Saturday, April 23, 2022

Letter to Batch 25 of the Early Retirement Masterclass

Dear Students of Batch 25,

It’s been a great honour and privilege to conduct a 5-Day Early Retirement Workshop for you.

The current economic situation is a precarious balance between the optimism of recovery from the Omicron strain. I expect the following week to be bullish for Singapore markets as we move from DORSCON Orange to DORSCON Yellow. This will be primarily for REIT counters related to office and retail spaces.

However, there are dark clouds on the horizon. 

America is looking at PE ratios above 35 and an inverted yield curve. Interest rates are expected to rise and while this will benefit local banks, it would be detrimental to growth sectors like Tech. We are also in the middle of a conflict in Eastern Europe, and any form of escalation will not bode well for our investment portfolios. As China grapples with COVID-19 without an mRNA vaccine to call their own, we cannot rule out a technical recession in Singapore as China stubbornly adheres to the zero COVID policy. However, I would like to think that, if this happens, this should be a bargain-hunting opportunity.

Nevertheless, Batch 25 has taken a slightly higher risk in-stock selections, likely directed by the factor models we’ve built. We’ve accepted 15 counters and rejected 8 of them with a strong bias towards higher dividend yields, and the final portfolio is projected to yield 6.2%, which is not too bad for the current climate.  

I’m cautiously optimistic about the performance of this batch of students as we’re coming in at a point when the equity risk premium of the Singapore stock market has been rising for three consecutive courses I have run, but no investment strategy is fool-proof. I wish that students can take the lesson to heart that a 2-standard deviation drop from the mean can still mean a hefty 15-20% capital loss.

Lastly, I hope that Batch 25 will participate actively in the FB group. Sometime in Q2 2022, we should be meeting up for an online community webinar. At the time of writing, I have yet to determine the subject matter of this discussion, so suggestions are welcome.

Hope to see you then!

Christopher Ng Wai Chung

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