Total Cumulative Dividends (2010-2022): S$223, 208
Current Cash Warchest: S$33, 700
(*All figures are accurate as of 30 Jun 2022)
Portfolio Actions in Q2 2022:
- Accumulated more Ascendas REIT at S$2.73
- Accumulated more CapitaLand China Trust at S$1.15
- Accumulated more Mapletree Logistics Trust at S$1.61
- Accumulated more TSMC at US$88
- Initiated position on Nvidia at US$187
Taming The Inflation Monster
Global markets have been brutal in Q2 2022. Oil price shot above US$100. Countries started banning exports of resources like wheat, palm oil and chickens. Inflation rates in developed nations hit record highs in decades! According to the experts, we should expect an extended period of high inflation. This is bad. Inflation 'robs' everyone except maybe the uber rich. Oh, and to make matters worse, here in Singapore, we are set to raise GST next year. In Q2, the US Federal Reserve was desperately trying to tame this inflation monster without causing a full-blown recession. Engineering a 'soft landing' is easier said than done. I reckon the US fed would probably swing the pendulum too far into the other side. So guys, buckle up and hunker down. Be prepared for more pain ahead.
Hope For The Best, Plan For The Worst
The best case scenario is the US Fed rate hikes working effectively in bringing down inflation gradually by the end of 2022. But we all know things rarely work out the way we want them to. These are things I have been doing to better prepare financially for an inflationary future. Obviously, I can only speak for myself. Everyone's financial situation is unique. There is no one-size-fits-all solution. So you lot need to make adjustments yourselves.
First, try to stay employed! Get that regular paycheck. I am saving up most of my mid-year bonus. This might sound counter-intuitive since high inflation is going to erode the cash value. Don't get me wrong. I am not saying we should hoard a mountain of cash. But we do need to keep a healthy amount to pay for higher living expenses. Cash is like oxygen. You don't really notice it, until you really need it. And for those home buyers with a mortgage loan burden on their shoulders, hang on to your jobs for dear life! Banks are likely to keep raising home loan rates over the next couple of months.
Second, I am buying the 'deeper' dips. Buy in batches, with wider margins in between batches. I noticed these 'deeper' dips in the markets tend to occur after the US release their monthly CPI figures. This pattern could repeat in 2H 2022. Plan your watchlist and get ready for more buying opportunities.
Third, focus on quality top-tier companies with strong balance sheets and pricing power. Avoid companies with high capex and operational costs. Buy the winners. Buy the leaders. I am going for blue-chip banks, REITs and tech.
And while we are on the subject of 'quality'. I feel we should focus our personal spending on stuff that add value to our lives consistently. For example, I go for runs at least thrice a week. So I decided to invest in a pair of Nike running shoes. All of us got to eat everyday right? So, food is another thing I would go for quality. Tasty food is absolutely worth it! Live a little! ^^
Achieved S$16, 430 in 1H 2022 passive income, representing a 10.4% rise compared to 1H 2021. As the world frets about another impending recession, I just look forward to a new CD season. Every dividend payment day is a happy day! Most people might treat dividend growth investing simply as another style of investing. But to me, it is much more than that. It has always been a pursuit that centered me, calmed me. Especially during these turbulent times when the markets seem to be crumbling. Dividend investing is discipline. Dividend investing is freedom. Dividend investing is Zen.
Total Cumulative Dividends (2010-2022): S$212, 228
Current Cash Warchest: S$21, 600
(*All figures are accurate as of 31 Mar 2022)
Portfolio Actions in Q1 2022:
- Divested Sea Group at US$193, taking a loss of -33.4%
- Accumulated 3 tranches of Tesla at US$1038, US$908 and US$850
- Accumulated more Microsoft at US$308
- Accumulated more CapitaLand China Trust (CLCT) at S$1.16
Doubling Down on Tesla
Growth continues to slow down for the gaming unit of Sea Group. Garena is the sole profit-generating business for Sea Group. The cash-burning business model of Shopee looks set to continue as they compete against Lazada in the Southeast Asia e-commerce market. With the new digital banking service launching soon, I foresee the cash-burn rate to remain elevated. Since Sea Group makes up a tiny portion of my portfolio, I decided to cut my losses and re-invest the sale proceeds into Tesla.
The growth trajectory of this EV giant over the next 5 years is significantly clearer, with the opening of Giga Berlin and Giga Texas. The global demand for EVs is set to increase exponentially and Tesla is way ahead of its competitors who are struggling harder with chips and battery shortage. Tesla has already established a supercharger network (~30,000 points worldwide) whereas its competitors are now just starting to build their charging infrastructure. The legacy automakers are way behind Tesla in terms of securing more supplies of rare metals for large-scale battery production. So, I believe cutting the 'weed' that is Sea Group and doubling down on a hypergrowth, disruptive winner like Tesla is the right choice. With this latest accumulation, Tesla has moved into my top 15 positions. It is now my largest growth counter.
Fed Rate Hike Cycle Starts
By now, we can all agree that inflation is no longer transitory. In a bid to combat inflation from running away, the US Federal Reserve has started the rate hike cycle in March. The market is guiding six more small hikes by the end of 2022. The monetary tightening is likely to be gradual. REITs are widely expected to react negatively to this development. But lo and behold, most of them started to grind higher! Contrary to popular belief, REITs tend to perform relatively well in an inflationary environment. The last time the US had hyperinflation in the 1970s, REITs outperformed many other sectors. As long as Uncle Powell communicate subsequent rate hikes clearly, I believe REITs will keep chugging along just fine.
A New World Order? Not So Quick...
Talk of a new world order emerging is a little bit of a hyperbole. It is still pre-mature to talk about a changing world order when the top five largest companies in the world are still American. Apple, Microsoft, Amazon, Alphabet and Tesla are not fading away anytime soon. In fact, these giants are still expanding. Their products and services firmly entrenched in our daily lives. Look, don't get me wrong. China is a close second in the world order and catching up. But they also have a host of domestic problems. A heavily leveraged real estate sector where the Chinese have most of their wealth in. Birth rates falling off the cliff. Population aging rapidly within one generation.
I prefer to take a more balanced approach on this. Diversify some funds into the China market. No all-in. Never all-in. Demand for modern logistics properties and data centres would continue to grow in China. That is why I accumulated more CapitaLand China Trust. Collecting rent from the China market wouldn't hurt, right?
Sticking to my 'Life goes on' Plan
Still on track to hit S$800k portfolio value and S$33k in annual dividends by year end. Often I ask myself what kind of events would be catastrophic enough to end my portfolio. Short of an asteroid striking Earth or an all-out nuclear war, my current portfolio should prevail. Even a two-year global pandemic could not destroy it. Life always finds a way. Probably the beauty of capitalism? It has this power of renewal. So, I would urge all of you to come up with your own version of the 'Life goes on' plan and stick to it.
Never quit. Keep moving forward. Keep compounding. Navigating through crises. Long-term investing is not just about survival. It is more about prevailing. There is a difference. That's the beauty of dividend investing. No matter if the market is up, down or sideways, you are still getting paid. There is a certain... comfort in knowing that. People always talk about 'Financial Freedom' or 'Financial Independence'. Well, how about some 'Financial Comfort'?
Did a tonne of rebalancing work on my portfolio in Q4. Cutting away all my tiny, loss-making positions and reinvest into the winners. Cutting away the festering tumors so that healthy cells can grow again. At the very least, my portfolio growth was able to offset the high inflation. 10.34% XIRR and 13% annual dividend growth is nothing to write home about, but I can live with that, considering there are people still mired in losses in a bullish year.
If there is one thing I learnt in 2021, that is to stay with the winners. Take Apple and Tesla as examples. Considering their size, both companies achieved phenomenal consistent growth in 2021. Especially for Tesla, the EV tidal wave looks unstoppable. I believe 2022 is going to be an explosive year for Tesla. Giga Berlin and Giga Texas starting production, 4680 cells high-volume production, Giga Shanghai expansion, FSD Beta 11 going to Level 4 autonomy, automotive insurance and Cybertruck production.
Tesla is in a sweet spot now. In 2021, they already showed how a ramped-up Giga Shanghai can boost earnings sustainably. With two new Gigafactories on the verge of production, Tesla is going to further strengthen its track record of growing earnings and net income. It should get more profitable as the gross margins expand. Tesla is able to squeeze more profits out of each EV than the legacy automakers. The Gigafactories are more efficient and vertically integrated than those old factories of legacy car companies. This is like taking a leaf out of Apple's playbook. Its iPhone global market share is only 12%, way below Samsung's. But Apple is taking around 40% of the global smartphone profits! All about that profit margin.Although 2021 was the first year I got into the tech sector, it turned out that investing in tech stocks is rather similar to investing in bluechips and REITs. Always go for the Top Dogs. Big Tech usually stay long-term winners as they compound on their competitive advantages and dominant market position. Winner takes all. The returns of S&P500 and Nasdaq in recent years have been heavily skewed towards the top 6 constituents (FAAMG). Apple with its iPhone and Mac eco-system, Alphabet with its Google search engine and Youtube, Microsoft with its Windows, Office software and Azure cloud services. As we enter the new rate hike cycle, investors are shifting to companies with proven revenue AND earnings growth. Those cash-burning small companies are falling out of favour. Selling a beautiful growth story of producing actual earnings far into the future doesn't seem that attractive anymore.
General Strategy For 2022
Similar to 2021, I would adopt a Barbell approach in 2022. Go defensive with CPF top-ups and REITs. Go offensive on Tech with profitable growth. I am targeting to hit S$800k in portfolio value and $33k in annual dividends. Alright then, so much for all the heavy investment stuff. >_< We must not forget to reward ourselves occasionally. Can't bring all that wealth to the grave! Enjoy your favourite food. Buy a little something for yourself. Sometimes, it is more productive to slow down and reflect. I do some of my best thinking when I am taking a stroll. Getting close to nature is one of my new year resolutions.
Wishing all my readers a Happy New Year!
May it be filled with new adventures and great fortunes!
