Pondering about ticker symbols

So the other day, I was wondering whether ticker symbols had any impact on stock price performance. Specifically, I was curious about whether tickers that came earlier in the alphabet (e.g. AAPL, AMZN) performed differently as compared to tickers further down the alphabet (e.g. TSLA, ZTS).

Impetus for the Idea

The thought struck me while I was looking at my portfolio via Interactive Brokers on my phone. Because of the limited screen size and the default alphabetical sort order of my positions, I observed that I tended to pay more attention to counters that were displayed upfront (those with tickers earlier in the alphabet) as compared to counters that required scrolling in order to be visible (those with tickers later in the alphabet).

Was it just a coincidence that FAANG stocks - Facebook, Apple, Amazon, Netflix and Google - all have tickers that fall within the first half of the 26-letter alphabet, with the sole exception of Netflix, which just tip overs into the 2nd half, with N at the 14th position? A quick look at the five largest public corporations in the world (by market capitalization) [Wikipedia] also showed that the top five, throughout 2020 as well as at 2021, were all of the early-alphabet category. Intrigued!

[factoid: at time of writing, I held only two positions with tickers in the 2nd half of the alphabet: QQQ and ZTS. The rest of my portfolio comprised tickers in the 1st half of the alphabet, i.e. A to M]

Tangential finding from an earlier study

I briefly googled to see if there was any past study done on this (didn't come across, so perhaps an area for novel research!) but instead I found an excerpt of a 2006 Princeton study that found correlation between popularity of a stock after IPO and the ease of pronouncing a company's name. In addition, the study drew similar conclusions about the company's ticker symbol, stating that "...all else being equal, a stock with the symbol BAL should outperform one with the symbol BDL in the first few days of trading."

Now, isn't that fascinating? 

While the study's findings were different from my initial question in two significant ways - (i) it focused on the ease of pronunciation, rather than the alphabetical order; and (ii) it only looked at stock performance right after IPO, whereas I was interested in longer-term performance - the fact that such an observation could be gleaned from real-world data makes me fairly convinced that there could be some sort of association between a stock ticker's alphabetical order, and perhaps either the stock's performance, or interest in the counter. (Interest not necessarily translating to positive returns.)

Basis for my hypothesis

One of the reasons I think such a relationship could exist is the recent emergence of DIY stock trading. As recently as two decades ago, would-be stock purchasers would typically go through a broker, making a phone call to instruct their (human) broker that they wanted to purchase XX shares in YY company at AA price. The would-be purchaser typically would not view any kind of alphabetically-sorted list, before making their instruction. (This is not to say that the would-be purchaser simply plucked their intention out of thin air; they would, in all likelihood, mull over the names - or perhaps tickers - of various companies, before determining that they would want to purchase YY company rather than say ZZ company. The point here is that the would-be purchasers is unlikely to have encountered an alphabetically-ordered list of any kind in the course of their evaluation.)

Today, the typical mode to conduct such a transaction would be via an online broker, either via a web browser, mobile app, or the like. Such platforms provide the added ability to easily view one's portfolio, e.g. through a dashboard. As with any kind of list, there needs to be a default sort order, and I venture that for almost all such brokerage platforms, the default sort order would be alphabetical ascending, placing tickers like AAPL and AMZN at the top, GOOG a bit further down, TSLA further down still... you get the idea. Humans have a natural tendency to cycle through a list from top to bottom, which leads me to believe that there is a possibly-unresearched question of whether ticker symbols correlate with attention paid to the stock, translating into potential interest, and potentially translating into outsized performance. (The point that potential interest may not translate into actual demand for the stock is not lost here, though in this era of meme stocks, I dare hazard that "interest" in a stock tends to translate into positive movements in the stock price.)

Possible angle for research

Acquiring the data required for analysis is probably not insurmountable, given how stock price information is widely available on the internet. The main challenge would be deciding how to measure the dependent variable, and how to control for the various possible interacting factors.

For instance, if we took, say, all 3000 listed companies in the Russell 3000 index, we would expect to find some heterogeneity in the frequency distribution of the leading alphabet of the ticker, for instance, more tickers starting with 'A' than tickers starting with 'V'. We can control for this by taking the average performance for all tickers starting the alphabet, although we may have few data points for certain starting alphabets. Depending on the exact nature of the question we are trying to answer, we could even aggregate our data (e.g. into two groups: Group 1 comprising tickers starting with alphabets A through M, and Group 2 comprising tickers starting N through Z.)

It would then be a matter of testing:

• Null hypothesis: the stock price returns of Group 1 is same as the stock price returns of Group 2
• Alternative hypothesis: the stock price returns of Group 1 is different from the stock price returns of Group 2

We would need to consider controlling for various factors, such as:

• Market cap - if the pre-existing market cap of Group 1 is different from the pre-existing market cap of Group 2, and market cap has correlation with stock price returns, we could end up wrongly rejecting the null hypothesis (Type 1 Error).
• Industry or sectoral concentration - similar to the above, if Group 1 had a higher concentration in fast-growing sectors (e.g. technology) while Group 2 had a higher proportion of slower-growing sectors, we could again commit a Type 1 Error unless this difference is adequately controlled for.
• Ease of pronunciation - with the 2006 Princeton study finding that ease of pronunciation of company name and ticker symbol was positively correlated with purchases of the new stock following its IPO, we would have to find a way to negate any potential effect of Group 1 tickers being generally easier to pronounce than Group 2 tickers, in order to isolate just the effect of alphabetical ordering.

As you can tell, this analysis would not be a trivial exercise, but I feel that existing methods of quantitative research can be easily applied to study this topic and possible yield some interesting insights.

Closing thoughts - What's in a name?

Having posed this question and then regaled you with my idea of how this could potentially be studied, I'll end off with a slightly more pragmatic thought that circles backs to the Princeton study. Danny Oppenheimer, one of the Princeton co-authors, was quoted as saying that "These findings contribute to the notion that psychology has a great deal to contribute to economic theory."

This statement is effectively irrefutable - psychology surfaces in every aspect of human life, and explains how humans have certain biases, or how our perceptions sometimes depart from reality, etc. We probably still don't know how much influence psychology wields over human behaviour leading to economic consequences. Stemming from the observation that easily-pronounced tickers tend to outperform following the IPO, is there then also a possible relationship between the cognitive ease of associating a company's ticker symbol, with object of the company itself, typically represented cognitively by the company name?

On US exchanges, key companies often have ticker symbols that are easily-recognisable variants of the company name, e.g. Apple/AAPL, Tesla/TSLA, General Motors Company/GM, Advanced Micro Devices/AMD etc. This has evolved to become almost a cultural norm of sorts, and companies considering a listing depart from this unwritten rule at their own peril.

But this isn't a global convention. In Hong Kong, for example, listed companies have a numerical ticker (e.g. 9988 for Alibaba). In Singapore, tickers comprise mix of alphabets and numerical digits. At some level, the leading alphabet of the tickers seems to be derived from the company name (e.g. DBS Group/D05, Wing Tai Holdings/W05, UOL Group/U14), but then there are enough exceptions to make this mnemonic useless - Singapore Airlines/C6L, Hong Leong Finance/S41, to name a few. I put forward the notion that the ticker naming system in Singapore makes it more difficult for laypersons to easily recall company-ticker pairs than the US system. 

Could there actually be economic losses arising from the more-difficult-than-necessary association between company names and ticker symbols? Say DBS Group were listed as DBS instead of D05, Singapore Airlines as SQ instead of C6L, City Developments as CDL rather than C09, and Guocoland as GCL rather than F17. Would this have increased market participation and efficiency by lowering, perhaps just ever so slightly, the mental gymnastics required to figure out what is what? I mean, part of the reason why GameStop shot to meme fame was because people could easily input GME and satiate their curiosity on the latest ongoings, rather than having to guess whether it was G48 or F19 or A83. By removing just one additional hurdle, the human brain is freed up just enough to do one additional task - and that task could very well be making a stock purchase decision.

I'm going to put my money that Grab's upcoming listing via the Altimeter SPAC is almost certainly going to gun for the GRAB ticker symbol. The notion that Grab would prefer GB or G01 or GR413 or some other variant over GRAB is beyond absurd. We should then question whether absurd practices, perhaps due to legacy reasons, continue unabated on our very shores, and at what cost.

Rolling out of 2020

The year 2020 has been difficult for pretty much everyone, and most people would welcome 2021 with the hope of some relief and less tumult. This post is intended as a look back on 2020 from an investment perspective, and to list some broad plans for 2021.

SGD Portfolio in 2020

I was not very active on this front, with probably only a single-digit count of transactions for the whole year. The main buzz (see posts from May 2020) were on Singapore Airlines' rights issue, arising from my desire to thoroughly understand the offering in order to correct any misconceptions that my family members and friends may have had. I personally have only a very minor position in Singapore Airlines, so I wasn't massively impacted and in late November I took advantage of a sudden resurgence to trim my position at the favourable price of 4.65, realising some paper losses but deciding that the long-term prospects for the airline are still fairly gloomy.

I wish that I had been more ambitious in creating/adding to positions in Singapore banks (referring to DBS, OCBC, UOB) as there was a brief period where they were looking very undervalued and I was a little too hesitant to pull the trigger. 

Other than that, I begun to effect a regular contribution to my Endowus and Stashaway accounts, and will touch on that later.

USD Portfolio in 2020

Earlier this month, I was looking at the Nasdaq and realised that if I had simply purchased the index, I would be looking at over 40% gains for the year. Who would have known a year ago that tech counters would benefit so greatly from working-from-home, and that the market would continue its feverish ascent after a significant pullback in March?

As my own portfolio has a fairly heavy tech slant, I managed to finish the year with significant upside of around 32%, shy of the Nasdaq but ahead of major indices such as the S&P or the Vanguard Total World. Making use of the excellent custom reports feature of Interactive Brokers, I was also able to learn that my portfolio had a Sharpe return of above 1.1, which is decent.

 

As a long-only, unleveraged portfolio, this has been a year of good returns. That said, some of the gains were offset by weakening of USD against SGD, though I am not overly concerned in the near-term. 

The key drivers were semicon-related, with AMD, MU, and MRVL being big contributors to the positive return. AMD especially has made significant headway against Intel, but Apple threw its hat in the ring with their new M1 silicon which, from all accounts, appears to be a total game-changer. Given that TSMC is fabricating for both AMD and Apple, it feels like an attractive play, but I was unable to find a suitable price at which to enter a position.

I was fortunate to have very limited exposure to US airlines, although I watched with dismay as RLH (mentioned in my November 2019 post as a possible M&A prospect) sank from 3.60 at the start of the year to a low of 1.24 in March 2020. While luxury and business hotels (think Marriott, Hilton etc.) struggled, I felt that there was a case for the economy and mid-range segment due to the continued movement of personnel to temporary accommodation (e.g. medical workers who were being relocated to US states in dire need of more manpower). As RLH Corp (formerly Red Lion Hotels) was in that segment, I was prepared to hold on and even considered adding to my position. Admittedly, it was unnerving to see the price free-fall below 2.00, and even though a good recover was made in June 2020, the stock slowly slipped below again in October, before recovering again in the last two months of the year. As it turned out, my November 2019 post was not at all wrong, and an acquisition offer was just made at $3.50 per share by Sonesta on the second last day of the year. While the offer represents a healthy premium over the last-done price, I can't help but feel that it may have been too soon as I was hoping for a longer runway for recovery before a takeover offer was accepted. We'll see how the deal turns out (my hunch is that it will clear), and if it succeeds then this will be the first M&A I've called having previously exited too early on both Panera Bread and Sodastream. [I'm still mildly surprised that Square has not been acquired, though at current valuations I now see this as a very distant possibility. A crazy 200+% return in 2020 and I kick myself for having exited on that position.] 

What's ahead for 2021?

Having had minimal opportunity to spend money this year, I managed to save up a fair bit of extra cash. I intend to progressively funnel this into Endowus (sign up using my referral link) or Stashaway via monthly contributions, and am targeting to keep a much smaller amount of cash as emergency funds, being mindful that leaving too much cash in the bank at near-zero interest rates is a terrible idea. Endowus has been especially appealing because it offers a way to invest CPF funds, and because of this I no longer view CPF OA -> CPF SA one-way transfers as an attractive option for younger adults. To illustrate, the 1-year TWR of my Endowus CPF 100% equities portfolio was in the region of 9%, and this is pretty much where I hoped it would be. For those of us with a long investment horizon, CPF OA/SA returns of 2.5% or 4% may not be optimal depending on one's overall risk appetite and overall portfolio allocation.

SGD stocks continue to be quite unappealing for me, and I doubt this will change in 2021, especially since REITs - the only thing I would actively like to add to my portfolio at this time - continue to look expensive. I should also look at unwinding from some of the poor-performing counters (looking at you, SIAEC) and rotate this into Endowus or Stashaway, probably after trimming my low-yielding cash.

On the USD portfolio, I think 2020 has demonstrated that my current approach works well, and I will not deviate too much from the tech-heavy playbook. Am feeling good about Apple's latest M1-based products, in particular, and will also keep an eye out for other 5G players. I have never been very well-versed with the bio-tech/pharma sector and the upcoming year could be an opportunity to establish some positions on those. In terms of a post-vaccine recovery play, I am still not too confident for hotels, as I foresee leisure travel to still remain weak, but I think there could be a case for airlines.

Singapore Airlines: A potential excess rights play?

In my previous post, I shared on what are the steps required for SIA shareholders who are not intending to put thousands of dollars more into the beleaguered airline. Yes, I'm calling it for what it is, beleaguered.

Over here, I'm going to touch on a potential trading strategy that could benefit some holders who have extra cash on hand. Before I begin, I need to highlight that this strategy contains a fair degree of inherent risk, and readers should do your due diligence to assess whether the risk and outcomes associated with this strategy are suitable for their investment profile.

Singapore Airlines Rights Shares and Rights MCBs

Many of us may own SIA shares, or probably knows someone who does. The ongoing Covid-19 pandemic has hit airlines around the world in a manner never seen before, and SIA has not been spared.

The recent rights issue is fairly complicated, and I want to outline the implications here. The key takeaway is that Doing Nothing Will Hurt You Greatly. Read on to find on why.

Credit Card strategy for 2020

Spending money is inevitable. Part of achieving robust returns is making your spending work for you. There are many different credit cards in the market today, and Grab has just launched the GrabPay Card (a Mastercard tie-up). With so many payment options, I share my intended strategy for different types of transactions in 2020.

1) Groceries from Fairprice
The preferred mode here is to pay by Fairprice gift card (securing 7.3% cashback - see item 2) or by Citi SMRT card (up to 5% cashback for transactions >= $50, or up to 3% cashback for transactions <$50. A reduction of 0.3% if monthly retail spend is less than $300, hence the "up to".. yes Singapore credit cards are ridiculously complicated like that.)

2) Gift Cards from Fairprice
By using the Citi SMRT card at Kallang Wave Fairprice Xtra only, I get 7.3% cashback, assuming I top up $300 into the gift card each time I go to Kallang Wave (which I do not frequent), or whatever amount to meet the $300 monthly spend requirement for this card. Otherwise, it's 7%, which is alright, but the point is to go to Kallang Wave Mall as infrequently as I can.

3) Public Transport
Quoting from Citi's website: "2% SMRT$ (i.e. cashback) is awarded for EZ-Reload transactions of more than $30. 1% SMRT$ is awarded for EZ-Reload transactions of $30 or less. For monthly statement retail purchases of less than $300, SMRT$ earn rate will be 0.3% less.Citi SMRT card." Grief. Long story short, set EZ-Reload to $50 and earn 2% cashback.

4) Online spend
This one is tricky. It can either go to the Citi Rewards Visa (4 mpd up to $1000 per statement) or to the DBS Woman's World Mastercard - which men can apply for (4 mpd). There's a slightly different rounding policy, because DBS WWMC rounds down to the nearest $5, so my preference here is the CRV, assuming I haven't already maxed it out for item 5 below...

5) Any other place which accepts Mastercard (contactless)
Sometimes, I may need to buy something from Cold Storage or Sheng Shiong. Or Watsons or Guardian. Or any other retail shop. The new GrabPay Card is the winner here. Because I can top-up my GrabPay wallet using the CRV (4mpd up to $1000 per statement - this mechanism might not last...), I can effectively unlock 4mpd by using the GrabPay card at these physical merchants. If they accept Samsung Pay, then better still cos I can triple-dip - I get 4mpd + GrabRewards + Samsung Pay points. The catch? This probably doesn't work for big-ticket items, unless you plan to keep a few thousand dollars in your GrabPay wallet... (see item 6)

6) Any other place which accepts FavePay/GrabPay
Okay, so no credit card accepted... cash or NETS only? Meh. Oh, you take FavePay/GrabPay. Great - here, take my money and let me earn my 4mpd + GrabRewards + Fave Cashback.

7) Big-ticket items
Since GrabPay might not be possible (e.g. transaction limit for contactless?), the best solution is to sign up for a new credit card a few weeks prior. The Amex Rewards card (the white one) is a decent option with a good sign-up bonus for $1500 spend and a very reasonable $53.50 annual fee.

So one big category which I omit is travel. I typically use my US credit card for that purpose (no foreign txn fees, which is proving to be useful in light of the slow but steady upward creep of the same fee for SG credit cards).

The GrabPay card slots itself usefully into a gap in an already-crowded market. There's supposed to be a physical card (numberless!) in the works and that could help to deal with situations where the transaction is higher than the contactless limit, or if the merchant lacks a contactless reader.

What do you think of this strategy? Feel free to share yours in the comments below!

Endowus - New option for investing CPF monies

I recently attended an outreach session by Endowus, a relatively new investing platform. It offers an interesting additional option for investing CPF monies (they also do cash portfolios, but this post will focus primarily on CPF) for Singaporeans, and I think it's worth considering.

If you are keen to sign up for an account with Endowus, do consider using my referral link which enables both of us to have $10,000 of funds advised free for 6 months (a $20 value, to be precise). I receive no compensation from Endowus or any other party in writing this post.

Investing CPF - why even?

I shed some light on my revised views of the CPF in an earlier post, including my re-think of the CPF Ordinary Account (OA) as a quasi-cash "Housing Account" while the Special Account (SA) functions as the primary retirement vehicle. One of the questions I raised was whether 2.5% (the current OA interest rate) is a reasonable rate of return for the long term, and I briefly commented that I was not very keen on the CPF Investment Scheme (CPFIS). That may change with Endowus coming into the picture...

Meaningful statistics on CPFIS are like hidden pieces of a treasure hunt on the CPF website, but some broad observations:

• 4.0 million CPF members as of September 2019
• 940,000 CPFIS-OA members as of Q3 2019 (and a further 297,000 CPFIS-SA members, which I won't be focusing on for the time being)
• "Total cost of current holdings in CPFIS-OA" has been steadily dropping from 2008 to 2016, and the drop seems to have slowed down, but the graph by CPF is actually very misleading because the x-axis is inconsistent (originally by year, then by quarter). 

This means that less than 1 in 4 CPF members has opted in for the Investment Scheme for their OA, not even taking into consideration that some CPFIS-OA accounts may have been set up but were never used. Even assuming that all CPFIS-OA accounts are active, I find an average of $17,500 of "cost of current holdings" per account as of Q3 2019, which doesn't seem high and is significantly lower than ten years ago ($29,250 in 2009) or even five years ago ($22,000). In fact:

• Out of the $142b in CPF members' OAs, only $16.6b (less than 12%) is invested as of Q3 2019, as compared to a whopping 37% in 2009 ($26.15b invested out of $70.6b) 

Clearly, popularity of the CPFIS-OA appears to be waning, and I think this can be attributed to three main reasons:

1. Perception that 2.5% p.a. interest rate is "good enough". Relative to deposit account interest rates which have been nowhere close to even 1% for recent memory, 2.5% risk-free seems to be attractive, something which I do not deny.
2. Hurdles in investing CPF monies. In addition to the hassle of setting up CPFIS itself, there are quite a number of fees involved, some of which are frankly absurd. For instance, DBS charges $2 per counter per quarter, subject to a minimum of $5. So that's instantly $20 of "service fees" per year even if you have just one counter, and it creeps up to $80 per year for someone attempting to diversify with 10 counters. I have no idea what "services" are actually offered.
3. Fear. CPFIS may be subject to losses, and there is no guarantee of principal by CPF. Poor investment decisions could lead to significant losses, then panic, then withdrawal of funds (and realisation of those losses just as the market recovers...) For CPF members who continue to see both the OA and SA as their retirement vehicles, it is understandable to have a low degree of tolerance towards such losses, but if one adopts my suggested lens and sees the SA as the primary retirement vehicle, then sensible investing of CPF monies, in particular the OA, could yield positive returns while managing the impact of any volatility on retirement planning.

What does Endowus bring to the table?

In a nutshell, it is a low(er) cost method of investing CPF monies in a diversified unit trust portfolio, with a stock-bond allocation of the investor's choosing. Endowus operates under an MAS Financial Advisers license (rather than a Capital Markets Services license), so never directly handles clients' money. All funds and holdings are parked with UOB Kay Hian in the client's name. For CPFIS-OA members who use Endowus, the following three fees apply:

• Access fee: Endowus selects best-in-class unit trusts for the various portfolios (e.g. 60/40 or 80/20) and also handles portfolio creation and rebalancing. For their services, they charge an access fee of 0.40% for assets under advice (~AUM).
• Fund-level fee, which will also apply when buying a unit trust through other platforms (e.g. Fundsupermart), except that Endowus rebates trailer fees. Basically, out of the $X that a unit trust fund manager collects, a proportion is paid to the typical platform as a trailer fee (sort of like a commission), and the remainder, which we'll call $Y, is kept by the UT fund manager. Since Endowus promises to rebate 100% of trailer fees, the client effectively only pays a fund-level fee of $Y, instead of $X.
• Agent bank charges, which apply to any sort of CPFIS arrangement. Basically, the "service fees" I mentioned earlier. One key advantage under Endowus is that because the client is holding one portfolio, the client only pays one quarterly service charge overall, even though he owns multiple unit trusts within that single portfolio. This is a clever workaround to reduce (although not totally eliminate) the somewhat frivolous fees charged by DBS, OCBC and UOB. 

For purposes of illustration, we can use the funds which are part of Endowus's CPF portfolio as of writing (end-Nov 2019):

• Schroders Global Emerging Market Opportunities Fund
• Natixis Harris Associates Global Equity Fund
• Lion Global Infinity US 500 Stock Index
• First State Dividend Advantage
• Legg Mason Western Asset Global Bond Fund
• Eastspring Singapore Select Bond Fund
• United SGD Fund

Observation 1: Assuming that all 7 funds are available to retail investors, establishing a DIY 7-fund portfolio would incur 7x of the agent bank quarterly service fee, and any buying/selling of the funds (e.g. for rebalancing purposes) would incur agent bank transaction fees as well. Under Endowus, it will be counted as one portfolio, hence only incur a single quarterly service fee, and rebalancing-associated costs are not borne directly by the client but instead are covered by the separate 0.40% access fee.

Observation 2: Using the Schroders Global Emerging Market Opportunities Fund as an example - the annual expense ratio is around 1.66%-1.68%, which is what an investor would incur if owning the fund directly. But because Endowus rebates 100% of the trailer fees, this is brought down to 1.08% (source), and even after including the 0.40% access fee, the total of 1.48% is lower than the direct-purchase option.

Observation 3: Interestingly, observation 2 does not always apply - the Legg Mason Western Asset Global Bond Fund has an annual expense ratio of 0.87%, and through Endowus, the fund-level fee after trailer fee rebate is 0.57%. After including the access fee, the total of 0.97% is not as competitive as buying this fund directly. Endowus appears to have the comparative advantage in equity funds rather than bond funds, which is not surprising given that equity funds usually have higher fees to begin with (and hence can offer large trailer fees). Investors may wish to consider this when choosing their portfolio allocations.

Endowus is pretty upfront in acknowledging that the best way to preserve CPF capital is to stick to the risk-free 2.5% p.a. offered by the OA (assuming it never changes). Endowus is focusing on appealing to CPF investors looking for higher returns, by offering a fuss-free option supported by a non-intimidating user interface, and access to certain types of funds which may not be easily available to retail investors. Sure, the model does resemble that of a fund-of-funds setup, but I think the commitment to rebate 100% of trailer fees plus the very reasonable access fee of 0.40% make a very good value proposition.

Who will Endowus be suitable for?

I've initiated my account setup process and am waiting to explore the platform a bit more, but in the meantime a big question in my head is: what profile of CPF investor would Endowus be best-suited for?

My quick sensing is that young investors are unlikely to have much CPF OA monies available for investment, because a large majority of them may prefer to use CPF OA for housing needs, and still have to put up a $20,000 minimum balance before being able to invest the rest of their OA. Yet, these younger investors might be more receptive to what Endowus offers as an option to invest CPF monies. Older investors probably have larger CPF balances on average, yet may be a little harder to convince, because they might feel more reassured with "big bank" products, i.e. something offered by DBS, OCBC, or UOB, and may be willing to tolerate the higher fees as a trade-off for the reassurance they get investing through one of these better-known channels.

It'll be interesting to guess at what is Endowus's strategy here. While they also offer cash and SRS portfolios, their key comparative advantage at the moment is being able to offer a CPF portfolio, a feature which is currently unmatched by the competition. Is the investor base ready to come to the table with a new-found appetite for investing their CPF monies? How does one identify the "total addressable market" in this scenario? Will leveraging on the UOB Kay Hian tie-up help to reassure some would-be investors?  Time will tell, but certainly I think this is a step in the right direction. Having more options is always better than having few or none, and based on what I've heard, read, and observed, Endowus provides a very compelling option for investing CPF monies.

Endowus (and investing in general) is not about generating out-sized returns; leave that philosophy for a small, high-risk portfolio if you absolutely must, but don't let that active, risky portfolio form the backbone of your financial planning. Instead, build on what is often viewed as restriction - CPF monies are locked up and one cannot use them other than for housing (OA) and medical costs (MA) - and flip the perspective over to the positive, e.g. lock-in until age 55 means peace of mind, if done correctly from the start. In that context, Endowus potentially plays the role of a smartly-rebalanced investment/retirement platform suitable for CPF members, and is a first-mover in this untapped area.

[If you are keen to sign up for an account with Endowus, do consider using my referral link which enables both of us to have $10,000 of funds advised free for 6 months (a $20 value, to be precise). I receive no compensation from Endowus or any other party in writing this post.]

Post-edit: While there is a strong temptation to compare this to the DBS digiportfolio, I have consciously refrained from doing so since the latter is not a CPF-eligible product. I may touch on it in a separate post on cash-based investment options.

Back to business

Okay, so things have been dormant for a bit as I've had to focus on a couple of different things through the year and this blog went on the backburner. As I find myself with a a bit of time as we approach year-end, I thought it would be best to go ahead and jot some reflections. Penning down some thoughts is generally good for holding oneself accountable, validating past hypotheses, and also sharing my perspective with readers. So here goes...

The final earnings season of most US stocks is pretty much out of the way, and I had a short-lived period of being happy by taking profits off an earlier trade, which evaporated the very next day due to some disastrous results associated with a different counter.

PZZA - the oven gets warmer

The joy was provided by none other than Papa John's (PZZA), a pizza delivery chain fairly well-known in the US. I started a long position in May and was pleased to know that Starboard Value, an activist hedge fund, was looking to shake things up in the company (Starboard's claim to fame is its success turning around Olive Garden under Darden Restaurants - there is a rather dramatic deck of slides relating to this effort). Following some good results, my resting sell order cleared pre-market, and although the share price was to go up a little further over the course of the day, I was quite content with having locked in a 20+% return over a short period of around six months.

Frankly, my read is that the counter still has upside, but with trade uncertainties jumping from "nearly signed it!" to "nope, no deal!" every other week, I think it was good to take some money off the table for this consumer discretionary counter, since this sector is fairly exposed to economic sentiment (although this may depend on whether one views pizza as a normal good or an inferior good from a microeconomics point of view).

RLH - disaster!

The very next day, Red Lion Hotels Corporation (RLH) announced results which can only be described as a disaster, unfortunately wiping out my gains on PZZA and then some (quite a bit actually). It is almost unheard of for a share price to collapse by 50% except in the biotech/pharma sectors, or where there is fraud/corruption, but that's the scale of RLH's drop. I had been tracking the share price closely over the past couple of months and had already reduced my exposure slightly, but I never anticipated that the market would react so negatively to the results (and the CEO's departure ). I listened to the earnings call recording in an attempt to decipher what was going on.

Basically, there were some headwinds in the sector, and the results fell short of expectations. There were also quite a number of franchise agreement terminations, which is bad for the business as RLH moves towards an asset-light model. The remaining owned hotels have also taken quite a while to be sold, something which Vindico Capital issued a pointed shareholder's letter about, but already known prior to the earnings release.

Based on an earlier property count (as of 30 June 2019, from Red Lion's IR Website), it appears that the terminations are largely from the select-service category, from America's Best Value Inn and Canada's Best Value Inn, as well as from Knights Inn (which RLH acquired from Wyndham in 2018). Franchise terminations are part and parcel of the franchise business, and from the earnings call it didn't sound like the terminated properties were gravitating towards a specific competitor. I think RLH has some work to do (possibly streamlining the line-up of brands under its portfolio) for better operational efficiencies.

While I wish I had reduced my exposure further before the earnings call, there's nothing I can do about it now. As it stands, the significantly-reduced market cap of RLH could make it an M&A prospect given its portfolio of over a thousand properties representing nearly 80,000 hotel rooms. I'll have to watch this closely in the next couple of months, and hopefully the search for a replacement CEO ends in an outcome that is well-received by the market.

So what now

My portfolio YTD returns (blue line) took a sharp dive, and it doesn't look like I can come anywhere close to the stellar performance of the S&P (red line, 25% YTD) or even the world index (green line, 20% YTD). If not for the freak incident for RLH, I was tracking the world index pretty well. I take some comfort in having outperformed the Singapore index (purple line), and frankly, finishing the year with around 15% returns is not too shabby.

I've pared down some holdings and am looking towards a couple of anchors to drive returns over the next couple of months:

• AMD, with close to 100% returns YTD, is poised to play a sort of David vs Goliath role against both Nvidia and Intel. Exciting times!
• MU, perennial favourite of mine, and previously mentioned on this blog.
• SQ, currently in the red but holding out for M&A potential - could Google or Apple swoop in?

I'm definitely overweight tech, but its the sector I'm most comfortable with. The long-drawn 787Max issue seems to be almost ignored by the market now, and it's interesting that airlines (even those which had large Max fleets like LUV) didn't get impacted too badly, but I'm sitting on the sidelines for now.

As a final point, and also to allude back to an oft-repeated mantra that investors should think long-term, I managed to cull this chart off my IB reports showing my historical performance (since I started using IB) versus the same four indexes mentioned above. Over here, I'm still ahead of the S&P (if only just, and largely due to pulling way ahead in 2018), so this is perhaps a #humblebrag. Nonetheless, I guess it was always better to have started earlier, and I'm glad I did!