Our New Investment Thesis

Earlier this week, one reader dropped us a comment in our previous post asking us what caused us to move our holdings from Singapore stocks to US growth stocks, and we thought we wanted to share more about our thinkings behind it.

We have probably mentioned this a few times since August that we are relooking at our investing strategy. Since June, our Singapore portfolio has stagnate and in fact dropped in value.

After hitting our milestone of S$100,000, the portfolio value dropped 4% to S$94,000 at the beginning of November. That’s 5 months of opportunity cost for the portfolio.

Opportunity Cost

Which brings us to our first reason why we are reallocating our portfolio composition: opportunity cost.

At the same time when our Singapore portfolio deteriorates, our US portfolio continue to hit new highs. Due to Covid-19, technology is currently driving the world’s economy, with tech adoption accelerated as consumer behaviours were reshaped.

Good read on technology trends accelerated by Covid19

It is rare that we have a global event like this that can impact stock prices the way we saw. If we do not capture this opportunity, we will probably have to wait for the next one to come. If you can’t fight them, join them.

Hence, while a bit late, we have reallocated our funds into US growth stocks, and are in the midst of reducing our Singapore portfolio so that we can ride on the technology wave.

Capturing Multi Baggers

The second reason why we are reallocating our portfolio composition is the idea of capturing multi baggers.

Multi baggers means a potential of 5-10x returns or even 100x returns. If one manage to capture a multi bagger, that multi bagger can more than cover the losses in other non profitable positions.

Here’s an example:

Stock 1+500%+$5000
Stock 2-20%-$200
Stock 3-20%-$200
Stock 4-20%-$200
Stock 5-20%-$200
Net+420%+$4200

For the above example, you will just have to get 1 multi bagger to cover 4 of your other miscalculated trades. So our focus now is really to hunt for multi baggers in our portfolio.

And when we really sit down and think about that, multi baggers often exist in the US stock market, as compared to the SG stock market. It is really very hard or takes more time to visualize an SG stock or REIT growing 5-10x over the next 5 years.

Of course there are exception for SG multibaggers (ifast for eg), but it is much easier to find these multi baggers in the US stock market, especially since there is a technology tailwind ongoing now. The hit rate will be much higher if one were to invest in the US stock market.

Source: The Wealthy Owl

A stock which is a multi bagger must be supported by a large market cap. For a stock to have a large market cap, it needs to be global in nature and is not geographically limited. Hence, US technology stocks have an advantage here because it can scale globally and can serve the global market easily.

Therefore, the market cap (and subsequently its share price) will increase at a faster clip as compared to an SG stock.

Singapore Portfolio Is Now A “Bond” Portfolio

The third reason why we are reallocating our portfolio composition is that we are viewing our Singapore portfolio differently now.

Our previous thesis is that, we want to build a long term dividend portfolio that can provide us a monthly passive income so that we can retire early. And hence, earlier this year, we invested quite aggressively into our Singapore portfolio when the dividend yield is very attractive.

We have been treating this portfolio as our equity portfolio.

However, that has not worked out well for us because the portfolio has in fact suffered some capital losses, and did not achieve the intended yield we were hoping for.

We should instead look at this dividend portfolio as a “bond portfolio”, since we are expecting the portfolio to provide a “monthly income” to us.

Similar to how our CPF is providing an annual return and allowed to compound annually, our Singapore portfolio is also providing monthly dividends to us. the returns of our Singapore portfolio is also too low as compared to equity-returns or when compared to US stocks.

Hence what we are doing now is strategically taking profits on some of the Singapore counters we have and moving them into our US portfolio.

How we are instead looking at it is that, we are “reducing our bond allocation” and increasing our “equity allocation”.

Old investing ViewNew Investing View
Equity (High Growth): US stocks, Singapore stocks

Bond (Stable Returns): SSB, Syfe, CPF
Equity (High Growth): US stocks

Bond (Stable Returns): SSB, Syfe, CPF, Singapore stocks

To us, an equity portfolio would have higher risk, volatility and potentially higher returns, whereas for bond, it has relatively stable price action and provides stable returns.

Here’s our allocation movement since our portfolio restructuring in August:

Mr BudgetUS PortfolioSG Portfolio
August 202051%49%
September 202054%46%
October 202057%43%
November 202066%34%
Mrs BudgetUS PortfolioSG Portfolio
August 202030%70%
September 202035%65%
October 202041%59%
November 202062%38%

While we may have quite a high US equity allocation, if we view our SG portfolio as a bond component and adding CPF in, the US equity allocation will be lowered than that of our SG bond component (REIT+SSB+CPF)

November 2020US Equity + AlternativeSG Bond (REIT+SSB+CPF)Cash
Mr Budget38%48%14%
Mrs Budget30%52%18%

To capture more returns on our portfolio, we will continue to add onto our US equity and reducing our bond portfolio allocation.

What it means is that we will continue to invest in US stocks, and for our bond portfolio, we will rely mostly on our CPF, and we will continue to build up our exposure to Singapore REITs via our robo advisor Syfe REIT+.

Hopefully we can capture a higher return moving forward. Our historical US trades seems to agree with us this way too. And hopefully we will manage to capture multiple multi baggers. 🙂

Here are some related reads on our past thoughts also:

What We’ve Learnt This COVID19 – Using US Stocks To Boost Overall Portfolio Gain

What We’ve Learnt This COVID19 – Price Levels, Selling And Coffee Can Portfolio

Relooking At Our Investing Strategy After Our US Portfolio Repeatedly Hit All Time High

8 thoughts on “Our New Investment Thesis

  1. Hi Mr and Mrs Budget,

    Thanks for this article! It sets me thinking on my investment strategy. I agree with you that the SG portfolio is like a bond, maybe it does not come with a guarantee principal at maturity.
    Yes, I am still struggling to figure out between chasing dividend vs growth. Maybe, it is time to reposition the portfolio.

    Best regards,
    Jason

    Like

    1. Mr Budget

      Hi Jason, there are no right or wrong strategy – it depends on which style is suitable for one’s risk factor. Higher equity allocation is good for those with higher risk and higher bond allocation with more conservative risk. 🙂

      Like

    1. Mr Budget

      Hi Wilson,

      For US – we are using Tigers now. Was on Saxo but wanted to spread out our holdings on different broker.

      For SG – we are using Vickers. 🙂

      Like

      1. Sippo

        Hi Mr Budget, may i ask if there is reasaon to spread across different broker to handle the different trades? Is it to manage risk?

        Like

      2. Mr Budget

        Hi Sippo!

        There are 2 reasons – the first was because Saxo was charging a higher exchange rate, hence we were looking for alternatives. We found that Tiger’s rate is much better. Hence we are sticking with them for now. From what we have read recently, Saxo seems to be improving their competitiveness.

        The second reason is also to spread out our holdings and not have all of them consolidate in one broker, so yes it is to manage risk. But this is just a personal preference. 🙂

        Like

    1. Mr Budget

      Hi Kyith! Thanks for dropping your thoughts!

      From my understanding the estate duty is only when we pass on. We have not really thought of that yet but that’s probably something we need to think of when our portfolio becomes more sizable. 🙂

      Like

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