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Thursday, January 29, 2015

LOTUSTPSLL: How I Made 28% In 2014

Lotustpsll shared his stock picks for 2015 recently in this thread, and also mentioned he had a 28% gain in his 2014 portfolio. We asked him if he would write an article to share more about his 2014 performance, and he duly obliged with the following:



Up %
Thesis
1. K1 Venture
70
Value
2. Valuetronics
60
Value/strong balance sheet
3. UMS
55
(sold)
4. Straco
55
Cash machine
5. Q&M
45
Healthcare
6. ISOTeam
32
Economic moat
7. Innovalues
30
Cash machine
8. Religare
30
Healthcare
9. First REIT
30
Healthcare
10. FCOT
25
Earnings growth
11. CRCT
25
China consumption play
12. Sunlight REIT
23
Value, price/book < 55%
I HAVE just turned 59, having retired two years ago after working 32 years with a global banking group. 

In my career, my core competencies were corporate financial analysis and corporate risk management.  
As an investor, my target is to obtain a compounded annual growth rate (CAGR) of 12% for my portfolio and I have achieved this since 2007, except in 2009.

For 2014, my 28% return on my portfolio was driven by the stocks in the table on the right.
I still maintain my long positions on them except for UMS Holdings - the heavy insider selling by the CEO himself is a huge put off.

The under-performers were Hotel Grand Central (down 2%), Jason Marine (down 2%) and Penguin International (down 20%).
I have sold Penguin but continue to hold Hotel Grand Central (a value play) and Jason Marine (a strong value play with a strong balance sheet).
I currently manage a portfolio of 30 stocks.
I rely on business news portals for my research. I read NextInsight daily. Key picks such asInnovalues, K1 Venture, Isoteam and Straco were identified from Nextinsight articles.
Key to my performance over the years is the development and implementation of a sustainable investing strategy. 

straco_feed1.15@ Shanghai Ocean Aquarium which belongs to Straco, whose share price gained 55% in 2014 for investor 'lotustpsll'. 
Photo by Leong Chan Teik.
This takes into account currency risk, industry and sector preferences.
 
Further risk measures are also included, such as sector diversification, capital allocation, single cap limit and trailing loss limit.
My current holding of 30 stocks is allocated as follows:
» SGX-listed REITs: 40%
» HK-listed REITs: 5%
» High yield stocks: 40%
» Growth stocks: 15%
Although some may not agree with this high allocation for the REIT sector, I believe the measures implemented by REIT players to mitigate the effects of rising interest rate will support this sector well.
In addition, interest rates are expected to rise gradually. One must also bear in mind that rising rates usually reflect a stronger economy and that should translate into stronger revenue for the sector. 
However, not all REITs are equal – be selective.
In view of the strengthening HKD, I have raised position on 2 REITs listed in HKSE – Sunlight REIT and Prosperity REIT. Both are value plays with price/book below < 60%.
I recently took a fresh position in Hong Kong-listed New World China Land (price/book about 50%). 

Although 99.8% (on a value basis) of shareholders voted in favour of the privatisation offer (hkd 6.80) by the parent company, the proposal was rejected 
on what is known as the ‘‘head count test,’’ which takes into account not just the number of shares that are voted but includes a separate tally of the number of voting shareholders. 

I believe the parent company will renew its bid to take New World China Land (
current price is hkd 5.10) private in due course.
For a longer time horizon, investing in healthcare stocks should be seriously considered in every portfolio. 
First REIT, Religare and Q&M Dental are my core holdings. ISEC Healthcare is interesting given its regional plans.
My only speculative play is 
SHC Capital (80% owned by the conservative Teo family from Kuala Lumpur), but with a good margin of safety.
SHC has sold its insurance business and is awaiting fresh business injection (ie, a RTO). Its balance sheet is backed by 23 cents cash per share and the stock is currently trading at 20.5 cents.
Each of my stock picks has an investing thesis. One must know what he or she is investing in.

I have the following general advice for stock investors:


bulb1.14
          Develop an investing strategy
          Stick to your strategy and be patient
          Invest with uncommitted funds
          Look for sunrise industries (e.g. healthcare)
           Portfolio diversification is a must
-          Have a single cap limit to avoid risk concentration
-          Assess management for trustworthiness
-          Seek managements that are responsive to shareholders’ interest
-          Look for sound business models
-          Value stable and strong balance sheet, and strong operating cash flows
-          Look for margin of safety
-          Avoid frequent rotation of stocks
-          Avoid speculative plays
-          Sell if you realise you have made a mistake
-         Be humble with your achievements 

Stock investing provides a road-map for building wealth over the long term. It can be hard work but it is potentially very rewarding. 

Build up your portfolio over time. Occasional mistakes will be made and take them as learning points.
 

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