The last post i wrote in July 2023 analyzing and summarizing lessons from key losses was well received with close to 5000 views and a good number of people contacting me to ask follow up questions. So here’s the other side of the coin - sharing our portfolio learning when it comes to the wins and things we did right. I am using the same data set of all the trades over 13 years and the focus is on what we learned.
To set the context, our investing experience has been good but not great (own yardstick) over the last 13 years to end Apr 2024.
1) Equity returns better than ACWI ETF 8+% total annual returns.
2) Fixed Income returns better than JNK ETF 3.5% total annual returns.
3) PE investments (which are majority VC and startups) at 20+% IRR which is strong but a lot of unrealized gains and is still undergoing the effects of the funding winter and growth stock rerating. I won't be including this segment in the analysis below as I share about startup investing a lot already.
Why 13 years? Because that's from when we first sold the business and started serious investing.
BIG PICTURE LEARNINGS
1) EVERYTHING MUST BE DELIBERATE & OWNED
Every buy or sell or allocation decision must be thought through and deliberate. Our best trades are based on small positions, build up to full size and held thru for multi years. Similarly, asset allocation must be deliberately planned and thoughtfully executed. We track all trades and returns monthly and have a sit down session to run through key happenings and decisions to make in the month ahead.
Finally, we own all decisions. We can listen to experts, read books etc, but if we make a buy or sell or investing decision, we own the outcome. This sense of ultimate responsibility is very important in ensuring good decision making.
2) ASSET ALLOCATION IS KEY
This is the key factor that drives returns for us. We made a decision back in 2011 to run our own version of balanced portfolio for 10 years. For us, that means to always have about 55% in equities, 35% in bonds and 10% in cash. I cannot stress enough how being fully vested all the time into equities makes a huge difference to returns. The reason why it works is that it allows us to capture the up days which a lot of data has shown before that if you miss the top days, your returns will be middling.
And after the 10 years, we relooked at our data and experience and since 2022 decided to go an even more aggressive portfolio with 80% equity, 20% FI/Cash. Strangely we don’t feel any less safe allocating into so much equity.
And within the equity, we learn that bite sizes have to significant for single picks to drive returns. Otherwise might as well all in into index. So now it’s about max of 5% as a cap per single stock.
3) GETTING THE MACRO THINKING & ASSET SELECTION RIGHT
First thing we got right is that business ownership or equity is the right place to be in. Equity risk is best option as businesses are dynamic and can adjust to almost all economic climates so long as environment is capitalistic and mgmt good. Hence we allocated the 55% initially and the 80% now. It helps that we made first pot off our business sale and so have a visceral confidence that businesses always are best risk reward if one knows how to pick.
That leads to the next question of what equities to pick. We made the usual mistakes of picking wrong businesses and markets. What worked well was to focus on growth/tech companies for single stock picks and broad indexes to just track world growth. For latter we ended up picking world index ACWI and later S&P 500 and QQQ. The latter 2 has now become the core holdings because we realized :
- The strongest economy in the world esp at private sector side is the american one. It has been like this since the 80s and it’s driven by their MNCs.
- the global tech revolution shows no sign of abating and american firms still dominate.
We do overlay tactically to China, SG banks/reits but these have been drags and we would have been better off just doing SPY/QQQ. But we never know. Last 3 weeks China / China tech has finally rebounded.
4) STICK TO WHAT WE KNOW
Our best moves revolve around sticking to what we know. So picking and tracking listed tech stocks, ASEAN tech stocks, these are our area of strength. More recently, getting the inflation impact on markets right and broader sense of where world economy is going. Getting macro trends largely right enabled us to get the property timing right and also catch some of the tech AI boom.
5) BENCHMARKING & TRACKING
We benchmark the funds we invest and our own picks against relevant benchmarks. I keep life simple, our benchmark is AGG/JNK blend for FI and now midpoint of ACWI/SPY for equities. And we adjust for usdsgd as we think in SGD terms as base currency. We find benchmarking and tracking portfolio returns across multi years, YTD and MTD helps us understand how we are truly performing and gives us the impetus to make changes if things are not working. No fooling ourselves that things are fine.
6) JUDICIOUS USE OF LEVERAGE/ NO HEDGING
We use leverage to juice returns but leverage is a doubled edged sword. We don't view leverage against a particular asset but view leverage across entire invested portfolio. Logic is money is fungible.
At current loan IR of 5-6+%, leverage is now zero. When it was just 0.7%, we lever up to 30% of portfolio.
And because we decided not to hedge against usd, we have actually made sizable currency gains when mark to sgd. if we had hedged, returns would have fallen by 1% per annum which is very significant. But this does mean we need to pay attention to usdsgd pair. Taking our cue from GIC and other usd denominated giants is helpful here. The worry here is loss of usd status as reserve currency.
7) LETTING WINNERS RUN & HAVE AN IDEA OF FAIR VALUE
This is self explanatory but it took me years to build the mental discipline to allow winners to run for many quarters and years. This is for single stocks only. Then when the stock exceeds fair value, it’s time to sell. Can sell in tranches no hurry. For growth stocks over valued status can last a long time. I remember back in 2018/19, people ask me how high can sea go, I told them 80 in a few years. Looks like I am not far off but I never expected it to hit 350 before coming back all the way down to current 65!
For indexes like SPY, the reallocation happens automatically. So for indexes, there is no need to ever sell everything unless we stop believing in american MNC top dog position and in capitalism.
SOME SPECIFICS
1) Making gains via single stocks.
We have about 5 stocks over the 10 years that made more than $200k realized gains each. One made a solid 7 digits. Amount invested range from 80k to 200+k. They are SEA, SHINVEST, FB, GOOG, BABA. They add up to about 35% of all time net equity gains. We also have another larger group that made between 50k to 200k. Examples include BIDU, Foundation Medicine, IFast, LULU, GLP, DBS, air Asia etc
What they have in common is consumer familiarity, lots of research and later conviction as I track them, meet founders sometimes etc. So it’s a multi mth to even 1 year accumulation process. All are growth stocks and almost all solidly profitable companies. Holding period is 1 year to 5 years. Of these, only airasia crashed and burned badly but I got out way before Covid. Another 3 of winners got bought out. The rest are still doing very well as listed growth companies.
Then the key thing is to let winners run for years if we can. Until growth finally slows. We bought SEA at avg price of 18, sold last tranche at 340+ and average out at 150 ish. Likewise for Shinvest which was a proxy for Espressif. We first entered early at 0.7 and held it until market discovered Espressif and its IPO. Got taken out during the private buyout, likewise Foundation Medicine/GLP. I would argue I sold out of Fb and Goog early but I told myself owning lots of QQQ and SPY also counts. And we do prefer not to duplicate big index components unless super bullish.
Single picks for us has the best return as capital used is much smaller than core and we also trade options on these. Do note the winners do follow the 80:20 rule where 20% of single stocks picks account for almost all our gains. That’s why we now focus on just 4-6 single stocks. Forces us to only hold the best choices and we don’t waste mental energy on no conviction stories.
2) CORE - SPY & QQQ as proxy for best run companies + long term technification of the world.
SPY & QQQ are our core holdings and we don't sell them and are always vested. Logic is there is no better place to park since we believe in business ownership and these are the best run companies worldwide. The only time we sold out completely was to buy our home in 2021 and through that lucky move, missed out on part of the crash. And once we could, we bought back our SPY and QQQ positions in 2022/2023. A bit early but it’s always hard to time the market.
We do sell some call options on SPY/QQQ that out of money and if they get triggered we buy back in almost immediately. Having SPY/QQQ as core holdings account for another large chunk of gains.
3) FIXED INCOME
We don't really like debt but have a little FI always that is slow and steady in generating some cash returns. Over the 13 years, in aggregate the return is significant like owning an investment prop over the same period but it’s still a drag on portfolio return and that's why we reduced it to just 20% with cash now.
4) SPECULATIVE ITEM - LONG CALLS & SHORT PUTS
Sometimes, the 10-15 compainies I track really get so beaten down due to macro. Eg. tech companies during the Oct 2022 crash. And we have maxed out cash to buy. Then we have been fortunate that we gain quite a fair bit buying calls at lows. Quite a few calls on tech names made us 50-100k profit by the time we closed them out in early 2023.
We also sell PUTs to collect premiums while trying to enter a stock at slightly better price. Please note the stocks are the same stocks we have conviction on above.
5) One good fund manager - ASTRAL ASSET MGMT
Our experience with private bank discretionary products,mutual/hedge fund managers and many non broad based ETFs are not so great. Make some money but they usually fall short of ACWI/SPY and need good timing. More specifically, Asian funds or stocks ones need good timing like single stocks.
We subscribe to the view that in inefficient markets Asia, stock picking can generate alpha. Hence we invested in an old friend whom we know is very sharp. So far beating his benchmark by a distance and we have a decent profit at 6-7% annualized. However, it’s still way below SPY - again highlighting how important the big picture decision on asset allocation is.
Hope the above sharing is useful to fellow investors who are navigating this tricky road too. Remember it’s important to find a formula that works for you and to find the framework that can adjust to multiple scenarios well into the future. And what I share is relevant for anyone with 6 figure or more portfolio. For the equity side, we don’t use any esoteric instruments and everything can be bought from IBKR, POEMS or iFast.
