To The Moon

Portfolio allocation

Portfolio allocation needs to be based on industries and countries. Given the recent developments in the US, I am even more convinced to move more of my investing into Asia, BRICS and other developing regions. I remain interested in a few US companies that have global presence.

Investing Strategy

I have recently added macro considerations to my fundamental analysis. For my entry and exit, I rely on technical indicators. Technical analysis help me to remove emotions out of my decision making. The following is part of my “evolving” investing strategy:

MACRO + Fundamantal Analysis + Technical Analysis (for entry & exit)

As an aspiring value investor, this sounds ironic as value investing looks mainly at the stock’s fair value, moat and proven operational & financial performance. For “authentic” value investors, macro was not a typical consideration. Typically, they take up positions of the stock when it reaches the target price (with a margin of safety factored in).

Some of the investors do not regard macro as a consideration. However, let us look no further than the Ukraine conflict & Trump’s trade war with China that have brought much volatility to the global markets. Once Putin decides to end the Ukraine conflict, we can be confident that there will be a “strong” rally from the global markets. Geopolitical factors do have their influences.

Some of the quantitative macro factors that I monitor are Gross Domestic Products (GDP), inflation and unemployment along with considerations for supply chain, extreme weather, domestic and geopolitical events. The price is the result of demand and supply. While I am not smart enough or claim to have sufficient data, I do not see the need to link price movements with the limited causes that I am aware of.

Macro - are we facing a recession?

Recession Cycle by ECRI

While I am bullish for some companies, I am bearish about the current macro environment. With more data showing the US market heading into a recession, we can expect falling sales, falling production, retrenchment & falling income caught in a vicious downward cycle.

This implies that there is room for more downside even if some stocks have reached their fair valuation. Here are some of my concerns:

• Stubborn inflation (YoY at 6.5% for Dec 2022)
• Credit Card revolving debt hits record 43% in US
• 63% of US citizens are living from paycheck to paycheck
• Recent layoffs by some of the Big Tech and banks (though the most recent initial jobless claims came at an expected 205K as of 12 Jan 2023)
• Crypto has fallen much though Bitcoin has recovered to the $20K level
• Market outlook seems to be largely gloomy as per recent earnings

I may be wrong to be waiting for blood in the street but I have more concerns than optimism. I do not think that I am smarter than the legendary value investors but I need to go along with what I have researched and have convictions in. I do not think that any one can be certain about the market outlook. However, more data are stacked towards a market correction over that of recovery. With the stubborn inflation and more rate hikes expected, more households & businesses would unfortunately go under. Thus, I am using the coming months to exit some underperforming stocks. I am hopeful for the best but I am also prepared for the worst.

Asset classes

For investing, I have invested into the following assets:

• Real estate
• Stocks (Growth, Value, Defensive & dividend stocks)
• ETFs
• Retirement funds (in Singapore, it is known as CPF)

When asked, I do not trade options as I do not think that I know this well enough. I find it hard to learn another instrument when my equity investing itself is less than satisfactory. There are more restrictions in options - with price and time limitations and thus, it is something that I stay away from.

My shortlist

Personally, I am interested in stocks like:

• Platform business ~ Microsoft
• Android ecosystem ~ Google
• E-commerce & cloud ~ Alibaba is working to be the global leading player in e-commerce and cloud. They are hoping to deliver to all major cities in the world within 72 hours as part of their global footprint. I have been buying Alibaba since the low $200s and have been averaging down my holding.
• Sustainability companies ~ BYD & Tesla, I have closed out most of my other automakers and EV positions to consolidate my position into both BYD & Tesla. I think that both of them could be the leading players due to their vertical integration, excellent processes, positioning and innovations.
• Capital allocators ~ Berkshire, Tencent (bought in proxy via Naspers and Prosus)
• Seasonal trades ~ I am also taking up some “seasonal” trades to take advantage of the short-term volatility.

I plan to conduct detailed earnings review. No business can have a permanent competitive edge and thus, these will help me to decide on buying, holding, selling or monitoring.

For some stocks, we can be their customers. For some, we can be their investors. For some, we should just be spectators.

China & her potential

With China poised to overtake the US being the biggest economy in the world, I plan to invest for the long term as China continues to grow aggressively. The Covid19 pandemic may have set China’s growth by a few years but China is still on track to be the biggest economical player on the global stage.

We have several who stayed away from China due to political concerns. However, reading some of the news and policy from non-Western media has brought better understanding about the China market. I have better understanding of how the private sector is expected to support the country’s overarching interests. This is not the practice in the “West” as some businesses have “influence” over politics and policies.

I have previously bought the shares of a few Chinese state-owned businesses from the Hong Kong Stock Exchange and plan to hold on to them. Some of these are bought in my younger investing days, without due diligence, research or fundamental analysis (which I do not recommend). I hope to invest into China’s equivalent of Google, Amazon, Apple & Tesla while they are still (hopefully) affordable. Some of these have turned out to be rewarding in both price appreciation and dividends. Annually, I will re-invest the dividends back to these Chinese/Hong Kong companies.

Note the dividend payout of Sinopec was over 14% for 2022. Singapore investors will have to pay 10% withholding tax ~ still an impressive 12+% dividend return.

Apart from Sinopec, the Hong Kong petroleum & gases stocks still boast an attractive gain between 5% to 14% for 2022 (before withholding tax). This could be something to consider. Personally, I go for China state-owned businesses for security.

ETFs

Initially, I was looking at ETFs as filter. Big companies have spent time researching on the companies for their ETFs. I used to spend time going through the various ETFs to filter out their top performing stocks.

Currently, I am holding a few ETFs, meant for mid to long term. I am interested in a few developing countries and agriculture. In lieu of the climate challenges, the Ukraine war, inflation, strong US dollar and the agricultural challenges, several countries are facing food insecurity issues as per reported by IMF. For some of the developing countries, I have invested a small amount in ETFs as I do not have access to the country’s stock exchange from my current brokerages.

However, I am gravitating towards buying into good capital allocating businesses instead of ETFs. One of the companies that I have invested in is Berkshire Hathaway.

Buying into Berkshire is buying into a portfolio of some of the top companies in the world that includes Apple, Bank of America, Chevron, Coca-cola and Occidental. Under the baton of Buffett and Munger, Berkshire can boast one of the best returns in the market. I plan to add my holdings in Berkshire and treat this as ETF without the ETF fees.

My final thoughts

To operate from an understanding that “I could be wrong” is my present frame of mind. I realized that despite my research, I do not have “complete” information on hand. However, I hope to see things simply & clearly - embracing views from bulls and bears alike to setup an objective outlook. I do not need 20 technical indicators on my chart ~ the MACD indicator is one of the best indicator to consider.

Let us spend within our means, avoid leverage and save “cash for crash”. Let us identify great companies so that we can buy them with good margin of safety.

Here is wishing all a most blessed Chinese New Year. May we have health and prosperity in the year of the rabbit.

@TigerStars

 $Microsoft(MSFT)$ $BYD COMPANY(01211)$ $Alibaba(BABA)$ $Prosus NV(PROSY)$ $Berkshire Hathaway(BRK.B)$