Another Year Of Alpha For Our Portfolio

Introduction

This marks our sixth year of publishing our scorecard here in SA, and we hope more authors will do the same and that our readers will give us feedback on our portfolio performance review.

In last year’s portfolio performance review “ Finally, I Found Alpha In 2021” the highlight was that we benefited from a high concentration on financials and in real estate.

This theme continued through 2022 with few changes to the portfolio. We re-invested some of the dividends and finally the drag on performance that holding cash caused in the past changed last year into a decent positive contribution.

At least we can no longer state that TINA, there is no alternative, was the general theme for stocks in 2022.

Let us share with you how we did and how we think.

2022 – Highlights of the Year

What a difference a year makes.

Investors got spooked by inflation and a change from “free money” to what should be a more normalized interest rate environment

What had been market darlings for more than a decade, such as the FAANGs, Tesla and crypto were no longer in favor. It reminds us of what the wise investment legend John Bogle once said:

When there is a big gap between perception and reality, eventually realities win”

That happened last year. Most indexes were down by high teens in percentage points.

Our value-oriented portfolio did better than the general market.

There are many good authors and contributors here in SA. We try to allocate time to read those that cover companies that interest us.

However, herein lies a small problem.

Apart from the odd article proclaiming the author made more than 300% return on his/her picks, which in itself could certainly be true, it does not tell a complete story.

Even when we try to assess an author’s “success rate” it becomes difficult. Apart from the obvious fact that none of their claims are audited by an independent party, it would be like telling the story of a man that won the lottery without knowing how many tickets he had bought over the years that turned out to be money down the drain.

We should be realistic. Very few deliver a significant alpha consistently over many years.

My point is that one single investment, even one that makes a 300% profit should only be one piece of a portfolio.

Investor Ken Fisher taught us through his wise words that it is the construction of a good and sound portfolio that matters more than which individual companies one invests in. One could argue that the portfolio consists of many “good picks”, but in all likelihood, there will be some good and some not-so-good calls.

There were not many changes to our portfolio.

We pointed out last year we generally only sell a stock once it has reached a level where we think that it no longer offers particularly good value, or if we have no faith in either the management or their business prospects. Furthermore, we don’t want to add too many companies to the portfolio.

The top 5 holdings, by value as of 31 December 2022 were as follows:

1. Swedbank (OTCPK:SWDBF), Sweden
2. HSBC (HSBC), Hong Kong
3. Shell (SHEL) UK
4. CapitaLand China Trust, Singapore (OTCPK:CLDHF) (AU8U.SI), Singapore
5. Rio Tinto (RIO) UK

New to the portfolio in 2021 were:

1. Alibaba (BABA), Hong Kong.
2. Star Bulk Carriers (SBLK), USA

We had looked at Alibaba over many years but being value investors we just could not justify the price it traded at. At a price of around HKD 90 per share we allocated capital as the fundamentals looked promising. It was also a matter of having some technology in our portfolio mix.

The story with Star Bulk Carriers is also a play on the improvement in the Chinese economy. We do believe that the dry bulk market will improve in 2023 from where it is today. The comforting thing is that even at the present market level they should still make some money.

Out of the portfolio went:

1. British Land (OTCPK:BTLCY),

The reason for selling British Land was based on a comparison of it against some of the other REITs we own. We compared it to Singapore-listed REITs like Suntec, which holds office and retail, and convention space in Singapore, Australia, and the UK. The other is Frasers Logistic Trust, which holds warehouses, offices, and business parks in Singapore, Australia, and the UK as well. Funds from the sale of British Land went into increasing our stake in both our two mentioned alternatives.

The total number of positions we held at the end of 2022 was 21 companies.

Here is our sector allocation:

Here is the geographical allocation

We are quite comfortable with the sector and geographical allocation as it now is.

If you have read our earlier portfolio performance reviews you might remember that we have been benchmarking our portfolio since 2008 by comparing it against the Morgan Stanley Global Equity Index (MSCI World).

That is because we believe it is the most suitable for our investments.

Here is how the MSCI World Equity index faired in 2022.

Our equities were up 17% over 2022, while the MSCI World Index was down 19.8%

Last year was the worst year since the GFC for most share indexes performance. It was interesting to note that we do much better on stormy days.

We also believe our performance has improved over the last few years and would like to give some of the credit to Seeking Alpha as we believe being active here will help us all become better investors over time.

At least we can hope so.

Many readers here in SA are ordinary people like ourselves that rely to some extent on income from our accumulated wealth. As they get closer to retirement or are already in one, it is nice to have some extra money to spend.

A dividend is one such source.

Even if you happen to be a younger person, and not really thinking too much about retirement, dividends are a great way to reinvest and grow your wealth. Compounding is still one of the wonders of this world. At least, Albert Einstein thought that it was.

The number of payments we received was 54 payments in 2022.

Total net payments to us in real dollar value were down 2.4% from the previous year. The average net yield, on invested money, was 6.5%

We do have hopes for a small growth in 2023 as we believe financials should increase their dividend. On top of that, we have companies such as Shell that have communicated that they will increase their dividend by 15%.

Simon Property Group (SPG) might also continue to pleasantly surprise us this year with some dividend growth.

As long as companies are fair in their distribution, we take what we get. Some might have to reduce their dividend too. That is ok.

Conclusion

The market in 2023 has started out quite well. Many would say that it is just a “dead cat bouncing”. Things will get worse.

Maybe they are right. We do not know what the market is going to do. It is futile to try to pick a number for where the S&P500 will be at the end of 2023. It is anybody’s guess. Yours is as good as ours and all the TV heads out there who love to give you their advice.

We just continue to do what we have done over the years.

That is to try to find companies with good people running them and with solid fundamentals and at the right price we will buy a part of them.

That has been a good recipe for success in the past, and it should be so in the future.

Good luck to us all and let us count our blessings, of which there are many.

We do look forward to getting your feedback.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.