Am I a High Risk Taker?

Risk assessment questions are often biased. Take the below question from Autowealth as an example. I have nothing against them by the way. I consented to be categorised as a high risk taker.

I understand that markets are at times volatile. If my investment portfolio loses 10% of its value, I would:

 Sell everything 
 Sell parts of my portfolio 
 Do nothing 
 Buy more

If I choose Buy more, my risk appetite is assessed to be higher. In most cases, buying more is always a representation of someone who takes high risks. In order of risk appetite, a low risk taker might sell everything.

However, there are two aspects to this. In reality, do these people really buy more or they just choose buy more as a textbook answer? Do they sell everything or hope for prices to recover? 

The typical question is about a down trend scenario. Let us now think about an up trend scenario with the same scenario options. My portfolio has increased by 10%, if I buy more, am I a high risk taker?

From my observation, when prices drop by 5%, most people will not buy more, neither will they sell parts or everything. When prices drop by 10%, most will not buy more, instead, some might sell parts or everything. When prices drop by 20%, most will do nothing. When prices increase by 5%, most people will do nothing. When prices increase by 10%, most will sell, especially if prices had been depressed for some time. When prices increase by 20%, more will buy and not sell anything.

Many surveys and friends have classified me as a high risk taker. In theory and in practice, that is what I do:

Down trend of a stock - I buy more

Up trend of a stock - I do nothing most of the time. Sometimes I sell 25% of my stock's volume to rebalance if prices have risen to a price that I feel it's too high.

For illustration, between Aug 2015 to Jul 2016, I spent at least 100k buying stocks in a year. I felt poorer and poorer every month because prices continued to fall or remained low. I still remember spending 30k in one particular month. For comparison, I only spent about 20k this year. Everyday I wished that I had more money to buy. I asked my broker to increase my buy quota to 40k because I couldn't submit orders to buy queues. I allocated different budget pots for different price drawdown %, so I was at 70-30 stock to cash allocation when the market was just about -20%. When stock prices started rising, I was relieved because I could finally start saving up again, which shows that I am not that high a risk taker? I see myself taking calculated risks, i.e. I know that I have factored in sufficient margin of safety. I know I had done my best evaluation based on all the known information available when I made the decision. My priority is also income investing because that is a double safety net for me -- a margin from income and a margin from capital gain.

My risk-ometer

I usually hover around 50-50 stock to cash to feel safe. My financial advisor advises 80-20 investment to cash, investment including ETFs, unit trusts and endowment funds. She said I am taking on more risk by keeping 50% cash. Obviously, we don't have the same definition of risk. Similarly, everybody's definition is slightly different. Hence to really assess the person appetite for risk, maybe that one question is probably a good proxy after all, even if it's just a textbook exercise.

What did I buy in Oct 17?

SIA Engineering (covered in previous post) I didn't add further as the price stablised at $3.20.

Cache Logistics 18 for100 Rights Issue. I also applied for excess rights with UOB (don't think it matters) and got a surprisingly good deal -- 42.5 to 100. Cache has been slightly disappointing, but I am banking on it's long leases and an 8% yield is still good.

UMS Holdings 1 for 4 Bonus shares. To be honest, I didn't even know that there was a bonus issue until I saw the share price fell 15% and it said XB. Free shares, so it's good.

I also decided not to buy more ETFs (via Autowealth) this month as I will be prioritising warchest over investments. As of now, warchest : vested capital ratio is about 40:60. I also channelled cash into CPF retirement accounts (markets were suddenly high so I decided to sit out and transferred $10k to my daughter's MA so that I can have an extended MA if I need it in future) As I have met the FRS for CPF SA, I was also assessing if I should repay the accrued interest that I owe my future self. In the end, I decided that I might be able to get a better return than 2.5% OA, so I will continue to work on my portfolio and build up my warchest. I believe in focus -- do one thing at a time. Multi-tasking doesn't work when it comes to saving money.

The recent run-up in stock prices is not entirely driven by fundamentals hence its making me feel a little uneasy. Steep gradients are a testament of my earlier (good) decisions, but I had also started thinking about my upper end targets for overvaluation. For now, SG stocks prices are still far from being overvalued (especially those whose PER are <=12).

Portfolio returns (from stocks cafe)

AutoWealth and I

I thought I will also share a bit about why I decided to try out Autowealth. There are just 3 companies offering similar robo-advisory services in Singapore. Autowealth is one of them, the other two are Smartly and StashAway. I have nothing against the other two, but I was drawn to AutoWealth and I believe in fate.

Earlier this year, I had a chance to learn more about their business model from the "brain" behind the formula used by AutoWealth -- Tai Zhi. It was at an exhibition booth at Innovest Unbound and their booth was empty so I went over to ask a few questions.

I had my doubts about the company's sustainability

• The marketing was a little bit "smoky" because anybody who had bought shares post Aug 2015 would have made decent gains, so I wasn't impressed when they marketed the 5-6% returns after a year.
• The "brain" is honest. His IT guy - the guy who coded his brain out and did the portal - is down-to-earth. I had a fleeting thought that these guys might get conned by someone.
• The fees are so low SGD 18 platform fee/year regardless of the number of transactions. Imagine every customer does weekly buys... lol even monthly buys, I don't know how to earn. On top of that, they charge 0.5% of Asset Under Management (AUM), which is really like a charity business.
• Marketing hasn't been agressive, unlike their competitors, but it shows that they are down-to-earth (again) and watch their bottom line.
• Shares are held in a custodian, so they can be easily "knocked out" of business and the customer don't need them anymore.

I went to research a bit more about the ETFs they recommended and I decided to sign up after a few months. The ETFs recommended have really really low expense ratios. I don't really care about the ETF performance because prices fluctuate and there is nothing much to compare between ETFs other than the expense costs.

Here are some screen shots of how it looks like. I don't know if I can share it but it was one of the burning questions I had before signing up. (Seeing how down-to-earth they are, I decided that I will help them with their marketing lol...)

There is a portofolio summary.

There is a composition chart to show you that they really buy according to the ratios they showed you when you signed up.

Shows you how each ETF is doing too.

Top-up history -- this is important and it's there

There are many other screens, but I don't use them.

I have no doubt about their passion to bring investment to the masses. I still have my doubts about the company's sustainability, but I am not buying shares in AutoWealth, so it doesn't matter. If AutoWealth shuts down tomorrow, the shares are held with Saxo Capital, Power of Attorny will cease, and I have the Saxo not-so-sexy portal to still see the market prices, but I will probably have to pay much much higher transaction fees. In the meantime, all I can do is to do a little bit of charitable marketing, in hope of increasing their sustainability. I will definitely increase my AUM with them to about 10% of my portfolio when US equity prices moderate a bit. For now... I am happy to see just 1% of my portfolio grow at a crazy 0.5% per week.

List of ETFs invested:

1. Vanguard Total Stock Market Index Fund ETF Shares (VTI) expense ratio 0.04%
2. Vanguard European Stock Index Fund ETF Shares (VGK) expense ratio 0.10%
3. Vanguard Pacific Stock Index Fund ETF Shares (VPL) expense ratio expense ratio 0.10%
4. Vanguard Emerging Markets Stock Index Fund ETF Shares (VWO) expense ratio 0.14%
5. Blackrock iShares 7-10 Year Treasury Bond ETF (IEF) expense ratio 0.15%
6. Blackrock iShares International Treasury Bond ETF (IGOV) expense ratio 0.35%

What did I buy in Sep 17?

SIA Engineering
Prices continued to fall, especially after the announcement that it will be removed from the ST Index from 1 Oct. On 4 Oct, prices gapped down on news that JP Morgan was selling its 38.8M stake in SIA Engineering. I bought more at $3.30 and $3.20. $3.20 was the previous low in the Aug 2015 "flash crash". Strong balance sheet and monopoly nature of business are the main reasons for me to buy. I will buy more if prices fall below $3.05, another 5% to cover a year of dividends.

SPH
I staked my money at my mouth and bought at $2.76 and $2.62. Prices fell to a low of $2.54 but did not hit my next queue at $2.48. Recently prices have been hovering around $2.70 so I am not taking any further action. I was also comparing SIA Engineering and SPH, and preferred to place more money in SIA Engineering because of its strong balance sheet, doesn't mean that SPH is a better stock because it is still in the ST Index. Did you know that the co-owners of the ST Index are SGX and SPH? Will SPH be removed from the index? I don't know.

What did I buy in Aug 2017?

The previous posts
- What did I buy in May 2017?
- What did I buy in Jun 2017?

I bought SIA Engineering again in Aug after it fell more than 15% from its 1-yr peak in Jun. I sold SIA Engineering in Jun 2017 after the 25% run-up in price. It's ~$3.50 now and I feel that it is a good price to enter and accumulate more on further price weakness (i.e. $3.40).

I bought Japan Foods in Aug by luck. Someone sold down the share to 40 cents from 43 cents and volume was very low, so I managed to get the share. I had been in the buy queue at 40 cents since May. Basically, I submitted a buy order that had a good-to-date for the whole month so that I don't have to submit orders everyday.

I also bought QAF in Aug after its price fell 25% recently to ~$1.20 after a drop in profits. ($1.585 in Feb 2017) I was attracted to its low Price Earning Ratio (PER) of 7 and stable recurring income from its food manufacturing business.

Stock Review: Singapore Press Holdings (SPH)

SPH closed at $2.76, around its 5-year low. After SPH announced its drop in earnings every quarter, SPH will fall by about 20 cents. The drop became sharper after 31 Jul when it was announced that Ng Yat Chung, ex-NOL CEO, would become the SPH CEO wef 1 Sep 2017. Neptune Orient Lines (NOL) was sold to France CMA CGM and majority shareholders probably lost money.

Many people remember Ng for the wrong reasons, so any price drops beyond fundamentals are good opportunities.

Earnings per Share and Dividends
In Q3 financial report, ended 31 May 2017, YTD Q3 (i.e. Q1+Q2+Q3) Earnings per Share (EPS) is 8 cents, compared with 12 cents in 2016. Earnings for Q4 is expected to be higher due to recognition of 701 Search divestment gains, which will bring the EPS up to (estimated) 16 cents.

Extracted from SPH Q3 Financial Report page 24

Dividends had been steadily falling, from 24 cents in 2012 to 18 cents in 2016. Meanwhile, prices had been mostly kept above $4 earlier, in 2016, SPH spent most of its time around $3.50. (See Annual Report 2016) Dividend payout ratios had been exceeding earnings, which means SPH has been digging into its savings. I disagree with payout ratios above 90%, so my estimated upper cap on the dividend payout based on estimated EPS is 16 x 90% = 14.4 cents (@5% yield = $2.88). If I were a bit more conservative, I will estimate the dividend as 12 x 90% = 10.8 cents (@5% yield = $2.16). 12 cents as EPS is assuming there is no divestment gain.

Extracted from SPH Annual Report 2016

Income sources

As the media business is transforming, SPH can choose to reinvent media, or choose to close its media units and become a property developer. In any case, we don't have much control over what is considered their core business.

My re-representation of data from SPH Q3 Financial Report page 5

The good thing about SPH is that they hold valuable land assets (S$4B in value).

• SPH REIT
• Paragon
• Clementi Mall
• Seletar Mall

They have 2 condo development projects

• Sky@eleven (2010)
• Mixed commercial and residential project at Bidadari, next to NEL Woodleigh MRT (est. 2021)

Recurring SPH investments that I like

• Orange Valley Healthcare (2017) - nursing home
• Mindchamps (2015) - childcare and enrichment centre
• Buzz - convenience kiosks/stalls
• Sphere exhibits and Sphere conferences - event management
• Focus Publishing - town council and CDC magazines

25 Aug 2017 - SPH will write-down S$31M in it's Mediacorp TV investments, following Mediacorp's decision to cease print edition of newspaper TODAY.

My views on SPH

When almost every analyst report recommends a sell on SPH, I am recommending a buy. I currently hold 200 units which I bought on a wimp at $3.90 in the 2015 market correction because they bought 20% stake of Mindchamps. I had since regretted hence had not added any. I will buy SPH at $2.76 as it's at a 5-year low and has a projected 5% yield based on a reduced annual dividend of 14 cents. The price might go lower, and my entry points will be every 5% to cover the 5% dividend opportunity. 

• $2.76 - 2000 units
• $2.62 - 1000 units (-5%)
• $2.48 - 1000 units (-10%)
• $2.34 - 1000 units (-15%)

What did I buy in Jun 2017?

The previous posts
- What did I buy in Nov 2016?
- What did I buy in May 2017?

I bought Silverlake Axis at $0.53 in late May. The price fell to near its 1 year low ($0.48 was lowest) and the yield looked attractive 5.6% assuming a 3 cent/year dividend. The business model was heavy on IT maintenance projects with banks which was a rather stable economic moat. However, before you plonk it your cash, be wary that they had a scandal in 2015 -- alleged inflated profits. The share price fell to as low as 35.5 cents on 26 Aug 2015.

Silverlake Axis past 3 years.

I sold some of my SIA Engineering shares in Jun. In the past 6 months, its price had risen 25%. If you recall, I bought some SIA Engineering in Nov 2016. The only reason why I sold some shares was to free up cash to invest in other companies.

I bought Design Studio shares in Jun. It has an attractive yield of 11% assuming a 6.5 cent/year dividend. The business model is doing interior design and renovation projects for condos and hotels. This share caught my attention because I regretted not buying when I saw it 6 months ago. It's price jumped from 46 cents to 64 cents recently. In any case, regretting doesn't justify why I bought. Overall, its business looks sustainable as more buildings are doing renovation, especially when occupancy is rising and rental yields are falling, so landlords usually will zhng their rooms to attract tenants. Before you plonk your money into this share, just to let you know, it's just 2% of my portfolio that is taking this risk. I would love to just throw more money at a 11% yield but I am unsure whether its a value trap.