September 2022 Portfolio Update and Further Thoughts on FIRE

Portfolio allocation as of Sep '22

SG Shares: DBS, SGX, Valuetronics

SG Reits: Syfe Reit+

US Growth: BABA, INMD, PYPL, SHOP, TDOC, UPST

Last month I began my post saying that “it was a good month to deploy capital”. This month was even better. I continued my DCA of QUAL and IQLT. Added a little to my Syfe REIT+ portfolio too. Markets are volatile, but with a significant portion of my portfolio in ETFs (62% in Sep vs 58% in Aug), and with a time horizon of forever, I am buckling up for the ride and staying invested. I look at stocks prices daily but I only compute my net worth monthly, because my holdings are spread across various brokers. The market volatility doesn’t really bother me – up or down, I continue adding to my ETF positions. Looking to add to my HS Tech and STI ETF holdings in the near future.

For US equities, I sold off PINS and TTD. These were the only two positions in the green and that means the rest of my US Growth holdings are in deep red… talk about loss aversion. The rationale for this is to raise cash for a position in GOOG. With the upcoming recession, advertising spending is likely to fall and I want to buy the best-in-class; Alphabet is the market leading behemoth in this space. I also have sights on ADBE – the Figma acquisition at 20bn seems like a steep price to pay at 50x ARR, but ADBE’s subsequent fall of ~25% since has effectively wiped out more than double that 20bn of value. One might conclude that you’re getting Figma for “free” by buying ADBE now.   

For my SG positions, I still have CDG, ThaiBev and FLCT on my radar. The focus is on building a robust dividend portfolio. SATS is also interesting with the sharp decline after they announced a huge acquisition. Large M&A transactions are usually negative as the acquirer tends to overpay and the post-merger integration is usually messy. But I’ve written extensively about SATS and understand the company well, and I believe that there would be a price which prices in all the negatives.

My tip for navigating the bear market - decide on a comfortable entry price, set your orders, and forget about it. Pursue other hobbies and don't check stock prices daily. Think long term. It will get better with time.

On REITs

My only REIT position is with Syfe REIT+. Generally, I think REITs still have room to fall given that yield spreads have compressed due to the risk-free rate going up. 

The following is adapted from a comment I made on the InvestingNote forum in response to a post on REITs:

“Think the biggest risk now is refinancing. REITs report their DPU “sensitivity” to rates, but this is only a snapshot at this point in time, which completely ignores the impact of refinancing. Any debt that’s going to be refinanced this year, 2023 or even 2024 is going to be refinanced at easily 4%+ or even 5% or 6%. This exceeds the NPI yields (cap rates) of most SG retail/office assets and results in a negative spread versus the cap rates. For example, if your NPI yield is 4%, and you borrow at 6% from the bank, it simply means that your financing cost exceeds your net rental. Thus the shortfall will have to come from equity holders’ returns.

I don’t hold any individual REIT positions. But what I’d do is to look at the debt maturity profiles of each REIT – in this context only knowing the weighted average debt maturity isn’t enough, we need to know specifically how much matures each year, especially 2022/23/24. A REIT that has a weighted average debt maturity of 5 years could mean 50% is due in 2022 and 50% in 2032, which still means the REIT is screwed, because 50% will be refinanced at sky high rates this year, and will be locked in for the next few years, bringing down DPU. Another REIT with the same 5 year weighted average debt maturity but has 10% of its loans maturing in each of the next 10 years is probably better positioned to weather higher rates. The exact loan maturity profile matters here.

The pain will come as all the cheap debt gets refinanced. Add in the fact that yield spreads have narrowed drastically, plus DPU declining over the near term. In a year’s time the average retiree may do better with a 100% SSB/T-Bill portfolio instead of REITs. Risk free for that matter.”

Further thoughts on FIRE

Further to my last post on “What does FIRE mean to me”, I came across some comments on other platforms which can be broadly classified as “pro-work” and/or “anti-FIRE”. If you are anti-FIRE, I would politely advise you to close this page now, because you won't like it, and in the following paragraphs there won’t be any discussion regarding the markets or on investing. The intention of my post isn’t to convince those on the other side of the fence (the anti-FIRE folks), but rather, for those on the fence to decide for themselves if they believe in pursuing FIRE. And more importantly, to serve as a voice of reassurance for the pro-FIRE folks who potentially have to face a barrage of criticisms from the pro-work camp, simply because we like to cruise through life and take it easy!

Two common arguments that anti-FIRE folks make are that 1) a job gives you an identity; without it you’ll be “aimless” and “lost”, and 2) a 9-5 job gives you “structure” and keeps you “disciplined”.

Let’s address both points. 

A job being your identity

I wrote about this before in my previous post, but let me summarise that here, with additional thoughts after.

1. My job is not my identity

2. My identity is made up of personality. My hobbies. My interests. My talents. The experiences I’ve lived through. My relationships with people. The lives I’ve impacted

3. I am intrinsically motivated by the above; not titles, not awards

4. I would suggest watching Sebastian Vettel’s video announcing his retirement from F1. A brilliant speech his on how his identity is more than just his job.

5. “Find a job you love, and you’ll never feel like you’re working”. Let’s be realistic. The hard truth is that there won’t be enough dream jobs for everyone. The majority of people are simply working to pay the bills. 

Let’s use my perspective as an example. I see myself as an investor. An allocator of capital. Analysing things, making inferences and projections. Seeking out the best ideas. This forms part of my identity, for sure. But I think what’s detrimental would be making your job your identity. That is, my identity is not tied to, hypothetically, being an investor at XYZ hedge fund / private equity / venture capital firm. To me, there is no difference whether I’m working for an investment firm or investing my own capital. I am an investor, first and foremost. It doesn’t matter where.

Of course, I can recognise the benefits of making your job your identity. It keeps you motivated. It keeps you going when times are tough. It gives you a sense of “purpose” to get up and go to work every morning. But doing this is a double edged sword. In good times you thrive. However, there there will inevitably come a time when, often beyond your control, some restructuring, reorganization or retrenchment happens. Or simply because you hit retirement age. That’s when you get crushed. You feel lost. You lose purpose.

Thus, even after one has achieved financial independence, I believe that having an identity is important. That can be the identity of being a good parent, a good spouse, a good son/daughter, a good sibling or even a good pet owner – spending time and effort with your loved ones and those that truly matter. Ultimately, it is our experiences and relationships that gives life meaning. 

You lose “structure” without a job

I find this reason even more laughable than the first. FIRE folks are mostly goal oriented, disciplined, intelligent people… or else... they won’t even be able to achieve FIRE. We simply don’t like things like workplace politics, deadlines or being told what to do. I think having discipline and creating your own structure comes from within. You have to be intrinsically motivated. 

Again, let’s use my perspective as an example. During the Covid lockdowns I was still in university. With so much time on hand, I did a wide variety of things. I started learning Spanish and French on Duolingo. I found an old digital keyboard and self-learnt how to play a simple song with both hands. I read many books. I attended many virtual AGMs and quarterly presentations. I spent time researching on stocks. I set aside two hours a day for some simple home workouts. In the evenings, I had virtual karaoke sessions and played other “lockdown” games with my friends.

And just like that, the few months went by in a flash. Of course, I recognise that I was privileged to be a student at that time, without having to worry about finances. But my point is that pursuing your passions and having a growth mindset doesn’t exclusively apply to having a job. I didn’t have a boss instructing me on what to do each day. I didn’t have formal responsibilities to keep me occupied. Yet, I was able to pursue a wide range of hobbies that I will continue to do so when I achieve FIRE. I had “structure”. I had “discipline”. And I didn't need a job to instill that.

The bottom line for me when addressing the two points above is that the “benefits” of having a job, espoused by the anti-FIRE folks, are in fact simply “positive traits”. You can basically replace the word “job” with any other scenario that would bring out the same “positive traits” of “purpose”, “identity”, “structure” and “discipline”. FIRE folks understand that. In addition to the countless benefits of achieving FIRE, such as freedom, pursuing your passions, being in control and having a safety net.

Closing thoughts

The idea of FIRE seems to be this radical concept that the average person believes is unrealistic, unattainable, unthinkable or all three combined. And so most of the comments online have these perspectives. Take my opinion with a pinch of salt as well.

At this point, perhaps I should borrow the term “mediocre” from one of our dear leaders (although in that context, the threshold for mediocre was way higher). In the following paragraphs I will use mediocre interchangeably with average.

The mediocre person is easily swayed by the opinions of other mediocre people on how life should be lived. The mediocre person is afraid of falling short of society’s yardstick of success, and tries to project an image of “success”, often through material possessions.

But to achieve FIRE, more often than not, you cannot be average. While it may be possible to be average and retire in your 50s, in this context I’m referring to people who aspire to or have retired in their 30s and 40s.

To retire in your 30s and 40s,

You must earn more than the average person.

You must be more frugal than the average person.

You must be more financially literate than the average person.

You must invest more aggressively than the average person. (Aggressively here is in the context of asset allocation, i.e higher allocation into equities, and not necessarily in “riskier” stocks within the equity bucket).

You must be more disciplined than the average person.

And lastly, as a catch all, you must not think and act like the average person.

If some of the points above describe you, then you could achieve FIRE. And if all the points above describe you, I can say with a high degree of certainty that you would achieve FIRE. If you want to. If you’ve built up a multi-million dollar portfolio and still want to continue working, by all means do. But you know you can walk away, anytime.

The average person won’t be likely to achieve FIRE. So, I don’t get why should there be concern of how the average person would “laze around”, “lose purpose” or “lose structure” if they were to achieve FIRE. Apart from winning the lottery or getting a huge inheritance, odds are that the average person would have to work till retirement age. That is the reality. 

Now, if you’ve read till this point and you firmly believe that you’re above average, do consider the fact that in a survey asking if drivers thought that they were “above average”, 90% responded that they thought so (from the book “Thinking Fast and Slow”, I believe). Food for thought.