2023 Portfolio Review – The journey of learning structured warrants, arbitrage, and the importance of liquidity management.

Inspired by Stockbitor @ricardomilos1021 comprehensive portfolio review (link: https://cutt.ly/xwHTmqoi), I am writing mine here.

2023 is a so-so year for me (not achieving my target) since I am not really proactive in the stock market. The good news? I didn’t lose since my portfolio is more on defensive turnover play counters (with dividend payout) and opportunist swing trading. My losses are offset by the trading and dividend gain.

What happens in 1H2023:
1) Low risk trade on $MBSB / 1171 (MALAYSIA BUILDING SOCIETY BERHAD) special dividend.
Before the completion of MIDF share acquisition from PNB at RM0.97 per share, MBSB declare a special dividend of 8.5sen (it is officially announced as interim dividend but personally I consider it as special dividend because it deviates from the historical payout). I entered a small position and earned some kopi money. I didn’t hold it for long because I don’t really understand how to valuate financial company. In retrospect, I should have traded for more since it has protected downside (3sen dividend per annum, consider around 5% DY at that time) which is not easy to find in the stock market.

2) Learning about index rebalancing trading opportunity
At the close of 31 May 2023, $HAPSENG / 3034 (HAP SENG CONSOLIDATED BERHAD) was removed from MSCI Emerging Market Index (EMI), causing it to further gap down on its downtrend, which represents an opportunity to buy cheap for the investors. This is because the index funds are obliged to sell Hapseng as it is removed from the index, creating a short-term imbalance in market supply and demand. (Figure 1)

On contrary, $HARTA / 5168 (HARTALEGA HOLDINGS BERHAD) was replaced by Gamuda in MSCI EMI index as on 28 February 2023 – which explain the surge in trading volume - yet the share price go up following the gloves recovery story. My guess is that at that time, Harta is being priced at so low that the market believe the worst has already been priced in while the good news haven’t been factored in. (Figure 2)

I watched from the sideline in both events.

3) Learning about exceptional gain on structured warrants
Amazed by Stockbitor @Jay888 exceptional (if not astronomical) gain, I dive into researching structured warrants. My understanding of structured warrants have been enhanced but I am yet to put it into practice considering the high volatility and liquidity risk. Thanks for sharing @Jay888 !


What happens in 2H2023:
4) More trading gains
Since I become relatively active in the stock market compared to 1H2023, I make some small profit on trading from counters such as $PARKSON / 5657 (PARKSON HOLDINGS BERHAD) and $MSM / 5202 (MSM MALAYSIA HOLDINGS BERHAD) .

5) Putting arbitrage into practice
Since I learned a lot on arbitrage, I try to put my knowledge into practice. What I found is that: (a) for arbitrage, entry price, timing, and liquidity is crucial. The entry price must be low enough to obtain a reasonable return with certainty, and the operation length should be as low as possible support with good liquidity to avoid lock up (this extremely depends on the arbitragers experience and judgement). (b) sometimes, even arbitrage with fundamentals can be risky due to extreme market reaction, however the extreme market reaction at the same time can offer enticing entry price with strong margin of safety for the arbitrage.

6) Portfolio Management: Liquidity
In 2H2023, I learned about how to gauge the free float and liquidity of stocks by looking at the number of shareholders in % shareholdings in the Annual Report. This can tell about whether the stock is mostly hold by long term investors or retailers, and whether the public spread is mostly hold by a few investors.

Besides, I learned that as an active investor, it is best for the portfolio to be flexible, and to do that liquidity is important. From time to time, new investment opportunities may be discovered, and capital allocation may be revised. For example, a counter holding for long term, doesn’t necessarily implies that the investor must hold it until the market revaluation occurs. In fact, in the time between, the investor can switch to another short-term investment opportunity, and then repurchase the counter again in the future. This operation strictly relies on the investor’s acumen to identify the certainty of the short-term investment (whether the short-term investment is worth for selling the long-term holding, how much capital should be relocate, etc.), and the preparation for the worst (after the capital relocation, what should be done if the market suddenly started to revalue the long-term counter? What if the timeframe for the short-term investment become longer than expected?).

To wrap it up, there is no fast and hard rules in portfolio management (so is on investing), it solely depends on which type of investors we are. Besides, in the same way that abide to principles and rules facilitate fast and immediate decision-making and help in reducing chance of making mistakes, it is equally important to be flexible and open-minded (in considering every opportunity) since investments tend to be case-by-case basis.

7) Never belittle any gains or losses.
I kind of realise this through practice. A 10% trading amount earns 10% contribute 1% gain to total portfolio. Accumulated, the 1% gain can become a significant amount too (so is the losses). Hence, I should respect and give my best in any types of trades, whether it is long-term or short-term, in order to maximise the profits and minimize the losses.

8) Portfolio consolidation
Moving towards the year end, I started to trim/exit those small trading positions and concentrate my portfolio on few counters in preparation for 2024.

9) Mistake: missed MKH trade
Since I am using a direct account, I thought that I can’t get MKHOP shares via holding its mother shares MKH, hence I missed around RM1.20 low entry price of MKH. In fact, MKHOP shares will be debited to my direct account from the share registrar if I hold any MKH shares before the ex-date. (Disclaimer: I did not hold any MKH shares as per writing. Invest at your own accord.)


Looking back, I had adhered to my principles that I shouldn’t buy what I don’t know throughout 2023 (maybe that is what limited my downside as well as upside). However, I believe I can do better in being more proactive in understanding what I don’t know such as YTL, Ranhill, MKH, etc.

Moving forward my 4th year in the investment world, I wish that I could develop a glimpse in anticipating the upcoming economic trends / changes in economic cycle and become a top-down investing beginner, broaden my industry knowledge, as well as meet or even better, surpass my yearly investment target.

For closing, I shall end with @doitduitcom ’s market outlook https://cutt.ly/WwHTmqNE which I think is interesting and worthwhile to ponder and think about. I have yet to develop mine.

What is the year 2023 for you and what is your expectations/outlook for 2024? Feel free to leave your comments to discuss below!