I was reading various forums and bloggers and realized quite a number of people can achieve returns of 30% in 2013 for their portfolio. I was wondering why my results are so dismayed compare to them. And No, there people get their results not by trading or speculating in pennies. They bought stocks like M1, challenger, valuatronics, Yangzijiang, CES, etc.
Demoralization aside, I reflect hard on what could be lacking in my investment process, that created such a glaring difference. I think I have come up with several possible reasons.
1) Scope of companies under radar.
Companies under my radar of research could be too small. Also, it might be time to start looking at Hong Kong Companies too. While I have heard about challenger and valuetronics from forums a number of times, it never pips my interest. Maybe, it pays to look at more companies extensively.
I used google screening to screen for companies of interest. I think I might need to pay more attention to what bloggers, forummers suggested.
2) Size of portfolio/ circle of competence.
I only have about 9-12 counters in my portfolio. It might be wise to include more companies from different sectors and industries after extensive research. It might be good to start reading up and learning about the businesses of utilities or telecom, commodities. To give myself the bandwidth for further research when the opportunities arises.
3) Extensiveness/ disciplined of research
I believe I have done my research diligently, but I might have been too generous in my criteria. I believe I have did what most analysts have done, look at numbers over a number of years, compare it with it peers, reading about its business strategies, looking out for industry outlook etc. But I think I should be able to do better in 2 areas:
a) Tracking of competence of allocation of capital, by comparing ROA, ROE, ROIC and record of acquisitions more closely.
b) Stop looking at just consistent positive FCF but also the size of it, e.g. COIC
c) Stop looking at FCF as FCF=OCF- PPE, but looking at finance costs, taxation and minority interest as well. (A learning journey/ school fees brought by purchase of APTT and HPHT)
4) Margin of safety
I should have demand higher margin of safety with smaller companies.
5) Temperament- Overcome laziness
I usually start serious research only when I see a company whose valuation I think is getting closer to being fair. I did not even bother to do preliminary screening of numbers of companies thrown out by bloggers, perhaps due to the fact that I know, there is a lot of reading to be done, before I can quite figure out what the company is capable of.
a) Check various sources of news. For example, sino-shipping news mentioned another free trade zone in Guangzhou-HK_macau area is pending approval by the end of the year. I google the various key words, only to realized analysts felt the approval by central government could be at least years away.
b) Industry news are important,but they are usually already old news for insiders. What could be useful might be to see if the management is on top of the industry news. For example, when I read about the shipping news regarding eco-ships and bigger ships, and also the demand for LNG, LNP carriers, YZJ is already sourcing for customers for those and building eco and bigger ships. If a company is only acting on the opportunities when you read about it, maybe it means nothing already.
c) Don't just track companies, track personnel with wonderful business records.
d) Read a prospectus thoroughly and repetitively. A lot of information about the business can be found. A glance through the Risks and business summary is a no-no
Lets hope my 2014 record will be better. I think I will be super busy with work when the new year start. I got 2 new bosses. Sigh.... I don't want to sound cynical, but seriously, I don't we share the same frequency in work values in the 2 weeks of contact with them. Lets hope I am wrong.
Wish everyone a good 2014!