I have never come up with a post about my wealth building as a summary for the year and really hate to come up with something like this because my results have always been bad.
However, since some readers asked, I tried to keep it brief.
Here are some things you need to know about my wealth building system, or how it has evolved until this current state:
- Active investor
- My main wealth machine is through active stock investing
- Asset allocation of Individual Equities and Bonds/Cash
- Portfolio Construction/Management takes place before individual financial assets (stocks, bonds, cash) selection
- My equities position goes up and down between 40% to 70% depending on my reads of the market
- I understand fundamentals, valuations, a little momentum, and a little technical analysis, but I would call myself a stock investor
- My asset selection, holding period, selling condition, and review is based on expected returns model. You can read more about it here
- I am very, very, very, very risk adverse
- I speculate a lot
- My speculation sometimes turned into long term holdings
- If my conviction or my previous fundamental view of how things played out is challenged, I sell first, think later
- Try to eliminate sunk cost fallacy, do zero based investing on your financial assets
In 2018, I have a total capital injection of S$25,764. I saved but I do not inject additional other, than putting in like $2,154/mth.
Total Unrealized Gain + Realized Gain + Dividend/Interest Income in 2018: $7,496 + $26,141 + $29,427 = $63,064.
My Wealth Machine rough XIRR in 2018 (including not utilized cash): 4.44%
My Wealth Machine 14 Year rough XIRR (including not utilized cash): 9.36%
My Current Wealth Machine Income Yield (including not utilized cash): 3.46%
Current Top 10 Position (my current portfolio on my free spreadsheet):
- Manulife US REIT
- Frasers Logistics and Industrial Trust
- Citic Telecom (HK 1883)
- Mapletree Commercial Trust
- Wharf Real Estate Investment Company (REIC)(HK 1997)
- Keppel KBS
- Cheung Kong Hutchinson Holdings (HK 1)
- SBS Transit
- Yuexiu Transport (HK 1052)
Top 10 position forms 99% of equities allocation. Top 5 position forms 78% of equities allocation. Current equities to cash allocation is 46%. Currently position forms more than 10% of the portfolio or net worth.
So that is about it.
So from here on out is just comments.
Commenting on #4. How you set up your portfolio is based the wealth building goal that you wish to achieve. What kind of instrument do you put into depends on what kind of investing philosophy you follow, be it value investing, technical trading, momentum based strategies, passive ETF strategy, concentrated property strategies. It is also determined by volatility of these strategies and how close you are to the goal.
For example, my wealth accumulation is almost done. The game is won. To start near the next phase, negative sequence of return risk outweighs the investing performance. Why go on a Ego boosting game and jeopardize the ideal situation you want?
In contrast, if you do see your saving for the next 10 years to be $200,000, and your portfolio now is $38,000, the game is still on, keep invested. Any drop is an opportunity to add more. Any run now where you are not in, is an opportunity cost. Saving yourself from a $14,000 loss is not going to make a big difference 10 years down the road when you have $200,000.
Commenting on #5. Don’t ask me about predicting whether I will be scaling up or scaling down my equity allocation. Firstly I abide to what I comment about the previous section. The system is to slowly scale up on equities, because in the end you need equities in the long run, even in financial independence. Secondly, I scale up and down due to my “feel” about the market, based on being in it for the past 13-14 years.
If I see some Dragon wind or Phoenix breath coming, you will see me scaling up. If I see something I really don’t like, I will scale down. However, I try not to be in 100% in any extreme position. Both are seriously bad position to be in. I do see myself in 100% equities, that is when I found 10 to 14 really good assets at fair to good valuations.
If you are 100% cash, you become captive to the mindset of when to jump in when to not.
My wealth machine is based on collecting good financial assets, pruning those pretenders, keeping the winners, selling those that ran too much.
Commenting on #6 and #7. An understanding about the financial statements is good. A deeper understanding about the META behind the numbers, the reading of annual reports, analyst reports, what was done versus what was said by the management have helped by now to avoid the big shit. If you avoid the big shit, a lot of times, the results should follow.
I respect valuations a lot. If you buy something that is overvalued, most of the time nothing good comes out of it.
If you hold on to something that is fair valued, you have to make sure the company has some real quality.
If you buy something that is undervalued, it does not always work out because for some, they are cheap for a reason.
However, if you build up that competency on understanding the fundamentals, it will help you size your positions accordingly. It will steer you away from real shit. Those that are good opportunities, you size them accordingly, cut them fast if they do not work out, and make them your core if your conjecture make sense.
However, there are limitations to these fundamental reads. For one, it depends on competency. You can have a rough idea how competent you are, but even if you are competent, there is every chance your reading of the company/stock is wrong.
I always say you are not the owner operator.
Respect that knowledge. Add to that, respect your competency.
Your position sizing, what you do when news hit, when poor results hit, will depend on these factors.
This is what I respect about traders. Act first, think later. The value investors will just ask the question what went wrong, wait for the results, assess the results then make the action.
When there is a price rise, or fall, there are two possibilities:
- you know this company well enough, the reactions by the general crowd is wrong
- someone in the general crowd knows something that you do not
You need to have a sensing of your competency, and what you know, respective to the crowd. This determines whether you think first, then act, or act first than think.
This is fundamental of my expectation returns model. If there is a high probability you think you do not know enough, sell first. If you think the probability you have sussed out this company well, think first.
In order for this to work, think more of the scenarios. What is likely to happen. What are the outliers both optimistic and pessimistic.
It is easier to action, when you thought about it.
Recently, I have been asked by someone who thinks value investing doesn’t work. A lot is due to some of the crazy draw down we seen when there is some announcements and things goes to shit. Hyflux perpetual, APTT, Design Studio, Keppel KBS, Manulife, FSL.
It is not whether it will work or not.
It is how competent you are in prospecting with fundamentals. For the above, I would say, a lot of their weakness can be seen in the financial statements. If you take your time to read 3 years, 5 years, 10 years of it, you will gain an appreciation.
The second is going back to #7. If there is too much uncertainty, don’t sleep with this stock! If you go ahead with it, you are the vegetable head. If there are some uncertainty but we can see if it works out, size accordingly based on probability and pair this with your execution.
I think I could probably comment on this because I have tried this myself.
I won’t tell a trader that his trading system doesn’t work, because I don’t know or use it long enough. I would rather listen to what those good ones have to say, listen to their vulnerable sharing, to understand the upside and the downside of things.
You also learn to pay attention to those less bull shit people who make use of these areas you are not strong at, to supplement your investing.
This is like forming your team.
Have something that worked well for you. Keep to it. Then see something that can augment to it, add on to it, observe if it helps you.
Don’t keep saying I don’t know about this, all these sound Greek to you, and then when shit happens, you lament why does this happen to you.
Sometimes old things worked well, but new things at times can be immense as well. You will just have to learn to understand things better.
Commenting on #9. There is a danger in speculation. It makes you very trigger happy, and that is habit building. However, there is an advantage to that in that, it sharpens your execution as well. You just have to learn to resolve that and the demands of longer term investing well.
Speculation, is making an educated guess about the direction, or the value of financial assets. It is not gambling. In order for it to work, there are some skills you need to learn to make it work better.
Short term speculation is better than long term gambling.
Commenting on #12. You may find it hard to sell things when they are at a loss. Best way to think about wealth building is that, your net worth or portfolio should be positioned in such a way that it contains the financial assets that give you the greatest risk adjusted returns going forward, or something that aligns to your financial goal.
Some assets are permanently impaired, sell them. Some are not permanently impaired, but are just temporary in a cyclical funk. You need to up your fundamental prospecting game to discern this. Ask yourself, if you had not currently own Stock A (which you currently do), would you buy it today?
This is why I like zero-based budgeting like envelope budgeting.
You have $4000 to deploy and ask yourself how would you spend going forward. Whatever, happen in the past is to help you form your opinion about things going forward.
You are only concerned about putting your best front forward.
This is why I don’t believe in expense tracking apps that aggregate stuff so much. They will work for you, if you strive to change your habits. However, for most it doesn’t help.
Investing is also like that. Its a bit brutal.
Every dollar is like a foot soldier. You position them to win the war. Those that are lost cause, don’t let them die, pull them back. Re-strategise and try to put your best front to winn it.
Over the years, I kept hearing people tell me I want to start but the market is so expensive. Well, now this year a lot of valuations are getting more attractive.
Then you start hearing people saying my portfolio is negative, losing money here and there. Is this a good time to go in?
Short term is always hard to swallow. And you feel like shit.
Acquiring financial assets at good valuations is always the same as eating in a toilet. The stench is damn jialat.
However, I will tell you that is how investing is like. You live through times you feel happy about your portfolio, times when you regret putting your money to work. Some folks say don’t look at your portfolio so much.
I would tell you, if you are building wealth, a down market is an opportunity to collect more, if your horizon is long. Majority of your wealth now is made from funneling capital into wealth building, not the result of your portfolio.
Be aware of that.
If you do not put money away, at shitty times, then its worst. I have friends who either wait for a fall that never came and missed out on opportunity cost, and those that gave up due to times like this (it could get even worse)
Holding assets through a year of draw down is shorting your psychological capital. It is tough and something I struggle to come to terms with. I learned that I am not very good at this. So I choose to use strategies to avoid much of it, sharpen my senses in other ways.
Ok, this is getting too long. I really don’t like to come up with stuff like this. I am very superstitious. If I do this, next year, the market will bite whatever I say today, and the portfolio will shit on me.
Most of my sharing on these kind of stuff is in my Active Stock Investing section below.
This is for the readers. Try not to share it.
Do Like Me on Facebook. I share some tidbits that is not on the blog post there often.
Here are My Topical Resources on:
- Building Your Wealth Foundation – You know this baseline, your long term wealth should be pretty well managed
- Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
- Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
- Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
- Free Stock Portfolio Tracking Google Sheets that many love
- Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free