January was a month of positive financial progress. Equities appreciated slightly with gains at the beginning of the month marginally outweighing the end of month sell off. Commodities declined. FX movements were neutral with the AUD falling against the HKD/USD and the NZD and RMB both rising. Cash flow on the properties was positive now that we are back to 100% occupancy. Savings were excellent as I received my bonus at the end of the month and expenses were low.
Here are the details:
1. my Hong Kong equity portfolio appreciated slightly. This month I purchased shared in China Metal Recycling, Specialty Fashion and added to my position in Tai Sang Land. I also made a very small (and stupid) speculative investment in some call warrants on China Merchants Bank;
2. my ETFs were flat with gains in Russia, Vietnam and Hong Kong being about the same as declines in India, China and Taiwan;
3. my commodities fell slightly with silver falling by enough to outweigh the small gains in my commodity ETF and ETCs HOGS and NICK;
4. all of my properties are now occupied, the tenants are paying on time and there were no repair bills (I will have at least one next month);
5. currency movements were neutral, as the decline in the AUD was offset by gains in the NZD and RMB against the HKD/USD;
6. my position in bonds remains small. There were no purchases this month;
7. I have written a put option against the HKD/NZD;
8. savings were very strong with high income due to payment of my bonus and low expenses.
My cash position is now high with 26 months of expenses in cash or equivalents. This is much more cash than I need and one of my current tasks is to find somewhere to invest at least half of it. I have transferred some of it to mrs traineeinvestor.
For the month, my net worth increased 4.08%. The year to date increase is 4.08%.
My target retirement window remains sometime between early 2012 and early 2013. While the possibility of a one year extension exists, it will take some adverse market conditions or other unexpected event to require that. Every passing month brings me closer to my retirement goal - it's possible that I may be handing in my notice a year from today.
Monday, January 31, 2011
Portfolio review #8 - things I don't invest in
Posts 1-7 in this series reviewing the private portfolio sumamrised the assets which I own. This post deals with some things which I do not hold.
1. collectibles: while I do have a few cases of Bordeaux sitting in a bonded warehouse in England, I do not view collectibles (art, stamps, wine, jade, antiques, race horses, comic books, gem stones etc) as suitable investments. They are highly specialised markets, characterised by massive bid-ask spreads, limited transparency, negative cash flows, asymmetrical information, a number of unique risk characteristics and other features which make them difficult and dangerous places to rely on for retirement income. I'll enjoy my wine collecting as a hobby and an investment in future drinking (maybe), but treat the cost as an expense rather than an investment;
2. life insurance: the words "insurance" and "investment" do not go together. Whole of life and investment linked insurance plans are among the very worst investments you could possibly make. That said, I have a very small policy which my parents took out in my name. By the time I had educated myself on the evils of the life insurance industry it had been running long enough that I was better off keeping it than crystallising the losses;
3. time shares: while there are stories of people who enjoy and use their time share, there are many more stories of people who have good reason to regret their purchase. Time shares are generally a very bad idea;
4. gold: I do not understand why gold is a popular investment. It produces no cash flow, has only limited practical uses and is only valuable because people believe it to be valuable. I really don't understand the attraction;
5. holiday homes: I've done the maths over and over again. It makes far more sense to invest the money elsewhere and rent serviced apartments or stay in hotels when and where I want. This is true in terms of the financial aspects, flexibility and the hassle factor;
6. small businesses: I am simply not the entrepreneurial type. I don't have the time and I view owning your own business as risky - especially if you are unable or unwilling to devote 24x7 to making it prosper. I would consider putting money into small angel investments or venture capital situations - maybe;
7. hedge funds, private equity funds etc: historically the track record of hedge funds has been very mixed. It's an increasingly crowded space characterised by very high fees and (often) short lifespans for unsuccessful funds and diminished returns for successful funds. The high minimum investment would require me to overweight any investment which is not acceptable to me (put differently, I'm not rich enough);
8. leveraged FX, futures etc: I do not like investing in anything where the use of leverage or other issues could result in losses greater than my initial investment. That said, I can think of two exceptions. The first is real estate which is positively geared (i.e. there is an expectation that rents will meet the mortgage payments). The second would be IPO financing which would be limited to new issues that I have considerable confidence in - so far I have not done this but I have the facility available should I wish to;
9. property development, timber, farms etc: these are things that I am interested in. I just haven't spent much time looking at anything other than timber (where I did not find anything of interest). Generally the costs and limited (or negative) cash flows combined with the high cost of entry have put me off;
10. actively managed funds and structured products: generally not worth the costs - it is cheaper to use simple products (options/warrants) or do it myself. I have commented elsewhere about abandoning ELOs as an asset class and keeping some CLO exposure as a means of generating better than zero returns on cash but that is about it.
Did I miss anything?
1. collectibles: while I do have a few cases of Bordeaux sitting in a bonded warehouse in England, I do not view collectibles (art, stamps, wine, jade, antiques, race horses, comic books, gem stones etc) as suitable investments. They are highly specialised markets, characterised by massive bid-ask spreads, limited transparency, negative cash flows, asymmetrical information, a number of unique risk characteristics and other features which make them difficult and dangerous places to rely on for retirement income. I'll enjoy my wine collecting as a hobby and an investment in future drinking (maybe), but treat the cost as an expense rather than an investment;
2. life insurance: the words "insurance" and "investment" do not go together. Whole of life and investment linked insurance plans are among the very worst investments you could possibly make. That said, I have a very small policy which my parents took out in my name. By the time I had educated myself on the evils of the life insurance industry it had been running long enough that I was better off keeping it than crystallising the losses;
3. time shares: while there are stories of people who enjoy and use their time share, there are many more stories of people who have good reason to regret their purchase. Time shares are generally a very bad idea;
4. gold: I do not understand why gold is a popular investment. It produces no cash flow, has only limited practical uses and is only valuable because people believe it to be valuable. I really don't understand the attraction;
5. holiday homes: I've done the maths over and over again. It makes far more sense to invest the money elsewhere and rent serviced apartments or stay in hotels when and where I want. This is true in terms of the financial aspects, flexibility and the hassle factor;
6. small businesses: I am simply not the entrepreneurial type. I don't have the time and I view owning your own business as risky - especially if you are unable or unwilling to devote 24x7 to making it prosper. I would consider putting money into small angel investments or venture capital situations - maybe;
7. hedge funds, private equity funds etc: historically the track record of hedge funds has been very mixed. It's an increasingly crowded space characterised by very high fees and (often) short lifespans for unsuccessful funds and diminished returns for successful funds. The high minimum investment would require me to overweight any investment which is not acceptable to me (put differently, I'm not rich enough);
8. leveraged FX, futures etc: I do not like investing in anything where the use of leverage or other issues could result in losses greater than my initial investment. That said, I can think of two exceptions. The first is real estate which is positively geared (i.e. there is an expectation that rents will meet the mortgage payments). The second would be IPO financing which would be limited to new issues that I have considerable confidence in - so far I have not done this but I have the facility available should I wish to;
9. property development, timber, farms etc: these are things that I am interested in. I just haven't spent much time looking at anything other than timber (where I did not find anything of interest). Generally the costs and limited (or negative) cash flows combined with the high cost of entry have put me off;
10. actively managed funds and structured products: generally not worth the costs - it is cheaper to use simple products (options/warrants) or do it myself. I have commented elsewhere about abandoning ELOs as an asset class and keeping some CLO exposure as a means of generating better than zero returns on cash but that is about it.
Did I miss anything?
Sunday, January 30, 2011
Portfolio Review #7 - other assets
In addition to the asset classes reviewed in previous posts (property, direct equities and ETFs), I also hold some miscellaneous assets.
Cash (and cash equivalents): as long as I am earning and my income exceeds my living expenses by a significant margin, I do not like cash as an asset class - it is just too hard to earn enough to beat inflation and there are better opportunities elsewhere. The only rational for holding cash pre-retirement is that I haven't identified a suitable place to invest it. Once I transition into retirement, this changes and I will need enough cash or near cash to ensure that I do not need to sell assets to meet expenses. Depending on how I feel about my position at the time, this should be at least one year's expenses and possibly as much as two or three years' expenses. The issue is how to try and wring at least a token return from whatever cash I am holding. I currently hold a mix of HKD, CNY, AUD, NZD and a small amount of USD;
Bonds: generally speaking I am not a fan of bonds. While they carry less risk of nominal loss than equities, they also carry the guarantee of limited maximum returns. I view holding bonds as a a means of supplementing the necessary holding of cash. That said, I do recognise that a balanced portfolio of cash, bonds and equities comprises a classical retirement portfolio for good reason and the rebalancing and simplicity benefits are very real. I currently hold USD and CNY denominated bonds. I will add some more short term CNY denominated bonds as part of my cash/near cash holdings;
ELO/CLO: in general these are lousy propositions for the investor. My experiments with ELOs have produced modest profits but I all cases, if the ELO was worth entering into the underlying would have been a better investment. I have no plans to enter into any more ELOs. CLOs are a slightly better proposition and I intend to do some on an on-going basis in an attempt to generate better than zero returns on my cash position. My only open position is a HKD/NZD position;
Commodities: this is the largest component of the other assets. I currently hold silver, a commodity ETF and two much smaller positions in ETCs for nickle and lean hogs. The former have been excellent investments. The latter have been a lesson in how the contango effect makes these poor investments for all but short term trading and should be disposed of (as soon as I reactivate the dormant account in which they are held);
Investment in employer: I have some money invested in my employer which I will get back when I retire.
As a general statement the main benefits of holding alternative asset classes are diversification and liquidity. I anticipate holding larger positions in these assets as I transition into retirement.
Cash (and cash equivalents): as long as I am earning and my income exceeds my living expenses by a significant margin, I do not like cash as an asset class - it is just too hard to earn enough to beat inflation and there are better opportunities elsewhere. The only rational for holding cash pre-retirement is that I haven't identified a suitable place to invest it. Once I transition into retirement, this changes and I will need enough cash or near cash to ensure that I do not need to sell assets to meet expenses. Depending on how I feel about my position at the time, this should be at least one year's expenses and possibly as much as two or three years' expenses. The issue is how to try and wring at least a token return from whatever cash I am holding. I currently hold a mix of HKD, CNY, AUD, NZD and a small amount of USD;
Bonds: generally speaking I am not a fan of bonds. While they carry less risk of nominal loss than equities, they also carry the guarantee of limited maximum returns. I view holding bonds as a a means of supplementing the necessary holding of cash. That said, I do recognise that a balanced portfolio of cash, bonds and equities comprises a classical retirement portfolio for good reason and the rebalancing and simplicity benefits are very real. I currently hold USD and CNY denominated bonds. I will add some more short term CNY denominated bonds as part of my cash/near cash holdings;
ELO/CLO: in general these are lousy propositions for the investor. My experiments with ELOs have produced modest profits but I all cases, if the ELO was worth entering into the underlying would have been a better investment. I have no plans to enter into any more ELOs. CLOs are a slightly better proposition and I intend to do some on an on-going basis in an attempt to generate better than zero returns on my cash position. My only open position is a HKD/NZD position;
Commodities: this is the largest component of the other assets. I currently hold silver, a commodity ETF and two much smaller positions in ETCs for nickle and lean hogs. The former have been excellent investments. The latter have been a lesson in how the contango effect makes these poor investments for all but short term trading and should be disposed of (as soon as I reactivate the dormant account in which they are held);
Investment in employer: I have some money invested in my employer which I will get back when I retire.
As a general statement the main benefits of holding alternative asset classes are diversification and liquidity. I anticipate holding larger positions in these assets as I transition into retirement.
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