Regrettably, it’s been a long while since I’ve written an article. Initially due to NS and subsequently because I had to hit the ground running at my internship. Now that I’m starting to get used to the intensity (hopefully), I am looking to get back into writing because I enjoy sharing what I have learnt and have also found it to be beneficial in terms of helping me collect my thoughts. In fact, this year I am hoping to write more broadly about things I’ve observed/read and learnt that may be useful to you guys. For now, since it’s the start of the year, I thought I’d take the opportunity to do a review and layout my plan for the year ahead money-wise.
Disclaimer! Nothing written in this article should be construed as investment advice.
Where are we headed in 2023?
As I am not a seer, I won’t try to predict where the markets are headed, but I will lay out some facts. From its trough in October 2022, the S&P500 has rebounded by 12%. This rally suggests that investors are optimistic that the worst is behind us – that inflation has peaked and that would prod the Fed to cut interest rates later this year, even as Fed officials insisted that it was too early to think about shifting policy.
However, recent macro economic data seems to suggest otherwise. U.S. job growth accelerated at the start of the year as employers added a robust 517,000 jobs, well above the 2019 pre-pandemic average of 163,000. This pushed the unemployment rate to a 53-year low of 3.4%, raising doubts on whether inflation is under control.
When I first saw these numbers, I couldn’t wrap my head around it. During the same period, big tech companies were announcing massive layoff every other day. How could all the huge layoffs and the talk of recession be reconciled with the strong macro economic data? I did some research and it turns out that these tech companies account for only 2% of the American workforce. The hiring is happening in a much bigger part of the economy, the service sector, which includes all kinds of businesses – everything from restaurants and hotels, to dry cleaners and hospitals. The employees in those sectors account for about 36% of all private sector payrolls.
So while I don’t know where the markets are headed, I would be cautious of declaring that inflation has peaked and I wouldn’t rule out the possibility of the Fed keeping interest rates higher for longer.
Since the start of 2022 until today, my portfolio has suffered from a decline of ~9%, slightly better than the S&P500, which is down more than 16%. While a significant portion of my portfolio is in the index, the decline was partially offset by the relatively strong performance of my Singapore investments.
Still, this is nothing to be satisfied with as it is now plain as day that it was much better to hold cash throughout 2022. However, hindsight is 20/20 so I try not to harp on it too much. The bright side is that because I deploy my capital in tranches instead of in a lump sum, I still have dry powder to take advantage of the correction that is still playing out.
After a review, I don’t see any deterioration in the fundamentals of my portfolio companies that warrants selling any of them. As I genuinely don’t know where the markets will be tomorrow, one month or six months from now, I am happy to hold what I already have in my portfolio and continue dollar cost averaging as the year progresses.
Note: This only includes my invested capital and does not include cash
Plan for 2023
As of now, I have no plans to divest any of my holdings and intend to continually invest more throughout the year, no different than what I have been doing last year. I do however, plan to make minor tweaks in allocation as I add to my portfolio.
Broad-based ETFs tracking the S&P500 and the world index will continue to form the foundation of my portfolio and I will continue to DCA throughout the year, maintaining my allocation to ETFs.
One thing that will be different for me this year is that I will be less active in looking for individual businesses to invest in, simply due to limited time and capacity. That being said, I will still continue to monitor those that are already on my watchlist. One of which, I will share more on below.
At the time of writing, I find REITs to be priced at a very attractive level with some of the well established REITs boasting 5-6% yields. The somewhat depressed prices could be attributed to the high interest rates, which translates to increased cost of borrowing for REITs. However, I believe that well-managed REITs with comfortable gearing ratio, high proportion of fixed interest debt and high interest coverage ratio will have no issues delivering satisfactory returns to shareholders. On top of that, REITs remain my only viable mean for exposure to real estate at the moment and their steady dividends can provide stability to my portfolio if markets make a turn for the worse. Thus, I have taken the opportunity to increase my exposure to REITs in the first two months of 2023 and will likely continue to add to my position if prices become even more attractive.
Finally, T-bills remain a good place to park short term cash, with the latest issue yielding 3.9%. As I’ve mentioned on my telegram channel multiple times, I have been adding to my T-bills position throughout 2022. However, they are more of a short term investment and I hope to recycle the capital into equities and REITs should prices become more attractive in the later part of this year.
Biggest Mistake of 2022
No doubt, I have made many mistakes in 2022. None, however, is as costly as this one of omission. In mid 2022, I had my eye on LVMH, and conducted due diligence on the business and its various brands. Even without owning any of their products, I appreciated the ubiquity of their brands and how they are synonymous with wealth and status. The brilliance of Bernard Arnault has also been something I have read about and admired for quite some time. The world’s largest fashion house thus checks all the right boxes. Ultimately, I chose to hold off on buying any LVMH shares because the market levels looked frothy.
Fast forward to today, the share price has increased by more than 40% while my portfolio has slumped along with the markets and I still don’t own a single LVMH share, so I am literally slapping myself for that mistake.
At today’s prices, I am calling it over-priced, so check back in a year to see whether I am right about that… Nonetheless, LVMH is one of the companies that I will be watching closely this year.
I must admit, it’s great to be writing again and I really hope the stuff I share is beneficial to you guys. In view of my commitments, I am looking to publish less often but dive into greater detail each time and hopefully provide greater value in each article. I already have a couple of exciting ideas, so stay tuned!