Portfolio review for 2008

Using the same format as last year portfolio review, below are the expenses, emotion review and return of my portfolio for year 2008.

Expenses

	2008	2007
Number of Buy	13	8
Number of Sell	1	2
Turnover Ratio	1.94%	4.53%
Average Holding Period	618 months	264 months
Total Expense Ratio	1.45%	0.88%

While turnover ratio has dropped, expense has gone up because of two reasons.

First, there was more number of buy in 2008, in order to move CPF-SA money into Growpath 2040 fund before the restriction in using CPF for investment kicked in April. This adds to the total expense ratio.

Second, total expense ratio also increases because of the outgoing transfer fee charged by stock brokers when I consolidated my ETF holdings.

Emotion

I invested my monthly savings on time in April and quite early in October, may be I was eager to “finished the job”. I did not hesitate, wait and monitor when making purchase, something I did in 2007. All in all, the year 2008 was pretty much a boring year. And that’s good for me.

Return

	2008		2007
	Portfolio	Benchmark	Portfolio	Benchmark
SGD	-32.54%	-29.05%	4.35%	0.69%
USD	-32.35%	-28.85%	10.69%	6.81%

Return is calculated by using XIRR function in Excel and includes dividend and un-invested cash holding. Though slightly lower than the benchmark, the portfolio return is quite close to the benchmark. This is because SGD-USD exchange rate is almost the same in the beginning and end of 2008.

The portfolio allocation as at 31 December 2008 is shown in the table below.

The last portfolio activity was in October. Since then, cash (6% in the table) is being built up from the monthly savings that will be invested in April 2009. The equity portion (62%) is lower than that of 2007 (65%), due to the financial crisis that started in October 2008.

Looking into 2009

With my ETF holdings consolidated in one place and the investment vehicle decided, the portfolio has finally passed its formation years since 2005. Phew~!

I have also increased the monthly savings for the portfolio by a meager amount as I have just received, well, a meager pay increment. Other than this, while the same may not be said for the stock market (don’t ask me about it), I expect 2009 to be an uneventful year for my portfolio.

To all passive investors out there: stay the course.

Portfolio review for 2007

Time for portfolio review. Although I have compiled the result in early January, busy schedule has prevented me from posting at that time. That’s all well and fine because I would like to write more than just reporting return. As Warren Buffett warns in Berkshire Hathaway 2004 Chairman’s Letter, the greatest enemies of equity investors are expenses and emotions. Fortunately, expenses and emotions are two things investors can control, compared to market return that is beyond control and prediction. This year I will review expenses and emotions first, then report on the return.

Expenses

I will look at two aspects of expenses: turnover ratio and expense ratio. But first lets look at the number of transaction that I have made:

• No. of Buy: 8
• No. of Sell: 2

The two sell transaction is to reduce the SGX stocks allocation closer to the target allocation.

Turnover Ratio = 4.53%

Turnover ratio is given by dividing the lower of buy or sell amount by portfolio value. For my portfolio, sell amount is used. What does this number tell in term of holding period of the funds in the portfolio? Divide 1200 by turnover ratio will give you the average holding period in month. For my portfolio:

Average holding period = 264 months or 22 years

I guess I can call myself a “long term investor”.

As for expense ratio, I include expense ratio of fund, transaction fee in the form of commission and sales charge, custodian fee and dividend handling fee to calculate the portfolio expense ratio. For other expenses like dividend drag, opportunity cost of un-invested cash, etc., I leave them out for simplicity’s sake until I find an easy way to calculate them. The portfolio expenses by category are as follow:

• Weighted expense ratio of all funds = 0.32%
• Transaction fee as % of portfolio value = 0.49%
• Custodian fee as % of portfolio value = 0.06%
• Dividend handling fee as % of portfolio value = 0.01%

Total expense ratio of portfolio = 0.88%

Transaction fee constitutes the largest part of the expense ratio. As I have three more transaction to make for investing my CPF-SA money, and an average of 2-3 transactions each in April and October fund purchase period, the portfolio will likely to have roughly the same number of transaction in 2008. Custodian fee and dividend handling fee have fixed amount, so with the increase of portfolio value, these fees will become less as % of portfolio.

Emotions

I wish there is a checklist for this. Anyway, my experience in 2007 tells me that checking price history before making a planned fund purchase is a bad idea. It can cause some hesitation (whether the price was going up or down) and delay in making the purchase, as written in this previous post. After this lesson, I try to make the transaction without checking the price history, and it works pretty good. Just a few days ago, I logged in to fundsupermart.com, submitted the buy order for CPF-SA money and logged out immediately; all was done under 3 minutes. Although the fund holding page showed the price of the fund, I did not go to the price history section.

As I write, I recall a paragraph in Your Money and Your Brain that is related to the checking of price history:

Therefore, once you become interested in a company, it’s a good idea to let two weeks go by without ever checking its share price. At the end of that period, now that you no longer know exactly where the shares are trading, do your own evaluation — ignoring stock price and focusing exclusively on business value.

Return

A-ha, finally, the portfolio return.

Portfolio return = 4.35% in SGD or 10.69% in USD

Benchmark return = 0.69% in SGD or 6.81% in USD

The return is calculated by using XIRR function in Excel and includes dividend and un-invested cash holding.

The portfolio allocation as at 31 December 2007 is:

* APEJ = Asia Pacific Ex Japan

As I am going to invest my CPF-SA money from October 2007 to March 2008 before the new rule kicks in, I have stopped adding my monthly savings into the equity part, in anticipation of the increase of equity allocation by CPF-SA investment. This explains the higher-than-target cash holding. I expect the allocation to be restored in April 2008 when the CPF-SA investing stops and when I do the regular half-yearly fund purchase at that time.

No major life event in 2007, so for 2008 — same plan, stay the course.