Saturday, December 28, 2013

A reflection of investment journey 2013

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.

6) Others

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!

14 comments:

  1. Hi there,

    Don't feel discouraged and stray outside your circle of competence! If you are just starting out and wondering what's "wrong", it could just be that time is needed to realize the value of a good business. Others with more "impressive" records may also get complacent and think that investing is easy - plus they may also mistakenly expect this kind of return every year.

    To your suggestions, I'd say it's NOT good to listen to others for advice. No matter how respectable someone is (blogger, colleague or friend), you need to think independently and do your own research. Being influenced is already a bias in itself, so most of the time I'd rather just read the news and come up with my own thesis, then support it further with objective data/research.

    While I agree you do need to expand your circle of competence, it may not make much sense to understand more about industries which traditionally have poor returns (e.g. commodity industreis like semicon or airlines). Unless, of course, you can find an exception (rose among the thorns). Instead, what you could do more of is to refine and sharpen your process while understanding the industries you already know much deeper.

    Another suggestion is not to focus too much on the numbers, whether ROIC, COIC, or whatever. Businesses may be made up of numbers but there is also an impressive amount of qualitative data to obtain about a company or industry before we proceed. I would recommend Pat Dorsey as he evaluates competitive moats and how competitive advantages may be sustained. Using Porter's 5-Forces is also useful as a check on industry conduct. Finally, look at how the Company and its competitors/customers/suppliers are evolving and make notes on that. Everyday is a learning experience.

    Good luck for 2014 and Happy New Year!

    ReplyDelete
  2. Hi music whiz,

    Thank you for your encouragement and advice. I will read up on pat Dorsey definitely. Although no expert in porter 5 forces analysis, I felt greatly enriched by the framework. It was constantly on my mind when I read APTT's prospectus to determine how defensive is its earning power.

    I have been reading your past posts of your blog this week. A pity you stop blogging. But guess being busy with work is good news.

    Take care and have a great 2014 too.

    ReplyDelete
  3. I think I am doing less than ok. Had I not pick YZJ, my sole winner, my picks would be horrible.

    I underestimate currency impact in Lippomalls, although I am still comfortable holding to it, and might accumulate further if the business fundamental do not deteriorate. But their management capability in filling up occupancy leaves much to be desired.

    Sabana is another case of value destroying management. I already account fr the industry oversupply, but management is really sub-par when compare to other industrial reits like aims or even Cambridge.

    That's why I will do back up checks on the management and see their record before I make any purchases next time.

    But I am glad I didn't pick any bombs.

    Thank you for your kind words. Have a great 2014

    ReplyDelete
  4. Hey man,

    Many people only reports "positive" and exclude "negative" events so don’t be too discouraged by what you are seeing. You are doing great as far as I see.

    30% returns this year but 90% of this returns comes from 1-2 stocks. +/- 30% returns coming from a highly concentrated portfolio are very common. Unless you are saying the investor constantly demonstrate constant returns for the past 10 years, I say admirable.

    I am not a full time investment analyst but just a retail investor thus I only have time to look at a few key financial ratios when comes to selecting my stocks for eg, PE, PB and Gearing. This simple strategy suits me and I like to keep it simple. Everyone got their own way of investing so to each his own.

    I don’t have the luxury of time to keep track more than 10 stocks so I keep my stocks at max 10 for the time being so I can still monitor them outside my full time job. Don’t even mention looking at stocks outside SGX! Hahaha!

    Do what you think is right and no regrets as we always says investing is a marathon and not a sprint.
    Getting investment “ideas” from fellow bloggers are always good and listening to others’ people opinions, but by investing in something you know best will keep you asleep at night more than anything else!

    Woohoo, you are reporting to 2 bosses ah? CEO & CFO? Haha. I report to one boss already buay tahan liao!

    Wishing you best of health in 2014 and keep writing good and meaningful articles!

    ReplyDelete
  5. Sillyinvestor,

    I think most veteran "investors" have gone through this phase you are going through.

    1) Money management - even if you had bought Challenger and Valuetronics this year, just calculate how much % share these 2 counters have to be in your portfolio for you to match the performance of
    30% annual return for 2013?

    If the crash did not happen to Blumont, Asiasons, and Liongold, these "investors" would be 2 or 3 baggers up versus STI and sharing their results in forums and blogs.

    Stock selection is one thing; position size is another thing. Try having a 2 bagger in 2014 and banging your head realizing it's only 1% of your portfolio... But if the same stocks dives 90%, you'll be so glad it's a tiny punt! LOL!



    2) Different flowers bloom in different seasons of the year. This I believe you can fill in the blanks yourself. We don't want to be chasing last season's bloom ;) Remember Myanmar and Iskandar plays of the season?



    3) Unrealised or realised?

    Those who were concentrated in REITs coming into 2013 could be sitting on 30-40% capital gains paper profits. So if you ask them their ROC end Dec 2012, you get an impressive result (even sexier with dividends!).

    Now you ask these same investors (if they have not reduced or rotated into other "hot sectors 2013) what's their ROC for 2013, what do you get?

    It tickled me always when I read about self-professed LONG term investors focusing on annual performance indicators. No wonder many newbie retail investors may mistakes with their CPF mutual fund selections...


    4) Discover you won style.

    Have fun! It's like singing. We all start trying to sing like our favourite idols. The irony is only when we have discovered our own "voice", can we be in the same league as our idols ;)

    ReplyDelete
  6. Some of those with 30% returns are people who blog/post often and there records are for all to see. So I dun think they are boasting or is a fake number.

    I am not saying I should be or can be like them, just a benchmark.

    Ya, I u look at competitors and customers and suppliers, when u research on. 1 company, u inevitable are already looking at least 5 others.

    Hmm.. I dun work in the Coporate world, I just feel a lot of direction and talks are NATO la. I will just focus on what I like in my job and stop whining perhaps. Haha no one has the perfect job. A better way to start to 2014 is to be positive !! Haha!

    Hope u have a meaningful investment journey too, and a blessed 2014.

    ReplyDelete
  7. Haha thanks SMOL,

    Always bright and sunny, your posts, although I get what u are trying to say.

    I did hitch the property ride this year. If I include that counter, my results will be better, but I guess I will only include those which are still existing ...

    I remember the dual listing flavor a few years ago, companies that dual list can do no wrong when they announce plans.

    I am not really looking forward to 30%, just that I am really surprise such results is possible in a flat market and done with not pennies but serious companies like M1.!!

    I will continue to find my voice, (dun like this analogy, I like to sing at frequent the KTV when I am younger, now I know my voice and style, it's just plain horrible ... So I just enjoy hmm...ing the beat. )

    I will find my higher equilibrium... I think I like this phase better muhahaha 😄

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  8. Hi Fellow Investor,

    Don't be disheartened by your current portfolio performance. It is just that the time for your portfolio to fly hasn't come yet. You may wish to read my blog post on http://www.boringinvestor.blogspot.sg/2012/09/different-tastes-for-different-folks.html for more info.

    The best lessons in investing are learnt when one is losing money or not making money. When one is making lots of money, one seldom learns any lessons, except perhaps the mistaken belief that he is very good at picking stocks. This will only result in a greater loss the next time.

    Lastly, I leave you with Warren Buffet's quote, "Rule No. 1: Never Lose Money". He didn't say "Always Make Money". So long as you keep your capital intact, you will always have opportunities to make money :)

    Rgds,
    (The) Boring Investor

    ReplyDelete
  9. Hi fellow investor,

    Thanks. No worries I will persevere in this journey.

    Just that we need some benchmark as we journey, an we realise they are some very good guys out there.

    We might not need to be like them, but we need to know what's the world like. That's just my feeling when I see the sky from the well.

    ReplyDelete
  10. Hi there,

    Don't be disheartened my friend. Don't need to follow others, just find your own investment style and stick to it. Most bloggers only brag about their positives, very few talk about their downfalls.

    Be formless, be shapeless!

    Good luck and check out my blog, SG Wealth Builder (www.sgwealthbuilder.com)

    Regards,
    Gerald

    ReplyDelete
  11. Thanks for the encouragement Gerald,

    I am ok.

    I think I need to share a bit of my thoughts about the benchmark of 30%, many comments cast doubts about such super returns and think such results were due to fluke, accounting only for winners or going for high risk products.

    They are not, they are respectable forummers/ bloggers, and I happy for them to do well.

    That they might be not doing so well in reality does not make me any better ... Haha ..

    I think quite a number of people are able to achieve this result because it has been a good year for them for the past 2 years. (No prolong correction)

    I think I seriously need to work on my skills. I am not sour about others' successes though.

    Personally, if I consistently achieve 6-7% annually ( av out over good and bad years) j would think it will be very good.

    Given that bad years could see prices tumbling by half, and vice versa, I think it is realistic expectation to at least do 5-7% in normal times.

    ReplyDelete
  12. Last year I embarked on my first journey into investing. I have started with penny stocks and am considering making major investments. Reading your reflection is very helpful as I think about my next moves in the New Year.

    ReplyDelete
  13. Hi Jared,

    Welcome to the investing world. I am not sure if u belong to which "sects" of the capital pugilistic world. Here, u can change sects repetitive to decide which have the best skills u want to embark on to learn.

    I am more tuned to the doctrine of value investing, concept from graham which latter have many disciples standing in their own, the most famous of which is warren Buffett.

    If u may like, I can give u a orientation of this sect, I am just a beginner of this sect with less than 1 year of learning.

    The training and meeting ground have to be :

    Forum- valuebuddies

    Most important book, "the intelligent investor"- dun be taunted by the thickness, start with chapter 8 and 20. The most important I them all.

    Blogs... Visit musicwhiz, although it is already dormant since 2011, but the info is still good.

    Have a great journey!!! And may u huat

    ReplyDelete