• Kenny Chia

April 2020 Portfolio Review | Hibernation

Updated: Jun 14

Key Points

  • The market narrative has shifted from a swift V-shaped recovery to a prolonged U-shaped recovery. However, prices remain at elevated levels. Too much optimism is baked into the broad market. L-shaped recovery increasing likely.

  • I am expecting a retesting of the March lows and have been fading the rally. Looking to be overweight in cash and underweight in equities.

  • The Personal Investment Portfolio is now -3.42% since inception (8th Jan 2020). Benchmark Vanguard Total World Stock ETF is down -15.97% over the same period.

Now that my finals are over, I finally have some time to pen down my thoughts on what has happened since my first post, Maiden Post | Anacrusis. The inaugural post was published on 17th Feb, 2 days before the markets hit their all-time highs and began their precipitous decline. The S&P 500 fell 34% in a matter of weeks. Equally surprising was the rebound subsequently. On the narrative of a swift V-shaped recovery and massive stimulus globally, the S&P 500 recovered 50% of its drawdown in less than a month.

However, as each day passes, the narrative of a swift V-shaped recovery has been replaced by the narrative of prolonged U-shaped recovery. If you just read the news, you can see that countries and companies globally are already facing issues restarting and are unlikely to operate at full capacity pre-COVID any time soon. Over time we will start to see more and more companies declaring bankruptcy due to this pandemic as they are unable to service their fixed costs and debts. In my view, this sounds more like an L-shaped recovery compared to the U-shape recovery that the market consensus is expecting. As such, I think that there is too much optimism baked into the stock market right now.

During his briefing to the media on 27 Mar 2020, the Prime Minister of Singapore made a candid assessment regarding the economy which I think is worth sharing:

"And it is going to last quite a long time. It is not a V-shaped dip, it is not a U-shaped dip. It has come down if you are lucky, you can sustain it at a diminished level for quite a long time. If you are not lucky, it will keep on going down and some places will have a lot of [difficulties] just staying in existence." - Singapore PM Lee Hsien Loong on the COVID-19 pandemic [7:15 to 7:43].

Currently, the S&P 500 is only down 13.4% since the beginning of this year and is at the same level as it was on 4th June 2019, less than a year ago. Back then, the economy was chugging along well with only the US-China Trade War to worry about. Now, we have a global pandemic combined with a oil crisis that is expected to cause job losses and economic contractions not seen since the Great Depression. It is a completely different world. While governments around the world are now stimulating their economies at unprecedented levels, they cannot bend economic reality to their will.

Equity prices are driven by their cashflows and valuation multiples. Given this economic backdrop, I believe both aggregate cashflows and valuation multiples will fall, driving equity prices down sharply (~20%). This could happen over the next few weeks or months. Catalysts would include the sobering to economic reality by market participants as well as negative news flow on company earnings and countries' inability to fully re-open post-lockdown.

Since the start of April, I have been trimming and closing out my positions, especially counters whose earnings are vulnerable to the pandemic. Currently, I am more than 50% in cash. I am currently long Riverstone, China Maple Leaf Education, Tencent, Alibaba, Amazon,, GLD, and SLV. I am short Vitasoy, GLD May15'20 156 PUT, SLV May15'20 15 CALL, and SPY May15'20 280 CALL.

The Personal Investment Portfolio is now -3.42% since inception (8th Jan 2020). The benchmark Vanguard Total World Stock ETF is down -15.97% over the same period. This translates to a relative outperformance of 12.55%.

"We are not living in the final phase of the pandemic, but still at the beginning."

- Chancellor Angela Merkel, 20th April 2020.

Thanks for reading,



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