2020 Mid-Year Review & Investment Outlook

2020 Mid-Year Review & Investment Outlook

6 months just breeze passed since I last wrote about what I wanted to do after graduation. Now that Q2 has just ended, I thought it would be a good time to consolidate some of my thought processes and share it here. I have made many wrong calls, changed my investment philosophy and learnt many new things in 2020. Here is a list of them in byte-sized themes.

1. Clearing Off Student Loans

Firstly, this whole thing about offence & defence in the art of war, about reallocating student loan repayment to investments, that did not happen. In the end, I chose to continue my monthly repayments at $1,500 after the government announced all interest on loans would be waived until June 2021.

So I took the conservative path and intuitively that also feels right for me. Becoming debt-free should be the main priority, especially in uncertain times like now. As of today, I have pared down my student loan debts from $21,150 to $9,550. It would be another 6-7 months before I am 100% cleared.

2. Waiting for a 2nd Leg Down

Secondly, I wrote about the history of market crashes. Looking back at the past recessionary events, the stock market makes multiple legs down in a cycle. I thought a V-shape recovery is unlikely and we would see a 2nd wave correction. Apparently, that did not happen.

Many say history repeats itself and the most dangerous thing in investing is “this time is different”. But I am starting to be get convinced that yes, this time the market is really different. The central banks have made clear that they have unlimited ammunition to bail out distressed companies. And the stock market is clearly correlated with the assets on fed’s balance sheet. So don’t fight the fed. It might be really different this time.

3. Rebalancing Crypto Portfolio

Thirdly, I did a rebalancing of my crypto portfolio by swapping NEO, ONT & OMG into Kyber Network (KNC) & ICON (ICX). I got frustrated at the menial dividends I am receiving from NEO (GAS) & ONT (ONG). Think both of them combined only gives me $10-$20 for the entire year. ICX has much higher yields and after the swap, I am getting about $20 every month from staking ICX right now.

As for OmiseGo, I have no idea what they are doing. OMG is not communicating with investors and even if they do, it is bombarded with technical plasma terminologies or abstract research concepts.

Selling off my OMG turns out to be a big mistake. Few weeks right after I sold, OmiseGo launched their mainnet and got listed on Coinbase + Coinbase Pro. A slew of business partnerships with OmiseGo started rolling out and they just did a series C funding raising $80 million. Oh, wells.

However, moving into KNC was a good move, though the allocation towards ICX is higher as I am more familiar with the staking returns. I got into KNC at about US$0.60+ and it has pumped up by 150% since. DeFi in crypto started going wild and KyberDAO just launched this month.

I just staked my KNC and I am planning to delegate votes to save on the crazy high gas fees on etheruem. Would update again on how much dividends (ETH rewards) I will receive in the next few months.

4. Buying Zilliqa Near the Top

It is said that there are 2 kinds of people. One is they can’t stand it when they missed a rally. They would be calculating how much money they could have made if they are vested. Then they eventually succumb to the FOMO to chase the pump. I belong to this group of people who buys at tops.

Another group of people is they can’t stand it when they bought and the price started falling. They can’t take the pain of seeing their portfolio lose money. Eventually, they get too fearful and sold it near the bottom.

I have been watching Zilliqa when the price is about US$0.004 then it started pumping to a peak of about US$0.029 (about 400% returns). The pump went on for 1 whole month from May to June. I FOMO in and the entry price was somewhere near the top at about US$0.027.

Do you know how they say the moment you bought in is the moment when the price would drop? That always happens to me. Zilliqa is now US$0.0019.

But good things do come in unexpected ways. I applied for their Zilliqa developer boot camp and got accepted in their scholarship program. It is a 2-month online course where they would teach you blockchain programming. Zilliqa created their own language called Scilla which offers higher security for applications running on Zilliqa’s smart contracts.

If you are keen, do apply it here as they have extended their dateline. Course starts on the 23rd of July.

5. Selling DBS & Buying Tesla

While I was doing research on Ark Invest, I start to realise how incumbent banks are getting disrupted by fintech plays like Square & Venmo. Not to mention DeFi in the blockchain is also disrupting banking fast and furious.

When digital banking licenses launches in Singapore, it is going to be another headwind challenge for the banks. And lastly, I am not comfortable with the situation in Hong Kong. It doesn’t seem to be getting better in any way. The confluence of these factors made me sold DBS.

To top it off, I believe interest rates are not going to go back up. Definitely not with the level of debts the US have got themselves into. This stance was further reiterated when the fed say they are NOT even thinking about thinking to raise rates until 2022.

I figured that rates at 0% – 0.25% is not good for banks, but good for REITs & properties. So I sold DBS and held on to my REITs. Using the proceeds from DBS, I got into Tesla at about US$925, thinking I am buying near the peak.

Little to everyone’s surprise, Tesla continues to burn all short-sellers and surge upwards to US$1,500. My only regret? Should have bought 2 instead of 1. Everyone thoughts Ron Baron is joking when he tells everyone on CNBC he would have added more Tesla at US$950 if he could. Turns out he is right.

6. Adding Growth Stocks into my Portfolio

One of my reasons for selling DBS is also the realisation that I don’t have growth stocks. I used to have this retiree thinking of going all-in 100% on a dividend portfolio to achieve financial freedom faster. And because of my narrow-focus on dividend stocks, I have ignored a lot of high-quality companies, Tesla being one example of it.

Initially, my plan was to invest in US & China stocks only after I paid off all my debts when I have more cash flow. But that has changed. The plan now is to build a dividend portfolio from REITs in Singapore and a growth portfolio based on companies in the US & China.

Shifting future capital allocation into growth stocks also means that the dividends I receive in the future might not be as much as compared to a 100% dividend portfolio. But the capital gains would be much higher and this might be a more balanced strategy for wealth accumulation.

7. Value Investing is Dead

Recently I just saw this quote which I found to be quite true. What is the point of having analysts around when fundamentals are dead? All these discount rates, beta, future cash flow analysis and etc? It doesn’t matter. The stock market has long decoupled away from fundamentals.

Not knowing what stocks to buy? How to analyse stocks? How to analyse financials? As much as I want them to be important, I find all these to be less relevant today as compared to the past. In my opinion, the strategy to get rich is really simple.

Just stick to high-quality tech companies that everyone buys. Amazon, Microsoft, Alibaba, Tencent, Meituan Dianping, Kweichow Moutai, Facebook, Tesla, Apple, Square and etc. You don’t have to look very far. Wait for the retracement to 50-MA or 150-MA and buy-in or use a DCA approach. That’s it.

Hate to say this but it is the truth. People who followed this most likely are the winners in the game today. They would have performed much better than hedge funds or analysts who spent weeks doing quantitative analysis and discounted cash flow models. This makes me think for a bit.

Like what ChickenGenius said, no point reading all those value-investing books, it doesn’t help much. You just need to know the simple basic concepts. Instead, read more books on business innovation, leadership and biographies of business leaders.

It might even be more profitable if you keep abreast with future trends (blockchain, AI, EVs, genomics, fintech & etc.) than to spend time getting CFA, CPA certs. The latter seems to be a thing of the past and I am glad I made the pivot towards tech rather than stay in the audit industry.

8. Hyperinflation in the Stock Market

Moving on, your currencies get devalued when central banks print trillions of dollar into the economy. The end result is always hyperinflation and a call for a new monetary system. Well, this is happening and hyperinflation is here. Not in food prices, but in financial assets.

Have you wondered is it the stock market is becoming more expensive? Or is it the value of your currency is becoming weaker? Which way is it?

All the money is flowing into financial assets resulting in this big tech bubble right now. People invest in the stock market and indexes NOT because of fundamentals, but the reason is to protect the devaluation of their currency.

And because central banks are printing new supply of money faster than before, it is a bad idea to be in a cash position.

Everyone is scrambling to deploy all their cash somewhere as they know their currencies are eroding in value every day. So where do cash flows to? The answer is financial assets. Your money would be much better off in financial assets as you can ride along with the wave.

When everyone is thinking this way, it gets into a dangerous bubble as seen today. People just buy in knowing that current valuations do not make sense. But they still do and they make money. fed print money > fiat loses value > financial assets prices rise > fiat pump into markets to protect their wealth > cycle repeats. That is how the world is right now.

Then the question is, do you want to be right, or do you want to make money? I wanted to be right, I disregard the clear uptrend and I reason to myself that the stock market is delusional. I am right. Hence, I did not make money.

9. Gold & Bitcoin

As with all things in life, nothing last forever. While hyperinflation is happening in the stock market, there might be a possibility that things become unsustainable and the house of cards eventually collapses. That is where money will flow into gold & bitcoin.

Similarly, when the central banks stop printing and they start quantitative tightening, money would be withdrawn out from financial assets into other asset classes (gold & bitcoin).

The above two scenarios, though unlikely, will lead to a massive wealth transfer. We are talking about hundreds of billions. Imagine hyperinflation from financial assets shifting into safe-haven assets. Remember people are always thinking about how to protect the value of their currency?

So it is good to get some positions ready now before it gets too late. When this happens, gold would go to $3,000 and bitcoin would go to $50,000, conservatively speaking. If you want to know the optimal mix allocation of gold and bitcoin, I have used Python to calculate that here.

Trillions of monetary stimulus have put gold and bitcoin into a favourable asset class to hold. About 20% of my portfolio is categorized as hedging and this is where gold and bitcoin belongs. There are people who are 100% vested in them, but for me, 20% is good enough.

I continue to hold my bullish stance on gold and bitcoin.

10. Blockchain & Crypto

Speaking of bitcoin, there is never a better time to get into crypto. Not only from an investment perspective but also from a career perspective. There will be a huge demand for blockchain developers, marketers, legal, regulators and business people in the next few years.

I believe blockchain will be the future and the opportunities are endless. Institutions, MNCs, big 4s, governments, banks & consulting firms are ALL moving towards this direction. The developments in blockchain are moving at breakneck speed both from the tech and business perspective. You are either in or you are not. There is no stopping of this technology.

It probably might be another mistake of mine going ALL in on Kyber (KNC) and ICON (ICX). That was because my previous focus is only on staking tokens. And ICX has one of the best staking yields out there. That is the problem when you only look at investment from a dividend yield perspective. You lose out on a lot of great opportunities.

If given the choice again to rebalance them, here is what I would probably get in my allocation. Bitcoin, ethereum, kyber network, ICON, Chainlink, Vechain, Zilliqa & OmiseGO. These are the coins that are in my watchlist. And if Coinbase really goes into an IPO, I would definitely not hesitate to grab a piece of it.

11. Personal Development

The last investment, and probably the most forgotten one, is an investment in yourself. Instead of ploughing in money on stocks or REITs or crypto, there is an option to spend that money on learning new skills and upgrading yourself. The ROI could be significantly higher as it brings you to many places.

I made the new year resolution that 2020 would be the year of learning Python and Data Analytics. Signed up for a couple of Udemy courses and watched dozens of Youtube videos on it. Created a new Python page in TheBabylonians website and started writing Python posts in the context of investments.

The progress is pretty good for the first 2 to 3 months until AI and mathematics appeared. Got lost in a world of vectors & matrixes, statistics & regression models. It is a whole new discipline altogether and that is where I stopped for a while. So my end goal of building an NLP sentiment analysis and Python stock screener didn’t come through in the end.

As of now, I am focusing my learning on blockchain programming (Scilla), SQL, Python & Power BI DAX. Figured that SQL is an extremely important skill in the broad field of data science. My learning is kind of jumbled everywhere. I just go along with the flow when I have the inspiration. But generally speaking, it always falls back to the two categories: data science & blockchain. This is where I want to position myself moving forward.

12. Summary

If I were to sum up the first half of 2020, here it is.

US tech Stocks pump
China Market pump
Gold pump
Altcoins (DeFi) pump
Singapore Stocks stale & stagnant
Bitcoin & ethereum snoozing
Banks, Consumer, Energy, Airlines cheap

Q2 results are coming out and I think that will be a true reflection of how companies are doing in this COVID-19 phase.

Banks might not look pretty with SIBOR rates dropping to 0.25% – 0.5%. REITs unitholders can forget about dividends as they have to cover tenants’ rentals. The winner ultimately goes to the recession-proof tech stocks.

I have made the mistake of overlooking growth stocks. So I did not enjoy most of the rally gains in 2020. Now you know what moves and what doesn’t. The next step is to learn from it. And here is what I told myself.

  1. Create a watchlist
  2. Stick to high-quality, high-growth market leaders
  3. Be patient
  4. DCA or buy at retracements
  5. Do nothing after purchase
  6. Keep up with the latest news to see if point 2 still hold trues

I think these 6 steps above is all you need in investing. Anyways I guess it really boils down to the individual. Dividend investors usually don’t see huge capital appreciation. They couldn’t care less as they are more focused on recurring cash flows to cover their expenses. But I figured I need to turbo-charge my portfolio while young. So I have made the shift in my investment philosophy.

Stay tuned for the 2nd half of 2020 in another 6 months time!

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6 Comments

  1. Crypto, Gold, Tesla, penny stocks and market timing on top… That sounds like a recipe for disaster, but I hope for you that it will work out! High risk, high reward I guess

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