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!


  1. Hi UnN

    Good to see another post! I dont understand the crypto space sufficiently well but you may need to take note of the below.

    1) In the event of forced liquidation / collapse of the crypto brokers / platform, how is your cash and cyytos seggerated and protected? Is there sufficient safeguards to protect the assets at your custodian if a happens? Or a security breach reoccurs?

    2) Given that crypto platforms has limitations in processing transactions in periods of high volumes, and even force liquidate collateral without warning, will you feel comfortable in parking more of your net worth there?

    3) How do you manage your expense ratio considering your wide diversification? The transaction cost will certainly eat into any profits you might have taken.

    1. Hi INTJ,

      Good to see you too.

      1). I have kept a large proportion of my cryptos off exchanges for risk management. Self-custody is the “safest” option. For those that are on platforms, I will have to write them off. Hence, I stick with the better exchanges/platforms and, even then, diversify the amount allocated to each one.

      2). I will not be affected by forced liquidations as I am unlevered in crypto (with the exception of Synthetix exchange, where there is no “forced liquidations” but “forfeited dividends” instead). I do not do much crypto-related transactions other than (1) buy and self-custodised the assets myself, or (2) lend it out in savings accounts/fixed deposits. Hence, during high transaction volumes, my assets will still be stationary. Yes, I am comfortable with parking more of my networth there in light of central banking money printing and other macro issues.

      3). I will prioritize partial profit taking on the fundamentally weaker counters (relative to others) in my portfolio.


  2. Bro, your writings matured over the years. Your thinking also. Very good and happy for you.

    Cannot imagine you are still the blogger in 2016 when we first know each other.

    My bad for introducing Gold/Silver to you.

    And yes, physical Gold/Silver pricing is very much different from paper ones. Hence, most of my holdings were all physical. Sold my paper Gold lately for profit and protection.

    Stay safe and healthy.

    1. Hey Bro,


      Stay safe and healthy to you and your family!