Shareholder Report 2020

I once proudly declared myself to be a ‘focus investor’ as someone who made more qualitative bets. However, I have only fooled myself.

If you observed our Singapore stocks only portfolio, there are around 10 companies. If you looked at the USA portfolio, there are around 6 companies.

Doesn’t this sound eerily similar to the modern portfolio theory where you “reduce risk” by owning a basket of stocks?

All markets are still markets.

Why should we differentiate portfolios from countries to markets? If you made lesser on the Singapore portfolio and more on the US’s, your net worth still balances out.

One must not fool oneself.

Hence, the presentation of financial data is of utmost importance. We want to be richer. Not making ourselves feel good about doing better in some markets and not so well in others.

13 and Munger

I’d like to note that we are going to have a bad year eventually. Charlie Munger, for his first 13 years, his partnership barely tracked the index and even underperformed after fees.

Investing is a game for the patient.

I’d consider this year’s result beginner’s luck: I had some courage and we had some cash. It led to some priceless decisions.

Covid Comes Opportunity

The Singapore portfolio did well because of Covid 19 and we had the local banks such as DBS selling considerably cheaper against book value,

In that period of time, even though I barely read the annual reports, I knew that it wouldn’t be unwise to put some money in these high probability bets that comes once every decade.

My biggest regret is not ringing up the broker and borrowing everything I could to bet my more on these positions.

One other win is OCBC bank, which I focused a courageous bet of around 25% of the portfolio even after OCBC had recovered from its lowest prices.

The numbers made still sense and it was the best bet against all other available opportunities.

Technology and Being Patient with America

In the mid of this year, I decided to liquidate all index positions in the American portfolio.

Unfortunately, the small cap and mid cap indexes we held last year lost more value than the traditional S&P 500 indexes. This affected year to date returns as I transitioned to active management.

However, and more importantly, we didn’t lose money. Hence, we didn’t flout the first cardinal rule of investing: never lose money.

Now, let me talk about some of my positions.

Wells Fargo was a position where I experienced folly, insight and greed simultaneously. I could have owned the stock at a jolly $21 price point but

I foolishly decided to sell naked put options on it. This of course, once influenced by an idiot.

I proceeded to buy Wells Fargo initially at an average price of $25. Then, due to greed and short term insights, I ended up purchasing this position at an average price of $28 as it rallied.

The market dipped to as low as $21 in the later months. There’s nothing to do but to sit there and look stupid. However in such cases, to continue sitting on your ass is the answer.

I knew that Wells Fargo was still priced way below book and they have a strong track financial record. The answer was patience.

One of the reasons why I didn’t add to this position after it dipped to $21 was because Wells Fargo had been dragged with fraud scandals in the last couple of years. I only knew of this after purchasing the stock.

Their new management will have to find their way with time.

Through the years, I had peers who readily convinced themselves from the edges of their keyboard that “Warren Buffett is an idiot” and/ or dabbled in derivatives promising themselves they’ll stop ‘once they hit a profit’.

That’s no way to invest. Or to think about capital allocation.

I’d like to also ostensibly brag that it once took me no longer than 2 months to “cut out the derivatives trading” after being promised by a charlatan that it’s “easy to make 5% a month based on options and everyone else was doing it”.

After swearing off technology stocks for months in spite of the tech rally I finally took positions in three companies that I use on a day to day basis: PayPal, Google and Facebook, with Google as the biggest position.

I am a customer of multiple google services from Google suite (now called google workspace), Google advertising and Gmail. I spent a good amount of money in advertising services in Facebook and Google in my operating business.

I decided that the advertising power behind Google and Facebook is humongous. These companies are also somewhat able to generate returns at non diminishing margins due to the nature of being labour light as technology companies.

The digital advertising power behind these companies are monopolic. How much time and attention do you spend behind Instagram and Facebook?

Facebook owns Instagram. Unfortunately, as thumb sucking millennial, I do spend a good portion of my attention on these platforms.

Thirdly, Paypal was selling at 70–90 times earnings when I purchased it. Traditionally, I would have avoided companies that sold at 70 times earnings.

However, one of the reasons why I decided to go ahead with a smaller position in Paypal was because of Covid. It has forced the world to transform to digital payments. Paypal’s quarterly reports reflect highest user acquisition and revenues amongst years.

Can Paypal continue to ride on one of the humanity’s biggest pandemic in decades? I’m sure they could.

I’m sure humanity wouldn’t go back to their old ways. It’ll might be too costly. Needless to say, I rationalized that the world was going into to be digitalized increasingly regardless, Covid merely made it an utmost necessity.

Principia

If I told you I was fully invested in index funds and didn’t watch business, finance news for 5–6 years straight and didn’t care if the market dipped 20–30% on multiple occasions and grew the portfolio at the market rate for 5–6 years, you wouldn’t believe me, would you?

Truth is, I didn’t. (and the naysayers would find themselves shrilling at the top of their voices: but Marcus… you are not an expert, how dare you!)

Now, to name an example, I was fully invested when Covid 19 came along and the American portfolio lost 30% or more within weeks with world news declaring pandemic gloom.

However, if you tracked dissenting views from Nobel Laureate Michael Levitt, you’ll find out that Covid wasn’t that bad. (I shan’t go on a rant on excess deaths here, but just know that it isn’t as bad)

I saw it as an opportunity to buy more. How I wished I had more access to capital then.

“Most People”

If you asked “most people” how they tracked their returns on their portfolio they’ll mostly return answers with a glazed look. If you asked most people if they tracked their returns against a benchmark, they’ll let out a grunt or two.

That’s because most people don’t measure their returns.

1) The excitement of trading in and out and 2) nonchalance about measuring results as an entire portfolio is part denial and partly because most perceive the stock market as something that they can magically predict.

Hence they spend years exciting betting small on stocks like Nio: the electric car maker without actually looking at the returns as a whole on their portfolio.

I had numerous people come up to me excitingly over this year thumb twiddling over the counter ‘Nio’.

Yet I know if I were to peek at their portion size, I’ll know it’s barely a 5–10% of their portfolio. (and most of them didn’t count) They were gambling. It’s something they do for the thrills.

Principally, my aim of investing is strictly making an adequate return against the market with capital preservation as a priority.

The human condition is to look at easy information (the news) and make a bunch of assumptions. In 2021, there is ‘vaccine optimism” and hence our current portfolio of stocks may become well overvalued next year. I’ll be looking to sell them upon overvaluation, and find other securities that are more deserving of capital.

On a last note: the financial education business in Singapore is ridiculous with perverse frolicking. Then again: it sells. Once again reaffirming the quiet desperation of the masses.

On some occasions, a couple of friends have told me that I’d make a fit for a classic Adam Khoo or Imran Ali since I am naturally didactic and had the social flair to back it up.

Then again, I always felt I had a reputation to keep and that it’ll serve me in the longest run.