Friday, October 25, 2019

Q3 2019 Portfolio Update

Time flies and another quarter is over. I haven't really been paying attention to the traditional financial markets. Instead, I have been spending more time reading up on the improving fundamentals of the cryptocurrency market and its associated risks.

Dividend Income

Q3 2019 SGD Dividend Income

For my SGD-denominated portfolio, Q3 2019 dividend income registered a slight fall compared to the same quarter of the preceding year. This is to be expected following my partial divestment of Singtel in Q2 2019 (see here). I foresee that changes to my forward SGD-denominated dividend income to be minimal. The REITs and income stocks that I am eyeing are on the high side and I am not willing to add to them.

Q3 2019 USD Dividend Income

For my USD-denominated portfolio, dividends received hit a new high again when compared to the same quarter of the preceding year. This is mainly due to capital injections over the past 1 year and some dividend growth during this period.

In this quarter, I added to my position in HongKong Land at a PB of 0.34 following the huge drop in price due to the Hong Kong protests. Looking back at my old posts, the last time I added to HongKong Land was in Q4 2018 at a PB of 0.37. Regular readers will know that HongKong Land is one of the pillar stocks in my equities allocation. Still, I'll be looking to add to my position after doing some crude form of risk management (e.g. add to other positions to dilute the significance of HongKong Land in determining my portfolio returns).

I added to gold (jewellery) as a gift to my mum and silver (fortunately before the run-up in precious metal prices).

I closed my position in QAF at a 42% loss (after including dividends) over a period of 2 years and 4 months. A combination of "I don't think I want to wait for their primary production business unit to turn around", "QAF is just a small position in my portfolio (0.69% of equities allocation, based on Q2 2019 post)",  and "alternatives with better risk-reward profiles are currently available on the market" contributed to my divestment of QAF.

I guess it is very obvious by now what "alternatives with better risk-reward profiles" refer to.

Hence, in this quarter, I added to Bitcoin, Ether, DAI, and USD Coin (USDC).

Salient points regarding the Ethereum Blockchain
Blogger friends and readers have asked for my take on cryptocurrencies ever since I first mentioned it in my last quarter's update. Now, this is no easy thing to write. Should the post be comprehensive or lighthearted (I have a lighthearted post on Ethereum here)? Should I trace out the history or just share what's new in cryptocurrencies? As I eventually will have to tackle this topic, I think it is high time to do it here, albeit in an abbreviated form with plenty of missing pieces for readers to investigate on their own if they are curious enough.

The Ethereum blockchain has been improving by leaps and bounds, even as the price for Ether trends in the opposite direction. One particular use case that has emerged is Decentralized Finance (DeFi). With this development, ethers and other ethereum-based coins are not held solely for capital gains or losses anymore; coins could be used to participate in a nascent alternative financial system.

For lenders, yields on DeFi platforms are fairly generous. To put this in proper perspective, the risk premium above the risk-free rate is telling enough. These platforms are new, untested, and have yet to suffer a catastrophic failure. For borrowers, DeFi advocates would generally tout the less onerous interest rates compared to traditional borrowing tools like credit cards. I do not engage in any borrowing through DeFi, so my sharing in this area is limited.

I am also quite surprised that the majority of people are not aware of stable coins. Stable coins are cryptocurrencies whose prices do not fluctuate. Critics of cryptocurrencies are often quick to point out that the volatility of cryptocurrencies make for very bad currencies. This is where stable coins come in. It facilitates the transaction of goods and services at a fixed price. Two of the more commonly used stable coins in the DeFi environment are DAI and USDC.

USDC is created by CENTRE, a joint project between Coinbase, a centralized exchange, and Circle. 1 USDC is both backed and pegged to 1 US Dollar (USD). USDC could be purchased at exchanges like Coinbase. Monthly audit reports on the US dollar reserves backing the USDC could be found here on CENTRE's website. The risks associated with using USDC are mainly counterparty risks (if you do not trust Centre, their regulators, audit numbers) and regulatory risk (e.g. authorities adopting a stricter stance against it).

DAI is a decentralized stable coin backed by Ethers. DAI could be obtained through one of two ways: (1) pledging ethers as collaterals to mint DAI, or (2) purchasing DAI minted by others that are sold on the secondary markets. Through a complicated process, 1 DAI is maintained at 1 US Dollar (USD). Hence, DAI is backed by Ethers and pegged to USD. However, there have been occasions where the peg to USD broke. This is one risk that DAI holders should be aware of.

Two of the DeFi protocols which I have been using to earn interest on my stable coins are Compound Finance and dYdX.

Compound Finance functions as a money market fund within the cryptocurrency universe. Cryptocurrencies deposited (both volatile coins as well as stable coin) are lended out to borrowers who borrow through the same platform. Lenders lend to an aggregated pool of a particular asset (e.g. USDC) and it is from this pool that borrowers borrow from. The interest earned from borrowers are spreaded across all lenders regardless of whether their portion of the asset pool have been borrowed. Borrowing from the platform requires overcollateralization. This protects lenders as the borrower's collateral could be liquidated to repay lenders once it falls below a certain threshold.

I have a token sum in the dYdX protocol for diversification (not all eggs in one basket!) and risk management. Other than that, my knowledge of the protocol is superficial.

The dangers of using decentralized services include bugs, hacks, administrative privilege risk, price oracle risk, and liquidity risk.

Besides using decentralized services, I use centralized services as well. Specifically, I am on's Earn program, earning interest from lending out my Ethers.

The main risks associated with using centralized services are hacks, the fear of founders running off with the deposited assets, lack of transparency (compared to DeFi protocols), withdrawal delays/issues, and uncertainty about the sustainability of the centralized service's business model.

I shall stop here for now. There is simply too much to share about cryptocurrencies.

Net Worth breakdown
Compared to Q2 2019, precious metals allocation increased from 22% to 25% mainly due to the run up in precious metals prices. As I am in the accumulation phase, cryptocurrency allocation increased from 1% to 4%.

Net Worth Breakdown

As per before, "the pie chart depicts the breakdown in my net worth across the various asset classes in percentage (pie chart neither includes my CPF nor my emergency fund). To be conservative, I computed my precious metals allocation at spot price even though I am holding everything in physicals."

Current Holdings
After converting all my USD and HKD holdings to SGD at the end of the quarter, the following table shows the percentage of each stock from only the equities allocation of my net worth (arranged in descending order).

Stock Name
Hongkong Land
Frasers Centrepoint Trust
Parkway Life REIT
DBS Group Holdings Ltd
The Tracker Fund of Hong Kong
Mapletree Industrial Trust
First REIT
Thai Beverage
BlackRock Inc
Capitaland Mall Trust
Medtronic PLC
Mapletree Commercial Trust
ST Engineering
Capitaland Limited
Raffles Medical Group
JM Smucker Co
Frasers Property Limited
Japan Foods Holding Ltd
Dairy Farm International Holdings
Frasers Commercial Trust
ISEC Healthcare Ltd
Welltower Inc
Frasers Logistics & Industrial Trust
Sheng Siong Group Ltd
Riverstone Holdings Limited
General Mills Inc
Kraft Heinz Company
Hormel Foods Corporation
Abbott Laboratories

Top 5 positions remained the same, with HongKong Land swapping places with AIMS APAC REIT for the top spot.

Debt Levels
Since I've started dabbling in leverage, I have been paying closer attention to my debt levels. Currently, my modified "interest coverage ratio" and "debt-to-equity ratio" is as follows:

Interest Coverage Ratio: 31.32
Debt-to-Equity Ratio: 0.009

With the modified "Interest Coverage Ratio" representing the total amount of cash on hand (excluding emergency funds, interest income, and dividend income) divided by the total debt payable and "Debt-to-Equity Ratio" representing total debt payable divided by equity (what I own outright).

Compared to the previous quarter, there are slight improvements to both metrics as I have been using more cash to pare down my debt levels.

Emergency Fund
As a result of increasing my allocation towards cryptocurrencies, I have been contributing lesser to our shared emergency fund. The perennial question which I never seem to be able to answer is on the sufficiency of the emergency fund. Is 7 months' worth of emergency fund (assuming liberal spending) sufficient? I really wouldn't know. Hence, there has been some slight guilt on my part for re-allocating funds that could have been placed into the emergency fund into investments instead. Or maybe I am just overworrying on my part.

Capital Allocation Thoughts
With the bleeding cryptocurrencies market, I will be looking to add to volatile coins and lending only a portion of them out. The idea is to replicate the concepts underlying the two charts at the top of my post; building up a snowball of dividend income from different currencies.

On the other hand, I have capped the amount of stable coins in my portfolio. After some discussion with my non-crypto investment blogger friends, it made me realize that, while the yield is good, there is downside risk if the peg breaks. No upside and possibility of downside is not a good combination to possess.

In terms of equities, I will most probably be adding to my existing positions.

I had a serendipitous surprise when my bosses took fragments from various pieces of my work and incorporated them in an in-house research publication. While not as glamorous as a peer-reviewed journal publication, it still is a good boost to my CV. Funny how I would be dying for such an achievement a few years back; today, happiness was merely a momentary bleep.

My priorities have changed.

Recognition for social science publications? Nah.

Pivoting into data science and/or STEM publications (and the accompanying higher remuneration)? Yes Yes Yes!

Now that the new semester has begun, I will be directing my energies towards this area. Math-heavy modules are no joke!

I have been picking up web development and Solidity programming (Ethereum programming language) informally whenever time permits.

Yes, Enreitch is still chugging along just fine. I've got some ideas to overhaul Enreitch and give it a facelift, but it requires that I step up my programming competency.

My friend LP expressed his disappointment when I shared that the "Readings" section in my last quarter update may be a one-time thing, lol. I will attempt to keep it alive and try to make it a permanent fixture in my quarterly updates.

In this quarter, I completed the following books:

- Death's End by Liu Cixin (Final book in the Remembrance of Earth's Past Trilogy)
- The Redemption of Time by Baoshu
- Ball Lightning by Liu Cixin
- Waste Tide by Chen Qiufan
- Invisible Planets, edited and translated by Ken Liu
- Kappa Quartet by Daryl Qilin Yam
- The Effective Executive by Peter Drucker
- Barbarians in the Boardroom by Owen Walker
- Business Networking by Will Kintish

This time round, non-fictions are represented too. :P

Special shout-out to Liu Cixin's Ball Lightning which was mind-blowing. Chen Qiufan's Waste Tide was a very good read as well!

First time trying out fiction by Singaporean writers; Daryl Yam's Kappa Quartet had quite a surreal feel to it.

All work but no play makes Jack Unintelligent Nerd a dull boy right?

The long-awaited game that was on my gaming watchlist, Children of Morta is finally out!

Besides Children of Morta, I have also been playing Dead Cells.

Thanks for reading!


  1. Hi UnN,
    Thanks for sharing your experiences with cryptos. Some quick questions

    1) What does ethereum blockchain brings to the table compared to Visa / Mastercard / Wechat payment platforms? Are there any comparable specifications that distinguish it from its crypto and traditional competitors?

    2) DAI appears to be conceptually similar to securities lending and collateral management in the banking space. Are there proper internal collaterisation limit controls, and proper segregation and accounting of assets within the respective client's accounts?

    3) Pooling of interest earned from borrowers to be spread to all lenders sound like a red flag, as if there is no proper segregation of monies / assets at the client account level. It is good to query about operational controls considering the untested and unregulated crypto space.

    Good luck in your experiments and interests!

    1. Hi INTJ,

      Good set of questions!

      1). Your question could be interpreted on multiple levels. At the blockchain level, transaction fees for Ethereum are generally more affordable compared to their credit card counterparts. However, it has to be noted that transaction fees on the Ethereum blockchain fluctuates based on the traffic on the network. At periods with high traffic volume, the transaction speed would be delayed; you could hasten the transaction by paying increased fees to the network (e.g. additional $0.10 in USD terms).

      Normally, I do not pay attention to the transaction fees as my interest stems from participating in the Ethereum ecosystem instead of conceptualizing Ethereum as a payments solution. I did a casual search on Google and it seems that credit card transactions are billed as a percentage of the transaction value while bitcoin (couldn’t find an Ethereum-specific result in a casual search) is based on an absolute value (which fluctuates based on congestion). Hence, it would make more sense to transfer larger absolute amounts across the blockchain to minimize transaction fees.

      What I do know is that cryptocurrencies’ transactions are generally slower compared to credit card companies. There are some newer cryptocurrencies that prize transaction speed (e.g. EOS, Stellar Lumens).

      I think if we look at Ethereum vs credit card companies for payment, it will be an uphill task for the former to compete. To get people to use cryptocurrencies like Ethereum in day-to-day transactions, you need to onboard them. You have to make it easy for them to change from fiat currencies to crypto currencies. The medium which you use to get them has to be intuitive, trustworthy, and smooth (e.g. good user interface and user experience). Developers in the Ethereum ecosystem has made some progress in user interface and user experience, but this is not enough. It has to be improved further.

      At the stable coin level, Ethereum’s blockchain is host to a variety of stable coins (of which, the 2 most well-known are USDC and DAI). What I meant by this is that these stable coins use the Ethereum network for transactions. If there is to be any traction in payment solutions, it would have to be the stable coins. Merchants do not take kindly to volatility.

      As I am a predominantly large-cap stock investor, my focus is on Bitcoin and Ethereum. Yes, some “small cap” coins like EOS and Stellar Lumens might have faster transaction speeds and, specifically for the latter, was designed as a global payments coin. However, they are less recognized and I tend to stick to more established names with a longer (but equally as checkered) track record. The points of consideration are distribution (Insiders with large amount of coins dumping on retail investors), liquidity, and security. I’ll rather not deal with these issues and just stick to the large-caps.

    2. 2). Yes, they are similar. After all, Decentralized Finance (DeFi) is kinda like a port of traditional finance functions over into the cryptocurrency universe. For example, Compound Finance is a money market fund, dydx is a margin trading market, Synthetix exchange is a derivatives exchange, etc.

      Regarding the minting of DAI coins, if I recall correctly, the minimum required Ether collateral needed to mint DAI coin is 1.5. If the ratio falls below 1.5, the smart contract embedded in the minting system will liquidate the ether collaterals in the open market. The minter would suffer an additional penalty as well. I’m not familiar with this as I don’t mint DAI; I buy DAI on the secondary markets (which are minted by others) for lending them out on Compound Finance/dydx. Loanscan, an analytics portal, shows that the average ether collateral placed in the smart contract for the minting of DAI ranges roughly from 3 to 3.5. Hence, Ethereum ecosystem users tend to overcollateralize above and beyond what is needed.

      There have been concerns that an Ether bear market could wipe out the DAI market. As Ether price falls, the collateralization ratio would correspondingly fall. While I did not see it unfold, people have mentioned that the Ethereum blockchain has experienced this before when the price of Ether fell from a high of SGD $1700+ in January 2018 to $500 in March 2018. Plenty of people got liquidated but the DAI market still remained intact.

      Anyway, based on what I read, generally people mint DAI for 1 of 2 reasons. The first is to get a short-term loan. The idea is to collateralize ether (which you still want to hold on to), mint DAI, transfer DAI to fiat to pay for loans. To get your ether back, you pay the contract in DAI (principal + interest expense). The rationale for doing this is that the interest expense for minting DAI is cheaper than credit card loans. The second reason to get DAI is for leveraging over and over again (which, in my opinion, is dangerous). Put up ether as collateral to mint DAI, go to an exchange and exchange the minted DAI for ether. Use the new Ether as collateral in another contract to mint some more DAI. Normally, people do this when they think the price has already hit a bottom so they are actually going long on Ether for this. I won’t recommend this as I think it is dangerous.

      There are some slight differences in lending on other decentralized exchanges. As I am more familiar with Compound Finance, I will use it as an example. Similar to DAI, borrowers have to overcollateralize some assets before borrowing from the protocol. However, not all assets are equal. Some are much more valued than others. For example, on Compound Finance, the “Collateral Factor” for USDC and DAI are both 75%. What that means is that if you put in $100 worth of DAI in, you are allowed to borrow up to $75 of any other asset. Compare this to Basic Attention Token (BAT), which has a Collateral Factor of 60%. If you put in $100 worth of BAT, you can only borrow up to $60 worth of other assets. Hence, there is a premium that is attached to “more valuable” coins like DAI.

      At the technical side of things, when you deposit coins on Compound Finance, you actually interact with a smart contract that registers and accept your deposit and provides you with a Compound Finance-version of that particular asset. In a roundabout way, yes, your assets are segregated in your interaction with the smart contract and the Compound Finance-version of your asset is deposited in your account earning interest and acts as a claim on the total pool of the asset when you want to cash out.

    3. 3). Thanks for highlighting this. It is interesting as I’ve not considered your approach before (pooling of interest earned from borrowers to spread to all lenders from another perspective). I approach it from the perspective that it is an improvement over previous Ethereum-based lending platforms which resemble more like P2P Lending. In older P2P Lending models on Ethereum, the platform serves as a matchmaker between lenders to borrowers. Hence, lenders are exposed to the risks of individual borrowers who may default. Hence, I’ve only thought of Compound Finance as an improvement over the previous model of lending/borrowing.

      As long as you have a Compound Finance-version of your asset, you are entitled to make withdrawal claims on the particular asset pool on the protocol. I’m not sure whether does this address your concern on segregation on the client account level. The Compound Finance-version of your asset is deposited in your Ethereum wallet (consider as client account level?).

      I think the more relevant concern is whether will there be a “bank run” on the platform. There could be the scenario where depositors withdraw en masse such that the last few depositors could not withdraw their assets from the protocol. In such cases, they would have to wait for new depositors to deposit that particular asset or for borrowers to return the borrowed asset for the depositor to withdraw. In Compound Finance’s whitepaper, they indicated that borrowing and lending rates are determined by algorithms that respond to the changes in supply and demand for a given asset. When supply decreases and demand increases, borrowing rates increase to disincentivize borrowers from borrowing and supply rates increase to incentivize lenders to lend, and vice versa. There is no hard cap for these rates. Hence, in catastrophic situations, lenders have to wait it out until the given asset is available to be withdrawn. For now, things are sanguine as the yield-starved are pouring excessive liquidity into crypto savings/lending platforms (when I first started out, the lending rates for USDC and DAI ranged from 8 – 10% and 12 – 22% per annum, respectively. Now? They are around 4 – 5% and 6 – 7%, respectively).

      Hope this helps!


  2. Hi UN,

    Long time no chat~
    Must say you are really hardworking, having to work and study and still read up and monitor the market haha.
    After my part time studies, I already felt so lazy after work.

    Saw you added some Medtronic shares, which I too have been watching for awhile. Why didn't you consider T Rowe Price? :D

    1. Hi Frowns,

      Good to hear from you again. Waiting for your next blog post. :P

      Thanks thanks! Trying to keep the momentum going!

      After I sold T Rowe Price, I've not been paying attention to their developments. Should I take a look at it again? :D

    2. Hey sorry for late reply. your comment notification got into my junk mail somehow..
      TROW is good but a bit pricey now haha.
      Maybe next time. You have Blackrock and is good enough~