Friday, October 16, 2020

Aavegotchi: Making your Virtual Pets work hard for you!

Post submitted in fulfilment of Aavegotchi Mission 9.

Disclaimer: Vested in GHST Token and volunteering as an aapprentice (moderator) for the Aavegotchi project.


Remember Tamagotchi from eons ago? Those cute little handheld virtual pets that need your love and care? You have to feed them, play with them, and clean up after them. It was a joy to see them grow, as they mature from a baby to adulthood.

Then the craze ended. Zero. Zilch. Nada. Never to be heard of again except in stories of yore.

No longer do we need to reminisce about the past. Aavegotchi, a crypto gaming/savings project, is here to soothe your nostalgia.

The Aavegotchi project is a recipient of an Aave Ecosystem grant. Aave is a money market protocol on the Ethereum blockchain. Users of Aave include both depositors and borrowers, with depositors receiving interest income from lending out their cryptocurrencies and/or stablecoins to borrowers. Using smart contracts to manage borrowing/lending and automatically liquidating defaulting borrowers is a novel use case in its own right. 

The Aavegotchi project expanded on this concept further...........what if the stream of interest income could be embedded in a game?

The lines are now blurred:

  • Huh? You can now play games with your bank?
  • Wut? Your virtual pets are making your money work hard for you?

How it all works

Your Aavegotchi frens are summoned through portals. In turn, portals are purchased using the GHST Token, the native token of the Aavegotchi ecosystem. Besides the GHST token, gamers are required to provide a collateral in the form of an aToken from the Aave ecosystem. This ensures that your Aavegotchis are constantly generating interest income for you, which I have shared above.


The game is still not available yet. It will be out sometime in Q4 2020 or Q1 2021.

Investment Merits & Risks

Analysis of Aavegotchi as an investment could be approached from multiple angles. First, the aTokens themselves accrue interest income from borrowers. The interest income fluctuates depending on borrowing demand and the supply of liquidity, with each currency exhibiting a different interest rate profile. Over the long haul, yield compression will continue as the low/zero/negative interest rates from TradFi (Traditional Finance) pushes investors towards Decentralized Finance (DeFi) on Ethereum. 

Second, GHST Token price will increase in lockstep with the growth of the Aavegotchi Ecosystem. Participation in the Aavegotchi Ecosystem (be it as speculators, investors, gamers, artists, etc.) require GHST Tokens to be bought off the bonding curve. The bonding curve was mathematically programmed to increase the price of the GHST Token whenever purchases are made from it and vice versa. While it is possible to acquire GHST Tokens off the secondary markets, new issuance and subsequent circulation of the token is only possible through interaction with the bonding curve. This will facilitate a gradual rise in the token price as the community grows.

Third, Aavegotchis and their wearables (hats, sunglasses, etc.) are collector's items. Aavegotchis themselves come with randomly-and-fairly generated levels for each of their traits (aggressiveness, intelligence, transparency, etc), with each trait excelling in particular mini-games. In a similar fashion, Aavegotchi fashion are collectibles too, with some wearables available in limited quantities.

Finally, did I mention this is a game? There will be mini-games to be played by your Aavegotchis, with rewards to be earned.

Now, let's talk about the risk. With all things crypto/blockchain, there will be risks. The term "money legos" is a frequently used term in the DeFi sphere. What this means is that newer technology is built upon the shoulders of existing technology. 

This is all fine and dandy when everything is working well. What happens when problems arise at the lower layers? I will enumerate a couple of risks for each layer.

  • Ethereum: Failure of Ethereum risk, Blackswan risk, Network Congestion/Spike in transaction fees
  • Aave: Failure of Aave Ecosystem risk, Smart Contract exploitation risk, Liquidity risk
  • Underlying currency of aToken: Failure of underlying currency risk, Debasement of underlying currency risk
  • Aavegotchi: Smart Contract exploitation risk, Risk of Aavegotchi not catching on
I have some more stuff to say, but nah, don't wanna leak investment alpha. =P

I shall leave readers with two highly entertaining youtube videos by Daniel Mathieu, the CEO of Aavegotchi. Besides being a CEO, he is also a youtube celebrity:

For those who are interested in Aavegotchi, the following links will be helpful:

Sunday, August 23, 2020

On Human Nature

One piece of advice that my veteran trader friend SMOL gave me when I started out investing is to keep a diary of the emotions that I am feeling at the point of a trade. Since then, I have paused before every buy/sell trade, collected myself and recognize the emotions at play, before hitting the trigger. Over the past couple of months, I realized that my emotions were less calm than before. Not because of the volatility in crypto prices, but because of the reactions and meta-reactions of others.

1). You receive a lot of hate

Through non-public channels, I have received my fair share of hate from traditional finance (tradfi) bloggers. I was very disappointed, to say the least. I have shared what I have learned with openness and some of the questions and responses were hostile and combative. This taught me the importance of differentiating genuine enquiries from keen learners against the toxic vitriols of trolls who are out baying for blood.

Without realizing it, I bore a grudge against these bloggers and wanted to prove them wrong. With time, I realized this was pointless and that it is more important to ignore and move on. 

2). I keenly understand the arrogance of successful crypto investors

The crypto bull market has just started. Over the past 1 year, crypto investors who adopted a fundamentals-based approach ended up as the laughing stock in the investment community. This year, these crypto investors returned with a vengeance. As such, I can empathize with their need to flex their winnings. Not that this is the right thing to do, but one way or another, the pent-up frustration needs to be released. This is entirely human and normal.

3). Trolls respond by concern trolling

"What if your success is temporary?" and "Careful now, success comes before a fall" are some rather pointless statements that I have seen being made. The truth is that a discerning student of the market knows this; every asset class has its day.

4). Some trolls turned "friends"

Some of the more adaptable trolls learned that they were wrong, pretended that the past did not exist, and that they have your back all along. Beneath the facade, it is still possible to glean their bitterness and envy bubbling under the surface. Now, they want you to hold their hand and help them profit, without regard for how things work. When sentiments turn negative again, do not expect that your back remains free of stab wounds.

5). The value of time

While the above is happening, Ethereum is undergoing a Cambrian explosion. The decentralized finance (DeFi) sector has been pushing the boundaries of innovation on a daily basis. On one particularly crazy week, a few crypto personalities on Twitter mentioned that they are experiencing sleep deprivation as there is money to be made. Some of these individuals rely on speed for alpha; they need to exploit opportunities earlier than others do. While I do not practise this form of investing, the speed of the developments still mean that I have to constantly keep myself updated on developments within the space. Crypto has heightened my perception of the importance of time. Wasting time on trolls is the last thing I want to do.

6). Be careful who you pay attention to

This is particularly important for people who are new to the space. Following the "advice" of some influencers could lead to financial ruin. What has worked for me is to develop my investing competency first and then carefully curating the works of reasoned, sound, and savvy investors from the crypto space for further analysis. For those with minimal personal finance or investing background, tread carefully. Off the top of my head, I have heard of "savings accounts are a ponzi scheme" and "equity is whatever you want it to be" from high-profile influencers. Either they are ignorant of finance/investments (unlikely) or they are deliberately redefining terms and misleading people.

7). The dilemma of assisting newbies

With increasing prices come new blood. New blood differ in their abilities. Some require a lot of hand-holding and spoon-feeding while others are independent learners. When things are swell and everyone is raking in profits, no one cares. When fortunes turn, there will be finger-pointing and accusatory statements. Some influencers have started to brush off questions. Why burden yourself with the financial health of others? This is a thankless job.

8). Completely missing the point

What is the purpose of investing? To earn a return. That's it! Plain and simple. Instead of preparing for the next trade, I observed people who kept over-analyzing, writing dainty essays, have long-standing discussions with other investors and did.........precisely nothing. So-and-so stock/crypto has 5 pros and 4 cons, oh noes! What do we do? Another stock/crypto has 4 pros and 1 cons and have shot up in price. Will it come down because of that 1 drawback?!?!?

Su Zhu, CEO of Three Arrows Capital, said it best with the following:

su zhu

9). You do not have to participate in every single trade

I know. I know. There is plenty of money-making opportunities in Ethereum and new ways to make money is popping out left, right, and centre. This bears repeating again. If you do not know what you are doing, it is alright to miss out on some of these returns or take smaller returns with lesser risk. 

10). The importance of humility and opsec

Yes, yes, I know. Crypto and US Tech investors are rolling in money right now. But please be sensitive. COVID-19 has displaced many from their jobs and inequality is on the rise. There is no need to aggravate others and unnecessarily place a large target board on one's back. The following is a good reminder from Fiskantes.


Alright. Enough time has been spent writing this post. Ignore the naysayers and invest safely people!

Saturday, July 11, 2020

Q2 2020 Portfolio Update

Q2 2020 has been a wild ride. The COVID-19 pandemic and its accompanying stock market crash has left many bewildered and fearful. There have been reports of job losses and some people have suffered tremendously from this blackswan. Governments all over the world have responded to this crisis, ameliorating some pain points here and there.

This whole crisis underscores the importance of preparedness. Not just from a health perspective, but from a social and financial perspective as well. One has to make a conscious effort to keep healthy, in order to keep sicknesses and diseases at bay. Sure, it is not a foolproof plan, but what needs to be done, is done. The same applies for maintaining strong social ties and a financial buffer as well. There are things that are in one's control and there are things that are outside one's control. Focus on the former and avoid ruminating on the latter.

Let's move on with the portfolio review.

Dividend Income

Q2 2020 SGD Dividend Income

SGD-denominated dividends received in Q2 2020 fell compared to the same quarter last year. This could be attributed to lower dividends declared during this period as well as some divestments I've made (discussed in transactions section below).

Q2 2020 USD Dividend Income

On the other hand, my USD counters are looking good as dividend growth is starting to compound.

In this quarter, I took partial profits off SGX when it ran up to its 5-year high. Still holding the remaining for dividend yield.

Next, I cut loss and closed my position in First REIT. A back of the envelope calculation revealed that I have lost 4% per annum since initiating my position in year 2015 (after including dividends). The incongruency between their company announcement and their parent company's announcement is yet another red flag that highlighted that there might be further issues down the road. Thanks to my blogger friends who notified me of this. I still have some odd lots of First REIT remaining that are a hassle to sell.

Third, I took partial profits off Riverstone due to the crazy run-up in prices. I was questioning myself whether the run-up in price is an accurate reflection of future earnings. At that juncture, my answer was a negative and that earnings are temporarily fueled by the COVID-19 pandemic. In retrospect, I was wrong. With this transaction, I've recouped > 80% of my initial investment principal. In a few years' time, my investment in Riverstone would become "free" through the dividends received. I remember reading AK's and Dividend Warrior's blogs and thinking to myself how long I would have to wait until any one of my investment becomes free. Well, I more or less joined the club with my Riverstone position. Woot! (Remaining position is at 220% profits :D)

Fourth, I initiated a position in Livongo Health. I think my Riverstone victory (albeit small) has been messing around with the dopamine levels in my brain. I was looking to find a company with strong fundamentals that could double quickly, recoup my investment principal, and let the remaining position run for "free." I have been doing a small bit of research on Livongo since January and finally pulled the trigger due to my greed? As Livongo is still not profitable (but revenue has been growing by leaps and bounds), I have kept my position size small in case the trade blows up in my face. I think I did decently as a dividend investor, but growth investing is another game altogether which requires a different mindset and skillset compared to what I have been using thus far.

That's all for equities. Let's move on to cryptocurrencies, which I have more to discuss actually.

I added to my Bitcoin position. The rationale is to capture the upside of the Bitcoin halving that happened in May 2020. The halving occurs once every 4 years, where supply of new bitcoin into the market has been programmatically reduced by half. Assuming the same demand and a known-beforehand supply shock, theorists have modelled that the price of Bitcoin would shoot up in response to the halving. This was the case for past bitcoin halvings where, after a period of time after the halving event, the price of bitcoin skyrocketed.

For those interested, do refer to Plan B's, a quantitative investor, article on the matter.

The thing to note is that the lag time between the halving event and price increases has been increasing with each halving cycle. Plan B himself mentioned on twitter that the maximum lag time for price increases following the May 2020 halving would be around December 2021. The lower and upper bound of returns if the model works is 200% and 3300%, respectively (I am skeptical of the upper bound returns though). This is an asymmetrical risk/reward position I am willing to take; a lower probability and consequence of 100% loss (100% loss based on anti-crypto individuals) versus a higher probability and consequence of minimum 200% returns.

If the model breaks and bitcoin either stays flat or drops in price, I am still okay with this outcome as a portion of my bitcoin has been loaned out for interest income.

I added to my Ether position in this quarter. To reuse a phrase I have used in my previous blog posts, Ethereum has been improving by leaps and bounds, with new developments every few days. However, there are still fundamental issues that remain unsolved (e.g. Ethereum clogging up, increasing transaction cost, low transaction speed). Ethereum 2 is supposedly designed to solve these problems, but there have been delays again, lol (Ethereum 2 delaying has become a running joke in crypto).

I added to my position in Chainlink (refer to my Q1 2020 post on Chainlink here). Compared to other cryptocurrencies, Chainlink is relatively obscure (until the recent price surge). Behind the scenes, their team has been quietly building and forging partnerships with large multinational companies and governments. Building "infrastructure" isn't sexy stuff. This is similar to people not appreciating their internet connection and taking it for granted until.......their internet service provider suffers an outage. Another possible reason for their relative obscurity is that they are more B2B-facing than B2C-facing. As a result, most of their work goes undetected by people. Unfortunately, I have not accumulated enough Chainlink; I intend it to be an upper-middle position size instead of a middle position size that I currently have. Looks like I have to slowly average up my position while still being mindful to maintain a low average price.

I added to my position in Synthetix Network Token (refer to my Q4 2019 post on SNX here). Same thing as the others; the Synthetix team has been delivering week after week. Management is proactive and readily engages the community in their discord chat. The community is made up of equally strong and savvy investors who know their stuff well. The recent surge in SNX made me reconsider the following: On one hand, it is indeed comfortable to have large percentage gains, but small absolute gains. On the other hand, smaller percentage gains, but larger absolute gains are the real game changer. Hence, I added to SNX while still maintaining my average price at a low level. Currently sitting on 214% capital gains and have collected ~30% yield of dividend income after averaging up. Unlike equities, I would not be willing to take profit as the Synthetix team still has a long runway of growth. Currently comfortable with a mid size position in SNX.

I have initiated a new medium-size position in Thorchain (ticker: RUNE) in order to learn more about them. Blogger Got Money Got Honey has been promoting it on his twitter account and, like what I did for Synthetix, I finally got round to analyze it. Blockchains, as they are, operate in silos. Bitcoin exists on the Bitcoin blockchain. Ether exists on the Ethereum blockchain. They do not interact with each other. Thorchain provides interoperability and enables one blockchain to "communicate" with another blockchain. Thorchain also functions as a decentralized exchange. There is execution risk with Thorchain as they have yet to "officially launch." If/when they manage to pull it off, price would naturally follow the project's fundamentals. Another interesting titbit is that Thorchain publishes their treasury report on a monthly basis.

(Lol. After that wall of text, I'm still not done yet.)

And yes, you did not read wrongly when I mention about the project's fundamentals. Slowly but surely, the cryptocurrency sphere has developed to the point that there is nascent usage of valuation models from traditional finance. Hence, it is no surprise to see coins/tokens being evaluated by P/E ratio and DCF models. This is particularly relevant for tokens that underpin decentralized exchanges, where holders accept varying levels of risk to earn fees that users pay them for usage of said exchanges. With these developments, current volume, future volume growth, the underlying economics of the given exchange, and security are some examples of where analysis could be conducted. Sure, valuation models are imperfect and irresponsible speculators abound, but these are constraints that we have to live with, even in traditional stocks investing.

I have also opened my warchest to take advantage of the increase in interest rates across crypto money market funds and decentralized exchanges.

I have bought more crypto gaming assets.

I have also learned about the existence of a vibrant art market on Ethereum and have started investing in a few pieces of artwork as well. This requires another full post to flesh out the details.

I have also introduced a non-custodial crypto wallet to my mum and have seeded her account with some stable coins to earn some interest income.

Networth Breakdown
Now, I'm not even sure whether the Networth Breakdown is accurate. To manage risk, I have kept my cryptocurrencies across multiple platforms, so it starts to get difficult to account for them properly.

The major change compared to the last quarter (see here) is the huge increase in asset allocation to cryptocurrencies (12% to 24%). I have included stable coins under the banner of cryptocurrencies.

Networth Breakdown

Debt Levels
Interest Coverage Ratio: 27
Debt-to-Equity Ratio: 0.008

Leverage has decreased considerably compared to the previous quarter. The only contributor to leverage is the use of my credit card to purchase cryptocurrencies.

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
Parkway Life REIT
Hongkong Land
Frasers Centrepoint Trust
Mapletree Industrial Trust
Hong Kong Tracker Fund
Mapletree Commercial Trust
Livongo Health
Thai Beverage
Frasers L&C Trust
Capitaland Mall Trust
ST Engineering
Raffles Medical
JM Smucker
Sheng Siong
Dairy Farm
Japan Foods
Frasers Property
Kraft Heinz
General Mills
Hormel Foods
Abbott Laboratories
First REIT

Just a few shuffle in the positions of the top 10. Nothing much to see here.

Strategy moving forward
I will be allocating more of my networth towards cryptocurrencies. At this juncture, I could come up with at least 4 ways to generate alpha in the crypto market. 

Even if the crypto market crashes, I am okay with it. I am able to take the ups and downs as the coins/tokens I am invested in have strong teams behind them.

To give an example, somewhere in Q4 2019, I got a double bagger (100% returns) on SNX. Following which, I suffered a 50% loss based on my average price (or, to put it in another way, 75% loss from peak) in Q1 2019. Now? It is up 214%. Would I be okay if I go through the same rollercoaster ride again? Yup. 

Meanwhile, cash (not including emergency funds) continues to serve as the base layer of my networth, enabling me to promptly react to any external events. Next up, cash flow from employment and dividend stocks (and dividend crypto?) could be used to pare down debt or be used as funds for additional investment while precious metals (and crypto?) serve as a hedge against a market crash.

Finally, interest income and dividend income from crypto looks set to overtake SGD-denominated dividend income in the next couple of months. However, it will not make much sense to convert between crypto (specifically, stable coins) and SGD due to the hassle and transaction fees unless one really has an obscene amount of money in them.

This is not the first time I am blogging about cryptocurrencies. I have been blogging about them for quite a while. I believe I have laid out both the risks and the rewards with minimal hype. If you do not understand what you are doing, stay away from cryptocurrencies. In the past 2 weeks alone, newbie speculators on crypto twitter have lost USD 20k and USD 400k because they do not know what they are doing. Critics would be quick to point out that throwing the baby out together with the bathwater is acceptable. This mindset is also correct, as each individual has different financial goals and would use different financial instruments that they are comfortable with to help them achieve those goals.

However, this does not mean that I will tolerate combative, guai lan, intellectually dishonest, or supercilious responses towards cryptocurrencies, which I have been receiving of late. Such comments would be ignored.

That's a long post.

Thanks for reading!

P.S. I am more active on Crypto Twitter now. You can find me on Twitter here

Saturday, May 23, 2020

Key takeaways from MOOCs (Part 1)

During this period, plenty of MOOC providers are offering their paid certificates at no cost to learners. I have been racing against time to complete as many courses as I possibly can. I will be sharing the key takeaways from the courses I have taken in this, and subsequent, posts.

For those interested, please refer to this post by Class Central for a compilation of MOOC resources.

Blockchain for Business (NTUC LearningHub & GO1)

  • Blockchain and its impact on Commercial and Investment Banking functions
  • Commercial Banking:
    • Blockchain as an alternative for the unbanked to store their money
    • International money transfers could be sped up using the blockchain
    • Using smart contracts for escrow services, buyers and sellers do not need to use banks as intermediaries
    • Using blockchain for post-trade settlement to reduce settlement time
  • Investment Banking:
    • Capital markets: Equity and debt securities could be represented as tokens on the blockchain for easy clearing and settlement
    • Advisory services: too early to tell how the industry would develop
    • Asset Management: Gaining recognition among institutional and retail investors (e.g. bitcoin futures)
  • Blockchain and its impact on Tech companies (Google, Facebook, Amazon, Apple)
  • Blockchain and Google:
    • Google Search: Very hard to disrupt Google search dominance. Brave Software is attempting it with the Brave Browser and its native token, Basic Attention Token (BAT)
    • Youtube: Similar to Google search, it is hard to compete with Youtube for dominance. Disrupting Youtube requires providing strong incentives for creators and viewers through the offering of tokens. DTube from the Steem blockchain is an alternative to Youtube
    • Adsense: Steemit empowers creators to retain more of their earnings instead of Google taking a cut from it
  • Blockchain and Facebook:
    • Of the 4 tech companies, Facebook is the firm that is most threatened by blockchain technology the most
    • Facebook: Steemit empowers creators to retain more of their earnings instead of Google taking a cut from it
    • Instagram: Same as Facebook above
    • Facebook Messenger & WhatsApp: Blockchain-based messaging apps will challenge their dominance
  • Blockchain and Amazon:
    • Biggest disruption to Amazon is decentralized peer-to-peer marketplaces built on the blockchain. One example of decentralized marketplace is OpenBazaar, which has zero platform fees and does not control user data. It is less feature-rich compared to Amazon
    • Amazon Web Services provide very competitive pricing and is reliable. Will be difficult for blockchain storage services (Filecoin, Storj, etc) to compete with Amazon
  •  Blockchain and Apple
    • Among the 4 companies, Apple is the least threatened by blockchain technology as it deals with hardware technology as well
    • Apple’s centralized ideology is in conflict with the decentralized ideology of blockchain
  • Course syllabus is already outdated as the blockchain space moves very fast

Introduction to Personal Branding (Coursera)

  • Creating Alerts in Search Engines allow you to keep track of keywords and phrases of your choosing; users will be notified of any mentions of the keywords/phrases on the given search engine via email
  • Importance of creating your own “board of directors” whom you would consult for advice/as a sounding board for your ideas
  • Preferably, the number of board of directors should be an odd number in order to resolve ties in decision-making
  • If you do it solo, limit the number of social media platforms to two
  • Research the various social media platforms before launch. Ensure that the selected social media platforms are home to your target demographics before proceeding
  • Do not just copy/paste your social media updates across the various social media platforms you are on. Followers who follow you across multiple platforms will be notified of the same update multiple times without any value-add. Tweak them to differentiate them from one another
  • In your updates, remember the 80/20 rule. 80% of your updates should be content that is of interest to your followers. Cap self-promotion to the remaining 20% so as to prevent yourself from oversharing about your achievements which your followers may not be interested in

Cloud Computing Basics (Coursera)

  • Cloud computing allows firms to save cost on hardware by renting only the amount of computing power they need from cloud providers
  • Function-as-a-Service (FaaS) provides app development environments in the form of microservices. Customers only pay for the time that the environment is used. There is no storage for FaaS. Hence, if data needs to be stored, it would be at an extra cost. FaaS also requires a few seconds of start-up time
  • Docker provides OS environments called containers and applications could be installed on these containers. Containers run independently and it could be difficult to keep all containers synchronized
  • Kubernetes automates app deployment, scaling and maintenance. It supports Docker containers as well
  • Edge computing is a variation of cloud computing where computing services are brought physically closer to the customer. Popular in gaming, IoT, and healthcare where response time is important

Marketing Analytics (Coursera)

  • Brand value could be destroyed if the acquirer does not know how to manage the acquired brand within their existing portfolio of brands (e.g. Quaker acquiring Snapple and treated it the same way as Gatorade; quirky products, Wendy the Snapple lady, and mom-and-pop distributors for Snapple in contrast to Gatorade for sports)
  • Brand Personality: what if the brand is a person? What age would the brand be? Would the brand be male or female? What traits would the brand have?
  • Interbrand Brand Valuation Model: Interbrand is a consulting company that came up with a ranking system to rank brands. Their valuation model is used for mergers and acquisitions
    • It comprises of three aspects: (a) financial analysis of balance sheet for residual earnings, (b) market analysis of the sector the brand is in, and (c) brand analysis through conducting surveys on consumers’ perception of the brand. Brand value is then determined through future earnings and the volatility (risk) of future earnings materializing
  • Young & Rubicam Brand Asset Valuator: More for marketers, based on consumer surveys
    • Four elements of a brand: (a) relevance to consumers, (b) product differentiation from competitors, (c) esteem of the brand by the public, and (d) consumers’ knowledge of the brand. Each brand will have varying levels on those 4 elements
  • Importance of knowing brand value: have to know the trade-offs in marketing investment between long-term brand value vs short-term price promotions
  • Revenue premium as a measure of brand equity: attempts to combine Interbrand Brand Valuation Model and Young & Rubicam Brand Asset Valuator. More suitable for valuing grocery store products. Central idea is to identify the premium that a brand earns over a private label
  • Customer Lifetime Value (CLV): the dollar value of an individual customer relationship with the firm. Use past data in order to project forwards. Allows the firm to make marketing investment decisions (e.g. if the cost of acquiring or retaining customers is greater than the value customer brings to the firm, it would not make sense to proceed)
  • For marketing experiments, have to try your best to make sure the test and control groups are comparable. If possible, capture the pre-existing differences (if any) between the test and control groups
  • The internet age has helped marketing experiments to flourish. Experiments could be done quickly, with minimal cost, and allows for the manipulation of many variables. Moving from the brick-and-mortar world to the digital world has resulted in marketing cost changing from a fixed cost to a variable cost, allowing firms to have more flexibility in their marketing investments
  • Online marketing campaigns can have a carry-over effect in sales even after the campaign has ended
  • A marketing mix regression model could include variables such as Product, Price, Placement, and Promotion (4 Ps of Marketing)
  • Important to differentiate between statistical significance and economic significance in regression models used in the marketing context. Economic significance refers to whether the benefits from the marketing campaign outweighs the cost of the campaign. Statistically, economic significance is known as “effect size.” It could be determined by plugging in numbers into the regression equation and identifying whether the benefit is greater than the cost of the marketing campaign
  • Tips in modelling retail data (e.g. grocery stores): running regression analyses by customer types (e.g. a regression model for price-sensitive customers who tend to use government subsidies/coupons, reduce prices for them, and reach out to them)

Monday, April 6, 2020

Q1 2020 Portfolio Update

It has been a while.

Assignments have been submitted and exams are up next (or would they be postponed in light of the current virus situation?).

The important question that I have asked myself is what sort of pattern do I see the markets and the real economy settling into. I have come up with three possible scenarios:

  1. A V or a U shape recovery
  2. A GFC-like scenario
  3. A Great Depression-like scenario

My focus is on its impact, not on the probabilities of each scenario. That is, if a given scenario materializes, how should I conduct my life such that I am not blind-sided and caught off-guard. Personally, I lean more towards scenarios 2 and 3 due to my reading of both bullish and bearish investment articles. 

Scenario 2 is what I have (kinda) prepared for for the past couple of years. A balanced mix of cash (excluding emergency funds since they are accounted for separately), precious metals, and equities. I have indirect exposure to bonds as well through the giving of SSBs to my mum. My equities allocation will obviously be destroyed in scenario 2, but that is a given and I have made peace with it a few years back. There are ways to reduce the impact of equity destruction. The first is to take partial profits (which I have done with varying success in the past 2 years) and the second way is to market time, which I decided not to do as an income investor.

In terms of the impact of scenario 3, it would be all the more devastating. If I were to give my honest opinion, I think, by then, most people would be having trouble with daily subsistence; investing would be the last thing on their minds. To mitigate the impact of scenario 3, I have been building up an emergency fund for my mum and myself, a concentrated position in precious metals, and (soon) a concentrated position in cryptocurrencies. This is not new; regular readers would know that I have been building up my emergency fund for a couple of years already and that I have a sizeable position in precious metals as well. If scenario 3 unfolds, we would be hurt, but we wouldn't be the first to hit rock bottom.

But before we get into the knitty-gritty, we'll start with the usual.

Dividend Income

Q1 2020 SGD Dividend Income

Dividends received in Q1 2020 fell slightly compared to the same quarter in the previous year. This was due to a reduction in my Singtel position some time back.

Q1 2020 USD Dividend Income

In contrast, USD-denominated dividends increased slightly due to a dividend increase from Blackrock.

Moving forward, I expect dividends to fall further. Dividends received would be used to pare down credit card debt from buying cryptocurrencies.

In this quarter, all of my investment actions were cryptocurrency-related.

I have added to my positions in bitcoin and ether when the price crashed.

I have initiated a new but smallish position in Binance Coin (BNB), the in-house coin of Binance (the company). The rationale is that Binance (the company) has been growing by leaps and bounds in the cryptocurrency sphere. Their business model involves being the one-stop shop for pretty-much everything cryptocurrency-related. Would you like to purchase/sell cryptocurrencies? You could use BNB to defray your trading cost. Would you like to participate in initial coin offerings (ICOs) or initial exchange offerings (IEOs) on Binance? You need BNB to participate as well. Would you like to swap coins on Binance dex? You need BNB as well.

Hence, Binance (the company) stimulates demand for BNB by offering a compelling variety of choices to users in the ecosystem. These choices compete for a limited number of BNB that are available. Theoretically, demand would encourage the growth in BNB price over the long haul.

For risk management, I have kept the size of my BNB position small. It is a centralized coin and there are mixed comments on Binance (the company) and BNB online.

Next, I initiated a new position in Chainlink (LINK). Oh boy, this will be something pretty complicated to explain. Lemme try using a simplified example to illustrate how chainlink works instead.

Imagine that there is no such thing as SGX and you have to trade shares with your neighbours. How do you know what price is a fair price to use?

For example, Singtel shares last changed hands at Bedok at $3.02 between John and James. Concurrently, Singtel shares last changed hands at Ang Mo Kio at $2.98 between Mary and Julie at Ang Mo Kio. How do you know what is the "actual price" of Singtel shares? How do you reconcile the differences in the prices of trades at different geographical locations? Enter Chainlink, a decentralized data provider/aggregator/relayer of information.

In decentralized blockchain systems, it is very important to ensure that your data provider/aggregator/relayer of information provides accurate and timely information. If information comes from a single source, it is more susceptible to manipulation if there is malicious intent behind it. Chainlink attempts to solve this issue by requiring multiple independent providers/aggregators/relayers of information and introducing financial penalties if any of these providers/aggregators/relayers provide inaccurate information.

Lastly, I initiated a small position in Kyber Network Crystal (KNC), the underlying token of Kyber Network, a liquidity protocol, in order to test out something.

I have also added to my position in Synthetix Network Token (SNX) following its fall from grace from its all-time high due to BBs taking profits, leading to a cascade after cascade of sells (there goes my 2nd double-bagger in my portfolio, lol). There have been plenty of developments at Synthetix Exchange to the point that I can't keep up with their updates anymore. Just recently, they launched the synthetic FTSE 100 and Nikkei 225 indices. Coming up shortly is synthetic brent crude oil.

I have also taken partial profits off Small Love Potions.

Opportunistic Trades
As an income investor, I rarely engage in opportunistic trades.

In this quarter, bZx exchange suffered an exploitation and there was a "bank run." The yield for Ether shot up to around 70% per annum in the early hours of the bank run as depositors began to withdraw their assets. While people began to rush out, I rushed in to eat the high yield. The rationale is to eat the yield for a day or two and exit before the remaining mass of people realize what was going on and exit.

Management has been prompt in responding to the crisis. A day after, a second exploit happened, revealing that management did well to allay fears but were less capable in handling technical matters. Uh oh. Trouble, indeed, comes in pairs (insolvency and management incapability). For a while, I thought that I would have to write-off my principal. Thankfully, there were more aggressive individuals who added their assets into the pool to arbitrage the situation, which allowed me to escape with my principal intact. For all the trouble, I came out with a net negative SGD $2 due to the transaction fees.

A second opportunistic trade came when all the markets crashed (equities, crypto, metals, etc). Leverage always appear to be fine when the sun's out and everything is fine and dandy. When dark clouds suddenly gather, one might not have enough time to react and delever.

This was what happened when the cryptocurrency market crashed along with the equity markets. Those who leveraged up by minting the DAI stable coin found their ether collateral values going south. Unfortunately, the ethereum blockchain was clogged up at that point. Hence, they could not delever even if they wanted to. As programmed, the inbuilt system auctioned off their ether assets at fire sale prices. If I am not wrong, bidders couldn't even bid on these assets due to the network lag. The end result was that assets were priced at 0. Those who managed to high-ball the transaction fees and get the Ethereum blockchain to prioritize their transactions would get these ether collateral for "free."

makerdao liquidation

This is crazy man. Assuming the lowest ether price of SGD $127, the affected user just "gave" SGD 217k for "free."

For those folks whose assets did not get caught up in the fire sale and auctioned off at $0, they had to quickly get their hands on the DAI stable coin to delever. 1 DAI is pegged to 1 USD. Due to the insane demand for DAI, 1 DAI went up to even USD 1.20.

DAI coin price

As I have some DAI with me, I took profits. In other words, I managed to sell USD $1.00 for USD $1.06. 

Networth breakdown
Due to the sharp fall in equity prices, asset allocation to equities fell from 41% at Q4 2019 to 33% currently. Cash level is similar to Q4 2019 (29%) even though I have been purchasing cryptocurrencies throughout this quarter. Percentage of cryptocurrency as part of networth doubled from 6% to 12%.

Networth 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."

The curious case of physical and paper metals decoupling
Recently, while on twitter (yes, I recently got a twitter account), I came across a curious tweet stating that the physical gold/silver market has decoupled from their paper equivalents. Shortly after, I received an email from GoldSilverCentral, a local bullion dealer, bringing attention to the same thing.

A cursory review of the websites of all major bullion dealers in Singapore showed that physical metals (especially silver) are trading at a much higher price than their paper counterparts.

From GoldSilverCentral's website:

From Bullionstar's website:

The price of paper silver when the screenshot was taken:

The price of physical silver on that same instance:

From SilverAG's website:

With the closure of the 3 largest refiners in the Swiss Canton of Ticino due to the virus, supply is not able to keep up with the increased demand. As a result, the prices for physical metals have increased to reflect this.

This is a pleasant surprise. As my exposure to precious metals is entirely physical and I have a concentrated position in the asset class, it has helped to completely negate the sudden crash in equity prices.

This also underscores the differences between the different "classes" of precious metals. Many people do not seem to get this because of their lack of familiarity with the precious metals market. At the top of my head, there are: (a) paper metals, (b) bullion bars/coins, (c) "semi" bullion bars/coins, (d) antique bullion bars/coins, (e) numismatics/proof coins, (f) bullion jewellery, (g) jewellery, and (h) jewellery with low workmanship cost.

For example, one "semi" bullion silver coin that I have trades at 900% premium above paper silver price at one of the local bullion dealers. 

Depending on the class of precious metals purchased, your returns may vary.

Debt Levels
Interest Coverage Ratio: 24
Debt-to-Equity Ratio: 0.012

Similar to the previous quarter, leverage in relation to overall networth has been increasing due to my use of credit card to purchase cryptocurrencies.

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
Parkway Life REIT
Hong Kong Tracker Fund
Frasers Centrepoint Trust
Mapletree Industrial Trust
First REIT
Thai Beverage
Mapletree Commercial Trust
JM Smucker
ST Engineering
Raffles Medical
Capitaland Mall Trust
Dairy Farm
Sheng Siong
Japan Foods
Frasers Commercial Trust
Frasers Property
General Mills
Frasers Logistics Trust
Kraft Heinz
Hormel Foods
Welltower REIT
Abbott Laboratories

Quite a number of changes in positions, but I am not too worried about it.

Areas for Improvement
Some blogger friends indicated that I could improve on my generally buy-and-hold strategy. Upon reflection, what I could have done better is to include more instances of partial profit taking. I have executed on a number of them in previous years for non-REIT counters in my portfolio. What I could have done better is to apply the same to REITs in my majority REIT portfolio. My hesitancy stems from my preference for income and taking partial profits would mean killing the golden goose for dinner. To facilitate partial profit taking, I could increase the position sizes of each transaction. That way, capital gains would be more meaningful (in absolute terms).

Another recurring point of contention is the presence of cryptocurrencies in my networth. From a portfolio perspective, it is but one among many other asset classes. Sure, volatility is a concern, but in the grand scheme of things, each asset class balances the other out since I have exposure to all major asset classes (equities, precious metals, cryptocurrencies, cash, and, indirectly, bonds). 

In the initial stages, it was a wild ride of insane ups and downs. There was angst when it went up and I haven't accumulated enough. What helped me at this point was a concept that I have learned from Finance Smith on Value Cost Averaging. When prices came down again, it was another opportunity to accumulate. When it went down further, I wasn't spooked. I have kept myself up-to-date with cryptocurrency developments and it was time to accumulate more, with a larger time interval between transactions to manage risk from buying too fast, too furiously. The feeling I got back then was not fear, but sian that prices were not reflective of developments.

After awhile, you will get used to it. You wouldn't bat an eyelid at 50% ups or downs anymore.

The Same Game plan
Dividends received, albeit reduced, goes back into investments. REITs and employment income continue to form and strengthen the financial base from which I expand into other non-REIT income stocks, growth stocks, or cryptocurrencies. 

To strengthen the financial base further, continue adding to emergency funds and investments at the same time. 

Next up is to observe how my US dividend growth stocks fare. Will there be dividend cuts or will they remain as stalwarts? We shall see.

It has been a long post.

Thanks for reading!