The big question is for retail investors is to assess which investment guru made the best picks in 2019. To answer that question, we pit different investment factors against each other and tracked their relative performance over 2019.
Specifically, this is what we did:
- We select an investable set of stocks that have
the following properties:
- Listed on SGX.
- Not a real estate investment trust because REITs are always treated separately in the ERM programme.
- Not domiciled in China as we do believe that beginners should invest in SGX stocks domiciled in China.
- Larger than $50 million in size so that ample liquidity exists.
- This results in a set of 300+ counters.
- We then build a portfolio consisting of half the universe of stocks with the superior factor on 1 January 2019 and hold it for a year before we measured the results.
The final results are as follows:
The winning factor in 2019 was dividend yields even though it meant taking on more downside risk.
This means that investment gurus who invited investors to look for the counters with the highest dividend yields should have produced the highest returns in 2019. Similar out-performance can be found when seeking stocks with the highest dividend growth and highest free cash flow.
Among the value factors, Price/Earnings ratio was the champion and it edged out the Price to Book and Price to Sales Ratios.
What are the implications for retail investors?
Do note that investing based on this exercise is not a good idea as the test portfolios contain over 140+ counters. Having a one-year back-test is also too short a time horizon to make realistic decisions in the future. Also, 2020 may see the emergence of a new no. 1 factor for SGX stocks.
Instead, one of things we can take note of is to simply remind ourselves to look at forward dividends projections when reading an analyst or brokerage report. This is because getting some cash into your hands matter.
Personally, I tend to ignore equity counters that yield less than 4%, this is because I like to be rewarded for holding a counter across multiple market cycles.
For the ERM we conduct the Battle of the Factors multiple times with separate exercises done for blue-chips as well as REITs.
We do not suggest investing based on one factor, instead preferring to look at multiple factors before shortlisting a counter for further consideration. We also do not look solely at return figures. We prefer to take into consideration issues like volatility and downside risk so as to create safe portfolios that beginners can hold onto for the rest of the year.
Find out how you can implement a simple strategy and build a dividend income stream at my free Early Retirement Masterclass program here.