2020 Investment Reflection, Performance and 2021 Investment Strategy

It is the time of the year again, where I reflect on my investment journey this year. I have been doing this for the past 3 years and I would definitely want to continue this tradition. Feel free to explore my past reflections over at this section

As people have different ways of learning and remembering things, I have to pen down or type in order to achieve it. Reflecting is not enough, one has to look back at their own past reflection and evaluate whether they have made improvements from their past mistakes. 

2020 has been a phenomenal year for all investors. We experienced the ups for about a month or two, and the down of 30% in just one month. I would first like to congratulate those who have seized the opportunity to buy cheaply and ignore the noises in March, because you would have reaped your rewards till now. 

For those who have been on the sideline and missing out on the opportunity, do not be too hard on yourself as I am on the same boat as you. I only invested about half of my warchest in the stock market. I wish I could turn back in time, be more aggressive and more optimistic about the stock market!

Earlier this year, I wrote two reflections on the crash that happened earlier this year. I shared about my first hand experiences and learning points from it. If you are interested in reading them, you may refer to the two links down below. 

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I would like to continue where I left off – the rally since late march. I questioned myself in a reflection post published in May whether the rally we saw since March was sustainable and I was still skeptical about it. 

I felt like a fool after looking back at what I wrote.  Of course, I wouldn’t feel that way if my thesis is correct but it is what it is, I have to face it.

Will we not be looking for any major pullback despite all the bad market data? I am not going to throw in my towel right now and enter as the downside risk is definitely higher than the upside as we do not know what’s ahead of us. 

The main reason why the stock market is roaring higher is because of the low interest rate. Imagine Singlife announced that its rate of returns will be reduced to 1.5% next year, you will be motivated to move out and look for returns elsewhere. There isn’t any other great place to park money except in the stock market. Forget about valuations, new investors just buy into the market at whatever price being offered because time in the market is better than timing the market. True to say, they have great returns because there are others pouring in too. 

Furthermore, the low interest rate environment has resulted in inflated asset prices. I learnt that reversing the P/E ratio gives us the earnings yield, which can be compared against risk free rate and equity risk premium. As the risk free rate is lower compared to a year ago, to maintain the equity risk premium, earnings yield has to go lower thus price inflates. 

Why did I not join the fun and ride the trend up? 

Half glass filled or empty?

If you were to ask me whether the glass is half filled or empty, I will reply to the former. I am pessimistic in nature in general and it impeded me from taking action by seizing the opportunity to buy at a cheaper price. 

I would have averaged down DBS at a cheaper price at say $17 or $18 than the price I bought at $19.45 if I am a half empty kind of person. Note that DBS bottomed at around $16 and rebounded quickly to $17 and $18 in just few weeks. I have two reasons why I hesitated and wanted to wait for a lower entry price because it has rebounded 10% and the business outlook was pretty bad. I did not think about how DBS was down over 20% at the time I bought and thankfully I averaged down and rode the recovery up. 

Learning Point: Be optimistic in life and in the stock market. As much as we like to bottom fish, it is very difficult to predict at which price it will bottom. Therefore, with this positive mindset, assuming that the business fundamentals do not change, thinking half empty will enable us to seize the opportunity to invest with a margin of safety.

Fixated on own beliefs and not being open-minded

I have to blame myself for this. I like dividend stocks, especially owning blue chips REITs in Singapore like the ones from Mapletree and Ascendas. I was ready to open up my warchest to buy those REITs at an attractive price since REITs had a bull run last year and the crash made it attractive to own them. I had a short chat with my friend of mine after he posted a technical chart of FB in March. He replied and recommended me to look for growth stocks instead. He convinced me that the returns looking for growth stocks will be more than just buying into dividend stocks yielding 5%

I was hesitant to heed his advice investing in individual US companies and I told him that I just started venturing out to the US through the S&P 500 ETF. 9 months later, if he had not sold his shares, his FB purchase would have returned him close to 100%. On the other hand, because I was fixated on my own beliefs and not being open-minded, on top of the fact that I am pessimistic in the stock market, I did not have much returns this year.

What 2020 has taught many people especially for businesses is to accept and embrace the changes to be made. I would like to share an example given by Wealthdojo. By the way, do check out 6 Level Wealth Karate Method at Wealthdojo 

On 7 April 2020, the Singapore Government announced the implementation of the circuit breaker. It wasn’t pretty. It caused a huge uproar in my company. The financial services industry is one that we need to meet people face to face. My colleagues were worried that our consultancy business will be affected. Almost all of us are anxious to know how we can conduct our business when we cannot meet our clients or prospects. How can we help our clients claim for their critical illness bills if we cannot go out to get their original receipts? Will this be the end of financial services?

In one week, all these questions were resolved. Though, it felt like ages. I changed my business processes. I have conducted business meeting with my clients and prospects over zoom. I quickly adjusted to the new norm while learning new skills. I have also helped my clients transit into the new norm with a special message for them.

Life Goes On.

Those that didn’t adapt into the new norm were left irrelevant quickly. We shouldn’t be complacent thinking that things will remain the same. Business trips fell almost 100%, there is huge transition into E-Commerce, we are primarily working from home. I believe many things will change over the years. 2020 just accelerated many changes.

Keep Relevant. Life Goes On. 

Pardon the formatting of the example used. What Chengkok from Wealthdojo has shared can be relevant to our investing style in some way too. The key is knowing how to be open to new ideas and be less stubborn and fixated on our own beliefs.  So it was a painful lesson for myself but I decided to ditch my own belief and to strategize for the future. I will discuss in detail in the part of this post.

2020 Investment Performance

My regret this year for investing is not being aggressive enough in building up positions right after the crash in March. 

I was very cautious.  

I did not know what to expect in the market during a technical recession where the economic outlook is bleak. As a NSF who receives meagre allowance, having a low five digits warchest waiting to be invested seems a lot, even if that amount is probably just 30% of my total cash and I have more than enough emergency funds. 

So, I looked at historical charts which showed a relief rally after a crash and it did not last long and the market reversed. My initial game plan was to enter after the dead cat bounce but it did not happen this year. I did not trust the rally and was still pessimistic until lately when I decided to reflect and think positively. I regret that the market gave me multiple opportunities earlier this year but I did not seize it because of my pessimistic view.  

I am still building up my US positions (especially S&P 500 ETF) ever since the market bottom in March. The amount I added was considered small compared to my warchest size. I am still adding positions along the way but I continue to play safe by adding in tranches, giving me ample cash to average down if needed.

The information below is powered by Stocks.Cafe. You can follow me here for the latest portfolio update.

 202020192018Overall
Time-weighted returns9.93%31.58%-7.05%34.45%
XIRR41.31%42.09%-6.27%20.62%
YTD performance against STI and S&P 500

2021 Investment Strategy

Although I missed out on a huge potential earlier, I think it is not too late to realise the need to change my strategy to better improve my returns going forward. It hurts to reduce my exposure in Singapore when it is still bleeding in red. However, I recently reduced some exposure because I think that due to low liquidity in the market, I will get better returns elsewhere. I intend to keep DBS as my only Singapore stock for dividends. 

My strategy going forward will be growth investing. For a start, I initiated a position in QQQ in September so as to get exposure to large tech in US. 

In recent weeks, I also initiated a position in BABA to seize the opportunity in investing in China and also to take advantage of the price weakness due to several headwinds. Headwinds aside, the business of Alibaba is solid but for now, investors aren’t really sure about the impact the anti-monopoly law on Alibaba will be like. Hope that there will be more clarity in the upcoming financial result in the coming months. 

In addition, after reading up on China Tech and its potential, I also initiated a position in HK Tech ETF (3067), which has the lowest expense ratio out of all HK Tech ETF listed on Hong Kong Stock Exchange. 

I am still wary about the valuation going forward, even though it is a fact that low interest rate is to stay in the long run. Downside risk is apparent and the market will continue to surprise us with upside as stock with all time high continues to go higher. I think that any pullback will be an opportunity to add and I will try to be more aggressive when it comes to this. Of course, I will not go all in at one go so that I still have enough bullets if there is a deeper correction in the coming months. 

From a dividend investor to starting out in growth investing, I believe that one should invest in dividend stocks when they have a sizeable portfolio so that the dividends will be significant enough to supplement our lifestyle. 

Growing our portfolio is key now, glad that I have made this change and I hope to strive for better growth next year!

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3 Comments Add yours

  1. James says:

    Why BABA in the Nasdaq and not the HK exchange? Any worries over the delisting risk?

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    1. Hi James, it is all about the min amount to invest. I believe that BABA will not be delisted for the size of the company and that it will be detrimental to the reputation of the company if it gets delisted. Alibaba is audited by PwC if I rmb correctly.

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