YoloHuat's 1H 2017 Report Card

The first half of the year is almost gone and doomsday never arrived. Instead, stock prices continued to make new highs. A parking spot in Hong Kong gets sold for a record HK$5.18 million (US$664,300), costing more than some Hong Kong homes - and housing there is already the least affordable in the world. A new 100-year Argentina (one of the most regular defaulters in history) sovereign bond apparently was 3.5x oversubscribed. Investors simply do not believe in the Fed’s hawkish zeal, and so the party continues.

Anyone who remained invested in the market should have seen pretty decent returns so far this year. I thought I was totally nailing it, until I generated some numbers to see how I stack up against the index:

My report card (as of 28 June 2017):

The blue bar is the XIRR of all cash flows from Jan until 28 June for my portfolio (I'm slightly bemused that it's such a nice round number), while the red bar is the annualised year-to-date return of the SPDR STI ETF. It is indeed disappointing to be lagging the index, and after some scrutiny I attribute it to poor timing - buying in too early. Clearly this result explains why there has been raging debate over active vs. passive investing.

With hardly any yield on cash and limited avenues to generate returns, for the common retail investor at least, this long upcycle has likely resulted in most of us being long and overweight equities. The slow nominal growth however, induced us to complement it with an income focus (thus the popularity of REITs and dividend stocks). A quick browse through of the local finance blogs and sell-side research reaffirms this view - and leads me to wonder if everyone has the same positions. In fact, it’s my biggest worry now, especially with the pervasiveness of passive index investing. Downside has actually risen, as any sell-off would lead to everyone trying to get out of the same door at the same time. (Meanwhile, upside is limited with everyone having bought already.) You may argue that you are in for the long term and will ride through the cycles, but how confident are you that you will not hit the panic button when shit happens, especially when money can be pulled out with only a few clicks? To be honest I’m not that confident myself. Plus, my emotional control hasn't really been put to the test yet. I draw comfort though from the knowledge that I do not depend on my portfolio for liquidity. Do read this post on spare cash by GoHuat if you haven't.

Cheers

YoloHuat