Saturday, September 14, 2019

Journey To Retirement (CPFIS) Part 5.1, (SRS) Part 1.1 -- FrasersCom Trust

Early this month fully divested FrasersCom Trust in both CPFIS and SRS portfolio, inline with the divestment of the Strategic section of the Investment Portfolio (will talk about that in future).

For the CPFIS portion, it was divested at $1.6999 while for the SRS portion, it was at $1.697.  As a result, CPFIS portion achieved a profit return of 105.70% while the SRS portion was 106.48%.  Started building these portfolios in 2015 (refer here) based on Sun Tzu's Art of War (孙子兵法) principle.  For the period of 4 years, this has given an annualized return of 19.76% and 19.63% for CPFIS and SRS respectivelyIn order for CPF to achieve that kind of return, even with the help of compounding it needs to take between 10 to 11 years compared to 4 years only for my strategy.  From another perspective, for a period of 4 years, even with compounding, CPF could only achieve a return of 14.75%, about 6.8 times lesser than what was been achieved.

How and why I can achieve that ?  No rocket science involved !

1.  Don't trust easily
The CPF scheme was a very good one when it was first implemented in the early stage of the post-independence years.  However, as times went by, the return just don't make sense or rather justify to me that it is sufficient to combat the forever increasing cost of living and inflation despite all the sings and praises by the Government and Financial Advisers.  All things in this world have both pros and cons.  Should you just trust everything easily, you will forever fail to see the negative aspect and hence missing the opportunity to work out something better.  Take a pinch of salt from whatever the Government and Financial Advisers said about CPF.  One footnote, never trust a politician especially the one has the power regardless whether he/she is a good son/daughter, a good father/mother, a well-liked personal, etc.  They just follow the political party's blueprint way of doing thing.

2. Nothing is free
I was born to understand that nothing in this world is free.  So for all those sings and praises about CPF being risk-free bah bah bah, I totally ignored it.  There is no such thing as risk-free in the absolute term.  Risk-free is just a relative descriptor.  Thus, I work hard in thinking, experimenting, making mistakes and learning from mistakes methods to get better return than CPF.  Yes, while most are still singing, praising and feeling proud that Singapore has this CPF scheme to help them retire, I rather work hard to come out with a better way than thinking that no other method can be better than CPF.  One footnote, the moment you start to think of risk-free, psychologically you are defeated already.  Nothing philosophical about that just Sun Tzu's Art of War essence.

3. Risk understanding and management
As mentioned nothing is absolute risk-free.  One must understand what type of risks is being involved and how to management those.  The method I've used to get that kind of return is also not "risk-free".  The difference is I understand totally what type of risk I will be getting into, derive a strategy to manage it and making it overall a calculated risk strategy.

Reflection Time
So what's next ?  Nothing for me to cheer about on those return but rather time to reflect and examine what has I not done correct for this investment or strategy.  Be critical so that the next round I could improve on it to get even better return.  So during these periods and while waiting for the next opportunity to start again, the capital PLUS the profit will be back in CPF and SRS to earn the so-called "good", "best" and much praise about return.

1. Keeping the cost low
The holding price for the CPFIS and SRS portion were $0.8209/unit and $0.8230/unit respectively.  That cost is not considered low enough if compared with the Strategic section of the Investment Portfolio ($0.2424/unit for 5 stocks combine and each of those 5 stocks all costing more than $1, jaw dropping ?).  A breakdown of how the cost was being incurred during the 4 years period was due to broker's commission, SGX fee, Agent bank's charge for each transaction, Agent bank's quarterly custodian fee and another component which I labeled as variable cost arises from execution.  While the broker's commission, SGX fee and Agent bank's fee can't be avoided and seen as fixed cost, the variable cost portion is something I could minimize to 0 or better still offset all those fixed costs to eventually make it overall $0 cost.  Theoretically, this is achievable and it is also the starting point of my strategy.  Hence, for next portfolio, more emphasis should be placed on this to really minimize the cost, at least do it better than this round.  Minimize the cost, maximize the return.

2. Aggressiveness
I have a targeted quantity (number of shares) for this round of investment.  However, I did not place any time frame on it to reach that quantity level.  For this round of investment, the quantity so far build up is only about 28% of the intended target.  Maybe for this round of investment if given a period of 10 years, that quantity level could be achieved.  Now, using the statistic obtained in this round of investment, it will serve as a guide of how aggressive I need to be in the next round of investment.

3. Timing
Timing to enter or exit the stock market is always the hardest part.  Even with the help of Technical Analysis, it is still a possibility to time it correctly only.  Started building this portfolio in 2015, before the stock market peaked in Apr 2015.  You might say the entrance timing was wrong.  Technically, it is correct but since the strategy I adopted is about minimize the cost and maximize the return, the timing of entrance should not be a key to it.  Unlike timing to enter, timing to exit definitely affect the amount of return I could get.  Thus, for next round of investment, I will aim to start building the portfolio at the "correct" timing (look likely either end of next year or by the quarter of 2021 based on my analysis of stock market so far).  This should help to a certain extend to minimize the cost theoretically.  As for exit, it's a catch 22 situation.  Should I detected the "correct" timing to exit but due to the fact that the portfolio size has not been built up to a point that taking profit becomes meaningful, it doesn't make any sense to exit.  So the exit timing can be considered a handicap.

4. Stock selection
This probably is the head scratching issue.  Ideally, a sound fundamental stock with a good business growth trajectory, a reasonable consistent dividend yield of at least 3.5% (using CPF rate as benchmark) would be perfect.  However, frankly speaking, finding a stock that fit those criteria is just 难如登天.  As a result, I turn to S-Reit for this round.  So far, the decision looks correct.  Hence, for the next round, the question shall be should I continue to stick with S-Reit or hunt for a non S-Reit stock.

5. Portfolio size
I only have 1 stock in both the CPF and SRS portfolio, compared to 5 in the Strategic section of the Investment Portfolio.  Given that both (1 or 5 stocks in a portfolio) I'm also to able to achieve a very good return, the next round for the CPF and SRS portfolio sees no reason to continue to stick with just 1 stock.

That pretty much sum up all the things that need to reflect on and determine what can be improved for the next round of building up the portfolio.

孙子日 : 凡战者,以正合,以奇胜

Lastly, don't ask me detail of how to apply 孙子兵法 to stock investment.  No war generals or CEOs of a company will publicly reveal their strategies.  孙子兵法 is not a book of tactics like those of 三十六计.  It is build on a set of 13 principles and from understanding these principles that eventually derives the strategy to win the war.

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