Updates on my investment journey - Jun 2020

      Ever since the US Fed announces the unlimited QE on 23 Mar 2020, all US stock indices were slowly recovering from the dip. I also saw similar recovery pattern in STI index, HSI index and KLCI index despite the current economic recessions we are currently facing. It was also a period of self-reflection in my investment journey as I went through many emotional ups and downs.

1) Warrant trading

      Ever since the HSI index started its slow recovery, the speculation game has become much harder to play because of the wild swings involved. I added warrant positions when I thought the index was moving in my desired direction and then I was forced to remove those position when my cut loss rule was triggered. This happened repeatedly as the index was moving sideways for months. As a result, I have lost slightly more than SGD4,000 from 23 Mar 2020 till 14 Jun 2020. Although my warrant trading overall is still in profit, having more than SGD4,000 accumulated loss in the most recent 3 months is not something I can embrace lightly.

      It was then I decided to stick to my new plan instead. I will initiate out-of-the-money call warrant position with longest expiry date when HSI index starts to move up from the most recent dip for 1 to 2 months with no cut loss rules. I decided to do it this way because I feel that stock market currently is simply looking forward to recovery, regardless of weak economy due to the COVID-19 pandemic. I initiated new HSI call warrant position on 12 Jun 2020, 1 day after the US DJIA index dropped 6.9% due to the fear of possible second wave of COVID-19 outbreak in the US and the US fed's latest remark on maintaining the current interest rate as well as the future economy outlook. I feel that the market participants are simply over-reacted.

      Let's hope this time I can guess it right.

2) Stock Investing

      I made some changes in my portfolio with the aim to increase the proportion of growth stock further because I want to speed up the portfolio rate of return which I feel I want be more adventerous in doing it. Relying on dividend return alone is not going to make it fast.

      So, this is what I made up in my mind:

a) Stocks listed in Asian stock market

      I will look for companies that can grow both revenue and net profit YoY consistently. I prefer those with business model that has recurring revenue and align to the current consumer macro-trends and they must pay dividend consistently so that I can get paid while waiting patiently for the share price to grow. The bottomline is, they must have more rooms to grow further.

b) Stocks listed in the US stock market

      Similar to part (a) but with some major differences. I will look for companies specifically in packaged software sector that invest hugely in R&D & sales & marketing in an effort to expand their business and clientele aggresively, even to an extend they choose to make losses YoY. The bottomline is they must have recurring revenue and able to generate rich operating cash flow YoY.

      In view of these changes, I sold off both Mapletree Commercial Trust (N2IU) and Tenaga (5347) and then bought in Opensys (0040), Silverlake Axis (5CP) and Minecast (MIME).

      With not-so-good warrant trading performance in the most recent three months, I decided to just simply hold HSI call warrant until it hits my profit taking level because I feel that stock market will simply recover in the next 2 months irregardless of current economic outlook. I will continue looking forward to increase the size of my growth stock in my portfolio to speed up the rate of return and be more adventurous on doing it.

Reflections on my investment journey in this current bear market

      Recently, many stock markets have went through a series of wild rides. In particular, I have witnessed US stock market triggered circuit breakers for 3 times within 2 weeks in early March 2020. Both COVID-19 global epidemic and the sudden downfall of oil price have surely sparked great fear which sends many stock indices downhill.

      When most of my growth stocks' previous gains got wiped out, I start to feel uncomfortable. After spending some time to think it through, below is the summary of what I did for this month.


1) Re-deployment of capital from growth stocks to Put Warrants
      I decided to sell off all my growth stocks due to two reasons.

      Firstly, it was because the falling share price has defeated the purpose of me to continue holding them. Surely, the share price of growth stocks with solid fundamentals will eventually recover and rise even higher, but I am not so confident if such recovery can be done fast. I can't afford to waste my time to wait for years just for the share price to recover back. I should have slowly take profit in tranches when the growth stocks went above 50% gain before this bear market strikes in.

      Secondly, I needed capital to increase my position in Put Warrants because at that time I felt that the COVID-19 outbreak is getting serious. On top of that, when the OPEC meeting in March 2020 ended in a not so good way, it sends crude oil price downhill sharply, causing massive and fearful selldown in stock market. This means I need to take advantage of that pessimism by adding in more Put Warrant position fast. Since my growth stocks' share price was beaten badly, I might as well redeploy my capital to buy more put warrants.

      I am glad that I made that decision earlier, because as the HSI index falls, my first batch of Put Warrant became profitable. Then I slowly redeployed the capital to buy second and the subsequent third batch of Put Warrants. Although the third batch of Put Warrants are not so profitable, at least I managed to earn more than 100% of these redeployed capital to cover all my previous losses and generate additional cash for reinvestment.
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2) Conviction to hold dividend stocks with solid fundamentals
      When the stock market was in crisis, I found many dividend stocks with good fundamentals somewhat become unusually attractive. So I sold off all growth stocks while continue holding good fundamental dividend stocks. Since I sold off all my Put Warrants to lock in profit not long ago, I have slowly bought in more good fundamental dividend stocks with unusually attractive dividend yield.


      This week is quite a confusing week to me because after the Fed announces unlimited Quantative Easing program, all STI, KLCI, HSI and US indices reported gains with full gap up today, despite both the COVID-19 global epidemic is still barely under control and the oil price is still in strong downtrend. I will need to see how these indices behave this week. If stock market overall starts to show optimism by the end of this week, I may need to initiate Call Warrant positions early next week. We shall see.

My first serious speculation on Hang Seng Index with SGX put warrant

      Finance industry is a special place where you can make money out of other people's misfortune and fear consistently. It is something that other industries cannot do on consistent basis. Am I unethical in taking profit from other people's misfortune? Yes, definitely. But I am not against any laws or regulations. In fact, I am just a small market participant and there are traders out there who are much smarter and richer than me making such profit as well. Also, for long term investors they have been waiting to buy high quality companies' shares at fallen prices and many China A shares and HKSE listed shares falled into that category. Isn't this being the same mindset of profiting from other people's misfortune as well?

      When the Wuhan virus news recently breakout in mid December, I had a sudden realization that I should take a serious approach to speculate the downward movement of Hang Seng Index to earn some money along the way and to hedge my portfolio. So I decided to start with SGX put warrants with HSI Futures as its underlying. Its time to strike while the iron is hot.

      Below are my further considerations before I decided to take a bet on downward movement of Hang Seng Index.

1) Bad news on sustained and prolonged basis
My view is that for Hang Seng index to fall downward for sustained period, there must be a main driving force that drives massive stock sell-off and it must last for a while. I believe that the driving force is the emotional fear within the hearts of most market participants because fear is a strong emotion that has been ingrained in our survivial genes since ancient times, be it the fear of loss or the fear of missing out. For that fear to sustain or spread further, a series of bad news is required.

Recently, scientists had confirmed that the Wuhan virus had 80% genetic makeup similarity as that of SARS and both viruses belonged to the same coronavirus family. I believe this information alone will incite certain degree of fear to general public in mainland China and Hong Kong because of SARS outbreak happened decades ago. To make the fear worst, there is currently no cure or vaccine available for the Wuhan virus.

In addition, when the Wuhan virus outbreak is gaining more attention worldwide it was about 1 week away from Chinese new year where huge human traffic flow is expected. I take the liberty to interpret this that the number of infected cases and death cases will only get worse during and after the Chinese new year. Some Chinese believed if the new year begins in a bad way, it is an omen of bad luck all the way till the end of the year. Indeed, the number of infected cases and death cases reported are consistently rising and Hong Kong recently announced emergency outbreak due to this.

2) Technical analysis - downward momentum

Since I intend to hold my put warrant position for days or longer, I used MACD indicator on Hang Seng index daily chart to confirm the index downward movement momentum. When the Wuhan virus news are getting more attention, the index falls from the recent peak. Subsequently, the MACD (12, 26) blue line crossed below the signal red line and the gap between those lines are widening, as indicated by the red histogram increasing downwards. From here, MACD seems to indicate strong sell signal and strong index downward movement momentum.

      However, speculation does comes with risks and so I entered speculative position with small capital. Below are some the risks I can think of.

1) Positive and quick vaccine development progress

Although there is no vacine currently available for Wuhan virus, scientists worldwide are collaborating to develop and test the prototype vaccine. In fact, scientists in Chinese mainland had successfully sequenced and mapped out the virus' entire genome sequence, thereby shortened the time to get the vacine ready to the mass public. 

2) Severity of the Wuhan virus

Althought the virus is spreading faster than SARS, the mortality rate is ~ 2-3%, much lower compared to SARS of ~ 10%. Also, as of now the total deaths reported are all came from mainland China and most of them are in their old age with health issues. A number of successful recovery cases have also been reported. As the custom securities and checks are further tightened in countries worldwide, there is a chance that the viral spread could be effectively contained.

      I entered put warrant position with HSI futures as underlying at SGD 0.066 on 22nd Dec 2019. It turns out the HSI index agreed with my speculation logic and at the time of this writing, my gain is about 160%. A whopping 160% paper gain in just 9 days is something I can't imagine. However, as warrants and HSI are both volatile, my gains could be wiped out if I am being too greedy. To prevent massive losses to my capital due to unforseen circumstances, I can only speculate with small capital. I will exit position if at least one of the following conditions are met:

1) Put warrant is near expiry

When the warrant is 1 week before expiry, there will be no trading allowed for that warrant. If HSI goes against me during that week, I will be screwed. So, I will liquidate my position if the expiry date is very near to the 1 week period prior to expiry.

2) MACD line crosses above signal line

If the MACD line crosses above the signal line, it means the HSI index upward movement momentum begins. No reason to hold my position when the index is expected to move upwards with strength.

      Let the force of the universe guide me along the way in my speculative journey.

***Latest Update***

      I liquidated my put warrant position at SGD 0.137 on 04 Feb 2020 even though the MACD line has yet to cross the signal line. This is because the green candle stick on that day was having a gap higher than previous day's candle stick. This indicated that the market participants had optimistic view on that day even though the Wuhan virus infection rate and death rate reported are still increasing. Also, currently I am having a full time job and when I saw my paper gain fall from 160% profit to about 100% profit in just 2 trading days, I was distracted while performing my day-to-day tasks. To ease my mind, I decided I need to pull the trigger to sell the warrant to lock in that 100% gain.

      Of course, no one can predict the future and in this case I was lucky my view was correct. 1 day later, the HSI started with another higher gap and had already breached the purple support line. In addition, the MACD histogram showed a decrease in downward movement momentum strength, indicated the existence of the upward movement momentum strength. Both happened when Wuhan virus infection rate and death rate reported are still increasing.

Updates on my journey so far

      The second half of 2019 is definitely not an easy one for me. Lots of things happened during this period and I decided to briefly pen down my thoughts here.

My Career

      Perhaps it is true that I am not entitled to anyone's opinion, until I get paid for it. I learned this lesson the hard way. Well, to cut the story short, just because I am quiet and generally don't like to get involved in political affairs, my superiors decided that I was underperforming their expectations. As a result, I was being "coached" and "advised" on how I should conduct and behave myself. Since I refused to change, I was being micromanaged. All these happened after a new CEO came in to downside several departments and roll out multiple cost saving initiatives.

      After several rounds of difficult discussions, I decided that I should make a move to quit. Fast forward, I am now working in a highly regulated industry which is completely different from my previous one.

      This is a good reminder to me that as long as my finances are completely dependent on someone else, I will always be at their mercy. When situation is becoming dire, they will manipulate and dispose me like a damaged good. In order to avoid the pathetic fate of me being someone else's slave for the rest of my life, I need to have another income source as my backup. Hence, this entire unpleasant experience has strengthened my resolve to grow my investment income as quickly as possible for me to live a life of dignity.

My Investment Knowledge

      Due to my new job nature, I am not allowed to have margin accounts with any financial institutions. This is unfortunate because with margin account, you can unlock some funds at anytime you want when opportunity of buying new shares arises and then pay back those borrowed funds later even though you have limited cash at hand right now. Because of such restriction, now I have to set aside more idle cash into my investment warchest to wait for investment opportunities.

      The good news is, my knowledge on brokerage/investment industry as a whole has been rapidly expanding. For instance, I saw the backtesting data and learned that even some of the famous trading gurus' trading strategy will not always work and most of the time you will make losses. Yet, they were constantly advertising on how well they earned and then charged you exorbitant trading course fees and subscription fees for real time trading alert. In addition, no matter how well research/investment article is being written, I must take it with a grain of salt. I think that most of the content writers wrote articles solely to attract people to trade with them but they may not neccessarily put the money to where the mouth is. After all, if they invest based on what they wrote and if they are consistently correct, they should have achieved financial independence long time ago and not to report to office anymore. Also, brokerage firms generate revenue through commissions, trading fees and finance charges. So, they are incentivised to encourage people to trade frequently with them. Regardless of whether you make or lose money, you have already lose money to these trading commissions and charges first.

      Perhaps, to avoid becoming a loser in stock market, I must believe in my own research and not someone else and only invest in good companies for long term at the right price for as long as they perform.

My Investment Portfolio

      As for my investment portfolio, I have made some changes.

      Now, I will avoid companies that have to rely on contracts with their customers or campanies that has major customer concentration risks even though their financial metrics and track records are impressive right now. I don't like to see dividend cut or suspension on top of share price falling by over 10-20% because they are unable to secure new contracts or something undesirable happened to their major customer. Also, the company will always be at their major customer's mercy and thus they will not have much bargaining power in pricing their products or services.

      I will also avoid companies whose revenue and income are mostly contributed from mainland China. They are prone to accounting fraud allegation and once such news came out, they often end up being suspended by the exchange for further investigation. You can refer to Yangzijiang Shipbuilding Holdings Ltd (SGX: BS6) and Best World (SGX:CGN) corporate action this year in SGX for reference. For Best World, it was suspended from trading on May 2019 and now is still being suspended. To save myself from such trouble, I would rather skip these companies all at once.

      Also, I decided to allocate at most 30% of my portfolio into growth stocks because I want to grow my wealth slightly more efficiently. After all, capital gain is the larger component of total stock market return, not dividend income. I am looking at the US stocks right now because I think that US companies have huge addressable and homogenous market within the US and thus they have huge growth potential, unlike Singapore and Malaysia market. Not to say that the latters are bad, but I do think that most of the growth stocks over there are suitable to hold for about 2-5 years only as I saw most of them grows consistently for 2-5 years before their performance degrades.

      The growth stocks I added this year are Guan Chong Bhd (KLSE:5102), Kronologi Asia Bhd (KLSE:0176) & Visa (NYSE:V). The two Malaysian counters were added into my portfolio first before I decided to venture into the US market and subsequently I added Visa (NYSE:V) into my portfolio. I may add a few more growth stocks next year.

      As for my portfolio performance this year, it seems like I was saved from my Singapore REITs because most of my Malaysian stocks are not performing well. Perhaps, it was all thanks to the new Malaysian government's fiscal tightening policies on top of new taxes coming up next year, KLCI index has been consistently falling down and foreign institutions are withdrawing funds out of Malaysia. This lesson has taught me to diversify my portfolio geographically and not to place all my funds in Malaysian stock market alone. I am lucky to have Singapore brokerage account.


      Well, I think I will spend more time to hustle as a part-time tutor again next year in order to generate more cash for my investment.

My Random Thoughts #2

      Regardless of any choices you make, there will always be regrets in life because you forgo other alternatives. Economists called this phenomenon the "opportunity cost". This is part of life because our energy, time and capital are limited. Life is an exchange. If you want something, you got to exchange it with something else. Nothing comes free, there is always a trade-off.

      To me, my vision in life is to retire early without financial worries. I can enjoy finer things in life whenever I want at my own pace and at my own time in peace. However, to retire early means my path will not be rosy as I choose the road less taken.

      First, I will be judged, be criticized and looked down upon because I have given up pursuing social status and symbols which most people valued the most. I don't bother much about these things but since I am still functioning in corporate world, I do receive "advices" and "tips" from bosses, colleagues and friends to often tell me what to do to boost my chances to get promoted and hence better pay raise. Although having pay raise could push my early retirement plan slighly faster, I will have to work overtime more often because of heavier workload and bigger responsibilities, thus diluting my overall hourly salary rate and giving me more stresses in life. In view of this, I think I am better off taking it easy in my career development and take on multiple tuition jobs which has better hourly pay rate. This also means I will be watching my friends and colleagues rise to higher ranks and enjoy better titles and privileges while I become stagnated.

      Second, taking this path of early independence from corporate slavery means I will be embracing singlehood until I achieve my mission. This sounds unusual, especially coming from a guy who is in late 20's where by today's society standards, he is supposed to find a partner, travel around the world  and settle down with her. But I have a dream. To me, freedom is everything. I want to be free from the shackles of the golden handcuffs. I want to bid farewell to my bosses who brought misery to my life once and for all. I want to be able to wake up when the gentle sunlight strikes my face every single day. While having lifelong partner will allow me to share my joy and sorrow with her, she will get in my way because our future requires huge financial commitment. You can save on yourself but you can't save on her. With this in mind, I decided to focus wholeheartedly on building capital in equity markets. This is for her own good as well.

      As the eldest son in my family, I am aware of the expectations my parents have on me. Like typical asian parents, they wish to see that I have a good career ahead and getting married and start a family. But, my life is up to me how I choose to live and I only life once. I understand that I am selfish and there will be a time where I must reveal my grand plan to them and break their hearts in the process. I am not sure whether I still can cope with the pain in my heart on that day.

      I can only hold on to this English poem I learned in secondary school:

"I shall be telling this with a sigh

Somewhere ages and ages hence:

Two roads diverged in a wood, and I—

I took the one less traveled by,

And that has made all the difference."

- The Road Not Taken, by Robert Frost

      Yes, that has made all the difference. Regardless of any choices you make, there will always be regrets in life because I give up on other choices. I choose the path to freedom because it is an unconventional path to most people and it is all that matters to me. I will seize it!

My Random Thoughts #1

      Perhaps, it is a form of luxury to know what you must no do in life and you are able to do it without the fear of not having enough money to survive later on.

No goals in life! No plans in mind! Nothing!

And you know what?

I like it this way very much, truly.

No politics and related bullshits to deal with so that you can truly focus on enjoying the present in great peace.

Just lazy strolls, sitting on a beach, reading some books with some nice, calming and soothing music being played in background.

Perhaps, such moment is yet to come. I really want this day to come true.

I miss it, madly.

About Technical Analysis

      Recently, I started learning technical analysis (TA) because I have multiple instances where after I bought shares at near 52 week low, the share price just continue to plummet. In some extreme cases, I lose about 20% in a particular stock in just few weeks after I bought the shares. So, to minimize the risk of capital loss upon entry, I decided to equip myself further on TA.

After weeks of learning, here is what I can summarize so far:

a) Do not swin against the trend. If the share price is in downward trend, I should wait for the downward trend to reverse before I initiate my long term position on that stock. Do not simply average down.

b) Resistance and support lines exist because human bias comes into play when buying and selling shares. Some investors bought shares at the peak and unwilling to cut loss when the share price plummeted. They continued holding on to it and hoping that the share price will eventually rises back to its break even point so that hey can sell those shares in relieve. That's how the resistance line formed. Support lines formed when buyers bought the shares because they saw the current price coincides with the previous lows.

c) Trading is about making money on market trends. Do not make trades if the trend is not confirmed or is against you.

d) Share price movement coupled with trade volume information could reveal more information on the possible trend sustainability/reversal and market emotions. Volume spikes and share price drop tremendously during panic selldown. Also, after Trump won the general election in 2016, the subsequent trade volume spikes and the US S&P 500/DJIA Index point rises to historical highs.

e) For Malaysian and Singaporean market, there is a need to keep close eyes on the US S&P 500/DJIA Index because US economy has strong influence on both markets. Since the last Dec 2018 till now (as I wrote this post), DJIA index is near its peak but still unable to break 26,700 points for the third time. If DJIA is still unable to break the 26,700 resistance line in next few months, the chances of DJIA to go self-correction is high. So, I believe I could make some profit by shorting the DJIA index through CFD contract once the trend reversal begins. Right now, I am in the process of opening new CFD account.

      Dont get me wrong. My core investing style will still be dividend investing. But, I do not restrict myself to just one investing style and I want to have an open mind on exploring other possibilities because they are many ways to earn money from stock market. I want to try if swing and position trading can be used to generate additional stream of income for me. If this strategy works, I can use this income stream to further build my dividend investing portfolio. It it doesn't work, at least by then I would have acquired great learning experience.