Well, 2018 was a fantastic year personally. Unlike 2017, when I felt so much stress when buying stocks. This year, most purchases were done knowing they are likely to be very profitable, and replete with opportunities to purchase are either the same prices despite an improvement in fundamentals, or at increasing discounts!
However, for many, I imagine it was likely to have been incredibly painful. Unless one is a very shrewd trader, or a truly inoculated value investor.
After the incredible rise of the mid-caps of KLSE in 2017, and the non-stop bull run of markets worldwide. Most have predicted 2018 to be another bull year. Me included.
However, as always, we humans are often fools extrapolating the now into the future with zero understanding of natural feedbacks.
Thankfully, whether I thought it was going to be a bull year or bear year meant little. As I don’t operate based on macro views, but rather from the bottom up.
From a year of zero volatility in 2017, to a year of maximum volatility in 2018.
There was a trader in the US nicknamed “50 cent”, who went from having a negative USD 200m trading P/L, from buying out of money options VIX (volatility index tied to CBOE) consistently throughout 2017, who in the space of 3 days, turned that into a profit of USD 200m in 2018. A swing of USD 400m.
Most have “Turkey before Christmas” thinking, selling options on the put options on the VIX. This man has “Drill for oil and pray for cash to last long enough to find a well”.
Oddly enough, my stock picks for the 2018 competition, far outperformed my portfolio, with a drop of 1.77% versus a drop of roughly 12%. For now at least. The year is not over.
However, my guess is that, my actual portfolio contains significant amount of middling opportunities, compared to the 2018 competition picks, which contained a higher concentration of good ideas. And one fundamentally very stupid adventurous pick.
Why do a review now instead of the end of the year? Well, I have some time. That’s about it.
As I look back upon my picks last year as well as the thought process that went into picking them. I can’t help but feel very foolish reading the reasoning for some of them. A huge improvement from 2017, but still naïve. Here’s to hoping I feel the same way in in 2020 for my 2019 picks.
Portfolio and Picks
- RCECAP 30% (Gain10.25%)
Why this company? Well, Read this.
Thankfully, I was smart enough to put the most money in my best and surest idea. The gain this year is just a happy coincidence. I would probably be happier if it fell 30% or something. Not if I opened my account everyday though!
- AEONCR 15% (Gain 19.21%)
I picked it last year as well.
The thinking is mostly the same, except I have a much better understanding of why they can charge such rates and increase revenue and profit so strongly each year.
To understand a little on the valuation of financial institutions, read here.
What’s so special about this company. Here’s a hint. Motorcycles!
This along with RCECAP, along with their very heavy weighting, saved my hide from my stupidity when picking for this competition.
- TIMECOM 15% (Loss 7.6%)
I’m happy with this one, as i wrote here in my fund update.
It was a blockbuster year for TIMECOM. Even with Gorbind breathing down on everyone’s necks. Only thing was when i picked it, it’s was slightly higher than fair value, not cheap.
Now, it’s about fair value. I’ll probably pick it again this year, but in a smaller portion due to better opportunities in the market.
I’m particularly proud of this one, as it was my first deep research, and it’s quite a feeling to be vindicated, research wise at least.
Having said that, my mistake in relation to this pick in my portfolio, is that I bought too much at a less that attractive price in 2016, and thus couldn’t average down. And in 2018, when they were better opportunities, I did not sell it off for those opportunities.
However on the second, i am not so good an investor, that I can handle the emotional turmoil of shifting position and watching it go up the moment I have sold. Nor am I so certain in the difference in opportunity cost, as I was certain blockbuster quarters were coming, which may push up the price.
There I go speculating again despite knowing its likely to be a bad idea in the long run for me. Haha. Still weak and foolish.
But, that’s room for improvement, that’s the target for 2019.
- FAVCO 8% (Loss 9.68%)
Oil and Gas play. FAVCO is not a bad pick, nor were valuations bad. Management is great. Not a bad idea to have some in your portfolio.
For my 8% size, Dufu and Ahealth were in the running. But I decided against them for some reason. Probably cause I’m stupid.
SOP was a consideration as well. Well thank god i didn’t pick it. But i did buy a 1.5% position for my portfolio. Hahaha. Probably time to top up.
- LIIHEN & LATITUDE (8% each) (Loss 14.21%,13.48%)
As above. In real life, I sold my Liihen at RM3.2 for another company. Holding Latitude as it has a better cost base and lack that labour problem.
No idea why I didn’t pick Dufu or Ahealth. Whether here or real life. Ahealth was probably because it was a little expensive..
But LIIHEN and LATITUDE were also in hindsight expensive coming off record years.
- PLENITUDE 8% (Loss 3.22%)
Not much to explain. One of the best net asset plays in KLSE. And like all net asset plays, don’t hold more than 3%, because you’re not a liquidator, neither does one have infinite patience.
My NTA plays total about 20% of portfolio is real life. Although many of them a mix with earnings. They are by and large property development companies.
I’m thinking about reducing the percentage, considering how cheap earnings are now. But TROP or OSK at this kind of prices. Very hard. Much less KSL.
- DNEX 8% (Loss -40.77%)
Last year, I said this about SAPRNG
“By far my stupidest decision. I bought it, because i thought oil was too cheap, and should go up in price in 2017, and being a complete idiot, the only company i could really think of in a pinch was SAPRNG, so i picked it without even looking in the financial statements.
Thankfully, i never touched this in my personal portfolio.”
This year, I improved upon my previous year stupid mistake by studying the financial statements.
However, when I bought it, it was not cheap at all. In fact, it was far more expensive than DUFU or even AHEALTH. And like SAPRNG, i did not really understand it, or have confidence in its ecpected value, beyond a “probably good” gut feeling.
Thankfully, I did not buy this for my personal portfolio. Unfortunately, neither did I buy DUFU or Ahealth.
As you guys are probably aware, I’m not the kind to share my picks too willingly, much less explain them. I’ll just describe them in abstract, my thought process, as well as where I went wrong. I’ll be focusing mainly on the mistakes.
- About 2-3% of my losses (12%), are due to my purchase of warrants in LAYHONG, GADANG and INSAS. Despite being very small positions of about 4% in total. Tells you a lot about the sheer drops.The only saving grace, is that I was at least conscious enough to know they have speculative elements in the, and thus sized them as if I was gambling, albeit more exuberantly than I would have liked.
These are mostly unforgivable mistakes. Layhong, was an adventurous pick. Gadang and Insas, well. We’ll see I guess. But I wish I bought more of the shares instead to be honest.
More of my thoughts are here.
Much ado about warrants!
They still have at least a year plus or 2 before finishing, so who knows. Might even be worth a top up.
- At one point this year, my biggest pick RCECAP fell to RM1.1. At that moment, I was so very close to selling all my LATITUDE, LIIHEN and TIMECOM to throw it all into RCECAP. I felt that at that point, given the respective valuations. It was a good idea. But I didn’t.
To be fair, LIIHEN was also damn cheap then at 2.3. But the rest, no excuse. If I did so, I would have been able to turn what was then a 26% position to 65% position., at the lowest price of the year.
However, price movements do not dictate whether I was right or wrong. Good things happen to bad decisions, and bad things happen to good decisions. Realistically, i can only control and improve on my thought process. Mr Market can offer whatever price it wants at any point in the day.
So i’ll review that instead. And in terms of thought process, I don’t think it’s my stupidest mistake of the year.
In 2017, I was a lot more active (and my broker a lot happier), however, all it did was cost me money (transaction cost), cause me constant emotional turmoil and weaken the only edge I have in the market, which is patience and the ability to estimate the intrinsic value. Unable to make good decisions, my returns despite looking good, should have been much better.
After a month or two of that headache. I stopped looking at my portfolios and the i3 website. I also happened to read this statement where Buffet and Munger said to look at your companies as private holdings. And so i decided to do that.
So, I forced myself to never sell, unless there is a large shift in fundamentals or if its now close to fair valued far higher. 2 transaction a month. My remisier can’t even buy a meal from my transaction cost! Haha.
I aim to improve on this in 2019. But we’ll see.
- And the stupidest one, but the least financially painful one. One of the companies I seriously thought about in the last month or two was ALLIANZ. It was a great business, management is great and there is a lot of room for growth.Seemed very undervalued at 6 PE (this is just a tool used to explain more easily. To understand how to value insurance companies, read this,The Art Of Valuing Insurance Companies and why Teh Hong Piow is a god (LPI), )
and I chalked it down to the low dividends. I built a 4.5% position with margin finance, before I realized my error.
They have preference shares that are changeable on a 1:1 basis with the ordinary shares. Considering the dilutive effects, PE goes to 12. Which is more like fair value.
This was because i used to just breeze past the share capital note, along with what i considered to be non-key areas.
I instantly queued to sell everything and just eat the coupled hundred loss (including transaction cost). And after selling it all, it promptly went up above my purchase cost in an hour or so.
Hahahahahaha Ces’t la vie. Thus is life.
Remember, read everything!
I hope this was as useful to you reading it, as it was to me writing it out. And if you’re one of those people who are looking for my flaws and mistakes to rub in my face (not surprising, considering my behavior here this year, along with the number of people I’ve insulted).
Here is your ammo.
Please do so persistently. I’d hate to forget my mistakes. It would be great if someone could remind me of them constantly and preferably for free!
Allow me to apologize if I do not take the time out of the day to reply. There is a country song I like,
“If the phone doesn’t ring, it’s me”
Take my silence as my reply. Also, i’d like to be on better behavior moving forward. To better control my contempt, derision and disgust. It has probably cost me more than i would like.