May 2020 Portfolio Review | Sword & Shield
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The market narrative is now focused on the reopening of the United States with ongoing positive developments of vaccination for COVID-19. Extreme fearfulness has now turned into optimism with hints of greed.
I am expecting a retesting of the March lows and am in a net short position via SPY.
Trimmed position in Riverstone and initiated long position on China Sunsine.
The Personal Investment Portfolio is now -3.12% since inception (8th Jan 2020). Benchmark Vanguard Total World Stock ETF is down -10.02% over the same period.
"So we don't prepare ourselves for a single problem. We prepare ourselves for problems that sometimes create their own momentum. I mean 2008 and 2009, you didn't see all the problems the first day"
- Warren Buffett, 2nd May 2020, Berkshire Hathaway Annual Meeting.
The month of May saw the S&P 500 grinding higher. The index has since recovered 62% of its drawdown from its all-time-high. However, the rate of the rally has been decelerating with lower volumes and the Stochastic RSI at overbought levels. It appears to me that we are at the "Return to Normal" stage (see graph below) given the backdrop of major countries reopening and the daily barrage of positive vaccine developments. But are things truly returning to normal?
As shown in the chart above (Source: Global Macro Investor), global COVID-19 daily confirmed cases have not declined but remain at elevated levels. The actual numbers are likely much higher given the lack of testing in the emerging countries like India and Brazil. Total confirmed cases globally now stand at 5,410,439. At this rate, by the time I write the June 2020 Portfolio Review, the total confirmed case count could reach 8,000,000. I think it is getting quite clear that this virus is not going anywhere anytime soon.
With regards to the positive vaccine developments, I am not a doctor, so my opinions on the matter are irrelevant. What I found interesting was what Warren Buffett shared during his annual shareholder meeting on 2nd May. At around the 5-minute mark, Warren Buffett shared that he spoke with Dr. Fauci and Bill Gates to learn about the COVID-19 situation and expressed his gratitude to both of them for educating him on the subject. Warren Buffet then went on for an hour talking about how we should never bet against America. On the other hand, during the Q&A segment, Warren Buffett shared that he exited his airline positions completely. A few weeks later, Berkshire Hathaway revealed that it was selling more stocks (e.g. Goldman Sachs, JPMorgan Chase, Travelers, Phillips 66). I don't know about you, but I am reading between the lines.
"Don't listen to what people say, look at what they do"
- Henry Ford
To conclude this segment, my two-cents worth is that we are at the "Return to Normal" stage. The market, which was extremely fearful just 2 months ago with the VIX at 80, now looks optimistic with hints of greed and the VIX at just 28. While the central banks around the world are shoring up cash to prevent a liquidity crisis, I am not sure if they are able to prevent the solvency crisis that will emerge in the not too distant future. If I am wrong, the markets would probably continue grinding higher, but if I am right, the broad market will see a sharp selloff once again which would retest the March lows. Only time will tell.
"The bull climbs the stairs and the bear jumps out the window"
- Old Wall Street Wisdom
Portfolio Transactions & Movements
During the month of May, the GLD May15'20 156 PUTs expired out of the money while the SLV May15'20 15 CALL and SPY May15'20 280 CALL expired in the money and exercised. The 600 SLV shares were called away while the SPY CALL has led to a significant short position (~60% of the Personal Investment Portfolio) at the 280 level. The SPY is currently trading at 295.44 so my SPY short position has been a drag on the overall returns. Overall, the Personal Investment Portfolio is now in a net short position.
I use Interactive Brokers for my Personal Investment Portfolio (PIP) and because I am a Singapore Citizen, I am unable to access SGX-listed shares via Interactive Brokers. As such, the PIP's performance and screenshots shown above does not include the performance from my SGX-listed positions.
At the start of May, I transferred a portion of the idle cash from the PIP into my Singapore brokerage account to accumulate shares of China Sunsine at an average price of S$0.38. You can refer to our investment thesis [HERE]. Riverstone, which we have covered extensively [HERE] and [HERE], has performed beyond our expectations, rising 56% to S$1.87 in this month alone. Sell-side analysts now have target prices ranging from S$2.15 to S$2.50, which translates to further upside of 15-34%. However, I do not share the same enthusiasm because the risk-to-reward has altered dramatically since the sharp runup in the share price. As such, I've trimmed my position in Riverstone by more than half.
Another reason for the trimming of the Riverstone position was because we found another SGX-listed company that ostensibly has multi-bagger potential over a 1-2 year investment horizon. The risk-to-reward proposition appears favourable and we have started conducting preliminary research on the company.
Overall, I am long Riverstone, China Sunsine, China Maple Leaf Education, Tencent, Alibaba, Amazon, JD.com, GLD, SLV, and Bitcoin. I am short SPY and Vitasoy.
The PIP is now -3.12% since inception (8th Jan 2020). The benchmark Vanguard Total World Stock ETF is down -10.02% over the same period. This translates to a relative outperformance of 6.90%.
Keep on snowballing,
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