“Faith is about doing. You are how you act, not just how you believe.”
– Mitch Albom, Have a Little Faith: A True Story
The above phrase jumped out at me as I was re-reading the book. It aptly described how I felt about my investment journey for the year.
As much as I would like to see myself as a long term investor, my actions for the past year have shown that I did not act like one. While my core positions have remained pretty stable, the number of transactions I had for the year is way too much for my liking, especially when consistently more than 30% of my transactions were selling. It showed that I bought into an idea way too easily and probably accumulated too fast. Hence, when the price dropped, it unnerved me and I did not have the conviction in holding the counter.
The positive from the above data is the drop in number of transactions in the second half of the year. Also, it is interesting to note that I only sold my US stocks twice even though they were experiencing more volatility over the past few months. It seems that I am more confident of them than my local holdings. Probably the smaller position size of my US counters might have contributed to that.
While the number of transactions is not the key reason for this year’s negative return, I do feel that if I have been more discipline, my performance will probably be better.
My portfolio dropped by 10.0% this year, trailing STI ETF (ES3) which returned -6.6%. It is not unexpected to get a negative annual return. In fact, for the past decade, my portfolio was in the red for 4 years. In comparison, STI ETF was in the red for 3 years. What feels less satisfying is trailing the index after spending the time and effort in building the portfolio.
Of course, what is more important is to look beyond a single year’s performance and focus on the compounded annual return over a longer period.
Compounded Annual Return
Even though I was in the red more often that STI ETF, I have beaten the benchmark 6 out of the 10 years. Hence, my compounded return for 3-year, 5-year and 10-year periods are much better than STI ETF.
I overhauled my portfolio from 2015 after setting new goals and strategies. Four years passed and my compounded annual return over the past 4 years is 13.0%, surpassing both my goal of 8% and stretched goal of 12%.
With a year to go before I do my strategic review, I would hit my 8% goal if it does not tank another 10% next year and to hit my 12% stretched goal, my portfolio would need to return 8% next year.
It is my intention that dividend will cover part of my expenses once I reach 55. Hence, when I re-constructed my portfolio from 2015, part of it is intended for income generation. I am pleased that the dividend collected for the year has hit a record high of 18.8k. Adding another 7.6k from CPF portfolio, I am getting about 26.4k per year.
Due to the adjustment of income to growth/value stock ratio from 60:40 to 50:50 this year, the forecast dividend for next year will drop to around 24k (18k from cash portfolio and 6k from CPF portfolio). I do hope that the number can continue to grow and at least double 10 years later.
What went well last year?
Adhering to allocation ratio
I have pretty much kept to my three allocation ratios and I think that have kept the drop pretty manageable.
Asset allocation of 30% cash and 70% stock
At the last check, the ratio stands at 27:73, primarily due to activation of opportunity fund as my portfolio dropped by more than 5% in July and more than 10% just recently. Since the current allocation does not differ too much from the intended and opportunity fund was just deployed, there will not be any adjustment in the near future.
Income to growth/value stocks at 50%-50%
As seen from the above image, current allocation again does not stray too much from the planned allocation. Growth percentage is slightly higher due to higher injection of cash to US counters in recent market as it corrected. The dividend provided a buffer to the drop, without which my annual return would probably go down another 4-5%.
Maximum exposure of 15% to overseas counters
Currently at 22%, exposure to overseas counter is significant higher than planned. This again was caused by me injecting more into the US market due to its correction. Will probably keep to current ratio for the moment and cap it to 30% for 2019.
Pretty stable core positions for portfolio
As seen from the table, 7 out of the the 10 positions have not changed (Vicom has been shifted to my CPF portfolio).
The reasons for dropping Straco, 800 Super and UMS can be found at the respective links.
Arista Networks became the first overseas stock on the core holding. As for Mapletree Industrial Trust, it became part of the core after I accumulated it a few rounds during the year.
I am hopeful that the current core positions will still be there by the end of next year.
In a nutshell
The brakes are on this year but longer term picture still looks good. The main weaknesses came from the electronics and semiconductor counters. A few weak buy/sell decisions resulted in a less positive realised return for the year. I will write more about them in the next post.
Going forward, I will work towards having less transactions by considering harder on the merit of each purchase and hold a smaller size for new positions.