Not Sitting out of the Market

Uncertain.  Gloomy.  Bleak. 

These are some words that one notices when one reads the news concerning world economy.

So is the world approaching a recession or is the recession already here?

Singapore, for now, seems to have averted a technical recession.  In fact, our new prime minister, also the current financial minister, Mr Wong has said quite clearly in July that “Singapore’s economy is not at risk of recession or stagflation at this stage.”  In fact, the government seems pretty optimistic that the Singapore economy will not slip into a recession or stagflation next year although one must take note of the caveat “significant headwinds remain globally.”

What about the world’s most significant economy in the USA?  Discussions on the state of the economy of the land of the brave and free, on whether it has entered recession or not, can be pretty robust and or even heated.  

The US economy shrank by 0.9% in the second quarter of this year.  In the previous quarter, the economy contracted by 1.6%.  Put loosely, a recession is defined to be a period of 2 quarters of negative GDP growth.  Hence by definition, the US is in a recession.  

And if you watch Fox News which is pro-Republican (or pro-Trump), then you get the message that under the Biden administration, the US has entered a recession.  Here’s what Tucker Carlson said on his show on July 29th:

“We’re in a recession. The economy has been shrinking all year. Real wages are at record lows and at the same time, inflation is the highest it’s been in the lifetime of most Americans. So, call it whatever you want, but it’s a recession and it’s scary …”

But is it? Has the US entered a recession and is it then going to drag the world economy down soon?

Well, according to the president who shakes hands with thin air, the US economy is just fine and dandy.  He cited record job growth and foreign business investment as signs of a healthy US economy, the 2 quarters of economic slowdown notwithstanding.  

Up until now, the National Bureau of Economic Research (NBER), the official judge on whether the US economy is in a recession or not, has yet to declare so.  The NBER deems the current labour market to be strong, and business inventory levels to be healthy … so no recession.

What about the condition of the world’s 2nd largest economy?  The Chinese economy registered a 4.8% growth in the 1st quarter before weakening significantly to just 0.4% growth in the 2nd quarter.  

Still not a recession for China’s economy for now but what is the 3rd quarter going to be like?  Will the USA announce a recession in the 3rd quarter?

The economic and political tea leaves seem to point to a postulation that the recession will make its unwelcome entry before the year ends.  Inflation is still white-hot.  Global supply chain is still a tangled mess. Russia’s war on Ukraine is still unabated.  Tension in the Taiwan Straits remain volatile and could spill over into S.E. Asia. The US-China relationship has grown more contentious.

Basically, it is foolish to look at current world affairs, whether politically or economically, with rose-tinted glasses.  Hence I am leaning more towards the view of a recession arresting the world economy sometime in the very near future, if not by the end of this year, then in 2023.

Again I might be reading the recession tarot card wrongly: the recession might come much later beyond my expected timeline or even not at all. Given that I might be wrong, I decide that I should still continue to invest in the stock market regularly while keeping some cash at hand.  Going 100% in cash is counter-intuitive.  After all, it is time in the market that matters over the long run, rather than timing the market which no one is an expert in. 

I continue to DCA into my MoneyOwl portfolio, Syfe Core Equity and Reit+ accounts.

The time-weighted return for these portfolios are as follows:

Money Owl Equity Portfolio: 33.73%

Syfe Core Equity: -11.27%

Syfe Reit+: -2.96%

I used to hold the Syfe Reit+ portfolio but decided to sell all my units so as to get Reits on my own on my CDP account.  However, I am not always diligent in monitoring these Reits all the time myself and find the robo-advisory solution just the answer for investing in blue-chip Reits every month. So last month, I restarted the Reit+ portfolio with Syfe.

I also invest in the US market using Syfe Trade regularly.

The US market has seen quite a fair bit of volatility since the beginning of the year, what with record-high inflation and interest rate hikes.  The S&P 500 has fallen twice into bear territory, the first time just briefly on May 20, and again on June 13 for a longer period of time.  In July the S&P 500 seemed to have recovered some but optimism in Wall Street remained muted.

With all these uncertainties that prevail in market sentiments lately, one can be paralysed to act.  To buy some US growth stocks at reasonable prices or not, that’s the question!  In the end, I decided to the plunge.  To not take advantage of market downturns, whether these downturns are just transitory or protracted, is just such a waste of opportunities.

So I’ve gotten me these stocks on Syfe Trade::

1. Alphabet (Google)

2. Amazon

3. iShares US Aerospace Defense ETF (to take advantage of the global arms race)

4. Microsoft

5. Nu Holdings 

6. Nvidia

7. Robinhood Markets 

8. VanEck Vietnam ETF (to take advantage of Vietnam’s rising economy as manufacturing firms move out of China to Vietnam)

The bond market is also looking attractive. Rising interest rates have made bond yields attractive.  I’ve made an application for the latest Singapore Savings Bond, SBSEP22 (2.8% average return over 10 years).  I kick myself for missing SBAUG22 which offers the highest long yield of 3.0% in SSB history.  The SSB is a good alternative to park excess cash as it is principal guaranteed, and for the September issue, the interest rate is higher than CPF OA interest rate of 2.5%. 

The water may seem disturbed now, with turbulence in the depths beyond detection. So the advice I give myself is to wade in slowly and calmly, and keep my emotions in check when dealing with my investments.

May there be more low-hanging fruits for the picking in the months ahead.

Almost all the great investors I know are unemotional. Unemotionalism is one of the most important criteria for being a successful investor

Howard Marks

Managing Life and Investments in Current Market Jitters

It does look like the world stock market is approaching an imminent crash in the months ahead in the current climate of high interest rates, impending inflation, the Russia-Ukraine military conflict and the resultant energy and food crises.

Some say that the current jitteriness seen in the stock market is akin to a crash, while others say that the stock market crash is not here yet, with the premonition that the worse has yet to come. I am of the opinion that what we are seeing right now is just a market pullback, albeit a very unsettling and deep one .

Since January, I have only committed some SGD7000++ to my investment portfolios. I am putting aside more for my warchest so that I have more cash to deploy in the event of an actual market crash. Currently my warchest is about 20% of my total portfolio value, which is not a lot actually. I hope that by the time the Great Winter Sale comes around, I have already amassed 25% (or better yet, 30%) of my current portfolio in cold, hard cash.

It’s time to cut back on spending and work harder to earn more.

With inflation getting worse by the day, it’s hard to cut back on overall spending … but one must never give up trying. It’s a good thing that we don’t own a car and hence not have to worry about high fuel prices. I can’t even remember when the last time was that I tapped on the Grab app or flag a taxi down on streets. We use public transport all the time now.

Our family has also basically stopped eating hawker food. We, as a budget-conscious family, have not gone to a restaurant for a long time. Even a McDonalds meal was a while back in January. We are nowhere close to sampling Jeanette Aw’s “whatthefudge” or any of FannWong’s bakes any time soon. We have resorted to cooking at home or going over to our siblings’ or parent’s place to eat (when invited, of course!). Mum has been an excellent blessing cooking for all of us, and buying us food from the market to take home (cue the music 世上只有妈妈好).

A 2nd Family Income and A Side Hustle

To help mitigate rising costs of living for the family, my wife and I have done two things;

1. My wife has started on a job recently. Actually she does not have to as my income alone is sufficient to meet the family’s various needs, even during this time when prices of most things go north. She wants to use her time profitably now that the kids are older. It certainly helps to have a second income for the family. Part of her income goes to buying groceries for the family. She puts aside the rest for rainy days.

2. I restarted tutoring, my side hustle, this year. I started tutoring after I completed my O levels aeons ago. Tutoring a compulsory school subject and teaching an enrichment subject over the years have always given me a good side income. And I have done so on and off for many years before stopping entirely when the kids arrived. I picked up tutoring again after friends and family members started asking in January. I earn slightly over SGD1400 for spending 8 hours with my students per week. This amount just about finances my investments in MoneyOwl and Syfe every month.

Crypto Destruction and a Battered Stock Portfolio

The talk around town last week was Terra Luna crypto crash. At this point in time, let me just express my sympathy to those investors who had lost their investments in the Luna collapse. Some had their unrealized gain of tens of thousands and even hundreds of thousands of dollars gone up in smoke in the crash. To those affected by this crash, I wish you well and hope you will recover not just your fortune but also your confidence in investing. Please do not let any negative thoughts or any snide remarks made by others bury you deeper in your despair.

誰無暴風勁雨時,守得雲開見月明

水滸傳, The Water Margin

Thankfully, I did not hold any Terra Luna in my crypto portfolio. Nevertheless, my crypto portfolio took a severe beating in the recent crypto massacre. The absolute dollar value of my crypto portfolio dropped by a whopping 61.8%! My crypto portfolio consists of the usual suspects such as Bitcoin and Ethereum, and some metaverse tokens and a few Defi coins.

Is the slump in the cryptocurrency market a prelude to the eventual cryptocurrency winter? Will cryptocurrencies die and become obsolete in the future? Depending on who you ask, you are going to get a different answer. Personally, I think cryptocurrency is here to stay. The kind of correction in the overall crypto market that we are currently seeing is nothing out of the norm, given the volatile nature of cryptocurrency.

No one, not even so-called experts, has been able to predict the crypto market with any level of precision, and that probably won’t change any time soon. I have my own convictions on cryptocurrencies and it’s best that I follow my own persuasions. I know for a fact that the crypto market is rife with speculation. I have also come to accept that crypto prices can change direction very quickly.

Therefore I have limited cryptocurrencies to just 5% of my overall portfolio. Right now, my crypto portfolio is only 3% of my entire portfolio value. So I still have some more wiggle room in my crypto portfolio.

My growth stock portfolio is also not doing very well: XIRR -53.76%! The 3 worst performers in my battered growth stock portfolio are:

1 . Palantir -71.14% (2.85% of growth portfolio)

2. ARKK -65.96% (4.49% of growth portfolio)

3. Alibaba -44.87% (19.81% of growth portfolio).

Growth/Tech stocks have had a good run up until January this year. During the pandemic period, growth stocks valuation and price were off the charts! However, the valuation and price for these stocks are now on a downward trajectory. Is it time now to start buying growth stocks? I am thinking very hard and long on this.

Well, I need to admit to myself that the outlook for the stocks in my growth portfolio is still cloudy. It is therefore only prudent for me to wait for the turbulence in the market to subside first before adding more substantial positions. There are just too many negative signals in the growth stock market to not be cautious.

Nevertheless, I have not ruled out taking nibbles from time to time … just not big bites. I’m taking small amounts of my expendable money and investing them in high quality stocks such as Amazon, Google and Apple as their prices come down. I’m buying the dips with a few hundred here and a few hundred there.

To facilitate my small purchases, I use SYFE Trade. May is the last month (3rd month) when I get to enjoy 5 free trades and a minimum fee of USD0.99 per trade thereafter. Beginning June, I will get 2 free trades, and from the 3rd trade onwards, I will have to pay a minimum fee of USD1.49 for each trade.

My dividend portfolio is also not in a good shape, although not as badly thumped and bruised as my growth portfolio: XIRR -14.56%. The 3 worst performers in my dividend stock portfolio (after accounting for dividends collected) are:

1 . China Life -33.2 % (1.33% of dividend portfolio)

2. PingAn -28.28% (5.58% of dividend portfolio)

3. Comfort DelGro -26.97.% (2.86% of dividend portfolio).

I love collecting dividends, and it is therefore no wonder that my dividend portfolio makes up 72% of my overall investment. I find comfort and security in well-established companies that have a track record of distributing earnings back to shareholders year after year. As we head towards a bear market, dividend stocks are, in my humble opinion, safer bets than growth stocks as dividend-paying companies tend to have more defensible business models, stronger balance sheets, healthier cash flow, and less down-side risks than growth companies.

As of now, I am keeping to this portfolio structure: 70% dividend stocks, 25% growth stocks, 5% cryptocurrencies.

Closing Thoughts

One thing is sure though: signs are indeed pointing to worrying times ahead.

How long will stagflation last.should it come to pass? Will Russia launch a nuclear attack on the EU? How will the USA’s desperate attempt to contain China end? Will the tension between the 2 super-powers eventually escalate into a war, thus starting the 3rd world war? What will the world be like when climate change, food shortages and energy crisis worsen?

I really don’t know what to think!

I’m hoping and praying for peace to prevail, starting with the cessation of conflict between Ukraine and Russia. But come what may, I’ll keep investing while keeping cash at a comfortable level. I hope my faith in humanity is not misplaced and that world leaders are not stupid enough to trigger a massive war that will threaten peace and prosperity for the world.

As a reminder to myself in these uncertain times: work hard, invest wisely, and hope for the best.

Adding Positions with Caution

So much has happened this first quarter of 2022.

The market is gripped by the war in Ukraine. There is also the surging inflation that weighs heavily on every investor’s mind. In addition, there are the escalating energy crisis and impending food crisis to worry about. The future does not look bright, and the overall global investing environment looks just a tad dim and gloomy.

Hence, since January this year, I’ve been adding positions with a lot of caution.

Just before the advent of the new year, I liquidated my positions with MoneyOwl and Syfe, pocketing about $7K in profit. On hindsight, I was glad I did it because the market has not been performing very well this quarter and I had gained from taking profit off the table.

Even so, I am still continuing my monthly plan with MoneyOwl, buying the dips during market lows. My wish is the low market sentiments will continue to persist throughout the rest of the year, thus allowing me to buy in low with MoneyOwl.

As with Syfe, I decided not to return to my former Global ARI and Equity 100 portfolios for the time being. I’ve joined Syfe Trade instead. I like Syfe trading for the following reasons::

1. It is just so easy to use. The interface is straightforward and navigating it on the phone is an absolute breeze.

2. Access to US market on the cheap: 2 free trades after promo period (ends 30 March) with super low fees of USD 0.99 per trade thereafter.

3. Fractional shares: I can buy Amazon shares for as little as USD 10 instead of forking out USD 3000+ for one complete share.

I have since bought a few counters on Syfe Trade:

1. Alphabet

2. Sea (share price has fallen about 48% year to date).

3. Mosaic Company (Fertilizer Supplier)

4. Nutrien (Fertilizer Supplier)

5. Compass Minerals (Fertilizer Supplier)

I bought fertilizer companies to take advantage of higher fertilizer prices as sanctions on Russia threaten fertilizer supply. I was, however, too late to act on oil and gas companies. I shall wait for a better time to enter the market for O&G stocks.

Apart from US stocks, I also loaded more China/Hong Kong stocks. Up until mid-March, Chinese stocks have been badly battered. For a good one-year period, Chinese tech stocks have been under constant sell-off pressure. The rout eventually came to a halt when in mid-March, the Chinese government came out with a pledge to keep markets stable.

Very thankfully, I was able to load up on Alibaba, Tencents and Lion-OCBC Hang Seng Tech ETF during the 2-week period before the rally started.

As of now, the rally seems to have lost some steam, and buying opportunities still abound. That said, I am still a little cautious on buying more Chinese stocks as I am not too sure of how China will be “persecuted” by the West for directly or indirectly supporting Russia. There is also China’s challenges in battling the current surge in Covid cases and the overall economic slowdown.

There was also price weakness in the Singapore market from mid-February to early March. I took the opportunity to load up on Ascendas Reit and MapleTree Industrial Reit, 2 high quality reits, at SGD 2.80 and SGD 2.46 respectively.

Without a doubt, global economy outlook does not look particularly promising. Mr Tharman highlighted five woes that the world is currently facing and will continue to face in the future*:

1. Geopolitical insecurity

2. Risk of stagflation

3. Climate crisis

4. Pandemic insecurity

5. Inflation/Slower growth

Just last week, Mr Lawrence Wong, while assuming the Singapore economy is on a growth path this year, asserted that “a recession or stagflation cannot be ruled out, owing to uncertainties arising from the deepening crisis in Ukraine.”**

Hence I choose to be careful with investing going forward. Getting the margin of safety right is even more significant and consequential than ever before. It is extremely difficult committing capital to the stock market during uncertain times. And yet, as history has shown, there are often huge rewards to be reaped in the long run. I just need to find my own sweet spot in the risk-reward conundrum. 

Investing scared will push you to go through due diligence, employ conservative assumptions, insist on an ample margin of safety in case things go wrong, and make you invest only when the potential return is at least commensurate with the risk. Investing scared will result in making fewer mistakes.”

Howard Marks

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* https://www.mas.gov.sg/news/speeches/2022/responding-to-a-perfect-long-storm

** https://www.businesstimes.com.sg/government-economy/singapore-gdp-likely-to-grow-but-recession-stagflation-not-ruled-out-lawrence

Disclaimer: I am only an amateur investor and nothing you read here on my blog constitutes financial advice.  I write here to detail my investments, strategies, and analyses.  Feel free to read at your own risk.  Should you need financial advice, consult a licensed financial advisor.