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Time in market, not timing the market — Tong’s Absolute Returns Portfolio

Tong Kooi Ong & Asia Analytica
Tong Kooi Ong & Asia Analytica • 14 min read
Time in market, not timing the market — Tong’s Absolute Returns Portfolio
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We often get asked this question: What should one invest in to grow a retirement fund? The ultra-rich would more than likely have an entire team of wealth managers catering to all their financial and investment needs. But for the man in the street, with more limited capital to invest, the task is a lot more daunting — either because he lacks the financial-economics background and knowledge and/or interest as well as the time required to monitor, research, and dissect economic and capital market developments.

This is why we have decided to start a brand new portfolio, Tong’s Absolute Returns Portfolio. Why are we doing it? As we have explained before, we want to share our insights and experience to help the public invest better. Investing on your own need not be the impossible or scary task that many fear. And it is far cheaper than coughing up high and fixed annual fees to fund managers, payable regardless whether they perform or not. Trading equities, both local and foreign, is a relatively simple process and accessible to anyone with just a smartphone.

Indeed, the primary objective of this weekly column is to simplify the often-complex relationships between macroeconomic factors, public policies and valuation methodologies so that you, our readers, can have a better understanding of how they affect your economic well-being and investments. At times, we also educate ourselves in the process — we need to research, analyse and understand before we can put ideas into words. Learning applies to all ages and is a lifelong endeavour.

Main parameters for Tong’s Absolute Returns Portfolio

Tong’s Absolute Returns Portfolio will start with US$500,000 ($ 674,045). You can scale this up or down according to your financial situation. We strongly recommend you do not borrow to invest. This portfolio is tailored with a long investment horizon in mind, during which markets will go through both up and down cycles. In other words, you must have the holding power.

See also: The stocks in our Malaysian portfolio, and why they are there

As with the Malaysian Portfolio, this too will be a real portfolio. That is, we will put real money into my personal trading account (in Singapore) and the returns will be calculated net of all the normal commissions and fees (and based on actual exchange rates paid for trades that are not denominated in US dollar).

Our investible universe includes all equities, bonds and any other instruments that are publicly listed on global markets, and readily accessible and tradable for the man in the street. That means no private offers for sale. This is so that you can emulate our portfolio and achieve the same returns.

Obviously, this will be a non-speculative portfolio since the objective is to grow a retirement fund. Capital preservation will be the priority. We also envision that this portfolio will have a relatively low turnover rate; that is, we do not expect to trade frequently, unless our outlook for the stocks changes materially or significantly better alternatives come our way.

See also: Leave money on the table if you want investor participation

Considering the anticipated low turnover rate, we will only publish the full portfolio table monthly, in the first issue of each month in this column, as well as in the week when we make a transaction. However, we will still update the portfolio on a weekly basis and the total returns will be displayed on for full transparency. The entire portfolio will also be available on

As the name indicates, this is an absolute returns (as opposed to relative returns) portfolio. This will allow us to focus on the longer term, free from the constant pressure of being benchmarked against a global market index and, therefore, compelled to mirror its short-term market movements and/or stock composition. As we have come to accept (from our experience with the Global Portfolio), we simply do not have the in-depth knowledge, resources and time required to consistently pick foreign stock winners and outperform the global benchmark index. Obviously, we don’t have the on-the-ground presence of the big investment banks and can only rely on published data, which, by then, is often too late for us to react.

It is possible that our portfolio will underperform for some stretches of time — we are prepared to sit and wait, hold any stock that we believe has a good risk-reward proposition, even if we are “early” in our call. Ultimately, our objective is to make a minimum of 10% compounded annual returns, on average. At this rate of return, our US$500,000 initial investment will grow some tenfold, to about US$5 million, in 24 years. I am gifting the proceeds of this portfolio to my youngest daughter, who turns 25 this year. Maybe before she turns 50, she will have this US$5 million for her retirement.

Case in point: We bought shares in two Hong Kong property developers for this Absolute Returns Portfolio. We cannot be certain if the Hong Kong property market and therefore property stock prices have bottomed out. Even if they have, it could still take time for the mar- ket to work through existing unsold inventory. But we think that at current low valuations, further downside from hereon must be limited compared with the potential upside gains. Plus, the stocks offer decent dividend yields.

Given the risk that the property market slump could turn out to be longer than expected, we have chosen two developers with the lowest gearing levels: Sun Hung Kai Properties or SHKP (18.5%), the largest developer in Hong Kong; and Swire Properties (13%), a reputable company with a solid track record under the umbrella of the established and global conglomerate, Swire Group. Both stocks are currently trading at less than 0.4 times book value (see Chart 1). (In case you missed it, we wrote on this subject in our article last week, “A less risky route to buying China’s eventual recovery”. Scan QR code)

For more stories about where money flows, click here for Capital Section

As we have noted above, this portfolio will be global. We believe that increasingly, Malaysian and Singapore investors are looking beyond just Bursa Malaysia and the Singapore Exchange S68 -

— where there are far greater investment choices. For instance, while the SGX has strong financial institutions and real estate investment trusts or REITs, it has limited options in the high-growth artificial intelligence-related tech or renewable energy sectors. The same goes for Bursa.

Diversifying into global equities is the right move, particularly given the relatively poor returns for the benchmark indices in both markets over the past decade. The performance of the FBM KLCI has been nothing short of dismal — with compounded annual total returns (including dividends) of only 1% in the last 10 years.

We have included DBS and OCBC in the Absolute Returns Portfolio. The banks are good proxies for economic growth in the region, given that Singapore is the de facto financial hub and attracts the largest share of foreign direct investments destined for Asean (see Chart 2).

Notably, we have not included any stocks listed on Bursa, primarily because we already have a Malaysian Portfolio, which started nearly a decade ago. This portfolio has done very well, beating the FBM KLCI by a mile and a half. We have home ground advantage and in-depth knowledge of the companies and their idiosyncratic risks, the personalities behind them and the overall economic-business environment and thus, we could pick the winners.

For foreign markets where we lack similar competitive knowledge and/or do not have strong conviction on any specific individual stock, we will not be averse to buying exchange-traded funds (ETFs). ETFs will give us broad exposure to the foreign markets at low costs. Indeed, we are starting this portfolio with one ETF — the Vanguard S&P 500 ETF (VOO), which invests in all 500 stocks in the S&P 500 index. We will likely hold this ETF for the long term, for exposure to the US market.

We bought Microsoft, currently the largest publicly listed company in the world by market cap. We think the company offers a good balance between growth (faster than Apple) and valuations (lower than Nvidia). The company’s businesses continue to generate significant cash annually (see Chart 3).

Warren Buffett’s Berkshire Hathaway is our final choice of US-listed companies — although it owns other global companies. Why? It is a no-brainer. If you cannot be better, the solution is simply to ride along. There is no shame. The biggest fools are people with huge egos and small brains.

Yes, current valuations for US stocks in general are pricey — hovering at the upper end of the 10-year trading range — and warrant some caution. But we would not bet against the US, at least not in the foreseeable future. The fact is that the US market is simply too large to ignore. It has been one of the best-performing major markets in the world — compounded annual total returns for the S&P 500 Index was a robust 12.9% in the past decade. And when you invest for the long term, timing the market becomes secondary. Time in market, on the other hand, is very important — because of the power of compounding. Hence, you should start your retirement fund as early as possible in life. It doesn’t matter if you must start small. The difference in returns if you start investing today versus, say, 10 years down the road will be significant.

Many analysts are currently bearish on China — especially with the government ignoring calls for massive stimulus measures to prop up short-term growth, a typical prescription in Western economies — and foreign fund inflows into its equity market have fallen sharply over the past two years. As we explained last week, there is less necessity for China to apply such “steroid” policy — that can lead to long-term economic damage such as highly leveraged households, reduced savings and domestic funding for investments — to gain short-term popularity to win elections. On the other hand, China may be allowing its currency to weaken somewhat, to boost exports, particularly in light of the yen depreciation (see Charts 4 and 7).

For sure, the world’s second-largest economy is facing some challenges, including to rebalance its reliance on exports, real estate and infrastructure investments to domestic consumption and investments in technology and renewables for growth. But we believe that the Chinese economy and equity market must eventually recover — and given that prevailing valuations are low relative to most major markets in the world, there is potential for strong upside gains. That is, we think the current risk-reward proposition is attractive.

As such, we are adding Hong Kong-listed Tencent to our portfolio. The conglomerate’s sprawling businesses are ubiquitous in Chinese everyday life. Its flagship app, WeChat, is the dominant social media platform in the country and widely used for messaging, payments and investments, e-commerce and so on. Importantly, it has more than 1.3 billion active users worldwide — that means the company has a strong base from which it can further expand its services, to drive future growth. Case in point: Its mini-programmes (light apps that function within the WeChat app; that is, no separate download required) are extremely popular, and cover a wide range of services including food delivery and other logistics, shopping, entertainment and media, gaming, reservations, transport and travel services. It is similar to how investors accord a premium to Apple’s valuation, for its massive user base and the growth prospects of its services segment (see Chart 5).

Chart 6 is the one chart (if we had to choose) for why we bought Europe-based Airbus. The company has been steadily gaining market share, even before Boeing’s long string of problems and has been the world’s largest airliner manufacturer for several years now. Its business has grown steadily, as have its margins. Net margin for 2023 stood at 7%, higher than the average of 4.1% since 2013. It has generated positive cash flow from operations every year in the past 11 years, except for 2020 when deliveries fell sharply due to the pandemic. Airbus is sitting on net cash of EUR2.9 billion ($4.2 billion) currently.

Rounding up the last of our investments is Itochu, one of Japan’s largest trading conglomerates. Traditionally, these general trading houses have been central to the import-export of a wide range of goods and commodities — such as machinery, energy, chemicals, textiles, metals, food and consumer goods — in and out of Japan. Their extensive global logistics network includes transport, warehousing, supply chain management as well as provision of financial services to customers. Itochu also has investments across multiple sectors including real estate, retail, infrastructure and technology. And yes, the company is one of the five Japanese trading firms that Berkshire Hathaway had invested in, and which it intends to hold for the long term.

Plus, we think the yen will soon start to recover now that the Bank of Japan has finally ended its negative interest rate and yield curve control policies, which have been in place since 2016. That would give us currency gains on top of its share price appreciation (see Chart 7).

Conspicuously missing from our stock selection is India, even though most economists and analysts currently have bullish expectations for its economy and stock market. India is the world’s fastest-growing major economy and with total population exceeding 1.43 billion, it is often touted as the largest democracy in the world. Historically, a large and growing population (expanding productive capacity) is a big factor in driving economies. The International Monetary Fund estimates gross domestic product growth at a robust 6.7% for the just-ended fiscal year March 2024, and 6.5% for 2024-2025, bolstered by massive government spending on infrastructure. Additionally, the country is widely seen to be the alternative to China as businesses diversify their supply chains. Its stock market is now at all-time high levels and one of the best-performing markets globally.

So, why are we not investing in this story? Because we do not think its current economic model and social and political structure are sustainable in the long term. Inequality has skyrocketed over the past four decades. The current shares of income and wealth for India’s top 1%, at 22.6% and 40.1% respectively, are at historic highs. According to World Inequality Lab, its top 1%’s share of income is higher than that in South Africa, Brazil and the US. Geopolitics aside, progressive, inclusive, free and democratic societies where capitalism thrive need a flourishing and educated middle class.

This portfolio starts fully invested in the above-mentioned 10 stocks and will remain so for the entire tenure of its existence. “Time in market, not timing the market”. The Absolute Returns Portfolio ended its first week since inception with a loss of 0.6%.

The Malaysian Portfolio gained 0.1% last week. We disposed of all our SGX-listed stocks, which will be included in the Absolute Returns Portfolio from now on, netting a decent gain of 1.9% over a four-month period. DBS Group Holdings (+11.8%) and Oversea-Chinese Banking Corp (+7.5%) did very well but Mapletree Pan Asia Commercial Trust N2IU -

(-8.1%) and Frasers Logistics & Commercial Trust BUOU - (-4.9%) underperformed. Following the sale, the Malaysian portfolio is left with only three stocks — UOA Development (+1.1%), Insas-WC (-4.1%) and Insas Bhd (-1.0%). Total portfolio returns now stand at 188.4% since inception. This portfolio is outperforming the benchmark FBM KLCI, which is down 15.9%, by a long, long way.

Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/ or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports.

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