Portfolio Update (October 2018): I got burned!

October was certainly a toughest month of my portfolio. The whole market seemed to experience the pain.

Except from a Moneywatch article

Except from a Moneywatch article

Except from a Moneywatch article

Except from a Moneywatch article

As the market dropped, my portfolio also took the hit as seen below.

My portfolio return since inception (blue) vs S&P500 (green)

My portfolio return since inception (blue) vs S&P500 (green)

Although it was still quite painful seeing my portfolio decrease in $1000’s of value in one day or two, I shouldn’t care about such short-term drop as a long-term focused value investor. As long as the underlying business is solid, the individual stocks should perform well in the long-term.

Fortunately, there were some positive development in the underlying businesses of the stocks that I own. I believe these companies can survive and thrive in future even if we face an economic downturn in near future.

1. Gran Colombia Gold (GCM: TSX)

Gran Colombia Gold has grown its trailing 12-month production volume by 23% from 2017 and improved its credit rating. The increased production will increase their cash flow and the improved credit rating should decrease their borrowing cost in future if they need to raise more capital for mining expansion projects in future.

Even if the economy collapsed, the company should do well as long as the gold price holds the current level. If the gold price increases, that’s a bonus.

2. Willplus Holdings (3538: TSE)

Willplus owns and runs multiple car dealerships in Japan. The company announced that it acquired a Porche dealer in the beginning of October. The company has a stringent criteria in choosing its acquisition and has a great track record of improving the performance of the acquired dealers. The acquisition should add more fuel to the company’s growth.

If there is an economic downturn, the company can buy more troubled dealerships at bargain price, turn them profitable and enjoy the accelerated growth during the economic recovery. This is how the company grew rapidly since the financial crisis and I believe the same strategy should work in the next upcoming crisis.

3. Royal Bank of Canada (RY: TSX)

There was another 0.25% BoC rate hike near the end of October. If RBC can successfully increase its net interest margin and the residential mortgage remains stable, it should help them increase its earnings from the retail banking sector.

I may need more research on this topic but based on my understanding, the bank’s capital market division should be able to benefit from the recent volatility of the market. If I remember correctly, the capital market division includes a trade function and the volatile market condition somehow helps them make profit (I suppose they do something like swing trade?).

I somewhat fear that the profit from wealth management division may somewhat decrease as the recent drop in the market may spooked some of investors and may have decreased the volume of the division’s asset under management, which decreases the fee income. I’ll need to watch out for the number in the Q4 earnings release.

RBC’s CET1 Ratio, a ratio which shows the level of the equity buffer again the amount of the bank’s risk-weighted asset, is 10.9% as of 2018Q2, which is more than double of the current minimum regulatory hurdle of 4.5%. The bank should have enough buffer to survive during an economic downturn (unless they found loop holes or tricks to lower the risk-weighted asset…).

Keep following my blog to see if how these companies will do in the long-term! Subscribe and stay tuned!