Tag Archives: year 2007

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:

portfolio-allocation-2007-12-31.png

* 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.