Finance Smiths

Personal finance apprentices-in-training

Sell transaction Nov 2017

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We have a small portfolio in Australia consisting of 2 individual stocks listed on the ASX. One of them is WorleyParsons Limited (ASX: WOR). It is an Australian engineering company that provides project delivery & consulting services to the resources & energy sectors, and complex process industries. Did you understand what this company is doing from the short introduction? Because I didn’t initially and still invested in WOR.

Subsequently after doing some research & analysis, I only acquired a basic level of understanding of what WOR does but wanted to get some indirect exposure to the Australian resources & energy sector. Over the course of a few years while working in Australia and Singapore, the size of the position and unrealised losses in WOR grew as I averaged down blindly with the worsening oil prices. At the lowest point, my unrealised loss position in WOR was A$6,500.

This was my biggest investing mistake and I had basically written it off as my worst investment. I considered selling WOR just to get rid of it and accept the loss. But I held on thinking that the cycle might turn in my favour and the stock price might climb again. Foolish thoughts but it worked. The stock price recently went above my average cost price by a decent margin for me to sell and realise the newly found gains from the upswing. Even an investing idiot like me can be correct at least once over the “long term”.

Name: WorleyParsons Limited (ASX:WOR)

Number of shares sold: 905 (Entire amount)

Sale price: A$15

Net proceeds: A$13,575

Realised profit including dividends collected: A$3,500 or 33%

I’m relieved more than anything else because I had the opportunity to escape the dumbest investing move I made. I’m hoping I will have more opportunities to get out of those next biggest loss making positions I made in the Singapore Oil & Gas and Telecommunications industries. I keep thinking if I hold them long enough for the cycle to turn in my favour, I might still be able to make profits.

This is why I make a terrible individual stock investor. I keep selling my winners early and holding on to my losers. I have a tendency to do the same thing with ETFs when I don’t have enough self-discipline. Which is why I have just shifted into a slow ETF accumulation phase using the Dollar Cost Averaging (DCA) and Value Cost Averaging (VCA) methods. This allows me to avoid having to make the buy/sell decisions that I’m so bad at. I’m just going to keep buying ETFs and vary the purchase level depending on whether I’m in a bull, stagnant, or bear market.

It is a clumsy solution to a fundamental problem that I have. My inability to control my temperament and insufficient self-discipline. It’s a work in progress that I hope to improve on by the time the next bear market comes along. Just so that I don’t panic and start selling my ETFs & stocks or worse, stop the DCA and VCA buying of ETFs. Let’s hope I make it in time!

Meeting portfolio targets for the year

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In Jul 2016, I did a End of Jun 2016 Financial Update post and set out goals for our net worth and asset portfolio. I’m happy to say that they have all been met at this time before 31 Dec 2016!

The monthly tracking of the figures on the relevant pages of the blog charts the progress well. I know it’s showing a lot of positive figures and percentages but that’s what happens when you have dual income and no kids. Most of the growth is coming from cash injections into the various portfolios as the markets have been quite flat for the second half of the year.

It’s a reminder to earn more income, spend less and push the spending multiple & savings rate upwards. More importantly, it’s motivation for us to keep working hard while we are relatively young. If I’m being honest, my wife and I have been feeling weary of work lately. It’s a crunch time for both of us and we are getting hammered every day.

We are still surviving but can’t imagine doing this when we are older and have kids. Hopefully we will be in a better position then to control our workload by relying less on our jobs for income. Anyway, here’s our performance against our targets as at end Nov 2016.

1. Net Worth

Target – S$100,000
Actual – S$176,105

Cleared this goal by a mile, which means I’m setting too low a target. This is after taking into account the fact that I have been steadily lowering the market value of our property due to the weakening property market.

I continue to underestimate the ability of our net worth to grow. The rate really does accelerate once you put your mind to it and apply the law of large numbers. The logic to us is simple. We have a limited work shelf life and our tolerance for long hours and high stress decreases throughout the entire time.

We navigated ourselves to jobs that have decent pay and manageable hours. It’s not about what we are passionate about since we have the rest of our lives to develop that. The focus was to maintain an acceptable rate of exchange between time and money at our jobs.

The work itself isn’t particularly exciting but we change roles and scope every few years to keep things interesting. Long-term career strategy is to learn and earn as much as we can until we get retrenched. Which might always happen sooner than we think.

2. ETF Portfolio

 Target – S$40,000
Actual – S$54,577

I increased the monthly amounts of automated investments into the Singapore ETFs and made some purchases of the new REIT ETF. That’s what allowed us to exceed the target by about S$15,000. My concern is that I have not made any new investments into international ETFs.

We have a significant overexposure to the local equity markets and will need to increase our investments in overseas equity markets. I’m hoping Smartly can help with this after it launches by us making regular contributions to an aggressive portfolio of international ETFs held with the robo-advisor.

Which brings me to a number of questions that I have for Smartly at the moment:

  • Can I specify the proportion/mix of the international ETFs? E.g. 40% developed equity, 30% emerging equity, 20% REIT and 10% bond. Or do I have to choose from a fixed number of portfolio types from conservative to aggressive risk allocations?
  • How frequently can I contribute to my portfolio? E.g. weekly, fortnightly or monthly.
  • What happens when I make my contribution? Some form of rebalancing of the portfolio?
  • Are the dividends/distributions reinvested automatically or can they be paid out?
  • How often can I change my portfolio proportion/mix or type?

3. Share Portfolio

Target – S$120,000
Actual – S$132,111

I averaged down on the telecommunication stocks due to price weakness and did little else but that was enough for us to exceed the target by about S$12,000. The share portfolio is expected to grow much slower than the ETF portfolio anyway.

4. Other Portfolio

Target – S$150,000
Actual – S$160,100

The surrender value of our wholesale life policies have been growing slowly and consistently but contributed little to us exceeding the target by about S$10,000. It was mainly due to our monthly savings that we allocated as investment cash.

5. Total Portfolio

Target – S$500,000
Actual – S$511,587

Meeting all of the above goals resulted in us exceeding our total portfolio target by about S$12,000. Our CPF balances have been growing quickly due to the employer and employee contributions from our jobs and as we used more cash to pay off our housing loan. It’s essential that we have retirement funds earmarked for spending when we actually stop work completely.

Regardless of whether we achieve financial freedom/independence, we would like to stay engaged and productive with some form of paid work. These retirement funds are for when we actually get old and no longer wish to engage in paid work. Purely for spending purposes.

As the monthly investment, spending and saving processes get more habitual and automated, my intention going forward is to make the entire thing self-sustaining. This means I need enough passive income to be generated and re-invested to grow the asset portfolio regardless of market movements.

And I only need to have enough salary to manage my expenses with no need for savings injection into the asset portfolio for it to grow. Maybe then will I engage in lower pay full-time or part-time jobs with less stress!

Oct 2016 Net Worth Update

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I have started work at my new job and it’s been keeping me busy. Won’t be writing long posts anytime soon but will try to provide financial/portfolio updates when I can.

This only serves to reinforce my belief in automated index investing. Even though my new job is essentially a parallel shift in roles, the learning curve is steep since I have never worked in the financial services industry before. I also have to adjust to interacting with new colleagues and bosses.

It takes a while and a lot of effort to settle in, perform, improve etc. This is on top of making sure I continue to spend time with my wife, our families and friends. All of which reduces my focus on monitoring and research & analysis of the equity markets. It starts becoming a lower priority item.

I imagine my life as a series of changes and phases. Each one more significant than the one before. You can see the draw of automated index investing to me, even at higher costs. Build a big enough base of index ETF investments by being consistent every month and even less than market average dividend yields & rate of returns can be sufficient.

Net Worth – $163,846 (+ $18,038 and + 12.37%)
  • Made ETF and Share investments
  • Standard monthly cash savings
  • Monthly reduction in housing loan principal
  • Normal CPF contributions

ETF Portfolio – $51,126 (+$3,185 and + 6.64%)

  • Bought Philip SGX APAC Dividend Leaders REIT ETF S$ (BYJ)
  • Auto-purchase SPDR Straits Times Index ETF (ES3) [Maybank Kim Eng MIP]
  • Auto-purchase Nikko AM Singapore STI ETF (G3B) and ABF Singapore Bond Index Fund (A35) [POSB Invest-Saver]
Share Portfolio – $120,335 (+ $3,423 and + 2.93%)
  • Averaged down on M1 (B2F)
Other Portfolio – $155,800 (+ $2,000 and + 1.30%)
  • Was able to allocate monthly savings as investment cash (standard increase)
Cash On Hand – $78,000 (+ $2,000 and + 2.63%)
  • Was able to allocate the rest of monthly savings as cash on hand (standard increase)

Average monthly passive income ($1,039) still above $1,000. Most of the dividend income was received from Vanguard ETFs. Higher than normal interest income due to a corporate bond coupon.

Spending multiple increases to 4.95x but savings rate drops below 40%. Decent growth in assets and travel spending resulted in this.