end post where I will summarize any corporate news flow or earnings announcements from the companies I own.


INTJ said...

Hi Musicwhiz,

Does your portfolio include bonds and cash equivalents? Or are you mainly tracking your equity returns /performance?

The composition of your portfolio seems to suggest on minimising your downside rather than focusing on upside. Is this a conscious decision because of market cycles or because of your increased age / need to support dependents?

I am also trending towards cash accumulation in the meanwhile. Although I cannot predict market cycles with any certainty, I was wary of the rally led by tech stocks and the recent highs of the US and china markets. Just giving my 2 cents.

Musicwhiz said...


Thanks for your comment. My portfolio does not include any bonds, but just equities and cash. So yes, the tracking is for my equity performance but I did not include the cash drag portion as cash is normally low (< 10%) and would not significantly impact overall returns.

You are right - the portfolio is a mix of growth plus yield and the most important consideration is to protect against downside and to remain resilient through business and market cycles. It is a conscious decision in part because I have seen how an event like GFC can decimate one's portfolio if you select the wrong companies, and also the pernicious impact of owning lousy companies or highly indebted companies over the long-term (note that REITs are excluded from this definition of "highly indebted" due to the nature of their business and the composition of their asset base - mainly backed by hard physical assets i.e. real estate). The idea here is also to structure a portfolio which can weather most economic crises and down drafts, as the importance of the Balance Sheet and Cash Flow Statements are emphasized over the Profit and Loss Statement. It is not really a function of age though - it is more of a characteristic of the way I invest and my psychological profile. I have a tendency to watch out more for the downside while letting the upside take care of itself.

I think you are wise to do cash accumulation as valuations are generally high in developed nations, especially in the USA. My job as an investor is also to not predict, but to prepare. While I agree it is good to hold cash in anticipation of a correction or crash, it is also beneficial to remain invested in strong companies for long-term compounding and to enjoy the dividends paid out over time too.

Thanks and happy investing!