2020 was the year where the Early Retirement Masterclass (‘ERM’) portfolio took the worst beating of its lifetime.
The ERM portfolio’s value plunged from a peak of $330,000 on 21st February to a bottom of $210,000 on 19th March. It triggered a massive retreat from previous portfolios as I told my students that the pandemic was unprecedented and should deleverage if they are concerned about a margin call. At a personal level, I retreated to a non-leveraged position. I needed a clear mind to determine what to do next. Markets were so cheap in March that I returned to a leveraged x1.5 position within a month of retreat and was at x2, three months after that.
Fortunately, Singapore’s handling of the pandemic was so effective that we never experienced a much-feared double-bottom. The lucky class of Batch 12 that timed the bottom in March is currently looking at about 26% returns from a portfolio that yields 4.5%.
Today, the newspapers are screaming that Singapore is the worst stock-market to invest in, which probably means that today’s summary of ERM results is perhaps one of the worse reports I ever have to write on the Dr Wealth Blog.
Keep in mind the following when reviewing these results:
- The portfolios were created by eighteen batches of students based on the best information they have at that time. Students apply the results of quantitative back-tests to shortlist stocks for qualitative review.
- While we demonstrate tools to time our purchases, the ERM program itself cannot do market timing – portfolios are built within a week of class completion using real training fees I receive. Amount gained or lost involves real actual training fees. At a personal level, to ensure skin in the game, I leverage the training fees by about x2.
- The portfolios are all limited to investments in SGX – the worst stock-market in the world.
- We did not reflect the retreat from the stock market. This is a pure demonstration of the program’s buy-and-hold capabilities even though our tools now support market timing.
Based on 18 batches of results from 506 students who graduated from the program here are the results, tabulated on Stocks Café.
In 2018, the portfolio was just being initiated by two batches of students in the Q4. In 2019, when the markets were bullish, ERM outperformed the STI. In 2020, in a horrendous year, the portfolio was still able to outperform the STI. All the portfolios generated an overall time-weighted return of 9.27% when the STI ETF would still be reeling from losses on 1st January 2021.
Observing the portfolio returns (ERM is in RED), it drastically bombed when wealthy investors, afraid of margin calls, we began to deleverage from the REITs they bought on margin. Subsequently, the portfolio had done well except for a short week in mid-November when laggards in the STI (like SIA) began to rally on news of the vaccine.
The worst batch of 2020: Batch 11th January 2020
I suppose most readers would probably be sick and tired of the reported pornographic returns reported by bloggers and friends from social media. It is perhaps more instructive to report on the worst batch of 2020, Batch 11, which was unfortunate enough to build their portfolios on 16th January 2020.
The unluckiest batch is currently still suffering from about 6% of losses, but they still outperformed the STI.
Delving into the portfolio choices, Batch 11 was not just unlucky. They also invested in the worst stock of 2020, which in my opinion, was Eagle Hospitality Trust or EHT because it seemed like a bargain then and I was at fault because I got the community to vote for its inclusion.
Here are the worst picks of Batch 11 :
Were we victims of a crime? It is too early to determine that. We know that EHT was the first counter I ever invested in that declared a dividend but could not deliver on it. Authorities arrested the EHT directors in October 2020.
Conclusion: The worst is probably over
At a broader level, the ERM program is leaving 2020 in a position of much greater optimism. We’ve survived a bearish episode, and we can now demonstrate a historical record of outperforming our benchmark in both a bullish and a bearish year.
Moving forward, I see significant upside precisely because we are currently the worst-performing stock market in the world.
A bet on Singapore will always be a smart one in 2021.
We’ve handled the pandemic better than many other advanced countries. Technology companies are now seeing the wisdom of locating their HQs in this country. We remain one of the most tax-advantageous countries for dividends investors around the world.
Chris, this is a most honest article I read. No one can predict a coming storm but the art of handling a ‘black swan event’ is more important. If one has invested in before the plunge in March 2020, most would lose badly, but management of the situation to salvage and minimise its loses are more important. I prefer a 2/3 portfolio engaged and 1/3 reserve. In that plunge, I deploy the almost 70% of reserve into the battle with the rest of reserve for the contingency of double dip which didn’t happen, fortunately. Yes, I agree with your positive posture for 2021. Cheers.