Portfolio Summary for June 2022

As of 30 June 2022

CDP

Security	# shares	Price S$	%
DBS	300	29.68	3.04
UOB	300	26.25	2.69
OCBC Bank	700	11.39	2.72
SGX	1,200	9.46	3.88
iFast	5,700	4.14	8.06
SATS	3,900	3.90	5.19
ST Engineering	4,100	4.08	5.71
Micro-Mechanics	8,400	2.90	8.32
Powermatic Data	8,500	2.68	7.78
TheHourGlass	5,000	2.32	3.96
Vicom	11,800	2.02	8.14
Sheng Siong	13,000	1.52	6.75
ComfortDelGro	11,200	1.40	5.36
Genting Singapore	11,700	0.72	2.88
HRnetGroup	21,900	0.775	5.80
HC Surgical	35,500	0.495	6.00
China Sunsine	41,800	0.44	6.28
TalkMed Group	14,500	0.385	1.91
Kimly	27,000	0.38	3.50
Silverlake Axis	15,000	0.395	2.02

Portfolio Market Value = $292,785

Trade Actions
- Bought 300 shares of UOB.
- Bought 500 shares of iFast Corp.
- Bought 500 shares of Micro-Mechanics Holdings.
- Bought 11,800 shares of Vicom.
- Bought 3,500 shares of Powermatic Data Systems.
- Bought 14,500 shares of TalkMed Group.
- Sold 10,600 shares of Silverlake Axis.

SRS

Security	# shares	Price S$	%
OCBC Bank	900	11.39	8.43
SGX	1,300	9.46	10.12
iFast	2,100	4.14	7.15
SATS	2,200	3.90	7.06
ST Engineering	3,000	4.08	10.07
Micro-Mechanics	3,100	2.90	7.40
Powermatic Data	3,400	2.68	7.50
Vicom	4,700	2.02	7.81
Sheng Siong	8,700	1.52	10.88
ComfortDelGro	6,900	1.40	7.95
HC Surgical	19,500	0.495	7.94
China Sunsine	10,800	0.44	3.91
TalkMed Group	5,800	0.385	1.84
Silverlake Axis	6,000	0.395	1.95

Portfolio Market Value = $121,551

Trade Actions
- Bought 3,400 shares of Powermatic Data Systems.
- Bought 4,700 shares of Vicom.
- Bought 2,100 shares of TalkMed Group.
- Sold 9,100 shares of Silverlake Axis.

Commentary:

The Straits Times Index (STI) has completely eliminated its year-to-date gain. Although the local market is still far from bear territory, stock prices have started to slide, similar to other markets.

Worry of inflation has finally crept into Singaporeans' mind, according to separate surveys by DBS [here] and YouGov [here]. The government has taken preemptive action by announcing a surprise S$1.5b budget to help families and businesses tide through this challenging period [news].

I went on a spending spree in June. Fine-tuned my positions in iFast Corp, Micro-Mechanics Holdings and Powermatic Data Systems as their prices retreated.

I also built a stake in two new counters - UOB and Vicom. Banks are big beneficiaries of interest rate hikes, although there is the concern that a recession may bump up nonperforming loans. UOB's acquisition of Citibank's consumer assets in Malaysia, Thailand, Indonesia and Vietnam provides hope that the bank now has a meaningful avenue to expand its business in ASEAN [news]. Vicom is a relatively well-known vehicle inspection company in Singapore. I like the consistency in Vicom's double-digit ROE and margins.

I have managed to add TalkMed Group to my CDP portfolio too. I further reduced my position in Silverlake Axis as its price rallied near month end.

I am gradually tilting my portfolios towards more liquid holdings. Current cash stands at 30% of total portfolio value. I hope to scoop up more shares as they approach my preferred entry level.

July marks the beginning of Q3, which also heralds the start of the earnings reporting season. As investors buy and sell based on actual results versus estimates, volatility is going to be high. A U.S. Fed interest rate hike of 75 bps in July is almost a given. Any economic data that paints a better picture is likely to spark a relief rally. Overall, a wild ride is expected.

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Mortgage takes a bigger bite of my income

CNA published an explainer last evening about how the U.S. Fed interest rate hike impacts mortgage rates in Singapore [here].

This brings to mind a letter I received from DBS a few days ago. The bank wrote that in view of the increase in their FHR6 (6 months Singapore Dollar fixed deposit interest rate), they will be raising my mortgage rate from 1.00% to 1.55% p.a. accordingly.

My first reaction was, "Yikes."

I know the Fed had hiked Fed Funds Rate (FFR) by 50 basis points in May, but DBS is raising their FHR6 by 55 basis points???

I can imagine getting more letters from DBS in the remainder of the year, as the Fed had just hiked FFR by 75 basis points in June, and is committed to do the same in their July meeting if required.

This spurred me to reach deep into my email inbox and retrieve the details of the repriced mortgage package which my wife and I signed with DBS in September 2021. Back then, our mortgage lock-up period was expiring, and DBS strategically sent us an email with an attractive repricing offer.

The offer was a fixed rate package tied to FHR6 in stepwise increment for first three years. FHR6 + 0.80% p.a. for first year, FHR6 + 0.85% p.a. for second year, FHR6 + 0.90% p.a. for third year and FHR6 + 1.00% thereafter.

But what got me to sign on the dotted line was a feature that DBS offered:

The bank promised to cap the maximum interest rate at 1.60% p.a. throughout the first three years.

Looking at the inflationary enviroment today and the central banks' aggressive posturing, I am glad I have gotten the deal.

Mortgage servicing is due to take a bigger bite out of Singaporean households' expenditure. A 1.00% increase on a $500,000 mortgage means an extra $417 per month to the bank.

That is $417 which could have been spent on a nice staycation, a new kitchen appliance or an investment course.

Or if you are a glutton like me, that is $417 which could have been spent on restaurant meals.

$417. Each. Month.

My wife and I are dead set to repay the full mortgage at the end of the three-year lock-up period. That will be one heck of a milestone for us.

In the interim, time to 'take revenge' by investing in bank stocks. DBS itself is starting to look attractive. Yummy.

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Cosmetic Giant Revlon Files for Bankruptcy

I am sad to read that U.S. cosmetic giant Revlon has filed for Chapter 11 bankruptcy protection [news]. The company had buckled under a combined debt of US$3.7 billion, with an asset total of only US$2.3 billion.

I remember Revlon because I had often seen their commercials on the television during my younger days.



This is another sombre lesson why investors need to watch the right side of companies' balance sheet carefully. It is even more critical now as central banks around the world are starting to hike interest rates, meaning the financing expense for companies will only grow larger.

Personally, I have been burnt by my investment in Hyflux's perpetual bonds because I did not pay attention to the company's financial health when I first subscribed for the security. Had I bothered to scrutinise the numbers, I should have caught a few red flags. Oh well.

This also drove my preference now for companies with little or no debt. At the least, the company should have sufficient cash and marketable securities to cover their total liabilities.

Do pay attention to the fundamentals of the companies you are investing. A bit of homework can potentially save you money, and some heartache.

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Jerome Powell got to wear the black suit and dark tie

I was tickled as I read an article on Bloomberg titled, "Fed Mulls ‘Game Changer’ to Jolt Inflation: Decision Day Guide" [news].

The quote in the title came from Chief Economist Vincent Reinhart at Dreyfus and Mellon. He was describing how the U.S. Fed Chairman Jerome Powell will have to present himself at his upcoming June 22 and 23 semi-annual testimony before the U.S. Congress.

Spiking inflation in the U.S. has bristled many U.S. lawmakers. Since the mandate for the U.S. Fed is to control inflation, it is fair to say Powell has perhaps the most stressful job in the world right now.

For sure, the U.S. Fed is going to hike the Federal Fund Target Rate in tonight's FOMC meeting. The question is by how much?

Some professionals think an increase of 50 basis points is still on the table; CME Fed Fund future traders believe a 75-basis point increase is more likely [data]; yet, there are a few extremists who believe a 100-point hike cannot be ruled out either. [news]

None of the above three choices will satisfy investors completely. So a massive reaction in the equity market is not unexpected.

Hang on tight for a long roller coaster ride.

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CME FedWatch Tool

I was watching the Asia First programme on CNA this morning when the presenter talked about CME's FedWatch Tool [here].

As explained on the website, the FedWatch Tool calculates unconditional probabilities of Federal Open Market Committee (FOMC) meeting outcomes to generate a binary probability tree.

The probabilities of possible Fed Funds target rates are based on Fed Fund futures contract prices assuming that the rate hike is 0.25% (25 basis points) and that the Fed Funds Effective Rate (FFER) will react by a like amount. (For more information on the methodology, click here.)

CME FedWatch Tool.

What interested me was that based on the data at time of writing, the market is pricing in a 96.8% probability that the U.S. Fed will hike 75 bps - yes, 75 basis points, not 50 anymore - during tomorrow's FOMC meeting.

Figuratively, it is no longer about the U.S. Fed slamming the brakes on the economy. It is about the U.S. Fed throwing everything, including the kitchen sink in an attempt to tame the runaway inflation.

I'm not sure if the prophesied recession will materialize or not, but the simple fact that the U.S. Fed is hiking interest rate faster than previously expected means that perception will change within the population.

When a person thinks the near-term future is going to be financially challenging, that person will likely adopt a series of actions to mitigate the effect. For business owners, this means manpower hiring freeze or holding back on business expansion. For consumers, this means cutback on unnecessary expenses or simply saving more.

All of these actions will have a follow-on impact on the economy and companies' top line. When profits are squeezed, further mitigative actions are taken and the tightening cycle goes on.

Hopefully, the fear does not spread maniacally, and we can avert a recession, even by a slim margin.

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The True Investor Welcomes Volatility

Sharing a quote taken from the book, "My Warren Buffett Bible" compiled by Robert L. Bloch [emphasis mine]:

"In fact, the true investor welcomes volatility ... because a wildly fluctuating market means that irrationally low prices will periodically be better attached to solid businesses. It is impossible to see how the availability of such prices can be thought of as increasing the hazards for an investor who is totally free to either ignore the market or exploit its folly."

- Warren Buffett

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Recession or not, solid businesses will survive and even thrive in difficult times. It is a boon that valuations have finally come down to attractive levels.

Hope you are ready to take advantage of buying opportunities. Feel the (market) fear and do it anyway.

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In investing, learn to lean into the wind

If you read market commentaries, you will know there are many trade suggestions that contradict each other.

For example, when there is a selloff, some investment advisors will encourage us to "buy the dip"; others will warn us not to "catch a falling knife".

When there is a rally, some fund managers will enthuse "the bull run still has legs" (whatever it means); others will caution this is a "dead cat bounce".

So who is right? Who is wrong? The answer is anybody's guess.

And honestly, you shouldn't care.

It is this potpourri of conflicting perspectives in the market that billions of dollars worth of shares change hands daily. [data] If everybody believes a stock is going to go one direction, nobody will be willing to take the other side of the trade.

Professional portfolio managers have learnt to take a stand - bullish or bearish, risk on or stay defensive at any point in time. Their PnL and their future career prospects depend on it.

As retail investors, we should have our own view too, be it right or wrong. When you are indecisive and always looking out to others for a lead, your mind will be like a reed in the wind - shaken by changing opinions, none of which is yours.

Are you like a reed shaken in the everchanging wind?
(Photo credit: Unsplash)

We ought to ignore the chatter and formulate our investment thesis based on logic and data. Here is what a savvy bottom up stock picker would do:

1. Retrieve the figures from company financial statements.
2. Derive the valuation ratios.
3. Compare result against history and peers in the same sector.
4. Decide on companies to invest.
5. Decide on price to buy and sell.

It may sound tedious, but it does not have to be manual. There are ready stock screeners out there that can perform the number crunching.

If even a screener sounds too scary for you, and you prefer to get stock recommendations directly, the least you can do is a fact check on other people's findings. Trust, but verify.

It is only through our own effort that we build up sufficient conviction on a company. It is only through our own analysis that we know for sure whether a stock is cheap or expensive at the current price.

When you have gone the mile to complete the homework, I'm sure you will feel more at ease when you put in the order. This is especially critical when everybody else seems to be heading for the exit.

Even when you invested and the stock price moves the other way, you will feel personally responsible, and not point the finger at others. Since the onus lies within you, you can take action and not be hapless.

You can review the information and see if you had missed out an important point. Is it an idiosyncratic company risk? Or is it broad market sentiment in general? If there was a mistake, you can learn from it. If there was none, you can stand firm in your belief. Either way, you are on track to becoming a better investor.

The money is yours. The financial freedom is yours. No one is obliged to realize your dream. Not your broker analyst; not your blogger next door.

Learn to invest with a view. Learn to lean into the wind. Face head-on towards volatility with confidence from your own research. It is a more comfortable position to be than being tossed around like a reed.

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An Economic Hurricane on the Horizon

I was reading on CNBC when I came across an article titled, "Jamie Dimon says ‘brace yourself’ for an economic hurricane caused by the Fed and Ukraine war" [article]

The head honcho of JPMorgan Chase was speaking at a financial conference in New York on Wednesday when he uttered,

"You know, I said there’s storm clouds but I’m going to change it ... it’s a hurricane ... You’d better brace yourself ... JPMorgan is bracing ourselves and we’re going to be very conservative with our balance sheet."

An economic hurricane on the horizon? (Photo credit: Unsplash)

These are very strong words indeed. It seems the global investment bank is preparing its clients for not just a downturn, but a huge slump in the economy and the markets.

Sadly, I don't have excellent foresight as Dimon, so I cannot say for sure whether this economic disaster is going to strike or not. But if history is any guide, I would say our local stock market hasn't baked in any of that possibility.

During the 2007-2009 Global Financial Crisis, the Straits Times Index (STI) declined 62% from peak to trough (11 Oct 2007 to 9 Mar 2009).

During the 1997 Asian Financial Crisis, the STI also retreated 61% (17 Feb 1997 to 4 Sep 1998).

Right now, the STI has only fallen 6% from its peak on 5 Apr 2022. We still have a long way to go when the shit hits the fan.

Naturally, such a recessionary event does not manifest quickly, not like when the COVID-19 pandemic struck and STI crashed 30% within the span of one month. It would be akin to a tango between the bulls and the bears - one step forward, two steps back.

In any case, it is always good to be mentally prepared for a precipitous drop in your portfolio market value, and have emergency funds set aside for unexpected expenses.

Personally, I maintain some liquidity in my DBS Multiplier account to tide over any unforeseen circumstance. I also have a separate cash stash for investing in the companies on my watchlist if and when the prices hit my target entry level.

As the cliché goes, be greedy when everybody is fearful. Our mettle as savvy investors may well be tested soon.

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