The tradition of the annual letter started just last year. This year I would like to share more about what we have accomplished in 2016 and also provide some updates on our plans for 2017. I will section the letter into 4 main parts – Investment Performance, Investor Education, Acquisition and Reflections.
The CNAV Portfolio continued to perform well despite an overall lacklustre stock market in Singapore and Malaysia. The Portfolio gained 10.9% in 2016 (as of 30th Nov) while the STI ETF remained almost flat. This further validated our approach and justified our stock picks.
We have included the KLCI as an additional benchmark because the Portfolio now consists of Malaysian CNAV counters. While they may not have done as well as we liked (and with the situation made worse by forex losses), we see the necessity in this move.
Investing in Malaysian stocks allows us to diversify into other sectors and into another economy. We will not be dropping Malaysia just because of this short period of underperformance.
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The next country of focus would be Hong Kong. We are now busy scrubbing the CNAV data for Hong Kong. It is a huge undertaking as there are more than 1600 stocks listed on the HKSE, almost as much as Singapore and Malaysia combined.
Nevertheless, the job is almost completed. From 2017 onwards, the CNAV screener will cover Singapore, Malaysia and Hong Kong.
We often receive questions about our choice of markets. Many are curious about why we picked Malaysia and Hong Kong. Yet others wonder why we are not covering the biggest stock market in the world, the U.S.?
For a start, Singapore is a small economy and we are highly dependent on our neighbours for trade and imports. As an economy, we are far from being a complete one. There are sectors such as broiler and timber which are non-existent in Singapore but are thriving across the causeway. This makes our northerly neighbour a natural complement.
Hong Kong on the other hand is a proxy to China, one of the largest and fastest growing economies of the world. The investing landscape is vibrant and the potential huge. At this stage we have discovered more than 100 noteworthy CNAV stocks from the SAR itself. We hope to share more about the Hong Kong market in the near future.
As an added bonus, Singapore Malaysia and Hong Kong were all British colonies before and we have inherited the same set of laws. For example, in terms of investment taxation, there are no capital gain and dividend taxes. This is unlike the U.S. which have a 30 percent tax on dividends.
And finally, Asian markets have not fully recovered from the 2008 financial crisis while the U.S. markets have been making historical highs. As investors it is easy to be caught up in the stampede and follow the crowd as they chase higher and higher valuations in the U.S. of A. As rational contrarians, we aim to do the exact opposite.
The choice to invest in Singapore, Malaysia and Hong Kong is a deliberate one and we are confident that it is the right decision moving forward.
New GPAD Strategy
We have launched the Dividend Investing Mastery Course (DIMC) in 2016. Initially we were pairing a value metric, EV/EBIT, with dividends. However we discovered that the characteristics of the stocks were similar to that generated by our CNAV strategy. Recently, we discovered that pairing a quality factor, specifically the Gross Profitability metric, was a lot more suitable for dividend investing.
We named this strategy GPAD, stemming from Novy-Marx’s Gross Profitability (GPA) and Dr Fong Wai Mun’s enhancement of the GPA with a dividend ranking (D). The results were fantastic. Our friend Chris who writes at Tree of Prosperity conducted a backtest on Singapore stocks for the past 10 years and the annual return was 19.56%.
As with the CNAV strategy, we put our money where our mouths are. We will be incorporating stock picks from the GPAD strategy into our Portfolio.
Based on Novy-Marx’s findings, there were historical time periods where Value stocks did not do as well as Quality stocks. At other times, the converse is true. The correlation was -0.57 between Value and Quality stocks. Combining both sets of stocks in a portfolio would capture both strategies’ returns with no additional risk assumed. With this new understanding of investing, a minimal risk stock portfolio should diversify by factors, over and above sectors and countries.
Here’s some statistics for our achievement in 2016:
- 1,267 graduates from 38 course runs
- 1,400 attendees from 28 workshops/ talks / webinars
We have launched the Dividend Investing Mastery Course (DIMC), REITs Investing Mastery Course (RIMC), Angel Investing Course (AIC) and Personal Finance Mastery Course (PFMC) in 2016. It was indeed a busy year as we ramp up the course offerings. We are also launching the Bonds Investing Mastery Course (BIMC) in 2017. Given these options, we would like to take the opportunity to briefly highlight the content of these courses so that you can make a better decision which to enroll into. If you still cannot decide, come for them all!
- DIMC (Dividend Investing Mastery Course)– The focus is on picking quality stocks (non-REITs) that gives dividends and capital gains. The GPAD strategy will be taught by Alvin as he has formulated this approach.
- RIMC (REITs Investing Mastery Course) – This course will cover REITs listed in Singapore. It is good for investors who want REITs to be a considerable part of their portfolios. Graduates would be able to identify better REITs with a 10-points qualitative and quantitative checklist. Kang Lin currently runs a Property Fund for Accredited Investors. His experience and knowledge of local REITS makes him the most appropriate trainer RIMC.
- PFMC (Personal Finance Mastery Course) – This new course will touch on every aspect of your personal finance matters, covering insurance (life, term, accident, disability, hospitalisation), investment (endowment, ETFs, Funds) and retirement (CPF Life, SRS). Louis is a qualified financial advisor who would put his knowledge and experience into helping you understand these important money issues.
- AIC (Angel Investing Course) – Unlike public listed equities with established track records and audited financial statements, evaluating start ups and the founders require a different skill set. Investing in startups is also highly risky as most start ups fail. On the other hand, the rewards are tremendous when you have identified and invest in the right company. Der Shing is an experienced angel investor and would share his insights from his investments.
- BIMC (Bonds Investing Mastery Course) – Amongst retail investors, bonds are largely misunderstood. Recently, bonds have been making headlines recently because numerous companies have defaulted on their borrowings. This course is definitely timely to improve the understanding of bonds investing. Wei Tuck is the trainer and he was previously a banker involving with a myriad fixed income products.
We have also launched the eVIMC which is an online learning version of our flagship Value Investing Mastery Course (VIMC). You can sign up and complete the course at your own pace. No more excuses if you are unable to attend a class in the weekends. Also, this course is suitable for our friends and supporters from overseas. Some of you have been asking for it. We heard you!
An important announcement is that course fees would increase from 2017 onwards. But, the good news is that we now have bundled courses!
New Journey With Dr Wealth
On the corporate front, 2016 has been an exciting year. We have considered a couple of buy-out offers and forged many meaningful relationships. We have great respect for the people we work with and we cannot ask for better partners.
The highlight of the year would be the acquisition of Dr Wealth Pte Ltd. DrWealth helps to keep track of your investment performance with an app. We a lot of synergy with our current operations. The app and website is currently being revamped and we aim to ship the beta version in Jan 17. The app is free to download and use.
We have also shifted to 73 Ayer Rajah Cresecent #01-16 after the lease ran out in September 2016. We miss Dhoby Ghaut but we are just as excited to be part of the buzz at our new location. Do drop by for a visit.
From 2017 onwards, we will refer to our company as Dr Wealth. Rest assured that our informative content will still be available on the new site, drwealth.com. If you are an email subscriber, you will continue to receive the articles from us.
Do remember to download the app when it is launched!
We started the BigFatPurse journey in 2014. When we first started, the shareholders were all working IN the business. As the business grew, we had to contend with goals, KPIs, work processes, business development, meetings, reporting, agreements. Our roles and responsibilities became more defined. The challenges became increasingly complex. As the CEO, I have to remind myself to be working ON the business.
Being an entrepreneur is not some glorified ‘passive income’ or ‘get rich quick’ endeavour where you imagine yourself sipping cocktail in the Bahamas while money just roll in. The work you have to put in is much more than that of an employee. You never stop thinking about your business.
Different people have different reasons for starting a business. For me, it is always about creating something on my own. I treat it like my baby. I carefully mould it and I enjoy growing with the baby through good times and bad. We always want the best for our children; we want them to excel and to do good for the society. The process is both emotionally draining and yet rewarding at the same time.
Special thanks to the team who made the journey possible: Alex (COO), Yen Yee (Marketer), May (Adminstrator), Bowen (Analyst) and Thiam Hing (Programmer). Thank you for the professionalism and dedication you have shown.
And to you, our reader, thank you for being with us all these years. You have watched us grow and supported us on this journey. I thank you sincerely and wish you a great 2017 ahead.