Investment Lessons Learnt From This COVID-19 Crisis

As the COVID-19 outbreak gets more serious, this had caused a significant impact to the worldwide economy. Last week, we just saw the stock prices of REITs falling as much as 50 to 60 percent. My stock portfolio was not spared either. I have sold off The Hour Glass and Kingsmen Creatives earlier this month. I have bought Singtel and OCBC Bank at prices that I deemed attractive. The stock price of Singtel and OCBC Bank continue to fall and I believe no one knows how far the knife will drop.

Below are the lessons that I have learnt from this COVID-19 crisis.

  1. Have a war chest ready for such crisis.
  2. Deploy your cash in Tranches instead of throwing all your monies into the stock market all at once when the stock market crashes. Pace your purchases as well over a few weeks. We have seen the Straits Times Index crash multiple times within 2 weeks. It is very hard to predict or catch the bottom.
  3. Allocate your cash into a few stocks instead of a single stock. Certain companies recover faster than others. By allocating your cash into multiple stocks, this spreads out the risk should 1 out of the stocks you chosen fails to recover from the impact of such crisis. Example, if I have 10K, I will buy into 2 stocks, 5K each.
  4. Train your mind psychologically to follow your investment plan. Most of the time when market is good, we keep buying. When market crashes, we stopped investing out of fear. I believe that a good company will recover faster than the rest when the current crisis is over.
  5. Lastly, do not invest everything. Allocate cash for daily living in case the crisis turns out to be longer than expected.

5 years ago, I read this book titled “The Warren Buffett Stock Portfolio“. There is this quote inside the book that was from the letter that Berkshire Hathaway send to shareholders in 1990 which I felt is meaningful during this crisis.

Even though we had bought some shares at the prices prevailing before the fall, we welcomed the decline because it allowed us to pick up many more shares at the new panic prices.

Berkshire Hathaway shareholder letters, 1990

Keep calm and continue investing!

Goodbye The Hour Glass

The Hour Glass is a stock with deep value and it currently makes up 3% of my stock portfolio. This company had been consistently paying investors dividend over the years. In fact, The Hour Glass had increased their dividend to 3 cents from 2 cents last year.

The luxury sector has been suffering from sluggish demand over the past few years and just when things start to pick up in 2019, the economy was hit by the COVID-19 outbreak which impacted the tourism industry and indirectly the luxury retail sector. The Hour Glass who had over 40 boutiques in twelve key cities in the Asia Pacific region will surely be impacted by the COVID-19 outbreak.

Even though The Hour Glass had recognized the uptrend of eCommerce in the year 2017 and thus launched their Omni-Channel Strategy, The Hour Glass is still very focused on physical stores. I am not aware they have any online stores to sell their luxury watches. This is actually a disadvantage to The Hour Glass in situations like now whereby tourists from certain countries are banned from travel and shoppers shun shopping malls. Tenants like The Hour Glass still have to pay rent for their physical stores and of course their staff salaries.

The Hour Glass usually trades at S$0.82 which is 3.8% above premium to the Net Asset Value of S$0.79 per share. However, due to panic, the market starts selling off stocks. As of 6th March 2020, The Hour Glass closed at S$0.71.

Based on the current price of S$0.71 and historical dividend payout of 3 cents, the current dividend yield is 4.23%. There is a high chance The Hour Glass will not retain its highest payout of 3 cents should the COVID-19 situation persists.

It is unknown how long the current COVID-19 situtation will last. For the above reasons, I have divested The Hour Glass.

Goodbye!

Impact of COVID-19 to Straits Time Index

We are almost one and a half months since the COVID-19 outbreak. Since the outbreak, people scrambled to wipe out surgical masks and hand sanitizers off the shelves. When the DORSCON (Disease Outbreak Response System Condition) level was raised to ORANGE, this causes some form of panic. People flocked to grocery stores to stock up their daily necessities and shopping malls became almost vacant overnight. At this moment, I am not exactly sure how hard the impact of the COVID-19 situation to retail REITs as tenants will still need to pay their rental even though business is bad. Over the weekends, I read about news that land lords are cutting their rental by almost 50% to help tenants tide over the current situation. We will probably see some DPU reduction over the next few quarters.

Below is the STI Index chart since the outbreak of the COVID-19. As you can see, the STI fell below 3,150 in early Feb but started recovering since then.

Let us look at past virus outbreaks to see what is the impact of such outbreaks to the STI.

Below is the STI chart since MERS (Middle East Respiratory Syndrome) outbreak in September 2012. There is slight downtrend from April 2013 to Feb 2014 before the STI starts picking up again. Roughly a year before the situation stabilize?

Let us look at H1N1 (Influenza A virus subtype H1N1) outbreak from April 2009 to August 2010. The swine flu doesn’t seem to have any significant impact on the STI.

I believe everyone would have heard of SARS (Severe Acute Respiratory Syndrome) which occurred in February 2003 to July 2003. The STI shows slight decline from February 2003 to May 2003 before recovering. The decline period is roughly 3 months.

Conclusion

As you can see above, it is very hard to co-relate such virus outbreak situations to the STI. As such, we should avoid timing the market but instead focus on the fundamentals of the business that we are buying into.