By elmads

Table of Contents

1. INTRODUCTION
2. FREETRADE PORTFOLIO
   • PORTFOLIO BREAKDOWN BY INDUSTRY
   • HISTORICAL RETURNS
   • INFLATION ADJUSTED RETURNS
3. SUMMARY

INTRODUCTION

“I am a value investor, not because some investors claim it is the best investing strategy in this world, but because it is the strategy that best describe my personality and traits.”

-Myself

Investing is different from trading, and even if you choose to become an investor, there are still different kinds of strategy and schools of thought within its vast space. Just look at the photograph below of the great investors of this generation and how they approach investing.

They are successful in their own investing way, because it also reflects their personality and mentality.

Just like myself, it just so happen that I am a pragmatic person, wants more certainty on an investment with high logical returns and I am willing to be patient, which are traits that coincide with the principles of value investing. I don’t want to become the best investor in the world, I just want to reach the returns of more than 10%, better 15% and best 20% per year throughout the lifetime of my investing career. These are the returns that will propel me further and faster into achieving my financial goals.

What works for me will not work for you, this is the reason why, just like in personal finance, investing must be based on who you are, your goals, your timeframe and personality.

To be honest this value investing strategy is boring, it takes a lot of time into doing research, studying companies, learning basic accounting and even economics. The name of the game is, the more we understand what we invest in, the more we gain confidence, conviction and certainty in our investments.

Furthermore, value investing is more of a game of understanding businesses, than buying businesses. We seldom actually buy stocks because we wait for under-priced and mispriced opportunities presented by the market, which seldom happens. And, if it does occur we do not just take that opportunity in a heart beat, we also bite it hard and never let go.

FREETRADE PORTFOLIO

Founded in 2016, Freetrade offers access to more than 6000 shares, investment trusts, and ETFs. With more than 500,000 monthly active users, Freetrade is one of the most popular no commission investing apps in the United Kingdom.

• Pros; £0 commission on trades, regulated by FCA and covered by the FSCS and easy to use and to open an account

• Cons: Do no offer any access to open-ended funds (mutual funds), Mobile only and user needs to pay 0.45% on investments as a foreign exchange fee.

As zero commission brokers come into the spotlight, more and more new investors are now able to come in this space, which is absolutely brilliant. The only thing that I am against with this no commission broker accounts, is that it gamifies investing. It encourages trading at high frequency, buying and selling with just a click of our phones. This just makes investing like gambling, hoping for the stock price to go up without any basis at all, just pure hope and optimism.

Freetrade encourages investing rather than trading, which is a plus for me in terms of their company focus. That being said, they are still a new kid in the block, this means that there is a risk for them to go bust. As of the moment, they are still being funded by outside capital in order to sustain their day to day operations, because the company is still in the unprofitable side of the equation.

On the other hand, what I like about their business operation is that they do not dabble with leverage investing and leverage trading. Meaning, they do not allow investing and trading with debt included, this significantly decreases the risk of bankruptcy for Freetrade.

That’s enough about Freetrade. I will now show my Freetrade Portfolio, not the specific company I am currently holding, but the industry where it is included.

PORTFOLIO BREAKDOWN BY INDUSTRY

My Freetrade portfolio currently consists of 3 companies in 3 various countries. One company in each nation, namely in the US, UK and China. This account of mine is a global equity portfolio and I plan to focus on a maximum of 5 companies with my highest conviction bets. During the early months of 2021, I had 7 companies, which I had a problem with. I didn’t specifically understand the 4 companies I held that time, that’s why I just sold them, and I was in luck for selling them all, at a gain. Afterwards, I reallocated all of the gains I got, including the initial capital I used to invest on the previous 4 companies, to my current largest holding, which is in the tech industry.

1.) Finance – This is my smallest holding in my global equity portfolio. This company is one of the top banks in the US, and the financial services sector in the US is the number one worldwide. I know that there are a lot of banks in the said country, and most of them are almost at par in terms of their overall operations and financial health. What made me choose this specific banks is because of their push into technology, which they have been integrating into their banking operations. Plus, they have a very good financial health and lastly, the price I was able to buy it was at a discounted level, at a time in 2020 where its “Price-to-Book Ratio” and “Price-to-Tangible Book Ratio” were at its historic lows.

Banks will always be an integral part of an economy, despite the looming threat of cryptocurrencies, blockchain and financial technology. Great management, innovative thinking and flexibility are the things that will make the traditional commercial banks, be able to keep up with the ever changing financial landscape.

• My Mistake: I only had a minimal information and knowledge about value investing when I bought this bank in 2020, which caused me to only invest a small portion of my money back then. Today, I couldn’t add money anymore because my perceived and computed intrinsic value is far away already from its current stock price. The only thing I could do is wait for it to hit again my purchase target price.

• My learnings: continue to learn and grow. Knowledge and information is the sword in investing, while patience is the shield.

2.) Consumer Defensive – My second largest holding, this is a fast food chain company that operates locally in the United Kingdom. It’s been growing and gaining popularity within the British people for more than a decade now. Due to the pandemic, its sales were hit hard like any other businesses that relies heavily on an open economy.

Nonetheless, as the virus has been controlled, thanks to vaccinations, and restrictions, recovery is now within sight again. This has been greatly shown and reflected in the company’s most recent financial reports.

Despite the hampering of their growth due to the pandemic, their plans of global expansion is still in their pipeline. This would be an additional growth driver for the business if it actually becomes successful.

On the other hand, their main focus at the moment, is to be able to grow their number of stores and operations within the country, and they do this by focusing on the Food To Go (FTG) segment of the fast food chain market. This actually has been one of the drivers of their growth for the past few years.

• My Mistake: Same as with the my banking investment in the US, I was only able to invest a small amount of money.

• My learnings: Continue to learn and grow. Be patient and wait for great opportunities again. When that same opportunity occurs, be sure to have a saved capital for it and if you possess one, immediately take that opportunity without any hesitation.

3.) Technology – My largest and dominant holding in this global equity portfolio. I am only invested in one company in this industry.

This corporation is a global E-Commerce behemoth whose headquarters is located in mainland China. More than 70% of their revenue still comes from China, but they are starting to ramp up and grow their international businesses in order for it to spur the general growth of the company.

Its advantage: I love a lot of things about this corporation such as, its competitive advantage through its high retention rate from their loyal customers, has their own payment system which further cements their MOAT, has a spawner DNA (expanding to other business outside their e-commerce core business , which also helps their core operations), and economies of scale that helps with their global expansion.

Its Disadvantage: It’s a China company, the main risk is and will always be the Chinese Communist Party (CCP). Unlike the Democratic Capitalist West, where the government can only put on a leash to their companies via regulations. The CCP on the other hand, is a communist capitalist country, where their hands hold all necks of the companies within their jurisdiction. They can actually clamp down corporations and change a lot of things within a snap of their fingers. Just like what happened last year of 2021, where the CCP privatized a whole educational technology sector, and they added multiple chains of regulations which they have thrown at their top Chinese big technological companies. This is the reason why the Chinese equity markets have been substantially declining for the whole fiscal year of 2021. To this day of writing, the Chinese markets have not yet recovered, but their general equity price declines stopped already and have reached a stable floor price. At the moment though, because prices could still go down further, we just need to wait see.

PS: I’ve done my own due diligence, study and research about the company, and a bit of the CCP. Don’t invest in china companies if you’re uncomfortable with the risk, because china equities are at the high risk table of investments. There are a lot of things that is brewing today due to the regulations set by the CCP on their local companies. Not to mention, the rising geopolitical tensions between China and the US, which just adds oil to the fire that has been burning for almost 5 years now, don’t forget about the US-China trade war in 2018.

That being said, we have our own risk appetite, conviction, understanding, biases, and beliefs. You don’t need to copy anyone, what you need is to understand yourself, then integrate it with the principles of the investing strategy that directly coincides with you.

• My Mistakes: I learned a lot of things from this one company I acquired. I committed 3 mistakes in total, and those mistakes have been my greatest faults since I’ve started my investing Journey. One mistake led to another, then to another one. haha!
  • I went into debt! – yes! I borrowed money, but not from the banks, or from strangers, nor my friends, but from myself. Let me explain, due to the pandemic, the money I’ve been allocating for myself and wife’s travel fund hasn’t been touched and used for more than a year, basically it’s just there. It was a sizeable amount of money that’s why I borrowed that capital and invested it into this one business. Although, I am not paying myself any interest for that debt, it has still been a pain for me to allocate money for repaying my debt on that specific travel fund of mine. It just really suck to be indebted, what more if I had an actual large amount of debts from banks and other people? I couldn’t just imagine the agony and stress of being in a situation of having crushing debts with interest payments included.
  • Impatience! – I was more knowledgeable with valuing companies during the early months of 2021. The stock price of this specific company went down and hit my calculated fair value level. I got impatient and just bough it without any margin of safety. The good thing is, I only invested a small percentage of my global equities portfolio that time.
  • I went all in too early! – The stock price kept on continuing to go down after a few days, then a week, then months. I didn’t care because I had and still have this high conviction on the company, so I bought more. To my surprise it just keeps on going down. Instead of me getting anxious, I became really excited and greedy. So I poured all my capital back then into it. What was funny was, it still kept on going down and I found it absurd already, I’m pertaining to the price point as it was ridiculously low compared to my computed intrinsic value level, even for my adjusted conservative numbers. Still it was damn very super duper mega cheap, that’s when I borrowed the money from the travel fund and went all in on that stock.

Just look at the bar graph below, where I showed the number of times I purchased the stock and the amount of money I’ve invested almost each month for the whole year of 2021.

And guess what? the stock price still continuously tanked. I’ve exhausted already my max capacity for my allocated total portfolio weighting for this single company (which is now roughly 27% of my total net worth). I caught a falling knife, I would say it’s not a knife anymore, it’s more of a bomb now. hahaha! The stock exploded on my face and it hurt me only by paper loss, but I’m still confident with it. The risks are real and true, but I still see more of an upside now from my average stock price and most especially to its current stock price, than its presented risks.

Time will tell if I’ll lose more at paper terms, or will it stay in this market price point for a longer time, or recover back strongly in fiscal year 2022. What I’m confident about this is, the company will not go into bankruptcy, and less likely that it will be privatized by the government, that’s more than enough for me. The delisting in the US markets and issues with the VIE structure are not that of significance for me.

HISTORICAL RETURNS

I started my global equities investment portfolio in 2020, I got lucky because there were a lot of undervalued stocks during that time, which I took advantage off. At one time, I had more than 7 companies in my holdings, and I trimmed it down to 3 companies where I am confident about and do understand.

As you can see from my portfolio returns, I have not beaten the FTSE all world sine I’ve started this portfolio. It’s actually fine for me because I still made a good return of 15% in 2020, but it’s a different story for my fiscal year 2021 return. The reason for this decline is due to my technology company, whom I am heavily invested which is 94% of my overall Freetrade portfolio. My reasoning here is, I am willing to sacrifice short-term gains for long-term rewards. I weighted my investment in this tech company through asymmetric returns valuations, and it came up that there is more upside that downside for this investment in the very long-term horizon. I just need to eat all the dirt now and receive the pain in the short run, before I can reap its benefits in a couple of years moving forward. Nevertheless, there is still a chance for this to go further south, and extend the pain for a longer time period.

Just like what Warren Buffett’s most famous quote says, “Be fearful when others are greedy, and be greedy when others are fearful”. That’s exactly what is happening right now, my conviction at its best.

What happens if I’ve invested 100,000 in my portfolio vs the FTSE All World?

As expected, my returns will be on the negative territory because of its overweight on a single company that declined substantially for the past 1 year. Nonetheless, I’m excited of the future and see if my conviction will blossom into a beautiful flower, or wither away.

INFLATION ADJUSTED RETURNS

One of the reasons why we need to invest is to supersede inflation, because inflation is the hidden thief of our hard earned money. The above photograph is the real returns of my portfolio and the PSEi when inflation is factored in.

Overall I have 3 tiered goals for my returns;

1.) Minimum 10% on my returns, better 15%, best is more than 20%

2.) Beating the average index returns over a long period of time.

3.) A consistent beat on inflation.

My 2 years global equity portfolio performance massively underperformed the FTSE All World index, which is a failure based on my number 2 tier goal. That being said, the current position I have is based on a long-term outlook and a play that would hit my tier 1 and hopefully consistently hit tier 2 & 3 goals.

To sum it up

It’s hard to play value investing because we only purchase at a price where we know we have greater upside, which takes a lot of patience and discipline that I still lack a lot. My greatest mistake of borrowing money and going all in, just to find out after a few more months that the stock price continued to go down was an unforgettable learning for me. Firstly, to never borrow the money I don’t have or are not allocated specifically for investing, and most of all go all in if the stock price hits more than 30% of the stock’s margin of safety levels, only if you really have strong conviction for it.

It’s more of a waiting game than a buying game, that inactivity kills most value investors, including myself. This is the reason why I kill time by doing blogs and solo podcasts to share what I am learning and will be learning in the future, reading and watching additional investing, personal finance and mindset information, and researching companies at time to time to look for further investment opportunities.

Focus on reaching your investment goals, and never bother how others are doing. Distractions will never help people who wants to achieve their investment goals and ultimately, financial independence.

I hope you’ve learned something out of this and enjoyed reading it. Next week I’ll be posting my Overall Financial Asset portfolio performance, this where I merged all of my 3 broker accounts into one.

Let’s go INVEST!!!!woot woot!!

Knowledge is my Sword and Patience is my Shield,

elmads

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.