Buy and Sell actions in April

Taken 4 actions in the past month.

1. Sold SPH @ 3.48 due to continued declining business and reduced dividend. Do not turnaround will be any time soon. Loss in trading cost.

2. Sold 800 Super @ 1.26 as intention of original purchase last December was for dividend. The price as jumped up by 36% this year and gain covers 10 years of dividend. So decided to let it go as still a bit uncomfortable with its debt.

3. Added more ISEC @ 0.305 after reading its AR and think that it will do well this year due to its acquisition of JL Medical Group last year. Average purchased price of 0.31.

4. Added more Food Empire @ 0.58 after attending AGM. While business is in a competitive field, I am confident of the management. As what the CEO has commended during AGM, "Food Empire today is different from the Food Empire 5 years ago".

Historical Performance against Benchmark

Decided to analyze my historical performance as compared to benchmark. So took time to gather data from SGX, SPDR and yahoo finance. I am grateful that SPDR actually responded to my request and provided me with yearly performance of SPDR STI extracted from Morning Star Direct. On yahoo finance, I can only get data until 2008. While not ideal, it's good enough for me to do some analysis.

Comparison of Yearly Return

*From 2003 to 2010, data from Morningstar Direct, obtained via SPDR Head of ETF Sales Strategy & Research. From 2011 onwards, data from SPDR STI ETF Semi-Annual Reports.

As seen from the table, out of the 14 years, my cash portfolio did better than benchmark only for 50% of the time; while CPF portfolio fared slightly better, outperforming by 64% of the time. However, if I scope it to the past 10 years, then things do look a lot better. Cash and CPF portfolios outperformed benchmark 70% and 80% of the time respectively.

Comparison of Compound Annual Growth Rate

* Obtained from 2016 SPDR STI ETF Semi-Annual Report.

Due to the good performances of the past few years, I have done better than benchmark in all the periods listed for both cash and CPF portfolios.

If I would to use the same amount of money to buy my cash portfolio, cpf portfolio and SPDR STI ETF on 31 Dec 2007......

* STI ETF prices obtained from Yahoo Finance. Assuming DRIP with STI ETF dividend, with issuing price tied to record date of dividend. Use 10 Jan 2008 STI ETF price for 2007 data point.

STI ETF would only return an average 0.4% annually. Cash and CPF portfolio would have a CAGR of 6.5% and 12.2% respectively. 2008 was the year of market crash due to sub-prime crisis and it definitely has an effect on the return.

Fast forward one year, if purchase was made at the end of 2008 (after the crash), STI ETF, cash and CPF portfolios would have an average annual return of 9.1%, 14.1% and 23.7%. 

Fast forward another year, if purchase was made at the end of 2009 (after the market recovered),  STI ETF, cash and CPF portfolios would have an average annual return of 2.7%, 11.9% and 15.7%.

The story behind the numbers

As seen from the various comparisons, performance in the initial years were mediocre for both cash and CPF portfolios. Both performed below the benchmark. Memory is failing but there were probably lots of short term buying and selling with s-chips a feature in the cash portfolio. 

In 2007, sat down and put on record a goal and strategies for both portfolios. Reading the past posts, cash portfolio was more inclined to growth investing, while CPF portfolio was inclined to dividend investing. 

Things seem to improve after that with CPF portfolio doing much better. So is dividend investing better than growth investing? Maybe but another factor that might have affected the performance is the amount of buy and sell. Due to CPF limit, I basically have only two holdings - First REIT and Metro after 2009. Since then, addition was due to Metro's bonus shares, First REIT's rights issue and DRIP. On the other hand, there is still quite an amount of buying and selling, hit and miss with my cash portfolio.

The next milestone came in 2014 and 2015 when I decided to review my goal and strategies. Not much change to CPF portfolio but I started to purchase STI ETF since 2014. As for cash portfolio, I am shifting from growth focus to a balance of growth and dividend. You can read more about it here. A refinement is made recently and can be found here.

I would think that I have also improved in analyzing a company as I have learned a lot more in the past two years from various investing platforms such as Motley Fool Singapore, Big Fat Purse (known as Dr Wealth now), The Fifth Person, The Edge and various financial blogs.

I have obtained an excellent return in 2016 (mainly due to Best World) and 20171Q, but a 2 years period is probably too short to conclude the effectiveness of the new strategies. However, it does give me confidence to continue on this investment journey.

Ending Note

Goal setting supported with strategies is essential if one wants to be successful in this journey. Going forward, I will continue to review my performance and refine my strategies. 

I believe that my CPF portfolio will continue to provide good return.  I hope that with a more active investing approach for my cash portfolio, its return will eventually catch up with that of my CPF portfolio.

Food Empire AGM 2017

Finally attending my first AGM after so many years of investing. Stayed there for an hour and these are my takeaways. 

1. Both Chairman and CEO are straight talkers and they know what they are doing. Glad that they took time to answer to various queries.

2. CEO shared generally the strategy the company takes in exploring new market. An active approach including sending team in to find and try out new market is first year. Second year, they will refine their sales strategies and products. By third year onwards, they will decide if they will continue to pour in more resources to the market. A passive approach is to work with distributors and importer but normally passive approach seldom succeed but it gives them a rough feel of the market.

3. Business is in a competitive market and they need to put in a lot of investment initially to break into the market. For example, they were in Vietnam for more than 5 years to revive but only see results in the past 2 years.

4. Internal target for Vietnam market is about 10% and they achieved about 8% share.

5. Larger margin in Russia/Ukraine/CIS than Indo China as they are market leader. A lot of investment still needed in IndoChina as they try to gain market share.

6. Caffe Bene. They provide advice and try to change the way the management run the operation. These include simple suggestions like including sandwiches in the menu. They are hopeful that 2017 will be a better year.

7. Others market consist of Iran, UAE, China, Africa countries.

8. A shareholder talked about selling coffee in tea-drinking countries such as India/Russia/China. Interesting response from CEO, it is precisely they are tea-drinking countries that they can sell instant coffee to them.

9. Currently, not selling in India. The instant coffee produced in India is exported. Within one year, break-even. And it seems that this is the same region that Singapore government is working together with Indian government. It seems to be operating at 90%.

10. Next 3 years. Asia - specifically IndoChina, China and India (not this year). For China, they have got a veteran who was successful in Mongolia to drive the grow. Looking at selling coffee on-line.

11. Rented out 100% at a rent rate about 2 dollars. The buildings are necessary as they act as collateral when they want to take loan from the banks. 

2017 1Q Performance

I have decided that I will only update on my performance quarterly. Mimicking reporting on SGX. I believe this is a good move as this will subtly push me to spend more time in analyzing the business rather than the stock prices.

Performance

NAV of portfolio grew from $3.78 (30 Dec 2016) to $4.74, providing a return of 25.4% for the quarter. This beats my benchmark STI ETF which returned 10.3% based on its price appreciation from $2.94 to $3.19 and dividend of $0.053 over the same period. 

This quarter's performance is better than the preceding quarter which returned -4.0% and also better 2016 1Q which returned 3.6%.

The fantastic performance is largely attributed to Best World which has almost doubled this year. This was supported by good return from most stocks in my core holdings such as Valuetronics (34%), Food Empire (22%) , Micro-mechanics (17%), FCT (13%) and Plife (8%), Singtel (6%).

The two counters from core holdings that underperform are Raffles Medical (-0.2%) and Straco (-0.7%). This is expected as their 2016 results are flat. I am still holding on to them as their long term fundamentals are still in tact.

Beyond the core holdings, two other stocks did well for the quarter. They are 800 Super (30%) and AReit (14%).

Allocation
Allocation is not far away from planned. With this current allocation, dividend yield based on initial cost stands at 4.6%

	Planned	Actual
Dividend	~ 60%	60.3%
REIT/ Business Trust	<= 30%	27.8%
Growth	~ 40%	33.9%
Punt	<=10%	5.4%
Cash	0%	5.8%

Action

There is not much activity for core holdings. The only transaction was the addition of Food Empire shares which move it into my core holdings. I believe in its turnaround and it should continue to do well for the next two years.

There are a lot more action for punting. These are my transactions for March.

• Bought and sold Fu yu (up 10%) and City Neon (up 5%)
• Bought SPH as I believe that the press giant will be able to find solutions on the drop of advertisement revenue.
• Bought Keong Hong due to the detail analysis by various IN users. I think this stock has the potential of doing well.
• Bought Oceanus. Pure punting. Like what I read about the company. New CEO is cutting cost and re-structuring debts. Prepare to lose all but if CEO is really able to turn the company's fortune, the upside is high too.
• Sold Dutech as it does not generate sufficient interest for me (-0.2%)

Core holdings

Addition of Food Empire in March has moved it into the top 8. Listing the 9th stock as its cost is not that far off from the 8th stock.

1. Raffles Medical @ $1.48
2. Parkwaylife Reit @ $2.32
3. Straco @ $0.84
4. Best World @ $0.60
5. Valuetronics @ $0.56
6. Fraser Centrepoint Trust @ $2.01
7. Food Empire @ $0.38
8. SingTel @ $3.82
9. Mirco-mechanics @ $0.91

Valuetronics - A closer look at the number

Last October, I have written my reason for buying Valuetronics. You can read about it here. Since then, it has reported a strong 3Q results and I have browsed through the last ten years report and crunched its numbers.

At first look, you will see that both its revenue and net profit are lumpy with a few good years and then followed by a few bad years. I believe this is the nature of manufacturing business as it is dependent on their customers' performances.  Compare to a decade ago, its revenue is higher by about 2.5 times, while net profit has increased by about 1.8 times. Nothing to crow about when the CAGR of its net profit is only 5.9%.

The good thing is the company has remained profitable for the past 10 years. Its net profit margin is above 6% for the past 3 years. I might be wrong but I think that is pretty decent for manufacturing. Its ROE has dropped from 20+ % to mid teens over the last few years but that is still a pretty good return. The best number is its cash holding which has increased by 3.6 times over the past decade and this has resulted in the increase in its declared dividend by 3 times.

My general perception after browsing through the annual reports is that the company is growing well with nimble management who strategise well to improve the company, especially since 2010. Some strategies are:

• Starting Lean Manufacturing Programme and expansion of Daya Bay Plant in 2010.
• Reclassification of its business from OEM/ODM to CE/ICE products and improving productivity with automaton in 2013.
• Exiting from mass market LED light bulbs from 2015.
• Getting a new revenue stream from the automotive industry.
• From the latest 3Q report, a new driver in CE - wireless LED.

I think all these bode well for the company and hence my added position in this company. Looking forward to a good 4Q and 2017 results and hopeful for a special dividend since this will the company's 25th anniversary.