2020 1H is really a roller coaster ride. In march, the market drops more than 5% consecutive for days. The plan to purchase companies as they fall 20% became 25% to 30%, and towards the end of march become a wait and see move.
There are several questionable coporate actions, the purpose of the piece is to crystallize the thinking process through writing, and please forgive me if I sound incoherence.
1) Moments of freezing in action
But all accounts, Singpost, Hong Kong Land, Capitaland has hit 30% threhold of fall. Yet, I freeze. I have not mentioned Hong Kong counters like 0517 cosco and GA pack. While it is understandable to focus the firepower in the local market where there is high degree of familarity, there is no reason why I let a 30% fall go, and I did nothing.
Reflection: When the market plunge, it is really difficult to keep my nerve. Had I hit all the counters my cash would have gone to 15 - 20 % of portfolio. At the moment where market hits a new low every day, it is rather difficult to keep my steels to continue accumulating. Although there are back up funds that could boost my cash level, I would rather not use it.
When I am holding 15 counters, it is not possible to average down in 3 tranches for all counters. So my orginal plan of buying when counters goes down 25% to 30% is mathematically flawed as I do not have that cash holding.
2) Selling to rebalance or selling in anticipation of further fall
Several counters recovered enough, I remember selling some of FR and CSE at slightly below average price. (Take Loss) The reasoning is if the market fall further, I can take have the ammo to average down or buy other counters
Reflection: I am wondering such trading or buying in and selling out is really what I have in mind. Before this Covid, my reason to sell is simply, my thesis has changed. When Covid hits, my idea is my counters should not go into heavy losses and they should continue to be profitable. It is fine if the entry price is horrible for a few years, becasue if they continue to be profitable, they is no risk of them going under, and I can wait for the sun to be out again to harvest capital gains.
Hence, selling when the price is higher than the lowest entry price to lock in "profits" seem contradictory to my buy and hold plan. This dilemna also came about due to point number 1. If I cannot accumulate all further, this trading action seemingly is the solution to the lack of money to average down. So is this rebalancing of counters that have fired off the third rounds going to be a more permanent feature in my bear investing plan?
It seems that I do have this risk off mindset at the back of my head, as I also reduce my stake in Ascendas Reit, and sold off Pan United when they are profitable to increase cash. The reasons for the above selling is Ascendas Reit is a rather large holding after I participated in their rights, and Pan United growth will not materialized in 2020, and depending on how they resolved their manpower issue, 2021 is also in doubt. Given the low dividend yield, I felt i have better alternatives elsewhere.
So is there any other way to resolve this dilemna so that I could be more decisive in my buy - sell actions? If the buy sell actions are reasonable risk management actions in a volatile market, are the triggers based on sound thinking or gut feel? It seems more like gut feel at the moment.
Perhaps, like business analysis, the amount of cash, and the triggers of buy and sell should also depends on the macro enviroments and the possible impact on the companies' earnings. If I think Bread is going to continue to be staple, COVID or not, TRADE WAR or not, maybe my threshold for holding should be higher.
HKland seems a bit more complicated, because it has to deal with the impact of Covid, and also China Security laws. Also, the level of entry and threshold to take before entry should also depends on the supposedly risk rewards profile. Selling to rebalance, so take into account of the above too.
3) Breaking the 3 rounds rule
Besides Silverlake axis, SCI is a counter that i keep accumulating. I just felt that the price is not justified based on the restructing that it can embarked on (Not talking about the demerger), and the possibility of the Indian Market and UK market turning.
SCI turn out well, SAL did not. So why did I break the rule. It is fine breaking the rules, by the circumstances should be clear. The rule or excuse I gave myself is not more than 15% of portfolio. I would think SCI is rather fine and it is still just 10%, I think SAL is really a over indulgent.
Another reason is I believed such price is rock bottom price. But is there science in rock bottom price beyond 20% of peak, historically for blue chips??
When do we accumulate till we hit portfolio limit, and when do we do 3 rounds AV. Down. For the 2 counters, the price drop beyond the third buy but I believe the drop is not justified. Is there another criteria I could use?
4) Selling off counters that were bought for "growth"
These are counters that are so so in their dividends,but I first bought them because I see growth potential in their overseas expansion (koufu) or the sector recovery (Pan United for Construction) Given that growth will hardly materialize in 2020 and perhaps 2021, it makes me wonder if I should keep them? I have already exited Pan United, and the next in line will be Koufu and Raffles Medical.
So, what should be the percentage of growth stocks as compared to yield? Perhaps if market is "normal", some "growth" counters is appropriate.
Inherently if Diversification is going to really effective, it should be 5%, which would mean an average of 20 counters, having the money to buy 3 tranches of the 20 counters is no small sum.
What works out to be a great plan in the head, does throw up a few spanners when we act upon it. There are no answers, but having questions at the back of the mind, is a good awareness exercise. Hope I have an answer soon.