Portfolio Summary for May 2022

As of 31 May 2022

CDP

Security	# shares	Price S$	%
DBS	300	30.94	3.52
OCBC Bank	700	11.83	3.14
SGX	1,200	9.53	4.33
iFast	5,200	4.88	9.61
SATS	3,900	4.38	6.47
ST Engineering	4,100	4.11	6.38
Micro-Mechanics	7,900	3.05	9.13
Powermatic Data	5,000	2.81	5.32
TheHourGlass	5,000	2.34	4.46
Sheng Siong	13,000	1.53	7.54
ComfortDelGro	11,200	1.44	6.11
Genting Singapore	11,700	0.78	3.48
HRnetGroup	21,900	0.725	6.02
HC Surgical	35,500	0.47	6.32
China Sunsine	41,800	0.45	7.13
Kimly	27,000	0.38	3.89
Silverlake Axis	60,800	0.31	7.14

Portfolio Market Value = $263,928

Trade Actions
- Bought 5,200 shares of iFast Corp.
- Bought 6,600 shares of Micro-Mechanics Holdings.

SRS

Security	# shares	Price S$	%
OCBC Bank	900	11.83	9.67
SGX	1,300	9.53	11.26
iFast	2,100	4.88	9.31
SATS	2,200	4.38	8.76
ST Engineering	3,000	4.11	11.20
Micro-Mechanics	3,100	3.05	8.59
Sheng Siong	8,700	1.53	12.09
ComfortDelGro	6,900	1.44	9.03
HC Surgical	19,500	0.47	8.33
China Sunsine	10,800	0.45	4.42
TalkMed Group	3,700	0.40	1.34
Silverlake Axis	21,300	0.31	6.00

Portfolio Market Value = $110,060

Trade Actions
- Bought 2,100 shares of iFast Corp.
- Bought 3,100 shares of Micro-Mechanics Holdings.

Commentary:

It has been a brutal month for tech stocks and markets in general. The selloff amplifies whenever a megacap reports worse-than-expected result. Any relief rally dissipates quickly the following day. The S&P 500 Index is hovering just above bear market territory. Interestingly, the STI is holding up well with a positive 3.5% YTD return amid a sea of red. Post-pandemic reopening optimism trumps recession fear at the moment.

Slowly but surely, Singapore is facing the onslaught of global inflationary headwinds. The MAS reported a 3.3% YoY increase in Core Inflation for April 2022, up from 2.9% in March. [data] India, Indonesia and Malaysia have implemented export bans to cater to their own domestic demand. I wouldn't be surprised if more food exporting countries follow suit. So far, I haven't read of any local listed company being affected, but SMEs like chicken rice sellers are feeling despair. [article] We will likely see the adverse impact materialise in 2Q2022 earning results.

I built a stake in iFast Corp, the fintech company that suffered a massive selloff recently. I understand market jitters may cause the stock to decline further, but I feel $4+ is a fair price to pay for the earnings potential of the company.

I have also added Micro-Mechanics Holdings during the recent share price weakness. I like the company's net cash position, compared to other local semicon plays like AEM Holdings and UMS Holdings.

Silverlake Axis extended the dateline for their Equal Access Offer, which gave me sufficient time to inform my custodial bank. I will tender the full allotment of 6,200 shares from my SRS account.

Wifey said I have been paying too much attention to the stock markets lately. I would wake up around 4 plus and check how the U.S. market closes for the day, and which company is the latest victim of The Big Sale. This has become a habit. 

Latest Fed minutes suggest the Fed is prepared to hike interest rate further than expected. [news] At this juncture, it is hard to say whether the Fed will succeed in containing the runaway inflation without causing a recession. The current situation is exacerbated by issues beyond the Fed's control, namely supply chain bottlenecks, the Russo-Ukrainian war and China's draconian COVID-19 lockdowns. The economy and company earnings remain under pressure.

So far, the market downturn has been pretty orderly. I do not see any sharp spike above 40 in the VIX, which is a pseudo indicator of widespread panic. Nonetheless, pockets of opportunity have started to appear in the local stock market. I will deploy my cash accordingly.

Chart of CBOE Volatility Index (VIX). (Source: Yahoo)

Speaking of waking up early, I was amused by my boss' surprised look when I told her I wake up at 5am to exercise, bathe and head to office. I start work at 7am when the sun has just risen. The quiet ambience is perfect for clearing my urgent priorities, although I sometimes get instant messages from my San Francisco colleagues for help, which add tasks to my To Do List. (Oh well.) This routine fits rather well to my Lion chronotype. [link] I am most productive in the morning. (Coincidentally, my Zodiac is Leo.)

How fast time flies. We are now approaching mid 2022. I read that many families are planning to travel abroad during the June holiday. Given the pandemic is still ongoing, my wife and I have opted to stay in Singapore. That said, we have booked another cruise in November. (Yes, I like the sea very much.) Looking forward to that.

Until next time, stay vigilant for buying opportunities, my friends!

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DBS and SGX

Somebody just dumped 11.1m shares of DBS at MOC:

Same for dumping 7.9m shares of SGX:

Not a phenomenon that you get to see everyday. Given it is EOM, it must be some fund doing portfolio rebalance.

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Surprised by SATS FY22 Result

I must admit - I am surprised by SATS FY2022 result:

- Revenue grew 21.3% to S$1,176.8m
- OpEx grew even more (24.4%) to S$1,219.4m
- Core PATMI is a loss of S$8.5m

Thanks to govt relief and its associates' profits, the company was able to eke out a 1.8 cents EPS.

Figure is way below Street concensus. Given that SATS stock price has been soaring recently, I will be watching to see if there is a selldown tomorrow.

Going to eat my dinner first before I start digesting the company's earnings report.

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Addendum:
Okay, having gone through the earnings report, it seems SATS is ramping up operations to prep for the anticipated increase in flights. Staff costs alone went up 44% YoY while raw material costs went up 15.3% YoY.

Granted, the post-pandemic reopening has encouraged more visitor arrivals in Singapore. April saw a spike to 294.3k visitors. [data] The forgoing of FY22 dividend is a bummer. Hopefully, all these front-loading of costs will translate to better earnings for SATS in the next quarter.

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A Question to Myself

Pondering a question out loud to myself:

The underlying resilience in the Straits Times Index (STI) is mind-boggling. Are local investors truly oblivious to the worsening global outlook, or do they believe Singapore can emerged unscathed when other countries are suffering?

We shall see.

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Skipping Meals Because of Inflation

I read with sadness how one quarter of Britons have resorted to skipping meals amid crippling inflation in the U.K. [article]

One caterer even commented how schools are facing difficult decisions on whether to shrink food portions for students or use lower quality ingredients.

Spiking food inflation is one of the worst outcomes to befall on a nation, especially for importing countries. British grocery inflation hit 5.9% in April. In Singapore, the MAS reported a YoY increase of 3.3% in food inflation in March. [data] Looking at the current world situation, no country will be spared.

Wheat prices have risen sharply because of the Russo-Ukrainian War. Russia and Ukraine are both major wheat producers, and the war has caused their output to drop significantly. India has also banned wheat exports to meet their own domestic demand. Wheat is a staple used to make various foodstuffs like bread and noodles. A supply constraint means prices for these items will rise correspondingly.

Price of wheat futures at CBOT. (Source: Yahoo)

Indonesia has also banned the export of palm oil, another important ingredient used in processed foods.

Similarly, global energy prices have shot up. Persistently high crude oil prices mean electricity and even plastic packaging will incur higher base costs. The business of manufacturing, transporting and serving food has gotten more expensive.

Price of Brent crude oil futures at NYMEX. (Source: Yahoo)

Then there is the wage-price spiral. As workers demand higher salaries to handle the rising expenses, companies have no choice but raise their product prices. Workers have to spend more of their paycheck per item, thus they demand higher salaries...and the death spiral goes on.

Consumers are forced to choose cheaper alternatives and dial back on non-essential spending. Companies, already facing margin pressure, suffer from lower revenue. Cost cutting takes place, layoffs happen and before you know it, a recession comes knocking.

Granted, such an apocalyptic scenario does not occur overnight, and there is a possibility we can avert this crisis if higher interest rates can curb demand to cater to the reduced supply.

However, it is a fact that interim higher prices on basic necessities will cause more hardship for families living just above the poverty line. Woe to the household who has to decide between buying groceries or footing the utility bill.

I hope the children will not have to go to bed hungry at night.

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In investing, a half-truth is worse than a whole lie

I once read a satirical article on how to market a stock newsletter successfully. It goes something like this:

Take 1,000 free subscribers. Split them into two groups. For 500 of them, make a bold declaration that Company X's earnings will be so disastrous, its stock price will crash at least 5% overnight; to the other 500 subscribers, declare that Company X's result will be so wonderful, its stock price will rise at least 5% overnight.

If Company X's earnings proves disastrous and its stock price crashes at least 5% overnight, take the 500 subscribers who received your accurate forecast, split them into two groups again. To 250 of them, declare that Company Y's earnings will be so disastrous, its stock price will crash at least 5% overnight; to the other 250 subscribers, declare that Company Y's result will be so wonderful, its stock price will rise at least 5% overnight.

If Company Y's result turns out better than expected and its stock price soars at least 5% overnight, you should now have a group of 250 subscribers who are fairly convinced of your predictive power.

To those 250 converts, market your stock newsletter at no less than $100 per subscription. If you have 100 of them who sign up, you will have earned $10,000. Not bad for two hours of work.

I hope you can see how evil selective omission of information can be. What then, is a whole lie?

That will be the facade staged by the Bernie Madoffs and the Ng Yu Zhis (of the nickel scam saga) of this world. Unfortunate as the victims may be, at least the truth came to light and the perpetrators were put behind bars.

But those 100 paying subscribers will never know the truth. They may remain faithful to the guru, even if later predictions turn out to be inaccurate (a.k.a. the sunk cost fallacy).

There are two morals to take away:

First, always read every stock opinion you found on the Internet with a pinch of salt (including this author's blog). You are entitled to reject the thesis, but are strongly encouraged to consider the FACTS presented about the company, especially if they run counter to your view. This will ensure you arrive at a balanced judgement of the company;

Second, nobody has a crystal ball into the future. Before you sign up for a stock newsletter or an investment course, be clear on the end goal. You should try to get behind the thought process of the investment coach, so that you can apply it in your own analysis. If you are looking for quick and easy profits like copy trading, you are bound to be disappointed over the long run.

A healthy dose of objectivity and scepticism will make us better investors.

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All eyes on the U.S. CPI number tonight

A quick post here to note the tense atmosphere in the market. It is fair to say all eyes are on the U.S. CPI number tonight.

U.S. CPI hit 8.5% YoY in March 2022 - the highest level in the past 40 years. The professionals are saying that inflation has likely peaked, and April figure should be lower. Bloomberg consensus pencils it at 8.1%.

I am thinking aloud how the stock market can swing. If the figure is higher than act. 8.5%, another selloff may occur; if the figure is lower than est. 8.1%, a relief rally may occur.

Either way, volatility is here to stay, which means possible opportunities to load on quality stocks.

Keep your cash ready.

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When I Can Be Wrong About the Market

I have a base case where a worsening global inflationary environment causes earnings to drop for listed companies.

Moreover, Singapore's major trading partners are facing risks of their own:

- Prolonged COVID-19 lockdowns may slow China's 2022 economic growth;
- Europe faces an energy crisis from Russia's threat to turn off its oil supply;
- The U.S. faces a possible recession due to over-tightening by the Fed.

Most equity indices have reacted accordingly. The S&P 500 Index is down 13.5% year-to-date. The MSCI Asia Ex Japan Index is down 16.7%. The Hang Seng Index is down 14.5%. The CSI 300 Index, Nikkei 225 Index and the KOSPI Index are all underwater too.

The only exceptions are Indonesia's JCI (up 9.8%) and Singapore’s STI (up 5.4%).

The STI's gravity defying feat is puzzling. It is as if Singapore has become unhinged to global developments.

One may argue the Singapore bourse is light on tech listings, and hence spared from the carnage. The STI is dominated by banks (45%) and Reits (13%). Banks are beneficiaries of higher interest rates, while Reits are viewed to be good inflation hedges.

The alternative view is local investors are still drunk on the country's re-opening optimism. Increased costs have not hit companies' bottom line and consumers' pockets yet.

Over the past few months, I have trimmed my stake in companies like CapitaLand Investment, TheHourGlass and Singtel as the stock prices rallied higher. I have been waiting for an opportunity to load up when prices retrace lower.

So far, the expected selloff did not materialise. This led me to wonder whether I have been wrong about the market.

A recent Bloomberg article [here] commented investors are turning to Southeast Asia's stock markets as one of the best places to park their money right now. This could explain the resilience seen in the STI.

I may be a fool to hold on to cash as inflation climbs higher. Nonetheless, it is still early days of the downturn (if any), so I am going to bide my time.

This post is to pen down my thoughts, and as much to convince myself on staying committed to my investment strategy.

Thanks for reading!

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You Are the Strongest Protection Against Inflation

The Oracle of Omaha, Warren Buffett is renowned for providing plenty of good advice in his Berkshire Hathaway Shareholder Letter, as well as during the five-hour long Berkshire Hathaway Annual Shareholders Meeting (AGM).

While I do not follow the meeting live due to the time zone difference, I would read the summaries published by newswires the next morning.

During this year's AGM on April 30, Buffett spoke at length about inflation, which is the primary concern of U.S. investors right now. In particular, he talked about how to attain the strongest protection against inflation.

Buffett said (and I quote from the CNBC article [here]):

“The best thing you can do is to be exceptionally good at something... [people] are going to give you some of what they produce in exchange for what you deliver.”

“Whatever abilities you have can’t be taken away from you. They can’t actually be inflated away from you.”

“The best investment by far is anything that develops yourself, and it’s not taxed at all.”

If Buffett isn't a legendary investor, I'm sure he will make an excellent life coach. Buffett understands that deep down, the best hedge, come economic hell or high water, is what lies between our ears.

Buffett is talking about our knowledge, skill set and abilities. These cannot be taken away from us, regardless of inflation, taxes, or automation for that matter. In this day and age, people are still willing to pay a premium to be served by "exceptionally good" craftmasters.

We can find many examples around us. Look no further than my second favourite topic - food.

We have a wide variety of pastries produced cheaply in industrial size ovens. Yet there are folks willing to fork out more to buy from an artisan baker.

And microbreweries will always occupy a niche market of its own, despite the proliferation of mass market brands like Tiger and Heineken.

Putting things in Singapore context, what Buffett meant is this:

If you sell bak chor mee (minced meat noodles), make sure you can cook the most delicious bak chor mee in Singapore. And you can always beat inflation by setting your own price tag without worry.

Can you cook the best bak chor mee in Singapore?
(Photo credit: Unsplash)

I can personally attest to Buffett's advice. Now I don't know how to bake bread, brew beer or cook a decent bak chor mee. But I do know at my workplace, I'm the first person my boss and colleagues turn to, if they want to consult on a specific technical subject. I have also carried out successful product demonstration to prospective clients, leading to contracts signed thereafter. I have delivered value for my employer.

This is only possible because I have spent effort sharpening my craft. And I have been duly rewarded for my labour via the inflation-plus-plus salary increment in the company.

Moreover, while I'm taxed on my income, the government cannot get a cent on the information stored in my head. If I have to start all over again in a new country, I am confident my knowledge, skill set and abilities will help me to survive adequately.

Granted, not all jobs are created equal. The fastest and highest rated delivery rider cannot expect a fantastic premium, given that competition is rife and the barrier of entry is low. But for most occupations, as you become a subject matter expert or take on a more vital role, your compensation should rise comfortably.

So take it from me that Buffett knows what he is saying when he uttered the words above.

You yourself, are the strongest protection against inflation.

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Passive Investing Has Gone Too Far

I was reading on Bloomberg today when I found an article titled, "Elon Musk and Cathie Wood Say Passive Investing Has Gone Too Far" [link].

Both are well-known personalities, albeit in different arenas. I would understand why Cathie Wood, portfolio manager of the actively-managed ARK Innovation ETF, has an axe to grind against passive investing. But it is rare to see Elon Musk comment on the same topic.

Passive investing in the form of Exchange Traded Funds (ETFs) has grown over the years. According to Statista, the AUM parked under global ETFs has exceeded 10 trillion U.S. dollars in 2021 [link].

The growth has been most significant over the past two years, when COVID-19 restrictions forced people to stay home. According to a study by FINRA, more retail investors had flocked to the equity market during the pandemic [link].

I suspect the same reason also explains why there is a greater interest in cryptocurrencies and non-fungible tokens now among the general public.

The argument that active investors help to maintain accurate valuation of a listed company is one I have heard for a long time. If there is a shortage of investors who trade on the counter day in and out, the price can deviate significantly from the appraised value.

A dearth of active investors will give more clout to ETF managers. When a company is added to the index, the stock receives a huge boost in demand. Conversely, when a company is removed from the index, the stock suffers a huge selloff, as ETF managers rebalance their portfolios.

Such market-shaking price movements have nothing to do with any change in the business. This is the beef that Elon Musk has with passive investing.

Unfortunately, the siren song of ETF investing has been well ingrained into the mind of the general public. ETF AUM is set to grow, giving even more sway to ETF managers on the vested companies, including board seats.

The above phenomenon is neither good nor bad. It depends on how ETF managers exercise their power when they are in a position of influence on the company. We can only hope for ethics and good judgement.

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Addendum:
CNBC wrote a more detailed piece on the same topic [here], which included a grim warning by Jack Bogle, creator of the first index fund and widely known as the father of passive investing.

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Better an Approximate Hit Than a Precise Miss

The other day, my friend recounted an incident, which I am also habitually guilty of committing.

It was earnings release day for the local banks (DBS, UOB and OCBC). Both DBS and OCBC beat Bloomberg consensus, and their stock prices rose on market open. UOB missed consensus, and its stock price tanked.

My friend decided to go long on UOB. He submitted a Buy order at a Limit Price of $29.00. UOB stock price declined to as low as $29.20 and rebounced, ending the day at $29.99. My friend missed his chance.

It is a common phenomenon. We decided to trade, made the choice on a price, put in the order and...missed. Sometimes, it is a blessing in disguise as we get a better price the following day. But other times, the stock follows a V-shaped trajectory and soars away.

It makes me wonder: since we have already arrived at a trade decision, why do we get so fixated - or in psychological parlance, so anchored - on the entry price?

Perhaps it is in our nature to be attached to nice, round numbers. Perhaps it is the precise figure that our discounted cashflow formula puts the intrinsic value to be. Or perhaps, we simply choose a number that we feel is right.

Instead of taking whatever the seller is offering at market price, we opt to join the long bidding queue and wait. When our bid gets hit, we feel 'smarter' having bought at a lower price than others.

I find it worth reflecting whether getting UOB at $29.00, $29.20 or $29.99 truly makes a difference in the grand scheme of things.

Consider this: UOB paid 60 cents dividend in August 2021. It will pay another 60 cents dividend on 13 May 2022. If all goes well, the bank will repeat paying the same DPS semi-annually. So the difference between these entry prices will be recouped in a year. But the possible regret of having missed a purchase may last for years.

Nowadays, I try not to get too hung up on my buying or selling price. If I had decided to trade, I will queue my orders before market open at one tick away from the previous close. I usually get hit at 9:00am, only to find later that the stock had climbed higher after I sold, or dived lower after I bought, but RARELY ending the day at the price that I had queued for.

And I have learnt to accept it.

Sometimes, I will login around mid morning, check the bid/ask quotes around that time, and put in an order to get filled. Why mid morning, you ask? Because that is when I have free time from my work. No other reason.

The real return comes from holding the shares over the long term. If it was a good decision, it does not matter if we gained $10 or $11. In our minds, we will feel equally proud having made the purchase. If it was a lousy decision, it does not matter if we lost $10 or $11. In our minds, we will feel equally remorseful having made the purchase.

Better an approximate hit than a precise miss. Better a shareowner than a spectator. If we give ourselves flexibility in our trade entry, we will breathe a little easier and be happier investors.

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