Saturday, 23 May 2015

Staying focused requires great strength.

It has been a while since last post. Last few months, I was following more with China and HK stock markets and Forex markets. It was very exciting and I learnt a lot: made some gains; dodged some bullets; suffered some loss. Now I have closed almost all positions in HK/China market and withdrew most of funds out of Forex account with only a small sum left for trading. But my largest asset allocation is still and always in local stock market, especially in REITs and other dividend stocks. 

I made a calculation. 
YTD return for trading in HK/SH stocks was 22% with high volatility.  
YTD return for Forex trading was only 2%. ( it reached 58% in March, but suffered great loss in Apr when the market turned. Indescribable experience!)
YTD return to my dividend income portfolio is 12%. Main contributors are CMH Pacific, FCT, and MGCCT.(See below). 

However, compared to trading HK/CN stocks and Forex, I almost did nothing to dividend portfolio. But the return is as good or even better, and with lower volatility.

But it was not passively doing nothing. It was actively doing nothing. As Claire said to his husband, the US president in the House of Cards

"It is not doing nothing. Stay focused requires great strength." 

1. 
I stick to my own judgement and reject friends and colleagues' recommendation to buy oil and gas sectors, especially SembCorp. I did not understand the fuzz about this counter at all. Its exposure to oil price is still unsettling. Its utility business is facing increasing competition, which is the No.1 enemy to dividend stocks.  Above all, even at the current wretched price of 4.20, the dividend yield is only 3.6% (50% payout ratio). Good? Well, not good enough in my opinion. Even if the price recovers, which could take a long time, the return rate ( taken into the time) is not lucrative enough to compensate its risk. 

2. 
I decisively sold out all Telcos in Apr, as the rumor of the 4th Telco looked increasingly true. It is the competition that kills dividend stocks, not interest rates! The 4th or 5th Telco, if true, will change the landscape of domestic Telco sector. The degree of impact is hard to analyze. But for sure will be negative to the incumbent. The stock prices must be re-rated to commensurate with the risk of lower profit margin, and stagnant or decreasing dividends.

When M1 stock price started to break through the MA, it appeared to be a good opportunity to buy in the dip. However, this buy-during-minor-retreat strategy only works well in the bull cycle. When the fundamental changes, the mindset needs to change too. Past strategy which served well could be poisonous in new situations. 

Looking at the charts, remind me of last year's oil saga: impatient investors saw good name solid counter's (SembCorp, Keppel) price hit new low. They eagerly jumped into it prematurely at early stage of the price fall. I wonder their reaction this time. The only lesson we can learn from history is that people never learn the lesson from history.






3. 
More importantly, I defied the consensus to sell Reits. Have you not you heard? Ah! The interest-rate-rise-bomb is ticking! OMG!

I continue to hold on to my opinions that, as and when interest rate normalizes, despite short term fluctuation in DPU and price, Reits are worthy of holding, especially for my Reits which were bought long time ago at lower cost. 

I have made an attempt to analyze the rising interest rate's impact to Reits in last post. 

Can S-REITs still shine in 2015?

I would like to clarify my thoughts again.

Fed's mandate is to balance employment and inflation. Interest rate can not rise out pace of inflation rate. Inflation rate is still very low as of now. Hence, although the interest rate normalization is overdue, Fed does not appear to be in a hurry. The schedule of first time interest rise is now likely to be postponed into Sept 2015 or even 2016. 

Even Fed starts to raise interest rate, it will do it gently with baby steps until inflation rate accelerates. But when inflation goes high, which asset do you wish to hold? Real Estate property are natural hedge to inflation in long term. Property developers will also benefit, as its cost is largely fixed, but price is getting higher. 

Here are some of the articles discussing about the REITs' performance in the rising interest rate cycle for reference. 


After years of survival of the fittest , my REITs portfolio consists of only strong ones. This year to date, I have not made much change to the portfolio. I added 6000 units of FCOT back. That's it. I have not sold any. As of today, all the REITs in my portfolio are above purchase price. The total return (including dividends) range from 15% to 145%, except for newly added FCOT, with total return of 7%. 





However, I will not buy S-Reits now, not because of interest rate concern, but more because the price is overstretched now. I am not going to sell either. Funny thing. REITs' prices have been quite resilient in the face of incoming adversity. 

Having said that, I shall keep a close eye on what's happening next and keep options open. Although I prefer to hold dividend portfolio for long term for regular cash flows, there is no such thing as holding for ever. All depends on changing situations.

To end this post, I would like to be optimistic and believe that opportunities are abundant in future. Each generation has its own opportunities, we just have to seek and grab them. Last few months, I have seen my trading portfolio fluctuate in the magnitude I have never seen before. I hope the rise and fall was not just a drama. I believe I have learnt new perspectives in investment. I need time to summarize. But right now I am more happy with dividend portfolio. I shall strive to make it better and stronger.

The past can not be altered. 
The present holds but regret and loss. 
It is only in the days to come that a man may find solace. 

4 comments:

  1. Hi Richard

    Good post.

    Just wondering at what price did you buy back fcot this year and what is the rationale for choosing fcot than others like cct or suntec?

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    Replies
    1. Hi, Thanks. I love your blog. Every post I read.
      I have 15 REITs in portfolio. 8 major holdings are mainly retail, office, and healthcare. ( CMT, CCT, FCT, MCT, MGCCT, etc) The rest are all legacy holdings, mainly industry ( AA, Cache, etc). The break even price are fairly low after counting on the dividends.

      I have CCT and Suntec in my portfolio. Both are good. I would consider if price is more attractive. FCOT I like its recent development. In fact, I am holding on cash to see if opportunity arises when rate increase. I am sure you are doing the same. :)

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