2014

It is a new year again and it is already 2014. The end of 2013 marks the second year of my portfolio. It is growing at a moderate rate compared to many of the professionals out there who have been in this industry for decades. My portfolio grew 20% in 2013, which seems fairly average when you compare this against global indices like S&P 500, or the Nikkei. However, if you compare this with the Hang Seng Index or the Hang Seng China Enterprises Index, you will see a significant outperformance for my portfolio. The China markets performed so horribly in 2013. Anyways, it is fairly pointless to compare since these indices are big and my portfolio is small.

I am just thinking about something dealing with why people treat company income statement differently to personal income statement. What I mean is when a company makes revenue, this is equivalent to your personal income. The net profits are the personal savings. So to put it this way:

Revenue = Income

Expenses (e.g. COGS) = Expenses (e.g. household expenditures, bills)

Tax expenses = Tax expenses

Net income = Savings

I don’t get why people tend to treat these two sides so differently when they are the same. People always brag about their income they earn, I mean, it is as pointless as bragging about billions of revenue when you could be making a loss. People never ever say the real savings they have, which is the net income for a company – the most important figure by far for accessing a company. This figure has been widely reported in the business arena, but not at all for the personal level. For instance, if someone is earning $150k a year, and if he splurges on a little bit on this and that, he ends up with expenses of $100k, and then another tax expense of $50k…essentially he makes $0 savings/profits. So this means he has a very, very bad “company”, or personal income statement. But he can brag he has a high flying job earning money at the top percentile. He does buy all these glitzy things to convince his friends and relatives he is highly successful, but no one knows his real net income.  On top of that, when that person gets a mortgage, there will be more interest expenses to go out, plus a load of debt on the personal balance sheet.

This comes to my next point. I have just done a portfolio debt to equity ratio, I am not sure if I have heard of this idea before, but I am sure I haven’t seen anyone doing this before for their share portfolio.

June 2013

Average D Average E Average D/E ratio Percentage of portfolio Weighted D/E ratio

3336

6558.94

6743.79

0.973

30.44%

0.296

477

271.322

449.65

0.603

21.03%

0.127

1997

538.821

392.47

1.373

14.76%

0.203

255

766.682

2442.536

0.314

8.68%

0.027

1888

6326.979

12340.43

0.513

5.40%

0.028

999

2515.181

2178.49

1.155

3.12%

0.036

Dividends    

0.000

0.00%

0.000

Cash    

0.000

16.56%

0.000

Portfolio D/E Ratio        

0.717

The portfolio D/E ratio came out at 0.717 on 1/1/2014 using the average of company balance sheets between June 2013 and June 2012. This calculation I made does not differential long term and short term debt, or the quality of debt. It is just a very general outline of all debt and equity, minus any intangible assets.  A debt to equity ratio of 0.7 is actually pretty modest, so for every $1 equity in my portfolio, there is 70 cents of debt.  If you treat my portfolio as a company, it is purely financed by equity but it holds businesses that are financed by both debt and equity. I can easily adjust my D/E ratio by buying/selling specific company shares to reach a desired ratio, without ever getting into debt of my own. Furthermore, a lot of the debt from the companies I hold are just short term receivables, therefore if taken account of that, my D/E ratio drops significantly.

Anyways, what do you guys think?

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