Thursday, November 28, 2013

Problematic investments

Unless you stick with a simple asset allocation strategy (investing in low cost index funds and periodically rebalancing) , it is inevitable that some investments will be problematic - they will not go as expected. I did some housecleaning back in April and have purged a few other loss making or "too small" investments since then. It's a good habit.

At the moment, I have the following investments which I currently view as problematic for one reason or another (listed from largest to smallest):

1. Various bonds and bond funds: In today's interest rate environment, I prefer to hold at least some of the money that would otherwise be earning zero in bank accounts in bonds or bond funds. For a retail investor, this is something of an exercise in frustration and I have mostly ended up with several very small investments in various HKD or RMB denominated bonds. Status - buy more as and when opportunities arise. I have applied for the current PRC sovereign bond IPO. The small quantities are a pain, but aren't doing me any harm.

2. Silver: I have bought and sold notional silver several times (beginning with my first purchases at a little bit over US$6 per oz well before this blog was started and most recently with a purchase at USD30.03 per oz in December 2012). Unfortunately, records of the early transactions were lost when my computer hard drive failed earlier this year so I do not know my net cost. And yes, I am still kicking myself for not selling when the price spiked to USD49 per oz. Listed because of falling price and lack of income. Status - hold. Will buy again if Silver drops to around USD18 per oz.

3. VTech (HK: 303): I first purchased these back in November 2009 and again in January 2012 paying $58.80 and $80.00 and have received some excellent dividends since then. Although not one of my larger investments, it is big enough to merit close attention and it is of concern that the share price has been drifting lower in a rising market and there is very little support for the company from analysts. That being said, the company should be a beneficiary of the expansion of China's middle class as well as US and European economic recovery. Status - hold as it offers a very good yield.

4. Vietnam Index Tracker (HK: 3087): Net of a partial sale, the average cost of my remaining investment is HK$203.89 meaning that I am sitting on a 7% loss. Status - hold. My conviction in the Vietnam story remains intact.

5. Gold coins: I have a few gold coins sitting in a safe deposit box. Purchased at prices ranging from USD1280 to USD1690 per ounce, this has been a loss making investment. Listed not only because I am holding at a loss but because it offers no yield and the value is within my definition of "too small". Status - hold. No plans to buy more.

6. China Starch (HK:3838): I paid HK$0.212 in May 2013 and have received a dividend. The shares closed at HK$0.221 today. This is currently my only small speculation. While I have no concerns about this investment, I have to remind myself that it was not purchased with a view to a long term holding. Listed only because it is "too small". Status - buy again if it dips enough (without a known cause).

7. Nufarm (ASX:NUF): my oldest investment. Although the records have long since been lost, it is a given that the combination of dividends and partial takeover proceeds mean that I would have received back my original investment years ago, it is listed because it is too small. Status - hold given the improving business performance.

8. Tesco (LN: TSCO): Recently purchased using some cash left in a UK brokerage account. Only listed because it is too small. Status - hold.

9. Whole of life insurance policy: my father took this out when I turned 18. By the time I got around to understanding just how damaging these things are for policy holders, it had reached the point where it made more sense to continue than to surrender the policy. Needless to say, just about anything else would have been a better investment. Status - hold. I have shortened the maturity date from age 65 to age 55. When it matures, I will use the proceeds to add to my NZ/Au share portfolio.

10. Chorus (NZX: CNU): I paid NZD2.68 per share on the theory that the shares had already factored in a negative decision on pricing of its copper fixed line business from the NZ competition regulator. Unfortunately the decision was much worse than anyone anticipated and the company's ability to pay dividends at all is now in question. The shares dropped to NZD1.78 today. Listed because it is loss making and too small. Status: under review - I need more clarity on the impact of the Commerce Commission decision on the company's ability to pay dividends going forward.

11. Specialty Fashion (ASX: SFH): I paid AUD1.20 per share back in 2011. A token dividend was received, but it's been a disappointment from day one. While the share price and profitability has recovered from the lows of 2012, at AUD0.84 it remains a losing investment. Listed because it is loss making and too small. Status: under review. The review is complicated by the company announcing a small acquisition today but I will likely end up selling.

There is also a modest collection of wine in bonded storage in the UK. I have not listed this for two reasons (i) valuations are uncertain and (ii) it is likely that a lot of it will end up being consumed (the next delivery arrives tomorrow). That said, there are a few cases that are too expensive to consider drinking. At some point when the market recovers, I will sell these and reinvest the proceeds in more modestly priced future drinking stock.

Items 7, 9 and 10 are small investments made using whatever cash accumulates from rent on my New Zealand property and my AU/NZ shares.

Items 4, 5, 10 and 11 are currently the only loss making investments in the portfolio.

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