January 2023 Portfolio Update

Portfolio allocation as of Jan '23.

• SG Shares: CDG, DBS, SGX, Valuetronics

• SG Reits: Syfe Reit+

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

The rally so far in 2023, coupled with additions to the portfolio, propelled my total invested capital to record highs. But I'm having mixed feelings to be honest, on one hand it's nice to see my portfolio value go up, yet having undeployed cash on the sidelines and seeing fewer buying opportunities is frustrating. 

For this month I only added to my position in CDG, a laggard which was still trading below its Covid lows recently. This is mainly a recovery play and I've written about its merits in my previous posts. Another interesting company that I've looked at is Haw Par. For my Singaporean friends, you may be familiar with the Tiger Balm brand, which is manufactured by them. But beyond that, they are also an investment holding company with stakes in UOB and UOL. There is a significant holdco discount at the moment, with the current share price trading at a 30% discount to the value of its investments + cash balance. And that's before we even include the value of their healthcare business. I think the main concern would be that this could end up as a classic value trap, hence I've yet to decide on whether I should invest in them.

 

FIRE musings

I was informed that my post last week had made rounds in some forums, and generated some fervent debates. I briefly read through some of the comments and I think while there were strong opinions on both sides, ultimately the discussions were largely civil. I think that’s great – in a well-functioning democracy we need more of such debates – if only other contentious topics could be discussed in such a gracious manner… We can all be nicer to each other, even if we don’t agree on certain issues.

I will continue to write about FIRE. I won’t say FIRE is controversial, because that carries a negative connotation, but I’d say FIRE is still largely misunderstood. That’s because “retirement” means many different things to different people, and with the variations of FIRE (Coast FIRE, Lean FIRE, Barista FIRE, Fat FIRE etc), sometimes even those in the FIRE community can’t agree on the technicalities.

To some, especially those in the older generation, “retirement” could mean sitting in front of a television 12 hours a day. A more well thought out retirement life, could involve travelling, exercising to for a healthy lifestyle, lifelong learning, activities to maintain strong social bonds and much more. The latter requires more money, of course. The former just requires a television.

To me, in addition to the above, “retirement” is simply another word for “being able to pursue my dreams without any financial pressure". Note that in the above scenarios, there’s no “right” age for these – even though when you read the sentence “sitting in front of the television for 12 hours a day”, you might have pictured a 70-year-old granny.

Thus, in this context, I want to "retire" as soon as possible. Once I achieve financial independence, I will "retire". There are just too many things that I want to pursue – regardless of whether they are practical or lucrative.

At this point I want to share some comments I left on Thomas’ Instagram reel. Thomas writes about investing at Steady Compounding, where he shares his research and deep dives into many companies. I enjoy reading his articles and I think he’s done a great deal to uplift financial literacy not only in Singapore, but globally.

Thomas posted an Instagram reel recently, where he shared “Why I abandoned FIRE”.

To summarise his points into a few sentences:

•        Life is short
•        Don’t do something miserable but makes you a lot of money
•        Instead, do something you enjoy
•        Spend responsibly and sustainably
•        Smell the roses, enjoy life gradually, in a sustainable manner

 

I left some comments on Thomas’ post because I felt that while he brough up some good points, the lifestyle he is advocating is not mutually exclusive with what FIRE aspirants aim to achieve, but rather, just different ways to reach the same destination.

I have reproduced my comments below, with additional comments from me in blue.

[Me] I think practically speaking, it is difficult for most people to find their "dream jobs". What they may be passionate about may not be able to pay the bills. e.g someone loves playing football, but what are the odds that they can make a career out of it, or end up as Ronaldo or Messi?

Also, regardless of whether people are pursuing FIRE or not, think the vast majority do not "hate" their jobs. Rather, they are just working because they have to.

Here I want to bring in some additional context – I have found 2 surveys on Singaporean’s attitudes towards work. The first one is from CNA, quoting a survey which found that “More than six in 10 PMETs agreed that it is true or very true that they have found a meaningful career, and that their work makes a positive difference in the world”. While the second survey from PwC found that “Only 12% (compared to 25% globally) strongly agree that their jobs are fulfilling”.

What I’m trying to illustrate is that while it is definitely good to advocate for people to find their “dream” jobs, ultimately it is difficult for the majority to land something ideal (or find their Ikigai). Anecdotally, whether they are pursuing FIRE or not, I think for most people, after working for some time, say to themselves “my boss is not bad”, “my colleagues are not bad”, “my salary is not bad”, and then just end up going with the flow, and before you know it 40 years has passed and you’re in your 60s. Speak to your family, relatives, friends and colleagues, and I’m sure similar sentiments will be shared.

Pursuing FIRE does not necessarily involve the trade-offs you mentioned. I think of FIRE as simply a way for one to pursue their passions with little to no financial pressure. Barista FIRE for example, is a decent compromise of having that financial safety net to pursue interests that may not be lucrative.

That said, I think it's great that you've found an area which you are 1) skilled at, 2) passionate about, and 3) able to make a living out of it. I'm sure you worked hard for this and I appreciate your work.

But as to whether this is possible or probable for the vast majority of people - I would say it is very challenging to say the least.

 

[Thomas] Great points. A balanced approach would always be the best. But just to push the conversation a bit further, it will be near impossible for someone to be the next Messi or Ronaldo.

But they could very well learn to monetize their love for football by being a coach or building an online presence. I think in today's age, there is an abundance of ways to monetize your interest.

 

[Me] Thanks for your reply. Yes, the Messi / Ronaldo one was an extreme example, but if we were to use more common examples - someone may like baking, but what's the likelihood of running a successful bakery? Or someone may like plants, but how practical/lucrative would it be as a florist?

I agree with you that people should pursue what they love as far as possible. But I view the timeline of jumping towards entrepreneurship/passion as a something of varying riskiness.

In the order of highest to lowest risk:

1) [high risk] Starting a business right after graduation. Examples of people that have done well would include SecretLab, which was started by 2 university students, now worth more than a billion dollars. Zenith Education, which was recently featured on the Straits Times, within 3 years scaled to become an 8-figure revenue and 7-figure profits business. An Acai Affair – founders started the company when they were 20 years old, and now operates more than 10 outlets across Singapore. Seedly – Kenneth and Tee Ming started the personal finance firm “from their dorm rooms in NUS”.

2) [moderate risk] Working & saving up for some years before striking out on your own (which is what you did; if I recall you shared that you saved up 24 months of expenses before making the leap, at around 30yo?).

3) [low risk] Working till 35, with a ballpark passive income of say 3k/month before pursuing passions. A good example here would by my finsta friend @centsofindependence, who left her full time job last year to pursue Coast FIRE. She now earns almost double her hourly rate ($95/hr) compared to her full time role ($58/hr), and only works for around 15 hours each week. This frees up a lot of time for her to pursue her passions. Do less, earn more (per hour).

To add to Thomas' example of the football coach above, I would think that if someone is able to build up 3k/month of passive income by their mid-30s, and then perhaps “retire” to become a part-time football coach for kids, working only on weekends to earn an additional say 2k/month, for a total monthly income of 5k (the median income in Singapore), then I believe that this is still a very good balance of pursuing their interests and securing their finances.

4) [very low risk] Working till 40, with passive income of 5k/month before pursuing passions. I think the best example of this would be AK71, a Singaporean blogger who retired in his 40s, and now collects more than $200k SGD in passive income annually.

 

What I'm trying to say is that based on the above, your path (2) was a relatively riskier one (which paid off), compared to (3) barista FIRE and (4) FIRE.

But I think for the vast majority of folks, 3 & 4 makes more sense as lower risk scenarios. I think for the average person, it makes more sense to live frugally but not to the point of deprivation, invest prudently, build that FU money, and finally pursue their passions with a financial safety net in place.

Ultimately, one has to decide for themselves whether scenarios 1/2/3/4 are most appropriate for them, and thus I don't necessarily see "FIRE" as being in conflict with what you're saying, but rather just different milestones along the risk spectrum.

 

When writing the above I think a saying that’s apt would be “all roads lead to Rome”. Some are riskier than others. Choose the one that best suits you.

Let me again emphasise that the choice to retire early is entirely a personal one. I don’t think there’s a right or wrong age to retire, as it very much depends on your expenditures, finances, commitments, lifestyle, health and many more.

I know my choice. Do you know yours?

December 2022 Update and 2022 Review

 

A belated update for 2022 as I have been procrastinating, as usual. Wishing everyone a Happy Chinese New Year and may the Year of the Rabbit bring you good health, happiness and wealth. Wealth is placed third, because simply having this without the first two is meaningless.

 

2022 was largely a good time to deploy capital – being a net purchaser of equities means that I am happier when stocks go down rather than up – giving me opportunities to buy more on the cheap. My invested capital increased by 72% from a year ago (although I had invested more, as this does not account for capital losses), while dividends received increased by 75%. When I planned out my FIRE journey in Dec 2021, I projected “total net worth” targets for each year – I am glad to say that for end-2022, I achieved 102% of my target. Some other thoughts to wrap up the year:

1. Diversification

I’m invested across SG, China, US and Developed Markets. The current target asset allocation would be to have 50% SG exposure, 20% in China and 30% in US/DM. This is still a work in progress as I’m yet to be fully invested.

I think 2022 highlights the risks of overly focusing on a specific market – often the US. What’s interesting is that the often-overlooked SG market is one of the top performers globally. I’d rather over-diversify and settle for a lower average return, than expose myself to huge idiosyncratic risks related to a specific company, country or sector, as many have learnt the hard way in 2022. As mentioned in my blog post a year ago (“Seeking FIRE – Route to Financial Freedom”), I am targeting a 5.5% long-term CAGR on my 100% equity portfolio, which I believe is reasonable.

2. Consistency

The figure above illustrates how I have consistently deployed capital in every month except for November. Generally, when I’m buying ETFs, I aim to adopt a DCA approach to build up my positions. With the exception of buying the Nikkei 225 in the late 1980s, I don’t think you can do too wrong by accumulating broad market ETFs. In 2023, I aim to increase the proportion of my portfolio allocated to ETFs.

3. Skepticism & Biases

Most people are aware of the inherent conflict of interest that banks and brokers have, that is, you’ll usually see research reports advising people to “Buy” stocks, because these firms are incentivised to get people to trade more frequently.

But when it comes to taking advice from Youtubers/Finance Influencers, I find it ironic that few people realise that conflicts of interest exist as well, albeit from a different angle. There is a clear conflict of interest because sensational and click-bait headlines draw the most views, thus these “gurus” are incentivised to make bold claims about “when the Fed pivots”, or that “the market has bottomed”. Basing your investment decisions on these often does not end well.

Thus, be skeptical whenever consuming such content, and always do your own due diligence. If I ever become a content creator, please apply the same level of skepticism to me as well.

Dec 2022 Summary

For Dec ’22, I mainly increased my positions in S-Reits via Syfe Reit+. I had intended to initiate positions in DigiCore Reit and Keppel Pacific Oak Reit (“KORE”), but these did not reach my intended entry levels. After Manulife Reit reported a significant decline in asset valuations which brought their gearing level to just a whisker away from the 50% limit, I think I will hold off buying KORE now. I think the day of reckoning for Reits has finally arrived – where capital values are likely to fall and put pressure on gearing levels. But I must add, that I had expected the same scenario to play out nearly 3 years ago during the March 2020 Covid crash, which ultimately did not materialise. For now, I think my exposure to S-Reits is still manageable at 8%, as I am passively holding most of the blue-chip S-Reits.

The “actively managed” component of my US portfolio has declined relative to my SG stock picks since Q3 ’22, this is largely due to my efforts to increase my dividend income. However, I expect to increase my US allocation and am looking at GOOGL and ADBE. These are my top picks, although we shall see what other opportunities surface along the way.

As a continuation from the above about “being skeptical”, I am not going to make any predictions on what 2023 will look like for the markets. Instead, I’ll say, invest not because you expect the markets to go up tomorrow, this month, or even this year. Rather, as a long-term investor you should be investing only because of one simple reason – you expect that in a capitalistic society, capital (being an asset owner) will outperform labour (being an employee) in the long run. Thus, you believe being an asset owner is the best way to protect your capital against inflation, be it equities, fixed income, commodities or real estate.

In 2023, my goals are, in the order of priority, (1) increase dividend income, (2) increase proportion of passive investments, and (3) work towards my target asset allocation of 50% SG, 20% China and 30% US/DM.

 

Pro-work vs Pro-FIRE

Let me end off with a short section on the pro-work vs pro-FIRE debate. I know I’ve written on this multiple times, but a LinkedIn post by someone who got retrenched by Google yesterday made me feel like writing on this again.

The author of the post wrote that after 16 years at Google, he was simply laid off via email. One line in the post stood out for me. He wrote: “This also just drives home that work is not your life, and employers -- especially big, faceless ones like Google -- see you as 100% disposable. Live life, not work.”

To me, the fact that employees are largely dispensable forms my baseline when thinking about FIRE. Reaching FI is your insurance policy against the unpredictable nature of corporate life, while having the choice to RE gives you the power to live your own life, rather than being stuck on the hedonic treadmill. Thus, when people say things like “you should work harder, create more value for your company” and so on… Please don’t be naïve and think that one can be indispensable. Employment is simply a means to an end to me – to build my life, and my dreams. At the end of the day we are all dispensable. The earlier you realise that, the better, because that means that you'll start working towards building your safety net.

I find it absurd when pro-work folks say “I like to work. So, you should like to work too. Please don’t retire early”. Because on the other hand, pro-FIRE folks rarely go around telling people “I want to retire early. So, you should retire early too. Please stop working”.

Of course, a well-intentioned person might say “Please don’t retire early until your have an absolutely robust financial plan” I think that’s totally valid. I welcome these comments, which help pro-FIRE folks identify any blind spots in their early retirement plans.

I think when it comes to the pro-work vs early retirement debate, there’s an implied philosophical perspective as to whether FIRE folks are “contributing” to society. Let’s not be naïve here and I’ll say that I’m fully aware that if everyone wanted to retire early, society is screwed. We can already see that happening in the US, with the falling labour force participation rate post-Covid partially contributing to inflation, as there’s a shortage of workers who decided to retire during the pandemic (hey – life is short; although many had the tailwind of rising markets).

But that’s a bigger issue for governments and corporations to tackle, not me. Perhaps some form of wealth tax, dividend withholding tax and/or capital gains tax will address the issue and make it more prohibitive to retire early. But we all know the in capitalistic Singapore, this is unlikely at the moment. We’d be shooting ourselves in the foot given our aspirations to become a leading wealth management hub.

Personally, I view the decision for one’s retirement age from a laissez-faire perspective – that ultimately, one has to be responsible for the choices they make, and deal with the consequences of their choices. The choice to retire early or not should be entirely up to the individual, once a certain level of financial independence has been achieved. I don’t think I am in the position to impose my views on others. I can only share my perspective.

Thus, if you’re pursuing financial independence and early retirement, may the fire in you continue to burn strongly. We will get there. Have a good year ahead.