2024 year end reflection

A phenomenal year in reflection. Everything rallied mostly. Below is a list of some stuff I owned. Superbly happy with how the growth portfolio did this year (top performers Tesla, Amazon, Shopify), worst performers there are (Unity, C3AI and Alibaba)

Even traditional value / dividend stocks did well with my diversified endowus portfolio up 20% since inception. DBS rose +42% as well.

The biggest drag for my portfolio is United Hampshire US REIT -6%ytd, but I am confident that this thesis will work out considering that Blackstone buyout of ROIC for USD4b valued a larger business at 1.73x P/BV, 3.5% dividend yield, though UH reit is about 1/3 the size of ROIC. ROIC being East Coast assets, UH REIT being West Coast assets. 

+170% upside sounds exciting? (I added to my position recently and MCB real estate recently emerged with a 5% stake…activist activity incoming?). Who knows but as a decent yielding company about 8%, you get paid while you wait.

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Market discipline is needed today, today we are somewhere in the middle of the cycle with the equity markets having run ahead before the Fed cuts even begun. Optimism and animal spirits are strong for a Trump administration and I think it’s wise to turn slightly defensive.

So for 2025, going beyond the general rebalancing for equity, bonds and cash position…one may consider  raising your cash or short duration bond position to at least 20-30%. Prudence and defensiveness is needed to survive and thrive but there should not be a major recession around the corner (though inflation may return and cause a selloff fear again - potentially a buy the dip opportunity as seen on 18-20 Dec)

Fresh funds and potential reallocation going forward will largely be in things I own or am looking at below including:

1. US bond funds yielding 6-8% (PIMCO GIS Income)

2. Selective growth shares (Mercadolibre, Airbnb)

3. Spinoffs (FedEx, DuPont and Unilever ice cream anyone?)

4. Turnarounds (LVMH, Alibaba, United Hampshire US REIT)

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US stocks 

Tesla +206%

Amazon +155%

Shopify +141%

OTIS +111%

Brookfield asset management +81%

Hims and Hers +79%

Adyen +52%

Airbnb +40%

Paycom +14%

Snowflake +2%

Mercadolibre -3%

Elastic -21%

Alibaba -48%

C3.AI -56%

Unity Software -71%

Endowus portfolio +20% 

(34% S&P500, 31% US bonds, 25% msci world, 10% Msci EM index)

YTD returns

DBS +42%

United Hampshire US reit -6%

What stays the same

After reading 3/4 through of Morgan housel’s new book. It tells of many things that have not changed since the start of time. In a similar vein, we observe it all today in financial markets.

Boom and bust of crypto

- Crypto being the poster boy, saw multiple boom and busts. With euphoria creeping in as btc ETFs get approved, one truly wonders what an interesting experiment it turns out to be.

- With the halving event in Apr 2024. Would it continue to climb? Or has market priced in everything.

The only thing more certain than knowing something is not knowing what will happen.

After all, with market timing - you need to guess what will happen, when it will happen and how the markets will react. Good luck - Terry Smith.

How little we know

- Anyone who bashes any subject without at least trying to understand runs the risk of “missing out”.

- In the next vein, can you afford to “miss out”?

- Knowledge gathering is critical, often we do not fully understand anything entirely. So there lies the limits of our competency. 

- Then we put it in the Yes, No or Too hard buckets.

Certainty 

- Nobody can time the market. But in certain aspects, you get a sense of the market top and bottoms through

1. Experience and valuations 

2. Observation of credit and lending cycles

3. Sentiments (Bullish or bearish)

And then you have to be practical to understand if the model and framework works when you bring it from one place to another.

So the craziest example would be a bet on China right now.

1. Valuations at a 4 year low (lower than Covid)

2. Revenue and earnings largely flat, ready to pick up (improving earnings outlook)

3. Lenders are easing on liquidity, lending to property companies tepidly but surely.

4. Sentiments are bad (FDI outflows, locals not buying)

So certainly no case right now. But recovery will come fast and swift, so a certain small allocation would work out. 5-10% is prudent.

Sure thing or risky thing

Would you rather earn 

3% from FD

3.8% from T bills

4.5% from corporate bonds

5 - 15% from REITs 

10 - 20% from growth stocks

100% from crypto

The risk spectrum and probabilities of returns differ for each of the above from a sure thing (FD & t bills) to a gamble (crypto). Prudent investors know that each have to find their own sleep number, this adjust with family circumstances, age, careers, networth etc.

And that’s it. Some things never change.

2024 outlook

 What a wild ride 2023 has been.

With inflation in retreat and interest rates projected to decline (both on FED and market watch), the following are what I think should be playing out.

1. Sovereign bonds - decent yield, reasonable real returns above long trend inflation even at todays 4%. The higher interest rate goes, the higher your duration should be. So for US treasury investors, plenty should have bought in the 10Y to 30Y treasuries given the 5 - 5.2% yield in October.

2. Equities. Not all equities are born the same. The S&P 500 is not even the same as the magnificent 7. Nevertheless, here is what I am observing:

- With the broadening of the markets from 7 to 500, we expect the index to rise another 10-12% to around 5200. Likely to stay in that range for a bit till any next catalyst or crash.

- China did not play out as expected. With 30% of its gdp tied to real estate, the struggle remains as the industry drags down another 500-800 industries with it. Nevertheless, the green shoots lie in EV, solar, retail and domestic tourism. While the Chinese stock market remains horrible for investors, the worse is likely behind. Any investor in Alibaba - including myself can expect some moderate returns (share buybacks, dividends, spinoffs)…I think 7-9% p.a. would be decent and an acceptable rate to hold for next 5-7 years. Emerging market ETFs could also be worth a look with 10% portfolio allocation.

- Singapore. Not a terribly exciting arena but opportunities definitely exist. US reits based in SG structurally enjoy withholding tax exemptions while giving 12-16% returns. Local REITs are also strong holds with monopolistic like positions (CICT, AREIT) enjoying strong rental reversions and occupancy although lower returns at 5%. Financing rates for residential property at 3% is also relatively low considering global conditions, overall this remains healthy for low to moderate wealth growth.

3. Crypto sees its recovery with FTX sorting out its bankruptcy while Binance ceo resigns. Activity in the space sees its spike - higher price attracts higher attention….eyeball attention on a “gambling” sector. Nevertheless, Bitcoin etf and coinbase collaborations with BlackRock could see a further broadening of investor base. The best use cases I see so far are a. Reduction of fees (FX transfers), b. Speculative and volatile asset to boost overall portfolio returns (commodity play like gold), c. blockchain as a ledger record example university degrees (although more from a business angle)

Best ideas for 2024

1. US reits based in SG - United hampshire Reit should see another 20-30% upside (compare to slate us reit in USA). Kep oak reit could also see another 20% upside from here given its business park and generally healthy occupancy as rates come down to 3-3.5%.

2. Emerging market ETF. 10-15% return? After going nowhere for 3 years, EM time to shine could be here as China structurally supports their businesses with low interest rates, liquidity and their people innovate to get out of a sticky situation. Just as you should never “bet against America”, likewise never bet against the Chinese. The strongest catalyst will be when Chinese themselves begin investing in China. India also remains on a strong industrialisation path.

3. Travel and hospitality remains strong. 10-15% return. Wanderlust - is a structural thing. Booking.com and Airbnb are seeing strong numbers for a reason. Certainly money is being spent in this arena and will likely stay that way for many years to come.

7 bold bets for the next 7 years

Predictions are guesstimate to happen by 2030

Ladies and gentlemen, gather 'round and lend an ear, For I shall weave a tale, both witty and clear. With words of Macbeth's poetry and Twain's wit, Let me present these bold bets, where futures are lit.

First on the list, a vision of great might, DBS, a titan, soaring to a hundred billion's height. In India, China, and Indonesia, opportunities do bloom, And DBS, with prowess, shall rise above the gloom.

Next, a prophecy of grandeur, beyond what we know, Thirty companies, once humble, in the trillion-dollar show. From six to thirty, they shall climb the lofty peak, A testament to ambition, the future they shall seek.

Now, brace yourselves, for a realm yet unseen, The metaverse, birthed by Apple, will emerge from the screen. A generation of entrepreneurs shall arise, In this digital realm, where innovation never dies.

Electric currents, a transformative tide, As ICE's hold falters, and EVs swiftly ride. Fifty percent each, the market they'll divide, With Tesla leading the charge, their dominance won't hide.

China's leadership, behold a turning tide, A shift, a change, as Deng's ideals reside. Pro-business, pro-democracy, a radical decree, China's GDP overtaking, surpassing the Land of the Free.

Now, let us delve into the realm of finance, Where interest rates dance, taking chances. Two and ten-year highs, exceeding five percent, Yet growth shall not wither, nor shall it lament.

AI, the great disruptor, a double-edged sword, Creating and displacing jobs, a future untoward. Society inching closer to a work-less state, With robot employees, handouts may await.

So there you have it, these bold predictions unfold, A tapestry of visions, both daring and bold. With Macbeth's poetry and Twain's wit, I present these futures, where possibilities are lit.

"Millions to Billions" - Supporting your dreams of financial freedom

Did you know?

As of Apr 2021, American crypto-ownership has soared to an all time high. Consider the following fact findings:

1. 21.2 million (or 14%) of all USA citizens own crypto.

2. The average crypto investor is a 38-year-old male with an annual income around $111,000.

3. Education seems to be a crucial component of crypto growth for investors and “crypto-curious” alike. Of the 3,000 people polled, 77% said they want to learn more about crypto, even if they already own some cryptocurrency.

And we are LIVE!

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We have launched our new online digital company <Millions to Billions>  where we seek to educate you on our latest experiences and discovery in the Personal Finance and Technology (this covers many aspects such as Crypto, Investing and Technology etc.)

Click on the following, Crypto 101 to learn more about opening a free account on Binance which in my opinion is one of the best exchanges out there. 

• For someone who has utilized many UX (user experience) interfaces + digital offerings. Binance rates extremely high on the key aspects of speed / gamification / reducing friction for the flow of money and building an ecosystem that thrives on supporting their customers (buyers / sellers / developers/ NFT artists etc.)

Signing up is free. 

All we need is your email to support you in this journey. So if you are young (or young at heart). Click on this link Millions to Billions and sign up today!

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Competitions on Binance is a great way to show your talent as a content builder, here is a simple created by us. A lesson on risk management

Curated articles - what I have been reading.

Article 1: A path to better returns by Lauren Templeton

https://mailchi.mp/ltfunds/the-boring-path-to-better-returns

In our previous commentary (Are You Different this Time?) we discussed the speculative valuations in certain technology shares (i.e., 718 shares trading over 20x sales), and how they reminded us of the dotcom mania of the late 1990s. At first blush, the potential risk in these shares should sound alarms, but that analysis is incomplete. It is important to recall that the crowding of investor interests into a narrow section of the market means there should be neglected shares, and potentially bargains, elsewhere. We discussed this phenomenon in the context of the dotcom mania in a chapter from Investing the Templeton Way titled “When Bonds Are Not Boring.” In 2000, Sir John reasoned that the NASDAQ could potentially fall 50% or more from its high, and that 30 Year Treasury Strips with an implied yield of 6.3% were far more attractive. As many observers will concur in the twenty years since, opting for 30 Year Strips in lieu of NASDAQ stocks in 2000 was a shrewd move, even if they had not funded the purchases through borrowed Yen (as Sir John had). Fast forward to today, we look towards the 30 Year Treasury yield of 2.29% and are left unconvinced one is not moving from the frying pan into the fire. However, we believe there are suitable alternatives.
 
There are relatively straight-forward financial comparisons to be made between dividend yielding stocks and long-term bonds. In our view though, a growing dividend is far more valuable than a bond coupon, especially if the underlying company has a disciplined nature towards capital allocation, and even better—long-term, under-appreciated growth opportunities. We would even take it a step further and argue that the dividend yields available on certain shares fitting the description above, are significantly undervalued relative to the Ten Year Treasury Yield. Could you imagine though if we took our enthusiasm for current dividend yields to the infamous “wallstreetbets” board on Reddit, and started talking up Unilever’s dividend? We suspect there would not be much of an audience, and if there were it would include a fair amount of heckling. Coincidentally, we think that is a good way to confirm you may have found a bargain. The simple fact is that in today’s world of Roaring Kitty, Archegos, Tesla, Dogecoin, and ARK Funds, dividends are far too boring to compete for attention. For the rational investor, this is a good thing.
 
For example, let us return for a quick look at Unilever, a company we also highlighted in our prior commentary as a potential bargain. From a dividend yield perspective, Unilever’s 3.7% forward dividend yield is 2.3x higher than the current 10 Year Treasury Yield. Interestingly, Unilever’s dividend yield has only traded at more than 2x the 10 Year Treasury at one other time (July 2012) in the past twenty years. For anyone who feels their eyes beginning to roll with talk of a boring dividend payer such as Unilever, first, stop and consider that over the past thirty-years, the growth rate on Unilever’s dividend per share has been 13.2% annualized. Of course, no one can be sure that the company will sustain that growth rate going forward (but we like its chances with +60% of its business in the emerging markets). At the same time though, we are even less sure that many of today’s darling share issues changing hands at over 100x earnings and 20x sales will even exist in 30 years’ time. Last, we would argue that Unilever is not an outlier in the dividend space, and that it has several boring potentially double-digit annualizing friends worth a look too.

Summary: Be boring. Make money.

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Article 2:  Ashton Kutcher invested early in Uber and Airbnb and turned a US$30 million fund into US$250 million – these are the top investment tips from Hollywood’s most active Silicon Valley investor

https://www.google.com.sg/amp/s/amp.scmp.com/magazines/style/celebrity/article/3107448/ashton-kutcher-invested-early-uber-and-airbnb-and-turned

Kutcher told The Telegraph in 2013 that he was particularly drawn to consumer technologies. “The companies that will ultimately do well are the companies that chase happiness,” he said. “If you find a way to help people find love, or health, or friendship, the dollar will chase that.”

The first rule is that entrepreneurs must intimately understand both their product and their industry, he told A-plus. They must also have a personality that will allow them to withstand failure and setbacks, he said.

Kutcher continued: “You can have the best idea in the world and absolute domain expertise and know how to do everything right, but if you want to do something great in the world, there are going to be obstacles; and you have to be a person who has ingenuity and sheer willpower to get through those times.”

The third rule, he added, is that the entrepreneur must get along well with him.

My take: Investing which is most businesslike is the best way to go, and understanding the founders and what drives them (what they are doing) is one of the best way to drive alpha for your portfolio. 

Article 3: Why coinbase may be the Microsoft of this decade. 

https://www.bloomberg.com/news/videos/2021-04-13/why-coinbase-may-be-the-microsoft-of-this-decade-video

While it is true that we all want to find exciting investments. Just as Microsoft goal was to put a desktop on each household desk. Is coinbase goal to put a cryptocurrency in each person asset space?

My take: Definitely an interesting space that is developing outside of wallstreet. My bet is that Binance (and not coinbase) with its development and ecosystem has created a platform worthy of the biggest, brightest customer base which is technology or financially savvy individuals.

The most important thing in investing - Total addressable market

I once had a conversation with a talented individual from the Value Invest Asia Premium Club on the topic of Total Addressable Market or TAM. 

This topic would be broken down into 3 parts: Sizing the TAM, what Phillip Fisher said and what it means for you.

Part 1:

1. TAM is the market size of sales of which the company is serving. A Wikipedia entry goes like this

“ Total addressable market (TAM) represents the entire revenue opportunity that exists within a market for a product or service.”

This is the annual revenue of a customer per year. Being addressable, it is really about the audience or customer.

As a member of the Toastmasters club, often we frame a topic as “what is in it for me?” - looking at things through the audience eyes. Effectively, each company should look at things through their customer lens, what is the customer journey?

Howard Schultz (CEO of Starbucks) says this best when he said in a boardroom meeting, they leave one chair empty to symbolise the customer. Now whatever decision they make, imagine the customer was in the room, what would they say? How would they feel?

Example of usage:

1. Here is a sample of an analyst report taking from Barron on Enterprise AI company C3. “With a TAM [total addressable market] of $270 billion and a product portfolio that is unmatched in the enterprise landscape, we believe C3 has the ability to further penetrate enterprises and governments across the board over the coming years.” 

2. Compare this against the customer existing revenue of US$200m in FY20 and you see tremendous potential of upside....even 1% of the TAM would mean a 14x growth in sales.

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Part 2: 

What legends say: Phillip Fisher 

https://news.morningstar.com/classroom2/course.asp?docId=145662&page=3&CN=sample

Phillip Fisher has a checklist of 15 things to look out for during investing. The first and foremost is this

“Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years? A company seeking a sustained period of spectacular growth must have products that address large and expanding markets.”

There are many parts to this but the key words is “sufficient market potential” and this of course means TAM. 

Fisher goes on further to say two scenarios - there are companies who are “able because they are lucky” and “lucky because they are able”.

Previously working at DuPont, Fisher could see that the chemical industry (lucky because they are able) had immense potential for multiple applications and products and this of course gives the drivers and possibilities for growth. Contrast this with the former - steel industry (commodity product) that grew as a result of urbanisation.

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Part 3:

When you invest. Consider the industry dynamics. Whether you are a Growth or value investor, it doesn’t hurt to have a tailwind of growth in your industry rising from the ever burgeoning TAM. If anything, we should seek for companies that are growing faster than their peers in a growing TAM market. 

That’s a multibagger in the making. And knowing this will definitely increase your batting average.

Invest well.