Merry X Mas looking back

Looking back in the last one year . The Return for this year seems impressive actually is not really as last year we suffer a lost of 6.9%. We need to chase back 10% this year in order to breakeven .

As such CAGR is about 13.89% P.A for the last 7 years.
I aim to have alpha of about 4-6% min per year. Best guess market is entering the third phase of the bull Market or the matured Bull. the last phase is the euphoric bull.

Such good result should not be expected yearly.

Net-worth cross 3M charging ahead.

This year seems to be a good year for us returning YTD as of 24/11/19 @ 27.62 percent.
Last year our portfolio decline 8%

overall our return for the last 2 years average 8.355%

Our CAGR for last 7 years was 14%.

Lesson learn one bad year cost us significant amount of time to recover our losses.

JD losses seems so much that we might need one more good year to bring us closer to the 14% CAGR that we are able to achieve previously.

Negative interest rate .. what i think matters most.

The whole world is talking about negative interest rate and that it would simulate the economy by doing so..  It has been happening to Europe recently and japan decades ago. Will it revive the economy ?

It is hard to say but it certainly makes the people that borrowed money in that zone easier for debt repayment and less likely to go down in my view.

It certainly makes the people in that zone harder to retire as the risk free rate are being shifted and that zone of bonds and assets are all being repriced base on that shift.

In my view, when we shift something there will be a repercussion sometime in the future. A shift in the interest rate will only be a shift as to who is paying for the bill for someone.

Fed fund inflation target rates is set to around 2% , in the past 30 years bonds are paying much higher yield than the target rate. As such the have will enjoy a 2-3% premium on top of the expected inflation rate. So someone is footing the bill for someone in this case the have not is footing the bill.


Now a 30 year bond is selling at close to 2% in some countries negative. So is the total opposite of previously. If this trend were to continue, i expect a shift from the so call less risky assets classes into Stocks in the future this is due to future debt obligations from the pension funds around the world.
The pension funds cannot and should not invest in bonds and hope to meet it's obligations.

Stocks selection is critical going forward as we have entered unchartered water. It means that everyone should be trying to learn a new set of economics where by the formula might not be as useful for this new world.

Let's learn...

 

New All time High

New holding list - Exit Giordano, Vtech holding , Added Charles Schwab, CK assets various rebalancing.

the 2 percent Alpha. (aspired by the 2 cents from Elizabeth Warren)

Wow,  I just reached a new milestone. My financial assets just cross 2.5M.

I have asked my wife to tender her resignation 2 years ago as we are experimenting new stuffs in our life.
You see we have accumulated about 2M in our financial assets 2 years ago.
So i thought that her current job does not make sense for her to continue working as there are time cost for me to fetch her to work and to pick her up from work everyday.  This is due to the fact that we are staying in a not well connected by MRT area to her workplace.

Bo bian - our BTO only cost us 350k (5 room) 7 years ago...

So i did my calculation and i told her let's try a new project, if our net worth drop below than maybe she go back to work lah. Anyway never try never know mah.. If we never try to walk we be on wheel chair now also mah..

Wah it was challenging as our thinking is like the ah siao type.. People will says that you are still young why retire why do nothing etc...


Actually we are not doing nothing, we are using our free time to keep accumulating knowledge we are doing research on stocks and how to allocate our wealth and read a lot of news books about successful people go out walk walk travel see see. is not doing nothing okay...

This bring us to the concept of the 2 percent more alpha ... that we are talking about it today .

You see below is the template of a 10% average return and a 12% average return this is what we hoped to achieve min. Long term average market return is about 8-10% in equities.

going forward this return will be much harder i think due to so much QE around the world that inflate everything.. 

I have been doing average 14% on average last 7 years. If i can do 16% on average going forward wah than hor seh liao ..


The opportunity cost

U see if you accumulated 2.5M of financial Assets (money that can be deploy must be liquid.)
below 40 years old  it make no sense to work if you do not try to see if you can do it a not.

Base on a yearly return of 10% one can draw down 100k per year which i think more than enough to survive in singapore for 2 pax.. when i have a kid i budget 130k a year lah .... than i squeeze 0.5% more alpha... (thats the challenge for myself)...

one would have 26M by 70. you see the key is that when u have accumulated 2.5M the hurdle rate to breakeven is actually 4% thats why the 4% rules state that to withdraw 4% every year of your financial assets can hardly make you broke if you know how to invest.

The cost of not knowing how to invest... when u have 2.5M to start with ...


you will need to work as if you draw down 100k per year your wealth can last you only 32 years ... with a 1.7% FD rate so the different is like 26M in year 30.. if i do year 40 or year 50 i think we will puke lah but don't need forecast until so far lah ....

so if i were to get a job i need a job that can pay me 100k (drawdown plus the short fall) 26M
in total is about 29M lah round of become 30M .. == need a job that pay me 1.2M a year min as the income from job still need to be tax.


The 2% more alpha...

If you can do 12% average you get 47M instead of 26M another 20M to spend...
seeing the different in the wealth off we go to try to achieve that...

*note my wife will go back to work if our Net worth drop below 2M now we got 3+ that is net worth include car house cpf etc....

We are monitoring our progression ...

the 4% rule

Doing one project known as the 4% rule.


assuming i start the year with 2M.
I withdraw the sum of 4% base on the principal of 2M at the start of every year.

This annuity will keep growing as i did not eat into my principal at all.

assuming average return is 6-8% for Equities.
The long term average return for pure alpha generating should be at more than 10%
my average return for the last 7 years is 14% P.A

If i base on a 6% return by the time i reach 68.

My net worth will still be 5.16M assuming a draw down of 80k every year.

if i do 8% my net worth will be 11M

if i do 10% 21M

so the effort now should be to spend time ensuring that i will juice out the 2% more Alpha than the market as i don't think i can make 5M... in 30 years time thru working.

which is 166k per year. min to 333k per year base on the 6-8% average return from the market.

hopefully this project can last.. anyway just try loh thats life mah..

Sep 2019 portfolio update

Latest portfolio holding - Counter added HKland, Chow Sang Sang, HPH trust counter reduced Starbucks , Johnson & Johnson , Vtec holding  average yield 3.81%

It has been a while since i last reported my performance and guess what ..

We are up 17.07% YTD....



Total assets for equities hit 2.37M so being focus in allocating of assets does help.







Below is a good article from Bloomberg on bill gates wealth allocation for him during 2019.
He had 60% of his net worth in equities. wow , i am glad that i shares the same thinking as him.. i am on the right track than.