Portfolio changes post US election

Portfolio changes post US election
I reinstated the majority of my investment portfolio gradually until post US elections. Due to the high volatility event alongside with earnings season, I fully expect to have significant slippage as I rebuild my portfolio. I made the decision to reinstate my positions in the stocks that will be least affected by candidate agenda risk, followed by the companies that will be most exposed to geopolitical risks.

Due to MayBank custody fees, I decided to re-balance my portfolio holdings to reduce the number of holdings that have uncertainty in its growth prospects and moats, and rebuild larger sized positions on my highest conviction holdings. The Value /Growth investing group I just joined also deepened my understanding on the limitations of valuation ratios for ETF selection and individual stock picking, and the economics of businesses that I was previously unfamiliar with. Personally, the biggest takeaway from the group is the ability to test the strength of the thesis of my existing  portfolio ideas, and learn from seasoned investors whom take a more qualitative / business centric approach.

Portfolio Reinstatement
I upsized my existing positions in Fu Shou Yuan, Microsoft and Alphabet post earnings release and pre-election. The Alphabet earnings surprise is exceptionally costly as the stock spiked premarket and I am unable to reinstate at its closing price. The Biden win and the Pfizer vaccine also resulted in a boom in stock prices on 9/11, which introduced significant slippage as I try to reinstate my other positions. It might be a costly mistake to wait for more clarity on the election results, but I believe that as long as I am choosing the right companies, a few basis points of slippage is an acceptable trade-off.

New Positions

I replaced the HK tracker fund with the Hang Seng tech ETF. This is not a sector play but a bottom up analysis of the constituents. Through analysis of the underlying businesses with those seasoned investors, and my readings into the tech developments in China, I particularly liked certain businesses in the index that has reached sufficient scale and dominance in their respective markets, and can employ operational leverage to improve profitability. I even up-sized my position after the regulatory scare on Alibaba / Alipay, which introduced a pricing shock on the dominant HK/CN tech companies. To diversify against key man risk, political risk and technological disruption risk, the use of a ETF is preferred over individual counters. The high probability of impending profitability of certain constituents, inbuilt margin of safety, and the china government's long term promise of positioning China to be a tech leader, made me quite bullish on this relatively equal weighted low cost ETF.

I bought a high conviction position when SAP SE had a price shock post earnings release, whereby CEO revised its earnings estimate. SAP's valuation ran away from its fundamentals for quite a long time and I nearly forgot about it until my friend prompted me to revisit it. 

I believe the core fundamentals of its Sticky ERP and accounting software business is intact as its existing clients (established companies) are exceptionally resistant to change, especially after the sunk costs in training and efforts in developing processes and manuals. As an industry grade software, companies will be unwilling to change to newer products from emerging fintechs just to save cost as it is difficult to recruit seasoned executives that can operate those newer platforms. The giants (SAP SE Oracle, SAGE) may be challenged by Salesforce cloud services, but SAP is also migrating its services to its own cloud platform. I believe the inertia to change in slow moving tech, and the heightened risk and costs to switch to new vendors and maintain parallel systems during data migration, far exceeds the benefits for the company especially for a non-client facing software. 

I believe my views are partially influenced by my lessons in my past apple holdings, whereby the inertia against change for an entrenched software / ecosystem can vastly out-power the benefits of a seemingly superior software, as long as it performs up to expectations. There is also significant insider acquisition of the share post selloff, which made me favorable to the commitment of the management to execute and perform well.

Divested Raffles Medical and Coca Cola
I did not reinstate my divested position on Raffles Medical after cross referencing with the group on the market position on RM. Despite the past strong execution of the managers, the expected cash burn for the incoming years, expected lower margins from the China hospitals, and under-performing visitors count made me reassess my initial bullish thesis on RM Pre lockdown. I have misguided the economics of the business (higher margin from surgeries and NOT patient visits, overestimating potential patient visits) and decided to cut loss in favor of building up a warchest. I still have a significant legacy position in my portfolio and look forward to restore my position if recovery in earnings is certain.

Coca Cola is expected to retain its earnings power but I expect significant goodwill write off from its past acquisitions. Coca Cola made the mistake of over-acquiring and overpaying for acquisitions in the past, and managers now decided to refocus on its strongest brands rather than scatter resources on unrelated brands. The long term economics of Coca cola is not affected, but due to associated custody fees and indirect holdings through Berkshire, and no clear visibility in earnings improvement post recovery to normalized stock price, I decide to give it a miss. 

Although I sincerely detest the Trumpet (bullshit president) in his 4 years of presidency, I am also grateful for him in introducing significant volatility in US and global equities, allowing me to acquire quality companies at a margin of safety. It is startling how a successful ex-business man can degenerate to such a toxic level and yet hold the highest and respected office in US. Even during this reelection, he had a close chance to clinch a second term despite all the scandals / controversies surrounding him.

This is a farewell post to him. He will not be missed.


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