2017 is behind us and it is time for an annual review of Heartland Boy’s stock portfolio. The metric used to measure the stock performance would be Internal Rate of Return (“IRR”) and the relevant benchmark is the Singapore Straits Times Index (STI Exchange Traded Fund). Having a benchmark is important as it allows Heartland Boy to track and compare his active investment strategy. Heartland Boy will also be including the cash component when calculating his stock performance. Without further ado, let’s get straight down to business.
From the table shown above, 2017 was an average year for Heartland Boy. Even though 2017 marked the fourth year of him investing in the stock market, he is disappointed at failing to even beat the index. Warren Buffett said that majority of hedge/mutual funds managed by professionals will not beat the S&P 500 because of fees. Heartland Boy doesn’t even charge himself fees and he still couldn’t beat STI! Anyway, for those who are interested, here is the detailed breakdown of the individual equity counters that contributed to his investment return in 2017.
Heartland Boy had blogged about most of these stocks in a mid-year report, so it is not necessary to provide individual analysis in this article. Anyways, a year-end review provides an opportunity to pause and reflect on the things done right and what had gone wrong. After evaluating his stock performance, here are some of the mistakes Heartland Boy made in his investment journey in 2017.
1. Fail To Appreciate The True Size Of His Investment Fund
At the beginning of every year, Heartland Boy will take stock of his net worth and set aside a budget for stock investment. As his net worth grows overtime, he naturally allocates a bigger amount for investment as well. During the review, Heartland Boy realised that the amounts that he had been investing in the last few years had instead been largely constant. On hindsight, perhaps this was done either out of habit, convenience or a case of over-zealous prudence. As a result of his failure to move past this mental block, un-utilised funds have diluted his returns severely in recent years. For instance, his equity IRR in 2017 was actually a remarkable 40%! Therefore, the biggest lesson he learnt in 2017 was to appreciate the true size of his investment fund so that he will not miss the boat when the opportunity to fully vest them arises again.
2. Believed In Too Much Of The Noise On Forums
The privatisation event of Croesus Retail Trust was a very interesting event for Heartland Boy in 2017. As a regular observer of investing forums, he noticed that several shareholders were quite aggrieved at the “low-ball” offer by Blackstone. They had all indicated that they would vote against the scheme. This did get into Heartland Boy’s head and it influenced him to sell off all his shares before the EGM. To his surprise, it was an overwhelming consensus to the privatisation offer. The results were not even close. The capital gains, together with the commissions paid, could have bought him a ticket to Australia! The lesson he learnt here is that the more outspoken voices may not always be representative of what the silent majority thinks.
3. Missing Out On Sectoral Outperformances
To say that the semiconductor industry had a phenomenal year in 2017 is probably a gross understatement. Majority of companies in this industry that are competently managed all turned out to be multi-baggers. It was a classic case of a rising tide lifting all boats. Heartland Boy was fortunate to have one such boat- Micro-Mechanics, in his portfolio. But he let Sunningdale slipped out of his hands. And many more such as AEM, Hi-P, Valuetronics, Memtech. He has been monitoring these stocks for at least a couple of years and totally regretted his failure to act decisively in 2017 especially when the due diligence on them had already been done!
Despite the mistakes made, Heartland Boy believes that there have been several things done right in 2017.
1. Cut Loss When Stop-Loss Orders Were Reached
Heartland Boy acted decisively when his stop-loss orders were reached. ISOTeam and QAF were culled once they retreated 10% from their most recent highs. This proved to be the right decision as the share prices of ISOTeam and QAF are still languishing below the prices Heartland Boy sold at. As such, his losses on these counters were capped and this allowed him to preserve his capital. The only exception was Dutech which registered double-digit losses in percentage terms. The share price simply dropped too fast in a single trading session after the release of a profit warning announcement overnight. Even then, this proved correct as Dutech is now trading 10% lower than the price he sold at.
2. Interaction With Management Proved Invaluable
In 2017, Heartland Boy managed to find occasions to interact with the management running the companies that he was a shareholder of. This proved to be invaluable as it helped to address some of the queries that he had. For example, Heartland Boy heard first-hand from the board of QAF about the pork over-supply situation in Australia.
He also met the CEO of Viva Industrial Trust during REITS Symposium 2017. The CEO provided insights on the progress of the AEI works at Viva Business Park and how his team intended to ring-fence the risk arising from the default on the income support at Jackson Square. All these interaction allowed him to make better-informed decisions on the stocks. Now that Heartland Boy is permanently based in Singapore, he will be looking forward to attend more of such events so that his eyes are better peeled to the ground.
3. Sticking To His Circle of Competence
Interestingly, this review also revealed that Heartland Boy’s performance had been lifted by the strong performance in the REIT and semiconductor industry. Perhaps, this is a clue that he should stick to his circle of competence and continue to invest in the best REITs by applying his methodology.
That’s it for the review of his stock performance in 2017! Let’s hope that the lessons learnt in 2017 will be put to good use in 2018.